Ann Berry (00:00):
I'm Ann Berry.
Katie Perry (00:03):
I'm Katie Perry, and this is After Earnings, a show that brings you up close and personal with the executives behind the world's most interesting public companies. We've got a great one for you today. The CFO of DocuSign. Blake Grayson is joining us here today. DocuSign, of course, has been a public company for a while since 2018, and they're really known for e-signature, but they're trying to be much more than that. Ann, so here's what I want to know, Katie.
Ann Berry (00:26):
Is this company a product one trick pony? Is this another Zoom, is this another big Peloton, which rode the wave during work from home and Covid and is yet to find a path back to growth. We'll find out, really curious to see if there's going to be a trajectory here to get excited about.
Katie Perry (00:42):
Definitely a highly competitive space they're in. They've had some acquisitions to hopefully drive some innovation, so looking forward to finding out from Blake how they plan to return to growth. And with that, let's get into it. Wow. Alright. Blake, Grayson, CFO of DocuSign, welcome to After earnings.
Blake Grayson (00:59):
Thanks for having me.
Katie Perry (01:01):
How are you doing today?
Blake Grayson (01:02):
I'm doing well, thank you.
Katie Perry (01:04):
Well, we're eager to talk to you because DocuSign is such a universally ubiquitous brand. I think I saw on your website you have a billion users on DocuSign. It would be crazy if you have never been on one end of this product, but it seems like you're at a place where you're evolving a bit, so would love to just level set on the company as it stands today and the vision you're progressing towards in the future.
Blake Grayson (01:33):
Sure. It's a super exciting time. I think for DocuSign. Like you said, it's one of these companies that we are fortunate enough that most people have interacted with us at some point in their lives, most adults, and it's typically an assigning situation. That's what over the past DocuSign's been around for about 20 years and I think I can say with a lot of confidence that we're the default trusted brand for e-signature relationships. We've got around 1.6 million customers that interact with us, and that's a pretty broad breadth of customers too. It can range from individual sole proprietors who run companies to the largest companies in the world can interact with us as well. Now while we have become so well known, I think because of our e-signature platform, we're under a kind of transformation kind of process right now, and it's an extension from Signature is what I would say, which is to extend what we've done and I think done well and into what we call the agreement management space or the intelligent agreement management space.
(02:45)
So the lifecycle of an agreement, as most people understand it goes well beyond the signature. The signature is kind of an action you take as part of an agreement process, but we believe there's a huge opportunity and a lot of lost value out there in how companies manage their agreements from beginning to, and when I say end, I mean way beyond a signature because you manage those agreements over time and you renew them and you evaluate them and you pull data from 'em and things like that. And so we just launched a new platform, we call it the IAM platform, an intelligent agreement management platform. We just launched it in specific segments and geographies back in early part of June and I guess by the end of May 1st ending for us in a long journey. But we're really excited about the opportunity to transform beyond a e-signature platform to an agreement management platform.
Ann Berry (03:43):
Talk to us a little bit, Blake, about some of those end markets that you've launched in and why you chose those specifically.
Blake Grayson (03:51):
So for us and by end markets, I'm going to talk about a lot of different things. So we are global in nature, so we are not just in North America, but we're in many countries around the globe and Europe and Asia, Latin America and things like that, but also across different use cases, so end markets. So there might be use cases for companies that focus predominantly on sales. There might be ones that focus on customer experience, there might be ones that focus on legal opportunities, things like that. And so we see opportunities across so many of those, and you can think of 'em as departments. If you think about it as a larger company, sometimes you might enter into a company with a relationship in one department and then expand that over time. And so for us, the ubiquitous of agreements spans the global economy.
(04:42)
I mean, if you really think about it, the world runs on agreements now. I would argue that although we've mostly digitized those, as we become more advanced as a society, we still store those in a pretty simple way. I would argue that back when I first started working, and this is going to age me a bit and I was filing things in filing cabinets, paper, we still do that today. It's just with digital documents. If I ask you where your agreements lie as a company, it's not uncommon for folks to say, well, they lie on a SharePoint or they're in my email buried somewhere, or somebody in my company has a contract with the same vendor that I do, but a different contracts, you might have multiple contracts with the same vendor and you can't synchronize them, you can't pass 'em across your systems or records. So your ability to what I would call adequately manage them is super hard. And so the management of agreements is the same, I would argue as it was for a lot of people since the mid 19 hundreds. We've digitized those documents, but we haven't really extracted the value from them.
