DocuSign, Inc. (DOCU) Q4 2019 Earnings Report, Transcript and Summary

Good afternoon ladies and gentlemen. Thank you for joining today – today’s DocuSign Fourth Quarter and Fiscal Year 2019 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 this call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I will now pass the call over to Anne Leschin, Head of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone. Welcome to our DocuSign's fourth quarter and fiscal 2019 earnings conference call. On the call today, we have DocuSign's CEO, Dan Springer and CFO, Mike Sheridan. The press release announcing our fourth quarter and fiscal year results was issued earlier today and is posted on our Investor Relations website. Before we get started, I'd like to let everyone know that we will be participating in the JPMorgan Technology, Media and Communications Conference the week of May 14th. As other events come up, we will make additional announcements. Now let me remind everyone that the statements made on this call include forward-looking statements that are based on assumptions we believe to be reasonable as of this date and on information currently available to management including estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results. performance or achievement to be materially different from any other results, performance or achievements expressed or implied by the forward-looking statement. Further information of these risks and uncertainties is included in our prospectus previously filed with the SEC and additional information available in our October 31, Quarterly Report on Form 10-Q and other filings with the SEC. You should not rely upon forward-looking statements as predictions of future events. Except as required by law, we assume no obligation to update these forward-looking statements or to update the reason actual results differ materially from those anticipated in the forward-looking statement. Now I would like to turn the call over to Dan. Dan?

