DocuSign, Inc. (DOCU) Needham Growth Conference – (Transcript)

DocuSign, Inc. (NASDAQ:DOCU) Needham Growth Conference January 9, 2023 12:45 PM ET

Company Participants

Cynthia Gaylor – CFO

Conference Call Participants

Scott Berg – Needham

Scott Berg

All right. With that, I believe we’re good to go. Thank you, everyone, for joining us today. This is a day earlier for our 25th Annual Growth Conference. I appreciate some of these time today, where I’m sure most people on the call here know Cynthia Gaylor, DocuSign’s CFO, but for those that don’t, Cynthia, why don’t you give a quick background of yourself and maybe the company before we get started.

Cynthia Gaylor

Yeah. Sure. So I’m Cynthia. I’m the CFO at DocuSign. I’ve been here for about two years. I was on the board for two years prior to that as Chair of the Audit Committee and the M&A committee. Prior to that, I was the CFO of another public company, Pivotal Software that we took public and then eventually sold to VMware.

And then prior to that, I was an executive at Twitter and everyone’s strategy and development for a while. And prior to that, I was a partner at Morgan Stanley. So I started my career in investment banking focused on mainly software, Internet, mobile, e-commerce advising lots of companies in that space over the years on some of the most strategic initiatives that those companies undertook.

So very embedded in San Francisco and based in Sunny not so sunny San Francisco today. And then in terms of DocuSign, I guess, it’s hard to believe that many of you wouldn’t be familiar with us, and we’re the category leader in e-signature. We have over a billion users and over 1.3 million customers. We really created and defined that category.

We have a powerful brand with a very high NPS score. Many of you who I’ve chatted with in the past, know customers love us because their customers love them for using DocuSign. And so we have quite a high ROI product. We have a big untapped market opportunity. We have about $50 billion plus market opportunity, and we’re really going after the broader agreement workflow and we talked a lot about that on our Q3 call.

We’ve doubled the size of the company over the last several years. We’re still in the early stages. The environment has certainly gotten more competitive from where it was three years ago, but our biggest opportunity is really pen and paper. And so customers and companies still moving for more manual ways of doing agreements and doing signature to more automated ways.

And then, I think our goal is to be the leader in the agreement category in the same way we did for eSignature. So we’re really focused on moving forward and helping define that category of the strong base that we have.

Question-and-Answer Session

Q – Scott Berg

Great. Yeah, I figured there might only be one person that’s not familiar with DocuSign, that’s a great overview. I appreciate that. We have lots of topics, but let’s start with product. Product is my favorite area or at least tends to be and it’s really the long-term driver of the business. I view — or at least I’ve always viewed historically eSignatures is a relatively straightforward product, but one that has significant more complexity than the average investor appreciates.

Where does the e-signature market go or evolve to over time? You all have added things like notary or a virtual notary solution, but are there any similar products or opportunities to maybe expand the platform over time?

Cynthia Gaylor

Yeah. Product is super important. I mean the company was built on innovation, right, and innovating around a category, and that’s really core to kind of how we’ll move forward. We have a new CEO. You may have seen Allan Thygesen joined the company about 90 days ago. And so really focusing on innovation around the product is important. And so let me give you some examples. Like when you think about do DocuSign, many people think to about signature. I think more and more people are thinking about the broader agreement, workflow as we’ve built out the platform and the products around it.

When you think about signature alone, it is a very unique product in the sense that the basic eSignature is a basic use case, but what we’ve built around product innovation and what people can do with the product is quite large. And so not only is it easy to use, it has a comprehensive application set where we’re embedded. We have embedded APIs with over 400 partners. So we’re embedded in other workflows. That’s a lot of where our innovation is. The ecosystem is quite important to that.

And then we’re really innovating around kind of the trusted brand kind of across the board. And so making sure that identity, things like identity products like notary can really succeed. And so when we think forward, we’re really thinking about how do we continue to innovate to really stay ahead of the innovation curve. And many of you may have heard us talk on our Q3 call and acknowledge that other companies out there are starting to ship features and functions that we shipped multiple years ago.

And so it was a good reminder that we can’t rest on our laurels. We need to continue to innovate around the product. You heard us talk a lot on the last call as well about self-serve and self-serve really being a critical component to reduce friction for customers, but also reduced friction internally as we continue to grow and scale, and I’m sure Scott will talk about that more.

