DocuSign (DOCU) Q4 2021 Earnings Call Transcript

DocuSign (DOCU 1.02%)
Q4 2021 Earnings Call
Mar 11, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Thank you for joining DocuSign's fourth-quarter and full-year fiscal '21 earnings conference call. As a reminder, this call is being recorded and will be available for replay from the investor relations section of the website following the call. [Operator instructions] I will now pass the call over to Annie Leschin, head of investor relations.

Please go ahead.

Annie Leschin -- Head of Investor Relations

Thank you, operator, and good afternoon, everyone. Welcome to DocuSign's fourth-quarter and full-year fiscal-year '21 earnings conference call. On the call today, we have DocuSign's CEO, Dan Springer; and CFO, Cynthia Gaylor. The press release announcing our fourth-quarter and full-year fiscal '21 results was issued earlier today and is posted on our investor relations website.

Before we get started, I'd like to remind everyone that on March 24, we will be hosting our annual customer conference, Momentum, and our inaugural analyst day. Both events will be held virtually the registration in more details, you can visit the investor relations website. As other events come up, we'll make additional announcements. Now let me remind everyone that some of our statements on today's call are forward-looking.

We believe our assumptions and expectations related to these forward-looking statements are reasonable, but they are subject to known and unknown risks and uncertainties that may cause our actual results or performance to be materially different. In particular, our expectations regarding the effects of the COVID-19 pandemic on our business, including the potential effects of the pandemic subsiding, 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 in 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. Non-GAAP financial measures exclude stock-based compensation expenses, employer payroll tax on employee stock transactions, amortization of acquired intangible assets, amortization of debt discount and issuance costs from our notes, acquisition-related expenses and as applicable, other special items. 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 or 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 press release, which can be found on the website at investor.docusign.com. Now I'd like to turn the call over to Dan. Dan?

Dan Springer -- Chief Executive Officer

Thanks, Annie, and good afternoon, everyone, and welcome to our fourth-quarter earnings call for fiscal 2021. Before we get to our results, I want to acknowledge that it's been almost a year to the day since we shifted our business operations and day-to-day lives in response to the pandemic. Over that time, COVID-19 has created huge challenges and disruptions for almost everyone everywhere, ones we're all still dealing with today. But amid those challenges, people found ways to keep life and work moving forward.

As a team, DocuSign was honored to play a role supporting people all over the world as they responded to the pandemic. We gained new customers, we expanded our relationship with others and we saw a surge in adoption of our products as accelerating a trend already under way, the digital transformation of agreements. This transformation not only allows agreements to be prepared, signed, act on and managed from anywhere. It also allows greater speed and efficiency than manual paper-based processes.

As a result, we don't believe our new or expanded customers will be going back to paper even after the pandemic recedes. We also don't believe life will go back to the way it was before. Of course, many in-person activities will be welcomed back. But when people found better ways during the pandemic, we believe those will continue and flourish, whether it's total or partial work from home, virtual visits to medical professionals or getting a document notarized remotely.

Ultimately, over the coming years, we think the trend will continue toward the option of doing anything from anywhere. We call the products and services supporting this trend the anywhere economy. We believe we're a key pillar, and it's only just beginning. You'll hear more from us about this in the coming weeks.

With that, we have a lot to share around Q4 and our full fiscal year. So let's cover that in three parts: our strong Q4 and record fiscal '21 results, how we think about our continued evolution into the agreement cloud company, and how the agreement cloud delivers value to our customers and partners. First, our results. Q4 was another strong quarter for us, contributing to a milestone year for DocuSign overall.

We saw revenue growth of 57% and billings growth of 46% year over year. We welcome more than 70,000 new customers, bringing the total to nearly 892,000 customers worldwide. And we saw our strongest expansion and up-sell rates yet, driving our dollar net retention to a record 123%. For the year, we exited fiscal '21, nearly 50% bigger than we were in fiscal '20 with almost $1.5 billion in revenue.

And our customer addition rate was more than double that of fiscal '20, edging us ever closer to the 1 million customer mark. By any measure, that's an astounding year. It's testament to how people around the world are embracing digital technologies to transform the way they work and live. It's a reflection of the incredible opportunity that's still in its very early stages.

And it's all made possible by the dedication of the 5,600-person strong DocuSign team who've gone above and beyond to help our customers this entire year. Of course, this is a journey, not a destination. So as we think about the future and our continued evolution into the agreement cloud company, we're increasingly going to do so in the context of three primary goals. First, we want DocuSign to be the best way to agree to anything anywhere.

We've recently made great additions to our leading eSignature product with identity proofing, click wrap, electronic witnessing, and soon, remote online notary transactions. We want to extend the benefits of digital signing to all kinds of agreements in all walks of life. We're seeing this transformation accelerate. For example, one of our financial services customers in the U.S.

came onboard early last year as part of its COVID-19 response strategy, and they deployed DocuSign across more than 20 use cases in the past six months alone. So far, DocuSign has powered almost 100,000 transactions for their HR, procurement, customer service and in-branch onboarding needs. These transactions took less than a minute to complete on average, delivering a rapid ROI. And DocuSign went from a crisis response solution last year to a business as usual solution today.

For our second goal, we want to digitally transform the entire agreement process, pre and post signature. Over fiscal '21, we continue to innovate in CLM and to integrate our acquisitions of Seal Software and Liveoak Technologies. And you can expect us to drive automation at every stage of the agreement cycle, all the way from preparing and signing to acting on and managing. As an example, one of our Latin American agricultural customers needed to improve the management, corporate governance and turnaround time for its key contracts.

