Docusign Inc (NASDAQ:DOCU) Q4 2023 Earnings Call dated Mar. 09, 2023.
Corporate Participants:
Heather Kalista Harwood — Investor Relations and Customer Success Finance
Allan Thygesen — Chief Executive Officer
Cynthia Gaylor — Chief Financial Officer
Analysts:
Brad Sills — Bank of America — Analyst
Brent Thill — Jefferies — Analyst
Jackson Ader — SVB — Analyst
Tyler Radke — Citi — Analyst
George Iwanyc — Oppenheimer — Analyst
Rishi Jaluria — RBC Capital Markets — Analyst
Michael Turrin — Wells Fargo — Analyst
Josh Baer — Morgan Stanley — Analyst
Kirk Materne — Evercore ISI — Analyst
Jake Roberge — William Blair — Analyst
Presentation:
Operator
Good afternoon, ladies and gentlemen. Thank you for joining DocuSign’s Fourth Quarter and Full Fiscal Year ’23 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 Heather Harwood, Head of Investor Relations. Please go ahead.
Heather Kalista Harwood — Investor Relations and Customer Success Finance
Thank you, operator. Good afternoon and welcome to the DocuSign Q4 and fiscal year 2023 earnings call. I’m Heather Harwood, DocuSign’s Head of Investor Relations. Joining me on the call today are DocuSign’s CEO Allan Thygesen and our CFO, Cynthia Gaylor. The press release announcing our fourth quarter and fiscal year 2023 results was issued earlier today, and is posted on our Investor Relations website.
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 pace of digital transformation, and factors affecting customer demand, 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. 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 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 earnings press release, which can be found on our website at investor.docusign.com.
I’d now like to turn the call over to Allan. Allan?
Allan Thygesen — Chief Executive Officer
Thanks, Heather, and good afternoon, everyone. Our fourth quarter marked my first full quarter as DocuSign’s CEO. Having led our organization for five months with the opportunity to meet many of our customers, partners, and employees, I’m even more optimistic today about the future of DocuSign. We had a solid finish to a transitional year, delivering across key financial metrics in Q4, while making tangible progress against our key priorities.
Q4 total revenue came in at $660 million, up 14% versus prior year, finishing the year with $2.5 billion of revenue and 19% year-on year growth. Driven by our continued focus on profitability and efficiency, we reported 24% non-GAAP operating margin for the quarter, and 21% for the year. While we are pleased with our Q4 results, I also want to acknowledge today’s challenging macro-environment. Customer sentiment continues to be cautious, and that is reflected in moderated expansion rates.
Before we get further into business updates, I want to acknowledge today’s news that Cynthia Gaylor has decided to step down from her role as Chief Financial Officer. Cynthia has been with DocuSign for nearly 4.5 years, first as a Board member and Chair of our Audit Committee, and last few years as our CFO. I know many of you know Cynthia well and gotten to know her even better over time as part of the DocuSign story. I want to thank Cynthia for her unwavering commitment, and strategic leadership these last few [Phonetic] years. She’s been a great partner to me during my first months as CEO and she’s been instrumental to the Company and the Board as we’ve navigated a period of dynamic change, while laying a strong foundation for sustainable, profitable growth at scale. I thank her for her support during the transition as we search for a successor.
Let me turn back to the business. During Q4, we refined and communicated DocuSign’s strategy throughout our organization, to drive greater alignment on how our teams can deliver more strategic value to our customers. Today, we have a clearly defined strategy in place. To underscore the key pillars of our strategic vision, inspired by customer feedback, our focus is to deliver smarter, easier, and trusted agreements. We’re improving the reach and efficiency of our go-to-market by developing a world-class self-serve experience, strengthening our direct sales productivity, and amplifying our sales and marketing partnerships. We’re also strengthening our internal operational efficiency by optimizing and modernizing systems and processes.
It’s important to emphasize that even as the market leader in e-signature, we are just at the beginning of capitalizing on the opportunity to redefine and truly re-imagine what a smarter agreement looks like. Today, e-sign signs provides an online replica of a static document. While that is a huge improvement in convenience and productivity for senders and signers, it’s hardly the endpoint. Just like creating digital copies of maps, or recorded music was the beginning of a re-imagination of long-established categories, fundamentally altering creation, distribution, and use. Our goal is to turn flat agreements into structured data that can be used to make intelligent decisions. Value of an agreement is in the data. Every step of an agreement can deliver more value, when it’s automated, intelligent, and seamlessly integrated into core business systems. DocuSign is uniquely positioned to redefine the agreement processes across every industry.
Along these lines, we released several new product enhancements during the fourth quarter, including expanded integrations to better collaborate the Microsoft Teams, Slack, and Zoom. For e-signature, we enabled new AI-assisted document highlighting, and signing capabilities in mobile and web with faster time to value. In April, we will release WEBforms, which will help customers deliver a better and simpler experience by moving from legacy contract forms to a modern web and app experience. We also plan to accelerate our release cycles in fiscal 2024, with innovative and differentiated solutions that simplify the agreement process, while we identify new ways to revolutionize how businesses initiate, negotiate, and manage agreements.