Scott Berg

Absolutely. We both kind of mentioned notary just because I think that’s probably the most tangible touch point over the last couple of years in terms of new product or platform expansions. But — how is that — how is your success that work like? Does it gained any real traction to date? Any sort of color there I think would be helpful.

Cynthia Gaylor

Yeah. So I think notary is a very interesting market. It is a regulated market in most places. And so I think we have a lot of advantages in that market just based on the core eSignature. And the way we think about it is, it’s really an extension of signature and what we can do in Signature — versus a standalone product. There would be very few companies that would use our notary products who weren’t already signature products. So we really look at that as an expansion opportunity.

When I think about kind of — if I were a stack ranking the different things across the agreement process, notary would certainly be in that category. But I would say something like CLM be a bigger, broader opportunity. There’s only a certain set of customers that are interested in notary. So we have an innovative product around that. We’ve done a couple of small tuck-in acquisitions around it.

But something like CLM, you may have seen the recent Gartner report that put us in the upper right of the — as a leader in the leaders quadrant. And so when we think about broader agreement workflows, notary is certainly part of it, but I would say we have some other things that are probably going to become a bigger part of it sooner, just given the relevance to the customer.

Scott Berg

Got it. And then while we’re talking about the eSignature. market, you talked about the [indiscernible] billion TAM earlier that you all are attributing today. I believe these signature is roughly half of that or $25 billion. Your revenue level is being close to $5 billion level on that $25 billion level today. So obviously, the number suggests that the market is not saturated.

But question I get from investors all the time is the company is slowing growth. Is that — does that suggest that — I don’t know that the market has reached some sort of saturation point because if it’s not, why is it adoption occurring further if you have such a low penetration today?

Cynthia Gaylor

Yeah. I think you summarized it well. When we look across the cohorts of customers, we still have fairly low penetration pretty much across the board. And so there’s lots of opportunity. I think there’s a couple of dynamics at work. One, I would point to the macro environment, we’re certainly being impacted the last several quarters from the macro environment. But I think even more so, our growth numbers at scale are somewhat skewed because of the peak growth rates we saw during the height of the pandemic.

And when we look across the customer base and we look at the cohorts of customers, the expansion growth is probably one of the biggest drivers of our growth rates, and that’s why we’ve been talking about that a lot with internally, but also with investors and with customers because we know when customers come to the platform and they use our products, they see higher ROI, and they want to do more in that ilk over time. But we’re also starting off a much higher base with customers.

So if customers in the beginning of the pandemic, bought fairly conservatively. They were new to the platform. We have very much a land and expand model where customers start even some of our largest customers have started very small and expanded over time. And the expansions are moderate over time as well. But what we saw during the pandemic was we doubled the size of the top line in a very short period of time. When I joined the company, we were just over $1 billion of revenue. We’ll finish this year over $2 billion of revenue, right?

And so that’s quite a bit of growth in a very short period of time. But what it means is the expansion economics have slowed, and we think there’s still lots of opportunity within the customer base, but it will take some time for those expansion rates to catch up with the book of business base, as customers move forward. And so that’s why you’ve seen some things out of us around pricing and packaging, talking to customers about different use cases. They can use the products for.

Many people think about us at Signature, but there’s lots of different use cases within different verticals. We have a very diversified vertical set where customers can expand their use of envelopes, which is how one of our pricing mechanisms as well as receipts. But we’ve run a bunch of pricing and packaging experiments through bundles this past quarter, which is really taking basic eSignature and adding premium features and functions to those bundles.

And what we know is customers who use three or more features, functions, products, expand at a higher rate than customers that don’t. So we’re really focused on reducing friction with customers, making it easier for them to buy and consume our products and realize that high ROI. Because we also realize customers get somewhat of a halo effect by using DocuSign because it is so easy to use for their customers that we think the value proposition is there and the ROI is super clear and in a belt-tightening environment, that will become more and more important.

Scott Berg

Got it. You mentioned the CLM market a few minutes ago. And I think we all know that you acquired SpringCM several years ago that really helped spearhead your efforts there. I know it’s a smaller part of your business today, but it’s kind of a really large end market. How are you currently thinking about your opportunity within CLM because I think the average investor would probably suggest that maybe your opportunities there or kind of the growth there has been a little bit muted compared to the eSignature opportunity that you’ve seen?

