Q3 2026 Earnings Call: Contradictions Emerge on IAM Impact, ARR Trajectory, and Expansion Opportunities

Date of Call: December 4, 2025

Financials Results

• Revenue: $818 million, up 8% year-over-year
• EPS: Non-GAAP diluted EPS $1.01, up from $0.90 YOY; GAAP diluted EPS $0.40 versus $0.30 YOY
• Gross Margin: Non-GAAP gross margin 81.8%, down 70 basis points year-over-year (primarily cloud migration costs)
• Operating Margin: Non-GAAP operating margin 31.4%, up nearly 2 percentage points year-over-year

Guidance:

• Q4 revenue expected $825M–$829M (≈7% YoY at midpoint)
• Fiscal 2026 revenue expected $3.208B–$3.212B (≈8% YoY at midpoint)
• Q4 subscription revenue $808M–$812M; FY subscription $3.140B–$3.144B
• Q4 billings $992M–$1.002B; FY billings $3.379B–$3.389B (last quarter with billings guidance)
• Q4 non-GAAP gross margin 80.8%–81.2%; FY 81.7%–81.8%
• Q4 non-GAAP operating margin 28.3%–28.7%; FY 29.8%–29.9%
• Will begin disclosing annual ARR and IAM % of ARR starting Q4 2026 and will stop reporting billings in fiscal 2027

Business Commentary:

* Revenue and Billings Growth: - DocuSign reported revenue of $818 million for Q3, up 8% year-over-year, and billings of $829 million, up 10% year-over-year. - Growth was driven by modest sales execution and early renewal strength.

• IAM Customer Expansion:
• DocuSign surpassed 25,000 direct and digital customers on its IAM platform, up from 10,000 in April.

• This expansion was driven by the demand for comprehensive agreement management solutions.

• Operational Efficiency and Profitability:

• DocuSign achieved a non-GAAP operating margin of 31%, with free cash flow growing by 25% year-over-year to $263 million.
• The strong profitability was due to ongoing cost discipline and savings from one-time and timing-related expenses.

• International Revenue and Momentum:
• International revenue reached approximately 30% of total revenue, contributing to the overall growth and momentum.
• This increase was driven by successful sales efforts and regional events like Momentum in Sydney, Singapore, and Tokyo.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management called Q3 “a standout quarter”: revenue $818M (+8% YoY), billings $829M (+10% YoY), non-GAAP operating margin ~31%, free cash flow +25% YoY to $263M and a $215M share repurchase (largest quarterly buyback). IAM adoption (25k customers) and multiyear product/AI roadmap cited as drivers of growth and confidence.

Q&A:

• Question from Jacob Roberge (William Blair & Company L.L.C., Research Division): As you start to transition to ARR, should we expect ARR is seeing a fairly similar reacceleration that we're seeing with billings on a full year basis? Or would there be any puts or takes we should be thinking about around that metric moving forward?
  Response: They will disclose ARR in March; in the interim treat billings growth excluding early-renewal timing as a proxy, and management expects ARR to benefit from IAM-driven expansion and improved gross retention.

• Question from Jacob Roberge (William Blair & Company L.L.C., Research Division): For customers that initially started with only a portion of their base on IAM, are you starting to see those customers shift to broader and wider IAM deployments on renewal?
  Response: Early IAM renewal cohorts renew at higher rates than traditional signed business and management is encouraged by adoption/expansion, especially at larger customers where broader deployments are more likely.

• Question from Tyler Radke (Citigroup Inc., Research Division): How do you think about use cases and future monetization for Navigator — will agreement volume continue to grow and how will customers use it and how will DocuSign monetize over the long run?
  Response: Navigator is foundational to IAM and is monetized as part of the platform (not standalone); proprietary consented agreement data, integrations and workflow capabilities drive long-term monetization via platform expansion.

• Question from Tyler Radke (Citigroup Inc., Research Division): Given Q4 subscription guidance decelerates versus Q3, how should we characterize the underlying growth — steady, accelerating, or prudence due to macro/comp dynamics?
  Response: Q4 guide reflects a Q3 early-renewal timing benefit and a hard comp from last year's PLG-driven Q4, not an indication of weakening fundamentals; underlying trajectory remains positive.

• Question from Mark Murphy (JPMorgan Chase & Co, Research Division): Can you help us conceptualize envelope sent growth and utilization — are envelopes growing mid/high single digits and does higher utilization foreshadow upsell/expansion?
  Response: Envelope volume has shown consistent year-over-year growth and utilization is higher than prior year, signaling stronger consumption and positive upsell/expansion potential though timing of monetization varies by customer.

• Question from Mark Murphy (JPMorgan Chase & Co, Research Division): Any color on the AI contract agents in beta — target use cases and near-term impact?
  Response: Agents target simpler, common workflows across sales, HR and procurement and are strategic for long-term differentiation but not expected to meaningfully impact FY27 revenue.

• Question from Peter Burkly (Evercore ISI Institutional Equities, Research Division): How much of the $300k+ ACV customer growth is driven by IAM adoption versus improved go-to-market?
  Response: Growth in the $300k+ cohort is driven by both expanded eSignature usage and increasing IAM enterprise wins; both contribute to momentum.

• Question from Peter Burkly (Evercore ISI Institutional Equities, Research Division): Any learnings on the go-to-market playbook for IAM heading into fiscal '27?
  Response: Plan to complement land-and-expand with more top-down executive upsells, lean into ISV and system integrator partnerships, and test platform/token pricing to better capture value.

• Question from Brent Thill (Jefferies LLC, Research Division): What needs to trigger for DocuSign to sustain or reach double-digit growth?
  Response: Management sees two main levers: continued improvement in retention and increased expansion bookings (driven largely by IAM) to achieve sustainable double-digit growth.

