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

Well, good afternoon, everybody. I'm Karl Keirstead on the software research team here, and thank you for joining. Actually, the end of day 3 -- of our 3-day UBS Tech Conference. I think it's been a fantastic event. I was just telling Cynthia in the breakout session before we started that we've had 35 software companies at the 3-day event from Microsoft, Salesforce, ServiceNow, Snowflake, all the way down to some smaller cap names, and we're really honored to finish off our -- at least the software track of the event with Dan Springer and Cynthia Gaylor, joining us from DocuSign. Dan and Cynthia, thanks for taking time out of your day.

Thanks for having us.

Yes. And maybe just in terms of format, if any of you listening in have questions, there is a question box in front of you. I'll see it as soon as you submit it. And if you prefer to reach out to me directly on my e-mail, feel free to do that, and I'll pepper in a few investor questions to Dan and Cynthia.

So with that, why don't we get started? Maybe to you, Dan. Obviously, you don't need to rehash everything you went through on the earnings call. But as you've had a couple of days to reflect and talk to investors [indiscernible] and analysts and employees. Anything -- any misperceptions you'd love to address or just broader incremental observations worth making beyond those that you made on the earnings call?

Yes. I don't think there's anything dramatically different. I mean, it's interesting, Karl, you made the point the other day about macro and sort of how we thought about that in the context of just sort of missing our billings piece, even though the rest of the metrics were strong for the quarter. And as I sort of said, it's really difficult for us to sort of distinguish the kind of COVID tailwind receding and some other macro component, I would call that a macro component, right? Pandemic is a pretty big thing. And I think, on the call, we had that conversation, are we giving enough attention to that, particularly given a lot of other large software players, Microsoft, Salesforce, others were guiding with a sense that, hey, we see some headwind from a macro standpoint. So that's probably the only topic that's really come up in a lot of discussions that I would say was different from the core of -- there's 2 core components to talk about, the receiving of the tailwind from COVID, some execution challenge from DocuSign standpoint of getting used to operating in a world where we had that COVID demand accelerant to our business. Those are, I still think, the core 2 pieces in talking about the [ goals ].

And we'll bring both of those up in this conversation. But maybe even before I do that, Dan, if you don't mind, I'll ask you about something that's moving your stock today, and that is -- it feels, officially, you can make it so that, in fact, you stepped in and acquired DocuSign shares yourself as a -- I'm sure a signal of your faith in the story. Do you want to just address what was the motivation to do that?

Yes. I mean really twofold. One, I have a lot of DocuSign shares already, so I didn't feel it as a person that was out there saying, "I haven't had an opportunity." But sort of 2 things. One is, I do, of course, want to show my strong belief that I believe it was an overreaction in terms of the way the market played out. I can say the market is always right, market's a market. But it didn't really make sense to me when I look at the strength of this business. Now we can have a long conversation about software company valuations. Are they too high? Of course, in the last 2 years, we've never seen anything like this. So I'm open to that debate that we were overvalued before. But on a relative basis, the other high-growth software companies, I just don't -- it didn't make any sense to me. So I wanted to vote with my feet on that. I'm very confident. I'm making a good investment. And as I've said openly, if the stock doesn't react over the coming days, weeks, months and doesn't get sort of more in line with where I think it should be, I'll continue to be a buyer. I sold other securities. I joked that I have pretty undiversified already. The vast majority of my network is in DocuSign shares. But at these prices, I'm happy to become even less diversified and do it. So that was sort of probably the motivation from that standpoint. I'm not convinced that the move today, I know it was -- I haven't seen lately because someone made a comment to the stock was up like 8%. I'm not convinced at all because I was buying shares. But if that's a positive contributor to it, I'm pleased to make that statement.

Got it. Up 11, just to be clear. 11%.

Okay, great, even better. In the old days, remember, Karl, I always said, I only look at the stock on Fridays. I think it's a good message for employees. This week, I'm looking slightly more frequently than once a week. Soon, we'll settle down. I'll get back to my habit and saying, I leave the market to bigger minds like yours, and I'll just focus on running the company.