Cynthia Gaylor

Yeah. It’s a good question. So I think we did acquire — we acquired a handful of companies prior to the pandemic and then during the pandemic as kind of add-on to the broader agreement process and see SpringCM was one of them. And I think when the pandemic hit, we had just acquired the company, we were still in the process of integrating it. And I think what you saw was customers had an urgent need for signature, particularly customers who maybe had a new signature or we’re using signature plus still doing a lot of manual.

And so they didn’t necessarily have appetite to talk about broader agreements or what they could do with a product like CLM. And so that really led to the growth and the acceleration of our top line with Signature predominantly, which also means that CLM as a percent of the business, even though it was doing okay, was not growing. It’s going to take a lot longer when you have a really fast growing thing. That’s really big, it’s going to mute a fast-growing thing that’s really small.

The other thing I would say is, as we came out of the pandemic, I think the last three or four quarters, we have highlighted CLM as a bright spot in the business, but it’s still a pretty small percentage of the revenue. And my hope is that as we look to the future and we’re talking about broader agreements, we’re looking at all the pieces of the agreement process, which is CLM is certainly one of them, but we’re also able to articulate how different pieces are doing, which may not be a percent of revenue, but it may be a different way of describing agreement workflows and measuring — better measuring our success there, but I think it’s still pretty early.

So CLM is doing well. It’s certainly been a bright spot. Customers who use Signature are eager to find high ROI products and expand with us. But it’s still early days. It’s still pretty small, but it’s a big market opportunity. And similar to Signature it’s a big untapped market opportunity. So even though there’s competitors in the space, there’s lots of untapped TAM. So it’s more a greenfield because we’re — that is a category on its own. That’s still digitizing or digital transforming within companies, and it does at the customer level require change management and processes. We even see that for ourselves internally.

Scott Berg

Got it. I guess lastly, on product, you mentioned, Allan, just starting with the company a short time ago. But how is he shaping the product platform today? I know it’s early in his tenure with the company. But how should we expect the product side of the business to maybe evolve under his view?

Cynthia Gaylor

Yeah. So I think Allan has been now in 90-ish days, 90-plus days. And so it’s really been focused with customers, partners and employees on kind of helping define our key priorities, understanding the points of pain and then really helping drive the business forward. So that’s really where his primary focus has been. I think when we think about product and you think about his priorities, innovation is at the top of that list. And it also touches some of the go-to-market pieces. So I know we’re talking about product. But when I think about things like self-serve, that is a product, very important product-led growth type of motion, but it also will bring, hopefully, over time, top line growth in our go-to-market as well as make the business more efficient.

So I think there’s kind of pieces like that, that particularly given his background and his tenure at Google, I think he really understands kind of that long tail of the customer base and what’s required from a product set, but also from a go-to-market to really drive that type of business. So I think that’s a great partnership with our new sales leader who really comes from a big enterprise background, right? And our enterprise motion is still, what I would say, immature like even though we have enterprise customers, I think how we go after the enterprise is not mature. And I think there’s lots of opportunity there as well.

Scott Berg

Got it. Sticking with the leadership change, I guess, what else should investors expect from Allan’s point into the CEO spot? Any change in strategy versus how [indiscernible] the overall opportunity or is there maybe something more settled that we should all look for?

Cynthia Gaylor

Yeah. I think on the Q3 call, Allan arcuate his key priorities. And at that point, he was, I think, 70 days in the seat, but it is around innovation and go-to-market. And if you were to parse those more finally, it would be things like the self-serve motion, pieces around customer success and make sure that we’re helping drive customer success, reducing friction for customers, international remains a very big opportunity for us. And so in some ways, every customer can be a digital customer. About 13% of our revenue comes from the digital channel.

And I think he will bring, as I mentioned earlier, kind of a new lens to how we think about digital and self-serve, not just for small customers, but also kind of for our land and expand motion and how can even direct customers self-serve in some areas of their business. And then I would just follow up that list with partners. Our partner ecosystem is very important. So I’m thinking about how do we expand that and leverage that, both from a product and a go-to-market perspective.

And then lastly, would be reducing friction in operations. He talked about that a bunch we did on the Q3 call, which is both reducing friction for customers, but also just internally. As the business scales, there’s just required investments, as we’ve talked about in the last several calls across our systems and processes. So those are the handful of priorities that I think we’re really driving towards. And as we go through our annual planning process, really making sure that we have our people and our investments lined up against those pieces.

