Good afternoon ladies and gentlemen. Thank you for joining DocuSign’s First Quarter Fiscal 2019 Earnings Conference Call. As a reminder, this call is being recorded and will be available for replay on the Investor Relations section of the website following the call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I will now pass the call over to Annie Leschin, Head of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon everyone and welcome to DocuSign's first quarter fiscal 2019 earnings conference call. On the call today we have DocuSign's CEO, Dan Springer, and CFO, Mike Sheridan. The press release announcing our first quarter results was issued earlier today and is posted on the Investor Relations section of our website. Before we get started, I would like to let everyone know that we will be participating in the William Blair Conference on June 12th, in Chicago, Illinois. We will provide updates as we had other events to be scheduled. Now let me remind everyone that the statements made on this call include forward-looking statements that are based on management's believe and assumptions and on information currently available to management including estimate and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. Forward-looking statements involve known and unknown risk and uncertainties and other factors that may cause our actual results, performance or achievement to be maturely different from any future results, performance or achievement express or implied by the forward-looking statements. Further information on these risk and uncertainties that could affect the company's financial results is included in the section titled risk factors and MD&A of financial conditions and results of operations in our perspective, previously filed with the SEC. Additional information will be made available in our quarterly report on Form 10-Q for the quarter ended April 30, 2018 and other filings we make from time-to-time with the SEC. You should not rely upon forward-looking statements as prediction of the future event they are based on assumptions that we believe to be reasonable as of this date. Except as required by law we assume no obligation to update them or to update the reasons of actual results differ materially from those anticipated. I'd now like to turn the call over to Dan. Dan?

Good afternoon and welcome everyone. Thank you for joining us today for our first earnings call as a public company. We are excited to share with you our first quarter performance, how our e-signature solution is redefining the way people do business, and the progress we're making towards our vision of creating a modern system of agreement platform. For those of you new to our story, DocuSign offers the world's leading e-signature solution, as far of our broader platform to automate the agreement process. We accelerate the process of doing business for the company and we simplify life for their customers and employees. And we do this by transforming the foundational element of business, the agreement process. We started back in 2003 by pioneering the category of electronic signature. Today, this represents a $25 billion market and we only just begun to scratch the surface. There is an even bigger opportunity, when it comes to modernizing the rest of the agreement process, that is what happens before and after the signature, enabling what we call modern systems of agreement. These systems automate and connect the entire process of preparing, signing, acting on and managing agreement. They allow companies to get business done more efficiently and cost effectively, while significantly improving the customer, partner and employee experience. Our leading e-signature solution and our broader system of agreement vision has enabled us to continue attracting customer across a variety of industries such as real estate, financial services, healthcare life sciences and technology. Over the past six years, we have seen our paying customer base grow at average of almost 50% per year. During the IPO we talked about having 370,000 of those customers. And today I can tell you that at the end of our first quarter that has grown to over…

Thanks, Dan. Let me add my welcome to everyone and tell you how excited I am to report our first quarter results. Before I discuss our Q1 results, I'd like to remind everyone of a couple of things. First, all of our financial results reflect the adoption of the 606 accounting standard for current and historical periods and our non-GAAP financials exclude stock-based compensation and amortization of intangibles. And secondly, while most of the results I'm about to present are on a non-GAAP basis. I wanted to mention the significant stock-based compensation charge we recorded in the first quarter related to our RSUs. Our RSUs granted prior to the end of fiscal 2018 have service-based vesting condition and a liquidity based vesting condition. With the effectiveness of our IPO on April 26, the liquidity condition was satisfied and as a result, we incurred a $263 million stock-based compensation charge. This onetime charge led to a low GAAP gross margin and a large GAAP net loss in the quarter. You will also note in our GAAP results an unusually low weighted average shares outstanding. This anomaly relates to the fact that our IPO did not close until the beginning of Q2 and therefore our preferred stock outstanding is not included in our weighted average shares outstanding. In a moment, I will provide guidance on our weighted average shares outstanding for Q2 and for the full year fiscal 2019. Turning to Q1. We kicked off fiscal 2019 with a strong performance, delivering top-line growth and positive free cash flow, while also generating non-GAAP operating profitability. Total revenue grew 37% year-over-year to $156 million in the first quarter, as our business continues to scale. Subscription revenue grew 39% year-over-year to $148 million or 95% of total revenue with strength across all customer segments.…

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Sterling Auty with JPMorgan. Please proceed with your question.

