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DocuSign (DOCU 39.95, -1.82, -4.36%), a pioneer of the electronic signature software market, is trading modestly higher after the company reported Q3 (Oct) results last night. Given that DOCU made its debut on the Nasdaq in April of this year, this was just its third earnings report as a public company.

DocuSign offers a leading e-signature platform, providing convenient, integrated digital solutions for signature agreements common in everyday business operations, real estate transactions, and more. So pervasive is the platform’s presence in its market, in fact, that the company name is becoming a colloquial verb. It's possible that you have "DocuSigned" a job offer or purchased a home using DocuSign, or perhaps you have “DocuSigned” a lease for an apartment. The traditional, manual, paper-based agreement process is slow, expensive, and prone to error. By automating the signing process and eliminating the need for paper, DocuSign allows companies to achieve turnaround for agreements more quickly and more cost-efficiently than do traditional methods.

Growth Strategy: DOCU believes that the market for e-signature remains largely underpenetrated, and the company intends to take advantage of opportunities to meet market need, both by expanding to new customers and by growing its presence with existing customers. The company sees substantial room to grow its customer base internationally, as only 17% of revenue in FY18 came from outside the U.S. Also, DOCU sees opportunities to extend across the entire agreement process beyond e-signatures. This is the central concept of its System of Agreement vision announced in June 2018, which includes support for aspects of the agreement that take place before (document creation, collaboration, redlining, review, text search) and after (payment services) the signatures are executed.

Turning to the Q3 (Oct) results, non-GAAP EPS rose to $0.00 from a ($0.17) loss in the prior year period. This was better than market expectations. Revenue rose 36.6% year/year to $178.4 mln, which was nicely above prior guidance of $172-175 mln. Subscription revenue was $169.4 mln, an increase of 38% year/year. DOCU also issued upside guidance for Q4 (Jan); it sees revenue coming in at $192-194 mln.

DocuSign's growth comes primarily from acquiring new customers and growing usage within its existing customers across their lines of business. This growth has occurred primarily in the U.S., but international sales, which overall grew at a year/year rate of 28%, reached a reported 17% of total sales in the quarter. International growth, again, is a key focus for DocuSign.

On the call, management laid out some key points. First, it sees its TAM (total addressable market) opportunity as substantial. It notes that its core eSignature business' TAM, estimated at $25 bln, is largely underpenetrated. This TAM is becoming available as companies make the transformation from paper to eSignature, often one department at a time. This is known as a “land-and-expand” strategy.

Another major growth driver is the aforementioned System of Agreement transformation, which builds on top of eSignature. Companies transition from isolated use of eSignature to connecting it with the various other systems necessary to prepare, sign, act on, and manage agreements, using DocuSign’s automation to speed up the entire agreement process. DocuSign's recent acquisition of Spring CM bolsters those activities before and after the signature. Finally, partnerships, such as those with Salesforce and DropBox, also continue to drive growth.

This was another nice quarter for DocuSign. The stock had been running quite a bit after its IPO debut, which priced at $29 in April before the stock opened at $38. It traded above $68 as recently as late August, but the stock has been in a downtrend since then and has currently traded at around $42. The overall weakness in tech stocks has certainly taken a toll. Also, DOCU's first quarter as a public company was a huge EPS beat while the subsequent two quarters have seen more modest upside. So perhaps investors are a bit disappointed by that. With that said, it's good to see DOCU turn profitable this quarter, albeit just barely profitable. DOCU is expected to graduate from a loss this fiscal year to a small profit next year, so it'll be good to see DOCU hit that milestone.