DocuSign, Inc. (DOCU) Q1 2022 Earnings Call Transcript

DocuSign, Inc. (NASDAQ: DOCU) Q1 2022 earnings call dated Jun. 03, 2021

Corpoate Participants:

Annie Leschin — Vice President, Investor Relations

Dan Springer — Chief Executive Officer

Cynthia Gaylor — Chief Financial Officer

Analysts:

Sterling Auty — J.P. Morgan — Analyst

Karl Keirstead — UBS — Analyst

Alex Zukin — Wolfe Research — Analyst

Tyler Radke — Citi — Analyst

Stan Zlotsky — Morgan Stanley — Analyst

Scott Berg — Needham & Company — Analyst

Rishi Jaluria — RBC Capital Markets — Analyst

Kirk Materne — Evercore ISI — Analyst

Brad Sills — Bank of America Securities — Analyst

Jake White — William Blair — Analyst

Aaron Kimson — JMP Securities — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen. Thank you for joining DocuSign’s First Quarter Fiscal ’22 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. [Operator Instructions]

I will now pass the call over to Annie Leschin, Head of Investor Relations. Please go ahead.

Annie Leschin — Vice President, Investor Relations

Thank you operator. Good afternoon everyone. Welcome to DocuSign’s first quarter fiscal ’22 earnings conference call. On the call today we have DocuSign’s CEO, Dan Springer; and CFO, Cynthia Gaylor. The press release announcing our first quarter results was issued earlier today and is posted on our Investor Relations website along with our quarterly slides. We plan to post prepared remarks on the site beginning next quarter. Before we get started, I’d like to let everyone know that we plan to participate virtually in a few upcoming events. These include Evercore’s TMT Conference on June 7, Bank of America’s 2021 Global Tech Conference on June 9, and Baird’s 2021 Global Consumer Tech and Services Conference on June 10. As other events come up, we’ll make additional announcements.

Now, let me remind everyone that some of our statements on today’s call are forward-looking. We believe our assumptions and expectations related to be forward-looking statements are reasonable, but they are subject to known and unknown risks and uncertainties that may cause our actual results or performance to be materially different. In particular, our expectations regarding the effects of the COVID-19 pandemic on our business, including the potential effects of the pandemic subsiding are based on our best estimates at this time and are therefore subject to change. Please read and consider the risk factors in our filings with the SEC together with the content of this call.

Any forward-looking statements are based on our assumptions and expectations to-date, and except as required by law, we assume no obligation to update these statements in light of future events or new information. During this call, we will present GAAP and non-GAAP financial measures. Non-GAAP financial measures exclude stock-based compensation, employer payroll tax on employee stock transactions, amortization of acquired intangible assets, amortization of debt discount and issuance costs from our notes, acquisition-related expenses and as applicable other special items.

In addition, we provide non-GAAP weighted average share count and information regarding free cash flows and billings. These non-GAAP measures are not intended to be considered in isolation from, a substitutes for, or superior to our GAAP results. We encourage you to consider all measures when analyzing our performance. For information regarding our non-GAAP financial information, the most directly comparable GAAP measures and a quantitative reconciliation of those figures, please refer to today’s earnings press release, which can be found on our website at investor.docusign.com.

And now, I’d like to turn the call over to Dan. Dan?

Dan Springer — Chief Executive Officer

Thanks, Annie. Good afternoon everyone and welcome to our first quarter earnings call for fiscal 2022. We have a lot to cover today. And I’d like to focus my comments on four key areas: our strong Q1 fiscal year ’22 results, more insight into the breadth of our customer journey, the international business landscape, and how we see that evolving, finally, the key investments we made in technology and people. But before I get to the financials, I want to share some observations on our market overall. Since the start of the pandemic, DocuSign has helped accelerate access to healthcare, government, education, small business lending and many other services around the world. What began as an urgent need has now transformed into a strategic priority. And as a result, DocuSign has become an indispensable part of many organization’s business processes.

Put another way, once businesses usually transform their agreement processes, they simply don’t go back. We believe this trend will only accelerate as that anywhere economy continues to emerge. In fact, just few weeks ago, we were excited to welcome DocuSign’s 1 millionth customer. This move to digital has manifested itself in a great start to the year for DocuSign. We saw strong performance on all fronts delivering a balanced growth and profitability at scale. Revenue grew 58% year-over-year, $460 million reported. International reached a milestone with over $100 million of revenue for this quarter. Non-GAAP operating margin reached an all-time high at 20% as our top line growth outpaced our investment.

Strong expansion across our existing customer base drove record-high dollar net retention of 125%. From any vantage points these are exceptional results that reflect the continued demand and engagement we are seeing from our customers from all industries and used cases. I’m particularly proud of the DocuSign’s team agility to execute despite the vast majority of our 6,000 strong workforce still working remotely. As we’ve said consistently eSignature is on rail to DocuSign’s remote company. This quarter was no exception as we saw new and existing customers adopt and expand at record rates with use cases and Envelope volume increasing significantly.

