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DocuSign (DOCU -6%) is trading lower following its Q1 (Apr) report last night. The e-signature/contract creation giant beat on EPS, but it was its smallest EPS upside in the past seven quarters. Revenue rose 7.3% yr/yr to $709.6 mln, which was slightly better than analyst expectations. It also guided to in-line revenue for Q2 (Jul) and the full year. DOCU also announced a $1 bln increase to its share repurchase authorization.

• In terms of the key operating metrics, billings is a closely watched number and DocuSign performed pretty well in this regard. Billings in Q1 grew 5% yr/yr to $709.5 mln, well above the $685-695 mln prior guidance. DOCU says the billings outperformance was driven primarily by higher early renewals as well as stronger retention rates. However, the +5% growth was notably slower growth than the +13% reported in Q4 (Jan).
• In terms of billings guidance, DOCU expects Q2 to come in at $715-725 mln. DOCU expects Q2 will have the lowest yr/yr billings growth rate in FY25, primarily because it is lapping last year's strong on-time renewal performance and the timing impacts of various customer contracts. DOCU also explained that billings are heavily impacted by the timing of customer renewals, which can create meaningful variability.
• Non-GAAP operating margin was a bright spot at 28.5% vs 26.6% a year ago and above 27-28% prior guidance. It was good to see DOCU guide for 27-28% in Q2 and it reaffirmed full year margin guidance.
• DOCU has struggled in recent quarters, impacted by spending optimizing and IT budget scrutiny. However, DOCU says its core business showed ongoing signs of stabilization in Q1. This was evident in its dollar net retention rate improving to 99% in Q1 from 98% in Q4. This is the first sequential improvement in several years. DOCU expects these recent stabilization trends will continue in Q2. Also, usage trends once again showed modest improvement.
• In late May, DOCU launched Docusign IAM (Intelligent Agreement Management), which it describes as a landmark moment in the company's transformation. The Docusign IAM platform is a significant departure from its past approach of only offering standalone products. This platform combines current products, including eSignature and CLM with new platform services, including Docusign Maestro, its new agreement workflow builder which automates the creation of agreements without using code.

Overall, we think the small EPS beat and billings results/guidance are weighing on shares today. Despite the explanations on billings, we think the slower yr/yr growth in Q1 relative to Q4 and the comments about Q2 billings being the slowest growth for the year is making investors nervous. There were also positives, namely its core business stabilizing and margins were a bright spot. We also like the $1 bln buyback increase, which is quite significant for a company with a $10.2 bln market cap. However, is seems investors did not like the Q1 report overall.