Earnings call transcript: DocuSign beats Q2 2026 EPS and revenue forecasts

DocuSign Inc. reported a strong performance for Q2 2026, surpassing earnings and revenue forecasts. The company posted an earnings per share (EPS) of $0.92, exceeding the forecasted $0.85, marking an 8.24% surprise. Revenue reached $800.6 million, outpacing the expected $779.78 million by 2.67%. With impressive gross profit margins of 79.4% and a strong financial health score of 3.3 (rated "GREAT" by InvestingPro), DocuSign continues to demonstrate operational excellence. Despite these positive results, DocuSign’s stock dipped by 0.53% in aftermarket trading, closing at $75.5.

Key Takeaways

• DocuSign’s Q2 2026 EPS and revenue exceeded expectations.
• Total revenue increased by 9% year-over-year, driven by strong billings and international growth.
• The company’s stock saw a slight decline in aftermarket trading despite positive earnings.
• New AI-powered products and operational efficiencies were highlighted in the earnings call.

Company Performance

DocuSign demonstrated robust growth in the second quarter of fiscal 2026, with total revenue climbing 9% year-over-year. The company attributed its success to strong performance in its e-signature and contract lifecycle management (CLM) businesses, as well as new AI-powered product offerings. International markets, particularly in the Asia-Pacific region, contributed significantly to revenue, accounting for 29% of the total.

Financial Highlights

• Revenue: $801 million, up 9% YoY
• Billings: $818 million, up 13% YoY
• Non-GAAP operating margins: 30%
• Free cash flow margins: 27%
• Dollar net retention rate: 102%, up from 101% in Q1

Earnings vs. Forecast

DocuSign’s actual EPS of $0.92 surpassed the forecast of $0.85, resulting in an 8.24% surprise. Revenue also exceeded expectations, with the company reporting $800.6 million against the anticipated $779.78 million, a 2.67% surprise. This marks a consistent trend of exceeding market expectations, reflecting the company’s strong operational execution and market positioning.

Market Reaction

Despite the positive earnings surprise, DocuSign’s stock fell by 0.53% in aftermarket trading, closing at $75.5. This movement contrasts with the broader market trend, as the stock remains below its 52-week high of $107.86 but above its low of $54.32. According to InvestingPro’s Fair Value analysis, DocuSign appears undervalued at current levels, trading at a P/E ratio of 13.95. The slight decline may reflect investor caution or profit-taking following the earnings announcement. For deeper insights into DocuSign’s valuation and comprehensive analysis, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

Looking ahead, DocuSign provided revenue guidance for Q3 2026, projecting between $804 million and $808 million, indicating a 7% year-over-year growth. For the full fiscal year, revenue is expected to range from $3.189 billion to $3.201 billion. The company anticipates that its Intelligent Agreement Management (IAM) platform will become a significant revenue contributor by year-end.

Executive Commentary

CEO Allan Thygesen emphasized the importance of IAM in driving growth, stating, "IAM is a critical factor in our year-on-year growth." He also highlighted the potential of AI, noting, "AI is a massive tailwind for DocuSign," underscoring the company’s strategic focus on leveraging artificial intelligence to enhance its offerings.

Risks and Challenges

• Potential macroeconomic pressures could impact customer spending.
• Increased competition in the e-signature and CLM markets.
• Challenges in scaling AI-powered solutions across diverse customer bases.
• Dependency on successful international expansion for continued growth.
• Managing operational costs amid ongoing cloud migration efforts.

Q&A

During the earnings call, analysts inquired about the momentum in DocuSign’s e-signature and CLM businesses, as well as the early adoption of IAM by enterprises. Executives highlighted improved gross retention rates and customer expansion as positive indicators. Additionally, the company addressed its focus on transitioning customers from e-signature to IAM to drive future growth.

Full transcript - DocuSign Inc (DOCU) Q2 2026:

Conference Operator: Good afternoon, ladies and gentlemen, and thank you for joining DocuSign’s second quarter fiscal year 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question and answer session. As a reminder, this call is being recorded and will be available for replay from the investor relations section of the website following the call. If anyone should require operator assistance, please press star zero on your telephone keypad. I’d now like to pass the call over to Matthew Sonefeldt, Head of Investor Relations. Please go ahead.

Matthew Sonefeldt, Head of Investor Relations, DocuSign: Thank you, operator. Good afternoon and welcome to DocuSign’s Q2 fiscal 2026 earnings call. Joining me on today’s call are DocuSign’s CEO Allan Thygesen and CFO Blake Grayson. The press release announcing our second quarter fiscal 2026 results was issued earlier today and is posted on our investor relations website, along with a published version of our prepared remarks. Before we begin, let me remind everyone that some of our statements on today’s call are forward-looking, including any statements regarding future performance. We believe our assumptions and expectations related to these forward-looking statements are reasonable, but they are subject to known and unknown risks and uncertainties that may cause our actual results or performance to be materially different. In particular, our expectations regarding factors affecting customer demand and adoption are based on our best estimates at this time and are therefore subject to change.