Well, definitely, Dan, that gesture was noted by many. I appreciate it. So maybe I'll ask you, you and Cynthia, just one question on sort of the slope at which you're coming off the peak. And I think everybody listening in right now is incredibly sympathetic that it's very hard to go through a pull-through like that, pull forward I should say, and super accurately manage the other side. So everybody gets that it's super tough. But I guess the piece that I would love a little bit more clarity on is sort of the why-now part where you use language like rapid change and markedly different. And that sounds like there must have been some external catalysts to sort of suddenly cause the demand to change quickly? And I'm wondering what that thing was because if it was merely a return to work, you would think that, that would have tripled in a little bit more gradually rather than being sudden? So that's the only thing on the events that I'd love to press you a little bit on if you've got any added comments.

Yes. I mean I'll start off and say Cynthia is responsible for forecasting that. So I'm going to leave it all up to her to explain it, Karl. But in all seriousness, I mean we were very united in our view that in the first half, we were going to see significantly more slowdown, right? And we talked about this idea that Q1 was really the lapping quarter. But if you think about it, it's only a half lap, if you want to [ about ] that because there's really -- we're off to a great start in the fiscal year '21, Q1, and then definitely turbocharged with the pandemic, but it was sort of half a quarter with half a quarter without. And Q2 would be the first full quarter where we had seen that benefit. So we kind of thought we'd see some in Q1 and we didn't. And then we thought, well, for sure, we are going to see that. And if you think about the guidance that Cynthia gave for Q2, was some fairly significant headwind relative to the tailwind, I guess, removal of the tailwind from a billing standpoint, and we just didn't see it. And I don't think we have the ability to say this is exactly what happened. We got over 1 million customers. So it's spread. It's not one giant move where we can sort of look at a couple of key companies, we're just so diversified from that standpoint. And we're different by geography, by industry, they just -- we don't sort of have like a core answer to that question of here's where there was a change. But I would tell you that when we came out of Q2, we had a lot of pressure from people saying, you guys are sandbagging. And Cynthia was getting people like you commenting to her saying, like, "I don't understand, we gave our Q3 guidance." People said, "Clearly, it's going to be better than that, right?" So we had an external perspective that was saying, it can't possibly even come down at that pace. And obviously, it came down even faster. So just to be clear, there is no silver bullet of understanding that just says this is what happened. From the high level, my answer, and then I'll let Cynthia do a much more thoughtful technical answer. But my answer at the high level is we got into a mode where our customers, just on the demand side, separate from our execution piece, where our customers were just super bullish about their growth in DocuSign. And they weren't thinking about it as like pandemic, non-pandemic, they were just saying, "Look at our usage. Just look at the number of envelopes we're sending." And so as we were talking to them over the past year and doing their renewal, some of early renewals, some of them, the normal timing renewals, they were stretching. And our AEs job was to get to stretch a little bit and add that subscription volume to a higher level. And we did a lot of that over the year. And now as we're cycling on those, people are coming back and saying, like, "Wow, that was a pretty fulsome move I made to that level. I'm getting there. I'm consuming to get there, but maybe I was on the aggressive side. So where I do my next one, maybe I'm going to be a little bit less aggressive." And I think the combination of a whole bunch of deals, all the transactions got done, like the customers left DocuSign. They just didn't buy at the same volume. Our total number of transactions is the same. Remember, a total number of new customers, 59,000. We have a really robust pre-pandemic. We're bringing in 20,000, maybe 30,000 -- So it's not that the activity is not there, it's just people were saying, "I'm not going to buy quite as aggressively." And the combination of a whole bunch of people, with that small delta, the math -- the multiplication of those 2 numbers is what got us there. So that's how I think about it. And the last thing I'd say on it is just the Q3 phenomenon versus sort of Q2, some of it is the compare. We had 63% billings growth last Q3. It was the absolute apex in Pinnacle. So probably there's a little bit there. And then I think it's the -- once we've done that full lap of the Q2 of last year, that was in a sense of, okay, now people need to start making their new decision. We've lapped that piece by a year. People are now adjusted to post-COVID. And now these are the transactions we're going to have. So that's why in the second half, we said we think we're really going to see that change. If you look at the full year number, if you look at the forecast that Cynthia put out on February 1, effectively, beginning of our fiscal year. The total [ year ] number is going to come out pretty close. It's just that it shifted and it was much stronger in the first half and not in the second half. So that is kind of how I think about it. And Cynthia, I don't know if you -- what you'd add maybe more -- slightly more insightful than that, but that's the macro view item.