And they needed a solution deployed across more than 30 subsidiaries in a matter of weeks. With DocuSign CLM and eSignature together, handling the entire agreement process, this customer reduced the time it took to complete contracts from 23 days to just one hour. Third, we want to continue ensuring that DocuSign is embedded in the applications where work and life happen. We already integrate with more than 350 apps, including recent integrations with Slack, Microsoft Teams and Workplace from Facebook.

And we have an award-winning API for custom integration, including with our customers' proprietary applications and processes. One of our global manufacturing customers is a good example of how DocuSign can integrate and inter-operate with multiple applications within an enterprise. The customer needed to ensure that NDAs and other critical documents could be generated accurately, reviewed quickly and sent and signed easily. Today, after working with the DocuSign team, the company has integrated DocuSign CLM and eSignature with its CRM, productivity software and cloud storage systems to create the exact desired workflow.

With all the speed, accuracy and efficiency benefits that come with it. So as I bring my remarks to a close, it's clear that fiscal '21 was extraordinary on almost every level. As thrilled as I am about DocuSign's performance, I'm even more pleased that we are able to help our customers during this uniquely challenging time. And to say that I'm excited for the pandemic to start subsiding is, of course, an understatement.

I'm also excited about DocuSign being well-positioned for the anywhere economy I mentioned earlier. It points to the incredible opportunity that's out there for us, given that the journey to a modern-day agreement process is being prioritized like never before. The market is still in its early stages, so we will continue to invest in growth as our first priority as we expand and scale our business. Lastly, before I hand the call over to Cynthia, a reminder that we'll be talking more deeply about all of this at our upcoming annual Momentum conference and our inaugural analyst day on March 24.

I look forward to seeing you all then virtually. For now, over to Cynthia.

Cynthia Gaylor -- Chief Financial Officer

Thanks, Dan, and good afternoon, everyone. In a monumental year, DocuSign helped many customers overcome challenges and transform their businesses to adapt to the new and changing environment. The strong demand for digital workflow accelerated our continued growth at scale and heightened our focus on execution and operations to meet our customers' needs. We capped off an exceptional year for DocuSign with strong results for the fourth quarter and the fiscal year, driven by robust new customer growth and expansions, primarily for our core eSignature offerings.

For the fourth quarter, total revenue increased 57% year over year to $431 million, and subscription revenue grew 59% year over year to $410 million. For the full year, total revenue reached $1.45 billion, an increase of 49% over last year; and subscription revenue hit $1.38 billion, an increase of 50%. Our international revenue increased an impressive 83% year over year to $89 million in the fourth quarter, ticking up 21% of total revenue. For the full year, international revenue grew over 67% to $287 million, reflecting accelerated expansion across geographies.

For the first time, we reached over $500 million in quarterly billings as Q4 rose 46% year over year to $535 million. This resulted in a 56% trailing four-quarter average, consistent with last quarter's average. For the full year, billings increased $1.7 billion. Q4 customer additions continued at a robust pace as we added over 70,000 new customers.

This brings our total installed base to nearly 892,000 customers worldwide. An increase of 51% over last year and more than double the number of new additions compared with fiscal '20. To give you a sense of the magnitude of this achievement, we added nearly the same number of customers this past year as we had in total at the time we went public, 15 years after the company was founded. As part of this, we added 11,000 new direct customers in Q4 for a total of over 50,000 for the year.

After more than doubling the number we added in fiscal '20, we ended the year with nearly 125,000 direct customers. For the third quarter in a row, we exceeded our historic dollar net retention range, hitting our highest level yet at 123% for Q4. Switching gears. Non-GAAP gross margin for the fourth quarter was 80% compared with 79% a year ago.

For the full year, gross margin was 79%, consistent with fiscal '20. Fourth-quarter subscription gross margin was 85% compared with 84% a year ago. For the full year, subscription gross margin was 84%, consistent with fiscal '20. We saw significant improvement in our operating leverage as non-GAAP operating margin reached a record high of 17% or $75 million, compared to 8% or $21 million in the fourth quarter of last year.

For the full year, operating margin was 12%, a more than 7.5-percentage-point improvement over fiscal '20. Non-GAAP net income for Q4 was $77 million compared with $22 million in the fourth quarter last year. For the full year, net income was $182 million up from $59 million in fiscal '20. We ended the quarter with 5,630 employees, an increase of 44% over last year.

In Q4, we took steps to put in place a more strategic and efficient capital structure. We issued $690 million in new 2024 convertible senior notes and paid down the majority of our existing 2023 convertible notes. We also put in place a new revolving credit facility, allowing us to borrow up to $500 million with additional capacity up to $750 million in total. While we are generating sufficient cash from our operations to fund our working capital needs, we believe this additional financial capacity, along with the attractive terms, will provide greater flexibility for our growth agenda.

We exited fiscal '21 with $867 million in cash, cash equivalents, restricted cash and investments. Operating cash flow in the fourth quarter was $62 million or 14% margin. This compares with $46 million or 17% in the same quarter a year ago. Free cash flow was $44 million or 10% margin in the quarter, compared to $16 million or 6% in the prior year.

For the full year, operating cash flow more than doubled to $297 million or 20%, compared to $116 million or 12% a year ago. And free cash flow grew to $215 million or 15%, compared to $44 million or 4% in fiscal '20. These amounts include $75 million related to accounting for the extinguishment of the 2023 convertible notes. Excluding this, Q4 operating cash flow would have been $137 million or 32% margin, and free cash flow would have been $119 million or 28% margin.

