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

Well, hello, everybody. It's Karl Keirstead, and welcome to the virtual version of the 2020 UBS TMT conference. Apologies for the technical difficulties today, but we'll -- we were forced to make this audio-only rather than video. With us today are DocuSign's CEO, Dan Springer; and the CFO, Cynthia Gaylor; as well as Annie from IR. In terms of format, we'll go for about 35, 40 minutes. And each of you, I think, have a question link, which I'll attempt to access towards the end and try to get to as many questions as possible. So with that, Dan, Cynthia and Annie, thanks so much for joining us this morning.

Thanks for having us.

Great. Well, you obviously put up a very strong 3Q number, and I'd love to dig in a little bit to the results. Maybe, Dan, just to start off, it feels like this quarter was again led by strength on the eSignature side. And I guess I wanted to ask you a question in terms of where we are on the penetration of eSignature. It's a tough one for all of us on the outside to get to. I don't know how you can describe it, whether it's all the potential transactions that could be electronically signed in your largest customers, what portion currently are. Maybe just some sense for here today after several years of amazing success where we are on eSignature penetration to put these results in context.

Absolutely. It's interesting because at some level, people think about the business as synonymous with DocuSign and also starting to feel like it's a more maturing business because, particularly in the U.S., everyone is -- tends to be familiar with DocuSign. But we think it's still very, very early innings, Karl. I mean if you take a look at the TAM, which is the way when Cynthia and I sort of talk about the penetration, it's the way we most frequently do. We think --when we went public, we talked about this being about a $25 billion TAM. Maybe it's grown a little bit since then as the market is growing. But if you look at last year, our revenue was about $1 billion, and we set about $1.4 billion-ish this year and maybe closer to $2 billion next year. But even if you look ahead and you think about that penetration, keeping in mind that when people look at the market that's developed today, people think DocuSign has somewhere in that 2/3 share. You realize it's still very, very early. And I think one of the things that we've learned through the pandemic is that as we put more capacity online, that capacity is still performing at the same level that you saw previously. We don't see a degradation. And that's -- we've seen that this year in our marketing spend in terms of driving the web and mobile business, people coming to us online. And we've seen it in our direct business, which is 85% of our business is the direct B2B selling. And as we've added more capacity, we haven't seen sort of performance of reps to grade as you might see if you were realizing you were coming up against sort of a penetration issue. So yes, it's a little bit unusual at this scale to see the growth we've had in our 53% revenue and just over 60% billings, which are kind of all-time high for us. And so somewhat unusual to hit this scale and still see that growth potential, but we feel super excited that we've got years and years of high growth ahead.

Yes. It's certainly true when at least, Dan, I do checks. I sometimes come across some younger, call them, Silicon Valley companies that tell me they're relatively full in terms of their DocuSign use, that they're already sort of wall-to-wall. But I think what you're getting at it is there's a long tail of larger organizations that are early enough such that the blended growth rate is still relatively high and the penetration rates relatively low.

Yes. I'll give you one use case just to your point about technology. I got a new Tesla a couple of months ago, and Tesla sort of prided themselves on being a very modern-oriented company. And you can actually buy the Tesla without ever talking to anyone. You go online, you can figure out which car you want and buy it. You still have to go pick up the car. And when I went to pick up my car, the person handed me a clipboard and said, "Hey, we need you to sign these 3 pieces of paper." I was like, "You're kidding me. You can't DocuSign that?" And they said, "Oh, yes, we're going to do that someday. We just -- we have to figure that out." And it gave me that -- we got some room. We got some room to grow over here.

Great. That certainly sounds like it. So maybe just using that as a springboard to talk a little bit about the 3Q results. I think one thing that gets people intrigued -- and I know you took 1 or 2 questions about this on the call. So Cynthia, maybe you could chime in as well. And that has to do with the unusual volume gains that DocuSign has experienced since the COVID crisis hit in March such that they're running above their minimum, so to speak, and they're forced to upsize or accelerate their contracts. Dan or Cynthia, can you talk a little bit about how big a phenomenon that was for billings in the third quarter? And then I'm curious as we look into the fourth quarter, one would think that that's -- given that it's typically a larger renewal quarter, but that phenomenon should be helpful in 4Q as well.

