DocuSign, Inc. (DOCU) Earnings Call Transcript & Summary

I can only make comments broadly about how things are, not in the short...

All right. Broadly, what would you say? How are things?

We have a really strong business, right? The franchise, DocuSign, of course, built our business around eSignature. And we have a dramatic market share leadership position in eSignature. And that continues to be a driver of the bigger opportunity, which we call the DocuSign Agreement Cloud. And over the last 1.5 years, we've really started to see that come into fruition. I think the reality is eSignature is a business. We talked about this on the IPO roadshow. We could continue to grow that at 30-plus percent growth rate for years to come if we just focused on that, but we believe our customers are saying to us there's a much broader opportunity. And they don't want to just sign agreements. They need to generate those agreements before they get signed. They need to have workflow to route them around. They need to take actions. We call it API actions once those agreements have been signed, and then they need to manage those set of agreements. They need a repository for them. They need to be able to do intelligent search against those agreements to run their business better. So this kind of wheel we talk about for our platform is a much bigger opportunity. We think it's kind of roughly in the double size of just the eSignature business, but it's much more nascent. And so we're really straightforward, we think signature will be the dramatic driver of our revenue and our growth for several years to come before the rest of the Agreement Cloud kick in. And that's kind of the macro of what's going on in the business.

Right. So let me tell you a story, and you tell me if it was -- well, a good example of what's going on across your business? So it's just one. So I was at your user conference, the one you had at the Hilton, right?

And next week, we have our next one. So you're -- well, actually, it was 8 months, 9 months ago, the last one. We've moved it up to March. So next week, for those of you who are interested, we have our conference...

Where?

At the same, the Hilton, classiest hotel in town.

At the Hilton again. Okay. Yes, well, that's great. That is great. That's great. But so I went up to one of the Agreement Cloud booths and the person I was talking to is a former Spring employee. And I go, "Can you show me how it works?" And he demos this Agreement Cloud. In early, early in my career, I was a lawyer at Cooley. And I was like, "Oh, my gosh, this would have made my life so much easier, right?" And I'm like, "are customers banging the door down?" And he goes, "Not really." It's more like what just happened with you, right, which is once we show them the product, then they're like, "Oh, my gosh, we should totally be doing this." But they don't even really know what it is or that it exists. And so no, they're not exactly banging in our doors. So I mean, that was a year ago. First of all, just -- is that a fair characterization of the state of the market?

Yes. I think it's a great characterization. I think CLM or contract life cycle management, which is sort of what that category was, there were no large players, right? When we went out, we didn't even -- by the way, when we went out trying to think about the Agreement Cloud and what we're going to build out, we didn't say, let's go buy a CLM company. We announced that we need to have something to help people manage their agreements. So we didn't even look -- at DocuSign, look at the market was so early as that there was a CLM market. But as we started looking at companies that help people manage their agreements, we saw there was an early stage. It was early, but I would say it was just starting to take off. And all the companies we looked at for a potential acquisition, we would talk to them. And we would say, "Your business in like the last sort of 5, 6 quarters really seems like it's starting to accelerate. What's behind that?" And one of the things that people would say is they say DocuSign. And they say the big difference was until people have an eSignature capability. CLM is not that interesting if you've got a bunch of paper documents because that means you have to scan everything and load them. Once you start doing your agreements electronically, it becomes a natural follow-on just managing your business that way. And so we -- I think a year ago is a big difference to today, where a year ago, we still had our customers saying, "Hey, tell what does the SpringCM thing that you guys -- well, how does that fit in?" Today, we have our customers coming to us saying, "We want to talk to you about Spring, and we want to talk to you about what's now called DocuSign CLM." It's what we rebranded it several months ago. But I was in Europe 2 weeks ago. And I was in our Paris office and our London office, and I met with a set of customers sort of 3 or 4 a day over a couple of days in each city. And over half of the companies that I spoke to were talking to me about DocuSign CLM.

This is in -- so sorry. When?