Please read and consider the risk factors in our filings with the SEC, together with the content of this call. Any forward-looking statements are based on our assumptions and expectations to date, and except as required by law, we assume no obligation to update these statements in light of future events or new information. During this call, we will present GAAP and non-GAAP financial measures. In addition, we provide non-GAAP weighted average share counts and information regarding free cash flows and billings. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results. We encourage you to consider all measures when analyzing our performance. For information regarding our non-GAAP financial information, the most directly comparable GAAP measures, and the quantitative reconciliation of those figures, please refer to today’s earnings press release, which can be found on our website at investor.docusign.com.

I’d like to turn the call over to Allan.

Allan Thygesen, CEO, DocuSign: Thank you, Matt, and good afternoon, everyone. Q2 was an outstanding quarter. Platform innovation launches and the long-term focused go-to-market changes introduced in Q1 drove strong performance in commercial and enterprise customer segments across e-signature, CLM, and our AI-native DocuSign Intelligent Agreement Management platform. Q2 business results outperformed our expectations. Revenue was $801 million, up 9% year-over-year, and billings were $818 million, up 13% year-over-year. Q2 top-line performance accelerated and represented one of our strongest growth quarters over the past two years, with improved fundamentals across e-signature and CLM customers and growing contribution from IAM demand. Beyond an individual quarter, we’re excited to see billings begin to accelerate on a full-year basis, and more so when we adjust for early renewals. Profitability benefited from top-line strength, combined with our ongoing commitment to driving efficiency. Non-GAAP operating margins were 30% as we continue to maintain strong profitability.

Free cash flow margins improved modestly year-over-year to 27%, which supported significant share repurchases with $200 million in buybacks this quarter. As we make progress towards our goal to realize long-term profitable double-digit growth, we continue to execute effectively on our three strategic pillars: strengthening our routes to market, accelerating innovation, and improving operational efficiency. Let’s start with our omnichannel go-to-market this quarter. At the beginning of the year, we made meaningful changes to the direct sales organization, which included introducing new sales segments, territories, and performance-based compensation, all focused on maximizing DocuSign’s long-term opportunity and multi-year growth acceleration. In Q2, we saw initial success from those changes, resulting in strong direct sales performance and growth in gross new bookings. Dollar net retention also reflected that strength, increasing to 102% on the back of higher gross retention rates.

Continued steady growth in envelopes sent and year-over-year improvement in contract utilization reflect strong execution and e-signature demand. International growth continued to outpace domestic, and digital revenue continued to grow faster than the overall business. In Q1, we relaunched our partner program to align partners with our IAM strategy and build solutions with IAM that deliver value to customers. Our largest deal in Q2 was transacted through the Microsoft Azure Marketplace. Also, a new partnership with the U.S. Federal Government’s General Services Administration creates an opportunity to expand our existing e-signature sales to federal agencies, with IAM to follow. Specific to IAM, the go-to-market changes are focused on realizing the massive multi-year opportunity ahead. In Q2, customers moving to the IAM platform represented a greater share of direct deal volume and total gross bookings than in Q1.

We’re also finding that when customers move to IAM, they increase their e-signature usage. Commercial SMB customers continued their strong pace of investment into IAM, with companies like KindSight, Simplify, and JustPoint, a VC-backed legal AI company, using IAM to speed up sales cycles and gain a deeper understanding of their agreements. We remain on track for IAM customers to represent a low double-digit percentage of our book at year-end. In Q2, we also saw encouraging demand for IAM from enterprise customers. While still early days, more than 50% of our enterprise account representatives closed at least one IAM deal during the quarter. Notably, average overall deal size also increased in Q2, with IAM making inroads with large organizations like Setsata Technologies, a global sensor manufacturing leader, which has accelerated its workflows and is beginning to use the DocuSign Iris AI engine to surface insights from agreements.

DocuSign’s CLM saw improved momentum in Q2, delivering one of the strongest quarters in year-over-year quarterly bookings growth in the last several years. CLM continues to be a top choice for enterprise customers with sophisticated enterprise workflows, like T-Mobile, which has cut agreement processing time by 44%. Also, DocuSign was recognized as a leader in the 2025 IDC Marketscape AI-enabled buy-side CLM report, which acknowledged that IAM is core to the DocuSign strategy of replacing legacy and fragmented systems. On the product side, our rapid pace of innovation demonstrates consistent progress against our ambitious public roadmap and a steady increase in the value that IAM creates for customers. The IAM platform delivers end-to-end agreement management, empowering organizations to create, commit to, and manage their agreements at unprecedented scale and efficiency.

IAM is an AI-native platform that combines proprietary AI models with best-in-breed LLMs, drawing on DocuSign’s vast agreement library, unmatched domain and workflow expertise, and seamless integration with important third-party systems. Over the past two quarters, the number of documents ingested and available in DocuSign Navigator, our intelligent repository, has increased by over 150%, and customers are processing tens of millions of agreements per month. Customers tell us IAM is delivering significant value by performing tasks in minutes that used to take hours or even days. DocuSign covers a far broader range of agreement workflows than any other vendor, and the deep integration of cutting-edge AI lets customers leverage years of agreement data with the leading ease of use, security, trust, and scalability they’ve come to expect from DocuSign. In the coming months, we’ll launch AI agents within IAM, enabling new customer use cases and expanding our addressable market opportunity.

