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Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's First Quarter of Fiscal Year '27 Earnings Conference Call. [Operator Instructions]

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

Thank you, operator. Good afternoon, and welcome to DocuSign's Q1 of fiscal 2027 earnings call. Joining me on today's call are DocuSign's CEO, Allan Thygesen; and CFO, Blake Grayson. Press release announcing our first quarter of fiscal 2027 results was issued earlier today and is posted on our Investor Relations website along with a published version of our prepared remarks.

Before we begin, let me remind everyone that some of our statements on today's call are forward looking, including any statements regarding future performance. 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 factors affecting customer demand and adoption are based on our best estimates at this time, and 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 flow, billings and ARR. These non-GAAP measures are not intended to be considered installation 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 these 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.

Thank you, Matt, and good afternoon, everyone. We began fiscal 2027 with continued strong demand for DocuSign's AI-native Intelligent Agreement Management, or IAM platform. We have 40,000 companies invested in IAM and they generated 12.6% of total company ARR. Our AI innovation is establishing IAM as the definitive agreement platform. And we are rapidly launching new capabilities that deliver increased value to customers and significantly widen our competitive advantage.

Q1 '27 results demonstrated the business durability. In Q1, revenue was $830 million, up 9% year-over-year. This consistency drives our conviction in the ARR acceleration as part of our fiscal '27 outlook.

On the bottom line, operating margins were 32% and a strong 35% free cash flow margin supported $318 million in stock buybacks, the largest quarterly repurchase in our history.

At our Momentum customer event, we continued the consistent drumbeat of innovation with a line of new products and partnerships that make IAM the center of gravity for agreements across the enterprise. Our overarching goal with IAM is to provide customers with a unified platform for everyone who touches contracts across an organization to unlock top line growth while eliminating friction and increasing efficiency out online.

In fiscal 2027, we have 2 clear priorities: first, delivering powerful end-to-end agreement workflows for customers; and second, expanding our AI data and orchestration advantage.

We have reached an inflection point in agreement management. Customers now recognize how a unified AI agreement platform spanning the organization can solve problems that isolated department-level point products and not. IAM's end architecture eliminates the fragmented handoffs that create delays, introduce mistakes and destroy value. A new Deloitte study quantifies this, finding that while AI point products yield a modest 3% increase in ROI, customers deploying an end-to-end AI platform like IAM, realize a nearly 30% increase or a 10x difference in value delivered.

IAM's value to customers is increasing in 2 ways. First, with new line of business applications tailored to the unique business processes of different functional teams; and second, with a growing number of integrations with key third-party apps. For example, we made IAM more useful for in-house legal professionals by introducing a legal specific contract assistant and agents. These agents autonomously triage, review and progress documents to closing, drawing on knowledge of our company's past negotiations and internal policies.

We also deepened our partnership with Anthropic by integrating IAM with clause new legal tools, so legal professionals can access IAM contracts and connect to IAM workflows from inside Claude. And we announced similar integrations with legal tech specialists, Harvey, Legora and CoCounsel Legal by Thomson Reuters.

In procurement, we partnered with spend management leader, Coupa, so procurement teams can build cross-functional workflows inside the Coupa app. Within human resources, our new IAM for HR product connects Workday and greenhouse to the IAM platform. And in partnership with Salesforce, we announced a Deep Slack [indiscernible] so users can generate review and sign agreements in IAM directly via Slackbot. Payments are also integrated into IAM through our partnership with Stripe. These enterprise-grade workflows and integrations help accelerate IAM adoption among large customers.

Experian, a global data and technology company partner with Docusign to improve seller productivity and drive velocity in client contract cycle times. HSBC, one of the world's largest banking and financial service organizations introduced IAM to digitize and simplify its credit lending process.

To further support enterprise engagement, in Q1, we launched the IAM platform plan, a credit-based subscription pricing model that ties pricing to business outcomes.

At this year's momentum, we recognize customers who are setting the benchmark for what can be achieved on the IAM platform. Crete United, a national network of mechanical, electrical, plumbing and building automation specialists reduced contract negotiation times by 80% and improved deal execution speed by 90% by deploying AI assisted review.

Milky Moo, a milkshake franchisor with more than 800 stores in Brazil uses our AI to track renewals, saving more than 1,000 hours of manual work last year.

Docusign significant advantage in agreement AI enables IAM to deliver superior performance. AI engine, Iris, harnesses Frontier LLM intelligence and combines those capabilities with Docusign's orchestration, deep domain expertise and unmatched body of agreement data. Hundreds of millions of consented private agreements have been ingested into IAM with millions more flowing in every week.

We continue to believe we can achieve to a 15 percentage point improvement in precision and recall compared to our models trained on public contract data while operating at incredible cost efficiency. We've optimized AI processing costs by more than 50x compared to running direct prompts on LLMs.

Other advantages include enterprise-grade security and spans ecosystem of over 1,100 third-party integrations and long-established global distribution relationships. Our deep understanding of our customer workflows in context creates a significant advantage as we integrate agents that can autonomously perform tasks for customers, safely, every direction, under their control, with Docusign providing compliance guardrails.

At Momentum, we introduced agentic offerings that advance IAM's transformation into a system of action. First, prebuilt agents in Iris review agreements suggest edits and automatically request the right approvals in minutes. Second, custom agents and Docusign Agent Studio enable customers to build their own agents tailored to unique business needs. And third, third-party agents through our MCP server, Connect IAM to Anthropic, Claude, Gemini and OpenAI ChatGPT, so teams can create, query and manage IAM agreements within the chat apps they already use.

IAM also connection with additional agentic platforms like GitHub Copilot, Microsoft Copilot Studio and Salesforce Agentforce. In addition, at Momentum, we expanded our federated trust model which lets customers choose from 76 identity providers. And we introduced AI-assisted Web Forms a no-code solution that instantly transforms static PDFs into guided mobile-friendly digital experiences.

Within our internal operations, we continue to apply AI to gain efficiencies and boost productivity in both engineering and customer-facing teams. Approximately 75% of all new codes shipped is AI-assisted, up from 60% just last quarter.

In closing, the IAM platform's value and opportunities spring directly from our AI innovation and we continue to build new features at the fastest pace in Docusign's history. That innovation, coupled with our enormous user base and our enduring position as one of the world's most trusted software companies, positions Docusign to become an essential foundation for the AI-driven enterprise.

We're proud that people are taking notice. In Q1, Fasken included Docusign in its list of most innovative companies for 2026. Also, we were honored as a top-tier employer in the Where you Work Matters list. And for the third consecutive year, Newsweek named Docusign, one of the most trusted software and telecom companies in America.

I also want to welcome our new Chief Product Officer, Graham Sheldon. Graham joins us after working most recently as Chief Product Officer at UiPath, the industry's first enterprise-grade agentic automation platform. Before that, Graham spent more than 20 years at Microsoft, where he took Microsoft teams from inception to 300 million users as Corporate Vice President of Product. We're excited for his leadership as we realize our vision for agreement management.

And I also want to thank outgoing Chief Product Officer, Dmitri Krakovsky for his contribution to building IAM's foundation.

Lastly, I want to thank the entire Docusign team for their relentless commitment to helping our customers unlock the true power of their agreements in this era of rapid change.

With that, let me turn it over to Blake.

Thanks, Allan, and good afternoon, everyone. Our primary focus this year continues to be on transforming our business with IAM, strengthening our position as the default agreement management platform and ultimately accelerating our revenue growth. Docusign continues to build on its position of trust and AI innovation through our recent product announcements, all focused on becoming the definitive end-to-end agreement platform for customers.

In Q1, we continue to make progress against these priorities while demonstrating the durability of our business. Growth remains resilient as we evolve into an AI-first platform through IAM. We also continue to drive efficiency as we produce strong profitability and free cash flow and deployed the largest quarterly capital allocation to stock buybacks in our history.

Q1 revenue was $830 million, up 9% year-over-year. As expected, we had an approximately 1.6 percentage point benefit from foreign exchange rates. The international revenue mix is now 31% of revenue.

We remain excited about the opportunity to accelerate our total annual recurring revenue or ARR growth in fiscal 2027 as we become an even more valuable partner to our customers. IAM slightly outperformed our expectations during Q1 and continues to represent a growing share of our overall business. Although it is still early days for us as we introduce IAM to our enterprise customers, in Q1, IAM bookings grew faster year-over-year for North America enterprise than in any other segment. In Q1, IAM represented 12.6% of total ARR, up from 10.8% last quarter. We remain on track for IAM to represent approximately 18% of total ARR at fiscal year-end.

Underlying business fundamentals showed consistent and healthy performance in Q1. Dollar net retention or DNR with our direct customers was over 102%, a greater than 1 percentage point improvement versus Q1 of fiscal 2026.

We continue to make steady progress in improving retention rates across customer segments and believe there is a remaining opportunity to improve as we optimize the customer experience and drive IAM adoption into the installed base. Stability and improvement in DNR, which has been sequentially up over the last 7 quarters, underpins the trajectory of our business.

Total customer growth remained healthy at 9% year-over-year as we approached nearly 1.9 million total customers. [indiscernible] continued to show steady year-over-year growth while consumption, our contract utilization measure rose to multiyear highs in Q1 across the majority of customer segments and verticals we track.

We also saw the number of customers spending over $300,000 in ACV grow to 1,258, accelerating to 12% year-over-year growth the first time in 3 years that we have seen double-digit growth in this metric. Encouragingly, we are starting to see early positive IAM adoption trends within the $300,000-plus ACV customer cohort as we continue to share the benefits of IAM with our larger customers.

Turning to profitability. In fiscal 2027, we remain focused on balancing disciplined expense management while investing in IAM and AI innovation to accelerate growth.

In Q1, non-GAAP gross margin ended ahead of our expectations at 81.5%, down year-over-year as expected compared to Q1 of fiscal 2026. As a reminder, we expect full year gross margins to decline slightly year-over-year in fiscal '27 as we continue and ultimately complete the bulk of our cloud migration investment. We are on track with these plans and have completed the majority of our on-prem to cloud data center site migrations.

Non-GAAP operating income was $266 million, up 18% year-over-year. Operating margin was 32.0%, a 2.5 percentage point improvement from 29.5% in Q1 of fiscal 2026 and 2.75 percentage points higher than the guidance midpoint for the quarter. The outperformance versus our forecast was driven by 4 different components, each with generally similar impacts. Those included higher revenue that flowed through to operating profit, higher capitalized wages as a larger share of our R&D spend shifted to innovation and development projects that are capitalized, an insurance legal reimbursement related to legal fees incurred in prior periods and continued operational expense discipline during the quarter, including our rate of hiring.

We ended Q1 with 6,991 employees, down sequentially from Q4. We continue to make trade-offs across our team structure to invest in our growth initiatives. While we continue to hire across all of our global offices, the vast majority of our net new headcount growth has come from and will likely continue to be in lower-cost locations.

In Q1, free cash flow of $289 million yielded a 35% margin, up from 30% last year and one of the highest free cash flow yield outside of Q4 that we have seen. Strength in Q1 compared to the prior year was driven primarily by improved expense results and collections efficiency. As a reminder, free cash flow results can vary quarter-to-quarter based on the timing of payments and cash collections.

Our balance sheet remains strong. We ended the quarter with approximately $1 billion of cash, cash equivalents and investments. We have no debt on the balance sheet.

In Q1, we again increased our buyback activity, repurchasing $318 million in shares. This was our highest quarterly buyback on record as we took advantage of our lower stock price during the quarter. As of the end of Q1, we had $2.4 billion remaining authorization for future share repurchases.

Our focus continues to be on improving free cash generation and redeploying excess capital opportunistically to shareholders. In Q1, the buyback program continued to help reduce our share count. Diluted weighted average shares outstanding for Q1 were 196.5 million, an 8% year-over-year decrease from 212.8 million in the prior year.

Also, stock compensation expense declined slightly on an absolute basis year-over-year to 17% of revenue in Q1, down from 19% last year. We have made progress in reducing the impact of stock compensation, and we continue to focus on improving our efficiency here.

The reduction in stock compensation and diluted shares contributed to growth in EPS. Non-GAAP diluted EPS for Q1 was $1.09 versus $0.90 last year, a 21% year-over-year improvement. GAAP diluted EPS in Q1 was $0.40, an 18% year-over-year per share improvement from $0.34 last year.

With that, let me turn to guidance. For ARR, we continue to expect accelerating growth in fiscal 2027 compared to the prior year as our efforts to transform Docusign deliver meaningful results. We continue to expect that our year-over-year growth rate range will be 8.25% to 8.75% or an 8.5% year-over-year increase to over $3.5 billion at the midpoint at the end of Q4 of fiscal 2027.

We expect growth to be driven by gross new bookings primarily from both new and expanding IAM customers as well as by gross retention improvements versus fiscal 2026. Related to this, we expect another year of modest improvement in DNR.

We continue to expect IAM to represent approximately 18% of our total ARR at the end of Q4 of fiscal '27, driving IAM to over $600 million in ARR by the end of this year.

For revenue, we expect $865 million to $869 million in Q2 or an 8% year-over-year increase at the midpoint and $3.490 billion to $3.502 billion for fiscal 2027 or a 9% year-over-year increase at the midpoint. After adjusting for FX impacts and the moderate headwind comparison from digital add-ons in fiscal 2026, revenue growth remains in line with the prior year.

With regard to Q2 specifically, you'll recall that last year, our Q2 revenue growth was the highest quarterly growth we delivered in all of fiscal 2026, creating a harder comparison for that quarter, driven mostly by higher digital usage.

For profitability, we expect non-GAAP gross margin to be between 81.5% to 81.7% for Q2 and continue to expect to range between 81.5% to 82.0% for fiscal 2027.

We expect non-GAAP operating margin to reach 29.7% to 30.2% for Q2 and 30.5% to 31.0% for fiscal 2027, an increase of 0.5% at the midpoint versus prior guidance. Our fiscal 2027 operating margin guidance reflects a greater level of margin expansion than we saw in fiscal 2026.

We expect non-GAAP fully diluted weighted average shares outstanding of 191 million to 196 million for Q2 and 190 million to 195 million for fiscal '27, a meaningful reduction from the prior year as we expect that our buyback activity will be an important driver to more than offsetting dilution.

For detailed commentary on top and bottom line factors to guidance, please see the modeling considerations appendix in our prepared remarks.

In closing, we are off to a strong start in fiscal 2027 with Q1 demonstrating consistent improvement in our business with durable operating results on the top and bottom line and significant new innovation released in our IAM platform. We remain focused on driving accelerated ARR growth in fiscal 2027 while improving efficiency gains and free cash flow.

We remain focused on transforming Docusign to realize long-term success for our customers, shareholders and employees. That concludes our prepared remarks.

With that, operator, let's open the call for questions.

[Operator Instructions] Our first question comes from the line of Rob Owens with Piper Sandler.

Could you speak in more detail around the difference you're seeing from -- in consumption from customers who are on IAM versus those who are not? I realized it's still early IAM penetrates more of the low end. But as you're moving into enterprise customers, maybe help us understand those differences in consumption both those on IAM versus those that aren't? And how this changes over time with those that have been using IAM.

Yes. I'll start, and Blake, feel far jump in afterwards. Yes. So we are seeing a lift in eSign consumption -- I assume is what you're referring to -- from customers who adopt IAM relative to their prior trend line. It's significant, and we're not disclosing the exact percentage, but it's meaningful. And so it just reinforces the macro point that eSign is a core component of the overall IAM platform and is an enabler and in turn, is also enabled by many of the workflow components in IAM. So for example, if you make it easier to create a new agreement workflow that culminates in a signature, then you can generate more signatures.

So look, I think we're pretty bullish on that effect and self-reinforcing effect. I'm not sure if there was something more to the question there. Maybe a follow-up, Rob, anything?

Yes, without quantification on your end, I don't think there's anything more other than what -- you said meaningful. Is there any metric or anything you can put with that?

No, I don't think we're going to start up -- thought that. But I mean I think as we've shared with you in the past, overall, IAM is very significantly accretive relative to the baseline trend for those customers. And then as part of that, it's amplifying the consumption of signing.

Now there are many ways in which IAM delivers value. So it makes it easier to design more workflows that can trigger more signs. It may add more features that facilitate more conversions. And then, of course, there's all the value from the repository and the new workflows that are part of the IAM suite. So it's not limited at all to consumption of sign, but that's one of the ways in which customers find incremental value.

Perfect. And then, I guess, secondarily, thinking about the macro and the shape of the quarter. While you never want to read too much into a first quarter, the beat probably wasn't as big as you've seen historically and without a discrete subscription revenue number given.

Just curious relative to your expectations, maybe the shape of the quarter, what it looked like from a booking standpoint. I understand billings is not a metric that we're focused on anymore, and you've incentivized your salespeople differently. But as you kind of peel back the quarter a little bit, the shape of Q1 relative to your expectations and anything from a leading perspective relative to the guide that you gave for the remainder of the year.

Sure. And I'll take a stab at this one. Yes, I would say I'm really pleased with the quarter, really solid. It's great to see just consistent execution again across the business for yet another quarter beating the top end of the range on the top line and across all of the ability metrics that we guide to.

IAM, again, came in just slightly better than we expected. So really excited to see that 12.6% as we continue to progress towards ARR full year guide of approximately 18%.

With regards to like, I think, to the size of the beat or whatnot, I would just say I have no concerns at all with where we landed for the quarter. I will say that we do continue to get better and more precise with our forecasting about how that as we improve our kind of operational maturity in the business. So it doesn't surprise me at all relative to like the size of the beat, if you will. But again, just really pleased with the solid quarter of execution by the team.

Our next question comes from the line of Michael Turrin with Wells Fargo.

One on agreement management. Maybe speak to what you're building with some of the partnerships with Anthropic and others. How should we think about Docusign's position relative to what some of the LLMs are working on? And what are the advantages and that give you comfort in continuing to expand that ecosystem and your position there?

Yes. Maybe just let me give some overall framing and I'll comment specifically. Look, we saw the opportunity for AI to transform agreement management 3 years ago. That's what led us to IAM. And I think it's really playing out as we forecasted and the market is really now starting to understand the full potential of using AI to help process agreements.

And we have a number of huge advantages, I think, as that starts to really play out. The data advantage that we are, we have access to customer agreements. They have historically trusted us with those agreements. We now have getting additional consents to process them with AI. We're well over 200 million private consensus agreements that are being processed AI. And that gives additional accuracy extra and we've cited some of the increased accuracy potential that, that data provides. Then you got all the workflows to touch agreements across every function. So this isn't just about making legal more efficient. That's super important. But everybody who touches agreement, sales, procurement, HR, finance, others that do that. And I think Docusign stands alone in terms of the breadth of its portfolio there.

And then lastly, there's the trust piece. People have trusted us with agreements. Historically, we have all kinds of regulatory and compliance strengths relative to other providers, and that's why people choose to host their agreements on IAM and process them that way.

In terms of the partnerships with the LLMs, we're thrilled to be partnered with Anthropic. We just announced this week a partnership with OpenAI, and we really want to make our data and workflows available wherever people want to do their work. This has always been core to Docusign's strategy. Already, we signed more than half of our total signed volume was consumed via API through integrations with other products. We've had a 20-year partnership with Salesforce, long partnerships with the Microsoft, SAP, Workday and others of the world. This is really an extension of that.

Now as these chat surfaces become popular, people want to consume agreement data and agreement workflows that way and trigger them there. We want to partner with where people want to be and want to do their work. And I think what you'll see is you'll see some use cases that are general purpose chat engines, like an Anthropic or an OpenAI or Google Gemini. Some that are, should we say, function-specific, Slack is a great example used in a number of companies. And then some that are specifically tailored around invoking agreement workflows and orchestrating, and I think Docusign will be a natural place for that.

But we want to be where customers want to do their work and enable the most powerful agreement suite on the market, and that's why we're partnering with them. And by the way, that's why they partner with us because they come to us to get access to those agreement documents there, the agreement workflows and the trust and unique position that Docusign occupies. So in many cases, those are the result of inbound inquiries to Docusign.

Our next question comes from the line of Rishi Jaluria with RBC.

Maybe just a quick two-parter. Number one, look, as we think about the evolution your pricing model, with IAM. I know the good news is you're no stranger to this idea, keeps consumption, as we saw with [indiscernible] and the like of the core [indiscernible] products. Maybe can you walk us through how you see the IAM product evolving, especially if you [indiscernible] in more customer conversations, you have more production workloads and you start to get maybe a little bit more enterprise traction, and maybe tying into that, like there's a lot of conversations around outcome-based pricing.

And then the kind of quick follow-up to that is there's a lot of appetite from mid-market and especially enterprises do a lot more customization, not necessarily less or replace systems of record sequential engagement, but more or less leverage AI to get things hypercustomized to our business needs to take advantage of all the data we have, how do you think about the opportunity that you have to help customers not only deploy IAM on top of the signature, but then also help them with that level of customization that they might be meeting and demanding from here?

Sure. First on the pricing model. And as you noted, Docusign has a long history of providing [indiscernible] a value-based pricing because our historical sign product has been sold on an envelope basis where you basically pre-buy capacity and so as a good proxy for value delivery. We've now generalized that with a much richer set of value parameters. You're buying a bundle of credits, and it could be a sign. It could be a document extraction. It could be a workflow trigger. Any of those are rated as a certain number of credits. We launched that in beta, I'd say, probably Q3 of last year, saw really good uptake and feedback close to a number of deals on that basis which gave us confidence to an April launch for general availability to all enterprise customers.

And I think you'll see us experiment with ways that can we move that model down market. The reason we haven't done that yet in the commercial space is because, the most important thing in an SMB commercial environment is simplicity and reducing friction. And so seat-based models and envelope as a familiar there and that's why we've maintained that. I think over time as the market gets more comfortable with these kinds of credit models. You'll see us continue to adapt to that. But we're very pleased with the enterprise customer receptivity to the platform pricing model and to this credit idea, and we think that's the future.

In terms of the customization point that you raised, we totally agree. This is why we designed Docusign IAM to be not just a modular component types, but pretty much all the components of Docusign IAM available as a service, so they can be embedded into other applications, Salesforce, Workday Anthropic, OpenAI as well as any custom design applications that enterprises want to build. And so we want to give ultimate flexibility to our customers to tailor to their, and we have over 1,100 different integrations with different ISVs. So I think we provide unmatched flexibility and that's, frankly, an important part of our value proposition. And I agree with you. I think there'll be more of that as that gets easier to do and as people want to experiment with new interfaces.

Our next question comes from the line of Patrick Walravens with Citizens Bank.

So Allan, I mean, it's been a little over 4 years since you took this role, right?

3.5, but who's counting?

3.5. Okay. Sorry, 3.5. I mean, I would love to have seen you guys in double digits by now. And so IAM is clearly working. But I think on an FX adjusted basis, maybe actually decelerated a little bit quarter-to-quarter. What has been harder than you expected? IAM is clearly working, but what's been harder?

I don't know that we ever set a time line. I'm not disappointed with our progress. I'm actually really pleased. I think we have a -- it's an incredible transformation moment for agreements. I think we leaned into that, articulated a compelling new vision, and I think we've been right about that.

When I joined, I don't think it was quite clear exactly what shape that opportunity is going to have and what technology was going to enable us to do, but it's, I think, become more clearer and clearer into focus that there's a very substantial opportunity there. And we are forecasting acceleration this year and I think in years to come. And so I think everyone on the management team, not just me, is feeling very bullish about that. It's, we have an opportunity to compound growth salvation for a while here. And so we're leaning into that.

I'll just add one more thing. On the comment on the desal excluding FX. One of the things you have to look at when you compare us on a year-over-year basis is we not only have obviously FX, but we had some pretty high digital kind of, we'll call it, add-on usage last year. And so that we highlighted that as part of kind of a normalized growth rate. If you normalize for those peak numbers that we had last year, I think you'll see the word it's not actually decelerating. It's pretty similar in line. And like Allan said, that guidance into an accelerating growth rate this year on the back, one of the very large components as IAM, along with retention gains, which we continue to make I think it's pretty exciting and it's kind of lens to the future opportunity that we have here at Docusign.

Our next question comes from the line of Tyler Radke with Citi.

Yes. Can you touch on the 300,000 customer plus strength? I think that accelerated a bit in the quarter and stronger than we've seen typically. And maybe just put that in context of kind of the billings and shape of subscription revenue that looked a little bit lighter than just walk us through the puts and takes there.

Yes. Let me just comment on the ACV metric, and then Blake you can jump in as well. Look, I think Docusign has a expanding opportunity to go deeper with customers because of IAM. And I think that the fact that we're growing the number of 300,000 customers is just, I think, a nice numerical indicator of that opportunity. And I think we hope there should be more to come as we go forward.

And it's early days for us there, but I'm super excited to see that number, that metric getting to double digits for the first time in years for us. So -- and frankly, IAM as a part of that. And so I'm really excited.

To the question regarding on billings, we didn't guide to billings, and I just want to remind folks, billings can be quite volatile on a quarter-to-quarter basis just due to timing. I'll just kind of comment that billings came in just as we had expected for the quarter without talking about a guide or anything like that.

I would point you to last year at this time, last year in Q1, I think our billings grew 4% year-over-year in Q1 last year and the full year grew 9.5%. And so there can be a lot of timing fluctuations between that. And then what I would point to do is in the full year ARR guide of 8.5%, that's really an outlook for us about where we think this business is going and why we're excited about it.

Great. And just a follow-up. I know you're not updating the ARR guidance, but I guess, safe to say you feel incrementally more confident in that 8.5% versus 90 days ago? And then just the IAM as a percentage, should we kind of expect kind of a linear progression on that in terms of that mix to the full year target? Or anything you'd call out just in terms of seasonality because obviously, there's more seasonality as you're pushing up market.

Sure. I would say relative to the question on the ARR guide, it all comes down to because as you all know, a full year ARR guide really is a Q4 ARR guide, so it all goes down to what's our visibility level as we progress through the year and how do we feel about it? We're 1 quarter through the 4 quarters in our first year of guiding to ARR. We're optimistic again about that acceleration that we're guiding to on a full year basis. And I would just say we're excited, and we'll see the performance there, and we'll update as we go.

With regards to the question on the IAM progression, you do see in the historical numbers that we provided a bit of that linear progression. I don't want to act like that is something we're solving for something we are driving. I think it's probably a relatively safe assumption. But that said, we'll have to see how IAM does, right? And as we get to larger and larger customers, and we'll see how we do. But I'm excited about it.

Our next question comes from the line of Alex Zukin with Wolf Research.

This is Jason on for Alex Zukin. So impressive progress on the IAM adoption. I guess just a quick one on the IAM uplift. So we take exit FY '26 IAM ARR over the estimated IAM customer count exiting FY '26. So we get to roughly, let's say, 11,000 IAM ARPC versus on the enterprise side, it is 10,200 exiting FY '26. So that's roughly high single-digit uplift. So is that the right way to actually frame it? Or are there any more mix or timing dynamics with that?

Yes. I think that it's a little tricky when you think about IAM and non-IAM is 2 different products. A big part of that is because IAM is not just a new product. It's a platform for us. And a big part of our penetration comes from an installed base of customers, so I don't know from the modeling versus thinking about like the average customer size and that perspective is the right way to think about it. I understand why you're trying to do what you're doing. But we're looking at this as an opportunity to provide customers more value and get them to IAM. In general, customers are paying us more for that because they see value in the extra features and services that we bring to the table on top of a very solid foundational e-signature offer. And so I hope that commentary helps a bit.

Our next question comes from the line of Patrick McIlwee with William Blair.

Great. So as we think about the growing significance of I am to your overall business, understanding that it's a highly complementary offering to your core eSignature products, and you also have a massive distribution advantage. You are pushing into a space that's relatively competitive, notably with a lot of CLM vendors in the space. So can you just talk about how you feel you're positioned relative to some of those other vendors and broader workflow platforms in the market and what your customer conversations look like when you're in some more competitive discussions?

