Electronic signature solutions specialist DocuSign (DOCU -0.82%) reported fiscal 2025 second-quarter financial results on Thursday that showed year-over-year growth on both top and bottom lines. The company outperformed its prior guidance in total revenue, subscription revenue, and gross margin.
Despite its achievements, the quarter showed tepid single-digit percentage growth in multiple metrics, highlighting challenges in market expansion.
| Metric | Q2 Fiscal 2025 | Management Guidance | Q2 Fiscal 2024 | Change (YOY) |
|---|---|---|---|---|
| Total revenue | $736 million | $725 million to $729 million | $687.7 million | 7% |
| Subscription revenue | $717.4 million | $705 million to $709 million | $669.4 million | 7.2% |
| Billings | $724.5 million | $715 million to $725 million | $711.2 million | 1.9% |
| Non-GAAP gross margin | 82.2% | 80.5% to 81.5% | 82.3% | -0.1 pps |
| Non-GAAP net income per share (diluted) | $0.97 | N/A | $0.72 | 34.7% |
Source: DocuSign. Note: Management guidance was provided on June 6, 2024.
Understanding DocuSign
DocuSign specializes in electronic signature technology and digital agreement management, making it the go-to choice for businesses aiming to streamline their agreement processes. The company leverages artificial intelligence (AI) and machine learning to offer products like eSignature and Contract Lifecycle Management (CLM). Recently, it launched the Intelligent Agreement Management (IAM) platform, which aims to enhance agreement workflows and customer satisfaction.
DocuSign seeks to integrate its offerings seamlessly across more than 900 partner applications, including major names like Alphabet's (GOOG 0.21%) (GOOGL) Google and Microsoft (MSFT 0.69%). Security and compliance are top priorities, with certifications like ISO 27001 and FedRAMP authorization reinforcing customer trust.
Quarterly Highlights
Revenue of $736 million surpassed management's upper guidance and subscription revenue did as well. Adjusted operating margin landed at 32.2%, also beating expectations of 27% to 28%.
Growth remains a challenge, with total revenue and subscription revenue each growing by just 7%. The company's billings hit $724.5 million, slightly above the higher end of the guidance range but only a 1.9% increase from the same quarter last year. These figures indicate some degree of market saturation, as DocuSign already has a large and established user base.
On the product front, the company rolled out its IAM platform to positive customer feedback. Investment in IAM applications like IAM Core and IAM for Sales continues to be a focus. Despite this, the rebranding of the IAM platform from the Agreement Cloud hasn't generated significant enthusiasm among analysts, suggesting it might be perceived as mere repackaging.
From a financial standpoint, the company reported GAAP net income per diluted share of $4.26, a substantial increase from $0.04 the previous year. This was largely driven by operational efficiencies. Free cash flow improved to $197.9 million, an increase of 7.8% year over year. Cash and equivalents declined from $797 million to $619 million, likely due to increased stock repurchases amounting to $200 million.
Additionally, DocuSign made new executive appointments, bringing in Paula Hansen as president and chief revenue officer, and Sagnik Nandy as chief technology officer. These appointments are aimed at strengthening leadership in revenue operations and technology.
Looking Ahead
For the third quarter, management forecasts total revenue between $743 million and $747 million, with subscription revenue expected between $722 million and $726 million. Billings are expected to fall in the range of $710 million to $720 million. Non-GAAP operating margin guidance is set between 28.5% and 29.5%, while the non-GAAP gross margin is forecasted to be between 81% and 82%.
For the full fiscal year, DocuSign has raised its guidance slightly. Total revenue is now expected to be between $2.94 billion and $2.95 billion, compared to a previous estimate of $2.92 billion to $2.93 billion. The anticipated operating margin was revised up to 29.0% to 29.5%, indicating management's confidence in sustained performance improvements.
Investors should monitor a few key areas in the quarters ahead. First, how effectively DocuSign manages to break out of its single-digit growth, particularly through expanding its IAM platform. Executive leadership, strategic partnerships, and ongoing innovations will be essential to navigating current market challenges and capitalizing on future opportunities.