In Q2, we launched several new AI-powered IAM capabilities to help customers unlock value across the entire agreement management lifecycle. These include custom extractions, which let customers identify and capture organization-specific agreement information or client-specific terms without manually reviewing hundreds or thousands of contracts. We also recently launched agreement preparation, which enables IAM to detect the type of agreement you’re creating, build a template, and automatically suggest and position relevant fields. To address the enterprise need for efficient, secure, and scalable user management, SCIM for DocuSign allows customers to automatically provision users through their existing identity providers. In closing, we’re proud of our strong execution and performance in Q2 and encouraged by the positive feedback we’re receiving from IAM customers in the commercial and enterprise segments around the world.

We believe IAM and the DocuSign Iris AI engine are uniquely positioned to transform how organizations operate their business with deeper insight and actionability from their agreements. As we deliver greater value to customers, we’re doing it more efficiently and nearly at the highest level of profitability and capital return to shareholders in our history. I want to thank the entire DocuSign team for their hard work, passion, and customer focus. I also want to acknowledge the announced changes to our board of directors and thank Mary Wilderotter for her leadership during a time of transformative change in our company, congratulate James Speer for becoming our board chair, and welcome Mike Rosenbaum to the DocuSign family. DocuSign is the leading provider of AI-driven agreement management solutions, and we are incredibly excited about the enormous opportunity that lies ahead. Now, I’ll turn it over to Blake to discuss our financial results.

Blake Grayson, CFO, DocuSign: Thanks, Allan, and good afternoon, everyone. Our performance was strong across the business in Q2, a testament to our continued execution against our three strategic pillars: accelerating product innovation, strengthening our go-to-market channels, and improving our operating efficiency. In Q2, total revenue was $801 million, and subscription revenue was $784 million, both up 9% year-over-year. There was no material impact on revenue growth related to foreign currency. Revenue outperformance this quarter was driven primarily by our direct sales channel, particularly within our e-signature business. Q2 billings were $818 million, up 13% year-over-year. This included a foreign currency growth tailwind of approximately 1% year-over-year, just slightly ahead of our expectations. Billings outperformance this quarter was driven primarily by three different factors, with each having a relatively similar level of impact. The first factor was strength in direct customer demand and improved gross retention in our e-signature portfolio.

Although it represents a much smaller share of our business, CLM also had a strong quarter, as the CLM business grew well into the double digits year-over-year in Q2. The second factor was due to early renewal strength and the favorable timing of deals booked in Q2. While we saw higher early renewals than forecasted, the health of those renewals continued to improve year-over-year as the percentage of early renewals with expansion grew, and the share of those that were flat or included partial churn declined. This dynamic is consistent with the trend we saw in Q1, where a byproduct of sales incentive adjustments resulted in healthier early renewals. We are encouraged by the consistency from Q1 to Q2, still recognizing that the timing of renewals can impact quarterly billings. The third factor of outperformance was driven by a slightly higher payment frequency shift to annual billing contracts.

While the vast majority of our direct customers are billed on an annual basis, the share was slightly higher than forecasted. When removing the impact from timing relative to our forecast, billings growth during the quarter was approximately 10% year-over-year. As a reminder, quarter-to-quarter billings can meaningfully fluctuate due to the timing of customers signing contracts. As a result, we are actively evaluating potential updates to our future top-line reporting, including replacing billings with an alternative measure. We plan to provide more details during our third quarter earnings call in December. Dollar net retention rate rose to 102% in Q2, from 101% in Q1, and increased year-over-year from 99% in Q2 of fiscal 2025. We are pleased to see the modest improvement in DNR, which continues to be mostly driven by better gross retention. Usage trends also continue to show improvement.

Consumption, a measure of envelope utilization, improved across all customer segments and nearly every major vertical in Q2, and the volume of envelopes sent in Q2 increased year-over-year at a rate consistent with prior quarters. IAM sales maintained strong momentum this quarter, which slightly outpaced our expectations as we continue to scale the platform. In Q2, we saw an increase in average IAM customer deal size, an encouraging sign as we took the first steps up market with the IAM enterprise ramp. We remain on track for IAM customers to contribute a low double-digit percentage share of the subscription book of business exiting Q4. International revenue represented 29% of total revenue and grew 13% year-over-year. We’re encouraged that the Asia-Pacific region was our fastest growing international region this quarter.

Allan, Paula, and the team just held momentum events in that region in August, and we’re pleased to see the growth there. Digital revenue continued to deliver results with growth outpacing the overall business. In Q2, total customers grew 9% year-over-year, ending the quarter above $1.7 million. Large customers spending over $300,000 annually increased by 7% year-over-year to 1,137 in Q2. Turning to the financials, our focus on operating efficiency continued to yield strong results this quarter. Non-GAAP gross margin for Q2 was 82.0%, relatively in line with the prior year, as higher revenue mostly offset the impact of cloud migration costs. We delivered record-high non-GAAP operating income in Q2 at $239 million, with outperformance versus our expectations attributable mostly to top-line strength. Operating margin was 29.8%, down 240 basis points versus last year.