Yes. I think the -- we do encounter other vendors in the CLM space. As you know, there's a number of vendors in the space. I think we're clearly one of the largest and best regarded ones, but there are several. I think the CLM opportunity is significantly narrower than the broader IAM opportunity, right? So CLM has historically been focused on, I would say, enterprise contract intensive use cases B2B negotiated contracts. And you look at what we're doing and coming at it from a different angle, what some of the new legal tech players are doing, it's a very different take on what's possible with agreements.

So I think the competitive set, the market opportunity is much larger than CLM has historically been and the competitive set is evolving. In terms of how we go to market, I think Docusign is uniquely positioned in having this very broad platform for intelligent ingredient management that cuts across all functions. And then we partner with functional specialists. And so you probably saw that we entered in partnerships with Harvey, Legora and CoCounsel by Thomson Reuters as examples of specialized legal tech players, so that you can use our general purpose legal functionality. And if you want to go deeper, let's say, with legal research tools or other things like that, you can use those products. That's the same philosophy that we've had in interfacing with CRM products or HRM products or ERP products in the past.

I think we are in a very good position to be the nerve center, if you will, for agreements and then call on and connect to other tools as necessary and I think the CLM market. There's still a number of customers who specifically look for CLM solutions, and we want to be very competitive for that, but we also want to open their eyes to the broader opportunity with agreements across the enterprise in every function, including things that they might not historically have thought of. So we're -- I think we're in an increasingly strong position in agreement management and coexisting with new players who come at, let's say, the legal space from different angles.

Okay. Very clear. And just further on IAM. So can you help us frame where you are in the adoption curve today? I understand a lot of the initial growth is has been coming from existing customers transitioning to that platform. But can you just provide a quick update on what the traction has looked like when you've been going out and winning net new customers with those kind of incremental capabilities?

Well, I mean, I think that you get some idea from the customer count that we just shared that that's obviously predominantly commercial customers, but we announced across over 40,000 customers for IAM and we have, let's say, 0.25 million direct customers, maybe a little less if you roll up entities that are legally related. So we're starting to -- we're still early. There's still a lot of headroom just in the commercial segment. And in the enterprise, we're still even earlier. And I think those customers represent an even larger opportunity.

We can get the kind of lift that we are seeing in commercial and enterprise in the initial deal and then there's the market expansion opportunity as we go across functions into additional divisions because you typically don't go from 0 to 100% in a large company. So we're quite bullish on the expansion opportunity that IAM offers. We've got a lot of headroom in our commercial business and even more in the enterprise side.

And I might just add on top. I mean, as far as our new customer growth goes, IAM is driving a material portion of that. And so that's super exciting. It's just that when you have an installed base the size of what Docusign has with 1 million, almost 1.9 million customers and over 95% of the Fortune 500, that's a big area of ground for us to cover with folks that we already have relationships with. So I would say, excited about the new company opportunity, but it's just with the size of the installed base that we have, that's a huge opportunity as well.

Thank you, our next question comes from the line of Scott Berg with Needham.

One really nice quarter here. Just one question for me in the essence of time, because I know we'll get towards the end here, is on the expanded verticalization story. I was at the conference a couple of weeks ago, and verticalization was certainly a key component. I took away from the conference there. But as you think about this expanding verticalization story within some of your customers, is this strategy really about trying to bring new landing points with some of these customers I guess as you're starting to see use cases in these different departments and just streamline how they're launching them. But I think we're all probably trying to help size up what the expanded opportunity looks like as you do verticalize IAM kind of going forward. Any help there would be helpful.

Yes. If we look at the IAM journey, what we started with was horizontal platform capabilities. What we have done over the last, let's say, 18 months is really lean into honing the functional use cases, so being able to optimize an end-to-end workflow for sales or for procurement for HR, and you can see that in some of the customer examples. I mean that's what Experian is doing. So Experian is using IAM for thousands of B2B sellers across many highly complex product portfolio to improve both their internal efficiency and their cycle time. So that's one example of a functional workflow. Obviously, they cut across multiple businesses.

And another example will be HSBC, they're using us to power their lending program. So you have a company doing customer-facing activities, procurement-facing activities, HR-facing activities. And the next step is verticalization. We have some degree of verticalization. Historically, Docusign has been a fairly horizontal platform that customers could then tailor. But we do go a little deeper in financial services, in health care and the government. Beyond that, I don't have any announcement to make at this time, but we're leaning on customers and partners to take the general purpose agreement platform that we have and further tailored. And we've designed it intentionally to make it very powerful and flexible to be able to do that.

But I don't think you'll see Docusign have 20 different flavors of IAM anytime soon. That's not the goal. The goal is to provide a platform that people can easily tailor and customize, and I think you're right, that is exactly what people will be doing with some of these new tools.

Our next question comes from the line of Brent Thill with Jefferies.

Allan, the international business is on a steady acceleration, gone from 10% growth to 17%, I believe, this quarter. I'm just curious what you're seeing growth rates are obviously about company average. What's left? What's exciting for you and what you're seeing in terms of where the growth is coming from?

Yes. I mean we have an even bigger opportunity outside North America and then on North America business, which still has a lot of headroom. But it's just earlier in terms of the adoption of signed alone new agreement technology. We are seeing really nice results. I want to probably particularly call out our EMEA region. I know in some past earnings calls that expressed some concern but expressly we're a little behind where we'd like to be.

We hired a new leader a year ago. I just want to commend him and the team there. We're seeing our EMEA business perform more strongly now. And obviously, that's the biggest component of our international business. So very nice to see that. But we're very bullish on the international opportunity. It's becoming -- we can deploy our products globally now faster and with a richer set of features, more localization and that just puts us in a stronger position.

I personally travel quite a bit to all of our international regions, and I'll be there, I'll be in Europe here later this month. And there's a lot of interest in what we're offering, so it's really positive to see and bodes well for the future.

And then, Brent, just to add on that, too. I totally agree with everything Allan said, FX also plays a role a bit. in that year-over-year acceleration. Now even excluding FX, the international business is growing in the double digits, and we're really excited about everything Al said. But FX does also play a role in that kind of market acceleration year-over-year.

And Blake, on the headcount comment where headcount is down, are you anticipating for the full year headcount to be down as well?

We don't guide the headcount, Brent, so I want to be careful about it. What I would say is we are hiring, right, in our business, and it's being very thoughtful about where we're investing in predominantly IAM. That probably doesn't come as a surprise. But we are also being very thoughtful about how we do that and where we do that. And so I could be totally fine seeing headcount growth sort of going up slightly for. But again, what I tend to look at mostly is what is that operating expense growth relative to the revenue? And then particularly as you start to exit the year. And I'd like to see the operating leverage gains that we're making. So feeling really good about it. I really want to congratulate the team about being very mindful about our resource investment and using AI tools to be productive as well. And so with that, I feel really good about where we are.

Our next question comes from the line of [indiscernible] with Evercore ISI.

This is Vinod on for Kirk. For IAM, I just wanted to get an update on what is the web enablement and quota structure look like? And have you guys made any changes to drive this over the last year? Do you think there's anything more you can do to this going forward as well?

Yes. I want to make sure I understand the question correctly, but I think what you said web enablement. Rep enablement?

Rep enablement.

Rep enablement. All right. Yes, we are, I think we, look, our pace of product innovation and product release is relentless right now. It's probably an all-time high here last quarter. very proud of that. And so getting reps fully ramped on everything is a challenge, but I think we've invested very heavily. We had a fantastic sales kickoff with a lot of different enable activities we did a significant amount of training prior to momentum. And we have an embarrassment of riches, frankly, at this point from a product perspective. And I think the reps are very, very excited about the breadth of product and the competitiveness and the dockside portfolio and the scope of the opportunity that they have.

So I think look, rep enablement at a time like is challenging in every company just because the market is moving so fast and there's so many new capabilities every quarter. But I'm feeling very good about how our enablement team is responding. They've done a fantastic job and how receptive the reps are to the new products and how quickly they are leaning into and understanding them and translating them for customers. So very positive. But yes, it's a crazy time right now and consisting incredible pace.

Our next question comes from the line of Jacob Gideon with Bank of America.

So as you expand the partner ecosystem, I think you mentioned it earlier, how should we think about the mix of IAM bookings sort of sourced through kind of these channel partners over time? And like what changes are going to be needed for the partners to effectively kind of sell some of these more complex IAM solutions, whether the vertical solutions or horizontal?

Yes. Yes, partners, I think, are a key strategic lever for us, particularly as we've expanded our ambition of IAM and the partner contributed revenue is growing significantly faster than our overall revenue, so that's nice to see. And yet, I think we're still just in the very early stages of fully leveraging our partner channel. And to the question that was just asked, that enablement challenge is not just for your own sales team, but for the partners as well. So we're really leaning into educating them and helping them both on the sales and post-sale implementation side. So it's a key strategic lever for us. We have, I think, a much better team across the board from sales and partner management to the product organization, much deeper investment there and tremendous amount of interest from the partner channel, whether it's the large SIs who are seeing the desire to transform enterprise workflows and agreement workflows. So we have a number of the very largest SIs that are really deeply engaged with us as well as the reseller community for incremental distribution in a number of markets. I think I've mentioned before that in some markets, we're going to resell first to -- because we're not going to build up our old sales team, and that makes total sense, and we're seeing some nice results into our secondary markets on that as well.

Our last question comes from the line of Allan Verkhovski with BTIG.

Allan, how common it is now to have an MCP? What have been your greatest learnings from how customers engage with it since introducing your MCP connector in beta last quarter? And how is it reinforcing and potentially even changing how you see Docusign's positioning with respect to AI going forward? And then I've got a quick follow-up for Blake.

Okay. I mean, the amount of inbound interest on that MCP connector announcement, assuming thousands of people signing up for beta. It's really an unprecedented level of engagement. So look, I think there's tremendous excitement about that. It ties to a broader theme. Docusign fits with such important data and workflows that there are so many people who want to connect to that, i.e., this is from the very largest LLM players to the legal tech players through smaller developers, in-house developers. Contract workflows are just critical to so many business processes. And so it's a very powerful position. It's a center of gravity really for progress on, with AI. So I think we're very fortunate to be in that position. And our philosophy is that we want to enable the ecosystem to take full advantage of all that we've built in a very open way. And I think that's being very well received. So there was a follow-up question for Blake, I think.

Awesome. That's great to hear. And then, yes, for Blake, just a follow-up on FX. Was NRR in the quarter directionally higher or lower than last quarter when looking at it on a constant currency basis?

You're talking about -- did you say DNR?

NRR.

Yes. Okay. So sorry, just making sure we got the numbers correct. Yes. So I don't think from an FX perspective, like for us, it's really -- again, just as a reminder, dollar net retention for us is customers that have been with us, direct customers that have been with us for at least a year. FX is a major mover for us in that metric. And so I would just, again, you continue to reiterate. Our dollar net retention has improved here sequentially in the past. I think it's 7 quarters, and you'll see this in our investor slide, so you'll be able to tell. But -- and -- but on a rounded basis, it's been flat for the past few.

We're going to improve that metric from both IAM and as we gain expansion on it, but also from gross retention gains. And just to reiterate what Allan said earlier, across our team and the questions about reps and things like that IAM, we are as focused on improving gross retention at this company that we -- as we are on driving through IAM. We are very well aware that improvements in gross retention in the size of the book that we have can pay off huge dividends for us as a company. And so we're really focused on it. And frankly, it's something with the whole company can really go after. We've got a customer-first initiative here that we spent a lot of time on talking about how to improve that relationship with customers or improve that customer service. It's beginning to pay dividends, as you can tell, and we've seen improvements in growth retention. So I'm pretty excited about the opportunity to head there.

That concludes our question-and-answer session. I'd like to pass the call over to Allan for closing remarks.

Thank you, operator. Thanks to all that join today's call. In closing, we are excited about the drumbeat of innovation we're delivering to customers through IAM. I think we're at an inflection point in agreement management and IAM has emerged as the center of gravity as I alluded to earlier, for enterprise AI contracting. So thanks for your support. Look forward to talking to you next quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Goodbye.

Good afternoon, ladies and gentlemen, and thank you for joining DocuSign's Fourth Quarter Fiscal 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded and will be available for replay on the Relations section of the website following the call. [Operator Instructions]

I will now pass the call over to Matthew Sonefeldt, Head of Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon, and welcome to DocuSign's Q4 Fiscal 2026 Earnings Call. Joining me on today's call are DocuSign's CEO, Allan Thygesen; and CFO, Blake Grayson. The press release announcing our fourth quarter fiscal 2026 results was issued earlier today and is posted on our Investor Relations website along with a published version of our prepared remarks.

Before we begin, let me remind everyone that some of our statements on today's call are forward looking, including any statements regarding future performance. 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 factors affecting customer demand and adoption 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, billings and ARR. 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 would like to turn the call over to Allan.

Thank you, Matt, and good afternoon, everyone. In fiscal 2026, DocuSign's AI-native Intelligent Agreement Management, or IAM platform, establish clear market leadership as the agreement system of action for companies of all sizes. After just 18 months, IM customers are generating over $350 million in AR and delivering strong retention and expansion. We're proud of the improvements in product, go-to-market and operational execution over the past 3 years that have led us to this inflection point. we are positioned to begin accelerating the business.

Fiscal 2026 was defined by consistent execution, positioning us for durable long-term growth. In Q4, revenue was $837 million, up 8% year-over-year, while billings exceeded $1 billion for the first time, growing 10% year-over-year. ARR ended at $3.3 billion, up 8% year-over-year. IAM represented 11% of ARR Fiscal 2026 was our first year with non-GAAP operating margins of over 30% and free cash flow over $1 billion.

In fiscal 2027, we expect to maintain operating margins at a similar level as we reinvest go-to-market efficiencies into increased R&D investment to accelerate our road map. We will also leverage strong cash flow generation to support our repurchase program, which we have expanded to $2.6 billion.

In fiscal 2027, we're focused on 2 priorities to grow IAM. First, helping customers automate workflows and drive business results; and second, expanding our AI data and innovation advantage. IAM is an AI-native end-to-end platform that transforms how customers manage agreements across every part of an organization. In the front office, sales workflows connect to legal, finance and operations teams while also integrating with CRM platforms, enabling customers to close deals faster, deliver a better customer experience and gain meaningful top line benefits.

In the back office, IAM's extraction and analysis capabilities enable as CFO and procurement use cases or general counsel and legal use cases to better manage vendor relationships and gain previously unattainable insights into the business across hundreds of thousands of documents using IAM as a system of action.

Aon, a leading global professional services firm is implementing DocuSign's Intelligent Agreement management to surface intelligence buried in its legacy agreements and delivered through Aon's Meridian capability, equipping colleagues with the clarity they need to serve clients more effectively. Bank of Queensland signed a 3-year strategic agreement and upgraded to IAM through the Microsoft Azure marketplace. By leveraging our global partnership, Bank of Queensland will accelerate its digital transformation streamline agreement workflows to reduce their cost to serve, improve speed to market and strengthen regulatory controls through deeper Microsoft integration. IAM is now the center of gravity across our direct sales, partner and product-led growth motions.

Building on significant commercial momentum in fiscal 2027, we will scale IAM with enterprises by adding a top-down C-suite focused sales motion. We're launching IAM consumption-based subscription pricing in Q1. Our partner channel is increasingly emphasizing IAM and made an improved contribution to our direct business in Q4 and with total partner contributed bookings growing by over 30% year-over-year.

Our product strategy is also focused on delivering more use case value across organizations and enterprises. In fiscal 2027, IAM will cover more surface area for our customers by introducing new IAM SKUs for specific functions within companies, including IAM for HR and procurement. We're also building richer genic tools for legal teams. This complements existing SKUs for sales and customer experience. We will continue to strengthen trust and compliance functionality through deeper permissioning, access management and auditing as well expanded in extended ability to more enterprise-focused third-party public and private applications.

Recently launched AI-powered tools bolster IAM's workflow capabilities, Agreement Desk agreement preparation and AI assisted review, streamline agreement creation. Workspaces and identity verification speed up secure agreement commitment and custom extractions and skin for DocuSign deliver sophisticated, scalable capabilities that enterprise customers require. You can see these in action in our demo videos found in the prepared remarks.

eSignature remains a thriving part of our platform vision. In Q4, we added AI capabilities to e-signature that make every step of the siding process smarter and more trustworthy. We continue to see consistent year-over-year growth in the e-signature base, especially among customers spending $300,000 or more a year. Q4 envelope consumption once again increased year-over-year at near multiyear highs, while growth in envelope set remains healthy and consistent. Our focus on improving sales engagement and reducing customer friction delivered year-over-year improvements in gross and dollar net retention.

Three years ago, we recognized that AI would transform how agreements are managed, and we began building the AI native platform that became IAM. We believe that Agreement Management was a natural extension of DocuSign's business and that we had unique competitive advantages. These include a deep understanding of customer agreement workflows in context a large ecosystem with more than 1,100 integrations, market-leading security and compliance and customer trust and distribution relationships built over decades with companies around the world.

Our AI data advantage continues to grow as customers invest in IAM. Today, the number of private consented agreements ingested has expanded to more than 200 million agreements in DocuSign Navigator, our intelligent repository, up from $150 million in December. AI search leader, Elastic, is deploying Navigator to automate contract workflows across the business, while FinTech leader, Clasp, is leveraging Navigator and our suite of app extensions to automate agreement workflows and centralize as contract data.

DocuSign AI models draw upon an enormous unmatched body of agreement data gathered over 2 decades. By leveraging our customer consented library of private contracts. We believe we can achieve up to a 15 percentage point improvement in Precision and recall compared to our models trained on public contract data, while operating at incredible cost efficiency. We've optimized AI processing costs by upwards of 50x compared to running direct prompts on LLMs.

We further extend our AI advantage by directly integrating with the leading AI providers. Last month, we partnered directly with Anthropic to make IAM available as part of Claude Cowork. The DocuSign MCP connector is available in beta today through Anthropic's Connectors Directory. It enables DocuSign customers to use Cowork's natural language prompts to automate agreement workflows and securely create, review, send and manage agreements in IAM, all with DocuSign's trusted security and access controls. In addition to Cowork, IAM also connects via MCP server to open AI's chat GPT and Google Gemini, GitHub Copilot Studio and Salesforce's agent force.

IAM's ability to integrate with customer workflows and third-party applications delivers significant value to our customers. leading venture-backed fintech company, best well, connected IAM to its CRM and reduce the time required to create a new customer agreement package of 75 minutes to 5 minutes. Move Forward Financial, a real estate lender, is saving money and delivering a better customer experience by using IP for sales. Payworks, a Canadian developer workforce management software increased 24-hour contract completion rates from 55% to 87% and recovered more than $400,000 in annual sales representative productivity by integrating IAM workflows with a complex sales force implementation.

Inside DocuSign, we're adopting AI across the organization. deploying new tools and enablement programs to boost productivity and gain efficiencies. The vast majority of our engineering organization is developing with AI and 60% of new code is AI assisted.

In closing, we're proud of the immense value IAM delivers to customers by enabling them to build sophisticated and efficient agreement workflows and unlock the power of the data in their agreements. DocuSign IAM has emerged as the category-leading agreement management platform and put DocuSign at the leading edge of AI innovation. I want to thank the entire DocuSign team for their dedication to helping our customers move faster, grow their businesses and operate more efficiently, all while transforming DocuSign into a durable long-term growth business.

With that, let me turn it over to Blake.

Thanks, Allan, and good afternoon, everyone. Fiscal 2026 represented a critical year for DocuSign as we continued our transformation leveraging our recognized leading position amongst the world's most trusted software companies to help customers realize value from their full repository of agreements through IAM. With 1.8 million customers, representing most large enterprises, mid-market companies and over 1.5 million small businesses, we are in a unique position to provide the insights, productivity and velocity companies need to improve their performance, particularly via leveraging AI.

Fiscal 2026 was both our first full year integrating IAM into our business as our primary growth driver and our first year generating over $1 billion in free cash flow. We are proud of the progress we've made over the past 3 years and aspire to even greater gains in the future.

Q4 total revenue was $837 million and subscription revenue was $819 million, both up 8% year-over-year. For the full year fiscal 2026, total revenue was $3.2 billion, up 8% year-over-year and subscription revenue was also $3.2 billion, up 9% year-over-year. Revenue in Q4 and for the full year benefited from approximately 80 basis points and 20 basis points year-over-year, respectively, from foreign exchange rates. Additionally, as discussed in prior quarters, fiscal 2026 revenue also had a slight tailwind from digital add-ons that launched in late fiscal 2025.

Our annual recurring revenue, or ARR, grew 8% year-over-year in fiscal 2026 to nearly $3.3 billion. This is consistent with our fiscal 2025 ARR growth rate of 8% year-over-year. ARR growth this year was driven by accelerating gross new bookings primarily from IAM customers as well as gross retention improvements. Our ARR growth in fiscal 2025 was driven predominantly by gross retention as we made sizable gains that year. We're excited about the opportunity to accelerate our ARR growth in fiscal 2027 as we continue to become an even more valuable partner to our customers. As a reminder, and as detailed in our filings, ARR is calculated using fixed exchange rates set at the start of the fiscal year.

Billings for Q4 were up 10% year-over-year and exceeded $1 billion for the first time in DocuSign's history. Approximately half of the Q4 billings outperformance relative to our guidance was driven by timing with the remainder from FX and bookings. For the full year fiscal 2026, billings were $3.4 billion, also up 10% year-over-year. Billings in Q4 and for the full year benefited by approximately 2.3% and 1.1% year-over-year, respectively, from foreign exchange rates.

As a reminder, this quarter will be the last time we report on billings as a top metric as we shift to discussing ARR going forward. Please see Slide 29 in our Q4 earnings deck for a full summary of our top line metrics changes.

The underlying foundation of our business remains durable and healthy. Our dollar net retention rate, or DNR, was 102% in Q4, up from 101% in the prior year showing moderate sequential improvement over the last 6 quarters. Both consumption, a measure of envelope utilization and the volume of envelope set in Q4 continued to improve year-over-year. with consumption remaining near multiyear highs across customer segments and verticals.

We are seeing continued strong adoption of our IAM platform. In Q4 and after just over 18 months from launch, IAM represented over $350 million in ARR or 10.8% of total company ARR, up from 2.3% at the end of fiscal 2025. Although still early, our first IAM renewal cohorts are performing better than the company average, and we continue to see adoption rates for IAM features climb as users engage with the platform's expanding functionality. In Q4, total customers grew 9% year-over-year to over $1.8 million. We ended the quarter with 1,205 customers spending over $300,000 annually, a 7% increase year-over-year. International revenue surpassed 30% of total revenue in Q4 and grew 15% year-over-year.

Our commitment to operating efficiency delivered strong profitability for the quarter and fiscal 2026.

Non-GAAP gross margin for Q4 was 81.8%, down 50 basis points from the prior year due to ongoing costs associated with our cloud infrastructure migration, as discussed throughout the year. For fiscal 2026, non-GAAP gross margin was 82.6%, down 20 basis points on a year-over-year basis a better result than the anticipated full percentage point of headwind in our initial fiscal 2026 guidance as higher revenue partially offset the cloud migration impact.

Non-GAAP operating income for Q4 was $247 million, up 10% year-over-year. Operating margin was 29.5%, up 70 basis points versus last year. For the full year, non-GAAP operating income was $968 million, up 9% year-over-year, with full year operating margin reaching 30% in the fiscal year for the first time in our company's history, representing a 30 basis point increase year-over-year.

We ended fiscal 2026 with 7,044 employees, up modestly from 6,838 a year ago, as we continue to invest deliberately in roles focused on growing the IAM platform. While we are hiring across all of our global offices, the vast majority of our net new head count growth has come from, and we expect will continue to be in lower-cost locations.

Also in fiscal 2026, we delivered our first year with over $1 billion of free cash flow, a 33% margin compared to 31% a year prior. In Q4, we generated $350 million of free cash flow, representing 25% year-over-year growth and a 42% margin. Strength in Q4 was driven primarily by improved collections efficiency as well as higher billing seasonality and the timing of billings.

Our balance sheet remains strong. We ended the quarter with approximately $1.1 billion of cash, cash equivalents and investments. We have no debt on the balance sheet.

In Q4, we also increased our buyback activity repurchasing $269 million in shares. This was our largest quarterly dollar buyback to date. For the full year fiscal 2026, we repurchased $869 million in stock representing 82% of our annual free cash flow. When including the additional funds used to offset taxes due on RSU vesting, this rate is slightly over 100% for the year.

In Q4, we established a 10b5-1 program to repurchase shares before the open window rather than our typical buybacks that coincide with open trading windows after earnings. This mechanism extends the potential time frame for share buybacks, and we have already repurchased $158 million to date in Q1. In addition, today, we announced a $2 billion increase to our repurchase program, beginning our total remaining authorization to $2.6 billion. Our focus continues to be on improving free cash flow generation and redeploying excess capital opportunistically to shareholders.

Non-GAAP diluted EPS for Q4 was $1.01, a $0.15 per share improvement from $0.86 last year. GAAP diluted EPS for Q4 was $0.44 versus $0.39 last year. For fiscal 2026, non-GAAP diluted EPS was $3.84 versus $3.55 in fiscal 2025, and GAAP diluted EPS was $1.48 versus $5.08 last year. As a reminder, GAAP earnings in fiscal 2025 were positively impacted by the tax valuation allowance release that year.

In Q4 and fiscal 2026, the buyback program contributed to reducing our share count. Diluted weighted average shares outstanding for Q4 were $204.7 million, a decrease from $214.5 million last year. Basic weighted average shares outstanding for Q4 decreased by $2.8 million year-over-year to $200.5 million from $203.3 million total shares.

With that, let me turn to guidance. For ARR, we anticipate accelerating growth in fiscal 2027 compared to the prior year. We expect a year-over-year growth rate range of 8.25% to 8.75% or an 8.5% year-over-year increase to $3.551 billion at the midpoint at the end of Q4 of fiscal 2027. We expect growth to be driven by gross new bookings primarily from both new and expanding IAM customers as well as by gross retention improvements versus fiscal 2026. Related to this, we expect another year of modest improvement in DNR.

We expect IAM to represent approximately 18% of our total ARR at the end of Q4 fiscal 2027, driving IAM to well over $600 million in ARR by the end of this year.

This is our first year guiding to ARR and I want to provide some context on our philosophy and approach around it. Our guidance represents our current best estimates for both total ARR and IAM's trajectory based on the business data and bookings forecast available today. Therefore, we intend to only revise our ARR forecast as our underlying bookings expectations evolve for the entire year and not necessarily on a quarterly basis.

As you are aware, our bookings are seasonally weighted more heavily to the second half of the year, in particular, Q4, which is typically our strongest quarter. As a result, updating our full year ARR forecast will depend on our visibility later into the year, which will take time to achieve.

For total revenue in the first quarter and fiscal year 2027, and we expect $822 million to $826 million in Q1 or an 8% year-over-year increase at the midpoint and $3.44 billion to $3.496 billion for fiscal 2027 and or an 8% year-over-year increase at the midpoint. After adjusting for impacts from FX and the moderate tailwinds from digital add-ons in fiscal 2026, revenue growth is in line with the prior year.

Beginning fiscal year 2027, we will only guide to total revenue, given that subscription revenue has now become the vast majority of our recognized revenue base, specifically 98% of our revenue in fiscal 2026. We will continue to report the breakdown between subscription and professional services and other revenue in the footnotes of our SEC filings based on materiality thresholds.

For profitability, we expect non-GAAP gross margin to be between 80.8% to 81.2% for Q1 and between 81.5% and 82.0% for fiscal 2027. We expect non-GAAP operating margin to reach 29.0% to 29.5% for Q1 and 30.0% to 30.5% for fiscal 2027. Our fiscal 2027 operating margin guidance reflects a similar level of margin expansion as we saw in fiscal 2026.

We expect non-GAAP fully diluted weighted average shares outstanding of $196 million to $201 million for Q1 and $190 million to $195 million for fiscal 2027, a meaningful reduction from the prior year as we expect that our buyback activity will more than offset dilution. For detailed commentary on top and bottom line factors to guidance, please see the Modeling Considerations appendix in our prepared remarks.