Scott Berg

You talk about people and investments now that Allan walked into a hefty 9% reduction of force effectively on his first day. I always look at changes of staffing levels like that, it can be important for a variety of reasons, but they’re tough mainly because they can alter the culture of a company. Culture is something I tend to be really focused on within software companies because growth companies needed culture to sustain that growth. It’s something that I’ve seen a lot. Can you talk about the current culture within the company and maybe what Allan’s message has been on this topic?

Cynthia Gaylor

Yeah. And thanks for that, Scott. I think I mean, doing restructurings are always difficult. DocuSign has never been through one before, but I’m sure you all are following the press on many of our software peers, but also kind of the broader technology market and broader corporate market. Unfortunately, the macro environment right now, a lot of companies are going through the same thing. I think for us, with the changes in management, that’s probably a bigger factor than something like the restructuring, even though those are difficult.

And so I think really, working with employees, and that’s why one of Allan’s big priorities has been spending a lot of time with customers and employees. We have seen and we talked about on the Q3 call, attrition has stabilized across the employee base. I think part of that is having some of the executives in seat now for a couple of quarters, plus having a permanent CEO named and now off and running and defining priorities, not just culture but also strategy and mission of the company. So that provides a lot of good call it, tea leave (ph) reading.

And I guess, philosophically, on culture, I couldn’t agree with you more. People come to work because they want to make a difference, but they also want to work in a culture that’s conducive to their core beliefs and how they want to move forward. But culture is up to every employee at a company and cultures evolve over time. And so I would say, we’re probably evolving just with all of the new people on board. But I’d also say at the peak of the pandemic, we were evolving because we were adding so many people.

So I think, again, culture is a living, breathing type of thing. And I think the management team as well as the employee base is really rallying around kind of the key priorities and driving the business forward. And I think that will help define the culture of the company in the future.

Scott Berg

I did fail to mention one thing before we got started. We will be taking Q&A from the audience at the end here. My questions go for roughly 10 more minutes, and then they’ll 10 to 15 minutes for writing the Q&A. And if you’d like to ask a question, feel free to enter it into the messaging feature within the Zoom here, or feel free to email me myself at sberg@needhamco.com. We already have several questions in there, so I do look forward to taking those in a minute, at least.

Let’s talk about financials a little bit. We have a CFO on the call. We have to talk financials, at least one or twice here. I guess as you look at the third quarter results in, billings accelerated for the first [indiscernible] quarters, and you called out early renewals is benefiting how you blew away the guidance number. But I really view the quarter, it was really more about the company regaining its ability to call the quarter as it’s kind of the second quarter in a row where you’ve been able to outperform your billings guidance. Is that a correct view in your mind or is there may be more something more to it than that?

Cynthia Gaylor

Yeah. I think we think about it a little bit differently. So billings is one of our metrics. It’s certainly an important metric. I think we’ve been talking for many quarters now about our visibility into the business is not where we would like it to be. And I think that is still a true statement. I think when we look at the dynamics around billings for Q3 and specifically, we did talk about early renewals. So I wouldn’t say we blew away the guidance, but I think there was a balancing between Q3 renewals and billings and Q4 renewals and billings, and that’s why the Q4 guide looks like it does. So we kind of wind up in a very similar spot. Independent, it’s really around the timing of deals and when they came in.

That being said, there are customers who were at or near their capacity and so they renewed early, right? So we are seeing some dynamic there, but I wouldn’t extrapolate that into the future. I think the outlook we provided stands on its own. But I’d also just, Scott, say we’ve — on the last four quarters, we’ve made the billing guide the Q plus one out. And it’s really been more a dynamic of the quarters further out as the business has changed as the leadership has changed as some of the customer dynamics and macro have changed. So we’ve had decent visibility on the Q plus one for billings, but we’ve had some trouble earlier this year on the further out outlook.

Scott Berg

Okay. You talked about some of the renewals there, which brings us to my next question around net revenue retention. It’s been falling. You all have talked about on the last quarter call and you expect it to fall a little bit further — and following that revenue retention can happen, of course, for two reasons. Customers may be falling capacity and they just don’t need to expand in the short term or customers may have overbought and now down sell might occur. How do we think about kind of balance between those two portions on the [indiscernible] that might be driving the deceleration in net revenue retention?