For the full year, operating cash flow would have been $372 million or 26% margin, and free cash flow would have been $290 million or 20% margin. This underscores the attractiveness of our model and the leverage we are seeing across the business. Now on to our guidance. Coming into this fiscal year, we expect to see continued secular tailwinds in support of the anywhere economy.

We are confident in our long-term trajectory and the untapped opportunity ahead. That being said, while our subscription-based model gives us a certain level of visibility, the impact of the pandemic adds an extra layer of complexity, which we are monitoring closely. With this backdrop, our approach to guidance continues to be to guide to what we know and can see in the current environment. As we begin the new fiscal year, we are guiding to non-GAAP operating margin going forward rather than individual operating expense lines to better align with how we are growing and scaling the business.

For the first quarter in fiscal '22, we anticipate total revenue of $432 million to $436 million in Q1 or growth of 45% to 47% year over year. And $1.963 billion to $1.973 billion for fiscal '22 or growth of 35% to 36% year over year. Of this, we expect subscription revenue of $415 million to $419 million in Q1 or growth of 48% to 49% year over year; and $1.886 billion to $1.896 billion for fiscal '22 or growth of 37% year over year. For billings, we expect $457 million to $467 million in Q1 or growth of 34% to 37% year over year; and $2.26 billion to $2.28 billion for fiscal '22 or growth of 31% to 32% year over year.

We expect non-GAAP gross margin to be 79% to 81% for both Q1 and fiscal '22. We expect non-GAAP operating margin to be 12% to 14% for Q1 and 13% to 15% for fiscal '22. We expect to see a de minimis amount of interest and other income, including undrawn revolver fees related to our credit facility. For fiscal '22, we expect a tax provision of approximately $8 million to $10 million.

We expect fully diluted weighted shares -- average shares outstanding of 205 million to 210 million, for both Q1 and fiscal '22. In summary, we would like to thank the DocuSign team, our customers and our partners for their tremendous efforts during this unprecedented year. We are excited for this year as we continue to deliver on the large opportunity ahead. We will continue to focus on driving long-term durable growth at scale as we help customers thrive in the anywhere economy.

Thanks, again, for joining us today. We look forward to seeing you in a few weeks at Momentum and our analyst day. And now we will open up the call for Q&A. Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from the line of Sterling Auty with J.P. Morgan. Please proceed with your question.

Sterling Auty -- J.P. Morgan -- Analyst

Yeah, thanks. Hi, guys. Just curious terms of what you're seeing on the new customers that are coming onboard to the platform. What ones are taking some of the advanced features for the SpringCM capabilities versus just plain eSignature?

Dan Springer -- Chief Executive Officer

Is that specifically you're thinking about vertical, geography? What dimensions would be most useful for you?

Sterling Auty -- J.P. Morgan -- Analyst

No. Across the board. So what kind of penetration? So what's the take rate for kind of the additional contract management and just kind of contract cloud in the new customers coming on?

Dan Springer -- Chief Executive Officer

So it's still a relatively small piece. If you think about what's happened really throughout the year, as we talked about all year, with COVID, we saw a dramatic move with a lot of acceleration in digital transformation to those sort of entry type applications and signature is just a fantastic way for people not to get -- not only an incredibly high ROI, but to quickly get that transformation they need in their business and be able to be effectively in the anywhere economy. So I think that has not changed. And if you look at things like CLM, where there is a longer purchase sort of cycle, where people require a statement of work or professional services to implement, those definitely were slowed through this year relative to where they were in the prior year.

Our view, though, coming out of fiscal-year '21, particularly coming out of Q4 here, is we're seeing that -- the build, the pipeline build again. And so we're quite optimistic that we're gonna see sort of that reacceleration that we saw a little over a year ago with CLM in particular. And then -- and the sense we're seeing that is it's going to be not so much in our smallest or largest customers, but it's going to go most quickly in those mid-market or commercial businesses, where it tends to be a little bit more fast-moving than the largest enterprises, but having a little bit more scale and need for a full CLM-like solution than our SMB customers. So that's where we see that developing.

Sterling Auty -- J.P. Morgan -- Analyst

Great. And then, one just quick follow-up. You mentioned and talked about the remote notary. What's the timing on when we might see that in the market? And where are some of the first use cases that you think you'll see the adoption?

Dan Springer -- Chief Executive Officer

Yeah, so what we see right now is that we've gone through the beta, which we've been really pleased with, and we're moving this month to get a sort of a limited release. We're gonna be focused on financial services companies, the use cases. Remember, the first piece we're coming out with is first-party notary. So that's -- which we think is the significantly larger part of the total market.

First-party is when companies have their own effective notary. So they're actually notarizing documents with their end, usually, consumers with an in-house or internal notary. And then, third party, where people are using sort of a notary is coming to bring two people together that doesn't work for either of them, which is a smaller part, we'll have that by the end of the year out into release.

Sterling Auty -- J.P. Morgan -- Analyst

Thank you, guys.

Operator

Your next question comes from the line of Stan Zlotsky with Morgan Stanley. Please proceed with your question.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. Thank you so much guys, and congratulations on a very strong end to the year. Just maybe the first one from my end. Cynthia, you mentioned the guidance for fiscal '22.

When you talk about the methodology that you approach to setting guidance for the year, was there anything different on how you approached it versus perhaps how you guys initially looked at fiscal '21? And what are some of the puts and takes that you considered in setting your guidance, mainly for billings because that's the metric that investors will care most about. And then, I have a quick follow-up.

