DocuSign, Inc. (NASDAQ: DOCU) Q4 2021 earnings call dated Mar. 11, 2021
Corporate Participants:
Annie Leschin — Head of Investor Relations
Dan Springer — Chief Executive Officer
Cynthia Gaylor — Chief Financial Officer
Analysts:
Sterling Auty — J.P. Morgan — Analyst
Stan Zlotsky — Morgan Stanley — Analyst
Pat Walravens — JMP Securities — Analyst
Karl Keirstead — UBS — Analyst
Jake White — William Blair — Analyst
Kirk Materne — Evercore ISI — Analyst
Rob Owens — Piper Sandler — Analyst
Rishi Jaluria — D.A. Davidson — Analyst
Michael Turrin — Wells Fargo Securities — Analyst
Tyler Radke — Citigroup — Analyst
Presentation:
Operator
Good afternoon, ladies and gentlemen. Thank you for joining DocuSign’s Fourth Quarter and Full-Year Fiscal ’21 Earnings Conference Call. [Operator Instructions]
I will now pass the call over to Annie Leschin, Head of Investor Relations. Please go ahead.
Annie Leschin — Head of Investor Relations
Thank you, operator, and good afternoon everyone. Welcome to DocuSign fourth quarter and full-year — fiscal year ’21 earnings conference call. On the call today we have DocuSign’s CEO, Dan Springer; and CFO, Cynthia Gaylor. The press release announcing our fourth quarter and full-year fiscal ’21 results was issued earlier today and is posted on our Investor Relations website.
Before we get started, I’d like to remind everyone that on March 24th, we will be hosting our Annual Customer Conference momentum and our inaugural Analyst Day. Both events will be held virtually. For registration and more details, you can visit the Investor Relations website. As other events come up, we will 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 these 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 effect 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 and 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 expenses, 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 or a substitute 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 press release, which can be found on the website at investor.docusign.com.
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 fourth quarter earnings call for fiscal 2021. Before we get to our results, I want to acknowledge that it’s been almost a year to the day since we shifted our business operations and day-to-day lives in response to the pandemic. Over that time, COVID-19 has created huge challenges and disruptions for almost everyone, everywhere, ones who were all still dealing with today. But amid those challenges, people found ways to keep life and work moving forward.
As a team, DocuSign was honored to play a role, supporting people all over the world as they responded to the pandemic. We gained new customers, we expanded our relationship with others and we saw a surge in adoption of our products as accelerating a trend already underway, the digital transformation of agreements. This transformation, not only allows agreements to be prepared, signed, act on, and manage from anywhere, it also allows greater speed and efficiency than manual paper-based processes. As a result, we don’t believe our new or expanded customers will be going back to paper, even after the pandemic recedes.
We also don’t believe life will go back to the way it was before. Of course many in-person activities will be welcome back. But when people found better ways during the pandemic, we believe those will continue and flourish whether it’s total or partial work-from-home, virtual visits to medical professionals, or getting a document notarized remotely. Ultimately, over the coming years, we think the trend will continue towards the option of doing anything from anywhere. We call the products and services, supporting this trend that anywhere economy. We believe we’re a key pillar and it’s only just beginning. You’ll hear more from us about this in the coming weeks.
With that, we have a lot to share on Q4 and our full fiscal year. So let’s cover that in three parts. Our strong Q4 and record fiscal ’21 results, how we think about our continued evolution into the Agreement Cloud company, and how the Agreement Cloud delivers value to our customers and partners.
First, our results. Q4 was another strong quarter for us, contributing to a milestone year for DocuSign overall. We saw revenue growth of 57% and billings growth of 46% year-over-year. We welcome more than 70,000 new customers, bringing the total to nearly 892,000 customers worldwide. And we saw our strongest expansion in upsell rates yet, driving our dollar net retention to a record 123%. For the year, we exited fiscal ’21 nearly 50% bigger than we were in fiscal ’20, with almost $1.5 billion in revenue.
And our customer addition rate was more than double that of fiscal ’20, as we have ever closer to the 1 million customer mark. By any measure, that’s an astounding year. It’s a testament to how people around the world are embracing digital technologies to transform the way they work and live. It’s a reflection of the incredible opportunity that’s still in its very early stages. And it’s all made possible by the dedication of the 5,600 person strong DocuSign team, who’ve gone above and beyond to help our customers this entire year.
Of course, this is a journey, not a destination. So, if we think about the future and our continued evolution into the Agreement Cloud company, we are increasingly going to do so in the context of three primary goals: first, we want DocuSign to be the best way to agree to anything, anywhere. We’ve recently made great additions to our leading e-signature product with identity proofing, click wrap, electronic witnessing and soon remote online notary transaction. We want to extend the benefits of digital signing to all kinds of agreements in all walks of life. We’re seeing this transformation accelerate.
For example, one of our financial services customers in the US came on board early last year as part of its COVID-19 response strategy. And they deployed DocuSign across more than 20 use cases in the past six months alone. So far, DocuSign has powered almost 100,000 transactions for their HR, procurement, customer service and in-branch onboarding needs. These transactions took less than a minute to complete on average, delivering a rapid ROI. And DocuSign went from a crisis response solution last year to a business as usual solution today.
For our second goal, we want to digitally transform the entire agreement process pre and post signature. Over fiscal ’21, we continue to innovate in CLM and to integrate our acquisition of Seal Software and Liveoak Technologies. And you can expect us to drive automation at every stage of the agreement cycle all the way from preparing and signing, to acting on and managing. As an example, one of our Latin American agricultural customers needed to improve the management, corporate governance and turnaround time for its key contracts. And they needed a solution deployed across more than 30 subsidiaries in a matter of weeks. With DocuSign CLM, any signature together handling the entire agreement process. This customer reduced the time it took to complete the contracts from 23 days to just one hour.
