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

Yes. In some ways, there -- it's a varied question. A very different, it's funny, your question. It's a very different situation. I have a lot of love for Responsys. Actually, I guess, drinking from Responsys' water bottle is, it was a great experience. We had a 10-year run. It was awesome. Responsys, the issue that came up is when I joined the company, a bit of a turnaround, and there was a viability question at the very beginning 10 years in -- or 1 year in, in the 10-year gate. And I was more conservative, I think, about growing that business because I think we had sort of the near-death experience. And I think the company needed to feel safer. But in hindsight, I think it was a mistake because other people came into what was a very competitive space in e-mail marketing. And we probably could have finished with an even stronger outcome and even stronger leadership position in the space, if we maybe pushed the pedal to the metal. We are highly efficient, which is a good thing, but we probably could have been a little more aggressive on growth. I kind of -- as we're getting ready to go public, I was going to get to that point where someone's too late and you get your growth profile. You explain to the Street what you're going to do, what your profitability profile is. It's harder than possible, harder to sort of switch and say, "Hey, guys, we're recently a [ current global ] company. Now I want to really much more aggressively start spending. You could have done that but I think it would have taken a lot of conviction, and maybe I didn't have quite that much. DocuSign is very different in that when I came in, we had the opposite scenario. The company is growing like crazy, losing tons of money, but a great -- clearly going to be a great company. When I joined, it was more a sense of, yes, I got to get that. Spend a little bit under control, but basically want to keep our focus on growth. And what Mike and I have said for years here is that we're focusing, trying to find that apex of the growth opportunity here. We believe our investors are saying, "We care about your operating income. We'd like to see some progress towards the long-term model. But if you see opportunities to slow the progress on profitability side to increase the opportunity to grow faster, go for the growth." That's what we've said we're going to do, and that's what we hear so fundamentally, the quest from our investors as they are looking at the opportunity with DocuSign. And that's what we're going to do. So I don't have any concern that my conservatism at Responsys will play over to DocuSign because [ it's just ] a different animal. And the last thing to think about is Responsys had an incredibly aggressive competitor set, as I said. Like when I joined, not to give too much Responsys talk, But when I joined, we were 13th in Forrester Wave. And Forrester is a Gartner type wave in that space. So that's pretty bad. It had 17 companies covered. We were 13th. So we had a very different approach. At the end, we ended up first in the Forrester Wave for the last 3 years. They did it when I was there, but that was a lot of work to get to that place. DocuSign, we are the dramatic and clear leader in our space. We are 6x the next biggest player, which is the EchoSign product that Adobe bought. So it's a very different competitive mindset. And this is about leadership, and this is about investing to grow.

That's great. Just on the product side, you brought in a new CTO, Kamal. Maybe if you could just talk to what the important components Kamal will be focused on going forward.

Yes. So I think the way to think about it is with Tom Casey, who runs our overall product organization, so it's all the product management engineering and that kind of that core infrastructure that we have. And for those that aren't as familiar, the vast majority of our tech stack and our operations are in Rome. So we don't use very much public cloud. We've built a network of data centers in Europe, in North America that we sort of deliver vast majority of our service. So that's a big -- that infrastructure is a big part of what Tom oversees. So what we've asked Kamal to do is to come in and take a big piece of that and really think about the platform. So that's thinking about the actual physical platform that we have, but also sort of the underlying platform for the Agreement Cloud. And Tom is going focus much more on his leadership of all of our product and engineering teams that build our eSignature product, that build our CLM product, that build our advanced analytic product. So he can really focus on kind of his love of building software. And then Kamal's move into the CTO role really think about that underlying infrastructure, both physical and software. And I think it's going to be a great match, and they actually have worked together at Microsoft years ago and have a really strong relationship. We've actually been talking to Kamal for about 1.5 years, trying to just figure out the right sort of model to get him on board. So we're thrilled to have found that right fit and that right match and have him here.

You mentioned earlier Mike's push to international. I think the international business is a $200 million in rev, reporting close to 60% growth. It seems like he's doing pretty well. But when you kind of highlight or articulate the international opportunity, can you just maybe walk through what are the biggest areas for you to go after there? How do you segment that market?