Katie Perry (05:56):
Blake, can you help us understand the commercial implication of moving to this or adding this IAM platform for our listeners? How is DocuSign currently monetized currently, and then what is sort of the cost differences between these two options, e-signature only, and then this enhanced version that also gets into the workflow management?
Blake Grayson (06:19):
Sure. Predominantly, and this is not the case for everyone, but predominantly signature today is a consumption model. You go find a plan that you like, it comes with a certain number of signatures or envelopes as we may describe it. You use based on your usage and if it fluctuates, you can upgrade plans and when you renew your plan, you can get a different plan size and those kinds of things. Moving to a platform model shifts to more of what I would call a seat based subscription, which you find in what more SaaS companies are using today. And it's because it's across a platform, you're using it to search documents using to extract information. Signature's still a part of that process. Signature's a key component for us and will be I think forever, but it's an extension beyond that more transactional type relationship. So from the monetization perspective, it's more of a seat based model that we're moving to.
(07:14)
So folks who are buying it by based on seats and it comes with unlimited envelopes that you can click and send and there's different you can add for different use cases, but then it comes with access to a repository where you can extract and search your documents. It comes with workflow tools, so if you want to sign up a new customer that involves potentially a signature or an identity check, you can build that without code. So you don't necessarily need an engineering team to help you through all those components, especially for I would say more department function specific use cases. It makes it a lot faster. It should. And so the opportunity for us I think is as we provide more value to a customer, we hope that they would share in that value with us. And so the monetization opportunity is there if we can provide the value for them that we think is real and they can actually obtain that value.
Ann Berry (08:09):
Blake, let's talk a little bit about your go-to-market strategy, and let's take that example of working with a sales team or a company that's very focused on sales. Is DocuSign finding adoption from company sales teams directly or are you partnering the likes of Salesforce or others CRM systems in order to get DocuSign and your suite of products into more hands more quickly?
Blake Grayson (08:32):
Yeah, I would say we do both. We think about our go-to-market strategy really is like three legs of a stool. We've got our direct sales force that we have that we run through internally that is out working with customers to try to help them extract value from their agreements.
Ann Berry (08:46):
And we
Blake Grayson (08:47):
Also have
Ann Berry (08:47):
What proportion of your revenue base does that direct sale make up?
Blake Grayson (08:50):
Oh, the bulk is our direct sale. Got it. It's 85% or so is direct today, and then now that includes, when I say direct, that includes our partners as well. And so you mentioned partners. We partner with the sales forces and the service nows and such to embed our products in with their customers in order to provide a joint selling experience. The other kind of 15% is digital, which for us is you think of digital really as self-service. And so there's an opportunity for us to be able to help customers both maybe who are, I'll say maybe more smaller use cases who don't need a direct sales relationship and it's faster for them to be able to do everything themselves online. There are also people who are in direct organizations who would prefer to be able to fish, I call it like phishing themselves and use self service. And we're working on ways to be able to improve that experience and such too. And so those are the three legs that we do as we've focus quite a bit in talking about, we call it direct self-service and then partner chAnnls
Katie Perry (09:54):
Along these lines. Blake, I'd love to offer some more clarity on competitive landscape. When Ann and I were talking yesterday before the show, it kind of was surprising how many large software companies have just added this e-sign, appendage, Adobe sign box sign, Dropbox sign. And so what it sounds like is happening is people are kind of adding this appendage and that creates more of a need to have this added value model where if the penetration there, the average order value or the value you're giving per customer needs to go up. How do you view, over the past few years, there's big companies adding e-sign, there's startups. Can you talk a little bit about how that has changed the way the company's moving?
Blake Grayson (10:50):
Yeah, so it's gotten to be a more competitive environment for sure, as you point out that companies are out of these features. Now the interesting thing is that we're still finding that our win rates, essentially the percentage of times we go up against competitors to bid for a deal and win or win rates though are quite steady. I think that customers really do value the trust and the security that DocuSign brings. And now you may have certain use cases that are very high volume, very internal focused where it's you can have a use case internally to say, Hey, Blake, did you read this handbook? Kind of a thing for employees that might be a little bit different kind of a use case than sign this mortgage application or open up this new bank account or those kinds of things, which is obviously a super high volume of things that we do.
(11:39)
And so while it is a more competitive landscape and people, if some people have added it, the feature set that DocuSign offers, I think stands above those. And we're a premium product and we recognize that and I think that people, it's why our business has been quite stable over the last few quarters, but it doesn't mean that people aren't out there trying to build that value. And that's one of the big reasons why we've extended into, I call this IAM platform or intelligent agreement management platform, is because we think that in combination with our e-sign strength sets us apart and this is all we do. This is what we focus on. You can trust us. I don't have a business on the side that potentially could compete with you as a business owner. We wake up every day and we focus on agreement management. Customers trust us with those contracts and I think that also stands out. I like to be able to look at customers that I talk to and say, this is all we care about. This is what we wake up every day thinking about and the value there is real, and I think we've been able to show an ability to do well in that light.