Thanks, Annie. And good afternoon to everyone. Thank you for joining us today for Q4 earnings call. I wanted to start by acknowledging the end of our first fiscal year as a public company. It has been an exciting journey. We have seen our team align around an expanded vision and in turn, deliver consistent innovation that is bringing that vision to life. We have continued to drive widespread penetration and adoption at hundreds of thousands of customers around the world, making a significant impact on their businesses. And after spending the last two days with about 1,500 of our employees at our Global Kick-Off here in San Francisco, I couldn't be more excited about what's to come. Against that backdrop, I want to cover three key areas in my remarks today, starting with the summary of our performance in Q4 and fiscal '19, moving on to our priorities for fiscal '20 and ending with some important factors that elevate our brand and drive customer success. I'll then hand it over to Mike to address our financials in detail. So let's start with our performance. Overall, DocuSign had a strong Q4, which in turn contributed to a very solid fiscal year. Total fourth quarter revenue came in at $200 million, representing 34% growth versus Q4 a year ago. We were again profitable on a non-GAAP basis and operating profit of $7 million this quarter. And we generated $23 million in free cash flow. This means we are exiting our first year as a public company with annual revenue of $701 million, reflecting 35% growth and a positive non-GAAP operating margin of 2%. Now our growth continues to be driven by three primary factors: Acquiring new customers; expanding volume and use cases within existing customers, all while bringing new and innovative solutions to market. As a result of this, the end of Q4, we had 477,000 paying customers, an increase of 22,000 since Q3 and more than 100,000 at this time last year. Now consistent with previous quarters, this growth is not limited to the U.S. Earlier today, we announced our expansion in Toronto with the opening of our new Canadian headquarters, and we're looking forward to building a larger team to drive growth in this attractive market. In total, our international business contributed 17% to the overall revenue for the fourth quarter as well as fiscal '19, and it remains an area of keen focus for us going forward. Now let's turn to our priorities for fiscal '20. When we think about the opportunity the year presents, it falls into two main buckets: The innovation we're bringing to market and the ways we're helping our customers succeed on our platform. Speaking to innovation, this year, we'll see DocuSign continue our journey to simplify life and accelerate the process of doing business. We pioneered the technology and the category of e-signature, and we built an incredibly strong business as a result, yet we're still only scratching the surface of the $25 billion TAM. As the world leader in this category, we remain 100% committed to it and to consistently innovating in e-signature in the years to come. At our IPO last year, we outlined our broader vision to build on our strength in e-signature and help companies modernize their entire Systems of Agreement. That is the way they prepare, sign, act on and manage the agreement that are fundamental to their business. To help deliver on that vision, we acquired contract life cycle management leader, SpringCM, in September last year. Given that it's technology is automated processes before and after the signature, it was a perfect match, validated by the fact that our products were already integrated at more than 100 joint customer. Since completing the acquisition, our better together value proposition has been very well-received by the DocuSign customer base. We have closed deals that SpringCM alone would not likely have access. For example, with one of the world's largest telephone company. The presence of SpringCM in our portfolio is also helping to further differentiate the DocuSign e-signature offering. In some cases, we've been able to sell SpringCM along with e-signature to brand-new customers. In other cases, we have achieved a competitive advantage by winning e-signature only deals because the customer sees the desirability of adding SpringCM later. All of these outcome have validated our thinking on the attractiveness of acquiring SpringCM. Next, I'd like to highlight some positive development with one of our most important partners, Salesforce. Just last week, we announced DocuSign for Salesforce Essentials. It's the version of our e-signature technology designed specifically for use with Salesforce's product for small businesses. When you consider there are 125 small businesses in the world and most of them are still scanning, faxing and printing documents for signature, you can see our excitement to collaborate with Salesforce to provide an alternative to faster, more cost efficient and better for the environment. Because DocuSign for Salesforce Essentials is for SMB, we focused on ease of setup, administration and document sending, all done from within the Salesforce user interface. In creating this product, we are excited to use Salesforce as a latest platform technology, Lightning, which makes the user experience particularly seamless and modern. And similarly, we will soon be announcing the general availability of a product I mentioned during our Q2 call when it was in beta, DocuSign Gen for Salesforce. This allows sales reps to automatically generate signature-ready contracts with a few clicks driven by data from the Salesforce opportunity. It's a great example of how we're expanding into other stages of the agreement process. In this case, preparing agreement. It's also a great example of the leverage we're beginning to see from SpringCM, which brought technology and people to the Gen for Salesforce opportunity. We expect Gen for Salesforce to provide a great new way for customers to use DocuSign and Salesforce together to accelerate the preparation from their agreement. So to summarize my update on innovation. SpringCM value proposition is proving up. Two, with DocuSign for Salesforce Essentials and DocuSign Gen for Salesforce, we have two great new opportunities to accelerate sales process in partnership with Salesforce. Three, we are hard at work on other innovation, both for our core e-signature business and for delivering on our broader System of Agreement vision. And lastly, four, we continue to look at opportunities both internally and externally to build out on that vision. The next area want to cover today is our relentless commitment to customer success. Our strategy is to land the customers with an initial use case or two and build up from there. Integral to that process is our customer success organization. That group was initially small and focused primarily on helping our largest customers to streamline processes and drive increased ROI. They have been highly effective at this, growing the number of customers we have with ACV over $300,000 by 50% in fiscal '19. With just over 300 customers above that threshold now, plenty of opportunity remain. Today, customer success is also one of the fastest growing internal team, and now we're expanding the function across our entire customer base. This includes dedicated customer success managers working with our largest customer. To those driving adoption in the mid-market, rule [ph] to the development of automated program that help our SMB customers. We're also adding new rapid adoption and onboarding program so that all of our customers are getting the access in a system they need to be successful. Now before I hand over to Mike, I want to spend a moment talking about two more areas that are not only important to me personally, but also to our employees as they help to make DocuSign a special company to be a part of. The first is DocuSign IMPACT. This is our commitment to harnessing the power of our people, products and profit for good. Our goal is to make a difference in the global communities where our employees and customers live and work. As part of this effort, we recently unveiled the DocuSign for Forests initiative, where we will commit $1.5 million this year to supporting organization doing critical work to preserve the world's forest. The first brand was matched by me personally to total $1 million will be going to the Jane Goodall Legacy Foundation. I have the privilege of spending time with Jane, a hero of mine, at the World Economic Forum in January this year, where we together outlined our overall commitment to fighting for the world's forest by reducing the global demand for paper. It's an initiative I'm very proud of, and it builds on something every DocuSign customer already done simply by using our product, consume less paper, which means fewer trees need to be cut down, which clearly translate into a more sustainable environment. The second area I wanted to address is that of culture, which is the bedrock of success for any company, especially one that's growing as rapidly as ours. We want to create a place where people can do the best work of their lives. Now while I do love our Glassdoor rating, where we were the 17th best place to work out of over 700,000 last year. It's about more than that. We track an employee success index, a composite rating of our attrition compared to benchmarks, employee referral rate, manager ratings, et cetera. We also measure our employee engagement via short surveys twice a year. And I personally read every single comment that's offered by every employee, which is a time investment for sure, but it fosters an open culture and it helps us all to stay connected to each other. With that, I am incredibly proud of what this team has accomplished in our just completed fiscal year. Our finance and legal team have been a huge part of that success as we completed an IPO, a secondary, a convertible debt offering and an acquisition in six months. I can't thank them enough. I wanted to also mention that after over 4 years at DocuSign, Reggie Davis, our General Counsel, has decided to take some much deserved time off to spend with his family beginning later this month. Reggie played a key role in our IPO and indeed, at the company overall. So I want to personally thank him for his contribution. With that, I think the entire team DocuSign to be proud of an incredible freshman year as a public company. We beat our financial goals while aggressively investing in the future and never ever losing our focus on ensuring the success of our customers. I feel so incredibly fortunate to call this group my colleagues and to call this place home. And now I'd like to hand over to Mike to walk through our financials and we'll take Q&A after that. Mike?