I'll let Cynthia talk about the specifics. I would just say as an intro, it's sort of impossible to exactly separate out a "COVID use case" from like a COVID influence use case. And just a couple of examples. There are some that are clear, but they're small. Some people opened up COVID testing sites. There was the -- very much a COVID use case. The small business administration loans that we facilitated for some banks, clearly, they were very specific to the pandemic. And we were able to look at that and say, "Yes, that's some growth we're having that we probably would not have had without COVID." But that's a tiny, tiny percentage of our business. The part that, I think, is probably more philosophically the case is people who said, "You know what, I'm going to get to using more DocuSign or start using DocuSign, and I haven't done that yet." And then they found themselves in a work-from-home situation, and that urgency got them started on that -- the digital transformation or accelerated their digital transformation because they just hadn't had that urgency in the work-from-home situation. So those will be the places that I'd say philosophically is the difference. Cynthia, if you want to talk a little bit about how you think about the quantitative distribution and then maybe you could go into your thoughts on how Q3 was influenced by early renewals and then your perspective for Q4.

Yes. Sure, of course. So I think from a more micro perspective, when you think about demand, and we've seen kind of heightened demand throughout the year kind of across the base, Q3 specifically was very strong, and that's what we were trying to convey on the Q3 call. We just saw broad-based demand kind of across the board, across the customer base, whether it was geos or verticals or small customers or big customers. And that long tail, Karl, you're spot on, on your observations there. I think on Q3 and kind of the early renewal piece, Q3, our billings came in really strong. And when you look at kind of seasonality of billings and billings in general, timing of deals and timing of renewals and expansions can impact that number. And so as Dan said, we had record billings growth and record revenue growth, but we didn't want folks to read too far into that just because Q3 was really strong and it was impacted by timing of deals. I think Q4 is off to a good start, and so we're feeling good about the guidance. But when you look at billings, we'd encourage folks to look at kind of that trailing 4-quarter average, which the guide is right in the crosshairs of -- in terms of what we've been seeing.

Got it. That makes sense. Thank you for that. And maybe another thing that stood out, at least to me from the recent quarter, was the international growth. If I recall, it was 77%, and that was an acceleration. So maybe Dan or Cynthia, you can talk a little bit about what's driving that besides the obvious, which is that Mike Sheridan is doing a bang-up job leading that effort.

Yes. It's funny, we've been teasing Mike a little bit about his timing that we were seeing international sort of strength building earlier this year, and he sort of jumped on the bandwagon and said, "I want to go ride that pony because it's going to go far and fast." Yes, I think it's actually interesting. We talked about it a little in the last earnings call that at the beginning of this year, particularly with Europe, we felt -- we took a look at our execution. We said, "We don't feel we're executing as well internationally, particularly in EMEA, which is by far our largest market outside of the U.S." And we said, "We'll spend a little more time on that coordination." And so Mike and I and other executives spent some time in Dublin, which is our European headquarters, talking to the teams there and realizing there was a big coordination improvement opportunity. The market opportunity was always good, and we were growing as fast but not significantly faster than the U.S. with our overseas business. So we started those efforts there, and they started to bear fruit. And we found in the summer, we started seeing a lot more building there. And then, of course, Q3, the results came out and the revenue was very, very strong there, and it took share up to 20% of our total revenues now outside of the U.S. And interestingly, we look at that, we think it's still low. We think for a business like ours, passing $1 billion ahead towards $2 billion shortly, we should have even a higher percentage of our business outside of the U.S. And there's sort of 2 core factors to why it was a little bit slower. One is just -- it's just an accident of history. We were slow to build an international business. The U.S. business was strong. We were able to meet the growth needs, so we didn't "need to do it." So several years ago, we just didn't make that move when other people might have done that more quickly. And then the second sort of component to that is a little bit complicated. There's 2 kind of legal framework: common law and civil law. And we initially moved into other common law countries, and those are ones that are part of the old U.K. Commonwealth. So in addition to the U.S., that's like Canada, U.K. and Ireland, Australia, places that had that legal framework. And in the civil law countries, which is basically all the other countries in the world, so a larger number. We had a phenomenon where we did not -- we have to make some investments. We didn't have all of the functionality to do, particularly identity and sort of confirming someone who they are before we take their signature. So we were a little bit slower in those markets. So if you take a look at like France and Germany and Japan, Brazil, other markets are really good for us, but we're behind a little bit where we probably would have been if it had the common law framework. So those are kind of the 2 things that maybe stunted with us a little bit, but I think we are over those things now. And so we do believe there's an opportunity to continue to really drive growth there, and we're excited going forward. We're going to make Mike look great, not just this quarter but many quarters ahead.

