DocuSign CEO: Moderating pandemic growth ‘hit us more dramatically’ in the second half of 2021

DocuSign CEO Dan Springer joins Yahoo Finance Live to discuss his company's shares tumbling despite beating Q3 earnings estimates and expanding international growth year-over-year.

Video Transcript

ZACK GUZMAN: Well, welcome back to "Yahoo Finance Live." Earnings season has not been kind to some of the highest flyers that benefited from the pandemic lockdown trade. I'm thinking names like Zoom, Peloton, online education company Chegg, and now you can add DocuSign to that list as well seeing a 40% decline after they reported earnings, the largest one-day decline in the company's history off that report even though it was a top- and bottom-line beat for DocuSign. But billings, which reflect future business under contract, coming in weaker than analyst expectations as well as their own for the quarter. And the look ahead there, $565.2 million short of its own guidance of $585 million as well as $597-- the range, $585 to $597 as well as the analyst forecast of $594.

And for more on all that and some of the return to normal here that we're seeing at companies like DocuSign, I want to bring in the CEO of DocuSign joining us here, Dan Springer, alongside Yahoo Finance's Brian Sozzi. And, Dan, appreciate you coming on here. Obviously the reaction I think, as we were discussing in the break, a little bit more extreme than maybe you were expecting given the fact that we've seen a lot of companies return to normal. And you've said that you saw customers start to return to normalized buying patterns. Talk to me about what you're seeing now as we maybe get back to normal.

DAN SPRINGER: Yeah, absolutely. I think in our situation, we were a strong, high-growth company before the pandemic, and the pandemic actually accelerated our growth, as we talked about it is there was demand for more digital transformation.

And we've been talking about for, you know, quarters and quarters now that we know at some point we would see a moderation, you know, of the pandemic-level demand, and our aspiration was to sort of have a nice sort of a slow landing, you know, back to the old high-growth model that we had.

In this situation in the first half, you know, we provided guidance that we actually thought we would start to see that softening in the first half. It didn't happen in the first half, but it hit us more dramatically here in H2, and I think that's what was, you know, concerning to investors or to analysts that, hey, we weren't actually able to say how that landing was going to happen. So that's fundamentally what changed at DocuSign.

BRIAN SOZZI: Dan, you mentioned on the call last night that customers didn't have that, I guess, the same sense of urgency. What--

DAN SPRINGER: Yeah.

BRIAN SOZZI: Why is that the case?

DAN SPRINGER: Well, I think, you know, when a lot of people found themselves when the pandemic hit saying, hey, there's a sort of key set of use cases-- maybe it's sales contracts. And they used to have people, you know, mail those to people and walk them around or hand deliver them. They couldn't do that in a pandemic, so they quickly wouldn't be able to run their business. They couldn't get those agreements in place. So we saw some urgency of activity because of that, and that is one of the reasons our growth did, you know, accelerate significantly over the last six quarters from where it had been pre-pandemic.

And I think the reality is that people had done that purchasing because they needed to get-- raise their digital transformation. And we feel that that impact, that positive impact to our business is now played out, and we're going to be back to the new normal, which I think will be a lot like the old normal. But that change and that shift was more dramatic. It didn't sort of play out over a couple quarters. It hit us in the second half, you know, much more substantially than we thought it was.

And that's why, you know, for the first time, as you indicated up front, we ever missed a guidance on any key metric, as we did on billings.

ZACK GUZMAN: At the same time, though, Dan, I mean, when you talk about what you're projecting for the fourth quarter here, the quarter to come, lower-than-expected revenue guidance as well as billings guidance, but we've talked a lot about issues around omicron here too. So I wonder in the short term if the earliest data you're looking at could potentially see a return to what you're describing there when people might not be back in the office if that gets pushed back.

DAN SPRINGER: Yeah. Yeah, it's not our forecast that even if there were, you know, changes-- there have been changes since the core, you know, hit that the whole economy took and the boost that did for us around the pandemic. And I don't think that is something that we forecast anyway would have sort of another bump, if you will. We think that core thing that most of our customers needed to get in place, they've gotten those in place.

And while we continue to add lots of new customers-- we had 59,000 new customers in the last quarter, so it was strong new growth. Our challenge has been more that we haven't done the good job we normally do on expanding our existing relationships. And going through this COVID period of that extra demand, we became a little more demand meters as opposed to demand generators.

And so we need to switch back, and that's what we're focused on doing in the second half is getting that activity back to the way we always used to run the business, which we drive great customer success. They get a high ROI from DocuSign. And we point out new use cases and growth areas where they can get more great benefit. So that's kind of the focus for us to get right right now.