Cynthia Gaylor

Yeah. We talked about this a bunch on the call, but also it’s one of the key questions that we do get from investors. So we don’t guide to dollar net retention, but we do try to give color on it each quarter as well as what we expect for the one quarter out. And we did say we expect that the trend line — the downward trend line would continue in that metric into Q4. I think when we kind of unpack it, it goes back to the beginning part of this meeting where we were really talking about those expansion rates and the dynamics we’re seeing in the cohorts of customers and kind of the flattening of the expansion rates.

So in dollar net retention, there is embedded churn. But if you were to point to one thing, or the top thing driving that dynamic, it’s probably the rate of expansion. So overall, customers are still expanding. They’re just expanding at a slower rate. And that doesn’t mean we don’t have churn, but it means that, that’s the bigger driver of the trend line right now.

Scott Berg

No, that’s a great viewpoint because obviously talks about our highlights the value that customers are getting from the product versus having to trend down because of the change in business.

Cynthia Gaylor

Yeah. And I also think it points to, Scott, that the — when you think about the customers and what was — what we were talking about earlier on penetration rates, and how we’re underpenetrated in some pockets or there’s still lots of opportunity, untapped opportunity within the installed base. It also points to that over time, there are things in our control to expand within the customers because they’re not fully penetrated. So I think that’s a dynamic when we look at those different cohorts. It feels like something very much between product innovation and go-to market, we can do more around.

Scott Berg

Great. I guess it would be a good color right now if we didn’t talk about the macro, at least a little bit, given what’s going on. Can you remind us how the macro is impacting the business. Is this just typical lengthening of sales cycles that many of the software vendors are seeing out there or is there another dynamic that might be at play and I don’t know whether it’s your industry or product set?

Cynthia Gaylor

Yeah. So I think the macro — I mean we’re not immune to the macro environment similar to our software peers. I think given our products have ROI, there’s still demand, but it’s probably muted demand in the current environment, and we talked about that some on the Q3 call. We’re focused on the things in our control. There’s certainly verticals that are more impacted right now by macro similar to at the peak of the pandemic, there were certain verticals in financials, mortgage is maybe a very obvious one, where when interest rates were very low. Customers who had a lot of exposure to mortgage, we’re expanding at very high rates because they were doing a lot more mortgages.

And now in the current environment where interest rates are higher, there’s maybe not as much mortgages. So if the customer is a pure mortgage provider, that would be an example of a vertical that is being impacted more by the macro. But again, we have a pretty diversified vertical base and mortgage would hit financial vertical overall. But then even within pockets of financial, we do see some really promising expansions within those verticals for other use cases.

So customers who have diversified use cases themselves, maybe moving their vertical usage of our product to other areas of their business, right? And so that interesting within itself. But I think we do have customers impacted by macro. We will be impacted by macro. The outlook we gave for fiscal ’24 doesn’t assume improvement in the macro or deterioration. It’s kind of what we’re seeing now is what we would expect to continue into next year.

Scott Berg

My last question were actually on your initial I wouldn’t call it guidance, but view on fiscal ’24. Can you talk about what drives, I guess, the comfort or visibility into the growth level that you [indiscernible] just talked about in game on the third quarter call there. You talked about earlier on the out quarters, maybe a little less visibility earlier in the year. You seem to have a fair amount of visibility at this point or at least a fair amount of comfort in terms of the initial guidance you get for next year.

Cynthia Gaylor

Yeah. And I would just say like, look, we were really pleased to be able to give an outlook. We thought in the current environment, particularly with what’s going on in the macro as well as the additions to our management team. It was important to give at least an initial outlook. I’d caution you, it’s not a guide, right? Hopefully, when we get to that point next year, we’ll be in a position to be more specific. But we thought it was important to put out there what we’re currently seeing. We are in the midst of our fiscal ’24 planning cycle. — that will come together.

Allan in his role, as I said, about 90 days. So really focusing on where our priorities are for next year, where we’re going to put more or less investment against those priorities. So I think in general, I think putting out the outlook was probably more — we wanted to be clear on what we’re seeing. And I think that’s what it represents versus more or less visibility than what I was talking about earlier.

Scott Berg

Last question for me, and then we will take in to Q&A. We’ve got several coming in. Just on the operating margin, kind of, I guess, initial view that you gave on the third quarter call, you talked about operating margins will likely be on the lower end of your kind of long-term 20% to 25% guidance range. I guess with the changing workforce and the 9% reduction in a single-digit revenue growth rate, why would we not see operating margins to trend maybe towards the higher end of that because your investment levels are likely to be, I guess, a little bit lower knowing that the growth, at least in the near term, isn’t as hyper as what you’ve seen previously?