Cynthia Gaylor -- Chief Financial Officer

Sure. Yeah, I mean, our guidance philosophy has been super consistent since the time we went public. We guide to what we can see. And it's largely data-driven.

So we use everything from pipeline and demand trends to close rates to looking at kind of the net new that we added during the year and looking at kind of the up-sell trends and expansion trends within there. So it's quite data-driven, and we guide to what we can see, and it's been very consistent from that perspective.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it. So as far as just considering how the business could trend into fiscal '22 as we're lapping the pandemic. It sounds like you applied the same type of lens as any other year as far as the conservatism that's baked into those estimates or anything along those lines?

Cynthia Gaylor -- Chief Financial Officer

Sure, yeah, I think -- I mean, we think the guide is reasonable. And just given how quickly the company has grown at scale, right, our business today is 50% bigger than it was a year ago. Earlier in our fiscal year, we had crossed the $1 billion in revenue mark. And now we're quickly coming up on $1.5 billion going to $2 billion.

And so when you think about growth at scale, we are looking at that closely because we're just growing solidly off a much bigger base. And so we're watching that closely and the different metrics that we're seeing. I think the pandemic certainly adds an additional layer of complexity just given the number of customers we've had, the demand and acceleration of demand we've been seeing, and that's all reflected in the guide for the year.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. And then, a very quick follow-up for Dan. The international growth numbers, I mean, they continue to really show an outstanding momentum. And if I recall correctly, I think it's actually accelerating slightly off the Q3 pace.

What's really driving the international adoption? What's out there? What are you seeing out there that may be a little bit different than what you're seeing in the U.S.? That's it for me. Thank you.

Dan Springer -- Chief Executive Officer

Yeah, I mean, I think the answer is it's very broad-based. One of the things that was really interesting for us finishing up the year, and you don't get to say this very often, but same thing happened in Q3, happened in Q4. Every single geography that we're in outside of the U.S., and for that matter, the U.S., exceeded its plan. And it's just, in my experience, that's something that's pretty special and pretty rare to happen.

And so we don't think there's a particular type of geography, either the common law or civil law or sort of EMEA versus Asia Pac, we're just seeing it across the board. And Stan, my view is what's happening here, it's actually quite interesting. If you think about a year ago, we shared this result where we sort of laid the growth of DocuSign in the U.S. over its size when it was same size where international business was and looked at that growth, and they're actually quite close.

And so I think what's happening here is that the U.S. business, when it was much smaller, grew at a higher rate. And so now, we're seeing this happen in our international business. So it's not really surprising to us, and it's nothing that's sort of changing in the marketplace.

I think we're just realizing it's a very large TAM opportunity outside of the U.S., and we're starting to really hit that growth curve in the way we'd like to be hitting it, and we're optimistic we're gonna continue to see that through the year ahead.

Stan Zlotsky -- Morgan Stanley -- Analyst

That's perfect. Thank you so much.

Operator

Your next question comes from the line of Pat Walravens with JMP Securities. Please proceed with your question.

Pat Walravens -- JMP Securities -- Analyst

Great. Thank you. I have two, if I can. One for each of you.

Dan, I mean, I think in the county that I live in, across the bay from you, I think we're up to 26% or 27% of the people haven't gotten their first shot. So I'm just wondering if you -- as February and March have started here, is there any change in the demand environment based on more of a return to normalcy?

Dan Springer -- Chief Executive Officer

We haven't seen anything. I don't know whether we would be a leading or a lagging indicator, Pat. But we haven't seen anything in our business that suggests that that will change. Now if you recall, we've said this about -- starting about three quarters ago, that our forecast on this is that the people that have come with new customers or new use cases to DocuSign that are COVID-19-centric, they're not going back.

People aren't going back to paper. They're not going back to manual processing. So the real question, I think, is interesting in your question is, will that rate of new people coming to us change with -- as we start to move into some sort of return to "normalcy". We haven't seen any change yet.

And maybe that the change isn't enough and there's not enough new activity to have driven the change in the demand environment. But at this point, yes, we haven't seen a change yet.

Pat Walravens -- JMP Securities -- Analyst

All right. Perfect. And then, I'm not sure which of you wants to address this, but I think it's super interesting as I'm looking back at my model and in April of 2019, so Q1 of fiscal '20, net dollar retention was 112%, and it's gone up seven quarters in a row. What is driving that? I mean, that's not all the pandemic, right? Why has it gone up seven quarters in a row?

Dan Springer -- Chief Executive Officer

We're looking at each other. I'll start and let Cynthia finish with the good stuff. But I think the real answer is we made a significant investment in customer success, is really the shore of the bet. We've always been a customer success company.

And starting about a year before that, so about three years ago, I think we realized we could do more. And it's not just our customer success organization and the CSMs that I think are so powerful, although they are fantastic and they're a huge part of it. But I think culturally, we really have just sort of forced all of our employees to say, we need to be a customer success company, and it's great because it's wonderful for the SaaS economics as you articulated. But two, it's great because it makes employees proud to work here.

It makes them proud to be at a company that says, of course, we're gonna make money. We're a business. But we wanna be part of something bigger than that, and we wanna be proud about that. And so I really think that investment is now yielding those results.

Cynthia Gaylor -- Chief Financial Officer

Yeah. And I would just add, if you have to remember that our customers start out small and then they grow over time. And so when you think about the number of customers that we've added over the past couple of years and this year, in particular, they start out small, they expand as they use the product. And as Dan said, we've invested a lot in customer success to help them become successful on the platform.