Third, we want to continue ensuring that DocuSign is embedded in the applications where work and life happen. We already integrate with more than 350 apps, including recent integrations with Slack, Microsoft team and workplace from Facebook. And we have an award-winning API for custom integration including with our customers’ proprietary applications and processes. One of our global manufacturing customers, is a good example of how DocuSign can integrate and interoperate with multiple applications within an enterprise. The customer needed to ensure that NDAs and other critical documents to be generated accurately, reviewed quickly, and sent and signed easily.
Today, after working with the DocuSign team, the company has integrated DocuSign CLM and e-signature with its CRM, productivity software and cloud storage systems to create the exact desire workflow, with all the speed, accuracy and efficiency benefits that come with it.
So, and I bring my remarks to close. It’s clear that fiscal ’21 was extraordinary on almost every level. As thrilled as I am about DocuSign’s performance, I’m even more pleased that we are able to help our customers during this uniquely challenging time. And I’d say that I’m excited for the pandemic to start subsiding is of course an understatement. I’m also excited that DocuSign being well positioned for the anywhere economy, I mentioned earlier. It points to the incredible opportunity that’s out there for us, given that the journey to a modern day agreement process has been prioritized like never before. The market is still in its early stages, so we will continue to invest in growth as our first priority, as we expand and scale our business.
Lastly, before I hand the call over to Cynthia, a reminder that we’ll be talking more deeply about all of this at our upcoming Annual Momentum conference and our inaugural Analyst Day on March 24th. I look forward to seeing you all there virtually.
For now, over to Cynthia.
Cynthia Gaylor — Chief Financial Officer
Thanks, Dan, and good afternoon everyone. In a monumental year, DocuSign helps many customers overcome challenges and transform their businesses to adapt to the new and changing environment. The strong demand for digital workflow accelerated our continued growth at scale, and heightened our focus on execution and operations to meet our customers’ needs. We capped off an exceptional year for DocuSign with strong results for the fourth quarter and fiscal year driven by robust new customer growth and expansion, primarily for our core e-signature offerings.
For the fourth quarter, total revenue increased 57% year-over-year to $431 million and subscription revenue grew 59% year-over-year to $410 million. For the full year, total revenue reached $1.45 billion, an increase of 49% over last year and subscription revenue hit $1.38 billion, an increase of 50%.
Our international revenue increased an impressive 83% year-over-year to $89 million in the fourth quarter, ticking up 21% of total revenue. For the full-year, international revenue grew over 67% to $287 million, reflecting accelerated expansion across geographies.
For the first time, we reached over $0.5 billion in quarterly billings as Q4 rose 46% year-over-year to $535 million. This resulted in a 56% trailing four-quarter average, consistent with last quarter’s average. For the full-year, billings increased $1.7 billion.
Q4 customer additions continued at a robust pace as we added over 70,000 new customers. This brings our total installed base to nearly 892,000 customers worldwide, an increase of 51% over last year and more than double the number of new additions, compared with fiscal ’20.
To give you a sense of the magnitude of this achievement, we added nearly the same number of customers this past year as we had in total at the time we went public 15-years after the company was founded. As part of this, we added 11,000 new direct customers in Q4 for a total of over 50,000 for the year. After more than doubling the number, we added in fiscal ’20, we ended the year with nearly 125,000 direct customers. For the third quarter in a row, we exceeded our historic dollar net retention range, hitting our highest level yet at a 123% for Q4.
Switching gears, non-GAAP gross margin for the fourth quarter was 80%, compared with 79% a year ago. For the full-year, gross margin was 79% consistent with fiscal ’20. Fourth quarter subscription gross margin was 85%, compared with 84% a year ago. For the full-year, subscription gross margin was 84% consistent with fiscal ’20.
We saw a significant improvement in our operating leverage as non-GAAP operating margin reached a record high of 17% or $75 million, compared to 8% or $21 million in the fourth quarter of last year. For the full-year, operating margin was 12%, more than 7.5 percentage point improvement over fiscal ’20.
Non-GAAP net income for Q4 was $77 million, compared with $22 million in the fourth quarter last year. For the full-year, net income was $182 million, up from $59 million in fiscal ’20. We ended the quarter with 5,630 employees, an increase of 44% over last year.
In Q4, we took steps to put in place a more strategic and efficient capital structure. We issued $690 million in new 2024 convertible senior notes and paid down the majority of our existing 2023 convertible notes. We also put in place a new revolving credit facility, allowing us to borrow up to $500 million with additional capacity up to $750 million in total.
While we are generating sufficient cash from our operations to fund our working capital needs, we believe this additional financial capacity along with the attractive terms will provide greater flexibility for our growth agenda. We exited fiscal ’21 with $867 million in cash, cash equivalents, restricted cash and investments.
Operating cash flow in fourth quarter was $62 million or 14% margin. This compares with $46 million or 17% in the same quarter a year ago. Free cash flow was $44 million or 10% margin in the quarter, compared to $16 million or 6% in the prior year. For the full-year, operating cash flow more than doubled to $297 million or 20%, compared to $116 million or 12% a year ago. And free cash flow grew to $215 million or 15%, compared to $44 million or 4% in fiscal ’20.