As a reminder, we expected Q2 to have the most challenging year-over-year operating margin comparison of any quarter in fiscal 2026 due to several factors, including the timing and impact of our compensation programs, specifically the shift to cash from equity for some employees. As you may also recall, Q2 fiscal 2025 also had a one-time operating margin benefit of approximately 150 basis points associated with insurance reimbursements and the release of a litigation reserve. Our cloud migration also continues to provide a year-over-year headwind to margins. We ended Q2 with 6,907 employees, up slightly versus 6,838 at fiscal 2025 year-end. This reflects our measured approach to hiring in fiscal 2026 to support our strategic initiatives while maintaining efficiency.

In Q2, we delivered $218 million of free cash flow, a 27% margin, which was a slight increase versus Q2 of last year, as our collections efficiency remains strong, combined with in-quarter billing strength. We do expect to see a lower free cash flow yield in Q3 versus Q2, primarily from the timing of billings. Our balance sheet is healthy, ending the quarter with approximately $1.1 billion of cash, cash equivalents, and investments. We have no debt on the balance sheet. In Q2, we slightly increased the pace of our buyback activity and repurchased $200 million in share value, effectively redeploying the bulk of our quarterly free cash flow generation back to shareholders. We will continue to opportunistically repurchase shares, and while the pace of this activity may fluctuate quarter to quarter, share repurchases underscore our commitment to returning excess capital to shareholders.

Non-GAAP diluted EPS for Q2 was $0.92 compared to $0.97 last year. GAAP diluted EPS was $0.30 versus $4.26 last year. As a reminder, in Q2 of fiscal 2025, related to our GAAP financials, we released a valuation allowance on certain existing deferred tax assets, decreasing our non-cash tax expense by approximately $838 million. Diluted weighted average shares increased slightly year-over-year to 211 million shares, whereas basic weighted average shares decreased slightly year-over-year to 203 million due to the impact of the repurchase program. With that, let me turn to guidance. We expect total revenue between $804 to $808 million in Q3, or a 7% year-over-year increase at the midpoint. For fiscal 2026, we expect revenue between $3.189 to $3.201 billion, or a 7% year-over-year increase at the midpoint.

Of this, we expect subscription revenue of $786 to $790 million in Q3, or a 7% year-over-year increase at the midpoint, and $3.121 to $3.133 billion for fiscal 2026, or an 8% year-over-year increase at the midpoint. For billings, we expect $785 to $795 million in Q3, or a 5% year-over-year growth rate at the midpoint, and $3.325 to $3.355 billion for fiscal 2026, or a 7% year-over-year growth rate at the midpoint. Q3 billings guidance reflects a renewal timing headwind that is similar in magnitude to the Q2 early renewal timing benefit as discussed earlier. As continually shown in recent quarters and years, billings are heavily impacted by the timing of customer renewals, leading to meaningful variability from period to period. Also, our outlook for Q3 and Q4 factors in a more challenging year-over-year comparison versus billing strength in the second half of fiscal 2025.

Our updated full-year top-line guidance reflects the following dynamics present in our business and the external environment. For full-year revenue, the annual guidance midpoint is increasing by $38 million from last quarter’s full-year guidance. The increase is driven primarily by Q2 business strength and the expectation that a portion of these trends will continue into the second half of the year. For full-year billings, the annual guidance midpoint is increasing by $28 million from last quarter’s full-year guidance. This increase reflects a positive impact from Q2 business strength, but does not include the timing benefit from early renewals that we saw in Q2, as that will largely be offset in the remainder of the year. As a reminder, we have a hard comparison against last year’s higher volume of early renewals, particularly in the second half of the year.

Adjusting for early renewals compared to last year, we continue to expect full-year billings growth will be approximately one percentage point higher year-over-year, leading to modest acceleration over last year. For profitability, we expect non-GAAP gross margin to be 80.3% to 81.3% for Q3 and between 81.0% to 82.0% for fiscal 2026. We expect non-GAAP operating margin of 28.0% to 29.0% for Q3 and 28.6% to 29.6% for fiscal 2026. For the full year, we included the following two considerations in our non-GAAP profitability guidance. For gross margins, we continue to expect approximately one percentage point of headwind year-over-year from our ongoing cloud data center migration efforts. This headwind was slightly lower than anticipated in both Q1 and Q2 due to a shift in migration timing out to the remainder of fiscal 2026. We continue to expect a gradual easing in migration cost impacts in fiscal 2027 and beyond.