Let me give you just a few examples. A large delivery service provider needed to capture, monitor and report on new benefit structures for its workers. We helped the team leverage eSignature powerfully and DocuSign’s Insight Analytics to create an entirely new and streamline process. This saved them hundreds of hours of manual processing, created accurate and efficient management reporting and it provided an extensible solution for future growth. One of our restaurant service customers needed a way to streamline and automate their agreement generation and signing processes as their industry began to reopen. We worked with them to improve turnaround time and increased sales productivity.

Importantly, this dramatically decreased the time to complete agreement from two weeks down to just three days. And one of our leading grocery production customers with printing over a million pieces of paper a month as part of their manufacturing process. They started using eSignature templates and quickly took more than 100,000 sheet paper out of circulation, a number that will only grow now that other business units can leverage the technology. Now this expansion was not just domestic but international as well. In Q1 our business outside the U.S. contributed 21% to total revenue. And it continues to be the biggest future growth driver for us and the largest part of our TAM.

Today this looks much like our North American business several years ago, customers growing and expanding in a similar way. Take one of our multinational telecom customers as one example, they were looking for a way to digitally transform their internal and external contracting processes and reduce their environmental impact. Using the DocuSign API the company now has defined workflows for verification, validation, and the automatic archiving of the contract. They since deployed the solution in countries across Europe and South Saharan Africa. In response to pandemic an international pharmaceutical customer faced a huge increase in new users in a regulated industry where standards, advance and qualified eSignatures are required.

Our teams worked together and the results speak for themselves. Amid a 270% increase in new users they send 650% more envelopes and completed them 50% faster and the time to on-board new users dropped from three weeks. We are also driving a variety of strategic initiatives internationally. In late April, we officially opened our virtual doors in Mexico to increase our ability to service customers in Spanish speaking. And we’re excited by the early traction we’re seeing there already. We’re also upping our focus on regional product offering. DocuSign products are grounded in high availability, reliability, data privacy, regulatory compliance and trust. But we can now take that one step further with products like eWitness in the UK.

This product makes it possible to electronically identify witnesses when they are signing an agreement. This is increasingly important in the UK as the country’s land registration authority just began accepting witness electronic signatures for their property transaction. DocuSign executed the first ever land registry deed submitted electronically. And now we’re enabling a new class of high-volume, high-value agreement that could only be done on paper. So looking ahead for the rest of fiscal year ’22 and beyond we remain committed to our vision for the DocuSign Agreement Cloud both as a key pillar and the software platform for the anywhere economy. Key to that are some important investments in our product, platform and company as a whole couple of which I want to highlight for you today.

The first is our acquisition of the technology and the team from Clause, this innovative Smart Agreement technology. Clause has been a close partner of ours and has built a platform that enables the clauses in agreements to run as computer code. These smart clauses can connect to third-party systems and drive a host of actions extending notification, running compliance checks, and sending contract status updates. Their experience developing solutions, financial services, insurance and healthcare companies also complements the way DocuSign help many of our customers and how we want to architect the Agreement Cloud for the future.

We’re real excited to welcome Peter, Dan and the whole team to DocuSign. Second highlight is our continued expansion of the executive leadership at DocuSign. As we grow and scale it’s vital to optimize our system, processes and technology infrastructure to support the need of today and the rapidly evolving [Indecipherable]. It is equally important that we have the right leaders in place to oversee and drive that evolution. That’s why I’m thrilled to welcome Shanthi Iyer as our new CIO. As the former Chief Data Officer at Cisco, Shanthi will assure that DocuSign is world-class in all of those areas and we’re thrilled to have her on board.

Also as we continue our international growth, we’re expanding our local and regional leadership. In Q1, we appointed the former regional salesforce COO, Dan Bognar to help lead our regional efforts in APJ. Before I hand it over to Cynthia, I want to reiterate that I am optimistic about the year ahead. The value we offer, our transformation of the agreement process and everything our team is doing to help customers and our partners around the world. I look forward to talking with you all during Q&A.

Now, over to you Cynthia.

Cynthia Gaylor — Chief Financial Officer

Thanks, Dan and good afternoon everyone. We followed up an exceptional year in fiscal ’21 with an impressive start to fiscal ’22 driven by strong execution. Continued customer demand for our eSignature offerings led to notable top line growth at scale. We demonstrated significant leverage in our business model with record operating margin and cash flow in the first quarter. Total revenue increased 58% year-over-year to $469 million and subscription revenue grew 61% year-over-year to $452 million. Elevated consumption levels by existing customers continued to drive the trend of early renewals and expansions in the quarter aided by secular tailwinds as customers digitize their businesses. We saw exceptional growth outside of the U.S., with particular strength in EMEA this quarter as our investments continued to gain traction.

In Q1, international revenue crossed $100 million threshold for the first time. In total, international revenue grew 84% year-over-year to $101 million. Billings also benefited from the strength in customer demand climbing 54% year-over-year to reach $527 million, our second quarter above $0.5 billion. Customer growth remained healthy with the addition of more than 96,000 new customers in the quarter. This brings our total installed base to over 988,000 customers worldwide as at the end of Q1, an increase of 50% compared to a year ago. This includes another 11,000 direct customers bringing our total direct customer base to 1236,000, an increase of 53% year-over-year.