These amounts includes $75 million related to accounting for the extinguishment of the 2023 convertible notes. Excluding this, Q4 operating cash flow would have been $137 million or 32% margin and free cash flow would have been $119 million or 28% margin. For the full-year, operating cash flow would have been $372 [Phonetic] million or 26% margin, and free cash flow would have been $290 million or 20% margin. This underscores the attractiveness of our model and the leverage we are seeing across the business.
Now onto our guidance. Coming into this fiscal year, we expect to see continued secular tailwinds in support of the anywhere economy. We are confident in our long-term trajectory and the untapped opportunity ahead. That being said, while our subscription-based model gives us a certain level of visibility, the impact of the pandemic adds an extra layer of complexity, which we are monitoring closely. With this backdrop, our approach to guidance continues to be to guide to what we know and can see in the current environment.
As we begin the new fiscal year, we are guiding to non-GAAP operating margin going forward rather than individual operating expense line, to better align with how we are growing and scaling the business. For the first quarter and fiscal ’22, we anticipate total revenue of $432 million to $436 million in Q1 or growth of 45% to 47% year-over-year and $1.963 billion to $1.973 billion for fiscal ’22 or growth of 35% to 36% year-over-year. Of this, we expect subscription revenue of $415 million to $419 million in Q1 or growth of 48% to 49% year-over-year, and $1.886 billion to $1.896 billion for fiscal ’22 or growth of 37% year-over-year.
For billings, we expect $457 million to $467 million in Q1 or growth of 34% to 37% year-over-year, and $2.26 billion to $2.28 billion for fiscal ’22 or growth of 31% to 32% year-over-year. We expect non-GAAP gross margin to be 79% to 81% for both Q1 and fiscal ’22. We expect non-GAAP operating margin to be 12% to 14% for Q1 and 13% to 15% for fiscal ’22.
We expect to see a de minimis amount of interest and other income including undrawn revolver fees related to our credit facility. For fiscal ’22, we expect a tax provision of approximately $8 million to $10 million. We expect fully diluted weighted shares — average shares outstanding of $205 million to $210 million for both Q1 and fiscal ’22.
In summary, we would like to thank the DocuSign team, our customers and our partners for their tremendous efforts during this unprecedented year. We are excited for this year as we continue to deliver on the large opportunity ahead. We will continue to focus on driving long-term durable growth at scale as we help customers drive in the anywhere economy.
Thanks again for joining us today. We look forward to seeing you in a few weeks at Momentum in our Analyst Day. And now we will open up the call for Q&A. Operator?
Questions and Answers:
Operator
Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question comes from the line of Sterling Auty with JPMorgan. Please proceed with your question.
Sterling Auty — J.P. Morgan — Analyst
Yes, thanks. Hi, guys. Just curious in terms of what you’re seeing on the new customers that are coming on board to this platform? What ones are taking some of the advanced features for the spring CM capabilities versus just putting e-signature?
Dan Springer — Chief Executive Officer
That’s specifically using in about vertical, geography, what dimension to be most useful for you.
Sterling Auty — J.P. Morgan — Analyst
No, across the board. So what kind of penetration. So what’s the take rate for kind of the additional Contract Management and just kind of Contract Cloud in the new customers coming on.
Dan Springer — Chief Executive Officer
So it’s still a relatively small piece. If you think about what’s happened really throughout the year as we talked about all years, with COVID, we saw a dramatic move with a lot of acceleration in digital transformation to those sort of entry type applications and signature is just a fantastic way for people not to get — well, not only a incredibly high ROI, but to quickly get that transformation they need in their business and be able to be effectively in the anywhere economy, so I think that has not changed.
And if you look at things like CLM where there is a longer purchase sort of cycle where people require a statement of work or professional services to implement, those definitely will float through this year relative to where they were in the prior year. Our view though coming out of fiscal year ’21, particularly coming out of Q4 here is we’re seeing that — the build, the pipeline build again. And so we’re quite optimistic that we’re going to see so that re-acceleration that we saw a little over a year ago with CLM in particular. And then — and the sense we are seeing that is, it’s going to be not so much in our smallest or largest customers, but it’s going to go more quickly in those mid-market or commercial businesses where they tend to be a little bit more fast moving than the largest enterprises, but having a little bit more scale and need for a full CLM like solution than our SMB customers, so that’s where we see that developing.
Sterling Auty — J.P. Morgan — Analyst
Great. And then one just quick follow-up. You mentioned, you talk about the remote notary. What’s the timing on when we might see that in the market and where are some of the first use cases that you think you’ll see the adoption?
Dan Springer — Chief Executive Officer
Yes. So what we see right now is that we’ve gone through the beta, which we’ve been really pleased with and we’re moving this month to get a sort of a limited release. We’ll be focused on financial services companies, the use cases, and remember, the first piece we’re coming out with is first party notary. So that’s, which we think is the significantly larger part of the total market, first party is when companies have their own effective notary. So they’re actually notarizing documents with their and usually consumers with an in-house or internal notary. And then third party where people are using sort of notary is coming to bring two people together, it doesn’t work for either of them, which is a smaller part. We’ll have that by the end of the year out into release.
Sterling Auty — J.P. Morgan — Analyst
Thank you, guys.
Operator
Your next question comes from the line of Stan Zlotsky with Morgan Stanley. Please proceed with your question.
