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DocuSign (DOCU +4%) is trading higher following its Q2 (Jul) report last night. The e-signature/contract creation giant reported a huge beat on EPS as margins were quite strong. Revenue rose 7.0% yr/yr to $736 mln, which was also better than analyst expectations. DOCU also guided to upside revenue for Q3 (Oct). DOCU said its Q2 results continue to show stabilization in its core business as it saw yr/yr improvements in usage, utilization and customer growth.

• Billings is a closely watched number. Billings in Q2 was a bit of a disappointment as they rose just 2% yr/yr to $724.5 mln, at the high end of $715-725 mln prior guidance. DOCU is known for lowballing billings guidance then reporting nice beats. In fairness, DOCU had warned investors that Q2 was going to be its lowest quarterly growth rate for billings in FY25 because it was lapping last year's strong on-time renewal performance. However, this was a bit of a letdown and the Q3 guidance at $710-720 mln was not super great either. But again, DOCU tends to be conservative with billings guidance, so we are not as worried about that.
• DOCU achieved a milestone in Q2 as it shipped the first version of its Intelligent Agreement Management platform. DOCU described this as its most important launch in recent history. The Docusign IAM platform is a significant departure from its past approach of only offering standalone products. This platform combines current products (eSignature, CLM) with new platform services, including Docusign Maestro, its new agreement workflow builder which automates the creation of agreements without using code.
• IAM addresses the massive $2 trillion in lost economic value each year experienced by organizations when managing agreements. In Q2, IAM launched to small and mid-sized commercial customers in the US, Canada, and Australia. It's very early days, but initial feedback is promising. Thus far, IAM customer win rates are higher, average deal sizes are larger, and time to close with customers is faster.
• Non-GAAP operating margin was a bright spot at an all-time record of 32.2%, nicely above the 27-28% prior guidance and well ahead of 24.7% last year. However, approximately 150 basis points was attributable to one-time items associated with professional fees. Nevertheless, margins were impressive in Q2, especially as DOCU was also launching IAM. The upside margins played a key role in the strong EPS upside.

Overall, we think the large EPS beat, big margins and revenue guidance is offsetting a somewhat disappointing billings number and billings guidance. We also think investors are reacting positively to what sounds like a successful IAM launch. Nevertheless, the stock has been rangebound in the $50-60 area since early February as there does not seem to be a lot of conviction either way. We suspect investors want to see DOCU not just stabilize but get back on a better growth trajectory.