Yes, thanks. Hi, guys. Wanted to start with -- it looks like you're continuing to see really nice improvement in the average revenue per customer. I'm kind a curious are you seeing new of customers coming in, in the higher price point packages, or is it your existing customers that you're seeing the uplift from?

Well, just to get couple of thoughts. First is, it's always important to understand we really have two majorly different segments of customers between what we have in our web and mobile business and then what we have in the direct customer relationship. So I think it's dangerous to do averages across both of those units. But in terms of the perspective, I think we see growth on both sides. We have customers coming in at good rates as you’ve seen with solid initial sort of relationship, but we're also seeing great growth because we have that opportunity to expand that land and expand model we talked about on the IPO roadshow. So we're seeing things on both sides of it.

And Sterling, I would add having a 40% growth in customers with ACV over 300,000 is a good indicator of the extensive opportunities that we continue to have in the install base.

Got it. And one quick follow-up, can you talk to us a little bit about the industry diversification in the quarter? Any changes from what you're seeing in terms of the trends?

I don't think there is any material change. We continue to be quite diverse across a number of industries. We don't have very much concentration by customer or by vertical.

Alright, great. Thank you.

Our next question comes from the line of Stan Zlotsky with Morgan Stanley. Please proceed with your question.

Perfect. Thank you so much for taking my question. High level question for Dan and then a follow-up for Mike. The new large customers you guys sign in the quarter and the increase sequentially very impressive especially considering it's a Q1 and typically Q1 is not a large enterprise quarter. When you look at the large customers that you signed in the quarter, was there a common theme among them, and as what broad about the deal and why you guys were always the winning entity? And then a quick follow-up.

Yes, absolutely. So two things, when you look at what Mike was just describing about the number of customers above $300,000. Some of those are initial deals, but a significant number of those are increases. So whenever you look at that the numbers you referred make sure you keep that in mind. But secondly to your macro question about what's driving it. I'd say there is two things, one of them. I think this concept of a systems of agreement is really taking hold in the marketplace. And we see that a lot of the companies as we speak they want to broaden and modernize their systems of agreement. And that also gives us the opportunity to have expansion. I think the second piece is we really are focused on customers success at DocuSign and we are driving a greater and greater adoption rate and greater and greater success for our customers, which leads us to those increased deal sizes you referred to. So those would be the two big drivers in my mind.

Perfect, thank you. And a quick follow-up for Mike, Mike we notice the guidance for billings for the full year, the midpoint around $690 million, it implies 15% growth for the full year. Is there something that we need to be mindful of as we think about billings given the really big peak in Q1 and how the cadence of it evolves through the year? That's it for me, thank you.

Yes, it's a good question, Stan, I would say billings in a SaaS business is the one statistic that could be affected by timing of renewals that you can see move from one quarter to the other. So, I think the ranges that we're guiding are appropriate of course we always aspire to grow as quickly as we can, but I think the variability around billings is unique to that particular statistic.

Got it, thank you.

Our next question comes from the line of Walter Prichard with Citi. Please proceed with your questions.

Hi, thanks. Two questions, first for Dan, just on this -- on your payment offering and generally on your sort of add-on services, can you talk about revenue significance and sort of what we should look at in terms of timing for some of those services becoming more significant from a revenue perspective? And then just had a follow-up for Mike.