Yes. I think you've hit the top of the waves kind of across the board. As Dan was saying, there is kind of this first half, second half phenomena. First half was a lot stronger than we were anticipating. We continued to forecast tapering and even tapering at a faster rate. And as Dan said, when we were in Q2 giving guidance for Q3, we were getting beat up a little bit about, are you going to see that tapering? And we said, yes, we expected to see it to continue and maybe even at a more -- a faster rate, right? And it happened even faster than what we were forecasting. I think there's also when you have kind of the year-on-year compares, I think those are what it is. I mean, Dan did a good job of kind of describing like as you think about the macro and moving off the peak demand, it's really up to us to fill that gap with these new use cases and with kind of that consumption. And we're still seeing growth in consumption, we're just not seeing it at the same rates that we had been when we were coming off the peaks. So those fell off a little bit faster. And then the last piece, just around the forecast itself. We look across all of our key metrics and then some. We're looking at pipeline and pipeline coverage and pipeline math. And by sectors and industry, we're looking at pipeline in quarter and what we expect to generate in closing quarter and not actually materialize different than what we expected in addition to when we look at the beginning of the quarter kind of those risks and opportunities, we also level set against what we're seeing in the pipeline and in the customer sets and the cohorts and kind of those potential opportunities didn't materialize, but some of the potential risks materialize more than we were thinking. So when you think about kind of first half and you think about second half, as Dan said, at the end of it, we'll kind of wind up in a similar spot than where we expected, but first half was a lot stronger and second half won't be as strong as we were expecting. But the important takeaway when I kind of cut through it all is like that long-term trajectory we think is very similar, and we think there will continue to be fluctuations quarter-to-quarter or over multiple quarters, especially as we come out of something like a pandemic. Like nobody's ever forecasted a pandemic or has kind of gone off the peaks that we experienced that we weren't necessarily expecting. So our job is to kind of look at the business and really look at the analysis around like what we're seeing in the business. And that's kind of what we put out every quarter based on the risks and the opportunities that we're seeing.

And Cynthia and Dan, this is a hard question to answer, I know. But if the phenomenon that I take from your comments is that due to increased adoption and usage, your customers essentially somewhat overbought envelope capacity. How long do you think it will take for the excess capacity, so to speak, to burn off so we can get back to a normal upsell expansion cadence? Maybe that's a hard timing question to answer.

Yes. And we would actually think about it a little bit differently. So like we don't think about like, hey, we oversold a bunch of customers. Like our jobs in the field is to sell a customer what we think they will use based on the use cases. And the phenomenon that Dan was describing kind of with the envelope size is what we saw last year is that customers were buying a set amount of envelopes they were perhaps expanding envelopes for a particular use case because they were -- they had urgent demand for whatever they were using it for, right? So those expansions tended to be larger, but in some instances, they were maybe on 1 or 2 use cases where there was just envelope growth. And the execution piece for us is really we know what those use cases are. We know what demand generation is, is making sure we're talking to customers about those additional use cases, those other use cases to help them consume and continue to consume at healthy rates. And as Dan also said, consumption is growing, right? So that's healthy. We feel it's healthy. It's just in a more normalized way than what we were seeing off the peak levels, and that normalization, if you will, like if you can't even use the word normal in some ways, that normalization, we're watching very closely, but it's still healthy consumption. It's just not off the peak rates that we were seeing.