In closing, fiscal 2026 was defined by the successful global rollout of IAM and our continued commitment to business fundamentals and improving efficiencies while redeploying excess capital to shareholders. As we look toward fiscal 2027, we remain focused on leveraging efficiency gains to drive product innovation and ultimately accelerating ARR growth delivering the long-term improvements that our customers, shareholders and employees will be proud of.

That concludes our prepared remarks. With that, operator, let's open the call for questions.

[Operator Instructions] Our first question is from Rob Owens with Piper Sandler. Rob, please check and see if your line is muted.

Sorry about that. Patience while I figured out the new button there. Allan, in your prepared remarks, you talked about being positioned to accelerate the business, and clearly, that's reflected here in the ARR guide. And after 2 years of consistent growth now calling for modest acceleration. So maybe help us unpack what's underpinning that confidence. You talked about gross retention, net retention. But can you stack rank kind of the delta between the 2 with IAM being a role, maybe speak to some of the top of funnel activity that you're seeing as well? And lastly, on that line -- along those lines, the level of conservatism that you have in this guidance relative to prior years? .

Sure. Thanks for the question. Overall, I think we're really pleased with the momentum in the business. That's what's reflected in our guide. We continue to see, I think, very strong adoption of product market fit in the commercial segment and accelerating momentum in Enterprise, which represents an even larger addressable opportunity. In terms of the drivers of the growth this year, it's a combination of new expansion bookings and retention. And both are very significant focus areas inside the company.

On the expansion side, as I said, it cuts across segments, primarily driven by IAM. And on the retention side, of course, the bulk of the business is in design. And I think we're doing a better and better job on retention there reflected in the increasing DNR rates. We're starting to see a modest contribution from IAM as well, which has even higher retention but it's still a very small part of the book. So that's not a huge driver this year, of course, will become more important as we go further out.

Blake, I don't know if there's anything you want to add that? .

Yes. Just kind of ending question on the level of conservatism, I think, Rob, that was in your question. We forecast we continue to forecast and communicate what we see in the business. No change in our philosophy there. And as things develop over time, we'll continue to update, but no change in structure or anything like that.

Our next question is from Tyler Radke with Citi.

I appreciate all the disclosure and prepared remarks, you put out ahead of time and good to see the flight excel on the guide. I guess, Blake, you walked through sort of the guidance philosophy on ARR, which we understand is fundamentally a different metric than billings. But I guess as we just sort of look at the IAM piece implied within your guidance, I mean, very strong growth this year. I think you added about $280 million, $285 million of net new IAM in FY '24, which was orders of magnitude -- or sorry, in FY '26 orders of magnitude from the prior year.

But if we look at your guide for next year for FY '27, it sort of implies like a similar amount of net new in IAM. So can you just help us understand, I mean, it seems like this is a business that's growing exponentially. You got a lot of new initiatives ahead. You talked about consumption pricing, the C-suite selling. So like why wouldn't that number continue to ramp? And maybe just sort of help frame that in the context of returning to double-digit growth, kind of what else do you kind of need to see to kick in to get back there?

Sure. Thanks for the question. What we saw this year and what we're expecting to see next year, again, it's a pretty linear progression in the IAM share of ARR. You saw us go from 2.3% to 10.8% this year. We're forecasting approximately 18% by the end of next year. A lot of that has to do with renewal cycles, right? So how are we having those discussions with our customers, getting deeper into their business on a consultative approach around what's right for them.

I would just say IAM is tracking as we hoped it would. I'm excited for it to become an even larger percentage of our business over time. It absolutely is a key growth lever for us to get to that aspirational double-digit growth rate. that, combined with improvements in gross retention, which not only are we making those in eSign, but also we are seeing IAM contribute to that in small shares today just because we're getting our very first renewal cohorts through. But the combination of those 2 things, I think, helps us reach that longer-term aspirational goal of reaching double-digit growth. So hopefully, that helps.

Our next question is from Mark Murphy with JPMorgan.

Congrats, Allan. It's intriguing to see the 200 million documents have been adjusted into Navigator because I think theoretically, it would give you an accuracy advantage or performance advantage if you compare it to LLM that might be out there running queries on their own. You're also saying that the Anthropic partnership is central to your strategy. Could you comment on how much of a priority you want your own sovereign system Iris to be versus kind of working with Anthropic? And basically, how much of an accuracy advantage are you seeing when people are using [ Iris ]?

Yes. To start at the highest level, AI has been fantastic for DocuSign over the last 3 years. I think we saw the potential impact on the agreement space early particularly on the IAM ambition, and you can see how that's powered some incremental growth for us. I want to distinguish between the agreement library and the processing that we do on that and then what's the UI that people interact with. On the data side, we have a huge advantage in using private consented agreements, not just public data. When we started with , we were processing off public data. And now, as you mentioned, we've beat 200 million agreements that have been consented to be processed. And that's powering increased accuracy in our models.

At the same time, because we're processing large amounts of data, we've taken significant steps to drive additional efficiency in how we process that data, and that's what's driving the very significant cost advantage that we have in processing these large data sets. So I think it's a -- we are certainly benefiting from the overall model innovation that the Anthropics and OpenAIs and Googles of the world are doing, building on top of that, leveraging the incredible CapEx innovation they're doing. But then we have our own proprietary access to data, workflows and just from customers that add to that.

In terms of the user experience, we always have the philosophy that we want to reach users and enable them wherever they want to do their work. So they can certainly do that through the DocuSign UI. But we've always been available in Salesforce, in the SAPs of the world, Workday and many other applications. And so it's sort of a logical extension of that to now be available in the leading chatbots like Anthropics or OpenAI, which we announced last fall.

And so I don't -- I view that as a continuation of our strategy. And you should expect to see us if new surfaces arise that are important to our customers, we want to make DocuSign data and actions available in those surfaces. Hopefully that helps.

Our next question is from Patrick Walravens with Citizens JMP.

Great. And let me add my congratulations. If I could ask into. Allan, I was intrigued by the comment about the bank. I think it was maybe the Bank of Queensland bought DocuSign through the Microsoft Azure marketplace. So if you could just comment on the Microsoft relationship and how that's trending, that would be great. And then, Blake, for you, I've gotten e-mails about this. So if you wouldn't mind touching on where you are on your philosophy on stock-based comp, I think that would be appreciated by our investors.

Yes. So on the Bank of Queensland deal, yes, we -- that was transaction to the Microsoft Azure Marketplace, and we've done a number of enterprise transactions there. As you all know, Microsoft has a number of Azure commitment agreements with large companies and often they appreciate being able to buy through that platform. But it's beyond just the convenience factor. I would say I've been thrilled with Microsoft as a partner. They really linked in here. and we're a big part of the sale. In fact, a Microsoft leader presented that case at our conference last week to the entire partner community. So they've been fantastic, and we look forward to doing even more with them.

Blake, I think there's a second question for you.

Yes. Thanks, Patrick. So related to stock-based comp. We made a concerted effort around that line item. I think you'll see in the financials that stock-based comp grew -- I mean, it's been pretty flat actually for the past couple of years. Stock-based comp grew year-over-year in fiscal 2016. I think that was coming off a slight decrease, negative 1% in fiscal '25. And you can see that in our results if you just take SBC as a percentage of revenue. It's been declining in the past couple of years. And so we're happy with that. I expect it to decline again into fiscal '27.

As you all know, there's been a number of actions that we've taken over the past years to manage stock-based comp around whether that's head count resource management, whether it's around fewer executive grants and also shift to more whether that's making adjustments to equity structures around leaning a bit more into cash comp. We recognize we still have work to do, but I'm proud of the continued progress that we're making and we're focused on continuing that.

Yes. So just to add to your question, you asked about Microsoft, but I don't want to since you mentioned Bank of Queensland, I think it's an important use case to talk about. So I think you all know that financial services has always been an important vertical for DocuSign. And of course, we powered many use cases from bank account onboarding to mortgages, to loan agreements, et cetera. But historically, we sat just at the end of the process, the execution moment, very important moment, very high value moment but that has powered -- let's say we basically work with packing every bank, certainly all the large ones.

But now we can essentially how the entire onboarding process from the initial presentation of the sign-up process. to real-time data validation of the data that a customer enters to real-time identity verification of their documents and that they are present and then, of course, the execution moment and then writing the data back to whatever system power the next step in the process. which is dramatic simplification and both improvement in the customer experience and improvement in internal efficiency and Bank of Queensland is an example of one of the early customers for that end-to-end process. And I think we're going to do a lot more of that over the next couple of years.

So I just thought that was an exciting use case not just for what illustrates by the Microsoft partnership before it illustrates for a case that might not be well understood.

Our next question is from Kirk Materne with Evercore ISI.

I was wondering if you could you just mentioned banks, and I was wondering, Allan, if you could just talk a little bit about what you guys are thinking about from a vertical perspective. Other is, you're a horizontal platform at its core. But I was just kind of curious what you're seeing in terms of either faster adoption in some verticals for IAM and maybe what you're doing to lean into some verticals where there's a really good product fit for that product?

Yes. Thanks for the question. At the high level, I would say we're still an incredibly broad application. And that's true for sign and it's as true for adopted across the industries, across companies with different sizes and now across geographies. I would say that we are moving increasingly towards a functional use cases the account side of the example on this gate for banks, of course, is a customer experience front of the house type application. We also do that in B2B or B2B sales organization. That's, of course, been a long-standing partnership with Salesforce and we do that for other CRMs as well. And now increasingly, more use cases in procurement, where there's a lot of B2B contracting that happens and in HR, where the attraction and recruiting and onboarding of new employees, the mirrors, in many ways, the bank account example that I gave you at the beginning.

So we are focused on those functional use cases, if you will, more than specific industries to the extent that we focus on industries, financial services, health care and government are 3 areas that we invest a little extra in because while they're complicated, they're high value, and we do well in them. But it's very broad from an industry perspective.

Okay. That's super helpful. If I could just ask a follow-up for Blake. Just Blake, on gross retention, do you have any sense on how that changes with IAM customers for you all? I realize the cohorts are pretty new here, but I was just kind of curious if that's playing out the way you would have expected in terms of potentially higher gross retention for those customers?

Yes. We are seeing -- and I'm going to preface this by a very early days of our first renewal cohort. So the sample size is pretty small. But even with that said, gross retention and dollar net retention rates for these IAM early renewal cohorts are better than the company average. So I would say cautiously optimistic, excited. It's frankly what we expected from this because just of all the feature functionality that comes with IAM and we'll see how that develops over time, but I'm copiously optimistic about that so far.

Our next question is from Allan Verkhovski with BTIG.

Allan, it's interesting to see how you've optimized AI processing costs by upwards of 50x compared to running the direct prompts on LLMs. Why is IAM consumption-based pricing the right way of monetizing? And what were your top learnings from the quarter in conversations with your larger customers about how much of an uplift you can drive with IAM? And then I've got a quick follow-up with Blake after.

Yes. Just to be clear, the consumption pricing we're referring to is consumption, if you will, of service credits. It's not a straight up token type billing model. So you buy a certain amount of capacity. This of course is not new to DocuSign, as you all know, better than almost anyone. Our e-signature business has historically revolved around an envelope model we pre-buy envelope capacity. You can take a business as sort of a generalization of that.

Now with all the different ways we can deliver value with IAM we've basically looked at how each of those products and use cases drive value and create a credit system we've now used that with for trite customers. They've been very enthusiastic, both our customers and our sales teams appreciate that model, and so we're now rolling it out next month. And I think that will just power most of our enterprise business going forward. We still think that the -- for commercial customers, simpler pricing model, makes sense, but for enterprises where there's so many different ways to deliver value and grow value over time. that a consumption-based credit model is the right approach, and that's been validated in the last 6 months of trialing.

Got it. And then, Blake, is your internal time line for when you can get to 10% top line growth sooner unchanged or later after this quarter and why?

Yes. Just to be frank, on this, that is our long-term aspiration for us. It is for me in the long term achievable. If we can both grow expansion and accelerate gross new bookings and improve our retention rates, that's something we could do. the win on that is not as important to me at the moment. We're going to go as fast as we can at this company and provide value to our customers. I think it's something we can achieve. It's going to take some time for us, as you can see. But I'm really excited about the opportunity ahead. But as far as like time line or anything like that, nothing really to share.

Our next question is from Josh Baer with Morgan Stanley.

A couple on the enterprise opportunity. One, Blake, you were mentioning that around like the linear progression of IAM as a percentage of ARR. I guess I'm wondering -- I know that wasn't like a comment about all years in the future. But I would expect with your positioning and kind of readiness in the enterprise for that to accelerate just because of the size of the enterprise opportunity and now unlocking that. Is there -- I mean, would that be the case? So like how are you thinking about the unlock of enterprise and the impact on that linearity?

Why don't you go first and then I'll add.

Yes. I think, obviously, for us, we've got big aspirations for enterprise. It's still early days for us there. And you heard a couple of examples. You heard Aon's one that we're really excited about internally. And obviously, externally, the other ones that we've talked about. I think for us, we're just going to have to see how this -- how this ramps over time, right, is that as our customers use IAM and they experiment it and they use more of it, you can see that ramp over time, but it's a little bit like eSignature, right?

You go into maybe through a division and then you're able to expand that to more users and whatnot. But I think that -- it's still early days for us. We're really site opportunity. Our long-term success depends on growing the enterprise business. We're really excited about that, and we are very head-down focused in order to that.

And Allan, I don't know if there's more to that. .

Yes. Just on the enterprise topic, it's really shifting into gear for us. it's contributing more of the top line mix. And over time, I expect it ultimately to become a bigger part of our business than it has been historically in eSign just because of the addressable opportunity and the pain is so much larger -- just for purposes of illustration, I just want to double-click on the Aon example just for a second. So as you can imagine, customers and partners. And so there's a number of examples like that, but I think the most iconic this quarter.

Really helpful. And just to stay on this topic. Any way to frame the pipeline or specifically in the enterprise and related, is there -- could there be any initiatives? Or are there any current initiatives of bringing customers on to IAM before the renewals that we are kind of just talking about with regard to the linear progression?

Yes. I mean, look, it's always the case subscription business, the renewal creates a natural focus point, I would say, for discussions. But we are absolutely working to accelerate discussions with customers who are further out from their renewal and finding ways to do deals out of so we have various contract structures to help facilitate that and as well as opportunity identification for our sales teams and our partners.

And as you know, enterprise sales cycles along anyway. And so you've got to start way ahead if you want to do a big deal like an Aon type deal. So yes, that is a focus. I don't think we'll ever be able to completely avoid the natural timing that's associated around renewals. It's just a fact of life, and customers also anticipate that and work towards that. But we are absolutely pulling a lot of levers to enable our sales teams, our partners and customers to have discussions as soon as customers frankly are ready to entertain them.

Our next question is from Alex Zukin with Wolfe Research.

I guess maybe 2 quick ones for me. I'll ask the inverse of Tyler's question. If I think about the guidance around ARR, looking at the IAM flat and that implies non IAM ARR is going to actually get -- meaning this guide is going to get a lot meaningfully better. So just curious what's driving kind of the confidence? Is that a gross retention dynamic continuing to improve? And then I've got a quick follow-up for Blake.

Yes. Let me see if I can answer the question I think in the spirit and the way you're asking it. Is the -- if you look at the IAM net new ARR and you try to compare it to the company that new ARR, that can be a tricky comparison because the way to think about IAM is really not necessarily as an incremental brand new product, but it's a platform shift, right? Like we have a lot of people in our is, a lot of customers in our installed base -- they're moving to IAM. And remember, IAM comes with the new signature offer as well. Customers are paying for that. That's part of their IAM deals that they're doing with us.

So while I am as many incremental features on top, it's also driving that platform shift. So I encourage you to think about it because of that as a platform, use total company ARR when thinking about our absolute kind of dollar growth for us, retention gains are critical. I am as 1 of those big levers for us to be able to do that, that we think that will play out over time, right? Because you got to get somebody into a customer to move and I am keep them getting excited about it and then renew them as well. And so this is going to play out over years for us.

And I think that I'm really excited about it. But along with that, too, we're making gains in our company -- total company retention as well, which, as Allan said earlier, and I think all of you know, it's still predominantly an e-sign business. And so for us, those 2 things matter a lot. I'm really excited to be able to improve upon the gains that we made this year and get even bigger ones next year.

Understood. And then maybe just with respect to the consumption-based pricing that you guys are introducing, I guess probably how much of the IAM ARR in the year that you're guiding to? Do you expect to be coming from consumption? Or are you not including any of that in the guide? And kind of how do we think about that progression as it applies to NRR improvements gradually throughout the year?

So this is a -- we're launching subscription consumption-based pricing. So I would say the consumption element is all part of our ARR forecast, whether it's consumption or seats or not. And so I would encourage you to think about it that way. Like Allan said, this is a lot akin to what we do at envelope today, right, that a person, a customer signs up for a subscription and then they get a capacity that they can utilize against it. So I don't think there's any big swing necessarily just because of the pricing plan. I think it's going to give us an opportunity to appeal to a lot more of these enterprise customers, and I think that's the best way for us to be able to increase usage over time.

Yes. I agree with all that. And I'd just say, look, it's primarily relevant in the enterprise space, which is a small smaller but accelerating part of our business. And of course, it does lend itself to, as you implied in your question, potentially realize more growth over time in a cap because you already have the pricing mechanism installed and be sort of easier to say, well, you just need more credits. And so let's see where it goes for this year. It's important for the enterprise go-to-market. And probably somewhat meaningful for the overall business, but not the primary driver.

Our next question is from Rishi Jaluria with RBC Capital Markets.

Wonderful. Maybe to start, not to keep harping on the ARR kind of question. I guess just kind of taking a big value, right, you're guiding to effectively non-IAM ARR being flat, I am ARR growing hyper growth, call it, 70%, 80%, depending on the assumptions you make, I get that there is a conversion element from it right? And so maybe I'll ask a question that we've been trying to figure out for a while.

And hopefully, you have a decent out of telemetry that make kind of some sort of preliminary indication, but just wanted to get a sense what sort of pattern of behavior do you see in terms of overall ACV, TCV, LTM, whatever sorry, LTV like whatever metric you want to use, but just in terms of so far as you've taken existing customers, move them from visitor e-signature to the IAM platform, how much higher does that spending look like? And then I've got a quick follow-up.

Sure. Yes. I mean our focus continues to be on driving our dollar net retention rate up. And that's -- we're going to do that in large part by -- in the foundation, not only of our expansion strategy but also our retention strategy going forward. So talking about expansion rates and stuff gets pretty tricky when you start to balance those components. And we are seeing in general, in the vast majority of cases, an expansion opportunity for our customers that are coming. We're not breaking that out. But we also need to see the early renewal coho customers, and we're encouraged, like I said earlier about that. But it's something that for us, for in total. It provides an expand and retention opportunity, but we're not breaking out the expansion rates right now.

Understood. That's helpful. And then maybe just thinking going back to some of the partnerships that you have with Anthropic, you've got one with OpenAI. We've seen you highlighted on space over the past several months. I'm just coming at a time with clearly investors are worried about potential competition either from DIY, using those platforms aggression the platforms themselves. Can you maybe talk a little bit about how is your conversation with both of those and any other model providers as well because I know you can have the ability to work with most models out there, but just how those conversations have kind of staged over time and how you've been able to double down on a lot of the things that are made successful in shaping the nature of this partnership?

Yes. Thanks. The reality is, I think every provider of chatbots, the leading ones like OpenAI and probably like a Google, but there are many others who are aiming to provide a chat interface to their customers. And as they think about how do I provide value that chatbot, one of the most important data elements that you want to expose and process that you want to kick off is agreements. And so we've had a lot of inbound interest. Every major provider of models is interested in partnering with us on this. which is reflected in those announcements, and there'll be more like that.

And so I think we are well positioned as the system of record for agreements as well as a system of action, and we can power those actions through our own interface, through third-party agentive interfaces or third-party applications like Salesforce and Workday. And I'm very bullish on our position as the authority and logical top partner for companies with ambitions to creative agreement data, kickoff agreement processes, complete them. We're a good partner for that. And I think that's reflective in what you see in the news.

Our next question is from Scott Berg with Needham & Company.

This is John [indiscernible] on for Scott. One question for us. We noticed the company is conducting some AB testing on self-serve estate plans. Have any pricing changes that have been incorporated into the fiscal '27 guidance? .

Well, I'll take that line, you want to add on ahead. Our guidance reflects all of our plans for this fiscal year, including tests like that, like we're testing that at the moment. then we'll see how it goes. We're excited about it. But the guidance is a reflection of the plans that we have for this next fiscal year.

Yes. We're constantly -- in a digital business, you're constantly testing all kinds of new pricing and packaging. And this is just one of those that we're doing in a couple of geographies. And we'll see which we work, and we'll scale.

Our next question is from Brent Thill with Jefferies.

This is John [indiscernible] for Brent Thill. Question on AI. I mean, wondering which features or where you're seeing the most traction moment? And also whether you're seeing any meaningful usage or volume or lease through the chatbots?

Yes. On the first point, Look, the foundational major AI platform futurologist Navigator, which gives you access to your repository agreements. I think that's still power is a tremendous amount of value for customers of all sizes. It's really remarkable. How many different ways people find value from that. But we're now increasingly delivering AI-enabled features across the agreement journey.

So for example, we have automated agreement for view, that's, I think, becoming a very expected thing. We are -- you'll see automated data validation, automated use of AI for identity verification and for risk assessment. We've launched a number of features in that area over the last 6 months. So really across the board, AI is wherever we can use that to power more value for customers, we're going to do that. And you can see that now across the various stages of the journey and in different functional workflows. And there's so much more to come here. So I'm very optimistic that this is going to power value delivery and innovation for us for a while.

Our next question is from Patrick [ McCawe ] with William Blair.

Alan and like. One more on IAM, it's great to hear you're expecting absolute ARR from that product to nearly double this year. And I understand a lot of that growth is coming from existing customers transitioning, but can you just provide a quick update on what type of traction you're seeing in going out and winning net new customers with those incremental capabilities? And as we think about that, how you feel this solution is competing against other CLM vendors and broader workflow platforms?

Yes. I think that's going extremely well. It's an even larger part of our co dollars then of normal renewals -- and I think when you come in fresh, you get to position all the exciting things for IAM has to offer, whereas with some [ ESOP ] customers, they may have an existing perception of what's possible with agreements or what we can deliver for them and duties to change those receptions. But newco will continue to be a core element of DocuSign's growth. Of course, all of our customers start as new customers and many of them started as small customers and grew into very large customers.

And so that is an essential acquisition pipeline that we continue to invest in. With all that said, the primary focus of our go-to-market with IAM is with existing customers, and that's the vast majority of our revenue. And it's a huge advantage for DocuSign that we walk in. We already have your agreements. We're already a trusted supplier. We're already generally very well perceived because of the quality of the side product and the experience customers had. And that's an amazing starting point for delivering value and for processing their agreements with AI that's unmatched by any other company.

So I think we have a lot of data and product advantages. We also have huge distribution advantages. And that might not be as fully understood. But you can start to see that really come into play with the number of customers that we've already brought on to our new AI platform a number of agreements that we've ingested and processed.

Okay. Great. And just quickly, you touched on it in the prepared remarks, but the flat guidance for operating margins understand you're reinvesting some efficiencies from the go-to-market side in R&D. Is there any context you can provide on what those investments are geared towards or what capabilities you're looking at as you invest there?

Yes. Maybe just first for context, I know you all know this, but I'm just going to repeat it anyway. We've gone from 20% operating margins to 30% operating margins over the last 3 years, growing revenue 30%, while we do a comp 13%. So big DocuSign has been already on some of the improvements that you're all seeking. I think the decision we made in planning for this year is that we're rightsized for the opportunity ahead of the growth acceleration opportunity that we have. That doesn't mean that we're not reprioritizing aggressively inside the company.

So we continue to seek incremental efficiency in our go-to-market motion. We've done a lot there, and there's going to be more opportunities and then we're investing some of that in our product and technology organization. The areas that we're investing in enterprise and AI, continued acceleration of our legal tech road map federal. U.S. federal is a big opportunity for us. So those are examples of things. Security continues to be a key investment area. Those are areas that got sort of incremental funding on top of baseline freed up by some of the efficiencies that functions.

There are no further questions at this time. I would like to turn the conference back over to Allan for closing remarks.

Thank you, operator, and thank you to all for joining today's call. In closing, we are very excited about the value IAM delivering to customers and their workflows and through our AI innovation. We will be positioned to begin accelerating the business in 2026 or fiscal 2027, while generating strong efficiency and profitability. Thanks for your support. Look forward to talking next quarter.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.

Awesome. Let's go ahead and get started. My name is Chris Quintero. I am a software analyst at Morgan Stanley. And stepping in here with my colleague, Josh Baer, who can now make the conference this year. But I'm really excited to be joined by Blake Grayson, the CFO of Docusign. Blake, thanks for being here.

Thanks for having me.

Blake, maybe to start, tell us a little bit about yourself, your journey to Docusign, how that fits within the overall company management transformation that's been going on over the past 3 years? What drew you to Docusign? And where are we in terms of the long-term potential of the company?

Sure. So I've been at Docusign for about 2.5 years. Prior to that, I was the CFO at an advertising technology company called the Trade Desk based in Southern California in the U.S. for about 3.5 years. And then prior to that, I spent the bulk of my career at Amazon over a decade. Primary roles there were I ran finance in AWS in the cloud computing business, marketplace, North American consumer -- consumables and then international were the kind of areas for me.

Essentially, what brought me to Docusign was there's very few, I think, opportunities or times in your career as a CFO where a company that is so well liked by its customers, generally speaking, that had fallen on some hard times and needed to kind of regroup coming out of COVID. And we had a new CEO get hired. So my boss, Allan Thygesen, hired me. And I would say 75% of the leadership team had been kind of swapped out, I would say, over the first 1.5 years that I was there.

And so we're on a journey to transform this company, frankly, which is we're essentially so well known around the world, mostly for our e-signature capabilities. But now taking that a step further and really providing customers the ability to manage their agreements, both in how they prepare them, how they commit to them, like the signature component, but then also how they manage them after the fact. And so we're on this journey. I'm really excited about it. And it's something that I think Docusign is a natural fit in order to kind of add value to.

Yes. And I want to follow up on that. You're talking about agreement management, your IEM solution is a really big key focus for investors right now. So -- maybe for those who are new to the product, the suite, the solution, can you describe what it is? How is it different from your core eSignature business? And what gives you that confidence that this can become a bigger mix of your overall revenue?

Sure, sure. So eSignature is really a moment in time for an agreement life cycle, right? It's super critical. It's a very important part when you commit to an agreement with another party. But that agreement life cycle spans such a longer period of time. It can go from when you're just preparing that agreement and how do you build the language in it that is appropriate. And then you commit to it, but then you got to manage it.

And there's so much trapped or locked value in those agreements, whether it's not things around pricing tiers and obligations that you may have to make or legal language or insights around what your customers are doing that, frankly, is a new category opportunity. It's a natural fit within Docusign because we have such a large relationship already with customers around their agreements.

So Docusign is nearly 1.8 million customers. We have around 275,000 direct sales relationship customers on top of digital customers that we have. We have the largest corpus of agreements of any company in the world. And these customers, they're generally -- well, they're our customers already, and we can talk to them and say, "Hey, how about unlocking that agreement, the value in your agreements and all the inefficiencies that are in there.

And I have anecdotes in my own personal career that resonate with me. And it's a very -- I would say, one of these use cases for AI for us, which is very tangible. Like I think people really can understand like, okay, I can summarize agreements. And the average customer using IAM today has like around 5,000 agreements, and these are like commercial and small medium businesses. We have customers that have hundreds of thousands or millions of agreements with them. And so the scale that Docusign, I think, also has is a super kind of like valuable positioning for us as well as we kind of really try to help our customers unlock the value from those agreements.

Yes. Let's talk a little bit more about that data and the scale that you all have. You talked about having some data advantages on the last earnings call. Can you talk about the 15% precision that you've talked about, 150 million agreement data points? And how does that really speak to your advantages with AI embedding that within IAM?

Yes. So the 150 million agreements, we have 150 million consented agreements that are already in the IAM platform. That's growing rapidly. I think just in the month of October, we added 20 million right? So you can kind of think about that on a relative basis. That provides us a very large advantage with regards to the ability to train models on some of those agreements, ability to improve precision recall.