Yes, surely. So one thing you understand is we don't breakout sort of separate revenue line items from a standpoint of how we report the revenue across different features within our products. But a big part of the reason, we don't do that is because that's not how we engage with our customer. So most customers are engaging with us if it's just in the signature or because of broader system of agreement, whether it’s the volume that they purchase from us or things [ph] they purchase from us, it's not really structured that way. So, you only could have a lot of ability kind of break that out or perhaps to give you direction on that, from a standpoint of what we're seeing in the marketplace from an adoption standpoint. I think we're seeing significant uptake in a lot of the new functionality payments is a great example of that where the percentage growth has been substantial on the number of customers that are leveraging those functionalities. Similarly you saw the data that we gave on what's happening with things like strike through and I think we continue to believe we'll have that kind of success at our upcoming Momentum Conference, it’s a great opportunity for us to be with thousands of folks that are really excited to take on that broader and broader product portfolio.

Great. And then Mike, on -- you are seeing really good leverage in the business where I think employee count is growing like half the rate of revenue growth and OpEx is growing pretty materially below revenue. I'm wondering how sustainable is that, I mean, it seems like the top line growth may drive you to spend more. Just trying to understand obviously you’ve given your guidance for the year, but how are you thinking about leverage and spending upside in quarters and so forth given what you are seeing so far?

Walter, I would characterize it this way, I think our primary focus is and will continue to be growth and we're going to invest in sales and marketing, in product development, in international and all those growth drivers because the market is very early in terms of penetration, we see a huge opportunity in front of us. With that said, we also try to be very mindful around building our investments in a way that are well matched to the growth that’s in front of us. And for example in some new emerging markets overseas, we don't over invest too early. So, I think we've got a good balance of that. So I would say that obviously both are important to us, growth is our primary goal and at the same time we believe that we're at a stage and a scale right now where we can continue to drive leverage and profitability and cash flow in the model.

Great, thank you.

Our next question comes from the line of Justin Furby with William Blair and Company. Please proceed with your question.

Thanks guys and congrats on a successful IPO and solid first quarter out of the box. I guess, I want to start with Dan and just look for an update on the enterprise specifics sales being out to the global 2000. I was wondering if you could give a sense today in terms of how much logo penetration you have within the G2K. And if you think about the difference segments commercial, enterprise and web, how much opportunity do you think that large enterprise is when you look out over the next three to five years? And I have got one quick follow-up.

Sure, well I think what we think about the segmentation, we tend to think about commercial and enterprise more together as our core direct channel versus the web and mobile, which of course is very, very different. As you saw us talked about, there has been a lot of success that we’ve had in the web and mobile business continues to be a significant driver of a lot of those new accounts that Mike walked you through, so we’re excited about that. In the direct business with commercial and enterprise, I am quite pleased with the very significant penetration we’re making in that marketplace. And I believe as we continue to scale our go-to-market business, and our operations on that front, we have opportunities to continue to accelerate that not only in North America but because of the investments Mike just referred to in international, we think that’s as only 17% of our revenue a huge opportunity for us to continue that momentum. I was just in Europe, a few weeks ago in the market and I just saw increased demand where people are starting to understand what a system of agreement can really mean for their business there. So I think those are the way I think about the opportunity.

Okay, got it. That’s helpful. And then maybe for Mike, in terms of the retention, you guys have been very successful in sort of in that 115 or so level and it looks like you did so again in Q1. I am wondering if you think that sort of a sustainable number when you look out over the next two, three years. And can you remind us the impact on the margin for you in terms of when growth comes from the base versus net new logos? Thanks.

Sure, I would say that in net new logo obviously because it’s going to be an initial deal, which generally tends towards the initial used case is smaller deal size, aren’t going to have as much leverage embedded in them as a customer who has experienced with this and expanding their platform. So, in terms of our ability to sustain these levels, we made significant investments in our business to drive them in particular around adoption. As we’ve talked about our customer success organization is an organization that proactively works with our customers to help them with adoption as customers realize the significant ROIs that come from our technology in their businesses and they adopt successfully. That’s what bring them back. So yes, I think that you will see overtime, they can range between as I mentioned 112% to 119% anywhere in there we consider to be healthy. And by the way by any comparison I think considered to be very strong and given the size of our install base, we see it is a huge engine for our growth and leverage.

Great, thanks very much.

Our next question comes from the line of Alex Zukin with Piper Jaffray. Please proceed with your question.