And so that's certainly driving that number. As the denominator gets bigger, the numerator is also getting bigger as customers use the products more.

Pat Walravens -- JMP Securities -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Karl Keirstead with UBS. Please proceed with your question.

Karl Keirstead -- UBS -- Analyst

Thank you. Dan and Cynthia, just on the 4Q billings performance, it came pretty close to the pin relative to the prior quarters where DocuSign had put up pretty strong double-digit beats against the high end. I'm just wondering if anything felt a little different in the fourth quarter. Maybe there was some timing or other factors.

Thank you.

Cynthia Gaylor -- Chief Financial Officer

Yeah, so we talked about this a little bit on the Q3 call. So Q3 was exceptionally strong based on timing of deals and some early renewals that came in Q3. And so Q4 was a strong growth as well at 46%, albeit it wasn't as strong as the Q3 growth. So there was nothing unusual in the quarter.

I would just remind you that on billings, they can fluctuate more just given the nature of that metric and the timing of deals. And so we continue to encourage folks to look at that four-quarter average. That smooths out the changes quarter to quarter. And if you take that lens and apply it to Q4, it was really right in line with the last couple of quarters in that trailing average.

Karl Keirstead -- UBS -- Analyst

Got it. OK, that's helpful, Cynthia. And then, maybe a follow-up for you. I know, typically, when you start the fiscal year, you give your operating margin guidance, but maybe not the cash flow guidance.

But as you pointed out, the adjusted free cash flow margins in fiscal '21 were 20% relative to your operating margins of 12%. Should, as we model free cash in fiscal '22, use something similar to that correlation? Or might there be something unusual in fiscal 22, such that it will look a little bit different?

Cynthia Gaylor -- Chief Financial Officer

Yeah, so we don't guide to cash flow. But I think when you look at kind of the Q4, and for the year, the cash flow, and we gave all those numbers in the release, right, the convertible notes that we took down in Q4. On an adjusted basis, the cash flow was actually quite compelling. Even without the adjustment, we're showing just a lot of leverage in the model, similar to the operating margin, right? Now we'll continue to invest in growth.

So I wouldn't anticipate anything in fiscal '22 out of the ordinary. My sense is we'll continue to demonstrate that leverage. But if we can invest for growth, we will, and that's one of the reasons we did the financing in January was really to give us that operating flexibility.

Karl Keirstead -- UBS -- Analyst

Got it. Thank you very much.

Operator

Our next question comes from the line of Bhavan Suri with William Blair. Please proceed with your question.

Unknown speaker

Hey, everyone. This is actually Jake on for Bhavan. congrats on a great quarter. So just touching again on the capital allocation strategy this year, how can we be thinking about that in terms of similar tuck-in acquisitions to what we've seen in the past? And then, just as a follow-up, would love to hear about how you're thinking about the competitive landscape given the recent acquisitions from Box and Dropbox in the space?

Dan Springer -- Chief Executive Officer

Yeah, absolutely. I don't think we see any dramatic change to our thinking on M&A strategy. I think we love to build stuff ourselves. We have a fantastic product development team here.

And the vast, vast majority of all the product that we have, the stuff that we've built internally. But from time to time, and Seal would be a good example of this from last year, we look out and we see, wow, some folks are really ahead of where we are, not just on some product development, in this case, in artificial intelligence and advanced analytics; but also, they just have some domain expertise, and it would take us a long time to build that. So we've seen some really nice tuck-in acquisitions that are relatively small compared to our revenue or compared to our market valuation. But we think meaningful in accelerating that agreement cloud strategy that we have.

I think we're probably thinking about things the same way. It's possible we could go a year and not do any deals if we didn't see anything that we needed. And we could also do, as we did last year, a couple of deals or more. It's fantastic to have Cynthia in the seat of CFO now with all of her banking experience prior to becoming a CFO that I suppose gives us more perspective on different things we might look at in that way.

But just at the highest level, I think it's sort of the same that we did last year is probably what you should expect going forward because we're not doing anything fundamentally differently. I would say that we are looking at doing a few more investments. And again, Seal is a wonderful example of a company we invested in and got closer to them. So we felt we were really setting ourselves up for a highly successful integration and acquisition there.

And I think you may see us do more of that in the future, increase the number of small investments we're making in companies we see in the broadly defined agreement cloud space. And then, potentially have those as acquisition opportunities. The second part of your question around the competitive landscape, we don't think there's been any change. We always say very aggressively, when we think about competition, we fundamentally think about paper, when we think about paper and manual processes.

We are so early into this game in terms of where the TAM is. The vast, vast majority of all of our growth is coming from new field expansion. From time to time, people want to upgrade. Particularly in signature, we'll see that where someone will wanna move from a less advanced sort of smaller feature set provider.

But again, the bulk of us is building this new market. So I don't think that's changing. We always, of course, take careful looks when someone buys -- someone that's in one of our spaces. Box is a partner of ours, and we continue to want to partner with them.

We have a very open model, and this won't change our approach to that relationship at all.

Unknown speaker

That's great. Thanks for answering my questions. Congrats again on the great year.

Dan Springer -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Kirk Materne with Evercore ISI. Please proceed with your question.

Kirk Materne -- Evercore ISI -- Analyst

Thanks very much. Dan, you, obviously, have a huge cohort of new customers coming up for renewal over the next couple of quarters. What's the conversation like the year after you sign someone up? Meaning, is that really a of leverage where conversation might go from a departmental conversation to an enterprisewide conversation? Or is that the time that you start being able to sort of introduce some newer functionality or products? I'm just kind of curious about how you and the sales organization talk about sort of the next step with a lot of these customers that came on this year, because it would seem to be an opportunity to sort of go beyond maybe the pandemic-related sort of decisions they had to make, meaning these could be really nice expansion deals for you all over the next two to three quarters.

