Good afternoon, ladies and gentlemen. Thank you for joining DocuSign’s Second Quarter Fiscal 2019 Earnings Conference Call. As a reminder, this call is being recorded and will be available for replay from the Investor Relations section of the website following the call. At this time, all participants are in 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 second 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 second 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 joining the JMP Software Walking Tour on September 25 in San Francisco and as other event happens, we will provide updates. Now let me remind everyone that the statements made on this call are forward-looking statements that are based on our beliefs and assumptions and on information currently available to management including estimates 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 risks, uncertainties and other factors that may cause our actual results, performance or achievements to be maturely different from any future results, performance or achievement expressed or implied by the forward-looking statements. Further information on these risks and uncertainties is included in our perspective, previously filed with the SEC and additional information will be made available in our July 31, 2018 quarterly report on Form 10-Q and other filings with the SEC. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements 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 these statements or to update the reasons of actual results to differ materially from those anticipated. I'd now like to turn the call over to Dan. Dan?

Good afternoon everyone and thanks for joining us for our Q2 earnings call. I’d like to start by saying that it’s been an exceptionally busy and successful quarter for the team here at DocuSign. We continue to demonstrate strong growth in our core business. We successfully closed the acquisition of SpringCM, which accelerates our vision to modernize the world's Systems of Agreement, and finally we showcased new innovation across our solution portfolio. I am pleased to talk you through each of these today. Starting with the numbers, let me share a quick view, then Mike will give you more details shortly. All in, we had a strong quarter. Our revenues came in at $167 million, which translates into 33% year-over-year growth. We were again profitable on a non-GAAP basis with an operating profit of $4 million for the quarter and we generated $18 million of free cash flow doubling the level seen in Q1. Our growth continues to be driven by two primary factors; acquiring new customers and growing usage within our existing customers across their lines of business. At the end of Q2, we had almost 430,000 paying customers, an increase of 25,000 over the previous quarter. As I have said on previous calls and during the roadshow, this growth is not limited to the U.S. Our international business represented 17% of our overall revenue this quarter and it continues to be an area of significant focus for us. Moving next to the acceleration of our System of Agreement strategy. The biggest news in the last few months was our acquisition of Chicago-based SpringCM. With this acquisition, we have a broader set of products to sell, additional technologies to commercialize, and a team whose experience complements ours almost perfectly. For those of you that may not have joined us…

Thanks, Dan and good afternoon everyone. As a reminder, 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. Our recent acquisition of SpringCM just closed yesterday, September 4. So, all of our Q2 results includes DocuSign results only. Half way through fiscal 2019, we continue to execute against our financial objectives. We delivered a strong second quarter with healthy top-line growth, positive free cash flow and non-GAAP operating profitability. Total revenue grew 33% year-over-year to $167 million in the second quarter. Subscription revenue grew 35% year-over-year to $158 million or 95% of total revenue with strength across our geographical and vertical markets. Billings grew 32% year-over-year to $172 million. We added approximately 25,000 new customers in the second quarter bringing our total to 429,000 customers worldwide. This is a 28% increase over Q2 of fiscal 2018. Of these 49,000 customers were enterprise and commercial customers, reflecting a 36% increase over Q2 of fiscal 2018. Our net dollar retention of 115% in the quarter remains strong and in our historical range of 112% and 119%. Customers with ACV greater than $300,000 saw a 47% year-over-year increase to a total of 246 customers, which is another strong indication of our ongoing, expanding success in our existing customer base. International revenue climbed 34% year-over-year to $29 million in the second quarter and represented 17% of total revenue. Non-GAAP gross margin for the second quarter of fiscal 2019 increased to 81% from 79% in the second quarter of fiscal 2018. Non-GAAP subscription gross margin this quarter also expanded to 87% from 85% in the second quarter of fiscal 2018 as we continued to scale the business and drive efficiency. Our focus on the e-signature…

[Operator Instructions] Our first question comes from Sterling Auty, JPMorgan. Please proceed with your question.

Yes, thanks. Hi guys. Wanted to drill in on the larger customers, the 47% growth in customers over 100,000. Is there some commonality in terms of the expansion in terms of the use cases within those customers? And is there anything that you’ve been able to do to maybe take some best practices from one set of customers to help with expansion and maybe cross-selling to other customers?