Cynthia Gaylor

Yeah, for sure. So I think the restructuring in some way gives us room to invest in the in the key priorities. But given where we are in the market and our leading market position, I know Allan and our team feels strongly that we need to invest in the right ways, but we want to do so in a disciplined way. So I think there are arguments for higher margin or lower margin, we think the lower end of that range for next year is reasonable.

We wanted to make it clear that we were committed to the lower end of the target range that we had communicated at the time of the IPO before I was even on the board. So we’re committed to profitable growth at scale. But I think we also have to prioritize some of the growth areas, given the greenfield space in our market and our leading position. And as we go across — after the broader agreement workflows, I think we need to make sure that we’re making the right investments in order to be the category leader there as well.

Scott Berg

All right. Well, with that, let’s take some Q&A here. First question is on the self-service motion. What is the opportunity for cost savings by moving SMB to self-serve?

Cynthia Gaylor

Yeah. So I think the self-serve is not solely about kind of cost savings, as I touched on earlier. I think there’s a multifaceted opportunity. One is around product innovation and make sure we’re innovating around the products so that all customers across direct and digital can self-serve doing more things. We also think it’s a good landing spot for international to further grow international, but it does require product investment, which is a key focus area.

We also think it can drive top line growth kind of across the business if more customers can self-serve across more different activities. And then third, I do think it is a — it can provide some operating leverage over time, but I wouldn’t anticipate that’s kind of an immediate piece because we do have some product things we need to do before we would necessarily see that leverage in the business model.

Scott Berg

Okay. Next question is around your net revenue retention. You talked about seeing early renewals with many customers at capacity. If so, why is that dollar retention coming down then?

Cynthia Gaylor

Yeah. So when customers are at capacity and their contract is coming up for renewal, they could be at capacity in doing a flat renewal, they could be at capacity and doing a slightly down renewal or an up for renewal, right? And so they could be expanding, they can be contracting, they can be flat. And so just because they’re at capacity doesn’t necessarily mean they’re expanding or contracting. I think also the dynamic we talked about the early renewals, we saw a slight uplift in the Q plus one type of renewals, which we think also speaks to the macro environment.

Customers may not be renewing as many quarters out. But also our field is developing better hygiene around how we are looking at the renewal base and the renewals coming due. So if the field is going through their checklist and saying, hey, these customer is due in two weeks, two weeks after the quarter closed, but look, they’re like they’re just approaching capacity, let’s talk to them now. and talk to them about renewing a couple of weeks early. Maybe we’re selling them additional products or expanding them. Maybe they’re going to try out the new pricing and packaging. There’s all different kind of dials in that discussion.

So I think it points to two things. One, I think the go-to-market piece and just some of the enablement initiatives we’ve been talking about and our team doing better. I also, on the flip side though, I would say it points a little bit to the macro climate and some of our other peer companies have seen a similar dynamic in kind of that Q plus one early renewal, which, again, we’re pleased to be to take those deals off the table and bring them into — but that dollar net retention, again, it’s around that expansion rate over a bigger book of business. And so it takes more expansion dollars to move the dollar net retention than it did 2 years ago when we were a much smaller company.

Scott Berg

Next couple of questions are on CLM. The first question is, if you’re number two in the market, who’s number one? And with that vendor, where are you lacking or behind in terms of product and go-to-market? I don’t think we have to name who number one is they’re actually presenting at our conference here if anyone is not familiar with them, certainly, I can take that one later. But from a feature functionality or go-to-market, why are they ahead or what gaps do you need to fill?

Cynthia Gaylor

Yeah. And I’m not sure like what measure the number one or number two is, like I think we would say we are the leader in the market. Gartner, I think the folks can look at what they published I think everybody is called a leader in the market. So I would maybe debate number one, number two, I don’t want to get into that debate. But I think we would say like we’re the leader in the market and not just in CLM, we’re kind of across broader agreements, and we have a really big installed base where we think we can go win and define the category there, of which CLM is a big piece of that or a core component, I should say.

So again, I think different people are attacking different slices of the market. We don’t think there’s winner takes all in that market similar to Signature. There’s not a winner take all. We think others can succeed. But what we’re doing is looking ahead and how are we going to innovate around broader agreement workflows and be the category leader across that broader initiative.