We saw customers with an annual spend greater than $300,000 grow 42% year-over-year to a total of 673 customers adding a record 74 customers in Q1. Continued expansions and upsells led to a strong dollar net retention rate of 125% for Q1 highlighting the expansion economics we’ve seen over the past year since the pandemic began. Total non-GAAP gross margin for the quarter was 81% compared with 79% a year ago. While subscription gross margin was 85% compared with 84% a year ago. As a result of the outperformance on our top line we saw demonstrated operating leverage. Non-GAAP operating margin reached our target model range for the first time at 20% or $93 million compared with 8% or $23 million in the first quarter of last year.

We are still in the early innings of a large market opportunity. We plan to continue investing for long-term growth, particularly in sales capacity, marketing, R&D and the scaling of our operations. Non-GAAP net income for Q1 was $92 million compared with $24 million in the first quarter of last year. We ended the quarter with 6,080 employees, an increase of 42% over last year. Cash flow also outperformed. Operating cash flow was $136 million or 29% margin due to top line performance and strong collections. This compares with $59 million or 20% in the same quarter a year ago. Free cash flow came in at $123 million or 26% margin in the quarter compared to $33 million or 11% in the prior year.

We exited Q1 with $876 million in cash, cash equivalents, restricted cash and investments. Now, let me turn to guidance. For the second quarter in fiscal year ’22, we anticipate total revenue of $479 million to $485 million in Q2 or growth of 40% to 42% year-over-year and $2.027 billion to $2.039 billion for fiscal ’22 or growth of 40% year-over-year. Of this we expect subscription revenue of $459 million to $465 million in Q2 or growth of 42% to 44% year-over-year and $1.953 billion to $1.965 billion for fiscal ’22 or growth of 41% to 42% year-over-year. For Billings, we expect $549 million to $561 million in Q2 or growth of 35% to 38% year-over-year and $2.338 billion to $2.362 billion for fiscal ’22 or growth of 36% to 37% year-over-year.

We expect non-GAAP gross margin to be 79% to 81% for both Q2 and fiscal ’22. We expect non-GAAP operating margin to be 16% to 18% for Q2 and fiscal ’22. We expect to see a de minimis amount of interest and other income. We also expect a tax provision of approximately $10 million to $12 million for fiscal ’22. We expect fully diluted weighted average shares outstanding of 205 million to 210 million for both Q2 and fiscal ’22. In closing, we are incredibly pleased with our Q1 performance. More than ever we are enabling businesses around the world as the anywhere economy continues to develop and grow DocuSign will remain an integral part of our customers’ digital evolution.

Thanks for joining us today. We will now open up the call for Q&A. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Thank you. Our first question comes from Sterling Auty with J.P. Morgan. Please proceed with your question.

Sterling Auty — J.P. Morgan — Analyst

Yeah, thanks guys. So on the international front what are some of the takeaways that you learned in your rollout in the U.S. that you’ve been able to apply under Mike’s leadership in Europe that’s helping you accelerate the growth there?

Dan Springer — Chief Executive Officer

When you talk about the fact that if you go back a few years to when the U.S. business of the size of the international business, they look quite a bit alike — all sorts of dimensions, the scale, the growth rates have been amazingly similar. I think the core things that I would point to is the focus on customer success for sure is the first piece. And we think we’ve really done a good job at upping the quality of our success organization internationally as a foundation still drive adoption and as we’ve talked about before when you get adoption right in a SaaS model, it really keys up the land and expand model.

So I would say the second piece is just that, the way we talked about, we allocated our sales resources between those that are doing NewCo versus those that are selling to our installed base to expansion sales. We follow that same model and I think those two pieces are really what have driven that tremendous success. Now you talk about those numbers and into the ’80s for the growth, I don’t recall us ever having that in the U.S. So I guess in some ways we taught ourselves so well international we’ve exceeded — the student has exceeded the master over that analogy goes from that standpoint. But those would be the theme that I would focus on.

Sterling Auty — J.P. Morgan — Analyst

Yeah, exactly. That makes sense. And one quick follow-up. The call broke up on me a little bit during your prepared remarks Dan. I didn’t hear any update kind of on the rollout of the Notary Solution. Can you give us just an update there?

Dan Springer — Chief Executive Officer

Absolutely, yeah, we’re really excited that we’ve been able to roll out. Remember that first party notary which is the piece that we’re primarily focused on our existing customers, large financial institutions, etc, that have a notary sort of embedded in their business and they use their own notary, that’s a bigger opportunity and that’s what we’re going after first and that’s now a lead and we had our first transactions occur and we’re really thrilled to see that. So very early, just to sort of have that availability now for the market. And then the second piece that we’ll be working on over the rest of this year is third-party notary and that’s the model where someone has an individual third-party notary comes or two people that needs to notarize a transaction, but neither of them is a large institution that would have their own. So that’s the progress. We’re really pleased.

Sterling Auty — J.P. Morgan — Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from Karl Keirstead with UBS. Please proceed with your question.

Karl Keirstead — UBS — Analyst

Thank you. Cynthia, maybe this one for you, I just love to ask you about the billings seasonality this fiscal ’22? You did mention early renewals and expansions as a result of elevated consumption, which at first blush sounds a little bit like pull forward into Q1. But then on the other hand your 2Q guide is super strong. You raised the full year by way more than the Q1 so it sounds like you’re signaling strength throughout the year. So I’m just wondering if you could comment on seasonality and whether it changed as a result of the Q1 performance?