Thanks, Dan, and good afternoon, everyone. First, let me remind you that all of our financial results reflect the adoption of the 606 accounting standard for current and historical periods. The non-GAAP results I will discuss on this call excludes stock-based compensation, amortization of intangibles, amortization of debt discount and acquisition-related costs. Fiscal 2019 was a milestone year for DocuSign. In addition to the list of accomplishments Dan laid out, we delivered a year of outstanding financial performance from top to bottom, including continued strong global growth, a full year of profitability and increased positive cash flow. We ended the year with a strong fourth quarter with significant contributions to growth from all of our global regions. Fourth quarter revenue reached $200 million, a 34% year-over-year increase, bringing total revenue for the year to $701 million, an increase of 35%. Subscription revenue grew 37% year-over-year in the fourth quarter to $188 million or 94% of total revenue. For the full year, subscription revenue totaled $664 million, an increase of 37%. Fourth quarter billings rose 31% year-over-year to a record $262 million. For the full year, billings increased 34% to $801 million. We added 23,000 new customers to our installed base in the fourth quarter, growing 28% year-over-year to 477,000 customers. The number of our enterprise and commercial customers grew to 56,000 in Q4, an increase of 32% year-over-year. Net dollar retention was 112% in Q4 and remain within our historical range of 112% to 119%. Customers with ACVs greater than $300,000 grew 15% year-over-year to 310 customers at year-end. This was driven primarily by existing customers continuing to increase their volumes and expand their use cases. Our international regions continue to generate strong growth in Q4 with revenues from DocuSign core products, growing over 40% year-over-year. Total international revenues grew at 26% year-over-year. This lower percentage growth for total international revenues relates to the sunsetting of legacy acquired products. Gross margin for the fourth quarter was 78% compared with 80% in last year's fourth quarter, primarily due to the impact of SpringCM's lower margins. With the full year, gross margin was 80% compared with 79% last year. Fourth quarter subscription gross margin was 85%, consistent with the prior Q4. For the full year, subscription gross margin rose to 86% compared with 84% last year. Operating leverage improved in Q4 as sales and marketing had a seasonal decrease as a percentage of revenue and G&A expenses return to more normalized level after our equity and debt transactions. In total, operating expenses totaled $149 million or 75% of revenue in Q4 compared with $117 million or 79% of revenue in the prior year. For the full year, operating expenses totaled $544 million or 78% of revenue, compared with $421 million or 81% of revenue in fiscal '18. This resulted in fourth quarter operating margin of 4% versus 2% in Q4 of last year. For the full year, we generated 2% operating margin, up from a 2% operating loss in fiscal '18. We ended the year with 3,023 employees, an increase of 33%. Fourth quarter net income was $10 million or $0.06 per share, compared with $500,000 or $0.01 per share in last year's Q4. Net income for the full year was $80 million or $0.09 per share compared with a net loss of $12 million or $0.43 per share in fiscal '18. Turning to cash flow. We generated record operating cash flow of $34 million in the fourth quarter compared with $32 million in the same quarter last year. This includes the impact of a one-time payment of $14 million in Q4 for employer payroll taxes related to our RSU settlement. Excluding the impact of this payment, operating cash flows in Q4 were $48 million, a 50% increase year-over-year. Free cash flow was $23 million in the fourth quarter compared with $29 million in Q4 of last year. Excluding the impact of the one-time tax payment, our Q4 free cash flow was a record $37 million or 19% of total revenue. Turning to our guidance for the first quarter and full year of fiscal '20, we estimate that revenue will range between $205 million and $210 million in Q1 and $910 million to $915 million for fiscal '20, and billings will range from $210 million to $220 million in Q1 and $1,010 [ph] billion to $1,030 [ph] billion for fiscal '20. We expect gross margin to be 78% to 80% for Q1 and the fiscal year. For our operating expenses, we expect sales and marketing in the range of 48% to 50% of revenues in Q1 and for fiscal '20. We expect R&D in the range of 15% to 17% for Q1 and fiscal '20, and G&A in the range of 10% to 12% for Q1 and fiscal '20. For the first quarter, we expect $3 million to $4 million of interest in other nonoperating income, including interest income and expense associated with the convertible debt. And for the fiscal year, we expect interest in other nonoperating income of $12 million to $16 million. We expect the tax provision of $2.3 million for the first quarter and $8 million to $10 million for the fiscal year. We expect fully diluted weighted average shares outstanding of 185 million to 190 million shares for Q1 and 190 million to 195 million shares for fiscal '20. Finally, I'd like to provide some information regarding anticipated capital expenditures in fiscal '20. We expect to spend $60 million to $70 million on capital investments at fiscal '20 compared to the $30 million spent in fiscal '19. This increased level of investment relates primarily to the continued facility and other infrastructure expansions in our international regions, particularly Dublin, and our expansion of strategic data centers, including a dedicated data center for the federal government vertical. While we don't expect to continue with these levels every year, we do foresee an impact on free cash flow growth rates in fiscal '20 as we make these investments, and $15 million to $20 million of that investment will occur in the first quarter. In closing, I'm very pleased with our execution this year, our first year as a public company. We're excited to enter fiscal '20 with strong momentum in our global markets. Thanks again for joining us today, and we can now go to Q&A.