Sterling, I’ll start and Dan, please jump in. So, first is the metric of customers that have exceeded $300,000 in ACV, not $100,000. And these are customers over their lifetime that have accumulated ACV to that point as opposed to a new customer starting at that level. I just want to make sure everybody understands this statistic. That is a statistic that we will update each quarter because it’s a good indication in addition to our dollar net retention. It shows our success and our strategy of upselling our existing installed base. Across that installed base, we’ve talked about our expansion internationally, so it is pretty geographically dispersed, and it’s also well dispersed among verticals. We have some key verticals like financial services, like healthcare, and others into which there is specific capabilities that we have that can drive upsells in those types of industries. And so, the number of use cases and the number of variables that lead to that success are very broad. So those are my initial comments. Dan, I don’t know what’s your additional thoughts are to that?

No, I think you hit all the key points really well, Mike. My sense is, it’s not about a specific couple killer use cases or killer application in certain verticals. Sterling, this is the continued expansion, think about our land and expansion strategy we talked about in the past. This is the expand continuing to come to fruition across the board, so we feel really good about it.

All right, great. And then, Dan, maybe one quick follow-up for you with Neil’s announcement of his intention to retire. Is this something that you kind of knew ahead of time and were able to plan and there is some succession or was this a surprise? Just want to understand how this kind of sets up to go through the transition.

Absolutely. So Neil and I started this conversation literally the day I joined over 18 months ago as we plotted out the future of building the organization. So not only has it been something we’ve been in constant communication about, but it’s really been the focus of the organization we’ve built. And for those of you that don’t have experience with Neil and either his IBM career or Taleo, he has built fantastic sales organizations that are really built to last, and we are excited that we have the capability in our organization today to continue to grow for years to come because of the way he has really developed that organization. So, well planned, well thought through and I think setting us up for a fantastic future.

Thank you.

Our next question comes from Keith Weiss, Morgan Stanley. Please proceed with your question.

Thanks guys. Thanks for taking the question here, very nice quarter. Just a quick follow-on on to Sterling’s question, is there going to be like a new Head of Field Ops? Or are you guys planning to replace that position or is the existing structure that’s going to take over the role and you don’t need to replace that position specifically?

Sure. So, as I sort of indicated a little bit on the previous part of the question, we’ve been planning for this for a while and have really focused on investing in the talent that we think we need to grow the business going forward. So at this point in time, we wanted to get out early with the announcement, so that we would also have the opportunity to look externally to see if we want to augment the considerable talent we have in the field organization to date. We think we’ve built an organization that has all the capability, all the talent we need for the growth going forward, but given the stature we’ve sort of achieved to the company, we feel it’s a pretty attractive place to work. We get a lot of inbound interest all the time. We think we will probably get even more so now, and so Neil and I are working to take a look at what’s available from the outside and if we see an opportunity to enhance our field organization with an additional senior hire which could be in a variety of different roles, we’ll obviously take advantage of that opportunity, and if we determine that now we have all the right positions in place now, then we’ll go forward in that approach. But having almost half the year to work that through gives us the comfort that we will have a great outcome.

Got it. That’s great color. On SpringCM, I wanted to dig in a little bit further into that. Now that the acquisition has closed, you had some little bit more time to sort of take a look at the technology roadmap. Can you give us an update on how you are thinking about what you guys have been doing in the space, how that’s going to integrate with SpringCM, and how it is just like the broader product suite [indiscernible] how that’s integrated with the SpringCM? And what’s the time frame we should be thinking about in terms of more of a platform of a joint solution between the two technology bases coming into the marketplace?