Stan Zlotsky — Morgan Stanley — Analyst
Perfect. Thank you so much guys and congratulations on a very strong end to the year. Maybe the first one from my end, Cynthia, you mentioned the guidance for fiscal ’22. When you talk about the methodology that you approach to setting guidance for the year, was there anything different, how you approached it versus perhaps how you guys initially looked at fiscal ’21? And what are some of the puts and takes that you consider in setting our guidance, mainly for billings because that’s the measure that investors will care most about. And then I have a quick follow-up.
Cynthia Gaylor — Chief Financial Officer
Sure. Yes, I mean our guidance philosophy has been super consistent since the time we went public. We guide to what we can see and it’s largely data-driven. So we use everything from pipeline and demand trends to close rates to looking at kind of the net new that we added during the year and looking at kind of the upsell trends and expansion trends within there. So it’s quite data-driven and we guide to what we can see and it’s been very consistent from that perspective.
Stan Zlotsky — Morgan Stanley — Analyst
Got it. So as far as just considering how — well, how the business could trend into fiscal ’22 as we’re lapping the pandemic? It sounds like you apply the same type of lens as any other year as far as the conservatism that’s baked into those estimates or anything along those lines?
Cynthia Gaylor — Chief Financial Officer
Sure. Yes, I think, I mean, if we think the guide is reasonable, and just given how quickly the company has grown at scale, right? Our business today is 50% bigger than it was a year ago. Earlier in our fiscal year, we had crossed the $1 billion in revenue mark, and now we’re quickly coming up on $1.5 billion, could go in to $2 billion. And so when you think about growth at scale, we are looking at that closely, because we’re just growing solidly off a much bigger base. And so, we’re watching that closely in the different metrics that we’re seeing. I think the pandemic certainly adds an additional layer of complexity, just given the number of customers we’ve had, the demand and acceleration of demand we’ve been seeing. And that’s all reflected in the guide for the year.
Stan Zlotsky — Morgan Stanley — Analyst
Perfect. And then very quick follow-up for Dan. The international growth numbers, I mean, they continue to really — shown an outstanding momentum. And if I recall correctly, I think it’s actually accelerating slightly off the Q3 pace. What’s really driving the international adoption? What’s out there, I mean, what are you seeing out there that maybe a little bit different than what you’re seeing in the US? That’s it from me. Thank you.
Dan Springer — Chief Executive Officer
Yes, I mean, I think the answer is it’s very broad-based. One of the things that was really interesting for us, finishing up the year and you don’t get to say this very often, but same thing happened in Q3, happened in Q4. Every single geography that we’re in outside of the US, and for that matter the US, exceeded its plan. And it’s just my experience, that’s something pretty special and pretty rare to happen. And so we don’t think there is a particular type of geographies, there’s a common law or civil law or sort of EMEA versus Asia-Pac, we’re just seeing it across the board.
And, Stan, my view is what’s happening here, it’s actually quite interesting. If you think about a year ago, we shared this result where we sort of laid the growth of DocuSign in the US over its size, when it was same size where our international business was and looked at that growth, and they’re actually quite close. And so I think what’s happening here is that the US business, when it was much smaller, grew at a higher rate. And so now we’re seeing this happen in our international business. So it’s not really surprising to us and it’s nothing that’s sort of changing in the marketplace. I think we’re just realizing it’s a very large TAM opportunity outside of the US and we’re starting to really hit that growth curve in the way we’d like to be hitting it. And we’re optimistic, we’re going to continue to see that through the year ahead.
Stan Zlotsky — Morgan Stanley — Analyst
That’s perfect. Thank you so much.
Operator
Your next question comes from the line of Pat Walravens with JMP Securities. Please proceed with your question.
Pat Walravens — JMP Securities — Analyst
Great. Thank you. I have two if I can, one for each of you. Dan, I mean, I think in the county that I live in across the Bay from you, I think we’re up to 26% or 27% of the people haven’t gotten their first shot. So I’m just wondering it’s February and March have started here. Is there any change in the demand environment based on more of a return to normalcy?
Dan Springer — Chief Executive Officer
We haven’t seen anything. And I don’t know whether we would be a leading or a lagging indicator, Pat. But [Technical Issues] haven’t seen anything in our business it suggests that, that will change. Now, if you recall, we said this about starting about three quarters ago, that our forecast on this is that the people that have come with new customers or new use cases to DocuSign that are COVID-19 centric, they’re not going back. People aren’t going back new cases are not going back to manual process.
So the real question I think is interesting and your question is, will that rate of new people coming to us change with as we start to move into some sort of return to “normalcy”. We haven’t seen any change yet and maybe that’s a change isn’t enough and there’s not enough new activity to have driven the change in the demand environment, but at this point, yes, we haven’t seen a change yet.
Pat Walravens — JMP Securities — Analyst
All right, perfect. And then, I’m not sure which of you wants to address this, but I think it’s super interesting is, I’m looking back at my model. And in April of 2019, so Q1 of fiscal ’20 net dollar retention was 112% and it’s gone up seven quarters in a row. What is driving that? I mean, that’s not all the pandemic, right? Why has it gone up seven quarters in a row?
Dan Springer — Chief Executive Officer
We’re looking at each other. I’ll start and let Cynthia finish with the good stuff. But, I think the real answer is, we made a significant investment in customer success is really the shortest of that. We’ve always been a customer success company and starting about a year before that, so about three years ago, I think we realized we could do more. And it’s not just our customer success organization and the CSMs that I think are so powerful, although they are fantastic and they’re a huge part of it. But I think culturally, we really have just sort of forced all of our employees to say we need to be a customer success company and it’s great, because it’s wonderful for the SaaS economics as you articulated.