Thank you. [Operator Instructions] Our first question comes from the line of Sterling Auty with JPMorgan. Please proceed with your question.

Yes, thanks. Hi, guys. Wanted to touch upon one of the last elements you mentioned, the dedicated data center for federal. Given the passage of the legislation, it looks like you're ramping up for that opportunity. Any insight you can give us in terms of what we should expect in terms of the uptake from that vertical in this fiscal year?

Sure, I mean, I think the perspective we have, Sterling, is this, is we've always had a huge long-term opportunity for us. And when we looked at the opportunity getting FedRAMP certified, our perspective was this was an increase to our TAM. This gave us an opportunity to have just simply a bigger opportunity. One of the challenges with the federal government, as I'm sure you'll understand, is the cycle time for getting things done. It can sometimes be slower than we see with some of our commercial segments. So we have a lot of enthusiasm with this opportunity and the idea is to create even more and I would argue some more urgency and that agencies have 6 months to put together their plan. But they just put together a plan, and we're not going to assume any significant change to our fiscal year '20 revenues from this, but we are looking at this again as a further opportunity to be more bullish about the TAM in the long term.

And Sterling, I would as we've talked about in the past, one thing we are always going to prioritize is growth. And even if in fiscal '20, we don't see this having enough runway to be a huge contributor in fiscal '20. We absolutely think that it represents that longer-term opportunity and we're going to invest accordingly.

Okay. And then one follow-up question. In the enterprise and commercial customers, the growth rate through the year kind of mimicked what you saw in terms of your revenue growth. How should we think about that next year? Do we start to get more leverage out of that existing base? So perhaps maybe the growth rate in customers is not spot on with revenue growth, but will get more contribution per customer?

Well, I would say this, Sterling, I think the relevance of the new customer growth isn't so much in terms of near-term revenue trends just because as they come on board, they generally start as just the land level of their total account size, and that grows over time. And then on the subscription model, in the near term, they don't contribute as much of a percentage of revenue as the expansion of the installed base does. But with that said, it is an important statistic in terms of planting the seeds for those continued expansions going forward. And so a correlation of that growth rate percent to a revenue growth rate probably isn't extremely connected just because of what I just described. But generally speaking, yes, we're going to -- it should be a good indication how we continue to penetrate the market.