Cynthia Gaylor — Chief Financial Officer

Sure. Thanks for the question. Yeah, so I think on seasonality, we haven’t seen a big shift in seasonality. We did see a stronger than expected Q1 due to the things that you mentioned, mainly around customer consumption and how they’re using the product. So we were really encouraged by both the consumption metrics that we’re looking at as well as the use cases that customers are using our products for. And so that’s reflected in both the performance for the quarter, but also of the forward guide.

Karl Keirstead — UBS — Analyst

Got it. Okay, great. Congrats on these numbers by the way.

Dan Springer — Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Alex Zukin with Wolfe Research. Please proceed with your question.

Alex Zukin — Wolfe Research — Analyst

Hey guys. Thanks for that. Dan, one of the fears I think people have had historically on DocuSign is it’s just a COVID stock, you’re going to start decelerating as you start seeing these tough comps. But I think some people forget that you’re a capacity-based model. And therefore if you’re seeing these cohorts that you added last year grow at or above previous rates, which it seems like you are with the expanding dollar-based net expansion you are very well-positioned to actually grow right through this and be even better positioned on the other side. So just talk through that, what you saw this quarter around the growth rate of those cohorts and kind of how you’re positioned going forward?

Dan Springer — Chief Executive Officer

Yeah. Well, Alex, to your point, I don’t know how people are missing it. You’re right about it in every report. I see you make that point, which I appreciate by the way. So, hopefully, people will start to listen more to your insight but I think you nailed it. I think that’s exactly what we’re seeing. We’re seeing that the phenomenon of that strong customer growth is why you see the net retention rate so high. It’s why you see for the last question from Karl, he was able to talk about such a strong guide at rates we had not achieved previously for COVID from a billings standpoint and a revenue standpoint because we are seeing that underlying demand is so strong for our customers. And I really think the key to it is what we talked about at the beginning of the call.

So the phenomenon, the people, once they see the benefits of this digital transformation particularly around the Agreement Cloud from having opportunity to grow their business with us, they don’t go back. In fact, they look for additional opportunities to expand. And so I don’t think — we don’t talk about the Q1 pull forward like it was some fixed amount of pull forward that pays Peter and takes from Paul. We look at it as this increasing demand, and it really goes back as you and I have talked about in the past for the TAM. We are still in the early days even of just the signature business. Our penetration is so low that it’s a very, very large ocean from which we’re pulling forward that continued strong customer demand. So that’s how we look at it. I think is fairly straightforward.

Alex Zukin — Wolfe Research — Analyst

That’s awesome. And then maybe just one quick one for Cynthia — dollar-based net expansion ticked up again to 125%. I know in the past you guys have been hesitant to call for a new range or a new normal. But any puts and takes on that figure? How we should think about it? And is any of that starting to be driven by CLM adoption or is it still mostly the core use case?

Cynthia Gaylor — Chief Financial Officer

Yeah. So I would say the — it’s mainly around the core use case, right? Remember the Agreement Cloud we’re very excited about the opportunity there, but it’s still very small from a dollar contribution perspective. So a lot of that strength in the net retention number is really around kind of the, what I call retention economics, in many ways, right, of extent the expansion economics of the customer base and the cohort of how they’re expanding and not just the cohorts that came over the last 12 months but the existing cohorts who have continued to expand their usage of the product over time. And then on the first part of that question was around just the range. So we would expect as we said last quarter to throughout this year, maintain at the high end or above the historical range, which had been 112% to 119% historically. So we would expect to retain or to maintain high net retention rates kind of going through the year, but we’re not going to be guiding to that metric specifically.

Alex Zukin — Wolfe Research — Analyst

Perfect. Congrats guys on a great trend.

Cynthia Gaylor — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Tyler Radke with Citi. Please proceed with your question.

Tyler Radke — Citi — Analyst

Hey, thanks for taking my question. I’m curious just at a high level as you’re starting to see things get back to normal here in the U.S. and hopefully shortly overseas. What are you seeing just in terms of the evolution of the pipeline? And specifically, do you find that customers are looking at pursuing larger transactions maybe more strategic transactions now that most of the COVID impacts are behind them? Just curious how you’re seeing the pipeline evolve? Thank you.

Dan Springer — Chief Executive Officer

Yeah, I’d say it’s sort of a tale of two products, Tyler. If you think about the core Signature business versus the rest of the Agreement Cloud primarily CLM to the first part of that, no change. I don’t think we’ve seen anything fundamentally different. And quite frankly think about during COVID we didn’t see the nature of the signature transactions different. They just were faster, right? And so we saw again that acceleration occurred and as Cynthia pointed out kind of rounding those quarters, and in many ways I think starting to move into whatever the new normal will be.

We’re still seeing accelerated rate of that customer demand, but I wouldn’t say it’s the size of the transactions are bigger. I think we still land at about the same size. And I think our incremental expansions within — they happen in the same increment maybe just more of them are occurring across each time period. That’s how I think about it. With CLM, of course it was dramatically different, right? So it was some really nice demand was starting to build right before the pandemic and those — what I would say are more strategic and more substantive transactions.