Yes. So you'd not be surprised, given you know Mike, we've got a plan. This is not a casual [ entry to ]. And so just quick little history if people don't know what our [indiscernible]. But really nearly beginning of this year, I believe in February, Mike had sort of come to me and come from the whole e-staff and said, "Hey, guys, look, we continue to have a great international business. It's growing at a good clip, but it's not growing that much faster than our North American business. And that's why it's not taking share. That's why it's been sort of stuck around 18% of our revenue. I think for a company at our scale, it should be higher than that." We've all sort of said that, but we just weren't sort of mobilizing his leadership team to attack as an opportunity. And Mike said, "Look, I've seen a lot of stuff in EMEA that I can think about how we might coordinate better the go-to-market functions." So Mike sort of led an effort and had a bunch of us engaged, and we went over to Dublin and pull our European leaders together and put together some plan. And actually, in a few months, we felt, wow, this is a big improvement. When I actually looked at that growth rate, the revenue growth rate of almost 60% in Q2, we think a lot of that's attributed to our biggest international market, which is Europe, and the growth we had there somewhat driven by the work. And so as we start seeing that improvement, Mike and I started talking about, wow, this is something we really could do on a broader international scale. And that's just phase 1, which is get our coordination and operations better. And I'll talk about phase 2 and phase 3 in a second, but that was kind of the impetus to start thinking about it. Mike got more and more excited about that work and started saying, "I want to put more time into it." But I was sort of stuck a little bit and saying, "I kind of need a CFO. It's an [ open ] company and you're a good one, and we start having this conversation. And then we were chatting with Cynthia at the same time because she had been the CFO at Pivotal. Pivotal got bought out back to Dell. And so we ended up in a situation where we sort of like, "Wow, if these things could happen at the same time, that will be fantastic." And the third piece, again, which almost makes me feel, in 2Q perhaps, we were talking about bringing some great Board members on that also had financial leadership, and so Teresa Briggs and James Beer. So all of a sudden, just kind of a 3-way move sort of made sense of bringing on the new financial expertise of the Board. Cynthia jumps in to the CFO spot, and that frees up Mike to promote him up to the international opportunity. And that all just kind of came together. And we just sort of saw all the pieces, and it was like a puzzle and made that move. So I feel really good about this, where it's all additive. We've added great new Board strength. We've added fantastic new executive in Cynthia, the lead CFO. And we don't lose anything. We still got Mike leading what I think is the biggest single growth opportunity we have in our business that we haven't tapped as well as we could, which is international growth. And so now we tipped up, what, 18% to 19% of revenue in this last quarter, which is also nice. And I can see that tip -- tick up. And we won't necessarily get one every quarter, but I'd like to start getting an increase every few quarters in that international growth. And it's going to be hard. Let me tell you, it's a high-class problem. Our domestic business is growing incredibly well. So we're taking share from that. Is no easy feat, but I think with Mike's leadership there, we will. And then just quickly is phase 1, we said, was kind of the coordination of the go-to-market functions, really just operating really well. When you grow fast, sometimes you kind of don't have that same operational excellence. Then phase 2 is we think about the portfolio of international markets. Once we feel that we've got the ones we've got running the way we want, should we be entering direct businesses in more countries? Should we not? Should we be e-commerce read in those? We got a really -- there's a strategic side to this, which I think we really want to put a lot of our senior team focus with Mike's lead on it. And then third is we'll have to think that once the organization future, most software companies at some point get to a scale, but they don't sort of operate in a geographic monolith. They sort of have an Asia Pacific business, a North America -- or Americas business or EMEA. We'll probably, at some point, think about that. Right now, we're not changing the word structure at all. We're keeping things core, but that'll probably be the third phase. That might be 2 years from now, but that's kind of the vision for what Mike wants to do in transforming our business.

You recently acquired Liveoak, an Austin-based start-up that powers remote agreements. Anyone that's gone to a notary doesn't want to go back. What's the opportunity here for you?

There's 2 ways I think about it. There's an economic one, and in terms of like the TAMs, and then there's the opportunity, as you said, which is like we can make this a whole lot better. As we've done with signature, we can do the same thing with notary. And so from a business standpoint of TAM, we think it approaches about $1 billion TAM for the first piece we're going after. And I think we did imagine themselves having pretty good share. So I think this could be a meaningful opportunity. But the driver for it has really come from our customers. And interestingly, the experience you're describing, if I'm thinking of the consumer experience of notary, is what most people think about. Actually, the driver for us have been our large corporates that already have notaries in their business, but they are stuck in a situation where they can't do it very efficiently in a remote environment. So we already have an electronic notary capability where we can actually do it without the paper, but people had to be present in a way their laws are from those states and they'll be sitting with you, which is a little bit better doing it online, but people don't really mind thumb stamp, I guess, that much. But now we have a situation where we can actually say you can do it remotely with what we're building, a combination of the collaboration tools Liveoak and our electronic notary to come to a true remote online notary. The demo is in place already. It looks like a beta starts in a couple of months. We've already got multiple customers that have existing DocuSign. In some cases, is why Liveoak customers signed up. So this is a phenomenon. We're like a large bank that might say, you got to come in to our branch to open an investment account. And they're saying it's not very competitive. It's not -- it's leveraging -- your branch technology is not leveraging the technology we can bring to you. You can do it remotely. And it's really slick. You can open an account in a few minutes, and it's [indiscernible] into the location. And then the second phase to that -- by the way, that's called first-party mover where the institution has their own notary, but they just need to take you through those steps and sort of require a signature and a witnessing in all those components. Now we'll do that online. And then the second piece will be to go after the third-party notary, which is that consumer experience. So many people have told us, particularly in the real estate base where -- I think that was on Cramer, they had a Mad Money last quarter, and he was saying, "I just bought this house. It was so great for DocuSign, for the signature. And it's great. But then, at the very end, I had to get a notary to come to our house and put on the mask. And there's got to be a way you guys could take this on." So jumping within the [ bit ], because you said that, Jim, we bought Liveoak, and we're going to actually take care of that problem for you. And that'll be the second phase, sort of later next year, we'll then move to go after that opportunity to provide for people a third-party [indiscernible]. So if you and I, just for whatever reason, decide to do an agreement and we said we needed a notary, and we would normally call someone or go to a FedEx, Kinko's kind of solution, we can actually do it all online. And it will be hopefully a good economic opportunity for the notaries out there to have a much more efficient way to do their business versus driving around and traveling around. So that's the plan. We're excited.

Great. Well, thanks, Dan, for sharing the story. And best of luck and appreciate you being part of the Jefferies conference. Thank you so much.

Thank you for having me, Brent. I really enjoyed it.

Thank you.