Ann Berry (12:46):
Blake, you've doubled down as a company into that depth of service, to your point, not having side hustles but really focusing on this intelligent agreement management and you've been doubling down on that using m and a. Tell us some more about your recent acquisition of Lexion.
Blake Grayson (13:02):
Yeah, so a few months ago we acquired a company that's based in Seattle called lexion. They're a company that has very strong strength in AI functionality, specifically from them targeted to the legal landscape. We saw that opportunity as something that we could apply across our entire platform. So you can imagine the excitement when we were talking to this company about and their founders who now have joined DocuSign and are in our product management and engineering teams, essentially driving for how can we expand what they've built across a much larger breadth of customer agreements and such. And so the speed by which we can extract data from contracts and extracting data sounds maybe a little vague, but you can think about things like obligation management, just think about contract terms. When does my contract terminate? When will it auto renew? If I don't do anything, how am I going to get warned about that?
(14:07)
There's all these elements in data extraction that frankly this company was very strong at, we thought could apply across the whole platform. And so the benefit, the real benefit for me when we were considering this, and we look at a lot of companies, I think that from an m and a strategy, we have a corporate development team that reports to me that's super strong and we're looking at things all the time. People don't hear about it because obviously you pass for various reasons on a lot of things. And I was just really excited because the opportunity that this could benefit across our entire company is that if you think that AI is going to play a role in agreement management, and I think it's one of the easier use cases to sit there and understand like, oh wow, this actually could improve efficiencies for companies quite a bit.
(14:55)
This was an opportunity for us to do something at scale and go a bit faster than building it internally, which we were already doing, but essentially this could accelerate it. So I think for us it's obviously capital intensive when you buy a company for a couple hundred million dollars and it's something that you take super seriously about deploying your capital. But this was something that we're really excited about. I'm super excited about. I have really enjoyed the energy that the founders have brought to DocuSign and about the ability to say, okay, how do we apply this and quickly, we've already actually launched some lexion features and technology within the IAM platform and that'll evolve over time. We'll do more and more. But so excited about that.
Ann Berry (15:42):
How often are you passing on potential acquisitions, Blake, because of valuation? If I think about where you are hunting for targets right now, you are probably hunting in the most highly valued, sought after ton of capital flowing to AI assets. Do you think that's going to increase the pressure on you to build instead of buy because it's just going to get too expensive?
Blake Grayson (16:04):
Surprisingly, if we pass or we decide to move forward on something, valuation really isn't even in the discussion at that point. Now that's obviously a big hurdle you have to get through at the end, but we try to look at it and say, what would this acquisition do for the company? Does that make us stronger? Does it make us better? Is it a culture fit? Do we have the management bandwidth? There's all these consideration outside of price, and then you obviously get to a point where you say, okay, now what is that price? And you're right, there are some kind of frothy valuations out there and people in my position sometimes have to bite their lip a little bit about how you consider those things, but you have to be smart about it. You have to be able to say, this is shareholders' money and capital, and how are we going to invest it in a way that we believe is prudent and we believe over the long term we'll provide the returns necessary to justify the price.
(16:58)
That is tricky. I think we'll see how valuations move over time. Some people talk about, oh, could they come down because of how frothy they are? And we'll see and we'll be opportunistic with those options. But again, the most important thing for me when we talk about this is what's the strategic fit? Is this something that makes us better and can accelerate us going forward? What's the culture fit for the folks who are joining us and do they raise the bar for us as a company? And then the next question is, okay, what do we think it would take and do we have the stomach for that? And so it's important. Obviously I'd be lying if I didn't say price was important, but it's definitely not the first thing that we look at.
Katie Perry (17:42):
Blake, you talked about driving efficiencies with the IAM products specifically. A topic that comes up a lot on this show is this concept of SaaS consolidation. You're a CFO yourself looking at all these subscriptions, softwares you use, a lot of CFOs in your shoes are trying to figure out, how do I cut this down? So when you're going out there and your sales team is going out there talking to large enterprises, how are they communicating the ROI of the added cost to the IAM? Seems difficult to do a time savings sort of metric, but how do you think about that if you're asking people to spend more money on something they maybe weren't using previously?