But two, it’s great because it makes employee proud to work here, makes him proud to be at a company that says, of course we’re going to make money or a business, but we want to be part of something bigger than that, and we want to be proud about that. And so, I really think that investment is now yielding those results.
Cynthia Gaylor — Chief Financial Officer
Yes. I would just add, if you have to remember that our customers start out small and then they grew over time. And so when you think about a number of customers that we’ve added over the past couple of years and this year in particular, they start out small, they expand as they use the product. And as Dan said, we’ve invested a lot in customer success to help them become successful on the platform. And so, that’s certainly driving that number, as the denominator gets bigger, the numerator is also getting bigger as customers use the products more.
Pat Walravens — JMP Securities — Analyst
Great. Thank you.
Operator
Your next question comes from the line of Karl Keirstead with UBS. Please proceed with your question.
Karl Keirstead — UBS — Analyst
Thank you, Dan and Cynthia. Just on the 4Q billings performance, it came pretty close to the pin relative to the prior quarters where DocuSign had put up pretty strong double-digit beats against the high end. I’m just wondering, if anything felt a little different in the fourth quarter or maybe there were some timing or other factors? Thank you.
Cynthia Gaylor — Chief Financial Officer
Yes. So we talked about this a little bit on the Q3 call. So Q3 was exceptionally strong, based on timing of deals and some early renewals that came in, in Q3. And so Q4 was a strong growth as well, at 46% albeit it wasn’t as strong as the Q3 growth. So there was nothing unusual in the quarter. I would just remind you that on billings, they can fluctuate more, just given the nature of that metric and the timing of deals. And so we continue to encourage folks to look at that fourth quarter average, that moves out the changes quarter-to-quarter. And if you take that lens and apply it to Q4, it was really right in line with the last couple of quarters in that trailing average.
Karl Keirstead — UBS — Analyst
Got it. Okay, that’s helpful, Cynthia. And then maybe a follow-up for you. I know typically when you start the fiscal year, you give your operating margin guidance, but maybe not the cash flow guidance. But as you pointed out, the adjusted free cash flow margins in fiscal ’21 were 20% relative to your operating margins of 12%. Should — as we model free cash in fiscal ’22, use something similar to that correlation, or might there be something unusual in fiscal ’22 such that it will look a little bit different?
Cynthia Gaylor — Chief Financial Officer
Yes. So we don’t guide you on cash flow, but I think when you look at kind of the Q4 and for the year, the cash flow and we gave all those numbers in the release, right? The convertible notes that we took down in Q4, on an adjusted basis, the cash flow was actually quite compelling. Even without the adjustment, we’re showing just a lot of leverage in the model, similar to the operating margin rate. We’ll continue to invest in growth, so I wouldn’t anticipate anything in fiscal ’22 out of the ordinary, my sense is, we’ll continue to demonstrate that leverage. But if we can invest for growth, we will. And that’s one of the reasons we did the financing in January was really to give us that operating flexibility.
Karl Keirstead — UBS — Analyst
Got it. Thank you very much.
Operator
Your next question comes from the line of Bhavan Suri with William Blair. Please proceed with your question.
Jake White — William Blair — Analyst
Hey, everyone, this is actually Jake on for Bhavan. Congrats on the great quarter. So just touching again on the capital allocation strategy million [Phonetic] in this year. How can we be thinking about that in terms of similar tuck-in acquisitions to what we’ve seen in the past? And then just as a follow-up, would love to hear about how you’re thinking about the competitive landscape given the recent acquisitions from Box and Dropbox in the phase?
Dan Springer — Chief Executive Officer
Yes, absolutely. I don’t think we see any dramatic change to our thinking on M&A strategy. I think we love to build up our self. We have a fantastic product development team here and the vast, vast majority of all the product that we have and stuff that we’ve built internally. But from time-to-time and you’ll see it would be a good example of this from last year. We look out and we see while some folks are really ahead of where we are not just on some product development in this case, an artificial intelligence and advanced analytics, but also they just have some domain expertise. And it would take us a long time to build that. So we’ve seen some really nice tuck-in acquisitions that are relatively small, compared to our revenue or compared to our market valuation.
But we think meaningful in accelerating that Agreement Cloud strategy that we have. I think we’ll probably think about things the same way, it’s possible we could go a year and not do any deals. We didn’t see anything that we needed and we could also do as we did last year, a couple of deals or more. It’s fantastic to have Cynthia in the seat of CFO now with all her banking experience prior to becoming a CFO, that I suppose gives us more perspective on different things we might look at in that way. But, just at the highest level, I think it’s sort of the same that we did last year is probably what you should expect going forward, because we’re not doing anything fundamentally differently.
I would say that we are looking at doing a few more investments. And again Seal is a wonderful example of the company we invested in and got closer to them. So we felt we were really setting ourselves up for a highly successful integration and acquisition there. I think, you may see us do more of that in the future, increase the number of small investments we’re making in companies we see in the broadly defined Agreement Cloud space and then potentially have those as acquisition opportunities.
To second part of your question around the competitive landscape, we don’t think there has been any change. We always say very aggressively, when we think about competition, we fundamentally think about paper. And we think about paper and manual processes. We are so early into this game in terms of where the TAM is. The vast, vast majority of all of our growth is coming from new field expansion. And from time-to-time people want to upgrade, frequent signature, we’ll see that or someone who want to move from a less advanced, sort of, smaller feature set provider, but again the bulk of us is building this new market. So I don’t see that changing. We always of course take careful looks when someone buys, someone that’s in one of our spaces. Box is a partner of ours and we continue to want to partner with them. We have very open model and this won’t change our approach to that relationship at all.