And so what the 15 percentage point improvement that you heard Allan talk about on the earnings call refers to is that we essentially try to benchmark and say, okay, if we do prompts and queries using public data, right, public contract data, and we compare that to the public data along with our own private kind of consented corpus of agreements, it's about a 15-point -- percentage point recall improvement.

And for anybody who's tried to use AI and things like recall improvement in precision, it's critical. It's -- I don't know about all of you in the room, but if you go to ChatGPT and you go to these LLMs and use them, they're partially accurate, like they're getting better all the time, but a 15-point improvement is super valuable, and it provides actually, I think, even more to the kind of trust component that our customers get from using Docusign, and we can combine that level of precision recall on top of the LLMs and the public data that's out there.

And I assume like that increased precision is also helping drive the go-to-market traction you're having with IAM so far. You shared that you crossed over 25,000 customers. That's up from 10,000 in April. So -- and that's quite significant given IAM only launched mid last year. So talk to us a bit about where that growth is coming from? Where is the success coming from?

Yes. So the initial ramp for our IAM customers are primarily in the commercial and small and medium business segment. It's early days for us still in enterprise. We actually had some great wins, and we've talked about some of those on earnings calls and such. But it's essentially customers recognizing, I think, that the -- if you want to call it the bundle, the opportunity to be able to capture both eSignature and Agreement Management together because just so folks in the room know, most of our IAM packages come with eSignature.

It's not like a separate packager. It's really a platform view. And the reason for that is probably pretty obvious that you can imagine if a customer is using IAM with you and eSignature, they're inclined to put more eSignature volume through, which creates a larger repository for their contracts into their like Navigator, what's what we refer to as the repository. And so it's a flywheel effect for us. And so that's actually been really exciting to see. I think that customers are recognizing that value.

And it's super basic just from things like how do I track the obligations that are coming due for me. I have anecdotes of my own career where an auto renewal on a lease was missed by a team, and so you're paying that price beyond a period of time you'd like to, right? What's that obligation? You can imagine real estate leases on which ones are coming up, which ones have auto renewals that I should be aware of.

We also have ability to do custom extractions for industries or for companies that have maybe very specific language and they want to train the model for their specific use cases to make sure they're pulling the right information we offer that as well. And so it's been super exciting to have the traction that we're getting. We still have a long way to go. I mean, like I said, we have a very large customer count.

And the nice thing about it is we're signing up new customers than I am, but a lot of it is also our installed base, where it's a customer recognizing that, oh, I think I actually get some value out of this agreement management component. And so exciting to see people use that and start to adopt it.

Yes. Let's talk about the evolution of IAM. So you mentioned initially started with kind of more small and medium-sized businesses. That's kind of where you got the initial traction. Now you're trying to move more into the enterprise side of things. What do you have to change or augment on the go-to-market and the product side to really make that successful upmarket?

Yes. So it was a very conscious decision that we launched when we first launched IAM to focus on the commercial space. We have product market fit. We knew we had the product that would provide value to customers. We also recognize that enterprises are more demanding, right, for that. So over time, we've been able to improve those releases.

We still have work to do, but we've done a lot. Things that are really exciting, you can imagine like things like access controls or like, oh, roles-based provisioning. So you have an access to certain agreements and I have access to others because there are some things that are very confidential, right, in the company.

How do you do that? Around FedRAMP Moderate and these things like for security that you have to be able to get to in certain cases. Also with features and developments like, okay, I want to be able to sort my contracts by line of business and how do I do that? Things like custom extractions, I already talked about that earlier. And just those kind of nuances, which were an enterprise customer become more and more valuable.

And one thing I'm really excited about is I would say that we've built a muscle now at Docusign that a few years ago, and it's not really a criticism of like the prior management team, but they were so focused on accepting demand, just high volume coming through the pandemic. The product kind of innovation, I would say, was a secondary kind of consideration. And I think one thing I'm really proud of the team is that we now have a road map that is just continuously doing releases.

You hear about it from us on our earnings call. We talk about it now at our big momentum customer events for people on releases we're doing. We do focus groups with our customers. We do use cases for our employees. And so I think that continuous development is what will give us the ability to move further and further up into larger and larger companies.

Got it. In terms of the breakout between new and existing customers that are adopting IAM, how would you break out that opportunity amongst both? And are there any differences you're seeing in terms of how these customers behave?

So I would say customers that -- the one thing we have seen is that customers who use IAM actually use eSignature more, and that's probably not terribly surprising, but it's nice to be able to see that usage flywheel spin for us. We're signing up new customers for IAM. We're predominantly targeting our existing right, at the moment.

Now we still bring in a fair amount of new customers, but it's one of these things where we have this asset already today in our portfolio of customers. It's very natural for us to already have that relationship with them and start to introduce them to this concept of IAM. And then we have -- you have to have a little bit deeper discussions with them, right? And also, too, how do you do this across enterprise, right?

It's not just -- we don't just focus on like, say, one area. It's not just IAM for sales, or it's for HR or the finance or it's for legal and procurement and all these opportunities across the business. And I really do believe that for larger companies, the real power of IAM comes from the breadth of that opportunity across the company because if you're somebody in my seat, I don't want to say it's not worth anything if I can't have my whole company, but it's so much more valuable if I feel like, oh, my whole corpus of agreements is in here, where is my repository of assets?

I mean if I ask people, do I do this for -- not fun, but it's like, okay, if I ask people in the room, where are the agreements in your company stored? If I said I was going to ask, I think a lot of people would say, well, there's SharePoint sites I have, there's maybe Box folders that we might have. There's e-mails that we might have.

I probably could e-mail the legal department. And then do I know if I have the -- like if you're like me, I may have an e-mailed copy, but it's version 12. And I don't know if it's necessarily the final one that I approved. And so being able to have that repository of actually complete agreements, which, by and large, we have a lot of those, right, or most of those already for our customers, and it's a very fast onboarding cycle for our customers to be able to light up IAM because we can ingest those documents essentially into IAM, I would say it could be in a matter of hours and for the biggest customers, matter of days, right, for us to do it.

And so that's a unique situation because we already have those documents, the company doesn't have to worry nearly as much about trying to find all the other third-party documents, but we'll ingest those two. Like we'll have APIs that will connect all the services if they want.

Yes. No, it definitely sounds like you're super excited about the IAM opportunity. How do you think about the competitive landscape, though? You all kind of branded this as kind of a new category. Clearly, there's been a lot of competition on the eSignature side, but you are the market leader. So how do you think about the IAM competition side of things?

Yes. I would say it is a new category. I would say most of the competition you see out there are much smaller companies that I would say have highly specialized vertical kind of landscape, like they only do maybe very specific legal tech, right, and stuff. And I think those will always exist out there.

I think the difference for Docusign is the scale and the breadth of the opportunity and the application across so many different industries. And the usability for it, I think, as well, which applies to it. So now that said, we're horizontal in the fact that we can go across the whole company. But we also -- like I also said, we have features and functionalities meant for specific use cases. But I would say, I think we're arguably one of the only ones that have that kind of scale.

And I think there's not a lot of large companies out there other than us that do this. And I think the scale that we have, the trust that we have with our customers as well provides us an advantage because the information and contracts that companies have, you could argue some of their most valuable information. And so I think we've already got those contracts, right? We've been working with customers for decades. And so it's, I think, a position of trust that we've earned, we take very seriously, but I think it's also an advantage for us into the future.

Yes. So scale, trust and the horizontal nature across multiple different.

Yes, I think so. I think it's just the breadth of that exposure, and I think the usability I would also say is super important.

Got it. How do we think about OpenAI, large language models? Where do they kind of fit within the competitive landscape for Docusign? Are you partnering with any of these model vendors? How are you kind of integrating some of that technology into your product portfolio?

Yes. I actually think of the LLMs very much more as partners than as competitors. I think we're either integrated or within the process of integrating with all of them, right? So it's OpenAI, it's Gemini, it's Copilot, it's Claude, it's those kinds of things. I think that we'll meet customers where they want to go with this and how they want to use it. But again, I think the benefit of the added precision that we have on our platform on top of those large language models is super important and super valuable for us and for the customer.

And so we'll see how this all evolves. But I think it's only goodness. I like the fact that there are so many different models out there because we leverage them all, right? And so -- and then we try to benchmark, okay, when we take our data on top of theirs, what does it look like? And so I'm excited about the opportunity and companies are going to figure out their way about how they want to manage those.

But most importantly, also, we integrate with like, I think, about 1,000 different third-party kind of software companies out of the box. So the Salesforces of the world, right, and all these things like ServiceNow and Snowflake. And so it provides an ability for companies that have sophisticated kind of data streams to be able to sync up immediately. And that's an incremental value that we have that you don't get just like from a large language model.

Yes. So it seems like you're pursuing a multimodal strategy, partnering with all these different models and maybe choosing the right model depending on which one can best answer.

That's right. We're not in this game to pick a horse that we think wins. It's really about who's got the best value and the best opportunity. We'll leverage it. And then customers, they want to be able to choose too, and we want to be able to partner with our customers to give them what they want. And so I think that provides an advantage that our platform then becomes even more valuable.

Got it. Switching gears a bit. I want to touch on the core eSignature business. It's not a hypergrowth space right now, but what gives you the confidence to maintain durable growth there, maintain market share? What are some of the drivers you're really excited about there?

Yes. So one of the things that's been great to see like our usage and utilization rates have been pretty quite consistent, growing on a year-over-year basis. And so for folks like usage, you can think of that as number of envelopes sent. Utilization is like the percentage of your contract, if you will, that you consume. And so the higher the percentage that you consume, in general, that's a leading indicator for us to say, oh, this person could actually need more supply, like they need more envelopes or not.

I would say that also from a company perspective, I think one of the muscles we've built over the last, call it, 18, 24 months is that coming through COVID, the company was really focused on just accepting the demand that came in. It was massive and they scaled. They scaled primarily with humans, right? How do you do that? I think for us into the future for eSignature, it's also about what data do we have to actually gain on retention, right?

So how do we maintain and then expand that spend over time? We've vastly improved the amount of data available to our -- like our customer success reps, essentially be able to flag to them early enough about, okay, this customer is coming up for renewal, here's their usage. Here are the use cases that they're using it for. This is what their intentions were when they signed up, what discussions have you had? And so we're making those gains over time, and we've improved things a bit.

We've got a lot more work we can do and a lot more room for improvement. But I think eSignature for us is a business that we've stabilized for sure, and it's actually improved a bit. I mean I think our dollar net retention hit a low about 18, 24 months ago of around 98%. We're up to about 102% on that. That is largely on retention gains because IAM is just still too small in the business for us to provide the expansion component. That said, we know we have a lot of remaining opportunity. We're really excited about that.

Yes. You and Allan have both talked about the kind of North Star being kind of high single or double-digit type of growth. You're at high single digit today. How do you get to that double digits? What are the kind of parts of the equation that you need to really, really drive upon to get there?

Yes. And it's interesting you bring in the question because I do -- we do a global town hall for our whole company once a month. And after earnings season, I get to like one of the presenters, right, to talk about, hey, here's how we went. This kind of stuff, that kind of stuff. And so double-digit long-term growth is absolutely an aspiration of ours.

And what we talked about yesterday was there's two main drivers of that. One is gross new ACV, like say, annual contract value, and that comes from expansion. So that will come from IAM and from eSignature expansion. And so how do we work with our go-to-market teams to provide those opportunities for that. And the other is retention, right? So less -- lower churn, higher retention, either way you want to call it. And we have still an area of opportunity. We've made strides, which is great, but we still have so much room to go.

And if we can fire on both of those components, we have the opportunity to accelerate our long-term growth into the double digits. And so a lot of investors would like, okay, well, when does that happen or we don't -- we're not providing a time line on that. But that's the calculus that goes into it. I think that for us, we need both of those, right, in order to do it.

And I think then it becomes a durable long-term growth because for me, too, one of the things I look for is we use this term durable a lot, but it's something that we feel like we can maintain in time, and we can do so with operating leverage. And I think that if we can start to spin this flywheel faster, this business doesn't have a ton of marginal cost to it. Like we have sales comp comes, maybe a little bit of hosting expense and stuff like that. But a lot of that growth opportunity, I think, has an opportunity to drop down to the bottom line.

Yes. Let's talk about the bottom line efficiencies. You all -- since the new management team came in, have made some really good progress on the margin front. So what are some of those efficiencies you all have been really focused on? And as you think about the go forward, what are some of the operating leverage investment priorities you're making?

Yes. So I would say, yes, we've made a bunch of hard choices of the company. I think like in fiscal 2023, our non-GAAP operating margins were around 20%. Now they're closer to 30%, right? And so we did a bunch of resourcing, like hard decisions we had to make around that, but also just becoming more efficient with how we spend our money.

And so -- but at the same time, doing that, we've also were investing in IAM because this whole concept of IAM was really just like on a piece of paper a couple of years ago. And so we had to invest in that while we were making these efficiency gains. So I'm super proud of the team for that. I think for the future for us, that top wheel, like in my career, what I found is it's a lot harder to find those opportunities to spin growth than it is to manage costs, right?

You can always manage costs and you can do that. But if you want to make sure you provide enough fuel to the business to be able to get that growth, and if you can, it's so much more powerful from an operating leverage perspective. And so we're in this balanced state, I think, right now, which is where, okay, we like the efficiencies we've gotten. But we're going to try to maintain those, right, as we've done this year, our margins at around 30%.

And I think our margins around 30% this year and we guide are relatively flat year-over-year, but we also had some additional pressures on some efficiency gains, right, that we're going after like we're in the middle of a cloud migration. That costs some money. We shift some employees from equity to cash to help address dilution and stock-based comp.

And so there are certain things that kind of hit your kind of P&L margins for the right reasons. And so we've been able to actually offset those, which has been great. I think for the future for us, this opportunity to spin the flywheel and accelerate growth, I do think has an opportunity to actually drop down and actually provide a bunch of operating leverage.

And then over time, you get also more productive. And so we have other productivity initiatives as well. Like one of the things we've been doing is we've shifted some accounts from direct sales reps to self-service, right? And over time, that should help provide productivity improvements. At the moment, we're using that capacity to help sell IAM, right?

And so it's like, okay, how do you balance those resources in order to be efficient and productive, but make sure you feed the business enough to give you that opportunity for growth. And so that's where we are today.

And how are you leveraging AI? I assume you all are key users of your own software, too. But how do you think about that as well as third-party vendors that you're also leveraging?

Yes. So I would say over the last year, we've had a bunch of initiatives in the company essentially embrace AI and the tools and where we're going to get the gains. It's a question that we're in the middle of our planning process for this next year. That's a question we're asking every single peer, me included in this and how are you leveraging it. My own team uses it right now in that examples in like billings and collections.

So when customers, we send them an invoice, our bank account information is on the invoice, they write back asking us for the bank account information, right? Well, now we use AI essentially to scrape that question and immediately reply back automatically, so I don't have to have humans doing manual like those kind of we're going to sort of frees up the billings and collection teams to help address maybe the more -- you have more questions around, oh, my cost centers are different, like kind of like the normal stuff you deal with in business.

And so across the company, we're embracing it, whether it's through engineering or HR and our IT functions and sales, also about like how is the rep get prepped for going to a customer meeting and be able to seek out, okay, what's this customer doing? What are they using? What's the health of their account? How do they create a summary? And that's been pretty cool to see our teams utilize that.

Yes. Maybe before I open it up to the audience, capital allocation. You all have returned about 75% of free cash flow to date. How do you think about buybacks and M&A as well because you also acquired a company called Lexion and integrated that pretty well. So how do you think about the trade-offs there?

Yes. So I think that we definitely have -- I think we've proven it that we show that when we have excess capital, we want to be able to redeploy that back to investors. So we think right now, the buyback is really a key opportunity for us. Now that said, we did do an acquisition. We do look for them. We have a very high bar. We want to be super judicious about how we think about those kinds of things.

On the buyback front, you referenced like the 75%, that's about the free cash flow for the buyback. On top of that, we also essentially front the taxes due for like when RSUs vest for employees. So you can think of that almost as like a synthetic buyback. So we're not issuing shares to cover those taxes. We're actually kind of retiring them before they get issued. And so that takes up even more of our free cash flow, and you can see that on our cash flow statements. But I'm really proud of -- well, first, I'm really proud of the improvement in the free cash flow we've generated in the company.

I think just year-over-year in Q3, I think we generated 25% more free cash flow than we did in the prior year, it was $263 million. We did about a buyback, I think, of about $215 million, but then we also did RSUs on top, the synthetic point that I commented about. So it's a balance. I mean we have like we have about $1 billion on the balance sheet. We have no debt.

We have a revolver that we could use as well. So we think about this as how do we create the flexibility and the optionality. But I think through our actions we've shown, we're actually quite cognizant about returning that excess capital to shareholders. And we believe that if we can spin the flywheel in this company and we can get that growth up and then it provides some operating leverage, we think that's a good investment for that cash.

Got it. Any questions from the audience here?

I am understanding the point of solution that eSignature provides, but how are you selling the IAM into the C-suite? How are you pushing this across the enterprise?

Yes. It's a great question. And actually, and I've been in a few of these discussions, it resonates actually with the C-suite quite a bit because you can look at somebody in my seat and say, "Hey, Blake, if you want to look at or whoever the CFO, you want to look at all your agreements, how many of your agreements provide -- it's a very specific question, but like unlimited legal liability if you have a breach of a contract, right?

So custom language, companies can't tell you that, right, today. Like -- and it's -- for me, I'm really excited about those kinds of questions because we're now just putting it in for IAM for sales in our own organization for that. And so then also looking at a company and saying, how do you know what your pricing is from the same vendor across different regions, right? So like I worked at Amazon, the largest companies in the world do not just give you one contract.

There were like 80 contracts, right? And they purposely make it fragmented and hard for you to do that. And I ran into multiple situations in my career where I couldn't even really figure it out, right? And so being able to have those discussions of the C-suite and say, this is the value that you can provide is super helpful. I also think that one of the things that Allan and Paula -- so Paula Hansen is, our Chief Revenue Officer, is using our own C-suite as sales opportunities.

And this is new for me because I worked at Amazon, it was not -- our customers were consumers, right? And my prior company, I didn't do that. But I have relationships with CFOs of some very large companies, and I go have a coffee with them, and I talk to them about the opportunity. And by and large, most of them are very open to it. I think also one of the advantages we have is we don't stack super high on the SaaS spend for a company.

Like in my previous company, Docusign wasn't even the top 10 SaaS companies like for the amount of cost. And so if you can provide incremental value, and it comes at an incremental cost, but it's not so large, right? It creates a better opportunity. But it's actually -- I mean, I don't want to make it sound too easy, but you meet with the C-suite, you talk to the CTO about all your vendor contracts that you have or how do you manage them, they don't have a solution for that today.

I mean one anecdote is Allan will talk about this, and he went to one of the top 10 banks in the world, and they were very excited because they had an Excel spreadsheet with like 10 columns, and they could track their 80,000 contracts. And it's like, okay, we can do better than that, right? Like this is for us. And so we're having those discussions with that company in particular. But it's a longer cycle for sure, to do that, but it's been resonating.

One last one.

You mentioned that Docusign has been around for like a couple of decades. So there's tech that's been there for a couple of decades. You're replatforming. Now with this IAM, which sounds very exciting in terms of opportunity, where are you as far as the product, the technology being at a point where it's not patchy and it's like everything is sort of -- can actually sort of grow and you can demonstrate it and it's not sort of...

Yes. I think one of the great things about IAM is we built it up from scratch with this kind of new management team and new leadership team. And so the legacy components can be sometimes more tricky, right? You're fixing the plane as you fly it, that kind of thing. Whereas from an IAM perspective, it was how will we architect this into something that we think will get bigger over time and will scale and how do we do that? So that's actually been great.

And also on the data telemetry that we have, like the amount of data that we get out of IAM is much, much bigger because we've been able to build it, right? And say like, okay, how do we track adoption? How do we track usage? How do we track somebody who's done searches? How do we look and say, how many seats are using? How often do they come back?

How do we look at them on a vintage basis, there's all this kind of stuff. And so there's more work like we will continuously evolve the platform. And I think we should because our customers will demand that value, right? If we're going to charge incremental value to them, we have to make sure we keep providing that.

And so -- but I'm excited about that because that, I think, over time provides a stickier -- it should provide a stickier relationship with our customers, and they'll think about it far more than just a signature moment, right? But it's more of a platform and say, this is something that's critical to how I run my business, right? And so that's the idea.

Awesome. I think we will end it there. Thanks so much, Blake.

Yes. Appreciate it. Thanks so much.

Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's Third Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] 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 Matt Sonefeldt, Head of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to DocuSign's Q3 Fiscal 2026 Earnings Call. Joining me on today's call are DocuSign's CEO, Allan Thygesen; and CFO, Blake Grayson.

The press release announcing our third quarter fiscal 2026 results was issued earlier today and is posted on our Investor Relations website, along with a published version of our prepared remarks.

Before we begin, let me remind everyone that some of our statements on today's call are forward-looking, including any statements regarding future performance. 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 factors affecting customer demand and adoption 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.

Thank you, Matt, and good afternoon, everyone. Q3 was a standout quarter for DocuSign. We delivered one of the higher growth quarters over the past 2 years, driven by continued customer investment in core products and the Intelligent Agreement Management, or IAM, platform.

Revenue was $818 million, up 8% year-over-year, and billings were $829 million, up 10% year-over-year. Our ongoing commitment to operational efficiency once again delivered strong profitability, with a non-GAAP operating margin of 31%. Free cash flow grew 25% year-over-year to $263 million and a 32% margin, supporting $215 million in share repurchases, our largest quarterly buyback to date.

We're executing effectively across our 3 strategic pillars: meeting growing demand for Docusign IAM and eSignature with an improving go-to-market motion, maintaining the rapid pace of platform evolution and AI innovation and driving greater operational efficiency. We remain focused on our long-term goal to deliver sustainable, profitable double-digit growth.

Let's start with our go-to-market motion, which has been instrumental in driving IAM's growth across commercial and enterprise customer segments. By the end of Q3, more than 25,000 paying direct and digital customers had adopted IAM, up for more than 10,000 in April. We remain on pace for IAM to represent a low double-digit percentage of recurring revenue at year-end.

We're also encouraged by the early strong retention rates in our first IAM renewal cohorts as well as the continued trend of IAM customers increasing their eSignature usage after moving to the IAM platform.

IAM is a system of record that enables customers of all sizes to ingest a vast, complex body of agreements into a single repository, build agreement workflows that operate at scale and take action on high-accuracy insights from agreement data.

IAM builds on a track record of enterprise customers working with DocuSign to realize a 75% faster contracting cycle and an 81% improvement in document turnaround time. That value resonates with customers across all segments. One of DocuSign's top 10 customers became our second largest this quarter through a multimillion dollar commitment to IAM.

In the commercial space, Perceptyx, which provides an AI-powered employee experience platform, generates new documents in 99% less time, while the administrative offices in San Miguel County in Colorado have cut agreement finalization time by 96%.

The broader eSignature business also performed well in Q3. Dollar net retention improved by 2 percentage points year-over-year to 102%, continuing to benefit from steady demand and sales-driven execution. eSignature customers continue to increase overall usage, with utilization rates at multiyear highs and consistent positive growth in envelopes sent.

New York Life, the largest neutral life insurance company in the U.S., streamlined critical end-to-end workflows for agents and millions of policyholders by integrating eSignature with Salesforce, and now has 65% of all customer agreements signed within just a few hours.

DocuSign CLM remains a top choice for enterprise customers with sophisticated workflows and it will become even more valuable as we integrate CLM with DocuSign Navigator, our intelligent repository and other IAM features. In Q3, DocuSign was also named a leader in the Gartner Magic Quadrant for CLM for the sixth year in a row.

Also, international revenue showed sustained growth and is now approximately 30% of our overall business for the first time. Our sales efforts continue to support international expansion and in Q3, we hosted Momentum events for customers and partners in Sydney, Singapore and Tokyo. This year's Momentum series drew 3x as many attendees in 2024, reflecting growing interest in IAM.

Across all segments and geographies, we're deepening our solution-selling motion. Greater engagement and stronger customer relationships help deliver the business resilience and consistency we've seen over the last 2 quarters.

Turning to product innovation, we're rapidly adding new features to IAM, as DocuSign matures from a single product company into the category-leading platform in agreement management. Earlier this week, we launched Agreement Desk, an internal central workspace that keep teams aligned so agreements are processed faster, and our first AI contract agents now in beta.

Agreement management is a $2 trillion global market problem, and over the past 18 months, we've helped tens of thousands of customers begin to solve it. From the beginning, a key part of our IAM platform vision has involved combining a decade of in-house AI experience with leading third-party innovation.

We believe IAM excels in several key areas. First, unmatched proprietary data. Models trained on the best data deliver the best, most accurate results to customers. One of DocuSign's biggest differentiators is our enormous library of consented, private agreements, covering a wide variety of contract types, clauses, customer segments, languages and verticals. We estimate that by training IAM on this rich body of private data, we can achieve a 15 percentage point improvement in precision and recall compared to our models trained on public contract data. On a 100-point scale, a 15-point jump in accuracy is a game-changer, especially when managing business-critical workflows and legal contracts.

When customers adopt IAM, their eSignature documents are automatically available in Navigator, and they can include virtually any other agreements as well. To date, we have approximately 150 million opted-in customer agreements ingested into Navigator, including 20 million in October alone, up approximately 140% over the past 2 quarters. Our average new IAM customer has over 5,000 active contracts.

Second, an unrivaled ecosystem. DocuSign has more than 1,000 third-party integrations and enterprise-ready APIs that connect the agreement process directly into the core business systems that customers already use. In Q3, we expanded our ecosystem by adding new AI tools and platforms. At our annual DocuSign Discover developer conference in October, we announced that IAM will be available in ChatGPT and can also connect to Anthropic Claude, Gemini Enterprise, GitHub Copilot, Copilot Studio and Agentforce, all using the Model Context Protocol, or MCP, server that's currently in beta. At Discover, we also launched APIs that enable customers to connect Navigator and Maestro to third-party systems and proprietary internal apps.

In October, at Dreamforce, we received a Salesforce Partner Innovation Award in the tech category for our DocuSign for Agentforce solution, which accelerates deal velocity by surfacing agentic action and AI-powered agreement insights inside of Agentforce. The expansion of our ecosystem partnerships and native integrations reinforces our position as the essential agreement layer across the enterprise.

And third, trustworthy AI at an enterprise scale. Our largest customers have millions of agreements in Navigator, and our AI models are designed to handle hundreds of millions of agreements efficiently. In addition to scalability, customers tell us that trust is paramount when deploying AI to manage sensitive agreement information. In a recent DocuSign survey, 70% of professionals said they trust a dedicated enterprise contract AI solution over a general purpose model for handling agreements.

IAM draws on DocuSign's years long track record of delivering highly secure solutions for some of the world's most security-conscious companies, and meeting stringent standards of compliance, data security and privacy protection. In Q3, IAM achieved FedRAMP Moderate and GovRAMP authorization, and we expanded our identity portfolio by launching CLEAR and Risk-Based Verification. For 2 years in a row, Newsweek has named DocuSign the most trustworthy software company in the U.S.

In closing, our innovation is turning into outcomes for our commercial enterprise customers, who are realizing IAM's growing value in boosting productivity, saving time and money and transforming their businesses. We're honored that in Q3, DocuSign's AI innovation garnered recognition on the 2025 Fortune Future 50 list, which celebrates companies with the greatest long-term growth prospects and the Inc. Power Partners Awards for companies that have proven track records supporting entrepreneurs and helping startups grow.

I'd like to thank the entire DocuSign team for their commitment to putting our nearly 1.8 million customers first as we drive the evolution of the category-leading intelligent agreement management platform. IAM Momentum continues to build, and we are focused on pursuing the vast opportunity ahead.

With that, let me turn it over to Blake.

Thanks, Allan, and good afternoon, everyone.