Yes. The only thing I would add is don't forget, we are very early innings to this game. So the construct of thinking that we're coming to a sort of a turning point or some sort of plateau is just not right. If you look at the TAM just on the signature, the one we understand much more clearly at about $25 billion and growing. And you compare that to where we are in a total revenue standpoint, we're only a few percent of the way there. So I don't think you'll see any sort of plateauing again of any of those factors.

Got it. Thank you.

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

Hi, perfect. Let me start off with SpringCM. So it sounds like that acquisition is doing very well under the DocuSign umbrella. Dan, how are you thinking about SpringCM and the selling motion and the go to market there for fiscal '20? And then Mike, did you - maybe I missed it, did you give us a contribution from SpringCM in the quarter? And then I have a quick follow-up.

I'll start and you can talk about...

Sure.

Yes, so the way we're thinking about it. Our goal is -- the time we got to the field kickoff that I just referred to, our GKO, that occurred this week was we wanted to have the Springers, as I particularly affectionately call them, given my name, fully integrated into DocuSign by kickoff, and we accomplished that. And so we have integrated the sales plans and the sales organization. We even have a seasoned sales leader from DocuSign that we've had moved to Chicago, which is where from Spring headquarters is located and an opportunity to work closely and really bring the two businesses together. So going forward, we're thinking about it as one integrated business, and we're really bullish that, that's going to set us up for a fantastic 2020.

Yes, and in terms of contribution from Spring, Stan, we're not breaking that out in our guidance going forward. And for Q4, it was right in line with what we had guided last quarter.

Okay, got it. Thank you. And then a quick follow-up for Mike. When you look at Q4 billings, was there anything unusual in the quarter? The numbers came in ahead of consensus. But was there some deals flowing in and out, maybe some FX or anything else, payment terms changes, anything like that?

No, all very standard, Stan. The one thing I point out each quarter is that, that particular statistic is going to be affected by timing of renewals and orders coming in and so forth. So overall, the meaningful percentage increase, I think, is when we look at the fiscal year, if you look at Q3, it was -- it spiked up a little bit higher. In Q4, it's a little bit lower. And so that broader average, I think, is important to look at. In terms of the underlying fundamental strength of the orders that we received and the payment terms and all of that was very consistent with prior quarters.

Got it. All right. Thank you, guys.

Our next question comes from the line of Walter Pritchard with Citi. Please proceed with your question.

Hi. Thanks. Two questions. First, on - maybe on Spring, you talked about benefits to core signing as well as selling Spring standalone. How do you think that will play out next year as you go-to-market kind of more deliberately with strategy that you set at sales kickoff and so forth in terms of selling the add-on versus the core as the benefit there? And I did have a follow-up.

Sure. Well, I think there's a couple of different motions. Look, as we talked about before, this construct of a System of Agreement, every company has one, again, whether they think about it that way or not, many do, many don't. We have the ability, and we have now trained up our sales team to go and talk about our broader solution set for that overall systems agreement that they have. And we will lead with that messaging and positioning. At the same time, we realized we're still going to have plenty of customers that in the marketplace come out and say, e-signature's a huge opportunity for us to digitally transform our company and they want to buy an e-signature solution. They know that DocuSign is the clear and strong leader in that space, and that's what they're going to ask for. And in that situation, we will smile and sell them an e-signature solution, right, as it's the only logical thing to do. But we will have the opportunity in that process to say, we're excited to get you started with e-signature. Here's our overall vision for how you should think in the long term about that System of Agreement, and Spring will be a key part to showing them some of the other components of that overall system. So I think you're going to see us have both of those sales motions. And I think the answer is we're going to be dictated by the individual customer and how they want to buy. But the key is, whether we're selling them a broader solution upfront or not, we're positioning them for the broader opportunity going forward.

And then Dan, a follow up - or just on international, how are you thinking about 2020 relative to countries that maybe inflecting in -- especially in Europe? And anything to - any countries that we should be watching?