For operating margins, we continue to expect an approximate 1.5% operating margin headwind due to the combined impact of cloud migration, the shift of some roles to cash compensation from equity, and the comp against one-time professional fee savings last year in Q2 of 2025. We expect non-GAAP fully diluted weighted average shares outstanding of $207 million to $212 million for both Q3 and fiscal 2026. Please see the modeling consideration slides in our Q2 earnings deck for a full summary of guidance context. In closing, Q2 represented another quarter of DocuSign’s commitment to product innovation, enhanced go-to-market motions, and improved operational efficiencies. As we look ahead, our focus remains on sustaining this momentum while continuing to generate significant cash flow and returning capital to shareholders through strategic buybacks. That concludes our prepared remarks. With that, operator, let’s open up the call for questions.

Conference Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Robert Owens with Piper Sandler. Please proceed.

Allan Thygesen, CEO, DocuSign: Great. Good afternoon, and thanks for taking my question. While the early success in IAM is compelling, I actually want to drill down into improved fundamentals across your core e-signature. You spoke to improvement in consumption, growing volumes, and really what’s underpinning this. Is it economic? Is it evolutionary? Are your utilization driven by attached to IAM? Thanks.

Blake Grayson, CFO, DocuSign: Yeah, I’ll take a stab at this and then Alex can jump in. Thanks for the question. This is a trend we’ve been seeing pretty consistently over the past year. Especially in Q2, we saw certain verticals, just to highlight a couple: financial services, healthcare, business services, all growing super well for us on a year-over-year basis. People ask about real estate. That’s growing a little bit slower than the average, but still growing at a positive rate year-over-year. It’s anecdotal, of course, but it’s all dependent on how our customers’ businesses are working, whether or not they’re adding use cases, because we’re seeing that in some existing customers also, and also macro effects for them as well.

I just want to make sure the consumption and the envelope send trends really are things that we’ve seen pretty consistently over the last 12 months, and we highlight them, I think, pretty consistently as well. It’s just exciting to see that.

Allan Thygesen, CEO, DocuSign: Yeah, I don’t think we’re seeing any significant evidence of macro weakness in our numbers or in the contract volumes or utilization numbers.

: All right. Thanks for the color.

Conference Operator: Thank you. Our next question comes from the line of Tyler Radke with Citi. Please proceed.

Analyst: Yeah, thank you for taking the question. I wanted to ask you about CLM, which, you know, seemed like it had a breakout quarter with some of the large deal momentum you referenced, you know, including T-Mobile. Can you just talk about the pipeline that you’re seeing in that business? Would you sort of say that this was a timing benefit, or do you think this is kind of the start of a more sustainable trend? Thank you.

Allan Thygesen, CEO, DocuSign: Yeah, look, I think we think that the overall trend in the market is positive. I don’t know that there’s, I wouldn’t overinterpret the second quarter as the breakout for the category or for us. I think it was a very strong quarter, and we closed some very large deals, really exciting and great to see, but a little too early to call a broader category trend. They’re definitely encouraging.

Conference Operator: Thank you. Our next question comes from the line of Jake Roberge with William Blair. Please proceed.

Analyst: Yeah, thanks for taking the question, and congrats on the great results. Nice to hear that more than 50% of your enterprise reps have already signed at least one IAM deal. Could you talk a little bit more about how the rollout of your newer markets, like enterprise and international, have progressed compared to your core North American commercial market, and just whether that pricing uplift that you originally thought has held as you’ve entered into those new markets?

Allan Thygesen, CEO, DocuSign: Yeah, there was a lot there. Let me try to unpack that. First, just as a reminder for everyone, you know, we launched initially to commercial customers in North America, and then we’ve rolled it out globally. Our first enterprise release was in December, and we’ve since released multiple features aimed specifically at enterprise customers. I think the noteworthy thing here in Q2 is that we started to see some larger deals with enterprise customers, which is very exciting because that’s an even larger market opportunity for us in the long run. We’re not relying on a lot from the enterprise segment this year, but we feel that over time that could become even bigger. As we ramp up our capabilities, both on the product and go-to-market side, it’s nice to see larger deals with big sophisticated clients, and I think there’s more to come there. Very encouraging.

Of course, this is what we were laying the groundwork for at the beginning of this year, setting ourselves up to go deeper with customers of all sizes, but in particular enterprise customers. Those changes have now landed well, I think, and we are really pleased with how the teams have settled in, and there’s more to come.

Blake Grayson, CFO, DocuSign: I just might add on top of that, you know, it’s exciting to see the international regions embracing IAM. That’s been something exciting to see just on a vintage basis. Obviously, you know, IAM did launch in most of our international regions later than it did in North America. To your question on the expansion rate side, you know, we don’t break that out, but one thing that, you know, we have said previously, and it continues to be the case, is we see a meaningful expansion for these customers that are moving from just the sign platform over to IAM. It’s been remarkably consistent, so that’s great. We’re going to continue to watch that. It’s still very early days for us, but that’s been exciting from my perspective to see.

Analyst: Great. Thanks for taking the question, and congrats on the results.

Conference Operator: Thank you. Our next question comes from the line of Josh Baer with Morgan Stanley. Please proceed.

Analyst: Congrats on a very strong quarter. Appreciate all the detail with kind of breaking out the outperformance in billings between, you know, gross retention, CLM, early renewal strength, duration, a number of other factors. I don’t think IAM was really one of them as far as driving the outperformance. I was hoping you could talk about that a little bit. Really just being straightforward, what are the economics when a customer adopts IAM? Is it accretive to growth and by how much?