• Question from Brent Thill (Jefferies LLC, Research Division): Given the record buyback, why not lean harder into M&A to accelerate growth?
  Response: They actively evaluate M&A and keep balance-sheet optionality, but currently prioritize buybacks while maintaining a high bar for acquisitions and pursuing strategic targets when available.

• Question from Lucas Cerisola (Morgan Stanley, Research Division): Of the 25,000 IAM customers, how many are new versus existing eSign customers? Also, what are hiring expectations?
  Response: The vast majority of IAM adopters are existing eSign customers upgrading; some net-new direct customers onboard. Headcount will grow modestly with selective investment in product and security.

• Question from Aleksandr Zukin (Wolfe Research, LLC): How much of the early-renewal billings strength included IAM upsells and is adoption shifting toward the installed base? Also, how much of the Q4 billings raise is operational versus FX/one-time?
  Response: Most early renewals remain core eSign with IAM contributing to some expansions; installed base is primary IAM target. Underlying billings growth is roughly ~8% excluding timing-driven early-renewal effects (Q3 headline ~10% with timing uplift).

Contradiction Point 1

IAM Impact on Revenue Growth

It involves the perceived impact of Integrated Agreement Management (IAM) on revenue growth, which is a key strategic focus for the company.

What is the expected ARR trajectory given strong billings? Are there key factors to consider for ARR moving forward? - Jacob Roberge(William Blair & Company L.L.C.)

2026Q3: We're not disclosing ARR yet, but it's part of our long-term metric. We expect ARR to grow based on expansion opportunities with IAM and gross retention improvements. - Blake Grayson(CFO)

What are the economics of IAM adoption for customers, and is it accretive to growth? By how much? - Josh Baer(Morgan Stanley, Research Division)

2026Q2: IAM is a critical factor in our growth. It's expected to be a low double-digit percentage of book at year-end. The eSignature business is strong, but IAM’s growth is important for future acceleration. - Allan Thygesen(CEO)

Contradiction Point 2

ARR Trajectory and Future Growth

It involves differing expectations regarding the future growth trajectory of Annual Recurring Revenue (ARR), which is a crucial metric for assessing the company's financial health and growth potential.

What is the expected ARR trajectory given billings strength? Are there any factors to consider for future ARR? - Jacob Roberge (William Blair & Company L.L.C.)

2026Q3: We're not disclosing ARR yet, but it's part of our long-term metric. We expect ARR to grow based on expansion opportunities with IAM and gross retention improvements. We'll provide more details on ARR in our March call. - Blake Grayson(CFO)

How much of the double-digit IAM growth in the subscription business is from upsell and net new customers versus the eSignature transition? - Joshua Phillip Baer (Morgan Stanley)

2026Q1: We will continue to see growth from the high single digits to the low double digits range going forward, as we believe we have an opportunity to outpace the overall digital workspace market. - Blake Jeffrey Grayson(CFO)

Contradiction Point 3

IAM Upsell and Expansion Opportunities

It highlights differing perspectives on the source of IAM growth, specifically whether it's primarily driven by upselling or expansion opportunities with existing customers.

Can you comment on IAM renewal cohorts and whether customers are shifting to broader IAM deployments during renewals? - Jacob Roberge (William Blair & Company L.L.C.)

2026Q3: Early results are promising with higher retention rates for IAM renewals. Most customers have shown an expansion in IAM usage post-adoption, suggesting potential for growth. - Allan Thygesen(CEO)

How much of the double-digit percentage of IAM as a percentage of the subscription business is coming from upsell and net new customers vs. eSignature transition? - Joshua Phillip Baer (Morgan Stanley)

2026Q1: We're not disclosing expansion rates, but with our large installed base, the majority of IAM deals are expansions rather than new customers. IAM is becoming a much larger share of new deals, so it's coming from both. - Blake Jeffrey Grayson(CFO)

Contradiction Point 4

Gross Retention Improvement

It involves the company's reported improvements in gross retention rates, which are crucial for sustained growth and customer satisfaction.

What are the key drivers behind the improved gross retention? Will there be further improvements in the remainder of this year and next year? - Kirk Materne(Evercore ISI)

2026Q3: We've seen a sequential improvement in gross retention rates. The improvement has been driven by strong execution on the operational front and engagement with our customers. - Allan Thygesen(CEO)

What are the key drivers behind the improved gross retention, and will there be further improvements in the second half of this year and next year? - Kirk Materne(Evercore ISI)

2026Q2: We've seen improved gross retention rates over the past 18 months. Operational execution and customer engagement play a significant part. There's still opportunity for improvement and expansion with IAM. - Allan Thygesen(CEO)

Contradiction Point 5

Revenue and Billings Growth Dynamics

It involves differing explanations for the lag between billings acceleration and revenue growth, which impacts investor understanding of the company's financial performance.

How do you assess the business's underlying growth based on revenue and billing guidance? - Tyler Radke (Citigroup Inc., Research Division)

2026Q3: Revenue is lagged by six to seven quarters due to average duration to recognize. Fiscal '26 is unique with accelerated billings expected, reflecting an IAM ramp later this year. Revenue growth will depend on billings acceleration. - Blake Grayson(CFO)

How would you characterize the underlying growth of the business based on revenue and billing guidance? - Tyler Radke (Citigroup Inc., Research Division)

2026Q3: Q4 revenue guidance decelerates slightly due to extra early renewals in Q3 and PLG-driven strength from last year's Q4 initiatives. Billings outperformance is from early renewals and small shifts in payment frequency. - Blake Grayson(CFO)