Scott Berg

Okay. On the CLM adoption, how would you characterize the customer profile of someone who adopts the CLM offering, maybe by headcount or vertical, et cetera.? And is every single Docu customer addressable for CLM?

Cynthia Gaylor

I’ll take the second one first. So the answer is no. I don’t think every single DocuSign customer is addressable for CLM I think the — given it’s a fairly nascent market. And again, it requires — I talked about change management in — within the customer base in terms of how do you think about agreements, how do you think about contracts — how do you think about the process and the automation around them. It does require change management. And as I said, we’re going through that journey internally ourselves.

So I would say every customer is not a CLM customer, but I would say the profile of a customer, who’s prime to be a CLM customer is a customer, who is a signature customer and they are likely in certain areas of verticals, financials is a good example. Manufacturing would be a good example. Healthcare/Life Sciences could be another example, technology sector would be some examples, not the only examples but just some that are kind of top of mind, who have used signature, who have seen the ROI and now want to expand what they’re doing with DocuSign in that same high ROI way.

And so those would be some of the pieces. I would say likely it’s probably more in kind of what we call our mid-market majors and enterprise-type customers than our VSMB or SMB type of customers. That doesn’t mean some of them don’t use the products. There’s different features and functions even within those products. that folks — customers find value. But I would say that would probably be the — how I would articulate that.

Scott Berg

Last question. Pardon me, at least on CLM at the moment is — how much does the average customer’s ACV increase when they adopt CLM?

Cynthia Gaylor

Yeah. So similar to signature, it’s a land and expand model. So customers tend to start small and then expand over time. There’s also more customer success required around CLM. So while we don’t disclose kind of the deal sizes, what I would say is when we’re thinking about things like dollar net retention, and we’re talking about the expansion rates, adding products like CLM can expand — expands that book of business. And so we are very focused on making sure that customers have exposure to these other products to help with those expansion rates.

Scott Berg

Next question is on the early renewals. Can you provide some color into the magnitude of the early renewals for Q3?

Cynthia Gaylor

Yeah. So I mean we have early renewals. We have some level of early renewals in every quarter. And I would say the dynamic — and we’ve talked about it, I remember my first couple of quarters here as the CFO during the peak of the pandemic, we had early renewals that were a different dynamic. It was customers who had bought conservatively and then expanded way before their contract expired because they needed more. And so the expansion rates were quite high, and that was reflected in both our revenue growth, our billings growth and our dollar net retention.

I think what we’re seeing now in early renewals, and again, we always have we always have a certain level of early renewals. And in Q3, it was that Q plus 1 dynamic. And so I think we’re looking at that. But remember, Q4 has more renewals, just given the cycle of contracts. Q4 tends to be a stronger quarter in software. And so we wouldn’t expect that dynamic to continue into next year, into Q1 or into Q4 just because there’s not the same base of renewals coming due in those quarters.

Scott Berg

I like the next question here just because I think just the way it’s worded a little bit. But how can investors know, aside from when you tell us on a conference call when the COVID hangover effects have ended? What is the management team at the company looking at to help better understand where this is at?

Cynthia Gaylor

Yes. So I think the — on COVID, I mean, I know some pockets of investors talk about the COVID hangover. I think we had acceleration in our business due to COVID, and we’re kind of coming off of that. And there’s these dynamics around we grew our book of business, we grew our customer set — very, very quickly. And I think that is a testament to what the market opportunity is. But it’s still a really big market where, believe it or not, a lot of companies don’t use an electronic signature product, and they don’t use DocuSign. We only have 1.3 million customers. There’s tens of millions of companies around the world.

So I think — we think about it less as like the COVID hangover effect, and we think it’s more about how do we continue to expand within our installed base. How do we continue to land, which we’ve been pleased with our lands on net new customers and make customers successful so that they’re expanding across the innovation that we’re delivering in the products and the features and functions as we’ve been talking about.

Scott Berg

Well with that, we are [indiscernible] Cynthia, I wanted to thank you so much for joining us and everyone on the call, thank you so much for joining us. If there’s any other follow-up questions, please feel free to reach out to me directly or to Cynthia and the entire team of DocuSign. Thank you so much, everyone.

Cynthia Gaylor

Terrific. Thank you. Thanks for having us.