So Dan, it sounds like the acceleration, if I'm interpreting you correctly, had more to do with DocuSign itself executing on the opportunity rather than any demand changes or regulatory changes in those end markets altering and becoming more favorable to DocuSign, right? So it sounds like more of a DocuSign-driven success here in the last few quarters.

I think that's right. I do think -- I mean each year as it goes by, you get a little more change in certain markets, and the regulatory framework can get a little more attractive. Like in Europe, there's a thing called eDOCS, which covers all the countries. But a lot of the individual countries have their own privacy framework or legal frameworks for agreements. And I think there's sort of more consistency now, where they're coming together in understanding that they want to have a more common legal framework. So that's an opportunity for us as well. But I think you're spot on, Karl, that the majority of the improved performance is directly linked to our improved execution.

Got it. Okay. Great. Moving from the international opportunity, I'd love to talk about one of my favorite subjects, and that's the broader Agreement Cloud and the CLM suite, which I happen to think is one of the sort of undercovered, maybe underappreciated, parts of the DocuSign story. So maybe, Dan, I know you always touch on this to some extent on the earnings call, but maybe you could take a minute to describe the traction that you're seeing in terms of customer inquiries and RFPs, deal wins on the broader Agreement Cloud upsell opportunity.

Yes, absolutely. So I think the funny thing about our business is if you say the word DocuSign to people, the most common response you're going to get is eSignature, right? People are just going to sort of immediately say that. And at the Forrester study a couple of years ago, they said, "DocuSign has become a verb." DocuSign is something how people think about it. And that's great. That's fantastic. But in talking to our customers, we realized there was a broader opportunity that they wanted a lot more than just sort of the workflow and signature. They also needed to have a way to prepare agreements that would be in an overall Agreement Cloud. They wanted to be able to take actions, do integrations, APIs to connect it to other software in their overall enterprise. And then finally, once you have all these digital agreements, you have to manage it. You have to store them. You have to be able to search on them, be able to do advanced analytics against them to understand your business better, and that really became the foundation, so we started off the DocuSign Agreement Cloud. And the reality is when we talk about our business today to customers and prospects, we don't talk about it as an eSignature business, we talk about it as the DocuSign Agreement Cloud business. The reality is the vast majority of our revenue still comes from signature, and it will for years to come. And signature will still be the entry point where most customers start with DocuSign because the ROI is very high, implementation time is relatively short and not very complex. So it is easy to get started with eSignature. So because of those phenomenon, there's a little bit of these complexities you're describing, which is when we talk about the Agreement Cloud, people are like, "Well, how is that different from signature?" Well, signature is part of the DocuSign Agreement Cloud, the largest part, but the other components are key. And so we did a couple of acquisitions. We bought a company called SpringCM 2 years ago. And then this last year, we bought Seal. And Spring is a CLM company, and we've had some CLM beginnings here. We merged the 2 operations together, ours and theirs, into one what's now called DocuSign CLM. And then Seal was an advanced analytics and artificial intelligence company. We were already -- we were an investor. We were joint in selling, but we brought them into the fold earlier this year, in May, and we now have more integration. The 2 core things we've done there, one is we are selling an Insight product, which they were selling before, and we had actually said we're doing some joint selling. Now that's a DocuSign product. We've also rolled out new products like DocuSign Analyzer, which we just announced this last quarter. Fantastic product. If you receive a contract from someone else, it can analyze it and tell you which terms are unusual, which clauses might normally be an agreement that aren't there. So you can very quickly, in a targeted way, get the right resources working on that agreement. And then finally, we want to take that AI capability and really integrate it across our entire business, starting with CLM, but then across the rest of DocuSign. And so those are the pieces. In terms of the demand characteristics, last year, particularly the CLM side of the business, it was really kicking off, and we were super excited that our customers were saying we want to have more sort of CLM relationship with DocuSign. When COVID hit, interestingly, eSignature accelerated, as you mentioned earlier, Karl, for the reasons we talked about. The CLM and some of the Seal deals, which are longer sales cycles, they usually require implementation. They have to do a statement work or get a systems integrator partner. And the ROI, while it's fantastic, it just takes longer because the implementation time is longer. So it's not as immediate. And we found a lot of CIOs saying, "Hey, you know what, guys, we can't get this done right now. We have the other urgent priorities that we're going to work from home." And so we saw some elongation of those deals and some, quite frankly, put on hold. Just at the end of Q3, we're now seeing that coming back, and we're seeing those pipelines building. We're seeing the requests coming in more aggressively. It feels like we're starting to return to where we were before COVID hit. And I think our belief is that going into the new year, we'll have a very successful selling experience with the broader Agreement Cloud.