Jake White — William Blair — Analyst
That’s great. Thanks for answering my questions. Congrats again on the great year.
Dan Springer — Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Kirk Materne with Evercore ISI. Please proceed with your question.
Kirk Materne — Evercore ISI — Analyst
Thanks very much. Dan, you obviously have a huge cohort of new customers coming up for renewal over the next couple of quarters. What’s the conversation like the year after you signed someone op meaning, is that really a point of leverage, where our conversation might go from a departmental conversation to a enterprise-wide conversation? Or is that the time that you start being able to sort of introduce some newer functionality or products? I was kind of curious about how you and the sales organization talk about sort of the next step with a lot of these customers that came on this year, because it would seem to be an opportunity to just, sort of, go beyond maybe the pandemic correlated, sort of, decisions they had to make, meaning, these could be really nice expansion deals for you all over the next two to three quarters?
Dan Springer — Chief Executive Officer
Yes, I think that’s exactly how we look at it. I’d tell you the answer to your question is the high level, of course, it depends, right? There’s quite a range, we absolutely have some customers before they make it to a year, realize they’re exceeding the capacity that they purchased from us, and we do early renewals even before the year, that’s a small percentage of them. The one-year mark is a great opportunity to take stock with our customers and say what’s your, sort of, utilization of the capacity, you have to date with signature again the vast, vast majority people start with us with signature. And then is there opportunities you start to go to additional departments, sometimes is phenomenal. It’s just more use cases in the same department, they brought in some back office use cases in the HR department, but they have more than they could use separate from going to finance or go into the front office.
And then of course, we think that we’re kind of really excited about the Agreement Cloud is starting to have those successful customers start the conversation about the broader product portfolio. And so I think we have all of the above. I do believe we’re going to see two phenomenon at a high level this year. One, a lot of people that came to us last year and have been successful in adopting. They’re also going to need to take a little bit of a breather, because they’ve been going so fast in this remote setting, now they’re coming back on board and they, sort of, put off a lot of other projects. So we have heard CIOs say that they’ve got a backlog now of things they need to get done, because the pandemic made it very difficult for them to get certain projects done.
And at the same time, I think we’re going to see a lot of people who are saying, wow, I’m really glad I got started with this digital transformation and I want more of it. And so they’re going to want to accelerate, even the expectations they may have had for that pace of change. So when you put all that mix together, it’s fairly complex. But it leaves us feeling we’re going to have a considerable cross and upsell opportunity this year and the — and those incremental customers, a significant customer, new adds, that you know Cynthia talked about earlier, from last year, over the course of this year, particularly the second half of this year when a lot of those renewals come up, should be a great cross-sell opportunity.
Kirk Materne — Evercore ISI — Analyst
And if I could sneak just a really quick second one in. What’s your thought process on your partner relationships with some of the bigger GSIs now that were hopefully getting back to a more, sort of, normalized world. Is this a year where you think you can make, sort of, a bigger step forward and having those partners build bigger practices on you, especially around sort of the broader Agreement Cloud or is that maybe even a calendar ’22 event? Thanks.
Dan Springer — Chief Executive Officer
Yes. So I’ll be as candid as I can. So we’re enthusiastic. But we’re also very cognizant of the fact that those are relationships to work at scale to take time to develop. Historically, as we’ve shared, the really large GSIs, sort of, looked at us and said we aspire to someday be able to do more with DocuSign, because we love the brand, we love the products. But there wasn’t as much of an economic opportunity, particularly with signature-only. And quite frankly, they came back, and said your software is too easy to use, it doesn’t create enough economic opportunity for us and we totally got it.
And now they’re starting to look, as you said, the broader Agreement Cloud and there’s a lot of enthusiasm building there. But if you said this year and we think about our sort of SI strategy, this year — fiscal year ’22, I believe the bulk of the success we will get will be in with the regional SIs this year. But really starting to make traction with the GSIs and probably next year is the year where I would be disappointed if we weren’t really hitting the ground running with the GSI, because they all want to be DocuSign partners, we just got to get that model right, so it can be significant enough for them for their business model.
Kirk Materne — Evercore ISI — Analyst
Right. Congrats on the quarter.
Dan Springer — Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Rob Owens with Piper Sandler. Please proceed with your question.
Rob Owens — Piper Sandler — Analyst
Great, and thank you for taking my question. I just want to drill down a little bit more on the international front. And since I can’t really ask you question to make sure and ask you question about it. Just in terms of — any changes relative to go-to-market sales process? As you look at lot of the major geographies out there, where are they in terms of the maturity to build relative to the US and what you’re seeing either, different competitors that you run into a region. And just regard to quick [Indecipherable] where the overall opportunity is and what you’re seeing right now? Thanks.
Dan Springer — Chief Executive Officer
Yes. Well, Rob, let me, I’ll try the channel mic for you best I can. Because I guess, I could use a much deeper voice if I’m going to channel mic. But the construct, I would say is the work that we talked about the last couple of quarters was really the success that we needed in Europe was around coordination, it’s grown very quickly. And we realize we wanted to put additional leadership to support the international growth, because we weren’t coordinated, as well as we could across our own organization that our marketing team working with, our sales teams or sales teams working with our success and professional services teams and we had real opportunity. We’ve been pleased with that result and we want to continue to have that focus and investment. There wasn’t anything, I’d say fundamentally broken with the business, but we did have some opportunity for better coordination. And I think that has helped us.