Dan Springer -- Chief Executive Officer

Yeah, I think that's exactly how we look at it. I'd tell you, the answer to your question at the high level, of course, it depends, right? There's quite a range. We absolutely have some customers before they make it to a year, realize they're exceeding the capacity that they purchase from us. And we do early renewals even before the year, that's a small percentage of them.

The one-year mark is a great opportunity to take stock with our customers and say, what's your sort of utilization of the capacity you have to date with signature. And again, the vast, vast majority of people start with us with signature. And then, is there opportunities, as you said, to go to additional departments. Sometimes, it's phenomenon.

It's just more use cases in the same department. They brought in some back office use cases in the HR department, but they have more that they could use, separate from gonna finance or going to the front office. And then, of course, the thing that we're kind of really excited about with the Agreement Cloud is starting to have those successful customers start the conversation about the broader product portfolio. And so I think we'll have all of the above.

I do believe we're gonna see two phenomenon at a high level this year. One, a lot of people that kind of came to us last year and have been successful in adopting, they're also gonna need to take a little bit of a breather because they've been going so fast in this remote setting, now they're coming back onboard, and they've sort of put off a lot of other projects. So we have heard CIOs say that they've got a backlog now of things they need to get done because the pandemic made it very difficult for them to get certain projects done. And at the same time, I think we're gonna see a lot of people who are saying, wow, I'm really glad I got started with the digital transformation, and I want more of it.

And so they're gonna wanna accelerate even the expectations they may have had for that pace to change. So when you put all that mix together, it's fairly complex, but it leaves us feeling we're gonna have a considerable cross and up-sell opportunity this year, and those incremental customers, significant customer new adds that Cynthia talked about earlier, from last year, over the course of this year, particularly the second half of this year, when a lot of those renewals come up, should be a great cross-sell opportunity.

Kirk Materne -- Evercore ISI -- Analyst

And if I could sneak just a really quick second one in. What's sort of your thought process on your partner relationships with some of the bigger GSIs now that we're hopefully getting back to a more sort of normalized world. Is this a year where you think you can make sort of a bigger step forward in having those partners build bigger practices on you, especially around sort of the broader agreement cloud? Or is that maybe even a counter '22 event? Thanks.

Dan Springer -- Chief Executive Officer

Yeah, so I'll be as candid as I can. So we're enthusiastic, but we're also very cognizant of the fact that those are relationships to work at scale to take time to develop. Historically, as we've shared, the really large GSIs sort of looked at us and said, "We aspire to some day, be able to do more with DocuSign because we love the brand, we love the products, but there wasn't as much of an economic opportunity, particularly with signature only." And quite frankly, they came back and said, "Your software is too easy to use." It doesn't create enough economic opportunity for us. And we totally got it.

And now they're starting to look, as you said, the broader Agreement Cloud, and there's a lot of enthusiasm building there. But if you said this year, and we think about our sort of SI strategy, this year, fiscal year '22, I believe the bulk of the success we will get will be with the regional SIs this year, but really starting to make traction with the GSIs. And probably next year is the year where I would be disappointed if we weren't really hitting the ground running with the GSIs because they all want to be DocuSign partners. We just got to get that model right so it can be significant enough for them for their business model.

Kirk Materne -- Evercore ISI -- Analyst

Right. Thank you.

Operator

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

Rob Owens -- Piper Sandler -- Analyst

Great. Thank you for taking my question. I guess, I wanna drill down a little bit more on the international front. And since I can't really ask a question to Mike Sheridan, ask a question about him.

Just in terms of -- any changes relative to go-to-market sales process. And as you look at a lot of the major geographies out there, where are they in terms of the maturity relative to the U.S. and what you're seeing? Are there different competitors that you run into regionally? Just with regards to [Inaudible] where the overall opportunity is and what you're seeing right now?

Dan Springer -- Chief Executive Officer

Yeah, well, Rob, let me -- I'll try to channel Mike for you best I can because, I guess, I should use a much deeper voice if I'm gonna channel Mike. But the construct, I would say, is the work that we talked about the last couple of quarters was really the success that we needed in Europe was around coordination. We've grown very quickly. And we realized we wanted to put additional leadership to support the international growth because we weren't coordinated, as well as we could across our own organization so that our marketing team, working with our sales teams, our sales teams working with our success in professional services teams and we had real opportunity.

And we've been pleased with that result, and we wanna continue to have that focus an investment. There wasn't anything, I'd say fundamentally broken with the business, but we did have some opportunity for better coordination. And I think that has helped us. But I think in the end, as you heard us talk about earlier at the beginning of the call, what's happened in international is it's coming into its own, and it's sitting at scale, just like we had the scale growth in our domestic business several years before.

From a standpoint of the types of investments, I do think we will continually look at additional markets where we could have a bigger presence in those markets. Because of our web and mobile business, we sell well over 100 countries. But we have these eight focus countries that we've put most of our effort against, and we continue to think that's the right strategy because there's just a lot more growth in those markets. But over the course of this year, I would not be surprised to see us come forward and say another country or even two that we're gonna sort of add to that list of the focus eight and start to go deeper.