Karl, actually, if you think about your question -- implicit in your question is some of the execution challenge we had, right? So if you -- if we were to say to ourselves, well, what are the customers going to get back to normal, whatever normal is, and normal buying sort of demand level, if you will, it's actually the wrong way to think about it. The way to think about it is we have a gigantic TAM, and that TAM is fundamentally made up of some number of companies out there that we only have 1.1 million customers, and there are many more companies, and we believe every company in the end should use DocuSign. So we've got a lot of penetration and opportunity there. But maybe even a bigger opportunity in the near term is all the companies that we have that are customers that are only using 2 use cases or 3 use cases or 1 use case in many situations. And so if you say, is it up to the customer to start buying at the right level, the answer is no. It's up to us to go into the customer and say, the first use case you did or the second or the third or whatever you've done those would produce really high ROI for you. For someone in your vertical, in your geography and your size, here's the other use cases that people are going. I talked about it in the earnings call, for example, M&T Bank, and we said -- they were a great bank, and they had 50 use cases. But our team did that right work, even though a lot of other teams weren't doing that work, but they did that right work of going into the bank and saying, what are the other use cases, the big banks, they have 200 use cases. So that is actually -- it's not so much about the customer coming around to a different mindset. It's about DocuSign being off of our butts and getting to work and doing that sell, right, and that piece. And the reason I don't -- the reason I feel so good about it is because we're a company that delivers such a high ROI when people use our software, we bring it from a customer success standpoint. We don't come in and say, we're going to sell you stuff. We come in and say, we're here to help you be successful with the implementation you haven't gotten. And so that piece, which has always been sort of the core of what's driven our growth, that's the piece we stopped doing and we started saying to the nature of your question, "Hey, guys, when are you going to start buying more aggressively? You are to buy it really aggressively now. Now you're not buying as aggressively." It's not a customer's problem. It's not the customer's problem. It's our job to drive that expansion.

So then, practically, how do you execute on -- how do you shift focus back to, as Cynthia said in an earlier meeting that I sat in on, from demand capture more towards demand generation? Like practically, how do you make that happen?

Yes. So it's funny. We had an all-company meeting this morning, and we were talking about that, and I had Scott, who I talked about how Scott was taking this role. [indiscernible] more broadly orchestrated across that. And he was up in Seattle with Loren, Head Sales and Lambert, who had Customer Success and have the 3 of them in 1 room, so we could field questions that way. And I think a lot of it is the basics of what we've already done. And here are a couple of things are slight shifts to our strategy. So I'll give you a couple of specific examples. The first one is, we talked about this at length, but we hired a lot of people. I mean it's about 60% of our go-to-market field is joint since the pandemic. They've gotten here when the only mode that they really understood was sort of, well, taking these orders, getting in that sort of fulfilling demand. And so we have a lot of education, and we have a lot of enablement to do. So one of the things we're really focused on is driving enablement. Now one of the questions people have said, weren't we doing enablement? We have an enablement team, a fantastic guy named Paul runs that team. Why aren't they doing it? And the answer is they're doing those enablement activities. They've been doing the training, but we haven't synced up between what the enablement team was doing, what the demand gen team was doing in terms of which kind of opportunities they are creating. And then the sales leadership, right? And the sales management to say, "I'm going to make sure we're enforcing that." People are doing the certifications, but then they're out-doing those activities. It doesn't do any good to go to class have someone teach you how to do something, not put it into practice. -- and be surprised that, that atrophy. So that's a huge part of this. Second thing is we realize there's a lot of things we're putting on our AEs. Remember, our [indiscernible] split between NewCo and [ install ]. And so in the NewCo standpoint, 59,000 new customers. They've got motion, I think it could be better. It actually didn't meet my expectations last quarter, but it was pretty solid. And the issue wasn't the number of customers that we think we could have had bigger lands in some situations. We could have been more aggressive in the size of those deals. But that part is not changing that we think that's more or less the same. On the installed base, where the cross-sell, we were just talking what has to happen, part of it's enablement, but part of it is focus. And one of the things we did and we get excited about the DocuSign Agreement Cloud, and that is absolutely our future, and we think it's going to be a fantastic high-growth future for years and years and years to come. We took those new AEs and gave them a lot to think about. We said, "Hey, here's how you do a CLM sale. Here's how you do any signature sales." We gave them all this information, and we had a lot of them really being split in their minds between that core demand generation of eSignature, which is dramatically our core business. And now I'm on a long 9-month sales cycle for CLM deal, and that person might get pulled into that deal and now have these other 3 or 4 customers that have tons of use cases to be developed, but they're not doing it because they're doing something else. And so we're actually going to dedicate a group to take those CLM sales forward. So that the core install AEs can say, oh yes, you're selling that to my customer. I'll come to one meeting and be up to speed on it, but someone else is going to drive the execution of that cycle, so I can focus on the expansion. So those are the kinds of things we're doing to just really make sure our AEs get back to that motion that we know we did pre-COVID that we know we needed to do post-COVID.