Q3 results demonstrated another quarter of resiliency, with consistent overall growth in IAM demand momentum. We also continued to generate strong operating profitability and cash flow and translated that performance into our single largest quarterly dollar buyback in the company's history.

In Q3, total revenue was $818 million, up 8% year-over-year, and subscription revenue was $801 million, up 9% year-over-year. Revenue outperformance was driven by modest sales driven strength. Q3 billings were $829 million, up 10% year-over-year. Revenue and billings had small foreign currency benefits of approximately 50 basis points year-over-year.

Billings outperformance was primarily driven by 2 elements. The first was renewal timing and early renewal strength, which drove slightly more than half of the outperformance in Q3. Similar to Q2, we saw slightly higher early renewals than forecasted. Importantly, the quality of those early renewals continued to improve year-over-year as a percentage of early renewals with expansion grew and the share of early renewals that were flat, declined.

The second element was a collection of smaller impacts, including a small shift in payment frequency to annual bookings performance and slight FX favorability.

When removing the impact from timing relative to our forecast, billings growth for Q3 was approximately 8% year-over-year. As a reminder, we also saw elevated early renewal activity in the second half of fiscal 2025, creating a more difficult year-over-year billings comparison in Q3 and Q4 of this year.

A consistent theme in our quarterly billings results has been that renewal timing can create significant variability in billings as a reporting metric. This quarter, we are previewing 3 future disclosure updates that will take effect in our Q4 2026 earnings call in March. These updates reflect investor feedback, and our primary goals are to provide better transparency in measuring both our long-term growth rate and IAM's role as a growth driver as well as to focus on the underlying dynamics of growth in our business rather than those affected by timing. Please see Slide 28 in our Q3 earnings deck for a full summary of the changes.

First, at the end of every fiscal year, starting this Q4 2026, we will disclose annual recurring revenue, or ARR, including historical data for recent years. We will also provide full year ARR growth guidance for fiscal 2027, which we will update quarterly during our first, second and third quarters.

Second, we will also introduce IAM as a percentage of ARR as a quarterly reporting metric beginning in Q4 of 2026. Consistent with the approach in fiscal 2026, we will also provide guidance in fiscal 2027 for the approximate year-end IAM percentage of ARR to create greater transparency into IAM's anticipated contribution to total growth.

Finally, as previously discussed, we will no longer report billings in fiscal 2027. This quarter will be the last quarter we provide billings guidance, and Q4 of 2026 will be the last quarter we report non-GAAP billings and reconciliations in earnings materials and SEC filings. We believe replacing billings as a reporting metric with ARR metrics will improve investor understanding of how DocuSign is managing its long-term growth trajectory and minimize quarter-to-quarter timing volatility in our reporting.

One question we anticipate is why not report ARR on a quarterly basis? The reason is that our quarterly net new ARR, as it is relatively small compared to our book of business, is subject to timing volatility similar or even more pronounced than quarterly billings and can be highly volatile on a year-over-year basis.

For example, in fiscal 2026, we are forecasting to add approximately $240 million in net new subscription revenue or around $60 million on average per quarter. With that small of an absolute figure, slight timing fluctuations on deals can have large growth rate impacts. Similar to billings, these timing fluctuations can detract from the insight that ARR provides along with our aspiration to focus on accelerating our long-term growth. Our goal through providing annual ARR guidance, updated each quarter, along with quarterly IAM disclosures, is to provide a full transparent picture of that growth.

In Q3, we continued to see a strong and resilient business. The dollar net retention rate, or DNR, was 102%, up from 100% in the prior year and consistent with the 102% in Q2 of fiscal 2026. DNR stability is supported by improving consumption, a measure of envelope utilization, which is amongst the highest levels we have seen since early fiscal 2022. Also, the volume of envelopes sent in Q3 continued to increase at a consistent year-over-year rate as compared to prior quarters. The fundamentals in our business remain solid.

For IAM, in Q3, we surpassed 25,000 direct and digital customers on our IAM platform, up from 10,000, which we shared in April. We continue to be encouraged by IAM customers' financial profile with the first early renewal cohorts showing a gross retention rate several percentage points higher than our corporate average. We remain on track for IAM to contribute a low double-digit percentage share of the subscription book of business exiting Q4.

For the first time, international revenue reached approximately 30% of total revenue and grew 14% year-over-year, accelerating slightly from the prior quarter. In Q3, total customers grew 9% year-over-year, ending the quarter at nearly 1.8 million. Growth in customers spending over $300,000 annually accelerated to 8% year-over-year to 1,165 in Q3. This is the highest quarterly growth in over 2 years for this metric, as the solution-selling motion with larger customers continues to improve following Q1's go-to-market changes.

Turning to our financials. Our focus on operating efficiency continued to yield strong results this quarter. Non-GAAP gross margin for Q3 was 81.8%, down 70 basis points versus the prior year due primarily to the cloud migration transition costs we've discussed throughout the year.

We delivered non-GAAP operating income in Q3 of $257 million. Operating margin was 31.4%, up nearly 2 percentage points versus last year, mostly attributable to higher revenue, continued cost discipline and some savings from onetime expense items. We had approximately 1.5 percentage points of margin benefit from onetime and timing-related savings in Q3, without which our operating margin would have been approximately 30%. We ended Q3 with 6,940 employees, up modestly versus 6,838 at fiscal 2025 year-end. This reflects our measured approach to hiring in fiscal 2026 to support our strategic initiatives while maintaining efficiency.

In Q3, we generated $263 million of free cash flow, a 32% margin, up over 4 percentage points versus the prior year. This strength was better than we expected, driven primarily by higher-than-expected collections efficiency, higher in-quarter billings and lower expenses.

Our balance sheet is strong. We ended the quarter with approximately $1 billion of cash, cash equivalents and investments. We have no debt on the balance sheet. In Q3, we increased the pace of our buyback activity and repurchased $215 million in shares. This is our single largest quarterly dollar buyback in the company's history as we redeployed the majority of our quarterly free cash flow to shareholders. We will continue to opportunistically repurchase shares with over $1 billion in remaining buyback authorization. While the pace of this activity may fluctuate quarter-to-quarter, share repurchases underscore our commitment to returning excess capital to shareholders.

Non-GAAP diluted EPS for Q3 was $1.01, up from $0.90 last year. GAAP diluted EPS was $0.40 versus $0.30 last year.

With that, let me turn to guidance. For the fourth quarter and fiscal year 2026, we expect total revenue of $825 million to $829 million in Q4 or a 7% year-over-year increase at the midpoint and $3.208 billion to $3.212 billion for fiscal 2026 or an 8% year-over-year increase at the midpoint. Of this, we expect subscription revenue of $808 million to $812 million in Q4 or a 7% year-over-year increase at the midpoint and $3.140 billion to $3.144 billion for fiscal 2026 or an 8% year-over-year increase at the midpoint.

For billings, we expect $992 million to $1.002 billion in Q4 or an 8% growth rate year-over-year at the midpoint and $3.379 billion to $3.389 billion for fiscal 2026 or growth of 9% year-over-year at the midpoint.

Our updated full year top line guidance reflects the following dynamics present in our business and the external environment: For full year revenue, the annual guidance midpoint is increasing by $15 million from last quarter's full year guidance. The majority of the increase is driven by Q3 outperformance and the expectation that some of these trends will continue to the fiscal year-end.

For full year billings, the annual guidance midpoint is increasing by $44 million from last quarter's full year guidance. This increase reflects a portion of the non-timing impact from Q3 business strength.

As a reminder, both full year revenue and billings have hard year-over-year comparisons against last year's higher volume of early renewals, particularly in the second half of the year.

Revenue growth also has a hard year-over-year comparison against strength from last year's PLG initiatives, including high volumes of digital customers adding envelope capacity as a result of improved self-service flows as described a year ago.

For profitability, we expect non-GAAP gross margin to be between 80.8% to 81.2% for Q4 and between 81.7% and 81.8% for fiscal 2026. We expect non-GAAP operating margin to reach 28.3% to 28.7% for Q4 and 29.8% to 29.9% for fiscal 2026.

For the full year, we included the following 2 considerations in our non-GAAP profitability guidance: For gross margin, we expect approximately 1 percentage point of headwind year-over-year from our ongoing cloud data center migration efforts in Q4. For full year fiscal 2026, we expect our top line strength and continued cost discipline to partially offset cloud migration costs and expect an approximately 50 basis point year-over-year decline on margins. We continue to expect a gradual easing in migration cost impacts in fiscal 2027 and beyond.

For operating margins, we expect to achieve flat year-over-year operating margins for fiscal 2026, a strong reflection of our continued cost discipline. This strength offsets the margin pressures we've described throughout the year, including the impact of cloud migration, the shift of some roles to cash compensation from equity and the comp against onetime professional fee savings last year in Q2 of 2025.

In Q4, we also have a small timing-related headwind from onetime costs pushed to Q4 from Q3. As a reminder, in Q3, we had approximately 1.5 percentage points of margin benefit from onetime and timing-related savings.

We expect non-GAAP fully diluted weighted average shares outstanding of 203 million to 208 million for Q4 and 208 million to 211 million for fiscal 2026. Please see the modeling consideration slides in our Q3 earnings deck for a full summary of guidance context.

In summary, this quarter highlighted DocuSign's commitment to our core strategic priorities and operational road map, driving product innovation, enhancing our go-to-market motions and continuously improving efficiencies across the business. Our focus on both consistent growth and financial discipline will remain the guidepost for maximizing customer, employee and shareholder value.

That concludes our prepared remarks. With that, operator, let's open the call for questions.

[Operator Instructions] Our first question comes from Jake Roberge with William Blair.

Nice to see the billings strength and continued expectation for that to accelerate this year. As you start to transition to ARR, should we expect that ARR is seeing a fairly similar reacceleration that we're seeing with billings on a full year basis? Or would there be any puts or takes that we should be thinking about around that metric moving forward?

Why don't you take that one, Blake.

Sure. Yes. Thanks for the question, Jake. So we're not disclosing ARR yet. We'll do that when we get to the March call. I think that the way to think about it for us is what our trajectory is, as you heard us talk about billings growth, excluding from the early's component as well, and that's a good proxy for trajectory for our business. But I think for us, we're really excited about the opportunity with both the combination of expansion opportunities with IAM, but then also with gross retention improvements in our core business as well to really drive that ARR number forward for us into FY '27 and into beyond it. But we'll talk more about that when we get to March.

Go ahead. No, I was just going to say that I want to emphasize that we're running the business on ARR now. And so we wanted to move to a place where we're sharing with you how we run the business. And so that's the spirit which you should take this. I think it's the right long-term metric for the company, and we look forward to sharing that with you as we go forward.

That's helpful. And then great to see IAM crossing that 25,000 customer mark. Could you talk more about what you're seeing with the early renewal cohorts? It sounds like retention has been strong. But for customers that may have initially started with only a portion of their base on IAM, are you starting to see those customers shift to broader and wider IAM deployments on renewal?

Yes. Overall, I think we're pleased with the early signs. As a reminder, we launched IAM back in June of last year to commercial customers in North America and Australia. And so that -- those are the cohorts that are renewing now, and then we launched internationally in enterprise towards the latter end of the year -- part of last year.

The early signs are very promising. They renew at higher rates than our traditional signed business. So yes, we obviously we'll keep a close eye on that. And in terms of the expansion, I don't have anything beyond that to say, but as we -- you'll see that baked into our projections going forward on ARR.

Obviously, we're optimistic that IAM will progress very nicely in companies over time. The smaller companies don't have as much expansion opportunity. When you get to larger companies, you're deployed in individual department or division, then those expansion opportunities are larger. But overall, I think we feel really good both about the initial sale and about the adoption and the follow-on.

Our next question comes from Tyler Radke with Citi.

Yes. Obviously, great momentum on the IAM side, 25,000 customers. The Navigator product, in particular, great to see the volume of agreements there. I guess a bigger picture question for you, Allan, like how do you think about what the use cases and future monetization opportunity is? Is that volume of agreements continue to grow within Navigator? Like what -- how are customers going to be using it a year or 2 from now? And what are the ways that DocuSign can monetize over the long run?

Yes. A couple of points I'd say. First of all, Navigator is sort of a foundational capability for our IAM platform, right? And so many things roll off of having that intelligent repository. As an example, you can run things like obligation management and a variety of extractions on top of that. You can have automated notification. The agents can run off that. And so it really is a foundational capability that's embedded in the platform. It's not like we monetize Navigator separately, it's an integral part of IAM.

We're feeling, I think, that, that is a significant and distinctive proprietary advantage for DocuSign. So there's a lot of noise in the ecosystem about LLM models. And we obviously have benefited tremendously from the enormous CapEx investment and capability enhancement that's happened in the LLM space over the last 2.5 years and very grateful to be leading DocuSign through that.

But on top of that, we get to train on proprietary consented private agreements from companies that are not publicly available. And so we can achieve higher accuracy rates with that. So you take that, compounded with our workflow advantage and our trust and reputation advantages, I think it all sets up really nicely for us, and Navigator is foundational to that. But we don't -- we monetize it as part of the platform, not independently, if that makes sense.

Yes. That's helpful. And a follow-up for Blake. Good to see the billings upside this quarter, and I think trailing 12-month billings accelerated. As we look at the subscription revenue guide for Q4, the growth is a little bit below where you guided Q3. And I guess just given that you're going to be transitioning to ARR next quarter, how would you sort of characterize the underlying growth of the business? Has it been steady? Is it accelerating? Maybe you're just adding in a bit more prudence in Q4 because of macro go-to-market changes? Just help us understand kind of the puts and takes on that.

Sure. Yes. So our revenue, we're obviously guiding to a Q4 revenue growth rate, which is a bit of a decel from Q3. Two primary things that are driving that and neither of them, I think, are that worrisome, which is, one is Q3, we do have some extra early's component hit us in Q3 in a good way, and you get a little bit of revenue acceleration from that.

And then the other thing to remember is if you go back to Q4 of last year, we grew revenue at a pretty big clip. We grew revenue Q4 of '25 at 9%. And if you recall, there was a -- we launched a number of new features, especially on the PLG side in digital for, call it, shorter-term envelope add-ons and things like that, which we got that boost because from Q3 to Q4 last year, our revenue accelerated by over 100 basis points. And so I would just encourage you to make sure to look at that hard comp that we have on a year-over-year basis because that does explain a bit of it when you think about a decel like that from Q3 to Q4.

Our next question comes from Mark Murphy with JPMorgan.

Congrats on a very nice performance. You had mentioned, I believe, consistent growth in envelope sent and -- but you called out utilization rates reaching multiyear highs. And I'm just wondering if there's any way to help us conceptualize that. For instance, are the envelope sent growing mid-single digits? Are they growing high single digits? And then -- or any sense of where the utilization rates stand?

And as part of that, should we read into this that customers are basically using more of what they paid for. And so it's going to foreshadow pretty healthy upsell and expansion ARR opportunity in future periods? Or is there some other kind of takeaway from that?

Let me take a stab, and Allan jump in. So yes, we don't break out like the envelope sent growth by vertical such that. But what I would say is it's been very, very consistent for us, and I'll talk about envelopes first and then we can talk about utilization after that. On the envelope sent, the past 5 quarters or so, we have seen very consistent growth year-over-year in envelope sent, which is great. It goes to the point that where you've seen what makes me so excited about the resiliency of this business.

On the utilization side, so like consumption, it is higher than our prior year. And I think for us, it's a factor of timing, right? So if somebody is using -- and I'm making these numbers up, so -- but if they're using 80% of their deal and it rises to 85%, that's always a good sign for us. Now the timing of the billing opportunity and the new contract for them is subject to their business situation and their needs and all things like that. But I think all in for us as a company, as those utilization rates grow, I think they're only positive signs for us. And so I'm really excited about it, but the timing of it is always subject to each individual customer situation.

Yes. And I would just add, historically, that's obviously been a key performance metric for our signed business, and we continue to keep a very close eye on it. Sellers certainly track it. But we now have a much broader portfolio of stuff to follow up on. So as we build that momentum with more envelope volume utilization, we don't just go back to them and say, "Hey, would you like some more envelopes?" We go to them and say, "Would you like to deploy in new agreement workflows? Would you like to consider this in other parts of the business? Would you like to learn what's in all your agreements and make that information conveniently available in the apps that you care about?" And that's just a much broader proposition and opportunity for upsell than we've historically had.

Okay. And then as a quick follow-up, I think you mentioned that the AI contract agents are in beta. Are you able to give any kind of sneak peek of what you're engineering there? What kind of usage scenarios you're imagining? I think we're trying to figure out if you're going to target procurement or sales workloads or take it broader and then would they review contracts or generate clauses? Or is there some other kind of automation that you're going to do? And if you're not able to speak to that now, I think we understand that as well, but I thought I'd ask anyway.

Yes. Well, I mean, we're launching several. They tend to be, shall we say, relatively simple workflows, as you would expect. You don't necessarily want to try to automate the most complex, highest variability workflows. They exist across sales and HR and procurement use cases, so much like our IAM platform and Signature platform do.

So we're -- I think that's probably as much as I should say at this time, but it's early days, right? We are just putting it out there. I think for all the noise, I think we're still in very early days of enterprise evaluations of these things. But we think it's inevitable that a number of contractual workflows will ultimately be automated with agents, and we want to be at the forefront of that. And so that's why you're seeing us lean in.

In the same vein, that's, of course, also why we are leaning in with a number of the chat platforms that would often be triggers for agentic action and why they're so keen to partner with us. So we announced a partnership with an integration with OpenAI at our developer conference at the end of last month.

And basically, everybody else that matters in the space since then has reached out to us because agreements are an essential data site that touches so many different workflows inside of companies and DocuSign is incredibly well positioned to provide that data to help with the automation agenda that many companies have. So look, it's early days, but we are very excited about becoming a system of action for agreements.

Our next question comes from Kirk Materne with Evercore ISI.

Yes. This is Peter Burkly on for Kirk. Strong quarter in the large customer segment, that $300,000-plus ACV customer group, I think it was the strongest growth in 8 or 10 quarters. Just curious if you could discuss how much of that's being driven by IAM adoption at the enterprise level versus just more broadly a stronger go-to-motion at this point in time versus maybe a year ago?

Yes, it's both. So we continue to see strength with customers who are just expanding their eSignature usage. And at the same time, we're now starting to see some nice enterprise wins with IAM and both contribute nicely to the momentum in the $300,000 segment.

Helpful. Maybe just a quick follow-up on IAM. IAM has been in the enterprise market for a few quarters now. Just curious if there's any learnings or any thoughts on the go-to-market playbook as you head into fiscal '27?

Yes. Look, it's still early days. I want to emphasize that, it's a multiyear journey for us or indeed any company undertaking this transformation. We've made some really nice early wins, and it's nice to be able to see that continued progression. So we've got significant work going on, on the innovation side in terms of scaling our enterprise feature set and access control extensibility. And on the go-to-market side, as you asked, key focus areas for next year include sort of complementing our traditional land and expand motion across departments with more of a top-down platform executive upsell, and we do that, but I think we can get better.

We want to lean into both our ISV partnerships where we're already starting to see some nice progress and perhaps even more importantly, our system integrator partnerships. Historically, for DocuSign, that's been predominantly a CLM activity, but now it's literally the whole company has leaned in, and we're seeing a lot of inbound interest from the SI partners in partnering with us because we have such a unique and broad proposition.

And then lastly, on the pricing and packaging side, we've gotten questions on past calls. You'll not be surprised to learn that as we move up from a lower friction model in the commercial space where simplicity is key to the enterprise. We are testing a more of a platform pricing model with tokens. It's being very well received. And so I think you should expect to see us move in that direction more publicly. And that gives us just a lot more flexibility as we continue to layer in new capability and new value into IAM.

Our next question comes from Brent Thill with Jefferies.

Allan, I know your long-term aspiration is double-digit growth. You're obviously knocking on the door. But what do you think it needs to take from here for you to continue to sustain or get to double-digit growth from your side? Are there a couple of ingredients that you think still have to trigger before you can hit that mark?

We are making really good progress, and I'm proud of the team. I think we -- look, the 2 big levers are what you would expect. It's retention, and we, I think, continue to make progress on that. I think there's still more headroom for us there, and it's new expansion bookings. And I think we are making progress there, particularly driven by IAM. And I'm pretty confident those 2 levers will get us there. So we're working on it.

Okay. Blake, good to see the record buyback, I guess, may play devil's advocate in the age of AI, why not lean a little harder into M&A? And is there anything you need to do to kind of help Allan's vision of that double-digit growth even if it's inorganic?

Yes. Absolutely. It's something we talk about actively at DocuSign. It's a subject that on the outside, it may not sound like because we don't do an acquisition every quarter. But for us, it's something we talk about actively. We're looking for those companies and those assets that can help propel us forward, whether that's through elements of retention or expansion, right, for us.

And I think that, again, we're super active about it. It is one of the reasons why we do keep the optionality on our balance sheet, right, for those opportunities as they present themselves to us, we look at a lot. We have a high bar for those acquisition conversations. But it is something that Allan and I and the team, I would say, actively talk about probably more than people think.

Yes. Maybe just to add to that, first of all, I feel very good about our organic growth trajectory and the innovation, the scale and scope of the innovation that the teams are driving. So I think there's enough there. With that said, we have the resources, we have the go-to-market model. I think we want to explore strategically places where we think we can be additive. The Lexion acquisition has been fantastic for DocuSign. It augmented our product road map, both from a workflow and AI perspective. In fact, the Agreement Desk product that we just launched this week was inspired by an earlier Lexion product and was led by the Lexion founders. And so it's very -- that's been a fantastic deal in every way, product, technology, team, and we inherited a good number of customers that have also performed very well. So overall, that was just excellent. If we can find more like that, we will, and we're looking. As you may know, it's -- there are things that are a little frothy right now.

I guess the message is that you just keep leaning in the buyback until you find something you like and then you can balance and so you can do both.

Yes. I mean we take capital allocation here really seriously, which is when we generate excess capital, we have opportunities to redeploy that. For right now, the buyback, we think, is a great opportunity to do that with the kind of the forward-looking outcomes that we think we can go after. At the same point in time, if we find those opportunities to deploy that capital to an M&A opportunity that helps do that for us as well, we'll absolutely consider it. So capital allocation for us is a topic that Allan and I talk about quite often.

Our next question comes from Scott Berg with Needham.

Nice quarter. Just one question for me, and I don't know maybe this is a question for Allan is on the AI contract agents. Super interesting. I think legal contracts is one of the best use cases for these LLM technologies for all the probably inherent reasons we all know here on the call.

But as we think about your customers and where they are and, I guess, awareness for agents, and I'm sure it's new to them and how we think about maybe budget procurement. Is this something that you think can have a meaningful impact to some of your momentum in fiscal '27? Or is this more of a maybe a fiscal '28 opportunity as they test and trial next year and probably try to get some budgets after that?

I don't think it's a huge contributor to our financial momentum next year. But enterprise software is a multiyear road map endeavor and people want to know there with somebody who can deliver for them not just now but years to come. And so it's very important to provide visibility to what they can do when they are ready. And I've no doubt we'll have a number of trials, but I don't think it will be financially meaningful, but it's certainly strategic.

Our next question comes from Brad Sills with Bank of America.

Maybe a go-to-market question with regards to IAM. Allan, you talked about how you're seeing progress with HR and procurement departments. Is that the primary land in the departmental sale in those 2 legal? I'm just curious if the sales audience and the large enterprise really kind of centers around those 3 departments. And curious how well prepared you feel the go-to-market is to address those?

Yes. I would change the statement a little bit. I would say the 4 main use cases for us: sales, procurement, HR and customer experience, we should think of that as sort of business-to-consumer type flows, banking onboarding, that kind of stuff. And we're seeing demand across all of those. I would say from a maturity perspective, we've had a very strong position for a long time and I would say, sales and customer experience type applications. But there is a lot of interest now in procurement and in HR.

On the procurement side, these tend to be high dollar, low headcount, complex, poorly supported. And I think they're so eager to find solutions to achieve more efficiency in procurement processes and unlock value that's in agreements they've already negotiated.

And on the HR side, that's, of course, essentially those are business-to-consumer flows just on the hiring side as opposed to the selling side. And those are quite poorly integrated categories. And so a lot of the HR departments are very eager to see those processes streamlined. And we have a number of ISV partnerships that we've announced here even this quarter, something with Dayforce. We've done stuff with smart recruiters. We've done stuff with a lot of folks in the HR space that integrate DocuSign in to make the entire, let's say, candidate onboarding process, for example, more efficient.

So those are the 4 big ones that you'll see us talking about, and you'll see us highlight at our conference in the spring. So one way, maybe to take a step back and think about the ongoing maturing of IAM. When we first launched, we launched with a set of horizontal platform capabilities, right, Navigator being the most obvious example is the intelligent repository. This year, we sort of completed that suite of agreement-related workflows with things like Agreement Desk.

And next year, where we're going is fully integrated end-to-end functional workflow suites that are polished and integrated with all the pieces, and it will be those 4. And so you can look forward to that. We're obviously already packaging that to some extent, but it will -- that will get tighter and better. And I think that's really -- those are the use cases that will -- the departments and use cases that will power the IAM growth.

That's great. That's great. And maybe, Blake, one for you, if I could, please. Any observations on the macro? Any changes to the backdrop, whether it's regards to envelope volumes or signings? There's some moving parts in the SMB right now. So just curious if you've seen any difference there between SMB, commercial and enterprise your envelope and signing activity?

Sure. I would say there's nothing material that we've seen in the business in Q3, and that's been pretty consistent for us over the past, gosh, 4 or 5 quarters, I would say. I mean consumption usage trends are consistent for us. We're seeing pretty strong year-over-year growth across most verticals.

Now that said, companies are still scrutinizing spend and people sitting in my position at various companies want to make sure they're getting the most value they can for things. But that's, I think, one of the big benefits of this -- the breadth of our customer base that we have is that just the consistent resiliency that we've seen is something that I've been really excited about, and we'll see how the macro evolves over time. But to date, nothing really of any angst or concern out there that we've seen to date.

Our next question comes from Josh Baer with Morgan Stanley.

This is Lucas Cerisola on for Josh Baer. Congrats on a great quarter. Could you give us some more color on the 25,000 IAM customers, specifically how many are new to DocuSign versus existing eSign customers?

Yes. Yes. So it's over 25,000 across our direct to digital business. It's predominantly direct, and they are -- the vast majority of them are existing eSign customers that upgrade to IAM. But we do onboard quite a few new customers directly on to IAM as well. But the vast majority is the installed base. And of course, that's the incredible advantage that we have. We have now almost 1.8 million customers that pay us monthly.

Let's take the -- if we just look at the direct customer base, I think we're in the 270,000-or-so active customers that are serviced by our sales teams. We are -- we have so much headroom and yet come in with this huge advantage that we are already an approved vendor generally well liked and trusted, often have many of their agreements. And so the step up to engage with us on IAM is just far less than if we were a new vendor. So a lot of headroom left, but definitely driven predominantly by the installed base in part because, frankly, most companies are already our customers.

Got it. That's super helpful. And one more. Could you talk about hiring expectations for the year ahead? What should headcount growth look like? And what areas are you investing in aside from IAM and then within IAM?

Yes, I'll go and Blake, you should jump in as well. Yes, look, we project quite modest headcount growth. We want to -- while we are very bullish on our growth opportunity, we also feel like we -- look, we've got a lot of hard-fought efficiency gains in the company, and we want to hold on to those. Now you may see some reallocation within the company. There are areas, including product and security, where I think we want to continue investing disproportionately. But I don't anticipate our overall headcount to grow significantly. We're just being judicious, investing carefully in the places that we think give us the most leverage over time. Blake, I don't know...

Yes. I'd just say we're quite thoughtful about it. I think we've added over the past year, just over 200 net kind of headcount to DocuSign. So we're hiring across all of our locations. Vast majority of those folks, we tend to add a little bit more in our lower-cost locations as well. So like Allan said, we're trying to be very methodical and very thoughtful about our hiring needs to make sure that we can support this business. But also we made a lot of hard choices to get to the efficiency gains that we've done over the past few years, and we're not just going to give those up either. And so I think that it's that balanced view that I think is the right path for us.