Yes. So a couple of things. So we didn't know the investments with the Toronto office, which we're super excited about. We think Canada is a great opportunity for us within international and North America. And then I think you're spot on. Europe is the biggest growth opportunity for us outside of North America from a scale standpoint. It is the biggest theatre [ph] we have today. But I would tell you, I'm also very excited about what we see in Latin America. And I also think that the overall APAC opportunity, we've been very sort of Australia centric, as most software companies are when they had into Asia Pac, but we've seen some great successes moving further North. And I think you're going to see us investing pretty aggressively across the board. But you're absolutely right, that Europe will be the single largest contributor to that international growth.

Thank you.

Our next question comes from the line of Alex Zukin with Piper Jaffray. Please proceed with your question.

Hey, guys. Thanks for taking my questions. I apologize for any background noise. Maybe, first, just one more time on Sterling's question about just the magnitude of the TAM expansion from the federal vertical that you see potentially and maybe how does the average deal size in that vertical that you are looking at in your pipeline compared to kind of a more traditional commercial enterprise deal? And then I've got a quick follow-up.

Yes. Well, I think the answer to deal size is a very important differentiator. And I made the comment before that we expect some of those federal government sort of processes to still take a little bit longer and the cycles to be longer. But the visibility to a much larger opportunity in those accounts is very clear. And so we think about a typical commercial deal in maybe like our largest vertical financial services, we talk about this concept, it's a pretty small land, right? We might just get a couple of use cases. It could be a very low start, and we see that being an opportunity to become one of our more than $300,000 ACV customers that we talk about. But when you look at the federal and you just think about some of the individual groups there, we look at those as being able to eclipse that $300,000 ACV on initial signing. Some time by a multiple factor of that. So we do see the opportunity with some much bigger win, but I still think we're going to see the overall cycle time being a little bit slower.

Perfect, that's helpful. And then maybe just one on dollar based net expansion. I don't know, I might have missed it if you called out what it was in the quarter. But maybe just given the success of SpringCM and the cross-selling and just the larger land, how do you see -- or how should we be thinking about that metric in fiscal '20?

And so the metric, I lost you, which metric?

Dollar based net expansion.

Yes, so it's kind of in fiscal '20 staying the same range we've seen historically, which is anywhere from 112% to 119%. My expectation is in those -- in that midzone is that we'll continue to sustain the business.

Our next question comes from the line of Justin Furby with William Blair. Please proceed with your question.

Hey, guys. Just I guess, to start off. I wanted to ask on just rep productivity. What you saw sort of pre- and post-IPO, any noticeable change there? And then when you look out to your sales plans, your hiring plans for fiscal '20, should we be thinking about it sort of at a similar rate as sort of sales and marketing OpEx growth? Or any kind of commentary on fiscal '20 and your plans there would be helpful? And then I've got just a quick follow-up.

Sure. Let me talk a little bit about the rep side and then you can talk about the impact that will have on the financial. So we didn't have any significant change either way. I think our productivity was relatively consistent from a rep standpoint. There are a couple of things that we did last year, which I think turned out to do very well for us, is we hired a little bit ahead is the curve. We used to have a model where we sort of got through a year. And then we did a whole bunch of hiring at the beginning of the year in our field sales force. And then sometimes, when you do that, there's a bit of a productivity hit until you get them up to speed. And now what we're trying to do is do that hiring a little more evenly throughout the year. So that led us to do last year was pulled forward some hiring and we pulled forward some costs, and we talked about that throughout the year. That did lead to some very strong revenue growth, particularly in the later parts of the year. But also, I think set us up to be very confident about our fiscal '20 because we have more folks in seat that have already had several months with us and are up to speed. So I think we feel really good about that. And I think going forward, you'll see us moving to that model of more consistent ad. So you won't see kind of the big step changes in that aspect of the business, so maybe a smoother increase in that spending. And then Mike, you can talk about the percentage. We don't see that percentage of sales and marketing changing dramatically through the year.

Well, a couple of things, Justin. One, you mentioned the IPO specifically. I don't know that we could generate any specific data on that. But qualitatively, I have heard from our enterprise teams in particular that the IPO has been helpful in terms their customers understanding the scale and strength of our company, and that was something that as a private company wasn't always as evidenced, so in that regard, there was some qualitative benefits that we've got from being public. In terms of our hiring plans for fiscal '20, I think Dan's correct. They largely -- or you -- I went through in the guidance the leverage improvements that we're going to see. So overall, we'll be more leveraged and productive in that sense. But some of the aspirations we have with Spring and other new products, over time, driving up those productivity statistics, those are certainly part of our vision. I think in fiscal '20, they're going to be relatively stable because we're still in the early innings of rolling some of that stuff out.