There’s substantial interest in the industry about rapid advances in the AI, and large language models in particular. We are already leveraging sophisticated AI models for contract analysis, and automation of some workflows, and we’re very excited to harness generative AI, data and pattern identification as yet another way we can increase productivity, reduce friction, and save our customers’ time. As we move forward, we believe this can be a compelling part of our business, and we’re encouraged by the significant interest from some of the very largest players in our industry, who recognize our domain leadership and expertise and want to partner with us.
Moving to our product-led growth and self-serve initiatives, we’ve made solid progress over the last few months, modernizing our commerce experience, to reduce friction, improve ease-of-use, and provide customers more flexibility. We’ve expanded seat capacity available, our web and mobile sites, we’ve expanded currency options available to make the buying process easier in international markets. We gained traction with these initiatives as we exited the quarter, and we will continue to keep you updated on our progress.
Further, as you saw in an announcement a few weeks ago, I couldn’t be more excited to have Robert Chatwani joining our team as President and General Manager of Growth. Robert brings a wealth of experience, and we look forward to benefiting from his insights and expertise for more than two decades of scaling global technology companies, who joins DocuSign from an organization that’s broadly recognized as having a world-class product-led growth motion. Executing on our product-led growth strategy is a key priority for the Company, as it will be a primary driver of customer acquisition, conversion, and expansion. I’m thrilled to have Robert leading our efforts in this area.
Turning to our go-to-market, we’re just coming off our global sales kickoff last week, and I can tell you that the sales team is incredibly excited, and energized for the year ahead. We’re focused on delivering across three complementary channels, direct, self-serve, and partners, and to provide world-class customer success, driving customer growth and retention through all three. As an example of global growth and multiproduct expansion, this past quarter, a leading global consulting firm, who’s been using e-signature for a decade, expanded and added our CLM+ product. This is a competitive sales cycles since the customer’s already in the process of implementing a competitor’s CLM solution in a few countries. However, DocuSign won preferred vendor status with CLM, and the customer has since rolled this out in six countries across two continents and has built integrations with their internal systems, and the DocuSign partners Salesforce and ServiceNow.
Related to go-to-market, I want to acknowledge the restructuring we recently-announced. It was a difficult decision, but it was a critically important step for our company to reshape and rightsize our organization for the opportunity ahead. It was not a broad-based restructuring. 95% of the workforce reduction was in our worldwide field organization. Our assessment was that DocuSign can capture more efficiency in our overall go-to-market across all segments, and that we can unlock more profitable growth by investing part of the savings in product development, and innovation.
Now the direct channel remains absolutely critical to our future. We’re rebalancing our approach towards offering a lighter touch experience with more self-serve capabilities that give customers of all sizes choice in how they engage with DocuSign. That pivot in turn frees up resources to invest more in our self-service motion, and expanded roadmap for agreement workflows, new AI capabilities, accelerating our migration to the cloud, and improving our internal systems. That in turn will create an even stronger and more valuable offering from our customers, and for our sales teams to sell. We still have some work to do to strengthen our self-serve experience over the next six months to 12 months, and while we may see some modest near-term disruption, we’re confident these are the right steps going forward to drive innovation and growth for our customers for the long term. Additionally, a stronger self-serve motion will enable greater expansion opportunities internationally.
Turning to our internal operations and processes, Anwar Akram recently joined as our Chief Operating Officer, and will play a crucial role within our organization. Anwar’s focus is to bring together and transform our strategy, develop new strategies around pricing and packaging, driving incremental efficiencies internally, and help evolve early-stage ideas into future growth initiatives. Related to these efforts, I noted on the last call, that we rolled-out the product bundles to introduce more features and functionalities to our customers. I’m pleased to share that these bundled promotions performed better-than-expected, and we saw good adoption for our new SMB customers particularly. Our experience suggests the customers that adopt a broader set of features renew and expand their commitment with us. You should expect to see more initiatives around pricing and packaging in the future, including bundling and ensuring early adoption of our highest value features.
Finally, I would like to update you on our partner ecosystem, another key pillar of our strategy. We’re seeing good progress with a number of our largest software partners. ServiceNow is a good example, highlighted by the launch of the CLM Spoke as part of ServiceNow’s Automation Engine. Our partnership has gained momentum with several leading organizations utilizing our integration to digitize their agreements. This is directly aligned with our focus on capturing opportunities by integrating more deeply with partner applications.
So in closing, this year has been one of incredible change for DocuSign. Thank you for, we made meaningful strides towards defining our strategy, rightsizing and optimizing our organization. We believe the foundation has been set, and then we’re in a better position to navigate the evolving macro environment, while investing for opportunities that enable long-term profitable growth. We’re optimistic about the year ahead for DocuSign and we’re committed to delivering meaningful customer and shareholder value. We look forward to sharing further progress on our initiatives as we redefine how the world comes together and agrees, you will enable smarter, easier and trusted agreements.
With that, let me once again thanks Cynthia and turn the call over to her to walk through the financials. Cynthia?