So it doesn't sound like what you're suggesting is the fix necessarily involves hiring a ton of new sales reps. It's more directing their efforts differently. So I take it, this is not acting as a catalyst to dramatically change your sales rep headcount plans that you have for next year. Is that the correct interpretation?

It depends. There's a quick thing, I guess sort of thing. If you said it's not going to change the plans we already had...

That's what I meant.

That would be true. But to be clear, those plans were to aggressively hire more sales teams, right? So we've been doing that for years. We will continue to invest to get that apex of the growth opportunity, and we'll not see in pattern, but we'll be accelerating that to some new heights as far as is much more about making successful our motion as opposed to strong debt. If you have to think about it, Karl, the irony of it is in this year, we did a fine job, we met our capacity. We're a little behind on the hiring and the little pockets here and there, basically met that capacity. We just didn't get the productivity out of that capacity because we didn't get the process right. So you wouldn't solve that problem by just throwing extra heads out, you have to fix the core opportunity there around the execution.

And Dan, is it assuming that the issues we're talking about are a little bit more U.S.-centric where you probably saw the sharpest demand pull forward. Do the events that you took us through, does it make you want to lean in a little -- even more to the international opportunity where you're not fighting against those same issues? Maybe you could respond, Dan, as to whether this quarter changed your perception of the weight that you want DocuSign to put on the international side?

Yes. So I think it's very much like the question you just asked about the sales side. We were already very aggressively focused on international. I was going to say maybe on the margin, it would move it a tiny bit, but I'm looking at Cynthia and I'm thinking about how much work I'm asking her teams to do to be able to figure out how we can be in other countries directly. There's a fair amount of work you have to do to sort of create the presence to geographically be in the other space. And the bulk of that bolt-on finance team, not the accounting team, but the other side. So yes, so it's a huge effort we have underway. I don't know that we would be accelerating that even further. But I would tell you this that my belief is because of the effort we're putting there, you will see our international revenue continue to take share. You look at Q3, with 68% revenue growth for international, it ticked up to 23% of our total revenue, I mean we were sub-20%, I don't know, 4 or 5 quarters ago. The rate of growth of taking share -- and remember that U.S. business was doing pretty good, too. So it's been pretty impressive how that has played out. And I would say we expect that to continue to happen. My view is our penetration internationally is significantly lower than it is in the U.S. and our total revenue mix of 23% international is significantly below where it should be for a company of our scale, a couple of billion dollars. And it's 100% attributable to the fact that we just started later internationally. This is a company I can give you a long, long answer when we have more time, why we started later internationally. Again, I [indiscernible] here 5 years, it was before me, but we got a later start. It has to do with common law, civil law and a couple of other phenomenon. We're also doing really well in the U.S. and the need to look there as early. But if you track the growth of our international against the growth in the U.S. and just put it back in time to the same period we started the business, they're remarkably similar. So it's the same playbook. It's the same actions and activity. And so we have a lot of confidence we're going to be able to continue to grow international at a rapid rate.