Blake Grayson, CFO, DocuSign: Sure. The biggest drivers of the billings outperformance, as mentioned in the prepared remarks, were stronger bookings, primarily in our e-signature business. It’s obviously the vast majority still of what DocuSign has in its portfolio, but also timing and billings payment frequency. With regards to IAM, it did slightly outperform our expectations, but it’s still very early days for us in that area and that platform. What led to the beat versus our guidance was predominantly that e-signature base. With regards to expansion, we don’t break it out. It’s still super early for us. We have to see how this goes, especially as we move up market. It is very clear, and we said this before, we see a meaningful expansion for customers when they move from an e-signature-only situation to an IAM. There’s just so much more value that we’re providing to a customer.

It’s early days, but frankly, customers are seeing that extra value, and they’re being willing to share in that with us. We’re really, really excited about that, but no other detail besides that.

Allan Thygesen, CEO, DocuSign: Yeah, if I could just add a couple of comments. First of all, IAM is a critical factor in our year-on-year growth and an even more important factor in the growth acceleration that I think we and you are all excited to begin to see and are projecting for the future. We’re kind of right where we want to be with IAM for this year. We reiterated our guidance that we expect IAM to be a low double-digit % of our overall book, which is pretty impressive for a new platform. It’s a critical part of our story. As Blake said, e-sign is so large now that just on pure dollars, it’s always going to dwarf everything else for a little while. We can’t get to where we want to go without growth acceleration from IAM as well.

The fact that we had a strong and healthy e-sign quarter, coupled with continued growth in IAM, that’s really the magic formula for the company. I think that’s what produced the strong results.

Analyst: Yeah, that’s really helpful. You sound great, and this quarter was really strong. There’s a lot to like. I think it would be super helpful if IAM is going to be a double-digit % of bookings to just better understand the economics of the uplift with moving over to IAM and what other factors are changing in the contracts. That would really help to unlock that story, but it sounds like we’ll look forward to as you have a couple more quarters actually selling to the enterprise and up market. Congrats again. Thank you.

Allan Thygesen, CEO, DocuSign: Thanks.

Conference Operator: Thank you. Our next question comes from the line of Kirk Materne with Evercore ISI. Please proceed.

Analyst: This is Bill on for Kirk, and thanks for taking my question. Can you dive into some of the drivers behind the improved gross retention, and is there more to go on that front in the second half of this year and into next?

Allan Thygesen, CEO, DocuSign: Sure. This is a trend we’ve seen over the past at least 18 months for us. If you look at our dollar net retention rates, we’ve been able to improve from, I think, about a low of 98% about 18 months ago in Q4 of 2024 to the 102% that we just did for Q2. I would just say operational execution plays a huge part of this. We have folks at DocuSign now spending a much greater portion of time with regards to staying in front of these renewal opportunities, getting in front of them months, many months in advance to be able to address any concerns that a customer might have, whether it’s for potential expansion or issues that they’re having. We’ve seen the fruits of that labor, I think, kind of pour into this business. There’s still a lot of opportunity left for us.

I’m not going to make a forecast regarding the next second half of the year, but for this business, we have opportunities both on improving our gross retention rates of our core portfolio and also expansion, which is driven predominantly by IAM. When we can get both of those things working together, that’s where we really believe we have the ability to unlock the flywheel for us for the long term.

Analyst: Great. Thanks for taking the question.

Conference Operator: Thank you. Our next question comes from the line of Bradley Sills with Bank of America. Please proceed.

Analyst: Oh, wonderful. Thank you so much. I wanted to ask about the federal, the partnership with the U.S. Federal General Services Administration. It seems like a big deal. Just curious what this means for your federal business, your federal pipeline, and what we should expect out of that segment of the business going forward.

Allan Thygesen, CEO, DocuSign: Yeah, no, we were really pleased to do that. In fact, I’ll be in D.C. next week meeting with a number of folks across many different departments in the federal government, and it’s great to see the engagement. This contract is really sort of a facilitation in making it easier to buy for any federal department. Our federal business is relatively modest today. We’re present in all 15 cabinet-level departments, so we’re certainly, you know, used. Relative to our opportunity, there’s just a lot of headroom. Interestingly, we do better and have historically had a bigger business in state and local, and that continues to do well. We felt we had a big opportunity in federal. I think the General Services Administration was interested in partnering with us because, you know, we’re a very natural partner for bringing more efficiency and customer service to the federal government.

We were, of course, excited about that opportunity. It’s a big growth opportunity for us, but it’s still early days. It’s not a meaningful contributor to the business yet, but I’m spending time on it as our CFO and Vice Executive, so we’re hopeful.

Analyst: Excellent. Sounds exciting. Thanks, Allan.

Conference Operator: Thank you. Our next question comes from the line of Austin Cole with Citizens. Please proceed.