They require a usually a statement of work, some sort of systems integrator work whether we do the services with one of our wonderful partners. Those are again, by definition, I think a little more complex and the orders size tends to be bigger. Those slowed way down, right? People said during the pandemic we need to focus on really fast ROI and enabling people to deal with working remotely. Now we see those starting to come back and so we see the pipeline starting to build as we did actually starting in Q4 start more aggressively there. So those are demonstrably coming back and I think those will be larger deal sizes that you would see. But they don’t crossover between Signature and you need to look at the two separately.

Tyler Radke — Citi — Analyst

Thanks. And just a quick follow-up for Cynthia. So, operating margins were really strong here in the quarter. Obviously, you saw quite a bit of revenue upside but curious just on the hiring front or any other expense related things if there was kind of some one-offs driving the strength in just kind of how you’re thinking about the pace of hiring throughout the rest of the year? Thank you.

Cynthia Gaylor — Chief Financial Officer

Yeah. The operating margin was pretty phenomenal at 20%. In some ways, we would have liked to be able to invest more quickly into that growth and bring down that number. It’s just very difficult to do in quarter. So we’re really looking through the year at ways to continue to invest for growth and that’s embedded in the guide as well. So I would say there was nothing particular one off other than the outperformance of the top line, which pretty immediately dropped to operating margin in the quarter, but we will look to aggressively invest for the continued growth and the large opportunity ahead of us.

Tyler Radke — Citi — Analyst

Thanks.

Operator

Thank you. Our next question comes from Stan Zlotsky with Morgan Stanley. Please proceed with your question.

Stan Zlotsky — Morgan Stanley — Analyst

Hi guys. Good afternoon and thank you for taking my question. I wanted to follow up on something that you guys mentioned a little bit ago, which is just the broader Agreement Cloud and SpringCM right, it’s still small numbers, and it’s not really material as far as driving the growth and maybe even the net revenue retention that you guys are seeing picking up nicely. How are you thinking about when that could become big enough or materially enough to really drive the recording now?

Cynthia Gaylor — Chief Financial Officer

Yeah. So I would say we’re in the early innings, as Dan was talking about across the Agreement Cloud. And it’s a pretty nascent market, but there’s also just a ton of greenfield opportunities. So we’re investing heavily, both in our go-to-market strategy around that and in customer success, but also just on the product innovation. So I would expect it to be a few years before it’s really a meaningful contributor. And when you think about kind of the results that we posted the last few quarters they are primarily driven by eSignature and just given the scale and the growth rate, kind of on the core piece. It’s going to take a while for Agreement Cloud, even if it’s growing quickly within to really have — be a meaningful contributor from a top line perspective.

Stan Zlotsky — Morgan Stanley — Analyst

Got it. Got it. And also wanted to follow up on Alex’s question earlier, which is on net revenue retention. I understand you guys are not — you’re not really moving up the range that you normally talk about, but similar fashion what would it take for you to move up the range? Is it just consistency you’ve seen, this 120ish plus for x number of quarters? Like what would we have to think about as the milestone for you to start moving up that range?

Cynthia Gaylor — Chief Financial Officer

It’s a metric that we watch very closely just given the consumption trends and as we talked about the last few quarters — looking at kind of these new cohorts and how they’re consuming and how they’re expanding and that existing customers and kind of the more historical cohorts. So we’re watching that closely. I wouldn’t anticipate guiding to a net retention range. But as I said, we would expect for the remainder of the year for it to remain above the historical range, which the top end was 119%. Just given the consumption trends we’re seeing we would expect it to be above that high end of the range.

Stan Zlotsky — Morgan Stanley — Analyst

Got it. Thank you so much.

Operator

Thank you. Our next question comes from Scott Berg with Needham & Company. Please proceed with your question.

Scott Berg — Needham & Company — Analyst

Hi everyone. Congrats on a fantastic quarter and thanks for taking my questions. I guess I have two. The first one is, as you look back over the last year and obviously you’ve seen a — I’ll call it a rush of new business based on the endemic. Has that brought you into any new types of businesses or use cases that is probably maybe not as well known? I mean I think we all know eSignature obviously from a generic standpoint. Just didn’t know if you’ve seen an activity somewhat new?

Dan Springer — Chief Executive Officer

Yeah, I don’t think there’s anything substantial. There are a couple of things that we are new, like if you think about the PPP loans right, there’s a small little cottage industry we’ve got build in supporting the bank so by definition since that didn’t exist before that was new. But that’s really small, small piece of what we would do. I think you have to think about just talked about that we hit our 1 million customer, we got a lot of customers. We’ve got a lot of industry coverage there and I actually look at it this way and we sometimes say, we believe that every business eventually should use DocuSign. And that’s the kind of the way we think about the breadth but I don’t look at sort of particular industries where we’ve not started that journey.

I don’t think there’s big areas that you can map it out to say we haven’t been able to find a way to serve them because we do the front office and the back office use cases. And every company that have employees as an internal operation and every company has customers, right? I guess [Indecipherable] companies that attach to that. Other than that pretty much everyone have customers. And so for net standpoint, I think we really look at it as we are everywhere. And we’re going to be everywhere in the anywhere economy and there hasn’t been a phenomenon that COVID or I think anything else would change to sort of open up or introduce new area. There’s international expansion with new geographies for sure, but from a vertical standpoint, I haven’t seen anything that deals [Indecipherable].