Cynthia Gaylor — Chief Financial Officer
Perfect. Thanks, Allan, for the kind words. I’d like to start off by thanking our employees [Technical Issues] execution. We closed out the year strong and I am proud to share that we achieved an impressive milestone for the Company, delivering $2.5 billion of revenue for the fiscal year, reflecting 19% growth year-on-year. Our Q4 results were solid, demonstrating the durability in our business model and DocuSign’s important position in the broader ecosystem. While we are pleased with our results and execution in Q4, we continue to experience a challenging macro environment with softening demand trends, including moderating expansion rates. However, we are seeing healthy results as customers recognize that DocuSign offers high ROI applications that are easy to use, efficient and cost effective.
With that, let me turn to our Q4 and fiscal ’23 results. For the fourth quarter, total revenue increased 14% year-over-year to $660 million and subscription revenue grew 14% year-over-year to $644 million. Total revenue for the year reached $2.5 billion, a 19% increase over last year and subscription revenue was $2.4 billion, a 20% year-over-year increase. Our international revenue grew 19% year-over-year to reach $165 million in the fourth quarter. For the full year, international revenue grew 29% to $260 million [Phonetic], representing 25% of total revenue for both periods.
Fourth quarter billings rose 10% year-over-year to $739 million. For the full year, billings increased 13% to $2.7 billion. We added approximately 30,000 new customers during the quarter, bringing our total installed base to 1.36 million at the end of the year, a 16% increase year-over-year. This includes the addition of approximately 9,000 direct customers to reach a total direct customer base of 211,000, a 24% year-over-year increase. We also saw a 27% year-over-year increase in customers with an annualized contract value greater than $300,000, reaching a total of 1,080 customers.
Dollar net retention was 107% for the quarter. The headwinds we’ve highlighted over the last couple of quarters continued to persist. And as a result, we are seeing muted growth in our expansion rates. We expect this to continue into Q1, and as a result, would expect the dollar net retention in Q1 to trend lower.
Non-GAAP gross margin for the fourth quarter was 83% compared with 81% a year ago. For the full year, gross margin was 82%, in line with last quarter. Fourth quarter subscription gross margin was 85%, consistent with last year. For the full year, subscription gross margin was also 85%, flat versus prior years. Q4 non-GAAP operating income reached $155 million compared with $104 million last year. Non-GAAP operating margin was 24% compared to 18% last year. For the full year, non-GAAP operating income rose 23% to $570 million and operating margin was 21% versus 20% in fiscal 2022.
In Q4, we saw lower expenses for employee-related costs related to the workforce reduction announced in September, which contributed to the strong operating margin in the quarter. Non-GAAP net income for Q4 was $133 million compared with $100 million in the fourth quarter of last year. For the full year, non-GAAP net income was $419 million, up from $411 million in fiscal ’22, a growth rate of 2% year-over-year. As noted on our Q1 call last year, we introduced a non-GAAP tax rate on our non-GAAP net income calculation for fiscal ’23 as we reached consistent non-GAAP profits for the prior three years. We are using a non-GAAP tax rate of 20% for fiscal 2023 and fiscal ’24. Q4 non-GAAP EPS was $0.65, while full-year non-GAAP EPS was $2.03.
Let me take this opportunity to share a bit more context regarding the recent restructuring. As Allan mentioned, this was a difficult decision and one not made lightly, but it was an important decision aligned with our strategy to reshape the Company and free up resources to invest in critical areas across our innovation and product development efforts. As we outlined in the filing last month, we expect to incur related restructuring charges ranging from $25 million to $35 million with the majority of the expenses and related cash to be incurred in Q1 of this year with the restructuring, substantially completed by the end of the second quarter.
We ended Q4 with 7,336 employees compared to 7,461 last year. Operating cash flow in the quarter grew 56% year-over-year to $137 million, representing a 21% margin. This compares with $88 million, a 15% margin in the same quarter a year ago. Free cash flow for the quarter was $113 million, a 17% margin, compared to $70 million, a 12% margin in the year prior, a 61% increase year-over-year.
As we mentioned on our last call, we went live with a new ERP in Q3, which delayed some of our cash collections last quarter. As a result, we saw strong cash collections this quarter, in addition to lower restructuring cash payments on a relative basis. For the full year, operating cash flow was $507 million, representing a 20% margin compared to $506 million, a 24% margin a year ago. Free cash flow declined 4% year-over-year to $429 million, a 17% margin compared to $445 million, a 21% margin in fiscal ’22. We exited Q4 with more than $1.2 billion in cash, cash equivalents, restricted cash and investments.
With that, let me turn to our Q1 and fiscal ’24 guidance. As a reminder, on our Q3 earnings call, we provided a preliminary outlook for fiscal ’24. We are pleased to narrow the preliminary range we provided incorporating our Q4 landing and the dynamics of the current environment into our guidance. We anticipate the macro environment will remain challenging as we move through the year and as Allan mentioned, we may also see modest near-term disruption as we realign our sales force and shift to more of a self-serve motion.