That's -- to me, that's super exciting. And maybe, Dan, I'll press a little bit more on both the sales and the product side of the broader Agreement Cloud. On the sales execution, you touched on a little bit that the ROI is different, the implementation time frame is different. But is the audience for this, or the buyers different such that you needed to make some either tactical or perhaps even more substantive changes to the way that your enterprise sales force is organized to execute on that upsell? I'd love to hear a little color on the sales motion and how it's different versus a "more traditional eSignature sale."

Yes. So the sales cycle is very different, but people are the same. In fact, when we first did the Spring acquisition, we actually created -- it was very common in the software space. It was an overlay model. So we had CLM reps and traditional DocuSign reps both involved in the sales process and double comping. It's one thing economically we don't love, but people do it usually because the existing reps, they -- I don't know how to sell these new products. And what we found over the course of the time since the acquisition is that actually ROEs can be enabled to make the same sales success as the traditional CLM reps who came from Spring. So going forward, we're not going to have an overlay rep. We'll have subject matter experts and solution consultants that have specific technical capability, but we feel really good. We're moving it into the core DocuSign sales motion, which is fantastic. I would say that the process and the sales cycle is still different, so longer. There's oftentimes more complexity because, as I mentioned before, you have an implementation phase that's bigger than these to start the signature. And then the last thing that's a little bit different in the sales process is when we talk about DocuSign from a signature standpoint, we have what we call land-and-expand model. Most people, even a large enterprise, start off with a couple of use cases. We're going to implement these use cases, we're going to get a win, and then we're going to use that to build momentum in the company and start growing and adding more use cases and then for us that means more volume. CLM, it's more of a binary. You're either using a CLM system or you're not using a contract life cycle management system. And you don't sort of say, "Well, I'm going to do it in just a couple of places." You tend to do it pretty broadly. It's still possible you might do it in one division versus another division. But in general, it's a bigger decision and it's -- more people get involved in the process. But as I said before, the kind of key top line message here then is that we're moving to a place of [ saying ] one set of AEs and they'll have multiple items in the bag as opposed to having an overall model.

Got it. And what about on the product side, Dan? I know you've built it out fairly well. At least when I talk to customers and I ask them if there's anything missing from the Agreement Cloud that if they could advise you to acquire, they would. The most often thing I hear is that they'd love more AI search capabilities. And then you went out and bought Seal, and it feels like you addressed that need. But I'm just wondering, post the Seal deal, whether there's any other element that you would envision as being a terrific place to expand the suite.

Yes. I think the answer is, at the high level, what we call it verb, we call it preparing agreements, signing agreements, taking actions when the integrations come and managing them. We feel we're now in all of the places. So we've kind of covered the board, if you will. But the reality is there's so much more to do in each of those verbs, right? And so like we have a document generation capability, primarily used in the Salesforce ecosystem, and it doesn't have a full intelligent form capability. I mean there's so many more things we can do in the prepare phase, and we're excited to make those investments. Interestingly, even in the signature space, notary is a big focus area for us now. We did a small acquisition of Liveoak just a couple -- 5 months ago -- 4 months ago. And the decision there was to say their collaborative tools on top of what we had for electronic remote notary would allow us to have a true remote online notary, where no one has to the notary that people are signing in, no one has to be in the same place, and you get a fully legal notary signature capture. That's an area that -- it's in the signature business. It's not really in any of the other agreements. So even in the one that we're -- 2/3 of the market and so much further along than any other -- all other companies sort of put together, there's still tons of product investment opportunities there. So I think it’d -- I do think it's also early days on the product investments we're going to be making, and that's why we take a look actually at our P&L over the last year or so. We've been slightly increasing the percentage of our total spend on product. We're not looking for efficiency there like we would on sales and marketing. We're looking to accelerate the investment there because we think there's just a giant growth opportunity.