And maybe I'll ask a similar question actually around the -- whether it shifts your focus at all around the CLM or Agreement Cloud. That part of the business understandably got sort of lost in the shuffle on the earnings call, given that there is so much to talk about. But I think that -- correct me if I'm wrong, but I think the correct interpretation is the issues that happened in the eSignature business where you have this incredible demand pull forward. And then you and Cynthia have had to sort of manage off the peak is not what you've seen in the CLM business. So I don't think these issues relate to the CLM business, correct? And are the events that you discussed recently, does it -- on the margin change your emphasis focus need to invest on the CLM side?

I'm going to sound a little bit like a broken record, but I think the answer is the same plan. The thing I'd say is just a little bit different is the phenomenon that was CLM. Last year, when we had this incredible surge in signature, we had the opposite. The rest of the DocuSign Agreement Cloud, people experience what a lot of other software companies experience. Where they said, this isn't critical. This isn't urgent that I get this done. It's important that we get a repository for our agreement. But while everyone just went out remote and we don't sort of -- we need to get agreements in a sign, we don't necessarily have to change the way we store them someday we'd like to. So we pivoted effectively away from some of those aspects just to meet the demand that our customers were pushing, particularly on the product side. Operationally, our focus just shifted to trying to meet that demand, having that growth was so much more than we would have otherwise planned for fiscal year '21. Fiscal year '22 as we're seeing kind of that change in the demand for eSignature, we're seeing the flip happen for the other parts. Customers are now coming back saying, hey, remember how we talked about that a while ago. CLM is an example because you brought that up. I want to actually accelerate my effort to get that done. So we're seeing the pipeline for CLM. We're seeing the pipeline for notary. We're seeing a lot of these other components beyond the traditional eSignature business that are now accelerating. So we're bullish. I think we are investing pretty aggressively there. I mentioned that we actually have dedicated CLM effort now. Some of that to take the focus off the install AE, some because we just seek to win in this burgeoning business. It's still very small compared to eSignature, but it's going to be, we think, an exciting growth piece for us. So I don't know that simply, I don't know if you think about the -- on the financial side, whether we're shifting more? Or that was pretty much consistent with the plan we had for that shift?

Yes. I mean the way I would summarize it, when we think about growth and prioritizing for growth, I would say international is our biggest near-term growth opportunity in terms of like where we are in the market, the penetration rates and also the traction we're seeing, right? And so we're making big investments there. I think secondly, when you think about growth and kind of catalysts for growth, kind of the go-to-market efforts around kind of these customer demand curves and making sure we're taking that strong installed base and continuing to drive consumption and use cases across it and some of the go-to-market efforts and kind of, call it, tweaks that we're making to kind of that end-to-end go-to-market that Dan talked about, I think, is #2 in terms of near term. And then you have things like CLM and the Agreement Cloud, which are very small contributors today, but we're making lots of investments, and that's really to drive kind of that long-term growth for years to come. We've said many times we can get to $5 billion of revenue and beyond on eSignature alone. But when we think about kind of that $10 billion and that big market opportunity of $50 billion, the Agreement Cloud is a big part of that and making those investments. And what really is a greenfield on space, but we're really defining the market as well is really important. So we're focused on that. And then the other piece that I'd be remiss not to mention that we don't talk about as often, especially this quarter, is digital, right? When you think about our digital business, it's really lead gen into the rest of our go-to-market motion. And so we're making big investments there. It also gives us a peak into international markets before we decide to go direct. So that's another big area of investment for us more generally. So that's kind of how I would summarize a bunch of the questions you've asked and kind of the good conversation that we're having.

Very good. And one final question around how the recent events might on the margin shift your focus a little bit. Dan, it relates to M&A. And you and I had this conversation after the last earnings call, but I thought it was insightful and I wanted to sort of bring it to the broader audience. But just to give you the parallel, Zoom obviously saw an even more pronounced pull forward and an even sharper deceleration. So almost an exaggerated case. And obviously, we know that one way that they've tried to deal with this decel in their core business is to acquire adjacent growth drivers. So they obviously made an attempt to buy Five9 to broaden out their portfolio. So when you're experiencing a slightly more modest version of this, how are you thinking about the desire to acquire new growth levers, Dan?