For the first quarter and fiscal year ’24, we anticipate total revenue of $639 million to $643 million in Q1 or growth of 19% year-over-year, and $2.695 billion to $2.707 billion for fiscal ’24 or growth of 7% to 8% year-over-year. Of this, we expect subscription revenue of $625 million to $629 million in Q1 or growth of 10% to 11% year-over-year, and $2.633 billion to $2.645 billion for fiscal ’24 or growth of 8% year-over-year. For billings, we expect $615 million to $625 million in Q1 or flat to 2% growth year-over-year, and $2.705 billion to $2.725 billion for fiscal ’24 or growth of 2% year-over-year.
We expect non-GAAP gross margin to be 81% to 82% for both Q1 and the fiscal year. We expect non-GAAP operating margin to reach 21% to 22% for Q1 and 21% to 23% for fiscal ’24. We expect non-GAAP fully-diluted weighted-average shares outstanding of 207 million to 212 million for both Q1 and fiscal ’24.
Fiscal ’23 was a year of transition and we are pleased with our execution and the progress we are making as we navigate a challenging macro environment. We remain committed to delivering sustainable growth and profitability at scale. And we will continue to be disciplined with our investments across strategic priorities. We are focused on delivering long-term value to our customers, partners, employees and shareholders. Looking ahead, we are encouraged by the steps we are taking and look forward to updating you on our progress as we move forward. The journey to $2.5 billion have been hard work and a testament to the compelling value proposition DocuSign brings to our customers. Together, we have played an important role in how the world agrees. I look forward to the future.
And finally, I’ll be here a little while longer, as Allan said, so no goodbyes for now. And with that, we will open up the call for questions. Operator?
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from Brad Sills with Bank of America. Please proceed with your question.
Brad Sills — Bank of America — Analyst
Oh, great, thank you. Cynthia, congratulations on your next move. It’s been a pleasure working with you. I wanted to ask one on the moderating expansion activity that you saw during the quarter. Was it a certain cohort of customer where you saw that? Was it across the board? Was it in that enterprise cohort or just the broader base? Just any color on that and any segments that you might have seen that occur. Thank you.
Cynthia Gaylor — Chief Financial Officer
Thanks, Brad. Yeah, so, I think on the expansion rates, I think, it’s a continuing trend that we’ve been talking about from — over the last few quarters, which is as the book of business has grown, and the macroenvironment has softened, the rate at which customers are expanding is slowing. So, that growth rate and expansion is slowing. And so, I would say there wasn’t a big change in Q4 relative to the couple of quarters before, but it is a continuing trend that’s putting some pressure on the topline. On the cohorts, we actually do do a lot of analysis on the cohorts and I would say some of the cohorts are probably expanding at a slower rate, and some are moderating the rate at which they are expanding, but I’d say overall, it’s having the same impact and part of it is, as we’ve talked about in past quarters, it’s a little bit of the law of large numbers, as that book of business gets bigger, you need more and more expansion dollars to move it. And so, customers are still expanding, but when you look at the topline, that’s probably the biggest factor kind of impacting the compression of some of those growth rates.
Brad Sills — Bank of America — Analyst
Understood. Thanks, Cynthia.
Operator
Our next question is from Brent Thill with Jefferies. Please proceed with your question.
Brent Thill — Jefferies — Analyst
Thanks. Allan, just on the sales overhaul, can you just talk to how long you expect this to send kind of wake turbulence through the sales org and when you feel like you kind of resume full strength? And I had a quick follow-up for Cynthia, just as it relates to the billings growth decel from 13% to 2%. Can you just give us a sense of kind of what you’re factoring into that? Thanks.
Allan Thygesen — Chief Executive Officer
I’ll go first. Thanks, Brent. I think on the sales force side, I’d say I think we are in a significantly more stable situation than six months to 12 months ago. Attrition rates have slowed. We’ve got, I think, a pretty full team in-place. Steve’s done a very nice job with that. There’s more better execution, better predictability. Part of what gave us the confidence to take the restructuring action was in fact that and that we could see what our sales capacity was and we felt we had a little bit of excess capacity there, as well as a keen understanding of where we could de-invest and free-up resources to invest elsewhere. So, we’re being cautious and saying there could be a little bit of disruption, as some of the — particularly at the very low-end, some of the business that [Indecipherable] previously have had a little bit of human touch. We’ll try to do that more particularly through our self-serve motion, but I think that should play out in a relatively very two quick order of one to quarters.
But I think the sales force is actually in the best place it’s been for a while. Just had our global kick-off last week and think I am representing them saying that they are incredibly energized by the roadmap and they all have the slightly larger territories now. So it’s a very — it’s a very positive fuel, I think, throughout the sales team.
Cynthia Gaylor — Chief Financial Officer
I’ll take the billings question, but before I do that, I realize I misspoke on international revenue. So just to clarify, international revenue grew 29% to $620 million. I think I said $260 million. Just a clarification there.
On the billings question, I think, it’s related to a couple of things. One is, as we talked about last quarter, we’re expecting a slower start to the year. I think, when you look at the macroenvironment, it certainly hasn’t gotten better and you could probably sense this maybe gotten a little bit worse and on-top of that, we have we some changes to the fields which we think could cause some disruption, but I think that certainly playing into both the revenue and the billings guide we’re giving to the year. I’d also say we always guide to what we could see. I think we can see Q1 better than we can see the rest of the year, but given the 1% guide in Q1, we would expect that to improve as we move through the year and some of the investments we made start to take hold. So, I think those are some of the dynamics kind of [Technical Issues].