Hey, guys. Congrats on great first quarter out of the gate. Maybe Dan, first one for you, big picture, one of the more compelling aspects of the story is when you can really touch that your customer’s customer and be part of that customer experience for their business. Any great examples in the quarter where you are able to talk about aside from a customer facing used case and kind of how you are seeing that evolve? And I have got a quick follow-up.

Sure, well I think the case that sort of been most excited about really over the whole last year, that we saw acceleration in the quarter is T-Mobile, right. We had a chance to talk about them before, Alex where they have fundamentally transform the relationship they have with their customers to leveraging the DocuSign technology. I think these what we would like call front office used cases will also continue to play out really aggressively across all of the partnerships we do through salesforce.com, and we have talked about before sales force has a unique capability to partner with us around how a customer uses sales force to win new customers, but then leverages the DocuSign technology to not only make it easier and faster to bring the customer on board, but to improve their experience as they are on-boarded. So that’s kind of core B2B sales base as well as the consumer side we talked about in T-Mobile. Those would be the examples that I have seen the greatest traction on recently.

Got it, great. And then, Mike, maybe can you help us just on free cash flow margins for -- from a seasonality perspective and for the year, how should we think about those evolving as we get through the first year?

Sure, so I would say just in terms of seasonality Q4 tends to be the stronger cash flow quarter just because of deals and renewals that tend towards that quarter. The Q1 through Q3 timeframe generally are pretty stable one to the next not as much fluctuation. And just in terms of how you should see them trending, they generally should trend in a similar direction as our EBITDA and our operating margins.

Great, thanks. Congrats guys.

Thank you.

Our next question comes from the line of Karl Keirstead with Deutsche Bank. Please proceed with your question.

Thank you and congrats on the first public call. Maybe one for Dan, one for Mike. Dan on the international side, you guys have flagged a lot of investments there. I'm just curious what you think the timing of the payoff period will be from those big investments. And just to zeroing on the numbers, when you do think that percentage of revenues, which is now 17% international can really start to ramp up? And maybe another way of asking that is whether the percentage of billings is tracking today well above 17%. And then maybe I'll ask the second question right now as well. Mike, obviously invoicing duration can be a big determinant of billings as well. Could you just remind us what the average invoicing duration is? I know the contract terms tend to be one to three years. And whether in the quarter, you did see any duration change worth of calling out? Thank you both.

Let me jump into the international question first. So I think the answer when do we see that? We see it now. We have tremendous amount of success. And as you know, the bigger success we've had is first with the other common law countries, so thinking about the UK and Ireland, thinking about Canada, thinking about Australia. But we really are starting to see in the [indiscernible] countries that acceleration. I point you to a couple of factors, if you look at the revenue 52% growth in international and our overall 37% growth. You can see that we're already seeing an acceleration and we will continue to see the share of our revenue grow faster internationally than we do domestically. So that's how we see the opportunity. I think it's really current and it’s with us today.

And Karl, in terms of duration. So if you looked at our dollar weighted duration this quarter is very similar to what it was last quarter. Last quarter I think it was 19 months, this quarter it's like 19. Or last quarter it was 20 this quarter it was around 19. So that gives you on a dollar weighted basis an indication that our commercial customers tend to have annual contracts, our enterprise customers tend to have multiyear contracts. Whether it's a multiyear or a single year, we bill it annually. So if you have a three year contract, we're going to build it one year at a time, we won't bill all three years. So the billing is very stable and the duration has been very stable. So from a billings trending standpoint, you shouldn't see much fluctuation as that statistic moves. Because they continue to get build out annually. But it's very helpful for us to have a strong statistics like a 19 or a 20 months, because that just gives us better visibility and stickiness in the accounts.

Yes, that make sense. Thank you both.

Our next question comes from the line of Kash Rangan with Bank of America Merrill Lynch. Please proceed with your question.

Hi guys, congratulations on your first quarter as a public company. I was curious to get your thoughts on intended sales force capacity expansions over the next coming 12 months. And what trends are you seeing in sales force proximity across the different tiers of your business be it enterprise, commercial and other. Thank you so much.