And then, the last piece, I'd say, we are really investing aggressively in our digital strategy, which, of course, is global in nature. And I think it can be a significant part of growing our international business because that reach can get up to close to 200 countries. And we wanna be leveraging that investment aggressively as part of international.

Rob Owens -- Piper Sandler -- Analyst

All right. Thank you.

Operator

Your next question comes from the line of Rishi Jaluria with D.A. Davidson. Please proceed with your question.

Rishi Jaluria -- D.A. Davidson -- Analyst

Dan and Cynthia, thanks so much for taking my questions. Nice to see the business momentum continuing. I got two questions. First, just following up on the conversation on international.

You really ramped up international hiring. Where are you ramping up your headcount the most? Is it on sales coverage? Is it on leadership, product side or other areas? And maybe alongside that, Dan, you talked about your kind of eight focus countries. As I look at the slide you laid out in your slide deck on international traction, it seems like there's a huge opportunity in Asia, and really, Japan is the only country that you've had a good amount of success there. But it seems like there's a really big opportunity.

What needs to happen to get real success in that Asia, ex-Japan region? And any lessons that you could take from the, I think, surprising, at least to me, success you've had in Brazil, into those territories? And then, I got a follow-up.

Dan Springer -- Chief Executive Officer

Sure, yeah, in terms of the investment by category, it's sales and customer success. I mean, the core field is what we are building. And we're not product people in Europe in Paris, but the bulk of what we're building is the core field and then the support organizations like marketing, like finance, like legal, that are gonna really support those teams in their growth. But the core of it is sales and customer success.

And then, in terms of your question specifically about Asia and Asia Pacific, so I think we -- two things. One, we have, historically, thinking of the Asia Pacific market is all other, and then Japan. We're actually starting to look at it now as a JPAC mindset. And we're increasingly looking at bringing leadership in to cover across those two businesses.

A lot of software companies have very distinct Japanese businesses, and there's a lot of good reasons for that with the nature of how that economy works. But we think we have opportunity to be more successful broadly in Southeast Asia if we leverage the strength we have in Japan and the strength we have had traditionally in the ANZ market. So that's probably the best answer for what we're trying to do to address that. We do have a small presence in Singapore, which we think could be an important launching pad for other markets in Southeast Asia.

But at this point, we don't have plans to open additional offices in Asia. We really wanna try to leverage what we've got in Sydney and Melbourne, Tokyo and Singapore.

Rishi Jaluria -- D.A. Davidson -- Analyst

All right. Got it. That's helpful. And then, just as a follow-up, I wanted to ask on the CLM side, as you continue to gain traction there and get more and more customer wins, do you find yourselves getting into more competitive situations against some of the pure-play CLMs, like Icertis or even SAP, Ariba? Or how would you characterize what you're seeing as you get more traction there? Thanks.

Dan Springer -- Chief Executive Officer

Well, I think for us, the competitive situation, there's a question earlier about competition, is quite different in a signature than it is in anything else, right? We have such a dramatic market share lead and, quite frankly, product capability lead in eSignature that it's -- there's just -- the competition, I said, is paper. It's not that there aren't other strong companies that are in the market, but just by the sheer size advantage that we have. And you heard us talk about this before, we spend more money on R&D than we think those folks have in revenue. So from that standpoint, it's a very different dynamic, and we are one of the leaders in CLM, but there are other credible companies in the space.

So we do see a different competitive dynamic. You mentioned SAP and Ariba. Interestingly, SAP is much more of a partner really than a competitor. And increasingly, we're actually investing significantly in our integrations into Ariba.

To ensure that our CLM products will be industry-leading on the buy side, as well as they are on the sell-side today. But in general, I think your point is spot on. And it is a different competitive dynamic, and we're one of the leaders, but not the dramatic leader that we are in signature.

Rishi Jaluria -- D.A. Davidson -- Analyst

All right. Wonderful. Thank you, and looking forward to the conference.

Operator

Your next question comes from the line of Michael Turrin with Wells Fargo Securities. Please proceed with your question.

Michael Turrin -- Wells Fargo Securities -- Analyst

Thanks, and good afternoon. Going back to the retention number, you referenced that continues to pick up. How should we think about the progression from here? Are those 120-plus-percent level something you feel could sustain given the seedlings you've laid with the signature this year and just expansion opportunities with the Agreement Cloud you've laid out and it sounds like are starting to gain some momentum? Or is there some counter balance we should also be mindful of in penciling those numbers out going forward?

Cynthia Gaylor -- Chief Financial Officer

Yeah, so on that, I think the new codes are really seeding our opportunity in upsells and expansion when we think just kind of about the market opportunity and where that number could go. However, given the scale that we're at and the rate that we've been growing, we're watching that number quite closely. So our historic range for dollar net retention has been kind of in the 112% to 119% range in the last bunch of quarters, we've been above that range. And so I think the way to think about that is we likely would continue at the high end of the historical range or at least at the high end of the historical range.

And we'll continue to monitor that metric quite closely. But we're feeling good, one, about the 123% that we posted for Q4, but then also just the amount of net new customers that we've added. And how they've been expanding over the course of the last year.

Michael Turrin -- Wells Fargo Securities -- Analyst

That's helpful. Just maybe a quick follow-on, Cynthia, on hiring. You had a big step-up in headcount midyear. At least from a sequential perspective, it looks like the pace of adds is starting to moderate.

Can you just expand on how you're thinking about capacity from here? There's continued commentary around staying in growth investment mode, but have you laid some of the initial seeds with margin expansion already in the guide. It looks like maybe that's the case, but anything you can add is helpful.