Yes. And Dan, maybe just sticking to the product just more broadly across both the CLM side and the eSignature side. Are there 1 or 2 relatively new products? You mentioned even in the short conversations, so far, Notary and Analyzer. Are there 1 or 2 that you think could be, let's say, needle movers in fiscal '22 or fiscal '23? What are you most excited about as having an impact on the business as we look out into next year?

I think the big 3 for us will be CLM, the advanced analytics and Notary over the next 2 years. And Notary will never have the total opportunity that CLM or advanced analytics have. It's going to be a more sort of specific use -- set of use cases, and so it's not going to have the breadth of growth. But it's going to be a good growth opportunity for us, and that will play out over a few years. The other ones will play out over many, many years. In terms of the needle moving, I think there will be the difference between good and great. They won't, in the next year just because of the size of signature, be in a position where we'll be saying, "Hey, this is an important part of our total business." So as an example, I think if you go to Cynthia and you say, "Cynthia, when would you break out some of these other products because they've reached that level of significance?" It won't be in fiscal '22. It might be there in '23 would be my -- I don't know, Cynthia, you're more knowledgeable about when that will be appropriate. But I wouldn't say '22. I think '23 is possible? Or what's your thought on that?

Yes. I would say it's probably -- it's likely further out than that if you just think about those -- the product suite and just kind of the -- how big eSignature is as a percent of the revenue today, right, and how quickly it's growing. The other pieces are growing but just off of a much smaller base. So I think it takes a while. I would say a couple of years would be my best guess where we sit now.

Got it. But maybe qualitatively, the answer to the question of when CLM could be needle moving, if I am interpreting you correctly, Dan, it could be next year. You're not going to disclose it, but it could make the difference between, as you put it, a great year and a good year if CLM really takes off as you started to see towards the tail end of 3Q, correct?

Yes. I think that's right. And the only reason that sort of interesting is CLM this year won't be, for the reasons we articulate differently that happen to play that difference is COVID, won't be as big as it might otherwise have been. We had a really great year. So it's possible to have a great year without it. But I guess without getting us the signature, we’re really good, but just off great. I think it could be the difference maker. The rest of the Agreement product could be. And we also, as we saw this year, could probably have great without it.

Got it. Maybe one more on the…

Karl, just one thing. I will just also say that I think, strategically, regardless of the relative size of the numbers, they're both growing really quickly. But I think strategically for customers, what we're seeing kind of in the second half of the year is the Agreement Cloud becoming a more strategic piece of the pie as customers assess eSignature, right? And so earlier in the year, as Dan was saying, there was kind of more frenetic buying on kind of the -- pandemic buying, if you will. “We must do something to solve this immediate problem in front of us." I think what we're seeing kind of in Q3 and going forward is more strategic buying of the platform and folks understanding, particularly within the enterprise, the importance of that and kind of seeing the value.

Right. So maybe this is a good segue to a question, Dan, that I know you've taken since the company went public, and that's the competition with Adobe. It seems to me that to the extent that -- to Cynthia's point that you build out successfully the CLM suite and it's more strategic, it actually ends up providing a tailwind to the sale of your core eSignature. Do you view this broader suite as a competitive differentiator relative to Adobe that obviously has their own document cloud, but perhaps not as strong a pure CLM suite as you have?

Absolutely. In fact, one of the things that I think Adobe has done that's smart, they haven't been able to compete aggressively with us sort of head-to-head on signature for the reason we just -- we're so much bigger. Our investment in our product development is more than their eSignature revenue every year, right? So it's just -- and Adobe is a fantastic company with 2 amazing clouds. We're Adobe customer, right? We think they're a fantastic company. And I'm a big fan of Shantanu, and they were a big partner with Responsys, my last company. But in eSignature, we have been very, very successful in that space. And we don't think about -- even though they're the next largest player, we don't think about them as our primary competition. We think about paper. We think about paper and manual processes because mostly greenfield businesses take their customers way. Sometimes they want to upgrade and they call us, but our focus isn't on people who they work with. It's on the huge number of customers that aren't yet working with us. So from a competitive suite, we think it's a huge opportunity. Where they have had some success is where they've tried to bundle. And often, that means massive discount. But they’ve leveraged the existing relationships with people and say, "Hey, we have this document cloud. Wouldn't you want to have our signature?" And because they know we use DocuSign, and they say, "Well, we'll give it to you for half off or 75% off? Or what does it take to get you to consider us?" And it doesn't work very much. And it works sometimes, it just doesn't work very much. But it's the power of the bundle, as you said. For us, we think that it's an absolute important differentiator in the long run to prevent anyone from getting into our core signature business is by saying that, "That was yesterday. Today, it's an Agreement Cloud." And if you don't have the way to help people prepare and position to sign and then take those actions and have those deep integrations with the other software platforms and then a really strong management layer on top of it, then why would someone want to bring their signatures with you. They can actually go get an Agreement Cloud company to do those other key functions, and they're not going to want to have 2 different vendors in the mix is our strong perspective. So we -- it actually reinforces it. And one little data point, since I was just looking at some numbers, our pricing for eSignature is higher when people use Agreement Cloud products, and so those are only users for eSignature.