Cynthia Gaylor — Chief Financial Officer

And the one thing I would just add to that is we have seen again, it’s spot on, there’s not industries and verticals and that’s one of the strengths of our business is that it’s so diversified across verticals and customer sizes. There has been some COVID-specific use cases that throughout the year we’ve also seen translate into other new use cases, whether it’s in verticals or different markets. A good example of that would be PPP loans both last year and this year we saw quite a few loans. Some of that will be turning into a loan forgiveness or other fintech sort of use cases. And so we have seen some of that, but we’re also seeing consumption into new use cases off the back of that, as an example.

Scott Berg — Needham & Company — Analyst

Got it. Very helpful. And then I guess from a brief follow-up perspective — your customer metrics in the quarter obviously are very good and they show a level that’s still elevated versus the pre-pandemic level even as we anniversary it. But how are sales cycles today compared to a year ago? Obviously, a year ago there was a rush to sign up and use your product, but is today or the most recent sales cycles, more normalized what you used to seeing, or are you still seeing customers maybe speed through this process a little? Thank you.

Dan Springer — Chief Executive Officer

Yeah. [Indecipherable] questions; actually something funny before each earnings call I spend time with the team talking about pricing and talking about the sort of tenure in the market. We do that so that we get questions like this and people like you, we were able to give you that latest and greatest and the pricing has been in a good way boring as it has been for pretty much every quarter since we went the public, but we haven’t seen a lot of change there. In terms of the deal cycle time we definitely saw some shortened cycle time at the height of the pandemic where there were people who were calling us up, especially on the NewCo side so people we didn’t have a previous relationship and they were really in a hurry to go into DocuSign.

And that definitely reduced some cycle time as well as some implementation time. I’d say that’s probably reverted back to more normal at this point. We don’t have that sense of urgency to be deployed as we might have had. I wouldn’t say that was a significant portion of our business to play it out that way. And remember, in any given quarter the amount of revenue that comes from new companies versus come from our base, NewCo is obviously very small and we didn’t see that dramatic change in the existing customers because they were relatively quick from a cycle time for new use cases. You don’t have contracting sort of MSA kind of requirements there. So I think there is something there. I wouldn’t say it was significant but it has reverted to what it would have been from a cycle time.

Scott Berg — Needham & Company — Analyst

Alight, congrats and thanks again.

Operator

Thank you. Our next question comes from Rishi Jaluria with RBC. Please proceed with your question.

Rishi Jaluria — RBC Capital Markets — Analyst

Hey Dan, Cynthia, Annie. Thanks so much for taking my questions. Wanted to go back to the previous question on customer adds because I think a lot of us are pleasantly surprised to see customer adds continue to hit a record, even as we head into a post-pandemic future. But it looks like, especially on the mobile side, you had a really impressive record this quarter. Maybe could you give us a little bit of a sense of what is it that’s driving that in spite of the fact that a lot of us would assume that urgency is maybe dive down since before? Is that a function of certain investments you’re making in the self-serve motion and the mobile channels or something else? And then I’ve got a follow-up on the large customers.

Dan Springer — Chief Executive Officer

Yeah, I think you hit it really well it. Yeah, there has been — there was some perhaps unexpected strength as you said on that dimension. We’re obviously pleased by that strength. On the web and mobile side, I think that there’s two things that we’ve done well that’s allowed us to grow and reach this goal that we set several years ago of hitting a million customer and primarily driven by the — into that where the largest number of our customers exist. The first thing is I think we’re getting better and better at our online advertising.

I think we’ve built that as a key discipline to our long-term success. And I think that’s been a huge, huge part of driving that. Second thing is we’re continuing to innovate around our overall digital experience. And that process by which come through, they go through a trial after they put on an online ad, most common ad. And we take them through a trial process, they see the quality of our software, we make it easier and easier for them to become a customer and that digital flow. I think there’s still a ton of work that we can be better at that. But we have made a lot of effort in the last 18 months there and I think some of that is starting to pay off that has driven that.

One last thing I’ll just add, it’s important to understand really shout out for the web and mobile team. We look at their net adds, part of what nets out of that is people upgrade, become direct customers. So some of their most successful actually almost all of their most successful customers we take from them. We take them. We put them into our direct business, and so that’s a group that constantly have to replenish and grow at an even faster rate to make up to the fact that we have what we sometimes call positive churn, we churn them out of web and mobile and turn them into the direct business that expand take on more fulsome use of our of our platform with more advanced functionality. And so from that standpoint I do think that group that you pointed out has really been historical.

Rishi Jaluria — RBC Capital Markets — Analyst

Yeah, that’s surely helpful. And then just going to the 300,000 customer adds, again, really impressive to see it hit a record this quarter as well. Can you give us some color on what’s driving that? And generally, is this existing direct customers that’s just expand usage of the entire Agreement Cloud or are you actually landing new logos at that level? Thanks.