In Europe. Well, I was just in Europe 2 weeks ago, in both the Paris and London markets. Our customers are talking to us about CLM. And traditionally, a year ago, they would have -- I would have said, "Hey, we're DocuSign Agreement Cloud." And they say, "eSignature." And I say, "Right, eSignature's the foundation, but think about the broader agreement." And they're like, "eSignature." And now they're already -- and that's in Europe, which is obviously going to be some way slower to adopt the technologies to the U.S. So I think the answer is that DocuSign CLM is now on the radar, for sure.

Okay. So help us out with the CLM versus Agreement Cloud?

Yes. So the Agreement Cloud really has 4 distinct phases. You generate agreements, you sign agreements, you take actions on those agreements, things like API calls or payments or what things you might want to do. And then you manage those agreements. CLM really covers the generation of agreements and the manage of agreement. So that's kind of the connection historically what it's been. We have separate doc gen capabilities at DocuSign. Some are in the CLM offering, some are independent, [indiscernible] small businesses. If you're in the Salesforce ecosystem and you're small business, you just want to generate sales contracts, you don't need a full CLM capability. You don't need that kind of advanced routing, that storage, the rules, clause library. There's a lot of stuff in there you don't really need. You just need to generate a document and have it go right into the signature process at DocuSign. So those are sort of separate for us, but we're really finding on the CLM side, it is that managed through -- or rather generate through manage is how they think about that aspect of CLM.

It is a little confusing, right?

It's -- like you said...

It's not as crisp as marketing. Why are you guys doing it this way? I know you're good marketers.

So I'll tell you. You know Scott well, right? So I think the answer is most customers when they bring their own lens to it, they come in, they say, "I thought about DocuSign as signature. I know there's more I want to do around my signature." And each industry, like your legal example is a perfect example, they go, "I have processes where I need to generate these agreements in order to route them around and get signed. And I need to do something with them afterwards." And so that sort of 3 stepper is how people, I think, generally think about it. And when they look at the 4 components, they go, "I get it. It's generate, sign and manage." And then there is one other really important piece around API, which is their business can't run unless they're integrating into the other systems. And you know we've been traditional partner-centric with Salesforce, SAP, Microsoft, all those companies that you guys think about as sort of the other major players in the SaaS software industry. Not only they're all customers of ours and partners, go-to-market partners, they were all investors in DocuSign when we were a private company. So we are very ecosystem-centric, and it was really important for us to make sure that, that integration layer to become a true platform, you need to build out a really thoughtful integration layer. So that's why we have that fourth bucket. It's not just prepare, sign and manage. You need to have that act phase. Otherwise, it wouldn't in actuality really work for the integration.

Okay. But then why do you feel like you need to keep the CLM tagline around? That seems like kind of dated.

Well, it's interesting is it, because that started to really take off. And our customers are doing RFPs for CLM.

Oh, are they? Okay.

Yes, so we're seeing our customer...

When did that start?

It started in the last year. I mean, it really is starting to be a space. And there were other companies. Apptus is a great example, which started to build some mind share around that. They've had some real challenges. They got bought by -- they've gone through some cycles there, and that business is not as strong. They're actually a source of -- companies coming to us, saying, we want to upgrade off of that platform. But there is now...

That's a shame. That was a good business.

Yes, yes. I think...

That was a native Salesforce thing, right? Sort of early native Salesforce?

You got it. They built -- I mean, a lot of companies, I think, in hindsight, we look at companies that say, I'm building my company to get bought by one company. It's a dangerous model to get into that.

Okay. Cool. I also want to talk about some other things. But let's see if we have any questions from our audience here for you. Yes. One over there in the right? Yes.

In the CLM space, who are the real kind of customers you guys are going after? And I guess, in terms of the ability to drive some of your existing customers into that space. How is that sort of market moving [indiscernible]? What kind of practice are you thinking about?