Our next question comes from Patrick Walravens with Citizens.

This is Austin Cole on for Pat. Allan, you called out one of the DocuSign's top 10 customers becoming second largest customer this quarter through IAM. I just wanted to give the opportunity if there's anything to call out on that, expansion sounded pretty significant. What do they see in IAM? And is it kind of Navigator where they're getting most of the unlock or anything else there that would be helpful.

Yes. Yes, it is Navigator, but it's Navigator Plus. We -- they are powering a lot of their pre-signature workflows with our milestone agreement type capabilities. And that -- by the way, I think that is a more and more robust part of the offering. I mentioned Agreement Desk, we launched Agreement Prep, which is a whole system for creating templates and standard agreements that you can then deploy, which, of course, is a very common use case in, let's say, a B2B sales context, for example, a vendor management context.

And so I'm feeling very bullish about the opportunity for expansion from our eSign base into -- and there are so many paths we can take with IAM. And that was just a great win. But there's a number of them. And I think some customers really go wall to wall. I mean we mentioned ServiceTitan, I think, on the last call, and they're deploying us across a very broad set of functions. And of course, we love that. Ultimately, we love to be deployed across every function. I think that's our ultimate destiny as we fulfill our platform strategy.

Our next question comes from Alex Zukin with Wolfe Research.

Maybe just 2 quick ones. If we think about the early renewal dynamic that you saw impact billings this quarter, kind of how much of that do you feel like was -- like how much of IAM included in those early renewal conversations around the upsell dynamics specifically? And is that now kind of shifting more towards the installed base picking up that SKU rather than just new customers? And I have a quick follow-up.

Sure. Let me take a stab at it. So the vast majority of our early renewals is still our core business and our core product. We've got a very large book of business that renews. Now IAM does play a role in some of those early renewals. And overall, what I really care about the most is that we're -- on those early renewals that we're spending the time with the folks that are expanding. Now expansion can come from IAM, obviously, but also can come from eSign, and we see that. And so I'm super excited about just the definition of expansion in general. Now of course, I think that there's a lot of value that can come from IAM, and I think the customers over time are going to see that value and want to adopt it over time as well.

But -- and then also from an IAM perspective, and Allan mentioned this earlier, our installed base is our primary target, right, for this. Like we're signing up new customers, no doubt, right, for IAM, but we have relationships with customers. They understand DocuSign. They trust DocuSign. They have their agreements with DocuSign. So it creates that opportunity for us, I think, that is a huge advantage for us that we can try to take leverage to be able to grow that business.

Perfect. And then maybe, I guess, Blake, just for you a follow-up. And this is a little bit more nuanced on the billings. But if I look at the delta between the implied Q4 billings guide, from kind of last quarter to this quarter. It looks like it went up from 7.5% to the new to 8%. So that 0.5 point, how much of that raise is truly operational outperformance versus kind of core FX and maybe other onetime non-core factors?

And how should we think about the underlying kind of run rate billings growth, excluding early renewal timing or duration in FX for Q4?

Yes. So relative to the full year guide, I think we raised the full year guide on billings by about $44 million. So that's about $5 million more than the outperformance we had versus the midpoint in Q3. So we've taken some of that operational performance and flowed it through into Q4 and raised it off of what you're calling the implied subtracting fiscal -- the full year versus Q3 from our last quarter. So we are seeing improvements in the core side of the business.

I think to your point about trying to manage around, okay, what is that underlying growth rate of billings, excluding early renewals and such is one of the reasons we're making these adjustments in FY '27 that we're talking about. I think one of the ways to think about it is if you look at Q3, like we just said, about a 10% growth in billings, more like 8%, excluding that early renewal component outperformance. So I think that's the nature of it. I mean in billings, early renewals will always be a part of our billings number. They will always represent a percentage of our billings.

The question for us or as a team is what we think about and what is the health of the business is are we expanding those early renewals. And there's cases sometimes where you might do a flat one, but you want to make sure that you're spending your time in quarter for us on those. If you're going to do with early, it's like, wow, this customer needs, they have more demand. They're seeking that demand. How can we help them? Should we consider them for an IAM upgrade and we have those discussions. But hopefully, that just helps level set it. But again, timing of early renewals, it can be very volatile, and we've seen that, and it happens every single quarter. So to try to get into that impact on a Q4 basis in a guide gets a little trickier. So hopefully, that Q3 description gives you some of the directional kind of look that I think you're looking for.

This now concludes our question-and-answer session. I would like to turn the call back over to Allan for closing comments.

Thank you, operator. Thank you to all who joined today's call. So in closing, I want to thank the entire DocuSign team for their commitment to putting our customers first and delivering on demand for better solutions to the agreement management problem. DocuSign's business is both resilient and at the leading edge of AI development, and we'll continue to manage the company to realize our long-term potential.

Thanks for your time, and we look forward to engaging with you next quarter.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines, and have a wonderful day.

Good afternoon ladies and gentlemen, and thank you for joining Docusign's Second Quarter Fiscal Year '26 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded and will be available for replay from the Investor Relations section of the website in the call. [Operator Instructions]

I'd now like to pass the call over to Matthew Sonefeldt, Head of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to Docusign's Q2 Fiscal 2026 Earnings Call. Joining me on today's call are Docusign's CEO, Allan Thygesen; and CFO, Blake Grayson. The press release announcing our second quarter fiscal 2026 results was issued earlier today and is posted on our Investor Relations website, along with a published version of our prepared remarks.

Before we begin, let me remind everyone some of our statements on today's call are forward looking, including any statements regarding future performance. 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 factors affecting customer demand and adoption 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 the 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 like to turn the call over to Allan.

Thank you, Matt, and good afternoon, everyone. Q2 was an outstanding quarter. Platform innovation launches and the long-term focused go-to-market changes introduced in Q1 drove strong performance in commercial and enterprise customer segments across eSignature, CLM and our AI-native Docusign Intelligent Agreement Management platform.

Q2 business results outperformed our expectations. Revenue was $801 million, up 9% year-over-year, and billings were $818 million, up 13% year-over-year. Q2 top line performance accelerated and represented one of our strongest growth quarters over the past 2 years with improved fundamentals across eSignature and CLM customers and growing contribution from IAM demand.

Beyond an individual quarter, we're excited to see billings begin to accelerate on a full year basis and more so when we adjust for early renewals. Profitability benefited from top line strength, combined with our ongoing commitment to driving efficiency. Non-GAAP operating margins were 30% as we continue to maintain strong profitability. Free cash flow margins improved modestly year-over-year to 27%, which supported significant share repurchases with $200 million buybacks this quarter.

As we make progress towards our goal to realize long-term profitable double-digit growth, we continue to execute effectively on our 3 strategic pillars: strengthening our routes to market, accelerating innovation and improving operational efficiency. Let's start with our omnichannel go-to-market this quarter. At the beginning of the year, we made meaningful changes to the direct sales organization, which included introducing new sales segments, territories and performance-based compensation, all focused on maximizing Docusign's long-term opportunity and multiyear growth acceleration. In Q2, we saw initial success from those changes, resulting in strong direct sales performance and growth in gross new bookings.

Dollar net retention also reflected that strength, increasing to 102% on the back of higher gross retention rates. Continued steady growth in envelopes sent and year-over-year improvement in contract utilization reflect strong execution and eSignature demand. International growth continued to outpace domestic, and digital revenue continued to grow faster than the overall business.

In Q1, we relaunched our partner program to align partners with our IAM strategy and build solutions with IAM that deliver value to customers. Our largest deal in Q2 was transacted through the Microsoft Azure marketplace. Also, a new partnership with the U.S. federal government's General Services Administration creates an opportunity to expand our existing eSignature sales to federal agencies with IAM fall.

Specific to IAM, the go-to-market changes are focused on realizing the massive multiyear opportunity ahead. In Q2, customers moving to the IAM platform represented a greater share of direct deal volume and total gross bookings than in Q1. We're also finding that when customers move to IAM, they increase their eSignature usage. Commercial SMB customers continued their strong pace of investment into IAM with companies like Kindsight, Cimplifi and Justpoint, a VC-backed legal AI company, using IAM to speed up sales cycles and gain a deeper understanding of their agreements. We remain on track for IAM customers to represent a low double-digit percentage of our book at year-end.

In Q2, we also saw encouraging demand for IAM from enterprise customers. While still early days, more than 50% of our enterprise account reps closed at least 1 IAM deal during the quarter. Notably, average overall deal size also increased in Q2, with IAM making inroads with large organizations like Sensata Technologies, a global sensor manufacturing leader, which has accelerated its workflows and is beginning to use the Docusign Iris AI engine to surface insights from agreements.

Docusign CLM saw improved momentum in Q2, delivering one of the strongest quarters in year-over-year quarterly bookings growth in the last several years. CLM continues to be a top choice for enterprise customers with sophisticated enterprise workflows like T-Mobile, which has cut agreement processing time by 44%.

Also, Docusign was recognized as a leader in the 2025 IDC MarketScape AI-enabled buy-side CLM report, which acknowledged that IAM is core to the Docusign strategy of replacing legacy and fragmented systems. On the product side, our rapid pace of innovation demonstrates consistent progress against our ambitious public road map and a steady increase in the value that IAM creates for customers. The IAM platform delivers end-to-end agreement management, empowering organizations to create, commit to and manage their agreements at unprecedented scale and efficiency.

IAM is an AI-native platform that combines proprietary AI models with best-in-breed LLMs, drawing on Docusign's vast agreement library, unmatched domain and workflow expertise and seamless integration with important third-party systems. Over the past 2 quarters, the number of documents ingested and available on Docusign Navigator, our intelligent repository, has increased by over 150% and, customers are processing tens of millions of agreements per month.

Customers tell us IAM is delivering significant value by performing tasks in minutes that used to take hours or even days. Docusign covers a far broader range of agreement workflows than any other vendor and the deep integration of cutting-edge AI, less customers' leverage years of agreement data with the leading ease-of-use, security, trust and scalability they come to expect from Docusign. In the coming months, we'll launch AI agents within IAM, enabling new customer use cases and expanding our addressable market opportunity.

In Q2, we launched several new AI-powered IAM capabilities to help customers unlock value across the entire agreement management life cycle. These include custom extractions, which led customers identify and capture organization-specific agreement information or client-specific terms without manually reviewing hundreds of thousands of contracts. We also recently launched agreement preparation, which enables IAM to detect the type of agreement you're creating, build a template that automatically suggest the position relevant fields. And to address the enterprise need for efficient, secure and scalable user management, skin for Docusign allows customers to automatically provision users through their existing identity providers.

In closing, we're proud of our strong execution and performance in Q2 and encouraged by the positive feedback we're receiving from IAM customers in the commercial and enterprise segments around the world. We believe IAM and the Docusign Iris AI engine are uniquely positioned to transform how organizations operate their business with deeper insight and actionability from their agreements.

As we deliver greater value to customers, we're doing it more efficiently and nearly the highest level of profitability and capital returned to shareholders in our history. I want to thank the entire Docusign team for their hard work, passion and customer focus. I also want to acknowledge the announced changes to our Board of Directors and thank Agile Radar for her leadership during a time of transformative change in our company, congratulate James Beer for becoming our Board Chair and welcome Mike Rosenbaum to the Docusign family.

Docusign is the leading provider of AI-driven agreement management solutions, and we are incredibly excited about the enormous opportunity that lies ahead. Now I'll turn it over to Blake to discuss our financial results.

Thanks, Allan, and good afternoon, everyone. Our performance was strong across the business in Q2, a testament to our continued execution against our 3 strategic pillars: accelerating product innovation, strengthening our go-to-market channels and improving our operating efficiency. In Q2, total revenue was $801 million, and subscription revenue was $784 million, both up 9% year-over-year. There was no material impact on revenue growth related to foreign currency.

Revenue outperformance this quarter was driven primarily by our direct sales channel, particularly within our eSignature business. Q2 billings were [ $808 million ], up 13% year-over-year. This included a foreign currency growth tailwind of approximately 1% year-over-year, just slightly ahead of our expectations. Billings outperformance this quarter was driven primarily by 3 different factors with each having a relatively similar level of impact.

The first factor was strength in direct customer demand and improved gross retention in our eSignature portfolio. Although it represents a much smaller share of our business, CLM also had a strong quarter as the CLM business grew well into the double digits year-over-year in Q2.

The second factor was due to early renewal strength and the favorable timing of deals booked in Q2. While we saw higher early renewals than forecasted, the health of those renewals continued to improve year-over-year as the percentage of early renewals with expansion grew and the share of those that were flat or included partial churn declined. This dynamic is consistent with the trend we saw in Q1, where a by-product of sales incentive adjustments resulted in healthier early renewals. We are encouraged by the consistency from Q1 to Q2, still recognizing that the timing of renewals can impact quarterly billings.

The third factor of outperformance was driven by a slightly higher payment frequency shift to annual billing contracts. While the vast majority of our direct customers are billed on an annual basis, the share was slightly higher than forecasted. When removing the impact from timing relative to our forecast, billings growth during the quarter was approximately 10% year-over-year. As a reminder, quarter-to-quarter billings can meaningfully fluctuate due to the timing of customer signing contracts. As a result, we are actively evaluating potential updates to our future top line reporting, including replacing billings with an alternative measure. We plan to provide more details during our third quarter earnings call in December.

Dollar net retention rate rose to 102% in Q2 from 101% in Q1 and increased year-over-year from 99% in Q2 of fiscal 2025. We are pleased to see the modest improvement in DNR, which continues to be mostly driven by better gross retention. Usage trends also continued to show improvement. Consumption, a measure of envelope utilization, improved across all customer segments and nearly every major vertical in Q2, and the volume of envelopes sent in Q2 increased year-over-year at a rate consistent with prior quarters.

IAM sales maintained strong momentum this quarter, which slightly outpaced our expectations as we continue to scale the platform. In Q2, we saw an increase in average IAM customer deal size, an encouraging sign as we took the first steps to upmarket with the IAM enterprise ramp. We remain on track for IAM customers to contribute a low double-digit percentage share of the subscription book of business exiting Q4.

International revenue represented 29% of total revenue and grew 13% year-over-year. We're encouraged that the Asia Pacific region was our fastest-growing international region this quarter. Allan, Paula and the team just held Momentum events in that region in August, and we're pleased to see the growth there. Digital revenue continued to deliver results with growth outpacing the overall business. In Q2, total customers grew 9% year-over-year, ending the quarter above 1.7 million. Large customers spending over $300,000 annually increased by 7% year-over-year to 1,137 in Q2.

Turning to the financials. Our focus on operating efficiency continued to yield strong results this quarter. Non-GAAP gross margin for Q2 was 82.0%, relatively in line with the prior year as higher revenue mostly offset the impact of cloud migration costs. We delivered record high non-GAAP operating income in Q2 at $239 million with outperformance versus our expectations attributable mostly to top line strength. Operating margin was 29.8%, down 240 basis points versus last year. As a reminder, we expected Q2 to have the most challenging year-over-year operating margin comparison of any quarter in fiscal 2026 due to several factors, including the timing and impact of our compensation programs, specifically the shift to cash from equity for some employees.

As you may also recall, Q2 fiscal 2025 also had a onetime operating margin benefit of approximately 150 basis points associated with insurance reimbursements and the release of a litigation reserve. Our cloud computing migration also continues to provide a year-over-year headwind to margins.

We ended Q2 with 6,907 employees, up slightly versus 6,838 at fiscal 2025 year-end. This reflects our measured approach to hiring in fiscal 2026 to support our strategic initiatives while maintaining efficiency. In Q2, we delivered $218 million of free cash flow, a 27% margin, which was a slight increase versus Q2 of last year as our collections efficiency remains strong, combined with in-quarter billings strength. We do expect to see a lower free cash flow yield in Q3 versus Q2 primarily from the timing of billings.

Our balance sheet is healthy, ending the quarter with approximately $1.1 billion of cash, cash equivalents and investments. We have no debt on the balance sheet. In Q2, we slightly increased the pace of our buyback activity and repurchased $200 million in share value, effectively redeploying the bulk of our quarterly free cash flow generation back to shareholders. We will continue to opportunistically repurchase shares. And while the pace of this activity may fluctuate quarter-to-quarter, share repurchases underscore our commitment to returning excess capital to shareholders.

Non-GAAP diluted EPS for Q2 was $0.92 compared to $0.97 last year. GAAP diluted EPS was $0.30 versus $4.26 last year. As a reminder, in Q2 of fiscal 2025, related to our GAAP financials, we released a valuation allowance on certain existing deferred tax assets, decreasing our noncash tax expense by approximately $838 million. Diluted weighted average shares increased slightly year-over-year to 211 million shares, whereas basic weighted average shares decreased slightly year-over-year to 203 million due to the impact of the repurchase program.

With that, let me turn to guidance. We expect total revenue between $804 million to $808 million in Q3 or a 7% year-over-year increase at the midpoint. For fiscal 2026, we expect revenue between $3.189 billion to $3.201 billion or a 7% year-over-year increase at the midpoint. Of this, we expect subscription revenue of $786 million to $790 million in Q3 or a 7% year-over-year increase at the midpoint and $3.121 billion to $3.133 billion for fiscal 2026 or an 8% year-over-year increase at the midpoint.

For billings, we expect $785 million to $795 million in Q3 or a 5% year-over-year growth rate at the midpoint and $3.325 billion to $3.355 billion for fiscal 2026 and or a 7% year-over-year growth rate at the midpoint. Q3 billings guidance reflects a renewal timing headwind that is similar in magnitude to the Q2 early renewal timing benefit as discussed earlier. As continually shown in recent quarters and years, billings are heavily impacted by the timing of customer renewals, leading to meaningful variability from period to period. Also, our outlook for Q3 and Q4 factors in a more challenging year-over-year comparison versus billings strength in the second half of fiscal 2025.

Our updated full year top line guidance reflects the following dynamics present in our business and the external environment. For full year revenue, the annual guidance midpoint is increasing by $38 million from last quarter's full year guidance. The increase is driven primarily by Q2 business strength and the expectation that a portion of these trends will continue into the second half of the year. For full year billings, the annual guidance midpoint is increasing by $28 million from last quarter's full year guidance. This increase reflects a positive impact from Q2 business strength, but does not include the timing benefit from early renewals that we saw in Q2 as that will largely be offset in the remainder of the year. As a reminder, we have a hard comparison against last year's higher volume of early renewals, particularly in the second half of the year.

Adjusting for early renewals compared to last year, we continue to expect full year billings growth will be approximately 1 percentage point higher year-over-year, leading to modest acceleration over last year. For profitability, we expect non-GAAP gross margin to be 80.3% to 81.3% for Q3 and between 81.0% to 82.0% for fiscal 2026. We expect non-GAAP operating margin of 28.0% to 29.0% for Q3 and 28.6% to 29.6% for fiscal 2026.

For the full year, we included the following 2 considerations in our non-GAAP profitability guidance. For gross margins, we continue to expect approximately 1 percentage point of headwind year-over-year from our ongoing cloud data center migration efforts. This headwind was slightly lower than anticipated in both Q1 and Q2 due to a shift in migration timing out to the remainder of fiscal 2026. We continue to expect gradual easing and migration cost impacts in fiscal 2027 and beyond.

For operating margins, we continue to expect an approximate 1.5 percentage point operating margin headwind due to the combined impact of cloud migration, the shift of some roles to cash compensation from equity and the comp against onetime professional fee savings last year in Q2 of 2025. We expect non-GAAP fully diluted weighted average shares outstanding of $207 million to $212 million for both Q3 and fiscal 2026. Please see the modeling consideration slides in our Q2 earnings deck for a full summary of guidance context.

In closing, Q2 represented another quarter of Docusign's commitment to product innovation, enhanced go-to-market motions and improved operational efficiencies. As we look ahead, our focus remains on sustaining this momentum while continuing to generate significant cash flow and returning capital to shareholders through strategic buybacks.

That concludes our prepared remarks. With that, operator, let's open up the call for questions.

[Operator Instructions] Our first question comes from the line of Robert Owens with Piper Sandler.

While the early success in IAM is compelling, I actually wanted to drill down into improved fundamentals across your core eSignature and you spoke to improvement in consumption growing volumes. And really what's underpinning this? Is it economic? Is it evolutionary, higher utilization driven by attach of IAM?

I'll take a stab at this and Allan can jump in. Thanks for the question. This is a trend we've been seeing pretty consistently over the past year. So like especially in Q2, we saw certain verticals, just to highlight a couple, financial services, health care, business services, all growing super well for us on a year-over-year basis. People ask about real estate. That's growing a little bit slower than average but still growing at a positive rate year-over-year. It's anecdotal, of course, but it's all dependent on how our customers' businesses are working, whether or not they're adding use cases because we're seeing that in some existing customers also. And then just also macro effects for them as well. But it's not -- I just want to make sure like the consumption and the envelopes sent trends really are things that we've seen pretty consistently over the last 12 months. And we highlighted them, I think, pretty consistently as well. And so I'm just excited to see that.

Yes. I don't -- overall, I don't think we're seeing any significant evidence of macro weakness in our numbers or in contract volumes or utilization numbers.

Our next question comes from the line of Tyler Radke with Citi.

I wanted to ask you about CLM, which seemed like it had a breakout quarter with some of the large deal momentum you referenced, including T-Mobile. Can you just talk about the pipeline that you're seeing in that business? Would you sort of say that this was a timing benefit? Or do you think this is kind of the start of a more sustainable trend?

Yes. Look, I think we think that the overall trend of the market is positive. I don't know that there's -- I wouldn't overinterpret the second quarter as the breakout for the category for us. I think it was a very strong quarter, and we closed a large -- some very large deals. Really exciting and great to see, but a little too early to call a broader category trend, but definitely encouraging. Operator?

Our next question comes from the line of Jake Roberge with William Blair.

Congrats on the great results. [indiscernible] said that more than 50% of your enterprise reps have already signed at least 1 IAM deal. Could you talk a little bit more about how the rollout of your newer markets like enterprise and international have progressed compared to your core North American commercial market and just whether that pricing uplift that you originally saw has held as you've entered into those new markets?

Yes. There was a lot there. Let me try to unpack that. First, just as a reminder for everyone, we launched initially 2 commercial customers in North America, and then we rolled it out globally and to our first enterprise release was in December, and we've since released multiple features aimed specifically at enterprise customers. And I think the noteworthy thing here in Q2 is that we started to see some larger deals with enterprise customers, which is very exciting because that's an even larger market opportunity for us in the long run. We're not relying on a lot from the enterprise segment this year, but we feel that over time, that could become even bigger. And so as we ramp up our capabilities, both on the product and go-to-market side, it's nice to see larger deals with big sophisticated clients. And I think there's more to come there. So very encouraging.

And of course, this is what we were laying the groundwork for at the beginning of this year was setting ourselves up to go deeper with customers of all sizes, but in particular, enterprise customers. And those changes have now landed well, I think, and we're really pleased with how the teams have settled in. And there's more to come.

And I just might add on top of that. It's exciting to see the international regions embracing IAM. That's been something exciting to see just on a vintage basis. Obviously, IAM did launch in most of our international regions later than it did in North America.

And then to your question on the expansion rate side, we don't break that out. But one thing that we have said previously, and it continues to be the case, is we see a meaningful expansion for these customers that are moving from just eSign platform over to IAM. And it's been remarkably consistent. And so that's great, and we're going to continue to watch it. It's still very early days for us. But that's been exciting from my perspective to see.

Our next question comes from the line of Josh Baer with Morgan Stanley.

Congrats on a very strong quarter. I appreciate all the detail with kind of breaking out the outperformance in billings between gross retention CLM, early renewal strength, duration, number of other factors. I don't think IAM was really one of them as far as driving the outperformance. I was hoping you could talk about that a little bit. And really just being straightforward, what are the economics when a customer adopts IAM? Is it accretive to growth? And by how much?

Sure. So -- yes, so the biggest drivers of the billings outperformance, as I mentioned in the prepared remarks, stronger bookings, primarily in our eSignature business, right, obviously, the vast majority still of what Docusign has in its portfolio, but also the timing and then also billings payment frequency. With regards to IAM, it did slightly outperform our expectations, but it's still very early days for us in that area and that platform. And so what led to the beat versus our guidance was predominantly that eSignature base. With regards to expansion, we don't break it out. It's still super early for us. We have to see how this goes, especially as we move upmarket. But it's very clear, and we've said this before, we see a meaningful expansion for customers when they move from an eSignature-only situation to an IAM. There's just so much more value that we're providing to a customer. And it's early days, but frankly, customers are seeing that extra value. And they're being willing to share in that with us. And so we're really excited about that, but no other detail.

Yes. If I could just add a couple of comments. First of all, IAM is a critical factor in our year-on-year growth and an even more important factor in the growth acceleration that I think we and you or all excited to begin to see and are projecting for the future. We're kind of right where we want to be with IAM for this year. We reiterate in our guidance that we expect IAM to be a low double-digit percentage of our overall book, which is pretty impressive for a new platform.

And so look, it's a critical part of our story. As Blake said, eSign is so large now that just on pure dollars, it's always going to -- it's going to dwarf everything else for a little while. But we can't get to where we want to go without growth acceleration from IAM as well. And so the fact that we had a strong and healthy eSign quarter, coupled with continued growth in IAM, that's really the magic formula for the company. And I think that's what produce the strong results.

Yes. That's really helpful. And I mean you sound great, and there's a lot of -- and this quarter was really strong. There's a lot to like. I think -- I mean, it would be super helpful if IAM is going to be double-digit percentage of bookings to just better understand the economics of the uplift with moving over to IAM and what other factors are changing in the contracts. Like that would really help to unlock that story, but something it sounds like we'll look forward to as you have a couple more quarters actually selling to the enterprise and upmarket. But congrats again.

Our next question comes from the line of Kirk Materne with Evercore ISI.

This is Bill on for Kirk. Can you dive into some of the drivers behind the improved growth retention? And is there more to go on that front in the second half of this year and into next?

Sure. This is a trend we've seen, gosh, over the past at least 18 months for us. Like if you look at our dollar net retention rates, we've been able to improve from, I think, about a low of 98% about 18 months ago in Q4 '24 to the 102% that we suggested for Q2. I would just say operational execution plays a huge part of this. We have folks at Docusign now spending a much greater portion of time with regards to staying in front of these renewal opportunities, getting in front of them months, many months in advance to be able to address any concerns that the customer might have, whether it's for potential expansion or issues that they're having. And so we've seen the fruits of that labor, I think, kind of pour into this business. And there's still a lot of opportunity left for us.

I don't -- I'm not going to make a forecast regarding for the next second half of the year. But for this business, we have opportunities both on improving our gross retention rates of our core portfolio and then also expansion, which is driven predominantly by IAM. And when we can get both of those things working together, that's where we really believe we have the ability to unlock the flywheel for us for the long term.

Our next question comes from the line of Brad Sills with Bank of America.

I wanted to ask about the federal -- the partnership with the U.S. federal General Services Administration. It seems like a big deal. Just curious what this means for your federal business, your federal pipeline and what we should expect out of that segment of the business going forward.

Yes. No, we were really pleased to do that. In fact, I'll be in DC next week meeting with a number of folks across many different departments and the fellow government, and it's great to see the engagement. And this contract is really sort of a facilitation, making it easier to buy for any federal department. We don't have -- I would say our federal business is relatively modest today. While we're present in like all 15 fab wealth departments. So we're certainly used -- relative to our opportunity, there's just a lot of headroom. Interestingly, we do better and have historically had a bigger business in state and local, and that continues to do well. But we felt we had a big opportunity in federal.

So I think the GSA was interested in partnering with us because we're a very natural partner for bringing more efficiency and customer service to the federal government. And we are, of course, excited about that opportunity. So it's a big growth opportunity for us, but it's still early days. It's not a meaningful contributor to the business yet. But I'm spending time on it, as our other sales executives. So we're hopeful.

Our next question comes from the line of Austin Cole with Citizens.

I wanted to ask on the go-to-market front and those changes that were made at the beginning of the year. How do you feel about how reps have adapted to those changes? Are they kind of well equipped and incentivized to sell IAM? Or might there still be some changes to make down the road?