Well, I'm afraid it's the last question you're going to ask me because I'm going to say same answer as I've given in the last floor, it hasn't changed. But I'll tell you what the answer would have been [ pre ]. We think there's absolutely an opportunity to extend and broaden our DocuSign Agreement Cloud solution with M&A. In case you didn't notice, we have a CFO who was a corporate development leader before she was a CFO. And before that, she was a tech banker. So we are aware. We have that expertise in-house. And I think we are excited to look for bigger deals. In the past, we've done very small M&A. Buying companies for $100 million or $200 million and very small revenues and said they were adding this product into our suite. It's almost like we're just hiring development staff, really more that we've been buying companies with scale of revenue. And we think that's great, and we look forward to see opportunities to do that continue. But at the same time, we also think there is probably opportunity for us to leverage our balance sheet and figure out ways to do something that's a little more transformative. The challenge I'd tell you we see is within the DocuSign Agreement Cloud and looking at our strategy and you look out in the market to agreement cloud-type companies, and there's various ways you could define that. But there aren't the kind of leaders that there are like DocuSign is in eSignature, right? So it's not sort of a clear player that would be like, if you think about Zoom in your example and Five9 like, "Hey, we see someone is a clear leader in the space. They're substantial. They have a lot of revenue, they're developed company. We're going to go do that." So we have to find those opportunities. We won't go too far. We're not going to stray just because we want to go buy revenue. That's not going to be a goal for us. We want to stay true to our strategy, but we'll be excited to find those opportunities, for sure, we would be buyers of great technology that was accretive to our ability to grow the business.

Got it. Okay. Great. On the competitive front, I certainly, in my work, haven't heard anything to suggest that the events of the last, call it, 3 or 4 months, have anything to do with share shifts between yourself and Adobe. But I'd just love to ask you anyway. And I guess, part 2 of that question, and I know you can't, and it's unfair to ask you to opine on Adobe's business, but they're going to report next week. And I guess an obvious question is, is there any reason to think that they would be able to sort of dodge these issues easily? I suspect no, but maybe you have a perspective?

Yes. So why don't I do this. I'll first answer the Adobe piece. It's not going to be hugely insightful in terms of their ability to weather. And then, Cynthia, why don't you talk a little bit about the assessment we did and we always do around competitive and pricing, et cetera. So I'll give you the fun meeting one, I'll take the tough one for a change. Look, I mean, again, to your point, I don't know what was going on Adobe business. What I would tell you is that their business is focused on a value cell that says, hey, we're not going to be able to be as good as DocuSign. We don't -- they're the clear leader. They acknowledge that to most of their customers. But they say, we can bundle this. We can bundle. You buy something else. We'll grow us in sometimes we give this for no cost, if you're buying other stuff from us to try to get in under the tent. And by the way, I think that's not -- I don't say that in a negative way, if I were [indiscernible], I think that's what I would do, because they have some great businesses. It's a fantastic company and they've built incredible leadership position. So trying to take something else that's not as strong in the marketplace, but piggybacking on their places of strength. I think that's a fantastic strategy. That's exactly what I would do. If possible they won't see as much impact from the pullback because their business has been more -- they're more Newco. We have a lot more customers than they do. And their growth -- but we can tell from the outside, appears to come more from going in and saying to people, we will give you very low cost esignature as part of something else to do. That strategy might play out more evenly through the COVID cycle. So they may weather better from that standpoint. Other than that, I can't -- I wouldn't have any reason to believe their experience would be different than ours other than that our timing might be different. So they'll probably have the same macros. I don't know enough about how COVID cycled through in their business. They don't really break out signature enough to say. So we don't have any better insight than you do on that play. So they might have had it last quarter or might get it next quarter or that would be the piece would be harder to opine on.