Okay. Got it. That’s helpful. And then just Salesforce, just given some of the announcements. Can you just remind us, Dan, how -- what the overlap is today if you look at Salesforce as a space? Like how much opportunity in there to just go after their existing installed base? And on the essential side, any sense for what the opportunity there is in terms of the TAM is $25 billion? Is that a subset of it? Or how do you think about opportunity there?

Yes. So Salesforce, you've heard us talk a lot about Salesforce. We have made a dramatic investment in the relationship overall, and it's everything from the product pieces you just alluded to, to the alignment of our go-to-market efforts, really quite frankly, to the connections of the company, and that we talked about our sort of actions we took on the environmental front. A lot of that has to do with Marc Benioff asking us to come with them effectively to Davos, the World Economic Forum and try to play a role in having a big impact on the environment. So we're really kind of connecting it multiple level with working at a fantastic software company. From your specific question around the size of the opportunity, we believe that while Salesforce has a large number of customers, and we do have a lot of overlap and a significant driver, it's still a small piece of the overall TAM. We think that there are so many small businesses that they don't have any essentials or other relationships with. And so many right up to the stack from a mid-market all the way to the enterprise, which is why we sell so aggressively directly. But I believe Salesforce is one of our most important go-to-market partners, but any one of them is still a very small percentage of the total TAM market opportunities. So we wouldn't to be in any way reliant on them, but it sure is a nice turbocharged boost to have that kind of a strong partnership.

Yes, that's helpful. And then Mike, if I can sneak one more in. When do the headwinds on the international side sort of anniversary, if you will?

Yes, I mean, I think if you -- the further away you move from when the acquisitions took place and the revenues were more material to our prior periods, you'll just see each year like we just completed fiscal '19. Obviously, the percentage of those legacy products made up of our business was smaller and next year, it will be smaller again. But I think that overall, you'll continue to see the international now start to turn into a growing percentage of our business this year. It was about $120 million business, which over the relatively short period of time, we've been focused on, we're really satisfied with it.

Great. Thanks, guys.

Our next question comes from the line of Ted Lin with Goldman Sachs. Please proceed with your question.

Great. Good afternoon. And thank you very much for taking the question. Digging a little bit into your FY '20 guidance, which I think is for roughly 30% growth. Can you maybe help us break that down maybe qualitatively by the three factors called out by Dan, which I think were acquiring new customers, expanding volumes and bringing kind of new solutions to market?

You want to start?

Yes, so I'll start on the qualitative side. I mean, for us, if you look at the simple sort of math of it, tends to be the biggest driver in any year is always going to be that second bucket, which is sort of the expansion. Because we were bring in new customers, our land model, even if some of them are those larger federal government cases we talked about earlier. It's going to be a small portion of our overall revenue growth because we do tend to have that land with a smaller number of use cases. So by far, the biggest driver is going to be that middle bucket. I do think we have some nice opportunity with new product introductions. We talked about a couple of those today, and we've got important new ones coming up in the next few weeks. We're excited. I want you to stay tuned. We're going to have additional fantastic System of Agreement extension that we want to talk about. And at the same time, I still think even though we'll be overwhelmed by that second bucket of the core growth with that increasingly strong customer base of 477,000 customers that we think can be a huge growth opportunity for us. So that's kind my view on that. Do you have any quantitative you can add or...

Yes, I think that's spot on. I think for that middle category, that number of customers that are exceeding the 300K threshold, as that continues to grow, I think that's a good way to just measure and see what's happening in that existing installed base of our business. If you think of it from an investment standpoint well new customers don't make up a large percentage of the guidance revenue growth for all the reasons Dan just summarized, if you look at our investment for investing aggressively and continuing to expand the number of reps that are out there, driving new customer growth because for our overall long-term growth, obviously, those, as I mentioned before, are the seeds that we have to keep planting, and we're having great success with that. Investing in that installed base or customer success organization on top of our sales organization, really focused on consumption, driving up sales, mitigating churn. We're going to continue to invest aggressively in that. And then in new products, obviously, the movements you've seen around seal. The significant percentage of our revenue that we're investing in R&D, all targeted at that growth drivers. So it's a business we're focused on all 3 in terms of the guidance that little category is the biggest contributor.