Dan Springer — Chief Executive Officer

Yeah. As is the case prior, the vast, vast majority of the focus [Indecipherable] are growth customers as opposed to net new. It’s not that we’ve never had someone start there but our land and expand model, we’re not really trying to go out and find that. Because of our customer success orientation Rishi, we really believe the best way to build long-term value is to go out, start small, find some great use cases, deliver a fantastic customer success, tremendous ROI and grow the business. And do we are trying to get giant lands that are complex. I just don’t think that’s the model that really fits for the Agreement Cloud business, so that’s definitely the case. And in terms of the strength there, I mean, I think it’s highly correlated with the other key metric Cynthia [Indecipherable].

When you see a really high net retention rate, it seems that the companies that were 250, a bunch of them grew and they’re now 300. So there is not any particular surprise there. It’s just a continued land and expand set. That is a number that has some volatility. We know, if you go back and look over the quarters, there are times when because of the puts and takes for any individual accounts and the way they might be adding things sometimes someone does a onetime add to the top up over 300 and they do that onetime use case they might have had — that might pop down below the next quarter. So we do think it’s important to look at that over time as opposed to any one quarter. But I think you’re going to see over time once we keep delivering the same fantastic customer success you will see that number continue to scale for the reasons I just articulated.

Rishi Jaluria — RBC Capital Markets — Analyst

Alright wonderful. Thank you so much.

Operator

Thank you. Our next question comes from Kirk Materne with Evercore ISI. Please proceed with your question.

Kirk Materne — Evercore ISI — Analyst

All right, thanks very much and I’ll echo the congrats on the quarter. Dan, I want to circle back on international. Obviously, it’s a huge TAM for you all. Are there any technological or regulatory hurdles that you need to clear in certain markets for the sort of adoption rate to kind of get to where you are say in the U.S. or more markets where you guys are bigger? And then I guess just as you might think about it given that this is something that would be sort of a global opportunity, how are you thinking about placing your bets in terms of making investments in certain regions? And are the regions where you think you’re just about to hit sort of a tipping point perhaps faster than others? I’m just trying to get a sense on, is there anything sort of putting a governor on your growth. And then how are you guys thinking about sort of your bets and your investments in certain places? Thanks.

Dan Springer — Chief Executive Officer

Yeah, absolutely. So a couple of thoughts. First is I believe at the sort of technological level, I don’t think there’s anything that we would point to. There are really important differences in legal framework. I mean, we talk a lot about the concept of the common law versus the civil law legal framework. But we pretty much made the investments to enable the civil law countries which are the mass majority of countries out there. So we made those investments really several years ago and I think we feel good about what we’ve done there.

There is sort of data residency issue, if you want to consider that sort of a technical component and it could be a governor to the extent that some geographies certain institutions, they don’t want to let any data leave our national walls, so to speak, mostly government clients feel that way, but sometimes you do see that at large financial institutions or heavily regulated industries and so sometimes there is complexity there and that’s why we’ve been working — Azure to have in both Canada and Australia sort of leveraging the public cloud and maintaining those testing that — kind of terms that really enables us to grow faster. I think it’s an area we continue to be testing and working on. I wouldn’t say yet we found massive turbocharge there.

But I think it is an area for continued investment and growth. That’s the only thing I would sort of point to from a either technological or a legal framework. I do think there is important things like market awareness and obviously particularly because of our strength in real estate early on DocuSign became more of a household name in the United States. We don’t have that in most other countries. So that’s the big component that I think we need to work on. And I think there’s some other things that we still have big opportunity for us to sort of get our house in order at the way that we operate in certain other countries and we feel more local.

So I think that’s another area that I think we should invest. I wouldn’t exactly call it technological but there’s sort of building the business areas we’re heavily focused. And in terms of second half of your question in terms of the market we talked a lot about our focus 8, the original 8 countries over the last several years we said are our primary focus areas in Europe. That’s the UK, Ireland, France and Germany. In the Americas, the U.S., Canada and then Brazil, which has been the entirety of our LatAm focus. Then there’s Australia-New Zealand, we call that one country. And then finally Japan will be the focus 8 countries we talked about.

And I think now you’re going to see us — we talked about the investment in Mexico and speaking about — really think of that as regional Spanish-speaking LatAm although Mexico itself. We started a few months later decided to dramatically increase our investment terms of the ground because we’ve seen so much positive response there in Mexico itself. From a European standpoint, I think we’ve always seen opportunity in Nordics and Sweden. In the Netherlands, we see more in Southern Europe, I think there’s opportunities in each of those geographies there. I don’t know that it will be massive sort of feet on the ground there, but I think you can see us do more in those areas.

And then in Asia Pac, overall we’re pleased with what we’ve got in ANZ. And Japan, very small presence in Singapore and we’re starting to look at Southeast Asia as a really key investment area. In fact, Mike and I were literally this morning talking about that growth investment there and leveraging that small, small toe in the water we have to go after what we think could be a really attractive market opportunity. But that’s across thinking about Philippine, thinking about Thailand, thinking about those core countries in Southeast Asia that we think should fit well for DocuSign. So that’s how we’re thinking about the geographic footprint.

Kirk Materne — Evercore ISI — Analyst

That’s super helpful. Thank you all.

Operator

Thank you. [Operator Instructions] Thank you. Our next question comes from Brad Sills with Bank of America Securities. Please proceed with your question.

