DocuSign's Q2 2026: Contradictions in Early Renewals, IAM Growth, and Revenue Impact

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 5, 2024

Financials Results

• Revenue: $801M, up 9% YOY
• EPS: $0.92 non-GAAP diluted EPS, down from $0.97 in the prior year
• Gross Margin: 82.0% non-GAAP, roughly flat YOY
• Operating Margin: 29.8% non-GAAP, down 240 basis points YOY

Guidance:

• Q3 revenue: $804–$808M (~+7% YOY)
• FY26 revenue: $3.189–$3.201B (~+7% YOY)
• Q3 subscription revenue: $786–$790M (~+7% YOY); FY26: $3.121–$3.133B (~+8% YOY)
• Q3 billings: $785–$795M (~+5% YOY); FY26: $3.325–$3.355B (~+7% YOY); renewal timing to offset Q2 early-renewal benefit; tougher 2H comps
• Non-GAAP GM: Q3 80.3–81.3%; FY26 81.0–82.0% (~1pt cloud-migration headwind; easing FY27+)
• Non-GAAP OM: Q3 28.0–29.0%; FY26 28.6–29.6% (~1.5pt headwind from migration, cash comp shift, prior-year one-time)
• Diluted shares: 207–212M for Q3 and FY26
• Q3 free cash flow yield expected lower vs Q2

Business Commentary:

* Revenue and Billing Growth: - DocuSign reported revenue of $801 million for Q2 fiscal 2026, up 9% year-over-year, and billings of $818 million, up 13% year-over-year. - The growth was driven by strong performance in commercial and enterprise customer segments, particularly in e-signature and CLM, as well as growing contributions from the AI-native DocuSign Intelligent Agreement Management (IAM) platform.

• Gross Retention and Customer Expansion:
• Dollar net retention rate increased to 102%, reflecting improved gross retention rates.

• This improvement was attributed to operational execution, proactive renewal management, and the increased adoption of IAM, which has shown high retention rates among direct deal volume.

• Innovation and Product Launch:

• DocuSign launched several new AI-powered capabilities within the IAM platform to enhance agreement management.

• The rapid pace of innovation and the value it brings, combined with the company's vast agreement library and integration with third-party systems, positions DocuSign uniquely in the AI-driven agreement management market.

• International and Enterprise Segments:

• International revenue grew 13% year-over-year, with the Asia-Pacific region being the fastest-growing international segment.
• The enterprise segment showed early signs of adopting IAM, with more than 50% of enterprise account representatives closing at least one IAM deal during the quarter.

Sentiment Analysis:

• Management reported revenue up 9% YOY and billings up 13% YOY, with DNR improving to 102% from 99% and stronger e-signature and CLM momentum. They raised full-year revenue midpoint by $38M and billings midpoint by $28M. Profitability remained strong (non-GAAP op margin ~30%; FCF margin 27%) and they repurchased $200M of shares. IAM progress continued, with >50% of enterprise reps closing at least one IAM deal and plans for IAM to reach a low double-digit % of the book by year-end.

Q&A:

• Question from Robert Owens (Piper Sandler): What is driving improved e-signature consumption and volumes—macro, evolution of use cases, or IAM attach?
  Response: Usage is improving broadly across verticals with stable macro; gains stem from customer execution and added use cases, not a macro tailwind.

• Question from Tyler Radke (Citi): Did CLM’s strong quarter reflect timing or a sustainable trend?
  Response: CLM had a very strong quarter with large deals, but it’s too early to call a sustained breakout; trends are encouraging.

• Question from Jake Roberge (William Blair): How is IAM rollout progressing in enterprise and international, and is the expected pricing uplift holding?
  Response: Enterprise deals are emerging with larger sizes; international is embracing IAM; customers moving from Sign to IAM see consistent, meaningful expansion.

• Question from Josh Baer (Morgan Stanley): Did IAM drive the billings beat, and how accretive is IAM adoption?
  Response: The beat was mainly e-signature strength, timing, and billing frequency; IAM slightly exceeded expectations and delivers meaningful expansion, but specifics not disclosed.

• Question from Kirk Materne (Evercore ISI): What drove improved gross retention, and can it improve further?
  Response: Proactive renewal management and execution lifted DNR from 98% to 102% over ~18 months; more opportunity remains, with IAM aiding expansion.

• Question from Bradley Sills (Bank of America): What does the GSA partnership mean for federal business and pipeline?
  Response: It simplifies procurement and opens headroom; federal is modest today but present across all cabinet departments; early days with significant long-term opportunity.

• Question from Austin Cole (Citizens): How have reps adapted to GTM changes, and are they equipped to sell IAM?
  Response: Reps have adapted well with new incentives and enablement; no major additional changes planned; strong direct sales execution in Q2.

• Question from Mark Murphy (J.P. Morgan): What is customer opt-in rate for Iris AI to ingest agreements, and can this materially improve AI outcomes?
  Response: Nearly all customers opt in; nearing 100M agreements ingested enable instant AI features and rapid time-to-value, enhancing AI quality and scale.

• Question from Brent Thill (Jefferies): How do you balance margin progression with growth investments, and when does the cloud migration headwind ease?
  Response: Margins face headwinds from migration, comp mix, and prior-year items; investing in GTM and R&D; migration headwinds peak this year and ease starting FY27.

• Question from Alex Zukin (Wolfe Research): Are early-renewal expansions increasingly IAM-driven, and are search/SEO changes affecting top-of-funnel?
  Response: IAM contributes to expansions and shows higher gross retention than e-sign (early data), while brand-driven organic traffic remains healthy with no notable SEO impact.

• Question from Rishi Jaluria (RBC Capital Markets): How do you defend against AI vendors targeting contract analysis to avoid commoditization?
  Response: Differentiation comes from proprietary, consented agreement data at scale, deep workflow embedding, and broad integrations, enabling out-of-the-box AI and fast time-to-value.