But I think in the end, as you heard us talk about earlier at the beginning of the call, what’s happened in international is it’s coming into its own and it’s hitting its scale just like we had the scale growth in our domestic business several years before. From a standpoint of the types of investments, I do think we will continually look at additional markets where we could have a bigger presence in those markets because of our [Indecipherable] we sell well over 100 countries, but we have these eight focus countries that we’ve put most of our effort against and we continue to think that’s the right strategy, because there’s a lot more growth in those market. But over the course of this year, I would not be surprised to see us come forward and say another country or even two that we’re going to sort of add to that list of the focus eight and start to go deeper.
And then the last piece, I’d say, we are really investing aggressively in our digital strategy, which of course is global in nature. And I think it can be a significant part of growing our international business, because that reach can get up to close to 200 countries. And we want to be leveraging that investment aggressively as part of international.
Rob Owens — Piper Sandler — Analyst
All right. Thank you.
Operator
Your next question comes from the line of Rishi Jaluria with D.A. Davidson. Please proceed with your question.
Rishi Jaluria — D.A. Davidson — Analyst
Hey, Dan and Cynthia. Thanks so much for taking my questions. Nice to see the business momentum continuing. I got two questions. First, just following up on the conversation on international. You really ramped up international hiring. Where are you ramping up your head count the most? Is it on sales coverage? Is it on leadership product side or other areas?
And maybe alongside that, again, you talked about your, kind of, eight focus countries. As I look at the slide you laid out in your slide deck on international traction, it seems like there is a huge opportunity in Asia and really Japan is the only country that you’ve had a good amount of success there, but it seems like there’s a really big opportunity. What needs to happen to get real success in that Asia, ex-Japan region and any lessons that you could take from the — I think surprising at least to me success you’ve had in Brazil into those territories? And then I got a follow-up.
Dan Springer — Chief Executive Officer
Sure. Yes, in terms of the investment by category, it’s sales and customer success. I mean, the core field is what we have built and we’re not — we have product, people in Europe, in Paris. But the bulk of what we’re building is the core field. And then the support organizations like marketing, like finance, like legal, that are going to really support those teams in their growth. But the core of it is sales and customer success.
And then in terms of your question specifically about Asia Pacific. So I think we — two things, one we have historically thinking of the Asia-Pacific market is all other, and then Japan, we’re actually starting to look at it now is a J-pac mindset, and we’re increasingly looking at bringing leadership in to cover across those two businesses. Lot of software companies have very distinct Japanese businesses and there’s a lot of good reasons for that and the nature of how that economy works. But we think we have opportunity to be more successful broadly in Southeast Asia if we leverage the strength we have in Japan and the strength we have had traditionally in the ANZ market.
So that’s probably the best answer for what we’re trying to do to address that. We do have a small presence in Singapore, which we think can be an important launching pad for other markets in Southeast Asia. But at this point, we don’t have plans to open additional offices in Asia, we really want to try to leverage what we’ve got in Sydney and Melbourne, Tokyo and Singapore.
Rishi Jaluria — D.A. Davidson — Analyst
All right. Got it. That’s helpful. And then just as a follow-up, I wanted to ask on the CLM side as you continue to gain traction there and get more and more customer land. Do you find yourself getting into more competitive situation, again some of the pure-play CLMs like Icertis or even SAP Ariba? Or how would you characterize what you’re seeing as you get more traction there? Thanks.
Dan Springer — Chief Executive Officer
Well, I think for us, the competitive situation of question earlier about competition is quite different, any signature than it isn’t anything else, right? We have such a dramatic market share lead and quite frankly product capability lead, any signature that it’s just the competition I said is paper. It’s not that there aren’t other strong companies that are in the market, but just by the sheer size advantage that we have. And you heard us talk about before we spend more money in R&D than we think those folks have in revenue.
So from that standpoint, it’s a very different dynamic and we are one of the leaders in CLM. But there are other credible companies in the space. As we do see a different competitive dynamics, you mentioned SAP and Ariba interestingly SAP is much more of a partner really than a competitor. And increasingly, we’re actually investing significantly in our integrations into Ariba to ensure that our CLM products will be industry-leading on the buy side, as well as they are on the sell side today. But in general, I think your point is spot on and it is a different competitive dynamic and we’re one of the leaders, but not the dramatic leader that we are in signature.
Rishi Jaluria — D.A. Davidson — Analyst
All right. Wonderful. Thank you. I’m looking forward to the conference.
Operator
Your next question comes from the line of Michael Turrin with Wells Fargo Securities. Please proceed with your question.
Michael Turrin — Wells Fargo Securities — Analyst
Hey, there. Thanks, and good afternoon. Going back to the retention number reference that continues to tick up. How should we think about the progression from here? Are those 120% plus level is something you feel you could sustain given the seedlings you’ve laid with the e-signature this year and just expansion opportunities with the Agreement Cloud you’ve laid out, and it sounds like, are starting to gain some momentum. Or is there some counterbalance we should also be mindful of and penciling those numbers out going forward?
Cynthia Gaylor — Chief Financial Officer
Yes. So on that I think these are the new codes are really seeding our opportunity in upsells and expansion, when we think, just kind of about the market opportunity and where that number could go. However, given the scale that we’re at and the rate that we’ve been growing, we’re watching that number quite closely. So our historic range for dollar net retention has been kind of in the 112% to 119% range in the last — the last bunch of quarters we’ve been above that range. And so I think the way to think about that is we likely would continue at the high-end of the historical range or at least at the high end of the historical range. And we’ll continue to monitor that metric quite closely, but we’re feeling good, one, about the 123% that we posted for Q4, but then also just the amount of net new customers that we’ve added and how we’ve been expanding over the course of the last year.
