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I recently had the opportunity to interview Scott Olrich, Chief Operating Officer of DocuSign (DOCU). DocuSign is an information technology company that specializes in digital transaction management and support.
The company in particular specializes in the authentication and facilitation of digital signatures in contracts and agreements. It also offers support and management services for the digital preparation, signing, oversight, and utilization of contracts and agreements.
DocuSign was founded in 2003 and IPO'ed in April 2018. It currently has a market capitalization of about $7.8 billion. Its price is up 11.8% YTD and 12.79% since IPO. Experiencing significant volatility since its debut as a public company, it reached a high of about $68 a share and a market capitalization of $12 billion a few months after its IPO in August 2018.
Revenue at DocuSign has grown from, under GAAP accounting, $250.481 million in FY 2016 (with the fiscal year ending Q1 2016) to $518.504 million in FY 2018 and $700.969 million in FY 2019. Gross profit has grown from $176.626 million in FY 2016 to $508.548 million in FY 2019. However, large increases in operating expenses have resulted in net loss increasing from -$122.559 million in FY 2016 to -$426.458 million in FY 2019. Under non-GAAP, net income has increased substantially from -$69.644 million in FY 2017 to -$12.486 million in FY 2018 to $17.545 million in FY 2019.
In Q1 2020, the company reported over 500,000 customers and GAAP gross margin of 76%. The company's revenue almost entirely comes in the form of subscription services.
Approximately 90% of the Fortune 500 use DocuSign services based on most recent public information on such matter. While the company has experienced great volatility in carving out its space in the unique digital signatures and transaction support market, including a time of CEO turnover, the company sees itself as continuing to expand into a growing multi-billion dollar digital authentication market.
ER: What would you describe as DocuSign's lines of business and the sector it operates in?
SO: Since inception in 2003, DocuSign has been on a mission to accelerate business and simplify life for people around the world.
We pioneered the development of e-signature technology (and offer the world’s #1 e-signature solution). Today, DocuSign helps organizations to connect and automate how they prepare, sign, act on, and manage the agreements that are fundamental to their business -all under the umbrella of the DocuSign Agreement Cloud.
Our value is simple to understand: legacy, paper-based agreement processes are manual, slow, expensive, and error-prone. We eliminate the paper, automate the process, and connect it to all the other systems that businesses are already using.
Our platform has 350+ prebuilt integrations with popular business apps. In addition, our API enables embedding and connecting DocuSign with customers’ websites, mobile apps, and custom workflows. Today, more than 500,000 customers and hundreds of millions of users in over 180 countries use DocuSign to accelerate the process of doing business and simplify people's lives.
ER: Many people may be surprised that a company that focuses on offering a document signing service is now worth about $9 billion. How does DocuSign make money?
SO: As a SaaS company, we utilize a capacity-based subscription model. Customers select a version of the product that has both the core functionality and the envelope capacity that meets their needs, and pay in advance on an annual or multi-year basis. To be clear, an envelope contains the agreements necessary for customers to complete a successful transaction. The number of agreements and signatures will vary depending on industry and use cases.
ER: DocuSign made over $700 million in revenue in 2019 as compared with $518 million in 2018 and $381 million in 2017. DocuSign's customer base has similarly skyrocketed in recent years. How has DocuSign been able to recently grow so fast?
SO: DocuSign has three main growth drivers
i) acquire new customers,
ii) expand within existing customers, and
iii) introduce new and innovative solutions.
The majority of our growth comes the expansion of existing customer use cases. Through our ‘land and expand’ model, we work with our customers to ‘right-size’ their initial anticipated volumes. Most customers begin with one or a small number of use cases - these often expand over time, and they often add new use cases in other areas of their business. Today, most customers remain at the early stages of adoption with just a few use cases, while there are outliers that have hundreds.
One of the unique aspects to DocuSign is the multi-level go-to-market strategy. Given the applicability of our solutions across a range of industries and sizes of organizations, it is a particularly horizontal platform. Our customer base ranges from single users who come via our self-service web channel, to small companies up to Fortune 500 enterprises, which are sold through our direct sales organization and partner channels. We also have customer success organization which helps customers adopt what they have purchased. We believe we are at the early stages of the $25 billion e-signature total addressable market (and even earlier at the larger TAM represented by the DocuSign Agreement Cloud).
ER: Since its IPO in April 2018 DocuSign stock has risen significantly, in contrast to many other recent tech IPOs that have seen big drops after their debut. What do you attribute sustained investor interest in DocuSign since its IPO to?
SO: DocuSign successfully debuted on the public markets on April 27, 2018. Since then, we’ve executed on our strategy of driving penetration in our core eSignature business. What makes DocuSignso attractive is our horizontal platform, addressing a large market opportunity of hundreds of potential use cases across all industries. Our customer base ranges from single-user to small companies toFortune 500 enterprises. Our ongoing innovation has added significant functionality to our e-signature solution with the addition of features such as Comments, Strike-through, Responsive Signing and more. Coupled with the security and scalability of our solution, at over 99.99% uptime at our own data centers, DocuSign remains the market leader in e-signature. In addition, we believe our penetration of the $25 billion e-signature market is in the early stages, and we see a huge runway for growth.
ER: DocuSign posted a significant net loss in 2019 of $426 million, an increase from its losses in 2018 and 2017. How and when does DocuSign hope to achieve profitability?
SO: Like most SaaS companies, DocuSign provides both GAAP and Non-GAAP information. The Non-GAAP financial measures exclude charges primarily related to stock-based compensation expenses and amortization of intangibles that we believe are not reflective of long-term performance. As such, we believe non-GAAP measures provide the best indication of our performance. This was particularly relevant in Fiscal 2019 when we had a one-time stock-based compensation charge of $263 million related to RSUs with a liquidity performance condition. In Fiscal 2019, we generated a non-GAAP net profit of $17.5 million and have been non-GAAP profitable since the last quarter of Fiscal 2018. In our most recent quarter of Fiscal 2020, we continued this trend with a non-GAAP net profit of $13.5 million.
ER: What are potential growth areas DocuSign hopes to focus on in upcoming quarters and years?
SO: Given the applicability of DocuSign to so many organizations worldwide, we believe we are at the early stages of penetration. We see significant opportunity to expand eSignature in the North American market as well as internationally, where the market is much earlier in the adoption and expansion cycle.
Building on that is our vision to modernize the entire agreement process. In March, we announced the DocuSign Agreement Cloud - a suite of products and integrations that digitally transform how organizations prepare, sign, act on, and manage agreements. This includes DocuSign's flagship eSignature product, our SpringCM offering for contract lifecycle management, and several other new DocuSign products like DocuSign Click. By helping to automate and connect the entire agreement process, the DocuSign Agreement Cloud allows business to be done faster with less risk, lower costs, and better experiences for customers, partners, and employees. We believe the DocuSign Agreement Cloud is the next big transformative cloud opportunity for businesses.
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This article was originally published on Seeking Alpha as part of Tech Investment Insights.