Analyst: Great. Thanks for taking my question. I wanted to ask on the go-to-market front and those changes that were made at the beginning of the year. How do you feel about how reps have adapted to those changes? Are they kind of well-equipped and incentivized to sell IAM, or might there still be some changes to make down the road? Thanks.

Allan Thygesen, CEO, DocuSign: No, I feel really good about it. Look, we made those changes to position us for the long term to accelerate our IAM business and just more generally be able to go deeper with customers. I think the reps have responded really well. We put in a lot of enablement. We put in new incentive systems, new quotas, territories. It was a lot. I am very proud of how the team responded to that. As you can see here in Q2, the direct sales team did a really nice job in Q2. Shout out to them. Yet we have, it’s just so early. We have so much headroom. I think in terms of not planning any meaningful changes this year and nothing of that magnitude in the foreseeable future. It was great to see bold changes that Paula led.

I just wanted to give a tip of the hat to her for having both conceived of all the changes, driven them, and landed them. Well done.

Analyst: Great. Thank you.

Conference Operator: Thank you. Our next question comes from the line of Mark Murphy with JP Morgan. Please proceed.

: Thank you very much. Allan, is there any way to approximate the kind of customer acceptance for opting in where they would have Iris AI scan their agreements and, you know, learn from them or index them? It’s hard externally to understand if they just, you know, do that by default or not. Is it common enough that you can build up an agreement library that would, with enough intelligence, you can kind of move the risk scoring and the cycle times to a different level?

Allan Thygesen, CEO, DocuSign: Yeah. Actually, I think that’s perhaps one of the strongest aspects of our story right now. Yes, we ask customers explicitly to opt in and consent to sharing their agreements, and that unlocks a lot of the AI features. I mean, practically everybody’s doing that. We now have, we’re approaching 100 million agreements ingested into Navigator and available for AI processing. It’s just such a diverse group. It’s everything from sales agreements to procurement agreements to employment agreements and really every function in the company. I don’t think there’s anybody who comes close to that. As you know, one of the key drivers of AI quality is data, and we’re in a great position to leverage that. That’s what allows us to do this right out of the box. One of the things that’s even not as well understood is we often have your agreements already.

If you consent to this, we can make the AI features available instantly, and the average customer goes live in a few weeks. That’s just unheard of in enterprise software. The time to value coupled with the potential value unlock in the agreement library is very significant, and our scale is just very different from others in that business. It’s part of what I think makes us all so excited about the future.

Analyst: Thank you.

Conference Operator: Thank you. Our next question comes from the line of Brent Thill with Jefferies. Please proceed.

Analyst: Hey, Blake, on the margin, I know you’re kind of stalling the margin progression this year versus last year. I guess many are asking, you know, when do we see the follow-through on the top line? We’re not necessarily seeing, we saw a good quarter, but in terms of just overall real-world acceleration to, I think, Allan’s aspiration to be back to double-digit. How do you think about that trade-off? Where are all these investments going this year? Is it go-to-market? Is it in the products? All the above? Any color there would be helpful. Thanks.

Blake Grayson, CFO, DocuSign: Yeah, I appreciate the question. We have three hard comps for us this year that are particularly impacting this quarter that we saw, right? We’ve got the higher hosting costs for cloud migration. We have a hard comp against some one-time legal benefits from insurance reimbursement and litigation credit. We also this year have some headwind really starting this quarter with regards to shifting some roles to cash versus equity as we manage the long-term dilution. Those three components in the prepared remarks, you’ll recall, provide about 150 basis points of pressure. Our full-year guide now for operating margin reflects only about half of that pressure. We’ve been able to offset a portion of that actually above and beyond what we had originally expected. I’m excited about that. It’s all about this balance right now of maintaining the gains that we’ve worked really hard to get.

I think over the last two fiscal years, we’ve increased non-GAAP operating margins from around 20% to 30%. Those are some tough decisions that we had to make. Maintaining them is important. We’re doing that, while also making these investments a little bit into the go-to-market and particularly into R&D with regards to the IAM development and launch. If we can spin that top line number, the flywheel really does drop to the bottom line, Brent. I think for us, that’s where the future leverage opportunity that we have to get to that double-digit top line growth provides a lot of output for us in terms of opportunity for leverage. I’m really happy with the consistency and the path we’re on. I think we’re balancing this investment between growth and efficiency really well. We’ve got some opportunities longer term for sure.

Analyst: On the cloud transition, when do you approximate that will be less of a headwind? When does that actual transition end?

Blake Grayson, CFO, DocuSign: Yeah, this is the peak year for us that we’ve gotten. We should start to see those start to be less of an impact for us in FY2027 and then even later into beyond. I just want to make sure folks remember, hosting costs are a big chunk for us, for our cost of revenue, but it’s not the majority of it, right? We’ve got a lot of people in there and things like that. We definitely expect to see that pressure kind of start to mitigate for us next year.

Analyst: Great, thanks.

Conference Operator: Thank you. Our next question comes from the line of Alex Zukin with Wolfe Research. Please proceed.