Yes, absolutely. So, I think the best way to think about the first part of your question is the System of Agreement model we laid out. If you think about back on the road show, we talked about the construct of the first place we would probably go to augment our core signature strength is in the pre-agreement or prepare or [indiscernible] document generation space, and quite simply that’s because our customers were most frequently asking us for support in that area. So we kind of knew that was where we were going to look first. In this process, as we really discovered some of the capability that SpringCM had in both DocGen, but also in this manage or post-signature phase, we realized it was sort of a twofer that we could actually get faster traction against our strategic goals with an acquisition here and merging them into our business. So that’s really was the plan all along focused on DocGen first and then the next phase was to move more into the managed, and we are able to make real traction in both of those areas with this acquisition. In terms of your question around the timing and the integration of the platform, so we will be announcing at DreamForce, opportunities where we can already at the end of September be in a position to have our sales teams selling the capabilities that Spring has and we have some joint product development efforts which we’ll be announcing at that timeframe to enhance across what DocuSign had and what SpringCM had separately. But from the standpoint of what I think about that platform really coming together and thinking about that single experience for our customers, we are putting a lot of focus on a couple of key milestones. One is we have – and that which is our global kick-off and that’s what really we roll out to our field sales organization. Everything we want to focus on for the year and that will be in the beginning of March this year. And then we have our Momentum Conference which will be in June of this coming year – excuse me, calendar year 2019 where we think about that opportunity to go and share with our customers all the new functionality and capabilities. So those are the two places where I think you’ll see milestones on that integration into one integrated platform.

Got it. That’s helpful. And one last one for Mike. In terms of the guidance, it’s very helpful to get the contributions from Spring in there on the revenue basis and that’s negatively impacted by –the deferred revenue write-down in purchase accounting, I am assuming. Any color you could give us in terms of the positive impact we will see on billings in Q3 and Q4 as you build back up the deferred revenue base and keep selling Spring?

Keith, it’s a good question. As you are correct, the revenue numbers I just gave you include the typical adjustments that you’ll have in purchase accounting and I don’t know the exact percentage but generally it’s somewhere around the 20%. We didn’t break out separate billings guidance for Spring because it’s not a big number and as you know billings end to be traditionally much more difficult to narrow in. So we didn’t think that would be useful. But you are correct that over time, you would expect that the billings that aren’t impacted by that “haircut” should outpace the revenue that we see over time in that initial year where that haircut applies.

Got it. Thank you guys.

Our next question comes from Walter Prichard, Citi. Please proceed with your question.

Hi, this is Matt Wells on for Walter Prichard and thanks for taking my question. This is probably aimed more at Dan and at DocuSign Momentum we heard integrators talk about healthy demand for products in the Manage and Post Signature space such as your partnership with Field Search. Can you comment on to what extent these ancillary products contributed to growth in the quarter? And how you are thinking about contribution from these products through fiscal 2019 and beyond?

Yes certainly. So, Steve and some of the other manage partners you referred to are really important to the overall strategy of the System of Agreement and we continue to invest aggressively to manage those partnerships and help bring that functionality to our end customers who want a broader System of Agreement solution. At the same time from a financial standpoint, I would say the impact is still quite small and if you think back the conversation we had on the roadshow when we talked about the signature side of our business as being the dramatic provider of our economic value today. So if you look at the ancillary products outside of DocuSign and outside of Search, they are going to be a pretty small contributor and not something we’ve been in a position to sort of break out both because of the small nature and there sort of as Mike indicated as well, we expect those things to be more volatile and harder to exactly forecast.

Thanks for answering the question.

Our next question comes from Karl Keirstead, Deutsche Bank. Please proceed with your question.

Thank you. Hey, my question for you on the billings guide, it looks like you’ve raised the full year billings guide by $52 million. So, if given the answer you just gave the billings contribution from Spring is actually not a big number as you said, then that’s a fairly substantial increase in your, call it, core DocuSign billings guidance and I just wanted to ask you, if you could talk through what’s given you that added confidence to raise the full year billings guide by that amount? And then I’ve got a follow-up.

You bet. So, Karl, two things. One, just to be clear relative to the DocuSign contribution, I do agree that Spring is not a significant number relatively. However, it is still a contribution to that increase, but be clear there is allowance in therefore for the Spring contribution. That an addition to the fact that we’ve just had our first year or first half year of performance in the fiscal year and as we move through that timeframe, of course, we get more information and it provides us more comfort in getting a range into something that we see in the second half. So, I think the earlier in the year, giving full your guidance is just a little more challenging than as you – with some quarters behind you within the period and those are the biggest contributions.