Brent Thill — Jefferies — Analyst
Thank you.
Operator
Our next question is from Jackson Ader with SVB. Please proceed with your question.
Jackson Ader — SVB — Analyst
Great, thanks for taking my questions guys. First one on the macroenvironment, how does the macroenvironment actually impact you? Is it number of employees and your customers are coming down, and so they don’t need as many envelopes? I’d be surprised if it were the DocuSign line item is like getting a bunch of scrutiny and IT budgets or something, but just given the ROI and the traditionally very quick payback, I would think a e-signature would be a place where people are actually like more willing to invest in a tough macroenvironment. So, how do I square that?
Allan Thygesen — Chief Executive Officer
Yeah. Thanks for the question. The first thing I would say is, is the overall macro environment just affects businesses of all sizes, and their ability and willingness to spend on all kinds of software, including ours, but I don’t think we’re particularly more macro sensitive or a little less than others. In terms of the industry mix in the economy, we do have a little bit of overexposure, if you will, to real estate and a few other sectors that have been a little tougher. On the other hand, we are quite diversified and have some real strength in sectors like health and manufacturing telecommunications. So that’s balancing out.
In terms of the value prop, I agree with your statement. I think there’s a very quick payback. I think we’re seeing that. So, customers — and that’s also a key part of DocuSign’s competitive value proposition vis-a-vis other competitors, people tend to respond fast. They’re more likely to respond to an agreement. They’re faster to respond and they have a better positive experience. So overall, I think the macro environment presents some clouds for IT budgets of companies of all sizes. We are seeing maybe a little bit more vertical exposure than the average company, but are generally pretty balanced, and I think our value prop remains quite strong.
Jackson Ader — SVB — Analyst
Okay. All right. Great. And then a very quick follow-up. How much of the, like, second kind of round of restructuring was factored into the preliminary margin guidance for the year that was given, Cynthia, on last quarter’s call?
Cynthia Gaylor — Chief Financial Officer
Thanks for the question. So to be clear, in the outlook we provided, the most recent restructuring was not factored in that call. We were evaluating the scenarios for this fiscal year as part of our annual plan in areas that we wanted to invest in across the strategic priorities, but that wasn’t contemplated, specifically at the time, or baked into the outlook we provided. That being said, I think, as we went through the process of the annual [Technical Issues], it was clear that we needed more room for investment across the key priorities. And as Allan articulated, the plan is to invest in R&D in particular, and innovation, and kind of shift some of the investments into that initiative as well as PLG self-serve.
So, we were able to come a little bit above the outlook we provided. If you remember, in Q3 on margins, we said at the low end of our long-term target range, which is 20% to 22%. The long-term target range as a reminder is 20% to 25%, and our guide for the year is 21% to 23%. So, we are going to be reinvesting, but we also increased the margin by a little bit.
Jackson Ader — SVB — Analyst
Got it. Got it. All right. Great. Thank you very much.
Operator
Our next question is from Tyler Radke with Citi. Please proceed with your question.
Tyler Radke — Citi — Analyst
Yes, thanks for taking the question. Just going back to the sales reorg and kind of the strategy moving forward and the move to a self-serve model, I was just wondering if you could elaborate on that and just kind of what your vision is for the Company, and where do you kind of make the threshold for when a sale becomes self-service? Is it at a certain deal size, or maybe do you only have salespeople by industry or specialization like CLM? If you could elaborate on that. And then, just a quick follow-up for Cynthia. Just given that we’ve seen a cumulative risk of close to 20% of the workforce, I guess, why wouldn’t margins be higher for next year? You did about 24% EBIT margin on a non-GAAP basis here in Q4 and I think that was without a lot of the benefits you’re seeing from the cost-savings. So, I guess, why wouldn’t we see higher margins in that next year, given 20% lower headcount? Thank you.
Allan Thygesen — Chief Executive Officer
Yeah, I’ll take the first one. So, just about our go-to-market, historically, DocuSign has been very heavily focused on a direct sales motion for customers of all sizes, and we will retain direct sales as our principal go-to-market channel, and it’s a huge strength for the Company, and we certainly want to continue to improve there, but we feel we want to complement it in two areas.
One is, with the self-serve motion, and that’s not just for little customers. That’s for customers of all sizes. We just think that all customers appreciate an opportunity to self-serve for certain types of activities at all stages of their journey with us and that — I’ll come back to that in a second, and third we are really focused on maturing our partner go-to-market where we can use distributors and resellers in some international markets, we can partner with ISVs to be directly embedded in their applications. We have significant activity there, but can meaningfully improve.
Let me quickly return to the self-serve piece in particular. I want to make sure that it’s clear. We want to stop treating digital and direct sales as separate channels over time. We essentially want to offer all customers the opportunity to self-serve if and when they wish, and I expect many customers will avail themselves of that. And then, as a corollary, I want our sales teams to see the self-serve options as a positive complement to their activities. I think that’s what we did at Google. I think that’s what Robert did at Atlassian, and I think that’s what a lot of companies that are natively digital in their motion do, and I think, we have a tremendous amount of opportunity there. So that’s our overall go-to-market plan.
