DocuSign (DOCU -6%) is trading lower following its Q1 (Apr) report last night. The e-signature and contract creation giant beat on EPS, but it was its smallest EPS upside in the past seven quarters. Revenue rose 7.3% year-over-year to $709.6 million, slightly better than analyst expectations. It also guided to in-line revenue for Q2 (Jul) and the full year. Additionally, DOCU announced a $1 billion increase to its share repurchase authorization.
- Billings in Q1 grew 5% year-over-year to $709.5 million, surpassing the $685-695 million prior guidance. This outperformance was driven by higher early renewals and stronger retention rates. However, the 5% growth was slower than the 13% reported in Q4 (Jan).
- For Q2, DOCU expects billings to be $715-725 million. This will be the lowest year-over-year billings growth rate in FY25, due to last year's strong on-time renewal performance and timing impacts of various customer contracts.
- Non-GAAP operating margin was 28.5%, up from 26.6% a year ago and above the 27-28% prior guidance. DOCU maintained its Q2 margin guidance at 27-28% and reaffirmed its full-year margin guidance.
- DOCU has faced challenges in recent quarters due to spending optimization and IT budget scrutiny. However, its core business showed signs of stabilization in Q1, with the dollar net retention rate improving to 99% from 98% in Q4. This is the first sequential improvement in several years.
- In late May, DOCU launched Docusign IAM (Intelligent Agreement Management), a significant shift from its past approach of offering standalone products. This platform combines current products, including eSignature and CLM, with new platform services like Docusign Maestro, an agreement workflow builder that automates the creation of agreements without using code.
Overall, the small EPS beat and billings results/guidance are weighing on shares today. Despite explanations on billings, slower year-over-year growth in Q1 relative to Q4 and comments about Q2 billings being the slowest growth for the year are making investors nervous. Positives include core business stabilization and strong margins, along with a significant $1 billion buyback increase. However, it seems investors were not pleased with the Q1 report overall.