That's interesting. I wasn't aware of that.

Yes. It bears out your thought.

Got it. And maybe, Dan, just sticking on the competition front, whereas Adobe might be your closest rival on the eSignature side, you do have a couple of more boutique firms that you compete with on the CLM side, at least when I talk to some of your customers that are evaluating you against the competition. The 2 that I most often hear are Icertis and Conga, and we've actually got the CEO of one of those, too, at the UBS conference to speak. Do you mind just taking a moment to describe how DocuSign differs from those 2 vendors on the CLM side?

Yes. So I think your macro point was spot on. When we get outside to the broader set of the Agreement Cloud, outside of signature, the competitive dynamic changes dramatically. We go from having a dramatic, dramatic leadership advantage on every asset. Nothing makes me happier when someone says they want to compete with me on a signature basis in another company like all day long because I love winning, and so I would love to ask people on the challenges and on the product leadership we have on signature, which is just so dramatic on so many dimensions. And when you get to the rest of the Agreement Cloud, it starts becoming less dramatic. One, we don't have the big size advantage. We're not dramatically bigger than the other players. We don't have the years of history where we were the clear leader and investing so much more in it. It's a much more even playing field, which again is one of the reasons we're excited about the Agreement Cloud is we want to compete in each of these areas where we have the "unfair advantage" of bringing the other components of the cloud. In terms of Icertis, Conga, very different companies. Icertis is very enterprise oriented. They use a great deal of professional services. I think in the relative range of like 40% or 50% of their revenue is services. They do a big outsourced business in India. And they sort of say, "We're going to customize -- we have some tools, and we'll customize our tools for your business," little more sort of bespoke approach. And I think they're doing reasonable. I think they probably slowed a little bit with what's happened to cycles. We talked about CLM because of COVID, but I think it’s a solid company. Conga is an unusual company. They really have mixed -- they merged with Apptus, and Apptus was actually bigger than Conga. They have to put the Conga name because Apptus had some negative sort of perspectives people had about them in the marketplace. But Conga, on the other hand, they were a very small business oriented. Most of their company was connected to their relationship with Salesforce.com. I think the vast, vast majority of all of their CLM customers, and I don't think it's full CLM, I think it's a lighter version of CLM, are in the Salesforce ecosystem. So they built their company on Salesforce platform. Salesforce is an investor. I mean they were very much a Salesforce-only business. Now they merged with Apptus, which is a sort of a big competitor of Salesforce on the CPQ side, so I don't know exactly how it's going to play out, whether they will pivot away from that. But that's where we've traditionally seen them with a small business in the Salesforce ecosystem.

Got it. Okay. That's actually super helpful, Dan. And maybe just in our last 5 or so minutes, I'd love to ask you and Cynthia some questions about next year. I'll keep it very qualitative because, Cynthia, I know you're going to provide more quantitative guidance on your next fourth quarter call. But Dan, to the extent that a lot of investors view DocuSign as being a big COVID beneficiary, maybe this is unfair, but maybe there's a perception that you've got a slightly better crystal ball about when the world "returns to normal," when a recovery scenario starts occurring, when sales reps go back into the office. What's the internal DocuSign view you, Cynthia and the Board about when there will be some return to normal based on all the evidence you have? Maybe you're guessing just like us, Dan.

Absolutely guessing. It's funny. I'm an economist by academic training. And then sometimes people say, "Oh, so what's your view on the economy?" And I go, "No better than anyone -- any other [indiscernible]"

Right.