Cynthia, you want to take the second half?
Cynthia Gaylor — Chief Financial Officer
Sure. Yeah, so, I totally understand the question. I would say Q4, the 24% margin was higher than probably what our steady rate is for a couple of reasons. One is, we had just gone through the fall restructuring, so that really dropped to margin. And then, in addition, the hiring in Q4 was slower than we had anticipated in the quarter. So, as we kind of look into this year, we see the opportunity in front of us, and we want to invest into the key pillars of the strategic priorities that Allan talked about, right, in the product, in innovation, and then in PLG self-serve. And so, we’re really putting that money from the second restructuring back into the business, to really level set against those key areas.
Operator
Our next question comes from George Iwanyc with Oppenheimer. Please proceed with your question.
George Iwanyc — Oppenheimer — Analyst
Thank you for taking my question. Allan, maybe digging into the product bundling traction you’re seeing, can you give us some color on the adoption rates with SMBs and maybe put that in perspective of what you’re also seeing from competitors?
Allan Thygesen — Chief Executive Officer
Yeah. So, first of all, on a segment basis, and I think Cynthia alluded to this, we have first of all, a very balanced customer portfolio. So, we have a significant SMB and mid-market business and a big emphasis on growing our enterprise business. And I’d say on balance, I don’t know that there’s a huge difference in momentum between those sectors. I know some companies are reporting particular challenges in SMB. I don’t think we’re seeing that. In fact, we had some nice momentum on new accounts in particular. So, I was pleased to see that. I think, in terms of — that was the segment piece. What was the other part of your question.
George Iwanyc — Oppenheimer — Analyst
Just what you think from a competitive space perspective.
Allan Thygesen — Chief Executive Officer
On competition. Well, okay. There’s no question that over the last three years to five years the market has gotten more competitive. I don’t know that we’re seeing a material change in how competitive it is here in the last few quarters. I think we continue to be the market leader. We don’t spend as much time worrying about what other people are doing, I think, we want to really redefine the category, and set the direction for the industry, and I think we’re well on our way to doing that, and that’s where we’re focused from a competitive standpoint, if you will.
In terms of the tactics, we are looking on pricing and packaging, and how can we be as agile as possible, by segment, by country. There might be a few countries where we’ve gotten a little too far off the market. And so, we’re looking at that very carefully. I mentioned some bundling opportunities during my prepared remarks. So, we think there’s a lot of opportunities there. There’s some enterprise license agreements, some of our largest customers, we really want the ubiquitous e-signature solution for — in every instance where they want to deploy that. And so, we’re in the process of both building out the product to enable that for embedding as well as direct sales and in structuring our license agreements so that, that is as attractive as possible for our large clients.
Cynthia Gaylor — Chief Financial Officer
One thing I would just add on the SMB, we could see — we did see some relative strength there across our business. And we ran some experiments in Q4, particularly around the bundles or around increasing number of seats. So, we did see kind of a higher volume of SMB deals at a lower price point. So higher volume, lower price, which we thought, especially like in newco was a positive sign, as Allan mentioned. So, just a little bit more color there.
George Iwanyc — Oppenheimer — Analyst
Thank you.
Operator
Our next question is from Rishi Jaluria with RBC Capital Markets. Please proceed with your question.
Rishi Jaluria — RBC Capital Markets — Analyst
Wonderful. Thanks so much for taking my questions. Two here. First, I wanted to start with kind of reembracing more of your roots around self-service and PLG. I think the strategy makes a ton of sense and should actually help yourselves efficiency as well. From a product standpoint, is there anything that you need to do to make kind of that self-service PLG motion more intuitive or easier, especially outside of your mobile customers, right? If we think about even the mid-market customers, there should be a lot more self-service capabilities, just anything that you need to invest in or expand from a product perspective, and then I’ve got a follow-up.
Allan Thygesen — Chief Executive Officer
Yeah. So, first of all, I think, look, when people first hear self-serve, they think of don’t you already have a website and can’t people order on your website. And of course, yes, we do, and yes, they can, but what I’m talking about is a significantly more transformational effort where customers can discover, try, embrace, and really deploy products without ever engaging with a DocuSign employee, and we can then engage with them as that potential is demonstrated and expressed and we can apply our sales forces really more efficiently. So, it becomes a huge multiplier for efficiency in our sales teams, and that’s the model that companies like Atlassian has had pioneered over time and very excited to apply that at DocuSign.
In terms of how that applies across segments, well, it’s certainly true that you can imagine an SMB customer basically remaining a purely digital customer, and we would love that, but as customers grow in scope and potential complexity, then, the application of those sales resources becomes both more profitable for us, and more necessary for the customer. And so, I do expect a heavier sales component as you move up market. Mid-market has always been a core strength for us and it remains a really important segment. A lot of our products, you start there and you sort of grow out from there. So, I think that will remain a critical segment for DocuSign and very relevant for the expanded self-serve motion that I’ve just described.