Brad Sills — Bank of America Securities — Analyst

Okay, great. Hey, thanks guys, and congrats on a nice quarter. I wanted to ask about an earlier comment you made, Dan around Insight customers and how you feel that those use cases are extensible for future growth. Is that how we should think about the kind of evolution from customers towards the Agreement Cloud maybe starting with CLM or Insight, get some use cases under their belt there and then graduate, if you will into the broader Agreement Cloud? What does those cohort of customers say about the propensity to buy more?

Dan Springer — Chief Executive Officer

Yeah, I mean the way I look at it is still the tip of the sphere is going to be Signature for sure and part of it what Cynthia decided earlier, we just have a much larger business there. And even though it’s still as you said, very early, any, we have such as substantive leadership position and we just see so much opportunity to continue to land there that will be our primary entry point I think to most companies. Then as you indicated in the question, Brad, we want to really open up the rest of the Agreement Cloud and I do believe that areas today that we see is that natural extension second step. CLM and Advanced Analytics will increasingly be one-two punch.

One of our goals is to integrate some of field technology and the AI technology into our CLM solution because we feel for a lot, particularly of our mid-market and up customers that’s going to be a key buying factor and the idea that you have embedded fantastic analytic capability onto that CLM solutions. And we’re seeing with analytics on top of just Insight even this fantastic new product we have called DocuSign Monitor, which is really a security product for people to understand what’s happening in their network by looking at how people are signing agreements with that.

We’re seeing huge uptake from customers, they just want to understand more about their business. Our whole thesis around the Seal acquisition is the idea that companies can run their business better with a really thoughtful Agreement Cloud. They can be smarter about the way they grow and execute their core operations. So that is definitely how we think about it and I think the number of use cases for your question continues to accelerate as people see the business value and the ROI from using our advanced analytics in particular the AI asset.

Brad Sills — Bank of America Securities — Analyst

Thanks so much Dan.

Operator

Thank you. Our next question comes from Bhavan Suri with William Blair. Please proceed with your question.

Jake White — William Blair — Analyst

Hi, everyone. This is Jake on for Bhavan. Just thinking out longer term when we’re thinking about some of the recent additions to the Agreement Cloud like Notary, Seal Software, CLM, I’d love to hear about what could be the longest term growth drivers? And if there is anything that surprised you about initial customer adoption over the last several months and just would love to hear any color on that?

Dan Springer — Chief Executive Officer

Well, I’ll give you my thoughts and then Cynthia dive into in a different perspective your own phases maybe want to pick. I mean I think that you got to look at TAM. We’re playing this for the long term. And so even though I look at something like notary and the huge amount of enthusiasm for it, I think it’s in many ways, an extension right of the signing type experience. And so I think it’s a special and really important opportunity to bring the joy to DocuSign has brought to Signature world to extend that to Notary. But I think the total TAM there isn’t going to allow us to be a pillar the same way definitely CLM. I think CLM is going to be an emerging software category within the Agreement Cloud that we would several years from now when we look back and say same way — someone will be crazy, you have to have a new signature solution. Today, if we look at it that way, I think we now will look at CLM when we get to that few years down the road people will be crazy not to be thinking about the way they manage their contracts across the business. That’s probably what I would pick as sort of the big winner, if you will and what will contribute in the more substantial way to our growth over the long them. Cynthia, if you have any update different than that?

Cynthia Gaylor — Chief Financial Officer

I think that was fairly comprehensive data. I’ll leave it at that analysis.

Jake White — William Blair — Analyst

Great, thanks for taking my question.

Operator

Thank you. Our next question will come from Pat Walravens with JMP Securities. Please proceed with your question.

Aaron Kimson — JMP Securities — Analyst

Hi, this is Aaron Kimson on for Pat. Congrats on the quarter. You mentioned the head count grew 42% year-over-year. At a high level can you discuss what percentage of that was sales and customer success versus other functions? And then how the company is thinking about headcount growth going forward?

Dan Springer — Chief Executive Officer

Yeah, I mean I think the simplest way to look at the distribution, as you know headcount by far our number one cost. So if you take a look at how it played out in terms of the percentage of our revenue attributed to each of the bucket, you’ll see that sales and marketing and product engineering were by far the two groups. We’ve traditionally supported and that would be the same thing this quarter. And as I look forward across the year those are the core groups I’d like to see the most headcount growth. And from a philosophy standpoint I often time talk about this concept that we kind of have line function and then we have functions that support that.

And the support functions are just as important as the line functions, but I really scale our business needs to scale the line function. So we need to have a lot of fantastic engineers here building great software because we’re a software company. And so the number of engineers that we can grow, that is a huge important driver of our future growth and the same thing is true if you think about our quota carrying AE or our CSMs that are driving customers. Those are the functions that we really want to headcount grow in and people like me and Cynthia we’re overhead and we like ourselves fine. But we don’t need any more of one CFO is fine, one CEO is fine. And want to really focus ourselves on and getting more leverage in those clients operators.

Aaron Kimson — JMP Securities — Analyst

Very helpful. thank you.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.

Dan Springer — Chief Executive Officer

Thank you all for joining us. You saw Annie at the top. She mentioned we’re going to be out in the market a little bit virtually. Hopefully soon we’ll be out physically but thank you for joining us and we look forward to talking to you all next quarter. Cheers.

Operator

[Operator Closing Remarks]