Blake Grayson (18:23):
Yeah, it's super interesting. I think one of the advantages we have is if you put DocuSign, stack your SaaS vendors on a list and say, who do you spend the most with? DocuSign is nowhere near the top, right? We are a much smaller average cost than the ServiceNow Workdays, Oracles, et cetera. Those are way higher. So I've been a CFO at another company and when I would look in my top 20 SaaS spends, DocuSign's not even on it even though we spent with DocuSign. And so I think added there's a value there that we can communicate value where it's not, you're not looking at necessarily except for the largest companies in the world, a huge outlay, but the value conversation we have, it's something that people can understand. To be totally frank, I've been burned in my past about obligation management and contracts where a contract auto renewed somebody didn't find that issue and it's like, oh, you owe X millions of dollars for the next three years because you didn't warn us 90 days in advance of your termination.
(19:32)
And just having that one episode in your life A CFO can understand the value of that kind of opportunity really clearly. It's a lot harder when you get into a more sophisticated, much longer sales cycle component. So I'm not unrealistic that we're asking customers to be able to spend more, but the value that you provide I think is so great relative to the absolute dollar cost. I think it's really small, and so this is the fun part where I get to talk to our sales teams and say, gosh, go make the pitch to my peer in the company and explain this out and how much of this costs because, but again, for us the average deal size for us is a lot smaller, so I don't think it's nearly as maybe an uphill battle as some people might think.
Ann Berry (20:23):
Blake, let's switch gears a little bit and talk about a different kind of selling, which is your team, that's the c-suite of DocuSign selling your story to the market. When we look at what happened with your share price through covid, it absolutely skyrocketed and rather like others such as Zoom in the B2B space over the last 18 months to two years, it has been a tough ride for your stock. It's sort of flatlined. I say that despite the fact that you've got the initiatives you've described, we haven't touched on international, we should at some point, despite the fact that you've got an incredibly strong margin profile, you're north of 80%. I have two questions for you related to this. What is the public market missing? What catalyst are they not seeing in your share price to get it off this flat line? Number one and number two, private equity seems to get something different. They made a bid for you guys early this year and there was a real thesis I think behind some of those potential private equity potential owners to do something a bit different with your business model.
Blake Grayson (21:25):
So with regards to what's the market looking for or what are investors looking for? I think it's a return to growth. Now, I'll get to that in a second. I think though we've made some really great strides over the last, call it 12 to 24 months improving the financial profile of the company. So just an example, so in Q2, our operating margins non-GAAP operating margins were 32%. Even if you exclude a couple of one-time items that we had, they were still north of 30%, which was a record for the company. We generated just under $200 million in free cashflow. It's something that as a company, our operating margins two years prior were in the high teens. So we've made a lot of, I would call it tough decisions at the company to rightsize our resource base against our growth rate. And so you've seen improvements there.
(22:19)
Secondly, the core business has, the data has shown that our core business has shown some stability over the last two or three quarters, which I think there were questions about frankly coming out of covid, it's like, okay, well how much would that drop be worth and when would it solidify itself? And so we've shown dollar net retention rates for us stabilize over the past few quarters. We've seen what we call usage and usage for us is generally both consumption. So essentially the percentage of a contract that a customer uses, so if they utilize more envelopes, that's generally a positive sign. If somebody buys a hundred envelopes and last year they used 70, but this year they used 80, it shows essentially that's a positive trend that you like. Envelope scent for us is also growing year over year. So those things are, I think positive and I think that's why you see people beginning to talk about us a little bit more.
(23:12)
Now, the big thing that you want to be able to do is return to growth. We really want to be able to get back to a long-term sustainable growth rate, and our goal is to get back to double digit growth. And so for us to do that, it's things like the IAM platform that we need to be able to show real legs for. Now, we just launched this, but over the last 12 to 24 months we've been building it and so it's really excited to get out. It's super early days for us that early signs are really encouraging, but I think that's what the market, and I think investors and management, I think we're all aligned that if we can get this business growing back where we think it absolutely can and should along with strong financial operating metrics, I think it paints a pretty exciting profile.
(23:57)
Now with regard to your question on private equity, I can't imagine comment on the rumors and speculation for us, but I think that if we can build a business that can both grow sustainably and profitably at the rate that we are, I think shareholders get excited about that. It's why I joined this company is that I thought it was an opportunity to take a great trusted brand that had maybe hit a couple bumps right through covid on the way down and how do we return that to growth and manage it financially well and get great returns for shareholders. And so that's the overarching goal that we have regardless of what ownership structure people may
Katie Perry (24:35):
Consider, what metrics on that return to growth narrative, what metrics should investors be looking for in your next earnings? Is it adoption of the I'S platform? Is it spend per seat or user? What are some of the things you guys are tracking towards to show evidence that is paying off for investors?