Cynthia Gaylor -- Chief Financial Officer

Yeah, for sure. And that's exactly how we're thinking about it. We are investing for growth. And if you think about the last four quarters, in the first half of last year, the customer demand outstripped the capacity in the field, right? And so as we move through the year, we then accelerated hiring to really meet that customer demand and to set us up to continue to grow off a higher base coming into the year.

And so we'll continue to make investments across the go-to-market in sales and success, as Dan had mentioned, but then also in R&D and continuing to innovate around the product portfolio, particularly across the Agreement Cloud. And so we'll continue to make those investments. You will see us continue to move toward our operating margin targets. But just given how nascent the opportunity is, how big the opportunity is in our market position, we'll continue to invest aggressively for growth.

Dan Springer -- Chief Executive Officer

And one other piece. I wouldn't look at it as a reduction in the capacity building in the second half. If you factor in the acquisitions that we did in the middle of the year, so if you look at the number of employees that we brought on with the Seal and the Liveoak technologies, that sort of inflated a little bit in the middle of the year. So if you smooth that out, I think you hear what Cynthia's is saying is very consistent, that we are continuing to invest in growth first.

The performance of the business is such that we threw more to the bottom line than we expected. It's not a problem. But it's no way an indication that we're moving back from our focus on growth first.

Michael Turrin -- Wells Fargo Securities -- Analyst

Yeah, it's a good problem to have. Congrats on the impressive year you just closed.

Dan Springer -- Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Tyler Radke with Citigroup. Please proceed with your question.

Tyler Radke -- Citi -- Analyst

Hey, thanks for taking my question. I wanted to ask you, just how you're thinking about maybe some of the newer verticals particularly around federal or some other verticals that maybe you didn't see as much success in, in FY '21. How are you thinking about those in terms of being a driver here this year?

Dan Springer -- Chief Executive Officer

Yes. So we think about our business in verticals, for sure. And then, of course, we have our geo business, right, which is quite substantial. But in the verticals, the overall government vertical was incredibly strong for us in fiscal-year '21, but it was very strong at state and local, and it wasn't as strong in federal.

And I don't know that I have -- I mean, we could sort of hypothesize on what a pandemic does for certain types of governments or others, but I think that there were so many kind of like health and human services aspects in the state and local, where they deliver those types of services to their populations that that really needed to happen in a quick way. And I think the federal agencies just had less of that and less of that urgency. So from that standpoint, as we look forward to this year, and we think about federal, I think we think it's a lot of opportunity, and there's a lot of almost pent-up sort of demand. Now they're run by the federal government.

It's fantastic. But their pace of change there is sometimes not rapid. So we wouldn't be surprised if some of those things take longer than we think, but we do see a pipe building of significant opportunities to add that to the good success we had in state and local this last year.

Tyler Radke -- Citi -- Analyst

OK. Well said. And just a follow-up. Maybe just if you could kind of share with us what you're thinking about in terms of return to, obviously, not back to full normal pre-COVID spending levels, but just kind of what you're modeling in, in terms of high-level assumptions there.

Dan Springer -- Chief Executive Officer

Are you talking about our spending? Or are you talking about customer spending throughout?

Tyler Radke -- Citi -- Analyst

Yeah, just spending on either travel, entertainment, office spending. Just kind of curious how you're thinking about that through the back half of the year.

Dan Springer -- Chief Executive Officer

Yeah. Well, so we've sort of told our employees, to give you some indication of that that they would not be required to return to DocuSign offices until October 4. Now we previously said June, and that pushed out. It could push out again, obviously.

But that's our perspective, that we wouldn't be back in any significant way before then. And Cynthia, do you wanna talk a little bit how we've modeled the expenses from that standpoint and how that might change to try to give some perspective. I look at the bottom line and say, we've talked about continued increase in our profitability and our operating income, but not at the torrid rate that it improved in fiscal-year '21 because we do wanna focus on growth investing.

Cynthia Gaylor -- Chief Financial Officer

Yeah, of course, of course. And so I think toward the second half of the year, we're starting to bake in kind of more a return to office in our own expense line. But I would say it's moderated, right, because it will kind of ramp in there slowly. I would say last year, that probably wasn't the biggest impact on our margin.

It was really the outperformance and the customer demand. And so we invested in other places when kind of some of the travel went away, including in employees and some employee benefit types of program. So in a nutshell, we're baking it in toward the second half of the year, but it's kind of a slow ramp up, but it's included in the guide.

Tyler Radke -- Citi -- Analyst

OK, thank you.

Operator

Ladies and gentlemen, we apologize, but we are out of time for questions. And I would like to turn the call back to Mr. Dan Springer for closing remarks.

Dan Springer -- Chief Executive Officer

Thank you so much, and thank you all for joining us. And as I said at the beginning of the call, we really hope you'll all be able to join us for our inaugural analyst day, and we'll look forward to seeing you there. Thank you.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Annie Leschin -- Head of Investor Relations

Dan Springer -- Chief Executive Officer

Cynthia Gaylor -- Chief Financial Officer

Sterling Auty -- J.P. Morgan -- Analyst

Stan Zlotsky -- Morgan Stanley -- Analyst

Pat Walravens -- JMP Securities -- Analyst

Karl Keirstead -- UBS -- Analyst

Unknown speaker

Kirk Materne -- Evercore ISI -- Analyst

Rob Owens -- Piper Sandler -- Analyst

Rishi Jaluria -- D.A. Davidson -- Analyst

Michael Turrin -- Wells Fargo Securities -- Analyst

Tyler Radke -- Citi -- Analyst

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