Got it. Well, Dan, you said that would be a nothing answer, but actually that was actually quite meaty. So thank you.

Well, then Cynthia's got a real challenge now to do. Okay. Great.

To follow is always difficult. Yes. So pricing, I guess, on pricing before every earnings call, we talk about kind of competitive landscape and pricing with our pricing and strategy teams. And we almost talk about it almost on every earnings call as well. We haven't seen any significant changes in pricing. We do compete in the market, as Dan said, with multiple players. But we also have a market-leading position in the places we play, really differentiating our products and our brand across multiple dimensions. But I don't think pricing has been a big factor for us. But it's something we watch closely, and we also watch the cohort of customers and what their buying patterns are. So maybe that would be the summary there.

Okay. Thank you both for that. And I think maybe in our last 5 minutes, I'll -- Dan, I'll shift away a little bit to Cynthia. So you're off the hook now. Maybe a couple of questions for Cynthia on the financials. Cynthia, one of the observations I made to you in our conversation after the earnings call, and I think you've taken the question a couple of times, so I thought it might be appropriate to bring it online here. And that is the 4Q billings guide requires similar sequential growth of about $95 million, as you did in the last fourth quarter. So I guess through a skeptics lens, that looks tough because it was a party last year, and it feels like it's a little tougher now. But maybe there's something in that comparison, that's not fair. So it's maybe a good one to ask you to set the record straight on that sequential billings compare.

Yes. Yes. It's a very thoughtful question. I think what we would say is that a lot of things were different last year than our -- this year, right? We were coming off of peaks last year kind of coming into the year, with vaccines and kind of our scale as well, like we're a much bigger company this year than we were last year. So I'm not sure looking at the absolute dollars is probably the best thing to look at in terms of the guide. But what I would say is we've taken all these factors into consideration, including what we've just gone through, including we're a much bigger company, including all the things we look at to come up with the guidance. And so we feel comfortable with kind of where we are on the guidance and the opportunities and risks that are baked into that.

Okay. And maybe I'll end with a question on margin, Cynthia. You didn't provide formal guidance on margins for next year, but it was abundantly clear from your comments that we should not expect margins next year to be at the 19% to 21% level that you've guided to this year? Maybe you could just frame what sort of the 2 or 3 biggest margin variables are for next year. So at least we can keep them in mind as we model out your earnings.

Sure, sure. Yes. And on margin and kind of where we're performing, just as a reminder, we are performing well within the low end of our long-term range, which we still have some time to get to. Given all of our growth opportunities, our #1 priority is investing for growth, even if it comes at the expense of kind of margin degradation versus these levels that we're currently at. We just think there's a lot of opportunity, and so we're investing into that, that large market opportunity but also what we believe is a compelling growth opportunity. Part of the challenge there is making sure we're prioritizing where we're investing. When we think into next year, and we've been talking about this for a few quarters now, we do expect not to be operating at the margins that you've seen from us the last few quarters as we invest for growth. I think the areas of investment are really around these go-to-market initiatives that hit the sales and marketing line, around our R&D and continuing to innovate and differentiate our products and fill out the platform across the Agreement Cloud and really unite some of the acquisitions we've done as well as kind of our time to market as we build out the Agreement Cloud. So those are the 2 main areas. I'd be remiss not to mention G&A does need some love and attention at the scale in terms of operating at the scale and making sure kind of all of our systems and operations kind of can support the business. But the 2 main areas that I think are most visible in our public financials are around sales and marketing and R&D. And then, of course, we're investing kind of in the G&A areas to support on the business and the growth.

Makes sense. Well, thank you for that. Why don't we wrap there. It's been a a good long day for most of our investors. Thank you, all the UBS clients, for listening in. And most importantly, Dan, Cynthia and Annie, thanks for taking time to explain the story. I think this discussion actually helped a lot. And if we don't have a chance to speak over the next coming weeks, happy holidays to all of you.

You too, Karl, thank you so much for having us.

Yes.

Thank you.

Thanks.