Yes, so again there is quite a significant difference the way we think about the web and mobile business versus the direct business both from a sales force standpoint because of course in the web and mobile business it's really more of an e-commerce. So we don't have while we make investments in that infrastructure of course it's not in a traditional go-to-market to sort of sales people FCRs, MDRs lesion, et cetera. But what I would say is that, if you take a look at the guidance that we're providing for the growth, the reasonable assumption that you should make is that we’ll be scaling right at that same level in our capability that we want to build for sales. We think that we have opportunity with our scale to have some productivity improvement, which will allow us to earlier caller mentioned, the number of people we're adding the rate at which we add them is lower than the top-line revenue growth. So we do feel we are getting some efficiency in the business, which is of course is allowing us to have the improvement not only in our profitability, but in our cash flow metric. But I would guide you to think about those investments in the direct business in that same sort of scale, and rate at which we grow the top-line.

Got it. Could it also be possible that there is a mix away from the more OpEx intensive side of the business and then the natural business leverage can be summarized as the idea of an e-signature becomes more broadly institutional as you really don't need the same level of intense direct effort as you get in the past and more if it can actually be pull in through a web mobile, is that at all possible in the long-term?

Well, I think that the trend you are describing is absolutely real. I think the way I would just caution you to think about our business differently is that the web and mobile business is focused very much on what we call very small businesses. So as you think about once you get to the core commercial or enterprise account, we will continue to manage those relationships to service those relationships in a very direct way. I think the bigger benefit to the efficiency that you are sort of looking for and by the way so are we comes from the fact that as we drive more customer success, that drives greater adoption within those businesses and the efficiency we get is the absolute size of the relationship for those direct customers goes up. So that’s really why we are so excited on looking at a component of scale and adoption. But that’s how I would sort of direct you to think about it.

Thank you very much. Congratulations.

Thank you.

[Operator instructions]. Our next question comes from the line of Patrick Walravens with JMP Securities. Please proceed with your question.

Great, thank you. Let me add my congratulations. Hey, Dan can we talk a little bit about the System of Agreement, so you talked about preparing, circulating, signing, activating integrating, right? Where are we today and where is your vision for where it could end up and how long is it going to take?

Absolutely, Pat. So I think the first piece I’d start off is signature which is the core of the business that we build today and we talked about that kind of $25 billion TAM that we are focused on, with only just starting to scratch the surface in a few percent penetrated there is still going to be a core focus area, we believe we can continue to grow that substantially. When you look at the other component in the System of Agreement that you referred to. I see the opportunities in sort of this order. I think in the pre-agreement or the we say prepare phase. That’s the place where we’re most focused right now as we think about our product development and the innovation that we’re driving and as well as we’re seeing with the conversations we’re having with customers, saying this is where they really pulling us. And the other piece I’d point you to, when I look at the long-term and the real macro building that’s out, I think some of the post agreement phases particularly around manage and that’s where you remember Appuri the company we bought with machine learning capability. We start thinking about the artificial intelligence opportunity to go to our customers and say all your agreements are now in DocuSign and you can now make your business better by the way we help you manage your core company through these agreement process. Helping them understand risks, helping them understand trends in their business that’s the place that I think I maybe even most excited for the biggest opportunity going forward. But in timeframe I think prepare first and manage coming second.

Great, thanks. And if I could just do in a quick one. How does the pipeline look and did the IPO help generate more lease?

That’s a great question. I think the pipeline look strong and that sort of it gives you an indication of both the results we have had in the quarter that were strong as well as the guidance that Mike indicated in raising that outlook is of course influenced by the comfort we see in that strong pipeline. From an IPO impact, we have sort of heuristic conversations I have with people in the field and I don’t know that we think it actually increase the pipeline from sort of a lead generation dramatically. But one thing we have seen is that there is a comfort level that some of the customers that are interacting with us have said, we didn’t realize how substantial DocuSign was as a company and it’s helpful to see that now that information is public and we believe that could have a positive impact on our ability to accelerate through the sales cycle the leads that are there today.

Awesome. Thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to management for closing remarks.

We want to thanks you everyone for joining us, we look forward to seeing you at the upcoming events and we’ll be back next quarter with you again. Thank you so much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.