Yes. Great. So the first piece is the who. And I think I'd put it in 2 dimensions, size and vertical. From a size standpoint, it's sort of mid-marking it up. It's not a small company motion. You have to have a reasonable amount of sophistication to make that sort of platform makes sense. And then from a vertical standpoint, it's pretty broad. We're seeing a lot of success in people in financial services, in telecom. We're starting to see it in health care life sciences. And if you think about those are a lot of the verticals that were also traditionally strong for DocuSign. So it's not surprising that we see it there. But it's usually people who have some sort of a B2B component and sort of think into the complex B2B selling process and organization, where legal's involved, and they're doing a lot of contract negotiations and management of those agreements. So that's kind of the who. In terms of the -- where we're seeing that traction, it is mostly on a sell to existing DocuSign customers. There are definitely -- as I said, there are people out doing CLM RFPs, and we're now showing up on those lists, for sure. But if you take a look at what's happening like with the Gartner reports and things like that, we're coming up in the top-right quadrant for everybody as a CLM leader now. SpringCM alone, the company that we purchased about 1.5 years ago, was an interesting company. I don't think they would have been a top company in the space. They were just a little bit small. And there's a lot of things we've added in the last year in building out that software. And then in terms of the traction, as I mentioned before, we're seeing a lot of customer interest. It's on the tips of tongues of all the customers I mentioned in Europe we're talking to. It's still a small part of our revenue. We're not even close to sort of breaking it out because it's still so early. And signature will be, again, the dramatic market share driver for us and share of our business for some years to come, but it's starting to get to the point when we talk to our field organization, it's like we got DocuSign signature, and we have a strong CLM offering. And they're trying to go aggressively to customers bundling that as a core set of capabilities.

[indiscernible] question. But when you think about security, one of the emerging trend vectors coming from things like [indiscernible] LinkedIn [indiscernible] with the e-mail, security management stuff, a lot of this. But again, you guys can do differently is bigger, doing [indiscernible]?

Yes. So we think of ourselves as a trust brand, and we think we have to for the reasons you said. Interestingly, we just hired a new CISO, the United Airlines CISO. Emily Heath just joined us about 3 months ago. I think we had a good security posture, and I think we think there's even a lot more that we can do. But the biggest thing that I'd say around the security, there's kind of 2 phases to think about. One is the kind of spoofing phenomenon or people sending messages that aren't actually from DocuSign. Other people thinking they're from DocuSign. I get them. So people are aggressive. And I think as our brand gets bigger and bigger and people start to accept that they get DocuSign envelope, you're going to get more because people are going to realize that people are comfortable. It's the reason the big banks get so much of that because people say, if you live in the United States, the probability of a JPMorgan Chase account's pretty big. So send them an e-mail. And if they don't have one, they won't open it, but if they do, they might. So we have that phenomena. One of the things we're trying to do more and more is encourage our customers to say, if you're concerned, you don't have to click on the email. You just log into your DocuSign account. And if there's actual one there, there'll be an envelope for you to sign. So if you're nervous about it, go that route. We're also doing more and more...

Yes, I'm not going to do. But I have a DocuSign app. So if you notify me in the DocuSign app, can you do that?

Same thing, you can do it on your phone.

Okay. That will work for me.

Second piece we do is on your app. So you actually get notification if you use our app sign, you get -- as a lot of people do just what Pat said, they say, "I see the e-mail, and then I'll open the app because I know it will be waiting for me in the app, too." But that concept of -- it's a notification, and then there's a little bit of a buyer beware. People have to -- they have to be responsible. Just because someone sent you an e-mail, you shouldn't click on it even if it's coming from a trusted company. And most of the sort of spoofing to date is pretty low levels. You actually go click on who it's from, it shows some crazy address that clearly isn't DocuSign. So you should be aware of that. But the second level of security that's really important is around identity. And so now our customers want to know that if they send you a note, you're really the person that's actually signing it. Most use cases, you guys probably noticed if you DocuSign, you click on an e-mail, you open it, you sign it, and they accept that it's now signed. That's enough authentication. Increasingly, especially in places like the EU, people are saying, "I want more authentication to be comfortable with the security of that transaction." So they're saying, "I want you to have to do 2-factor authentication," which is a common one. I'm going to send you an SMS message with a code. I want you to put that code in to prove that you're that person. Some people go all the way up to digital certificate. You see that a lot in Germany, in particular. So we're giving our customers a range of tools from a security standpoint, both for the original authentication that you know the person sent you the message is for real, and then for the company to authenticate that the person that's signing it is actually that person. And that's kind of our 2-pronged attack to work on security.