Got it. Okay, and then my follow-up perhaps also to you Mike. Just on the number of enterprise commercial customers, it ended the quarter at 49,000. That’s a fairly decent increase sequentially if I think 5,000, I think you added 2,000 in the April quarter and I think we all complained that it’s so small and your answer was that it’s variable. So it feels like that answer was correct, but maybe you could just talk through why it would have jumped so nicely in 2Q? That figure stood up to me. Thanks.

Yes, and again, I agree, Karl. I think that they can fluctuate and in fact, if you look at the quarters preceding our fiscal Q1 that ended in April, they were more in the 3,000 to 4,000 range as well. So, I think Q2 is in line with what our sales engine has been able to accomplish and I think the key driver to it is we are continuing to see a lot of interest in the marketplace for our solutions. I mentioned earlier that that crosses geographies and crosses verticals. And so, underlying that customer growth, what we are seeing, we are seeing really good bookings contribution across a wide variety as well.

Got it. Okay, thanks for that.

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

Thanks guys and congrats. Maybe just a quick one for Dan and then a follow-up. I think one of the things that comes up with investors a fair amount is the potential for significant network effects I think in this business as you continue to scale out your user base at such a healthy rate. And I guess I am just wondering Dan if you can sort of high level speak to that, is that kind of how you think about the business longer term? And what sort of opportunity do you think it opens up?

Yes, as you know, we don’t traditionally think about a network effect in sort of the way you think about like a K factor arise in some consumer businesses, but if you look at our web and mobile business, it does have the potential for those characteristics whereas more and more people as we have now hundreds of millions of folks who have been users or signers of DocuSign, there is an opportunity we go back to them and market to them potentially becoming paying customer. So I think there is a phenomenon there. I think of it less like a network effect and I think about it as concept of – we get a lot of trials from the people who have used our software. And so, I think we are going to continue to see that opportunity, we get bigger and bigger in the base, get larger and larger, there is more and more opportunity for us to go after that and mine it. And we will continue to build out the incredible, I think organizational strength we’ve built in our e-commerce and our web and mobile business and look at that to be a big factor our growth going forward.

Got it. That’s helpful. And then maybe just what your imports coming up, can you just remind us what sort of the scope of the partnership is with Salesforce in terms of how big it is? What the growth trajectory of that looks like? And then, separate, we are entering a big federal quarter and that’s an emerging business. Can you just talk a little bit about some of the early success and what the pipeline looks like on the federal side? Thanks.

Yes. And I sort of take it in the reverse order and just to the comment, one of thing that was really exciting for us about the Spring deal is that they were also FedRAMP certified and it’s an important vertical for them and we had a lot of positive conversations here thinking about how we have an opportunity to go after that big opportunity that you just described more aggressively as a combined entity and now that the deal is closed, and we can really unleash that activity of our field organizations together. We are very bullish on it. In terms of the Salesforce partnership and Dreamforce, Salesforce is one of our most important partnership. They are a significant investor in the company. They’ve been a go to market partner. They’ve been a customer of ours. We are a customer of theirs. So we are sort of a multi-faceted partnership. Much of our success today has been through the app exchange, where there are approximately 7,000 different folks who have downloaded us and made us one of the most valuable app exchange company for Salesforce overall on a dollar basis. So really strong on that end and one of the reasons document generation is an area that’s really important to us, they’ve increasingly told us they see opportunity for us to do more in that side of the business. But I would also tell you that now that we are really deepening the relationship with Salesforce at multiple levels across executive relationships, selling teams, business development et cetera, and not to mention, API and product integration work that we’ve done, we see there is more opportunity to go up the stack and partner together on serving commercial and enterprise customers as well. So, it really is kind of a firing on all cylinders partnership and we are really looking forward to again to this month the opportunity to go to market with them together at DreamForce.

Got it. Thanks very much and congrats again.

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

Hey guys. Congratulations on the quarter. I am just curious given the acquisition at the move up market to enterprise and with coincident with Neil’s retiring from the company by the end of this year, and as you have your vision on building a billion dollar business potentially, how do you see the sales organization changing the go to market strategy changing, the sales cycles changing, especially as you introduce new capabilities to the platform. So are you using this opportunity to reconfigure? Are you going to market? And congrats to Neil on his retirement.