Allan Thygesen, CEO, DocuSign: Yeah, hey guys, thanks for taking the question. Just two quick ones. On IAM, clearly you’re continuing to see, maybe on the broader business, early renewal strength and the % of early renewals when expansions continue to grow. Are any of those starting to be driven by IAM Attached? I think before you talked about it more heavily skewed towards new users, but I’m curious if the sales changes and some of the momentum you’re seeing is kind of shifting that to, or not shifting, but in addition to that, also now grabbing some of the existing customer relationships that you have, and then I have a quick follow-up.

Blake Grayson, CFO, DocuSign: Yeah, I would say yes, it does. We just have to remember again the relative size that we have in this book of business. We’re now actually just starting to lap the first full year from our customers that we were really just signing up in IAM this quarter last year, the very early days of that. It’s encouraging. We’re seeing gross retention rates higher than we are for e-signature. It’s still early. It’s a small sample size, but we’re excited about it. We are seeing those conversations lead to it, but it’s not like it’s the overarching component. I think the e-signature business, the foundation is strong and held up well this quarter.

Analyst: Perfect. Maybe just a broader question. I’m sure you could appreciate there have been a lot of questions about how changes in kind of search and SEO are affecting top-of-funnel dynamics for a lot of companies. You know, anything that you guys are seeing there, or maybe you’re completely immune to it, or you course-corrected a while ago, and are you seeing any changes to top-of-funnel? What % of top-of-funnel is SEO-related, et cetera?

Allan Thygesen, CEO, DocuSign: Yeah, we’re not seeing anything yet. I think we’re very pleased with our organic traffic, and DocuSign has an amazing brand and recognition and reputation, and I think that plays well both in an SEO world and a TEO world. With that said, behavior, consumer and enterprise buying behavior is changing as a result of ALMs. I think we’re keeping a very close eye on those changes and how that affects behavior throughout, you know, what we’ve historically talked about is the funnel. That’s number one. We continue to look to acquire new customers and acquire a substantial number every quarter, and that’ll continue to be a focus. You know, the big opportunity for us is to upsell our existing 1.7 million customers, pretty much all e-sign customers, to IAM.

We are hyper-focused on that as an opportunity at all levels, and that’s what’s driving the bulk of the IAM results, and you know, that’s where the big dollars are. We want to continue to feed the top of the funnel with new customers, and that’s very important for the long-term health of the business. I don’t want to get distracted. I think the number one big expanded opportunity for us is to move people from e-sign to IAM, and we’re making good progress on that with a lot of headroom.

Conference Operator: Thank you. Our last question comes from a line of Rishi Jaluria with RBC Capital Markets. Please proceed.

Analyst: Oh, wonderful. Thanks so much for squeezing me in. Nice to see continued strength in the business and broad-based momentum. I want to maybe drill and ask a little bit philosophically about IAM. You know, obviously, you’ve discussed all the use cases and the real unlock, especially with AI. The question I want to ask is we hear a lot of, you know, AI vendors talking about one of the use cases for LLMs and search and reasoning being, you know, analyzing contracts, finding the right answers, being able to synthesize information from multiple contracts, et cetera. It almost feels like they’re trying to tackle that same problem, you know, in a different way.

Maybe can you help us understand, you know, even with others kind of looking into that use case, what gives you that kind of continued right to win and where are investment opportunities that you can make to drive further differentiation versus those so this doesn’t become, you know, more competitive or more commoditized? Thank you.

Allan Thygesen, CEO, DocuSign: Yeah, thanks for that question. I think AI is a massive tailwind for DocuSign. It’s both a tailwind because of the overall category enablement. We can do so many more things with contracts now. They used to be dumb flat files, and there wasn’t much anybody could do with them. To your point, that’s an elevation of everyone’s capability. It plays into our strengths. We have deep knowledge of agreement structure. We’re embedded in agreement workflows. We have exceptional scale. I just referenced, no one else touches, at this point now, 100 million proprietary customer agreements with consent and an incredibly rich agreement diversity. Of course, we’re integrated into practically every enterprise system, whether you’re the Salesforce or an SAP or Microsoft or ServiceNow or Google or Workday customer. Customers typically use DocuSign as a complement to those systems.

It’s easy for us to roll things out and for customers to access DocuSign insights in whatever tool they prefer. You never want to be naive about these things. There’s certainly a tremendous amount of innovation and investment that’s happening. I think our unique proprietary position from a modeling, from a data perspective, from a workflow perspective, from a customer access perspective, is a very strong tailwind for us. I think it’s partly what gets everyone in the company so excited about our future.

Analyst: Very helpful. Thank you.

Conference Operator: Thank you. I would now like to pass the call back over to management for any closing remarks.

Allan Thygesen, CEO, DocuSign: Yes. Thank you, operator. Thank you to all who joined today’s call. I want to thank the entire DocuSign team for their commitment to putting our customers first after delivering the powerful AI-native value through the IAM platform. To our investors, we will continue to manage this business in order to realize its full potential over the long term. Thank you for sharing your time with us, and we look forward to speaking with you next quarter.

Conference Operator: That concludes today’s teleconference. You may now disconnect your lines. Thank you for your participation.

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