Rishi Jaluria — RBC Capital Markets — Analyst
All right. Wonderful. That’s really helpful. And then, on the international front, I recall last quarter, there was kind of a talk of working closer with partners, especially in Japan, right? Which is, as you know, very unique geography, especially when it comes to enterprise software. Just wondering if you can give an update specifically on your efforts in Japan and kind of building out the partner ecosystem, especially because at least it feels like your product is viewed as significantly better than the competition, and there’s great branding out in Japan, but a lot of the kind of manual processes that need to be modernized, they feel a little bit behind. So, I would love to kind of pick — to hear how you’re thinking about the Japan opportunity and partners there. Thanks.
Allan Thygesen — Chief Executive Officer
Yeah. We are in active discussions internally exactly how we want to pursue Japan. I’d say Germany is another market where I don’t think we have fully lived up to our potential. And I agree with you. We’re in a great starting position. Our initial forays into both of those markets were really mostly just a direct sales motion. We didn’t put, I think, quite enough resources behind it in all the other functions, including product and our administrative functions.
And as you noted, in markets like Japan, the road is littered with U.S. companies that have tried to go to Japan. So, we’re certainly going to be leveraging partners there. So, stay tuned. I think we’ll have more to report on both of those countries during the course of fiscal ’24, but right now, it’s sort of in the planning and decisioning exactly how we’re going to pursue that, but those are definitely strategic priorities within our broader international strategy.
Rishi Jaluria — RBC Capital Markets — Analyst
All right. Perfect. Thank you.
Operator
Our next question is from Michael Turrin with Wells Fargo. Please proceed with your question.
Michael Turrin — Wells Fargo — Analyst
Hey, great. Appreciate you taking the question. And I can appreciate the fact that you’re already operating within the stated target range on margin, but I think some of the questions are just digging out a little bit more, that it seems like you could potentially push even harder given the product-led growth background, the core efficient base of the business. So why not do that with a little bit more emphasis here, and what informs the decision around balancing reinvesting into the product versus making sure the cuts you’re making are the right size where you don’t have to potentially go back again, and make another tough decision? Thank you.
Allan Thygesen — Chief Executive Officer
Yeah. I’d say, first of all, we feel like we have turned the organization pretty well at this point, and reallocated resources to where we’d see the highest investment. Look, I agree with you. I think we were not sufficiently efficient from a sales and marketing perspective. I hope to make us more efficient over time. Until I see that, I don’t want to — we don’t want to be — as Cynthia says, we want to project what we see, but you can assume there will be a lot of emphasis on getting increasingly efficient, even beyond what we have, but I’m not ready to make any — that part of our forecast at this time, but that would certainly be the hope and expectation that we can accelerate top line and improve efficiency over time.
Michael Turrin — Wells Fargo — Analyst
Thank you.
Allan Thygesen — Chief Executive Officer
I would say maybe one other point on the investment piece. We feel we have a very significant opportunity, and we have been, I think, a little underinvested in innovation over the last couple of years. We had the, and have the market-leading product and it remains an incredible value proposition, but I’m excited to reinvigorate that and get us to capitalize on the larger opportunity that I outlined earlier on this call. And I think the whole team feels — we already got some stuff coming out in Q1, and there will be a lot more over the next three quarters, and that will position us to — for growth in future years.
Operator
Our next question is from Josh Baer with Morgan Stanley. Please proceed with your question.
Josh Baer — Morgan Stanley — Analyst
Great. Thanks for the question. Allan, I think you labeled 2022 well in characterizing it as a year of change. So, if ’22 is the year of change, what’s 2023 the year of? Is it execution, stabilization, innovation, self-serve? Like what word would you use to frame 2023?
Allan Thygesen — Chief Executive Officer
Yes. I think change in transition for calendar ’22 — fiscal ’23. For this year, I think, it’s about setting the foundations for growth, and we’re really leaning into that. I think we have a fantastic opportunity to capitalize on this very large TAM that we believe were pointed at. We are the market leader in e-signature and CLM. We are the best positioned to capitalize on that opportunity, and we just need to go execute. So, that’s the job this year. It’s not quite as much of a turnaround transitional year as last year. It’s much more of a foundation and preparation for growth building year.
Josh Baer — Morgan Stanley — Analyst
That’s great. And then one other one, just thinking about direct versus self-serve versus partner channels, what’s the mix of business today and where do you want that to go in three years?
Allan Thygesen — Chief Executive Officer
Yeah. I mean I think we’ve reported in the past that 13% [Phonetic] of our business is digital, but a lot of that is associated by the fact that there’s only a small number of profits and options that you can buy on our website. And so, we’ve been pushing actively, even relative to small customers to have to order from a sales rep, which I will admit I was slightly shocked to learn when I joined. So, our goal is to dramatically grow the — all the pieces of the business, and I’m not sure it’s going to be as meaningful a year from now to talk about what’s digital versus what’s direct because in a lot of cases, our customer may order some things digitally, and may talk to their sales rep about other things. And so, the whole thing becomes a little bit less clear.