So I don't think we have a huge advantage here, but we have some perspectives. So you guys can be the judge. Just full warning. I don't know if they're particularly better informed than others. We think what we told our employees is that we don't even come back into the office until school year is out. So we're in the kind of May, June time frame, thinking that's probably when we'll start to be having employees trickle back in. We probably think we won't be coming back aggressively like everyone flip a bit. But as -- particularly the news on vaccinations comes in, we might get to a position whereby the summer, reasonable number of people back into the office. That's kind of what I call our -- probably our aspiration at this point, and maybe it's a little bit aggressive as COVID has continued to disappoint me in terms of the longevity and the impact that it's had. And then in terms of the impact of business, we don't think COVID will have some -- or COVID happening or not happening, how it plays out, will have a dramatic impact on our business relative to the core business function we have. But we think on the margin, as we've talked about before, it will move things a little bit. The way we looked at it is when we started last Q1, we were off to a really good start. COVID kicked in exactly about halfway through the quarter, and we saw some turbocharging with the buying of certain customers being more urgent. That played through Q2. But in Q3, we started to see that tail off. We still obviously had a lot of selling going on, and we brought on 14,000 new direct customers in Q3 versus 10,000 each of Q1 and Q2. So that feels like, yes, it's pretty still robust, but we did feel like the tenor of the demand had changed. Remember, we had a lot of capacity during the year so we're going to increase the number of new customers we bring on, separate from the macro environment because we're growing so much and we're building more sales capacity. So we think that the demand has moved back to just strong DocuSign demand versus urgency driven by COVID. So we think going into the new year, it will be sort of what we see second half of Q3 or going into Q4. That's probably more of the demand characteristics that we see to be slightly lower than we saw with the nice boost there. And our business will be very different than others. I talked a lot with the Zoom CEO, with Eric. And he thinks he's going to have a more dramatic slowdown because a lot of the activities that people are now doing to get back to the office, they'll stop doing Zoom meetings or do them in person. We think once you've gone to signature, you're not going to change those processes and say, "Let's now route this piece of paper around back into the office." None of those are going back. The question is with the rate of change of new ones maybe be a little bit slower, and the answer is probably yes, but I don't think it will be dramatically slower. I just think it will be little bit, and that's why we've kind of notionally said, "We think we'll be higher than we were before," a little bit maybe, but not quite as high on the growth that we saw during COVID. And we think that will probably start kicking in the new year.

That sounds pretty bullish, Dan. Because if in the third quarter, there was somewhat less of the frenzy that you had in the March through September time frame, but you still put up 60-plus percent billings growth, that speaks to the secular opportunities in your business. That's amazing. So maybe we'll just finish up with one more. Cynthia, if you could take Dan's comments about a return to the office and perhaps enterprise sales rep getting back into more of a flying, dining motion. How do you factor that return to a more normal environment into your margin outlook for next year? I take it that there should be some uplift from a return to more normal sales motion, perhaps offset by investments? How are you framing that post-COVID change in sales expenses as the travel portion begins to pick up a little bit?

Sure. Yes. It's a good question. We look at kind of the budgets going into next year and the total cost envelope. So that's -- that will be factored into the guidance we give 90 days from now. And I'd also just say from an operating margin perspective, you've seen us kind of create additional leverage this year because of the top line outperformance. And we'll continue to invest for growth. And so the T&E portion is a fairly small portion of our overall spend. We are investing heavily, as Dan said, in sales and marketing, building out the sales team capacity, but also kind of on the marketing front as well as R&D and product innovation. So you should expect us to continue to do that. And the T&E will be kind of one piece of the equation as we look at the sales and marketing expense. But then also, just bear in mind, we will continue to invest for growth. So if we can trade off a $1 margin for $1 of growth, we will do that, just given the opportunity. And to Dan's opening comments about just -- we're just scratching the surface of the market opportunity it -- if the return on investment is very high by investing in growth, and the operating leverage will come over time.

Got it. Okay. Well, that's a great place to end. I thought that was a fantastic 35, 40-minute summary of what you're seeing out there in the business. So Dan, Cynthia and Annie, thanks so much for spending time with us and educating us and investors about DocuSign.

Thanks for having us, Karl. We enjoyed it.

You got it. Bye-bye.