Right. I got to get a couple in here. Coronavirus, are you guys seeing anything? Or in your experience doing this before? Or what do you think?

Yes. So we haven't yet noticed something in our business around coronavirus. I will tell you that the number of conferences and things that were planned and going on, we're seeing that change a lot. We're getting a lot of notifications about our marketing business. But there's just that opportunity.

Oh, places where you would...

We would market it. Yes. Or as an example, we were to do it in Japan. We had an April event, where we were going to have like this momentum event we have here next week. We take that on the road, and we found that our team on the ground is saying, "We won't look like a good corporate citizen in Japan in April if we have a conference." And so I'm still going to go in market and meet with customers, but we're not going to ask them all to come into an auditorium. So I think that there's -- it's real, but it's affecting people's businesses. If I were an airline company, I'd be thinking about it very differently. To some extent, you could argue the DocuSign is a positive because we're actually recommending people do things electronically. It's like Zoom. I was talking to Eric Yuan the other day. They're saying, like, people are saying Zoom stock should go up because people will want a video conference more. I don't know if that's a temporal thing or not, but...

Well, I will just say from the time that Eric went on CNBC and said, my phone's ringing off the hook to now has certainly been the case.

Yes.

From here, we'll see.

Yes, we'll see where it goes. So I think -- so the answer is, if something were to really have a slowdown impact on the economy, I think DocuSign is like not the first thing anyone would rip out because it's such a high ROI for using the platform. But I suppose if there was significant impact to the economy, we would not be immune to that factor. But we haven't seen anything at this point.

Yes. And then I wanted to ask, I'm going to read you a quote, and you tell me what you think about it. So this is from one of your competitors, which is hilarious. "I think they are largely uncontested in a lot of these big deals. People roll out Adobe pretty quick. HelloSign is not there. They have the top end of their market -- sorry, they have the top end of the market to themselves. And especially now with all the stuff around GDPR and data breaches, the stakes get even higher. You need all the bells and whistles, the whole gamut." Then he goes on about like SOC 2 compliance and all those stuff. So are you largely uncontested in a lot of these big deals?

I think that there's a couple things that we have at the large deals that can be headwinds. The first one is that someone else will come along and say whether they have the capability to deliver or not, we'll do it for a fraction of the price. So we'll see -- Adobe was mentioned in there, a great company. Adobe is a fantastic company. They don't have the strength and breadth of what we have in the traditional signature space. They definitely don't have an Agreement Cloud capability. So smart buyers of technology generally don't want to buy somewhat crappier software for cheaper. That's like -- no software buyers go out saying, "Can you guys find the slightly crappier stuff, but that's a little bit cheaper?" Because the ROI tends to be so high, but it wouldn't make sense to look for that profile. But I can tell you when I were negotiating with a company, and we're capturing the value, we're trying to capture a reasonable portion of that dramatic value they get, that's a competitive threat we see. And then the other thing that I think is our biggest competitive threat is paper, right? As people say, I'm going to keep the manual processes. I got other priorities. I'm not going to drive my digital transformation around this. But to your competitive set, there is nobody that has the breadth of the product capability we have in signature, and no one's even at this point to the best of my knowledge trying to have an Agreement Cloud capability. But I will tell you, in the next 2 years, based on my experience at Responsys, we went from an e-mail service provider to the marketing cloud. And within a year, all of our e-mail competitors started saying, "We're marketing cloud, we're marketing cloud. I don't know what a marketing cloud is, but we're one." And I think the same thing is going to happen with the Agreement Cloud that within the next year, so you can see a bunch of other companies saying, we're an Agreement Cloud company, too, whatever that may mean to them.

All right. Dan, this is great. I love having you back.

Yes. Great to be here.

It's great to see you.

Every time. Good to see you.