Michael Turrin — Wells Fargo Securities — Analyst
Helpful. Just maybe a quick follow on, Cynthia, on hiring. You had a big step up in head count mid-year. At least from a sequential perspective, it looks like the pace of adds is starting to moderate. Can you just expand on how you’re thinking about capacity from here? There is continued commentary around staying in growth investment mode, but have you laid some of the initial seeds with margin expansion? Already in the guide, it looks like maybe that’s the case, but anything you can add is helpful.
Cynthia Gaylor — Chief Financial Officer
Yes, for sure, and that’s exactly how we’re thinking about it. We are investing for growth. And if you think about the last four quarters, in the first half of last year, our — the customer demand outstripped the capacity in the field, right? And so as we move through the year, we then accelerated hiring to really need that customer demand and to set us that to continue to grow at — off a higher base coming into this year. And so we’ll continue to make investments across the go-to-market in sales and success as Dan had mentioned. But then also in R&D and continuing to innovate around the product portfolio, particularly across the Agreement Cloud. And so we’ll continue to make those investments. You will see us continue to move towards our operating margin targets, but just given how nascent the opportunity is, how big the opportunity is in our market position, we’ll continue to invest aggressively for growth.
Dan Springer — Chief Executive Officer
And one other piece. I wouldn’t look at it as a reduction in the capacity building in the second half. If you factor in the acquisitions that we did in the middle of the year. So if you look at the number of employees that we brought on with the Seal and the Liveoak Technologies, that sort of inflated a little bit in the middle of the year. So if you smooth that out, I think you heard what Cynthia was saying is very consistent that we are continuing to invest in growth. First, the performance of the business is such that we threw more to the bottom line than we expected, it’s not a problem, but it’s no way an indication that we’re moving back from our focus on growth first.
Michael Turrin — Wells Fargo Securities — Analyst
Yes, it’s a good problem to have. Thanks. Congrats on the impressive year you disclosed.
Dan Springer — Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Tyler Radke with Citigroup. Please proceed with your question.
Tyler Radke — Citigroup — Analyst
Hi, thanks for taking my question. I wanted to ask you just how you’re thinking about maybe some of the newer verticals, particularly around federal or some other verticals that maybe you didn’t see as much success in FY ’21. How you’re thinking about those in terms of being a driver here this year?
Dan Springer — Chief Executive Officer
Yes. So we think about our business in verticals for sure and then we also we have our GL business right, which is quite substantial. But in the verticals, the overall government vertical was incredibly strong for us in fiscal year ’21, but it was very strong at state and local, and it wasn’t as strong in federal. And I don’t know that I have, I mean, we could sort of hypothesize on what a pandemic does for certain types of governments or others. But I think that there is so many kind of like health and human services aspects in the state and local where they deliver those types of services to their population. That really needed to happen in a quick way.
And I think the federal agencies just have less of that and less of that urgency. So from that standpoint, as we look forward to this year and we think about federal, I think we think it’s a lot of opportunity and there is a lot of almost pent-up, sort of, demand now run by the federal government, it’s fantastic, but the pace of change there is sometimes not rapid. So we wouldn’t be surprised if that some of the things take longer than we think, but we do see a pipe building of significant opportunities to add that to the good success we had in state and local this last year.
Tyler Radke — Citigroup — Analyst
Okay, well said. Thank you. And just a follow-up, maybe just if you could kind of share with us what you’re thinking about in terms of return to obviously not back to full normal pre-COVID spending levels, but just kind of what you’re modeling in, in terms of high level assumptions there?
Dan Springer — Chief Executive Officer
You talk about our spending? Are you talking about customer spending?
Tyler Radke — Citigroup — Analyst
Yes, just spending on either travel, entertainment, office spending, just kind of curious how you’re thinking about that through the back half of the year?
Dan Springer — Chief Executive Officer
Yes. So we’ve sort of told our employees to give you some indication of that they would not be required to return to DocuSign offices until October 4th. Now, we previously said June, and had pushed out, it could push out again obviously, but that’s our perspective that we wouldn’t be back in any significant way before then. Cynthia did you want to talk a little bit how we’ve modeled the expenses from that standpoint and how that might change to try to give some perspective? I look at the bottom line and say we’ve talked about continued increase in our profitability and our operating income, but not at the torrid rate that it improved in fiscal year ’21 because we do want to focus on growth investing.
Cynthia Gaylor — Chief Financial Officer
Yes, of course, of course. And so I think towards the second half of the year, we’re starting to bake in kind of more a return to office in our own expense line. But I would say it’s moderated, right, because it will kind of ramp in there slowly. I would say last year that probably wasn’t the biggest impact on our margin. It was really the outperformance in the customer demand. And so we invested in other places when, kind of, some of the travel went away, including in employees and some employee benefit types of programs. So in a nutshell we’re baking it in towards the second half of the year, but it’s kind of a slow ramp-up, but it’s included in the guide.
Tyler Radke — Citigroup — Analyst
Okay. Thank you.
Operator
Ladies and gentlemen, we apologize, but we are out of time for questions. And I would like to turn the call back to Mr. Dan Springer for closing remarks.
Dan Springer — Chief Executive Officer
Thank you so much. And thank you all for joining us. And as I said at the beginning of the call, we really hope you all be able to join us for our inaugural Analyst Day and we’ll look forward to seeing you there. Thank you.
Operator
[Operator Closing Remarks]