BRIAN SOZZI: Dan, I think it says a lot about you as a leader to even be on here today when we're running a graphic right next to you where your stock price is down 40%. And on the earnings call, you did own some of the missteps in the quarter here. So the question is, how do you get back to growing like we've come to know from DocuSign? Have you made some changes to the management team? Are you out there hiring more people? What's the plan?

DAN SPRINGER: Well, so in the first piece, you know, my mom always taught me bring back a bad report card. You own it, but then you move past it, and you get focused on the growth, just like you said, and improving what you need to do. And so that's what we're focused on doing right now.

We did make some organizational sort of realignment that I thought would allow us to focus more aggressively on getting that go to market back-- again, back to the old mode. It's what we've done for years of driving high growth here and building this fantastic franchise. So it's not like a new thing that we're doing, but it's just some increased focus.

And the number-one issue for us is we've grown so fast during the pandemic. You know, a huge portion of our field joined when the only mode they knew was customers calling us saying could I please get more DocuSign and kind I get DocuSign faster? And now we've got to go back and enable those new people and say this is the way we've always built DocuSign. We've got to get back to that motion, again, of driving customer success, coming and showing that they got a tremendous ROI, and pointing out all the other, you know, use cases they have-- more growth for them and a cross-sell opportunity for us.

So that's what we're going to get back to, and I think, you know, the changes we made will allow that to happen a little faster. And we want, in the second half where we see that there's going to be this reduction in the landing post-COVID, to be the time when we turn that around. So if we go into the new year, we'll be able to move back to the way we used to grow the business.

BRIAN SOZZI: You know, customers, Dan, do have that-- just have taken a step back in their sense of urgency. Does that mean your total addressable market, has that shrunken compared to what you would have thought it would have been coming outside of the pandemic?

DAN SPRINGER: Yeah, it hasn't. Interestingly enough, we haven't changed our view on the TAM from pre-pandemic. And so when the demand got, you know, escalated, we never said the TAM got bigger. We have always thought it was about a $25 billion signature TAM and about $25 billion for the rest of that DocuSign Agreement Cloud, the other products we talked about there.

So from that standpoint, we didn't increase it during the pandemic, so we didn't think it was fundamentally anything that changed the core market opportunity. We just accelerated our path to achieving that TAM.

So now coming out of the pandemic, I don't think anything has changed in the TAM in the other direction. It's still significant. Remember, we're going to do 2-ish billion dollars of revenue this year, and we are the dramatic market-share leader in this space. There's just no one else that's, you know, even a reasonable fraction of that.

So when you start talking about $50 billion TAM, it is lightly, lightly penetrated. This is very early days, and we were very bullish that we will continue to grow at attractive rates.

ZACK GUZMAN: You know, Dan, I'd echo what Sozzi said here in terms of being on right now and owning the report card, and that's coming from a guy who's also had some tough report cards to own in his day as well. But, I mean, when you look at the analyst reaction, Citigroup calling it one of the biggest whiffs they've seen in recent memory. We saw price targets cut from a few different analysts out there. But when you look at this-- we were talking in break. You see this as an overreaction. I know CEOs don't like remarking on the price of their shares often, but you see it as an overreaction. You're putting your money where your mouth is. You're talking about buying here. Talk to me about that.

DAN SPRINGER: Yeah, I mean, again, most of the time when we get on-- and by the way, for the almost four years as a public company, the vast majority of our reports have been quite solid, and that's why the company has grown so much in the value. We've had a, you know, fantastic run.

When people ask me in the past, well, do you think your valuation is too high? because multiples for SaaS companies are at historic rates. And I've always said, look, we can't really talk about the market. I don't know. That's not what we focus on. We focus on building a great company, building innovative products, driving great customer success, and we kind of think it will take care of itself.

I am surprised. I'll be straightforward with you. I do not see the reaction in the stock price to be commensurate with what I think is a much less dramatic business performance change. I've made two phone calls since I saw the reaction. First was to my general counsel, and I asked Tram, is there anything that stops me from buying stock? She said, as long as you wait until the window opens on Tuesday, you know, you haven't been selling shares, so therefore you can buy all you want. And the second one was to my financial manager and lined up the first $5 million of purchases. So if the stock doesn't dramatically increase, I'll be continuing to buy shares. It doesn't make sense to me.

ZACK GUZMAN: I like that. I like putting your mouth where your money is here or right-- or putting your money where your mouth is.

DAN SPRINGER: Oh, they go together.

ZACK GUZMAN: Dan Springer-- [LAUGHS]. Dan Springer coming on a day. I appreciate you taking the time here, the CEO of DocuSign, alongside Yahoo Finance's Brian Sozzi.