Yes, I am sure he appreciates that. I would tell you that I don’t see any significant change. And you put about the move to enterprise, it’s true if you think about the two factors that last two questions Mike got about the number, significant increase in the number of customers at over 300K, that’s an indication of that and then the 5,000 customers in that segment. We are excited about that success. But this is a quarter that was really success across the board. You look at each geographies, you look across the verticals, if you look across the segments, I mean, it was across the board we hit it on all with firing on all cylinders. So, I don’t think there is a sort of significant shift to a more enterprise focus per se. We’ve built this business initially on sort of a traditional core commercial and a lot of the methodology in commercial that sort of land and expand for approach is what we are bringing into the enterprise as much as anything else. So I don’t see any high likelihood of a dramatic restructuring of the go to market organization. I feel like, particularly coming off a quarter like this where we are hitting it on all quadrants. We are more likely to continue to go forward with a very similar structure and similar model, because of that success today.

Could the business re-accelerate given everything that’s going on at the company? Or are you just happy with how you go to market and the growth that you are able to – with your current approach?

Yes, so I don’t - Mike never lets me give guidance on things like acceleration. So, I can’t give you the specific comment to that. But I would tell you that the opportunity we see in the marketplace is significant and with a lot of things coming together, like the System of Agreement vision with both our software development as well as the acquisition of Spring and seeing that with the strong performance across all components of the go to market organization, it’s clearly not out of reasonable expectations either we could find the opportunity to see accelerating growth in the quarters ahead.

Congrats. All right, thank you.

[Operator Instructions] Our next question comes from Patrick Walravens, JMP Securities. Please proceed with your question.

Hello, great. Thank you and congratulations. So, I can’t believe we get to the end and I get to ask the Blockchain question. So, Dan, why is Blockchain – why is Blockchain important for DocuSign? And how much demand is there really today for sort of Blockchain based smart contracts?

Yes, so, Pat, I think – and I feel bad if I know you want to ask how business was and I kind of answered that in the last one. So, I apologize for taken your thunder there. But we get it next time. My sense is, Blockchain is important in the long run. I don’t think it’s hugely important in the short run. We see a lot of our customers telling us that they are interested in Blockchain. They want us to think about how solutions could make sense within our System of Agreement for Blockchain but the number of customers that are actually availing themselves of the opportunity to store in the Blockchain they are agreeing which is still very, very small and so I think if we look at it from a financial forecast standpoint over the next single-digit number of quarters, I think it will be still relatively small. But from a strategic standpoint, I think it would be a mistake for DocuSign given the business we are in not to be out ahead of Blockchain and not working with our customers that are aggressively looking to sort of figure out ways to do program in the Blockchain to partner with them and that’s why we sort of amped up a little bit, our focus there and our investment in the partnership network.

All right, great. And then if I can add one more, I mean, I think your results kind of answered this question, in one way, but I just love to hear your thoughts on sort of what are you seeing competitively out there, what’s going on with the DOBI, what’s going on with some of the smaller more electronic signature only focused players?

Yes, and we talked about the cons - that competition before and you know our standard answers, our primary competitor is paper and the manual processes that people have. I don’t see that changing anytime. We don’t take of the companies that play in our space as lightly. Most of my focus has been to make sure there is not a disruption in some way similar to your Blockchain question earlier, Pat, there is not some disruption that we missed where people come at our business from a different business model or a different approach and we are not on top of it. When it comes to the core eSignature-centric aspect of this agreement, we are in a very strong competitive position and we continue to see that and the results that we deliver. Now as we are really starting to get traction into the broader System of Agreement and some of those other components where we are not by far the largest player in the space, I think we’ll probably start to see some different dynamics. It’s a little early to give you an indication on that. But I can tell you this that we believe with the power of our leadership at what’s at the center of a System of Agreement, we still believe that is Signature and the investments we are making in the areas in the pre-agreement and the post-agreement we think we will be a significant force in those other segments.

Great, 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.

I just want to say thank you all for joining us and we will look forward to seeing you all soon. Thank you.

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