No, I feel really good about -- look, we made those changes to position us for the long term to accelerate our IAM business and just more generally be able to go deeper with customers. And I think the reps have responded really well. We put in a lot of enablement. We put in new incentive system, new quotas, territories. It was a lot, but I'm very proud of how the team responded to that. And as you can see here in Q2, the direct sales team did a really nice job in Q2. So shout out to them. And yet we have -- it's still so early. We have so much headroom.

Yes. I think in terms of -- I'm not planning any meaningful changes this year and nothing of that magnitude in the foreseeable future. But it was -- it's great to see bold changes that Paula led. So I just wanted to tip my hat to her for having both conceived of all changes, driven them and landed them. So well done.

Our next question comes from the line of Mark Murphy with JPMorgan.

Allan, is there any way to approximate the kind of customer acceptance for opting in where they would have Iris AI scan their agreements and learn from them or index them? It's hard externally to understand if they just do that by default or not. And then is it common enough that you can build up an agreement library that would, with enough intelligence can kind of move the risk scoring and the cycle times to a different level?

Yes. Actually, I think that's perhaps one of the strongest aspects of our story right now. So yes, we ask customers explicitly to opt in and consent to sharing their agreements, and that unlocks a lot of the AI features. And I mean practically, everybody is doing that. And we now have -- we're approaching 100 million agreements ingested into Navigator and available for processing. And it's just such a diverse group. It's everything from sales agreements to procurement agreements to employment agreements and literally every function of the company. I don't think there's anybody who comes close to that. And as you know, one of the key drivers of AI quality is data. And so we're in a great position to leverage that.

And that's what allows us to do this right out of the box. One of the things that's, I mean, not as well understood is we often have your agreements already. So if you consent to this, we can make the AI features available instantly. And the average customer goes live in a few weeks. I mean it's just unheard of in an enterprise software. And so just the time to value, coupled with the potential value unlock in the agreement library is very significant. And our scale is just very different from others in that business. So it's part of what I think makes us all so excited about the future.

Our next question comes from the line of Brent Thill with Jefferies.

Blake, on the margin, I know you're kind of stalling the margin progression this year versus last year. I guess many are asking, when do we see the fall through on the top line? We're not necessarily seen -- we saw a good quarter. But in terms of just overall real acceleration to I think Allan's aspiration to be back to double digit, how do you think about that trade-off? And where are all these investments going this year? Is it go-to-market? Is it in the products, all the above? Any color there would be helpful.

Yes. I appreciate the question. So we have 3 hard comps for us this year. There are particular impact into this quarter that we saw, right? We've got the higher hosting costs for cloud migration. We have a hard comp against some onetime legal benefits from insurance reversal of litigation credit. And then we also, this year, have some headwind really starting this quarter with regards to shifting some roles to cash versus equity as we manage the long-term dilution. Those 3 components in the prepared remarks, you'll recall, provided about 150 basis points of pressure. Our full year guide now for operating margin reflects only about half of that pressure. So we've been able to offset a portion of that actually above and beyond what we had originally expected. So I'm excited about that.

And so it's all about this balance right now of maintaining the gains that we worked really hard to get. I think over the last 2 fiscal years, we've increased non-GAAP operating margins from around 20% to 30%. And so those are some tough decisions that we had to make. And so maintaining them are important. So we're doing that. But also while making these investments in a little bit in the go-to-market and then particularly into R&D with regards to the IAM development and launch. And so if we can spin that top line number, the flywheel really does drop to the bottom line, Brent. And so I think for us, that's where the future leverage opportunity that we have to get to that double-digit top line growth, I think, provides a lot of output for us in terms of opportunity for leverage. So really happy with the consistency and the path we're on. I think we're balancing this kind of -- this investment between growth and efficiency really well. But we've got some opportunities longer term for sure.

And just real quick. On the cloud transition, when do you approximate that will be less of a headwind? When does that actually transition end?

Yes. So this is the peak year for us that we've got in. So we should start to see those start to be less of an impact for us in FY '27 and then even later into beyond. And I just want to make sure folks remember like hosting costs are a big chunk for us for our cost of revenue, but it's not the majority of it, right? We've got a lot of people in there and things like that. But no, we definitely expect to see that pressure kind of start to mitigate for us next year.

Our next question comes from the line of Alex Zukin with Wolfe Research.

Just 2 quick ones. On IAM, clearly, you're continuing to see, maybe on the broader business, early renewal strength and the percentage of early renewals with expansions continue to grow. Are any of those starting to be driven by IAM attach? I think before you talked about it more heavily skewed towards new users. But I'm curious if the sales changes and some of the momentum you're seeing is kind of shifting that to -- or not shifting, but in addition to that, also now grabbing some of the existing customer relationships that you have? And then I have a quick follow-up.

Yes. I would say yes, it does. It's just -- we just got to remember again, just the relative size that we have in this book of business. We're now actually just starting to lap the first full year from our customers that were really just signing up in IAM this quarter last year, very early days of that. It's encouraging. We're seeing gross retention rates higher than we are for eSign. It's still early. It's a small sample size. But we're excited about it, and we are seeing those conversations lead to it. But it's not like it's the overarching component. I think the eSignature business, the foundation is strong and held up well this quarter.

Perfect. And then maybe just a broader question. I'm sure you could appreciate there have been a lot of questions about how changes in kind of search and SEO are affecting top of funnel dynamics for a lot of companies. Anything that you guys are seeing there? Or maybe you're completely immune to it or you course correct a while ago. And are you seeing any changes to the top of funnel? What percent of top of funnel is SEO related, et cetera?

Yes. We're not seeing anything yet. I think we're very pleased with our organic traffic. And Docusign has an amazing brand and recognition and reputation. And I think that plays well both in an SEO world and a GEO world. With that said, look, behavior, consumer and enterprise buying behavior is changing as a result of LLMs. And so I think we're keeping a very close eye on those changes and how that affects behavior throughout what we've historically talked about is the funnel. So that's number one.

And we continue to look to acquire new customers and acquire a substantial number every quarter, and that will continue to be a focus. But the big opportunity for us is to upsell our existing 1.7 million customers, pretty much all of eSign customers, to IAM. And we are hyper focused on that as an opportunity at all levels, and that's what's driving the bulk of IAM results. And that's where the big dollars are. And so we want to continue to feed the top of the funnel with new customers, and that's very important for the long-term health of the business. But only get distracted, I think the #1 big expand opportunity for us is to move people from eSign to IAM, and we're making good progress on that. We have a lot of headroom.

Our last question comes from the line of Rishi Jaluria with RBC Capital Markets.

Nice to see continued strength in the business and broad-based momentum. I want to maybe drill and ask a little bit philosophically about IAM. Obviously, you've discussed all the use cases and the real unlock especially with AI. The question I want to ask is we hear a lot of AI vendors talking about one of the use cases for LLMs and search and reasoning being analyzing contracts, finding the right answers, being able to synthesize information for multiple contracts, et cetera. And it almost feels like they're trying to tackle that same problem in a different way.

Maybe can you help us understand, even with others kind of looking into that use case, what gives you that kind of continued right to win? And what are investment opportunities that you can make to drive further differentiation versus those so this doesn't become more competitive or more commoditized?

Yes. Thanks for that question. Look, I think AI is a massive tailwind for Docusign. And it's both a tailwind because of the overall category enable. We can do so many more things with contracts now. They used to be dumb flat files, and that was -- there wasn't much anybody could do with them. But to your point, that's an elevation of everyone's capability. But then it plays into our strengths. We have deep knowledge of agreement structure. We're embedded in agreement workflows. We have exceptional scale. I just referenced, no one else touches at this point now, 100 million proprietary customer agreements with consent and an incredibly rich agreement diversity. And of course, we're integrated into actually every enterprise system, whether you're Salesforce or SAP or Microsoft or ServiceNow or a Google or a Workday customer, customers typically use Docusign as a complement to those systems. And so it's easy for us to roll things out and for customers to access Docusign insights in whatever tool they prefer.

So you never want to be naive about these things there, and there's certainly a tremendous amount of innovation and investment that's happening. But I think our unique proprietary position from a modeling, from a data perspective, from a workflow perspective, from a customer access perspective, I think it's a very strong tailwind for us. And I think it's partly what gets everyone in the company so excited about our future.

Thank you. I would now like to pass the call back over to management for any closing remarks.

Yes. Thank you, operator, and thank you to all who joined today's call. Look, I want to thank the entire Docusign team for their commitment to putting our customers first and for delivering the powerful AI-native value through the IAM platform. And to our investors, we will continue to manage this business in order to realize its full potential over the long term. So thanks for sharing your time with us, and we look forward to speaking with you next quarter.

That concludes today's teleconference. You may now disconnect your lines. Thank you for your participation.

Good afternoon, ladies and gentlemen. Thank you for joining Docusign's First Quarter Fiscal Year '26 Earnings Conference Call. [Operator Instructions] As a reminder, this conference 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 Matt Sonefeldt, Head of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to Docusign's Q1 Fiscal 2026 Earnings Call. Joining me on today's call are Docusign's CEO, Allan Thygesen; and CFO, Blake Grayson. The press release announcing our first quarter fiscal 2026 results was issued earlier today and is posted on our Investor Relations website, along with a published version of our prepared remarks.

Before we begin, 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 product innovation and factors affecting customer demand and adoption 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 these figures, please refer to today's earnings press release, which can be found on our website at investor.docusign.com.

I'd like to turn the call over to Allan.

Thank you, Matt, and good afternoon, everyone. Q1 2026 was an important quarter in our long-term transformation. At our annual Momentum customer event, we announced an ambitious roadmap for Docusign Intelligent Agreement Management, the world's leading AI-driven platform. We are delivering innovation to customers at the fastest pace in our history.

Q1 financial performance was strong. Revenue of $764 million and 8% growth outpaced our expectation from additional IAM customers and self-serve digital revenue contribution. Profitability outperformed with margins improving by 1% versus last year to 29.5%. A strong 30% free cash flow margin drove continued share repurchases and supports our conviction to authorize an additional $1 billion in buybacks.

As we transform Docusign, we continue to make long-term decisions to drive accelerated growth. As discussed last quarter, in Q1, we made several foundational go-to-market changes to realize IAM's potential. Our full year guidance anticipated that these changes would lead to lower early renewal billings in fiscal '26 after Q1. Instead, the impact happens sooner than anticipated, resulting in lower Q1 early renewals. As a result, billings growth ended slightly below our guidance range of 4% year-on-year, an outcome of timing, not demand. Blake will discuss these dynamics and our financials in his remarks.

We're proud of the progress made in Q1 across our 3 strategic pillars. Over 10,000 customers have purchased the Docusign IAM platform. We have strong product market fit in small and mid-market customers and early promise with enterprise and self-serve organizations. And we continue to make progress evolving our go-to-market to drive efficient long-term growth.

Starting with our innovation pillar, the IAM platform has become the fastest-growing offering in Docusign's history, less than a year after its launch. Customers using IAM have processed tens of millions of agreements and continued to increase their engagement, especially through AI-generated dashboards and seach in Docusign Navigator, our intelligent agreement repository.

In Q1, IAM usage increased significantly, thanks to UX improvements that better integrate Navigator with the eSignature envelope management experience. The demand for IAM highlights the mission-critical nature of agreement management for organizations. In a new Deloitte report, 77% of business leaders cite agreement management as a key drive of our performance. Attendance at our Momentum conference in April grew by 70% over last year, with notable increases in partner attendance and executive-level participation. The New York event kicked off a global series of 6 additional Momentums across EMEA, APAC and Latin America.

At Momentum, we shared our robust IAM platform vision and introduced a deep lineup of new AI-powered capabilities across the create, commit and manage agreement life cycle.

Within create, Agreement Desk provides powerful workflow management for agreement reviews and approvals, streamlining tedious processes to accelerate deal cycles. AI-Assisted Review compares contract language to a customer's existing standard terms and identifies noncompliant high-risk language, eliminating the need to review hundreds of contracts. And Agreement Prep standardizes terms and templates, applying the right language to every agreement to reduce risk.

Within commit, Workspaces transform how customers collaborate with contracting counterparties by centralizing all documents, communications and tasks in a secure hub while protecting sensitive data. CLEAR Identity Verification will integrate CLEAR's biometric ID network with IAM, making ID verification as simple as snapping a selfie.

Within manage, custom extractions for Docusign Navigator uses AI to automatically capture the data that matters most to customers, such as organization-specific agreement information or client-specific terms. Instead of spending hours or even days on manual review, customers get instant actionable insights. The obligation management dashboard transforms the company's scattered commitments into intelligence by surfacing renewal dates, payment terms and other obligations, helping maximize contract value and avoid penalties.

These new features enable sales reps to close more business, procurement teams to stay on top of renewal dates and pricing changes, and HR teams to onboard new employees more efficiently. At Docusign, our own procurement and legal teams have reduced agreements search time by 90% by using IAM.

AI-Assisted Review, Workspaces and Obligation Management are available today. Most of the other capabilities will be available by August. Launch dates are published on our product roadmap.

We also introduced Docusign Iris, our AI engine purpose-built for agreement management that delivers leading LLM performance at a low cost per inference. Iris leverages Docusign's unique agreement domain expertise built from millions of workflows and decades of contract intelligence.

Later in fiscal '26, we will deliver the industry's first purpose-built AI contract agents designed to accelerate workflows, reduce risk and achieve better outcomes across the entire agreement life cycle. You can see a demo of our agents in our Momentum keynote.

Within our go-to-market pillar, we continue to drive transformation across 3 integrated routes all selling IAM, direct, self-serve and partner. In Q1, IAM sales once again exceeded our outlook, and we remain on track for IAM to account for a double-digit percentage of our subscription book of business exiting Q4.

Q1 direct customer IAM deal volume exceeded Q4, and we saw another significant increase in the percentage of new customers choosing IAM. International IAM deals were up over 50% from the last quarter, confirming the IAM value proposition resonates with customers worldwide.

In fiscal '26, we continue to generate large-scale success with small and mid-market customers while driving initial enterprise conversations and early wins.

ServiceTitan, the operating system that powers the trades and a longtime Docusign customer, is deploying IAM across legal, HR, sales and procurement, using Docusign Maestro to create time-saving automated workflows and Docusign Navigator to gain greater insight into its business. As part of our growing strategic go-to-market partnership with Microsoft, we're delivering this IAM solution via the Azure Marketplace.

IAM is also off to a strong start in self-serve. The launch of self-serve in April resulted in nearly 1,000 new IAM customers within just 3 weeks, all through organic adoption prior to the release of any marketing campaigns. In Q1, overall digital revenue continue to grow at more than double the rate of overall revenue. We also implemented self-serve account management tools for our direct sales-driven customers, which improves their experience and our go-to-market efficiency.

Efficiency gains from our rapidly improving self-service channel enabled us to make broader go-to-market changes in Q1, all with the intention of maximizing IAM's long-term potential. We migrated a meaningful cohort of customers to the self-serve first digital experience, freeing up our sales team to concentrate on higher-value prospects with greater revenue potential.

Sales force changes included rolling out new customer-size segments, territories and performance-based compensation. We're using our investment dollars judiciously. And in fiscal '26, we invested in greater sales capacity without expanding our team.

Our initial annual guidance expected a lower rate of early renewals in fiscal '26 as reps increasingly focus on IAM expansion potential. We anticipated the impact to take place after Q1, but the reduction in early renewals began sooner than forecasted. This resulted in lower-than-expected early renewal billings in Q1. We take responsibility for not fully anticipating the timing of the shift in our guidance.

Stepping back, we're confident these are the right long-term changes to build a more durable growth engine. We're pleased with how quickly teams adjust as evidenced by strong IAM sales throughout the quarter and fewer early renewals without expansion. We're also encouraged that the fundamentals in the overall core business continued to improve in Q1. Gross retention and dollar net retention improved year-over-year, while envelopes sent and customer contract utilization grew steadily.

Also in Q1, we relaunched our partner program to focus primarily on IAM and enable partners to build business with Docusign through specializations. At Momentum, we recognized outstanding partners that continue to grow with Docusign. CDW, a leading multi-brand provider technology solutions, achieved impressive triple-digit growth with us last year. Through our alliances with Deloitte, SAP, we've expanded our global footprint and recently closed a major opportunity with a Fortune 500 company in the energy sector.

At Momentum, we also recognized customers delivering significant business impact on the Docusign platform. Subaru of America significantly enhanced its operational efficiency and achieved substantial cost savings by digitizing its manual paper-based processes. Primerica reduced agreement processing time by 25% and contract turnaround from 15 days to 1. KPMG cut its average signature process from 5 days to less than 1, increased productivity by 30% and improved customer satisfaction.

In closing, the road ahead is exciting. Docusign is building on its leadership position to reimagine how organizations manage agreements through IAM. We have strong conviction in our strategy and the long-term business decisions we're making to drive acceleration to double-digit growth.

In April, Newsweek named Docusign the most trustworthy software company in America for the second year in a row. We believe that trust strengthens our ability to help our 1.7 million customers transform how they manage agreements. I want to thank the entire Docusign team for their dedication and commitment to creating value for our customers.

Now I'll turn it over to Blake to discuss our financial results.

Thanks, Allan, and good afternoon, everyone. Our primary goal in fiscal 2026 is to position Docusign to drive long-term growth acceleration while maintaining efficiency. In Q1, we made continued progress against this goal and delivered solid business results. Highlights included accelerated IAM deal volume as well as continued year-over-year improvements in dollar net retention, customer usage and utilization, and increased efficiency and profitability.

While we performed better than our expectations across almost all of our key guidance metrics, including revenue and profit margins, billings came slightly below our guidance range driven by the timing of early renewals. In Q1, total revenue was $764 million and subscription revenue was $746 million, both up 8% year-over-year, including a 0.6% year-over-year FX growth headwind. Revenue outperformed our expectations on both the strength of greater digital and IAM contributions as well as from a few smaller nonrecurring items. Billings grew 4% year-over-year to $740 million, with no FX impact year-over-year.

Billings ended slightly below our guidance range due to lower-than-expected early renewals. Our billing results would have finished near the high end of our guidance range when excluding both the negative impact from early renewals and the positive billings impact relative to our forecast from FX. Billings renewal timing was impacted by the go-to-market changes discussed last quarter, including rolling out new customer-size segments, territories and performance-based compensation.

As Allan explained, these changes were foundational and focused on positioning Docusign to realize accelerated long-term growth. Specific to billings, as described last quarter, our original fiscal 2026 annual billings guidance assumed a 1% year-over-year growth headwind from reduced early renewal volume. While we expected that impact to occur after Q1, the change in incentives led to a reduction in early renewals sooner than originally forecasted.

Our sales team is acting as the program was designed. The health of early renewals in Q1 improved materially from the prior year. For example, we reduced the mix of early renewals that were flat or included partial churn by approximately 30% versus last year. Although the timing of early renewals has a negligible impact on revenue and does not reflect the long-term health of the business, we take responsibility for underestimating the potential timing and range of impact from the go-to-market changes. We will take a more conservative approach to forecasting the timing of early renewals for the remainder of fiscal 2026 in light of the go-to-market changes.

Apart from the timing impact on billings, we are encouraged that fundamentals continue to improve in Q1. The dollar net retention rate increased slightly to 101% in line with Q4 and up from 99% in Q1 of 2025. We continue to expect dollar net retention to moderately improve throughout the year based on both gross retention improvement and IAM upsell impact. IAM sales continued to show strong momentum with both IAM deal volume and revenue slightly outpacing our expectations this quarter. IAM share of total direct deal volume, including upsell deals and new customer deals, increased meaningfully quarter-over-quarter, showing strength versus typical Q4 to Q1 business seasonality. The strength is underscored by passing 10,000 direct IAM customers in Q1, adding nearly 1,000 new IAM self-serve customers within weeks of launching that capability and the strong early ramp in international sales. Through Q1, we are on track for IAM customers to contribute a low double-digit percentage of the subscription book of business exiting Q4.

The year-over-year growth in envelopes sent remains consistent with prior quarters and has continued through May. Customer consumption, a measure of contract utilization, increased in our direct business to the highest levels since early fiscal 2022 driven predominantly by increases in North America. We observed year-over-year improvements in consumption rate in nearly every direct customer-size segment and major vertical for the first time in over 2 years.

In Q1, total customers grew 10% year-over-year, surpassing 1.7 million. Continued strength in customer growth highlights the value of investing in diverse routes to market and geographies. Additionally, we believe that the breadth and scale of our customer base provides a strong foundation for the continued growth of the IAM platform. Large customers spending over $300,000 annually increased by 6% year-over-year to 1,123, down slightly versus Q4 given normal seasonality. We're encouraged that a low single-digit percentage share of the $300,000-plus base has adopted and begun to roll out IAM in their organizations. This will be a multiyear journey that builds on both product and go-to-market evolution.

Digital revenue growth also continued its recent strength, benefiting from initiatives that make it easier for self-serve customers to manage and upgrade their accounts. Digital revenue grew at more than double the rate of the overall business in Q1, and we are cautiously optimistic that the launch of IAM should support future digital growth. International revenue in Q1 represented 28% of total revenue and grew 10% year-over-year or approximately 13% after adjusting for FX, which is similar to the prior quarter. Lower-than-expected expansion rates have impacted international growth, especially in EMEA. The IAM rollout, combined with new EMEA sales leadership, creates a stronger foundation for future growth potential. For example, international IAM deal volume in Q1 grew over 50% from Q4 when we launched in most of our larger international regions.

Turning to the financials, our focus on operating efficiency initiatives drove strong results in Q1. Non-GAAP gross margin for Q1 was 82.3%, up slightly from the prior year as higher revenue offset the impact of additional cloud migration costs, which were slightly lower than expected due to the timing of migration efforts. As previously discussed, we continue to expect additional expenses associated with our cloud migration to impact gross margins throughout fiscal 2026 before easing in fiscal 2027 and beyond. Non-GAAP operating margin for Q1 was 29.5%, a 100 basis point improvement versus the prior year. The strength year-over-year was driven by higher revenue growth and prudent management of expense growth.

We ended Q1 with 6,852 employees. This was up just slightly from the prior quarter and 6% from the prior year due to investing in our team, particularly in R&D, including the acquisition of Lexion. Our hiring approach remains strategic and consistent, ensuring alignment with key initiatives while thoughtfully considering location based on cost and necessary skill sets. Our non-GAAP operating expense growth in sales and marketing and G&A areas were both lower than the total company, while R&D grew faster with continued investment.

In Q1, we generated $228 million of free cash flow, a 30% margin. We expect that annual free cash flow margin will approximate non-GAAP operating margin for fiscal 2026.

Our balance sheet remains strong with over $1.1 billion in cash, cash equivalents and investments. We have no debt on the balance sheet. Subsequent to quarter end, at the end of May, we secured a new $750 million credit revolver to replace our existing revolver agreement, creating additional capital capacity and flexibility.

We continue to use our demonstrated strong free cash flow generation to return capital to shareholders. In Q1, we repurchased $183 million of stock through share buybacks, bringing our cumulative buyback over the past 12 months to over $700 million. With the additional $1 billion buyback authorization announced today, we now have up to $1.4 billion in repurchase authorization available for deployment, and we expect to continue opportunistically repurchasing shares as part of our capital allocation strategy.

Regarding the cost of our equity programs, our stock compensation expense as a percentage of revenue was 19.1% in Q1, down approximately 100 basis points from the prior year and approximately 40 basis points after excluding the impact of restructuring in Q1 of fiscal 2025. On a 2-year basis, stock compensation expense as a percentage of revenue was down approximately 200 basis points from 21.1% in Q1 of fiscal 2024, excluding the impact restructuring, reflecting continued focus on using equity compensation efficiently and managing dilution.

Non-GAAP diluted EPS for Q1 was $0.90, an $0.08 per share improvement from $0.82 last year. GAAP diluted EPS for Q1 was $0.34 versus $0.16 last year. Diluted weighted shares outstanding for Q1 was 212.8 million, in line with our expectations. Basic shares outstanding for Q1 decreased by 2.6 million year-over-year to 203.3 million total shares, reflecting the anti-dilutive impact of our buyback program.

With that, let me turn to guidance. We expect total revenue between $777 million and $781 million in Q2 or a 6% year-over-year increase at the midpoint and between $3.151 billion and $3.163 billion for fiscal 2026, also a 6% year-over-year increase at the midpoint. We expect subscription revenue of $760 million to $764 million in Q2 or a 6% year-over-year increase at the midpoint and $3.083 billion to $3.095 billion for fiscal 2026 or a 6.5% year-over-year increase at the midpoint.

We expect billings between $757 million to $767 million in Q2 or a 5% year-over-year growth rate at the midpoint and between $3.285 billion to $3.339 billion for fiscal 2026 or a 6.5% year-over-year growth rate at the midpoint.

Our updated top line guidance reflects following dynamics present in our business and the external environment. For full year revenue, the annual guidance midpoint is increasing by $22 million, reflecting the combination of Q1 strength and an anticipated neutral rather than a negative year-over-year FX impact, partially offset by some headwind from additional bookings prudence for the economic environment.

For full year billings, the annual guidance midpoint is declining by $15 million, which includes additional early renewal considerations and some conservatism in our bookings outlook, partially offset by the positive impact from favorable year-over-year FX rates. While we did not see any material macro impact on our Q1 results, we are taking a cautious approach for the remainder of fiscal 2026 given the uncertain economic environment.

For early renewals, we are including a more conservative forecast to account for a wider range of potential timing and magnitude impacts. This change has nearly zero impact on our revenue forecast as it is based on the timing of renewal contracts and is not related to customer demand. As shown in recent quarters and years, billings are highly sensitive to customer renewal timing, which can result in meaningful variability from period to period.

As we evaluate our updated fiscal 2026 billings guidance, we remain encouraged that we continue to forecast a year-over-year billings acceleration in fiscal 2026 after adjusting for the timing of early renewals and FX. We all expect year-over-year billings growth to increase in the second half of fiscal 2026 versus the first half as IAM deal volume continues to ramp.

For profitability, we expect non-GAAP gross margin between 80.5% to 81.5% for Q2 and between 80.7% and 81.7% for fiscal 2026. We expect non-GAAP operating margin between 26.5% to 27.5% for Q2 and 27.8% to 28.8% for fiscal 2026, unchanged for the full year.

We included the following 2 considerations in our non-GAAP profitability guidance. For gross margins, for the full year, we continue to expect approximately 1 percentage point of headwind due to the ongoing cloud data center migration efforts. That headwind was lower in Q1 due to a slight shift in migration timing out to the remainder of fiscal 2026. As previously discussed, we anticipate a larger gross margin impact for migration in fiscal 2026, followed by a gradual easing in fiscal 2027 and beyond.

For operating margins for the full year, we continue to expect an approximate 1.5 percentage point operating margin headwind due to the impact of cloud migration, the shift of some roles to cash compensation from equity and the comp against onetime professional fees from Q2 of 2025. Q2 is our hardest comparison quarter this year. The majority of the difference between Q2 2026 and Q2 2025 operating margins can be attributed to the onetime benefits from professional fees, including the insurance reimbursement and litigation reserve release described in the Q2 2025 results, the ongoing Cloud Migration Act and the equity to cash compensation changes.

Our overall approach to profitability in fiscal 2026 reflects our intent to prioritize IAM investments to drive long-term growth while maintaining similar levels of full year operating margins realized in fiscal 2025, excluding the unique gross margin and operating expense headwinds noted above. We remain encouraged about our longer-term opportunity to improve operating leverage by combining our approach to efficiency with an improved and accelerating outlook for billings growth exiting fiscal 2026.

We continue to expect non-GAAP fully diluted weighted average shares outstanding of 210 million to 215 million for both Q2 and fiscal 2026.

In closing, in Q1, we continued Docusign's transformation by delivering significantly increased innovation to customers, driving business momentum through IAM adoption and digital maturity, and positioning our go-to-market team for greater long-term contribution. We also maintained our efficiency focus through improved profitability and strengthened our commitment to generate significant cash flow and return capital opportunistically through buybacks.

We have strong conviction in our strategy and ability to execute, and we will continue to focus on increasing the value we deliver to customers, employees and shareholders.