Great. That's super helpful. And then on the competitive environment, are you seeing kind of HelloSign any more these days after the acquisition by Dropbox? And is there any kind of competitive update with respect to Adobe? And then how much you're seeing in that solution?

The simple answer to the first question is no. And remember, when we have seen in the past, HelloSign, it's sort of hard to see in the stamp with the very small customers. We don't see them in a lot of our competitive direct deals rather in the web and mobile. We don't get as much intelligence about those transactions because they're not dealing with any individual here, rather just with our e-commerce solution. But we haven't seen any change in what was a smallish impact to begin with. And I don't think there's anything else that I've seen different noteworthy at all from a competitive standpoint in this last quarter, really across the year. I think it's pretty consistent with what we shared on the roadshow around the IPO, which was an unchanged really when we got to the secondary. I don't know if you have anything else you'd pick, Mike, but I think, pretty consistent.

Great to hear. Thanks for taking the questions.

Yes. Thank you.

[Operator Instructions] Our next question comes from the line of Karl Keirstead with Deutsche Bank. Please proceed with your question.

Thank you. I've got two billings questions for Mike. So Mike, in the 4 quarters that DocuSign has been public, there's been some big variation in the degree of billings outperformance. Q1 and Q3 were huge billing beats and 2Q and the quarter just reported were more modest. I know it's super tough, obviously, to predict billings. But what are the bigger swing factors driving that? You mentioned in an answer to a prior question, maybe renewal activity. But it would be nice to hear you elaborate on the variation we've seen.

Yes, I think two things, Karl. First of all, as we've talked about a lot of SaaS businesses actually don't drive billings because of the variability of the factors that they can create some of the effects you're talking about. And I think about two of them being pretty key. One is that, obviously, a big portion of billings is the timing of the renewal order for renewal order comes in at the last day of the quarter and goes in the back quarter. I think it comes in the first day of the new quarter, it goes into back quarter. So exact timing of when our renewable book of business comes in can cost one quarter to the next and some variability. I think also, those variables that affect the prior year quarter that you're comparing to, you might have a double effect wherein the prior quarter, you have a tough comp because you had a really high billings percentage. For example, Q3 of fiscal '19, I believe, and I don't have it in front of me, but I think it grew something like 40%. Well, clearly, that's a bit little bit higher than what the underlying growth rate of the business is. And this quarter was a little bit lower than that, it's a little bit lower. So next Q3, we're going to be comparing against the 40% growth rate because some of these timing differences that affected Q3. So I continue to try to remind everybody I want to guide the billings because I think it's a good, transparent way of giving an indication in terms of how we see our future developing. But on a quarter-to-quarter basis, it is a statistic that will -- that's subject to some of that variability.

Yes, that makes sense. And then maybe my second related question is I'm just looking at your billings guide for fiscal '20, $1.03 billion, up 29% at the high end, seems pretty strong to me. Mike, when we go back to when you went public, you initially guided to fiscal '19 billings of $680 million to $700 million, and you just finished the fiscal year with $801 million, so quite a bit of upside. I don't think anyone's expecting that degree of upside to your new guidance. But what I wanted to ask you is whether, a, generally, your guidance philosophy has changed at all? And secondly, whether the key factors that drove that upside in fiscal '19, whether it's renewal activity or other things, are they generally in place to roughly the same degree in fiscal '20?

Yes, I would say two things, Karl. First, anytime I think a business goes public, it's always going to be a bit more prudent at the beginning of that new environment and as we mature into that environment. So that's always something to keep in mind. And I think the underlying drivers of our billings growth are the same ones that we're referring to in our overall revenue growth. And obviously, I think the guidance that we're providing for this upcoming fiscal year indicates that we continue to have really strong confidence in what's going to drive that growth.

Yes. That makes sense. Okay, great. Congrats on the strong guidance for this fiscal year.

Thanks.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to management for closing remarks.

Thank you again for joining us and your support over our first year as a public company. We look forward to seeing many of you out on the road in the coming months. And hope we'll have the opportunity to see you all soon. Thank you.

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