From a partner perspective, I don’t think we’ve externally reported on our partner mix. In terms of partner touched, it’s a meaningful minority of our business. In terms of directly partners sold, that’s a little smaller. I think both of those need to grow meaningfully. We don’t have — I alluded to this in my comments, just as one example. There’s a big opportunity to embed our market-leading signature and agreement workflow products directly into third-party products. We do some of that today, but we’re not set up well to serve developers today. So, we’ve got a couple of quarters of work to do to really provide a world-class set of componentized tools that allow developers to pick and choose from all the things we have, to create the most compelling agreement experiences inside of their products. That’s going to be a really important growth driver, but I’m not prepared at this time to comment on the exact magnitude.
Josh Baer — Morgan Stanley — Analyst
Great. Thank you.
Operator
Our next question is from Kirk Materne with Evercore ISI. Please proceed with your question.
Kirk Materne — Evercore ISI — Analyst
Hi, there. Thanks very much. Allan, I was wondering if you can just talk about sort of the industry strategy or the vertical strategy, both in terms of what you’re doing with the sales organization, meaning, are you going to turn some of that sort of industry focus over to partners, and is there a way to build more sort of industry functionality into the product? So it’s just product-led in that respect. I was just kind of curious if you can talk about the strategy on that basis. Thanks.
Allan Thygesen — Chief Executive Officer
Yeah, it’s a great question. I would say we’re at the earlier phases of our verticalization strategy. We’ve long had a special suite of tools for the real estate industry. I think they are best-in-class and we’ll continue to tweak and improve on that. More recently, we’ve done some, I think, really nice work, for example, in the healthcare space, where we’ve added some compliance with a variety of federal regulations that enables our products to be used for healthcare applications, and that’s driven some really nice growth. I think we have opportunities and this is an active part of our product planning to basically have our products sufficiently componentized that we can easily create custom workflows that are tailored to individual industries.
So, I mean, obvious example, if you have something for mortgages, it’s not that different from a loan application, it’s not that different from an automotive car purchase, and those are all sectors that we already have business in, and where I think we have opportunities to create deeper vertical agreements. Another example is government. And so, we have big opportunities in the government space as well. But I’d say we’ve got some work to do to really fully capitalize on the verticalization opportunity you alluded to, which I totally agree with.
Kirk Materne — Evercore ISI — Analyst
Thank you.
Operator
Our last question is from Jake Roberge with William Blair. Please proceed with your question.
Jake Roberge — William Blair — Analyst
Hey. Thanks for taking my questions and congrats on the results. Allan, you’ve talked a lot about the re-optimization of those R&D resources. Is that more about going deeper into some of your less mature products that have big opportunities like CLM? Or is it about building the self-serve and more frictionless e-signature capabilities that you’ve talked a lot about, and which of those opportunities do you see the larger — see being the larger as we move forward?
Allan Thygesen — Chief Executive Officer
It’s really across all of those. So, we are absolutely directing investment dollars towards accelerating our product-led growth motion. And so, that absolutely, but in addition to that, we direct additional investment dollars into accelerating our agreement workflow roadmap into the CLM space, and into our cloud migration. I think many of you are aware that we’re in the process of migrating our suite to Microsoft Azure, a very strong relationship with Microsoft, and this is a really important year for that migration to move some of the core workloads, and some of the core compute and storage there. And so, we felt that was deserving of more investment because once we get there, we get more scalability. We can do more of the verticalization that was referred to. We can do — we can better meet local requirements in international markets. And so, it’s just, for a variety of reasons, a really important migration.
It won’t be completed this year, but it — we will really get going in a material way here in fiscal ’24. So those are all areas for incremental product investment, beyond the self-serve PLG side.
Jake Roberge — William Blair — Analyst
Okay. Great. That’s helpful. And then, just wanted to double-click on the product bundles performing better than expected during the quarter. Can you provide some specific examples of those bundles and which products really stood out in terms of customer adoption?
Allan Thygesen — Chief Executive Officer
Yeah. I mean very quickly, we — I’d say the most successful one and I alluded to this earlier was what we call our newco bundle, so new customer acquisition, where we bundled our core signature product with a couple of key options, SMS, and single sign-on, and we had a baseline services offering to accelerate onboarding and that was a really nice bundle. Some of our highest value features that we feel are the most highly correlated with both customer satisfaction and renewal and getting people off to a good start, really is helpful for renewal as well. So again, that was the most successful, worked really well, and we need to do more of that.
Jake Roberge — William Blair — Analyst
Great. Thanks for taking my questions.
Allan Thygesen — Chief Executive Officer
Okay. Just quick, let’s just wrap up here. Thank you all for joining, and for your support as we continue to evolve our business. In closing, while this past year was challenging, the changes we’re making are vital to driving our long-term growth and success. I think we delivered a solid finish to the year, and we are prioritizing our investment focus on the areas which we believe will drive increased value for our customers, employees, and shareholders.
I’m really excited about the steps we’ve taken to accelerate innovation, improve, and diversify our go-to-market, and support our vision of smarter, easier, and trusted agreements. I look forward to sharing more with all of you, as the year progresses. Thank you.
Operator
[Operator Closing Remarks]