Thank you for your support. This concludes our prepared remarks. With that, operator, let's open the call for questions.

[Operator Instructions] Our first question comes from the line of Jake Roberge with William Blair.

Can you just double-click on the go-to-market transition, what exactly is driving the lower early renewals? And then it sounds like normalized billings growth would have come in at the high end of the range. But if we flash back to Q3 and Q4 of last year, there were some fairly healthy beats to guidance. So can you help us understand that delta and whether there was anything else that impacted the

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Yes. Why don't I take the first part of that and you can take the second, Blake. We made some changes at the beginning of the first quarter to our compensation to encourage reps to [indiscernible] the healthiest dynamic, similar reason for booking the deal early. We thought that that would play out during the course of the year and ended up happening predominantly here in Q1. And so that's what accounts for the early renewals

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sort of behaving as we expected. And so it's on us to have missed the forecast slightly on that, and that accounts for the early renewal [indiscernible]. But overall, the business is on very healthy foundation. I think the IAM progress is very substantial this quarter, and we are maintaining or increasing our revenue outlook.

With that, let me go to Blake.

Sure. Thanks, Jake, for the question. With regards to the questions about a normalized Q1 relative to the prior quarters, I think you brought in Q3 and Q4. So just with regards to Q1, business fundamentals remain strong. I mean, like Allan just said, IAM continuing to ramp. Q1 direct deal volume for IAM was larger than Q4, that's not something we would normally see in our business just because of seasonality. And that's direct only. I'm not including the nearly 1,000 new self-service IAM customers we added, which is great. You heard in the prepared remarks consumption and usage growth just as a consistent and positive year-over-year, which we're heavy happy about. Dollar net retention improved just slightly for us, flat quarter-to-quarter on a nonrounded basis, up just slightly.

I would say on expansion and gross retention, both were up year-over-year. We think we can do a little bit better there. But as far as like Q1 go, especially if you're comparing it to Q3 and Q4, make sure to go back and look at the details that we talked about in those quarters because in the second half of '25, early renewals were a tailwind particularly for us in both of those quarters. So trying to compare like beat magnitude and such against those quarters in particular. You really -- I just really advise you to go back at -- take a look of those numbers kind of normalized for that timing component of early renewals.

Yes. Maybe just to complement what Blake just said, if you take both the FX and the early renewals part out and you look at our time series of our billings, we're still past the trough last year and have a nice acceleration this year in our outlook, and that's what reflects our confidence in the business.

Okay. That's helpful. And then, Allan, I understand the moving pieces around the go-to-market and early renewals, but how do you feel about the broader health of the business? Do you still feel like that IAM upsell opportunity is intact? And then that retention and expansion, I understand it might have been a little bit softer than you would have expected this quarter, but should that continue through from here? Or is there anything else in the quarter that would give you pause on that trajectory back to double-digit growth?

No. I think we feel really good about where IAM is sitting. We did a product market fit in the commercial segment, and that sales motion has not been replicated from our domestic business to our international business. We're seeing great adoption. We mentioned some trends on the prepared remarks there. So I feel really good about where IAM is sitting. And of course, our core [indiscernible] business remains very, very healthy. We've got improving DNR overall in the business, and fundamental consumption metrics and contract utilization are also improving.

And so overall, I think we're sitting on a very good trajectory. You can feel the optimism inside the company with the sales teams. We did make some changes here at the beginning of the year that are necessary to set us up on the right -- for the right medium to long-term growth, but perhaps introduce a little bit of disruption. I think that's passed us now, and we're seeing good trends into May. So I think we're feeling very good about where things are sitting.

Our next question comes from the line of Tyler Radke with Citi.

And I can certainly understand the billings dynamic, particularly coming off of Q4. But I guess one of the questions we're getting from other investors is really around your confidence level in the second half. If we take your commentary, it sort of implies a kind of continual ramp in billings growth from this Q1 level. So I guess can you just give us a sense for what you've assumed in that ramp as it relates to early renewals? And then specifically around maybe the enterprise contribution from go-to-market and IAM, I imagine those are going to be even greater factors as you go into Q3, Q4, but just help us understand why this new guidance that implies an acceleration is derisked in your view?

First of all, we were always assuming an acceleration in the second half, and that remains the case as you observed. In terms of the factors you pointed to, we snap to a low level of early renewals here in Q1, and we're expecting that to be maintained throughout the remainder of the year. That feels like a very good assumption based on what we're seeing.

In terms of the enterprise stuff, and part of the reason that we have a lot of confidence in our forecast looking forward is because rewards that we can replicate our commercial motion, and that's the bulk of the forecast. We are counting on a little bit from the enterprise. I think that's well within our grasp. And then a bigger contribution from enterprise out in fiscal '27 and beyond. So there isn't an assumption that we're going to see some dramatic acceleration in our enterprise business in the second half. It's really more just the rolling out and scaling of our commercial business globally that drives that.

And then I'd just add one note to your question, Tyler, on the renewal assumption. We do -- we have put in a little of room to operate on the timing of renewals. And that's really -- it's important to recognize that, that's just timing. There's not an impact on revenue from that assumption. There's not an impact on customer demand from that. But just into the environment, I think it's a good idea to have a little bit more there because especially when it's timing and not related to the health of the revenue kind of profile of the business.

Great. And for a follow-up question, appreciate the comments on the consumption trends into May, which seem to suggest things are healthy and really across all verticals. But do you -- are you hearing from customers sort of a desire to contract envelopes maybe a bit closer to their underlying consumption than they previously were just given the macro environment and tariff environment seems to be changing on a daily basis, is that sort of calculus change for customers? And is that something you've contemplated in the guidance?

Yes. No, we haven't seen that. We saw some of that coming off COVID, but that's been played out and is reflected in all the historical numbers at this point. So no, I -- macro really was not a material factor. Maybe there's a few pokes here and there, but nothing that we've seen so far. That said, I think all CEOs and CFOs are slightly apprehensive about an environment that just feels more volatile and risky. And so we gave ourselves just a little bit more buffer, as alluded to. But in terms of looking backwards, it was not material in Q1.

Our next question comes from the line of Rob Owens with Piper Sandler.

And I guess as you -- just following on that last thread, some of the billings, I guess, lowering that you took as a function of the uncertain economic environment, that's purely a function of timing and not necessarily a function of size of deals as well.

Yes. No, I don't think we've seen anything on side of the deals. I mean you can see, I think we report our customer over $300,000, which were up year-on-year. And we continue to see health there that has an issue, and that's also reflected in some of the consumption that would hold across customer segments and industries.

Okay. Perfect. And then our understanding is the lean in a little more aggressively this year, which didn't come to fruition in the first quarter, and just a commentary around the timing of some of the cloud migration efforts, anything else that weigh? And you did talk about increasing sales capacity without expanding the team, is that something that you're factoring into the calculus here or something that can lend to upside just in terms of repurposing a lot of that existing sales force?

We're not counting on that, but I certainly hope so that over time that sales capacity will translate into more bookings and billings and revenue. Maybe just -- let me just touch quickly on some of the changes that we made at the beginning of the year to set ourselves up for long-term success. We -- besides the early renewals piece, which really was a minor element of the changes that we made, big changes where we really wanted our sales reps to be able to focus more time on deeper and sell more broadly into organizations that represented the biggest growth opportunity. And so we resegmented and changed the portfolios for our sellers and moved a substantial number of customers to a self-serve first model. And so that freed up capacity in effect without additional headcount to let our reps go deeper. We also changed our sales compensation model to emphasize more annualized models and emphasize IAM and so on. And so there were a lot of levers pulled to set ourselves up for, should we say, a larger deal, more enterprise type of sales motion. That will be a long journey for the company. And -- but we've begun it. I'm very pleased with the early results and how the sales teams are responding to that, and we're feeling that those were the right changes to make to set us up to really capture the full potential of IAM.

Our next question comes from the line of Josh Baer with Morgan Stanley.

Great. I was hoping you could provide some context for how much of the double-digit percentage that will be IAM as a percentage of subscription book of business is coming from upsell and net new customers versus that transition from eSignature. Just any context for how accretive or incremental IAM is on the business?

Why don't you take that one, please?

Sure. So we're not disclosing expansion rates something like that. Obviously, with the book of business that we have with the size of it, $3 billion plus, we have a huge opportunity to be able to provide extra value to our existing customers. So I think that existing installed base, and that is an upsell from what they're doing today because if you recall, the vast, vast majority of the IAM deals that we're doing are expansions spend because we're providing atonal value to customers. But also, we're finding that new customers also are quite interested in it. And it's becoming a much, much larger share of our new deals -- our new company deals that we're doing. So it's going to come from both of these things, but I think that it's fair to assume that with the size of the installed base that we currently have, the biggest opportunity we have is with customers that we already do business with.

Okay. That's helpful. And Blake, you called out some smaller nonrecurring items benefiting revenue, just was wondering what are those? And how big was that?

Yes, sure. So we had a number of what I'll call just smaller items that we just don't feel like we can count it necessarily as recurring every quarter. They can. We just aren't including that in the guidance. They conclude things like short-term add-on deals or somebody comes in for a very short period of time for additional capacity, lower sales returns, lower bad debt, those went almost all in our favor in Q1 in the revenue side. Now they're not massive. They're not a huge portion of it, but we now when you add them up, they helped the quarter. But all good things, all positive elements for us in Q1.

Our next question comes from the line of Brad Sills with Bank of America.

Allan, I wanted to ask a question on the go-to-market changes here. I mean with the focus on going deeper and more broadly within accounts now, what are you seeing? I know it's early, but is there anything in the pipeline that you'd point to, to say that the leading indicators are there and you're seeing some of the early results that you might expect out of that?

Yes. We are definitely doing larger IM deals, and we've had some early successes in the enterprise space. So I feel pretty good about the momentum. But as I said, it is still early. We think in the long run, this has potential to really materially change how much value we're able to deliver to customers and therefore how much they're willing to pay on a recurring basis. So all the signs on the IAM front in terms of both deal velocity and deal value progress in various customer segments and geographies, all positive so far.

Wonderful. And then one more, if I may, on some of the new features you alluded to with IAM coming in August. Anything that you'd point to in particular that you're excited about? I know you probably don't want to let the cat out of the bag too much, but maybe just some broad strokes on what's coming in August that could perhaps be a catalyst in the IAM business.

We've already announced was coming in August. So we -- at our Momentum event in April, we previewed our roadmap. We just as an indication of the scale of the innovation Momentum. When we launched IAM last year, I would say there were really 3 pieces of anchor functionality, they're materially net new besides the refresh on the existing products. And I'd say we did 7 announcements of comparable magnitude here at Momentum in April. Some of those were immediately available, and some of those are rolling out here over the next 3 to 4 months.

I don't think there's any one thing that I would highlight, but maybe I'll talk about 3 very quickly. On the front end of creating agreements, we have Agreement Desk, which is essentially a system for managing the flow of contracts inside of a company. Imagine, sales reps and legal, instead of today, which is a series of uncorrelated and unconnected e-mails, but nobody knows what the status is essentially a hub of etching that workflow that integrates with the tools you already have, that was extremely well received at the event.

On the execution side, we announced some gold Workspaces. And today, if you're trying to do a multistage financial transaction, let's say, signing up for wealth management or a real estate transaction or an auto purchase or anything like that, it tends to again be a series of disconnected interactions between the company and an outside party, a consumer and other company. We've created a single destination where all of that activity can happen with multiple parties. That's really an earthquake in that space and very well suited, of course, for financial services, but also for a whole host of other categories.

And then I'd say on the managing your contracts after execution, one of the things that we showed at the very today, AI-centric feature, and it really wouldn't have been possible even a year or 2 ago, something we call custom extractions, which essentially let you besides all the standard extractions like the names of the parties or the terms. Now you can define any arbitrary term you're interested in, pointing us to a couple of agreements that those terms are present and the relevant language. The AI will essentially learn off that and then allow you to find that across your population of agreements. So that creates sort of incident flexibility in what you can look for in your agreements, which is something that pretty much all companies have asked us for a long time, and we're finally able to deliver a really scalable lightweight to like-for-like.

So those are just 3 examples of contract innovation at all stages of journey. And I think that there was a lot of excitement at the event, and we're excited about bringing those features to market globally.

Our next question comes from the line of Kirk Materne with Evercore ISI.

Allan, I was wondering, can you expand a little bit on your commentary around your GSI partners? I was just kind of curious whether they could be a source of sort of net new ACV for you this year. I realize it could take a while for them to build up practices. But can you just talk about sort of where you are with them and what's the hope of them helping pull you into the enterprise perhaps a little bit more and then really helping to be a driver of new pipeline for you all?

Yes. Yes. So historically, we haven't had a huge relationship with SIs because it's been primarily about our CLM business, right? Sign was so simple and easy to deploy for companies that there wasn't a lot of need for the kind of added services that SIs provide. But with IAM, that's really changing the picture and across really all of Docusign. And so -- and at the same time, this is an area where the SIs do a tremendous amount of work already. They pretty much all have large practice areas in digital transformation that includes or is focused specifically on the agreement space and haven't had a platform to build those practices on top of. So we see a lot of inbound interest from the big names in the industry.

I would rate us as relatively immature. And really, we are fully danced with the big SIs right now, but we are ramping up. As I said, a lot of interest. We know how critical that is to unlock the full potential of the enterprise. And they are very keen to partner with us as well-trusted, well-respected brand that I think has the most complete and compelling vision and agreements. And so -- but we have growing to do to fully capitalize on what the GSIs represent. So that's a big focus of mine and [indiscernible]. We hired a fantastic new leader for our partner organization. It was very strong in that area. And so it's a top priority for us to -- over the next couple of years to really build out our GSI partners.

Okay. Great. And then, Blake, sorry if I missed this. I think you said in your prepared commentary, but the upside on margins this quarter was partially due to some of the duplication of cloud costs going away earlier. Can you just remind me sort of on some of the upside levers on margin this quarter relative to your guide?

Sure. The biggest component that drove operating margin outperformance was the revenue outperformance on the top line, right? We don't have like a ton of variable cost in this business so that when we outperform on the top line, we usually have the advantage that can fall to the bottom line, which it did for us. And that's was the majority of the out-margin side.

On the cloud migration component, we just have a little bit of timing push from Q1 and then out into kind of Q2 and Q3, and you can see that reflected in our guide. That happens from time to time, nothing to concern of or anything like that, but that was the other component of the our job performance.

Our next question comes from the line of Brent Thill with Jefferies.

Just on the sales change, I mean, we've all witnessed the last couple of decades sales changes in Q1. They have their impact. And I think everyone was just curious, is this -- I know you said it's going to take time, but do you think this is -- was this a massive overhaul? Was it a tweak? Do you think it's a 6-month digestion? Do you think it's a 9 month? I mean how do you gauge the magnitude and the duration of how long this takes to settle in?

I think we feel pretty good about that settle in, and we're already seeing stabilization and normalization here early in Q2. So I'm pretty optimistic.

Let me just start with the, I think, the overall piece, which is we really wanted to set ourselves up with the right long-term decision to maximize our opportunity and value here. And so when you make -- when you do that, you have to be willing to encounter just a little bit of turbulence in the short run. We've shown a pattern of doing that. You may recall, we had some difficult decisions in Q1 in the last couple of years. And we're just trying to set ourselves up for the right long-term health. I'm very pleased with where it's going.

I'd say that if you think about where the adjustments play out, the commercial segment can adjust very quickly, right? You give people new books, but the sales cycle is shown up, and it's a higher volume or repetitive motion. So they were able to get there very quickly. Takes a little longer in our enterprise segment, which we're building relationships over a more extended period of time, but I'm feeling that the team is really settling in, and just the quality and scale and pipeline that the team is generating is picking up, and we were in any event, always going to be building our enterprise business during the course of the year. So I'm feeling pretty good.

We did throw a lot of levers. I'd put it at sort of -- as I said, I think, on the last earnings call, sort of a medium-size change and very carefully planned and considered. And it's sort of ironic that one of these smaller things that really weren't the core strategic focus of ended up tripping us up a little bit on the billings side. But that's really a timing issue and not something that plays to the long-term health or strength of the business. So I'm feeling great about the changes we made, how they settled in and how they set us up.

Okay. And for Blake, just the number 300,000-plus customers were down quarter-on-quarter, is that just seasonal? Or is there anything else to read into that?

Yes. Thanks, Brent. Yes, it's mostly seasonal. You'll see that occur. I think the biggest thing that I tend to look at is just on that year-over-year side growing. And you also heard us, it's a small component today, obviously, but low single-digit share of those larger customers starting to use IAM. Again, while it's a super small chunk of it, I'm excited about the opportunity that we have there over the long term. It's going to take time, but that was exciting for me to see just the very early beginnings of our penetration there.

Our next question comes from the line of Patrick Walravens with Citizens JMP.

Great. Thanks for all the detail on this, and if I can ask one more, if it's all right. So when did you know that billings would come in below where you had guided?

Yes. Why don't I start and then you jump in. So look, early billings almost definitionally happened very late in the quarter. And so we didn't really have good visibility on it until the last couple of weeks. And so that was not something we had probably foreseen, but obviously a previewed it at the beginning of the quarter because it is such a timing-sensitive thing that comes together in the last couple of weeks or even the last couple of days. I don't know, Blake, if you want to add to that.

No. I mean I just reinforce like the vast -- just so everybody knows, the vast majority of our early renewals very consistently comes in the last 2 weeks of the quarter. And so there is volatility that's what you'll hear us talk about the timing of these billings based on start dates and close dates that can cause a lot of volatility in the number. And so that's the component here.

What I regret on the work that we've done is we forecasted the timing impact later than Q1 and it occurred in Q1. Everybody is operating as a way we had planned, right? Like the way the plan is designed, like Allan said, we're really happy with how this is working out. From a forecasting perspective, and I and the leadership team own this, is that we forecasted for later than Q1, and it happened in Q1. Now at the end of the day, that's just timing. It doesn't affect the health of the business. It doesn't affect revenue. It's not an indication of demand.

And so from a business perspective, it's kind of -- I don't want to call it a nonevent, but it doesn't affect the health of the business, so I'm really excited about that.

Yes. We saw the right kind of changes in our earliest mix more than being accretive and so on. And so that's exactly the changes we're looking for. Go ahead. I'm sorry, go ahead.

And a follow-up, if I could ask maybe a little bigger picture. So Allan, what are you seeing competitively? How do you feel about that? And then I'm sure everyone saw that Dan ended up at IronClad, so maybe if you can comment on if that's a competitor and where it fits in, that would be great.

I think in terms of our -- the legacy markets, if you will, that we operate in, I see very little change in the competitive dynamics. I think the signed shares and competitor innings have been stable anything that if maybe even doing a little bit better. CLM space continues to be quite competitive in a number of players, and it's a small category overall, but we are -- I think we're holding our own, but it's definitely competitive.

In terms of our re-articulation and repositioning of the company, I think we're really setting the pace. But as we've expanded our ambitions, not only are we seeing, of course, some of the players that have competed with us in existing categories, running into other potential competitors, but overall, I think we're setting the pace and becoming much more of a thought leader for the agreement space more holistically. And I think it's really about our execution right now. I'm not as focused on competition as perhaps we've been in our past discussions as we had the more maturity sign category.

Our next question comes from the line of Scott Berg with Needham & Company.

This is Ian Black on for Scott Berg. Does the lease of our new transitional IAM SKU impact early renewals? And how has that still affected your go-to-market motion?

I would say the transitional SKU is immaterial to the results for us for the quarter. We would have highlighted that if that was there. It's really meant. It's an option for customers. We want to make sure that they have the right options available to them, but it wasn't an impact for us in the quarter.

And how has that SKU impacted your guidance go-to-market motion?

It's not -- I mean, you could say it's included in the guidance that we have, but the impact, we think, is going to be relatively small.

Our next question comes from the line of Alex Zukin with Wolf Research.

This is Arsen on for Alex. I guess just what's holding you guys back from excluding early renewals from that updated guidance given the dynamic in Q1? And can you just walk us through how much early renewals are assumed now versus last Q1 guidance was initially provided and why it's viewed as conservative? And just a quick follow-up after that.

Sure. So we don't break out our book of renewals based on time, early, late. There's just a whole host of different ways you can think about that. Early renewals just as an education folks -- some folks know or not is a very regular and recurring part of our business. It is something that in the majority of cases come with expansion. And so you like that because that means that customers are either needing more capacity, want more features all those types of things. So it's not something we're -- I don't want anybody to think like an early renewal is like a [indiscernible] renewal by any sense of the measure because that's one of the things we really like is that when customers are consuming more than they had planned or they originally bought. A lot of times, I mean they want to get more from us as well.

Obviously, the conservatism in the early renewal component in the forecast, which is timing, I think you heard in the prepared remarks, you've got the impact from FX, and then we have 2 different kind of positive impact from FX, 2 different offsetting impacts, they're both worth about the same size, whether it's the early renewal component, giving us a little bit more room to operate around the issue of timing and then a little bit more conservatism around the bookings just based on the uncertainty and environment. We think that's the prudent thing to do as we look out today.

Got it. That's helpful. And then just looking at IAM pricing today, it seems to have gone up since last quarter without having that lower price point relative to like eSig Business Pro. Is this indicative of you just seeing better adoption than expected and trying to capture more value with this momentum to get better growth? .

No. Look, I think we feel we're delivering a lot more value and we charge a premium, and customers have been willing to pay back across all 5 segments.

And we're adding features along the way.

[indiscernible] and the packages are becoming more valuable. And with all that we announced here at the Momentum, there's a lot more there across every segment.

Our next question comes from the line of Michael Turrin with Wells Fargo.

Great. Appreciate you squeezing me on. Blake, there's been a lot of questions on the impact, but you mentioned the health of early renewals in Q1 improved. Can you unpack that piece a bit more? What were you seeing last year? Was that customers renewing smaller in certain instances? Is IAM something that you now have in response? Or what else you're doing to continue to improve the health of those renewals going forward?

Yes. Thanks, and thanks for the question, too. I think what we got from the go-to-market changes that we made was that -- so the renewals happen [indiscernible] is you can have expansion or you can have a flat renewal or you can have an early renewal with partial churn. For those renewals that are flat or have partial churn, you actually prefer to renew them in their kind of natural renewal cycle timing. So you call it like their on-time contract date. Now there's a bunch of different reasons why customers may want to do a flat renewal with high capacity or consumption, maybe they don't want an expansion, but they need a new rule. So flat could be good in those ways. But the big difference what we saw on a year-over-year basis in that mix percentage I shared in the prepared remarks is that the mix of flat and partial churn renewals dropped 30% year-over-year. And so that's the data point that you hear from us soon, at least for me, when I think about, oh, those are working the way that was intended in that you're seeing a larger mix than shifting to those earlies with expansion rather than some that also have some more partial churn in them. And partial churn renewals happen, right? Not every customer expands with you when you -- when they renew. And so that was really -- when I'm talking about the health of the [indiscernible] a larger focus on those flat to renewals with expansion, that really drive the help of the business forward.

Just as a small follow-up, we've seen the pros and cons of early renewal impacts on billings. Do you considered ARR as a substitute for billings at all? Or what, from your perspective, makes billings the right metric to focus us all in some of the puts and takes and questions you're feeling here?

Yes. No, it's a great question. It's something that we talk about a lot. Billings is clearly not ideal because of the impact of timing, right? In this quarter and the past couple of quarters, actually. The way we handle that is we try to be really clear about that. So when it's a tailwind, and it provides kind of that extra growth for us, we are trying to be very clear and transparent with folks about that. And I think we did a job of that in the second half of last year where we had that tailwind and we're sure to highlight it.

It's also part of the reason why we're talking about IAM as a percentage of recurring revenue in book of business and not billings. What I can just say is we're actively thinking about better ways to communicate our business trends and be more thoughtful, but really consider kind of like the long-term evolution of this business, especially with IAM, which is still early. So I would say I recognize it, and so stay tuned on that.

Our next question comes from the line of Will Power with Baird.

Okay. Great. Maybe just shifting gears a little bit. You all noted the strong consumption trends in the quarter, I think you even indicated some of the indicators that were as strong as they've been in a couple of years. Maybe anything you can do to kind of unpack kind of the drivers and kind of the outlook for consumption as you move forward here?

Yes. I mean I'll take a stab at this. It's I would say it's pretty challenging to disentangle exactly what that means other than the fact that I think higher consumption and higher usage is almost a good thing for us. With the trickiness in there and disentangling is, oh, do you have people that are potentially running higher to their limit for something that's going on in their business, but almost always that people are using more of their contracts than they have previously, that's a good thing. And so I think it just bodes well for us. But the timing and the tipping point to move from contract utilization to a new contract is really an independent kind of decision that each customer makes on their own in kind of operating with their own representative from Docusign, but nothing else more than I've seen within the data.

I think that the usage trends still continue to look good for us from a year-over-year perspective. We highlighted that's continued in May. It's been very, very consistent for us, I would say, over the past few quarters, which I think has been great, and I believe based on that data, it bodes well for us.

Yes. I would just add that, look, one of the things I was very pleased to see is that I think -- Blake called this out in his prepared remarks, I think we had like a 4-year high in contract consumption. So we're really through that full post-COVID [indiscernible] at a pretty healthy point there. And so I think that bodes well for the future. So makes margin more optimistic.

Yes, most seem positive. My other question is just on gross retention. I think you all indicated you expected that to improve in the second half of the year. I just hope you could provide any -- some additional color as to kind of the key drivers and confidence level around that.

Yes. So for us in gross retention, we improved year-over-year in Q1. We expect that trend to continue for the remainder of the year. It's a trend that's been going on here, I would say, at least for the last 18 months, and we're really excited about that. It's working better with our customers, talking -- getting in front of deal renewal timing, looking at their usage, looking at the types of uses that they can have with us and having those conversations -- having conversations as well about IAM and having those discussions as well. And so it's just a continuation of a trend of better results for us that we're excited about.

Our next question comes from the line of Mark Murphy with JPMorgan.

Just curious if you can speak to the activity levels that you're seeing from segments of the economy that might be slowing or could slow in the second half due to interest rate tariffs. And I'm thinking of real estate, construction, manufacturing, the tech industry has had layoffs, consumer goods, et cetera, and understand that you didn't seem to see any aggregate change or material change in macro, but is there any bifurcation where those industries are slowing and other industries are picking up or just anything you're noticing that looks any different?

Sure. I'll take a stab at that. So I would say that the trends have been relatively consistent for us over the last few quarters, like on a usage kind of basis, the same verticals continue to show strength for us, whether that's financial services, health care, insurance, those have been kind of standout ones for us. I would say real estate continues to grow year-over-year, but less than the total, if you will. And that's been pretty consistent as well. So they're still growing. I just think there's room to improve there over time, depending on how everything works out, but no massive volatility over the last quarter in any major thing.

Okay. And Blake, as a quick follow-up, you had commented that the Q1 billings delta is a function of timing, not demand. Actually, I guess, Allan said that. But that being the case, I'm curious why the renewals couldn't bounce back rather automatically in Q2. In other words, if non-early renewals just become regular old on-time renewals, and then if that happened, why couldn't that produce a slightly better level of Q2 billings growth than what you're guiding to?

Yes, that's the question, right, because in general, lower early than a quarter results in higher on-time results renewals in future quarters. Not all of our renewals are just 1 quarter out, some are 1, 2, 3 or more than 4 quarters out depending on the customer. So you do have a partial offset from that kind of lower water level on future lease contribution. That's going to create hard comps year-over-year as you progress through the year. But the reason why you don't see that necessarily in all your guidance is because of that, we've also included the additional room to operate as we progress through the year. So that's just the services for us on the timing aspect and the magnitude of it.

It makes sense to do that, especially when the action service is around timing, and it doesn't have a material effect on our revenue forecast, but that's why you don't see that showing back in the guide.

Okay, everyone. Thank you, [indiscernible]. Thank you to all who joined today's call.

In closing, I just want to emphasize how excited we are about the increased pace of innovation at Docusign, the value we're delivering to customers and the long-term decision-making we're doing to realize the large IAM opportunity.

Thanks to the team for their energy and focus and to our owners for your ongoing support. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.