Blake Grayson (25:00):
And so the metrics I'll say are going to be over time. I try as much as I obviously understand that we go out and report every 90 days and we tell the investors how we're doing, we're really trying to think about the long-term opportunity that we have in Im right, and it's a process. We have a very large book of business we're going to do around just under 3 billion a year in this year in revenue. We've got over or just right around 1.6 million customers. Average contract length is around 19 months. So it takes time for us to go through this process. Now, obviously I am adoption is for us super important and we did highlight on our last earnings call just some very early high level kind of data points, but it is so early you have to be careful with that, right? Because we have to make sure is that sample size kind of statistically significant in us?
(25:53)
But the early signs are promising, right? Our win rates are higher, our cycle times to close are faster. Our deal sizes on average are larger. There are all the things you'd hope to see, but again, it's super early days, so we'll see how that goes. I think for us also in our core business, again, continuing to have stability and potential improvement over the long term in dollar net retention for customers, can we retain customers at a higher rate? And so the things that we're doing for that also around things like digital, how are we doing in providing a self-service opportunity for customers and being able to go get new customers from a better digital experience. And so we've worked pretty hard on those things. So those are the metrics I would say that we'll be focusing on how and when we disclose them and such as takes time and we'll make those considerations as we see things develop. We haven't even launched yet in our international markets. We'll be launching in a number of them here in the next month and then across other segments as well. We really have launched mostly in what we call North America commercial, which is more that mid-market and some SMBs as well. And so really early days. Super excited about the opportunity though.
Ann Berry (27:06):
Just to touch on international. And last question for you on growth, Blake, if you are looking at new countries to move into, there's literally fresh landing space for DocuSign. Given what you know now about the North American market, are you choosing to land with your simpler e-CIG product or are you choosing to land straight out of the gate with IAM?
Blake Grayson (27:27):
Right. So for us it's both, right? You're going to have customers that will have specific use cases. I think my instinct is IAM over time is going to appeal to most customers over time, but it takes time to be able to show them the value in those things and get them into it. Now, one of the opportunities we really have in international, I would say, is not just new regions, but the ones we're already in. I mean, frankly, one of the things that excited me about this opportunity was in this quarter, international only made up like 28% of our revenue. If you think about the global economy and you think about agreements as a proxy for that or GDP, it's not unrealistic to assume that number should be a lot higher than 28%. And so the opportunity to further penetrate within the markets that we have, whether it's in Europe or Asia or Latin America, it's pretty big.
(28:16)
And so for us, my hope is that as we can continue to launch IM, or once we launch into IM and then further into other regions, it creates a tailwind of sorts for us and we'll have to see that develop. And then also partners. So you can have partner, these relationships we have with partners to be able to go into locations maybe where we're not physically located and there's already feet on the ground who have expertise in those areas. And so also focusing on the partner chAnnl to be able to further develop international is a big opportunity for us.
Katie Perry (28:48):
I think we have some more time, Blake, so I want to pivot to you for a little bit. One thing we like to ask our guests is sort of their career journey and what the origins were, and I love finding out from executives going way back in time, what were some of the hardest jobs you had when you were younger, and how did those experiences shape you? Now that you're in the c-suite of a $13 billion company, so do you have any particularly formative gigs in your past that really shaped you to where you are today?
Blake Grayson (29:20):
Sure. The longest place that I've been in my career was at Amazon. I was there for 11 years and I would say while at a lot of different companies, I had great mentors and learn from a lot of different people. Amazon taught me a lot, particularly about being an analyst, particularly about getting into the data, but also being able to summarize those thoughts and strategies as well. It was hard, but it was formative and I would say really taught me about knowing your numbers, knowing your business, being honest and direct with your opinions, and I learned a ton from them.
Katie Perry (30:03):
Yeah, Blake, that's super interesting actually. It seems like there is quite the Amazon Army. A couple of weeks ago we had arm CFO on also of Amazon, so definitely seems like it's sending out some great executives and we thank you so much for coming on with us today. This was really illuminating and appreciated your insights.
Blake Grayson (30:25):
Great. Well, thanks so much for having me. I really appreciate it.
Ann Berry (30:27):
I'm Katie Perry. And I'm Ann Berry. Thank you so much for tuning into After earnings. And folks, this is where we need your ideas. We have now interviewed about 30 C-suite executives from some of the most well-known public companies in the us and we want to know who you want to hear from. So drop us a line, drop us some comments in our social platforms, and we'll find out who you want to have on our show next.
