What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-03-31 compared with 2020-03-27 · 178 added, 1459 removed, 315 unchanged (84% of the section changed)

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the agreement.

DocuSign, Inc.| 2021 Form 10-K | 40

We offer the world’s #1 e-signature solution as the core part of our broader software suite for automating the agreement process, which we call the DocuSign Agreement Cloud.

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It provides comprehensive functionality across e-signature and addresses the broader agreement process.

As a result, over 585,000 customers and

hundreds of millions of users worldwide utilize DocuSign to create, upload and send documents for multiple parties to sign electronically.

As a result, over 890,000 customers and hundreds of millions of users worldwide utilize DocuSign to create, upload and send documents for multiple parties to sign electronically.

The DocuSign Agreement Cloud allows users to complete approvals, agreements and transactions faster by building end-to-end processes.

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Finally, the DocuSign Agreement Cloud allows our customers to automate and streamline their business-critical workflows to save time and money, while staying secure and legally compliant.

We offer access to our platform on a subscription basis with prices based on the functionality our customers require and the quantity of Envelopes provisioned.

We generally offer access to our platform on a subscription basis with prices based on the functionality our customers require and the quantity of Envelopes provisioned.

Similar to the physical envelopes historically used to mail paper documents, an Envelope is a digital container used to send one or more documents for signature or approval to one or more recipients.

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Other revenue includes amounts derived from sales of on-premises solutions.

Professional services and other revenue accounted for 6%, 5% and 7% of our revenue in the years ended January 31, 2020, 2019 and 2018.

Professional services and other revenue accounted for the remainder of total revenue.

We anticipate continuing to invest in customer success through our professional services offerings as we believe it plays an important role in accelerating our customers’ deployment of our software suite, which helps drive customer retention and expansion of the use of the DocuSign Agreement Cloud.

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VSBs tend to become customers quickly with very little to no direct sales or customer support interaction and generate smaller average contract values, while commercial and enterprise customers typically involve longer sales cycles, larger contract values and greater expansion opportunities for us.

COVID-19 Update

The COVID-19 pandemic has spread across the world and is particularly prevalent in the U.S., where we are headquartered and the majority of our workforce is located.

The pandemic and the public health measures taken in response to it have adversely affected workforces, organizations, customers, economies, and financial markets globally, leading to an economic downturn and increased market volatility.

We are continuing to monitor the actual and potential effects of the pandemic across our business.

Because these effects are dependent on highly uncertain future developments — including the duration, spread and severity of the pandemic, the actions taken to contain the virus, the distribution of vaccines, and how quickly and to what extent normal economic and operating conditions can or will resume — they are extremely difficult to predict.

While our revenue, billings and earnings are relatively predictable as a result of our subscription-based business model, the effects of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods.

DocuSign, Inc.| 2021 Form 10-K | 41

Since March 2020, we have taken a number of precautionary measures to ensure the health and safety of our employees, partners and customers.

DocuSign has shifted to a largely remote work environment, providing nearly all employees the opportunity to work from home through at least October 4, 2021.

We have suspended all business travel other than for essential functions.

We have cancelled or replaced planned events, such as our Momentum conferences, with virtual-only experiences.

We have incurred expenses to support our employees working from home, including reimbursements for home office equipment and a stipend for other qualifying expenses, as well as expenses associated with planning and risk mitigation for potential and actual reopenings of our offices, and may incur similar expenses in the future.

The impact of these and any other operational changes we may implement is uncertain, but as of the date of this filing they have not materially affected our ability to maintain operations.

We have experienced a substantial increase in overall demand for our products, particularly DocuSign eSignature, as the shift to remote, digital business operations has caused more organizations to adopt or expand their use of digital agreements.

This acceleration of the digital transformation of agreements has resulted in growth in our customer base and a significant increase in customer spending across almost all industries and regions we serve.

We believe that businesses that have shifted to digital agreement processes will not return to manual ones.

However, if our expectations are incorrect, and if demand for our products decreases as the COVID-19 pandemic lessens in severity and businesses resume in-person operations, our business could suffer.

See Risk Factors for further discussion of the potential impact of the COVID-19 pandemic, including the conclusion or tapering of the pandemic, on our business, financial condition and results of operations.

Financial Results for the Year Ended January 31, 2021

Year Ended January 31, 2020

(in thousands) Year Ended January 31, 2021

Total revenue $ 1,453,047

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Capital expenditures (82,395)

Cash, cash equivalents and investments were $895.9 million as of January 31, 2020 .

Cash, cash equivalents, restricted cash and investments were $866.5 million as of January 31, 2021.

Key Factors Affecting Our Performance

We believe that our future performance will depend on many factors, including the following:

Growing Our Customer Base

Growing Customer Base

We are highly focused on continuing to acquire new customers to support our long-term growth.

We have invested, and expect to continue to invest, heavily in our sales and marketing efforts to drive customer acquisition.

As of January 31, 2020, we had over 585,000 customers, including over 70,000 enterprise and commercial customers, as comp ared to over 475,000 customers and over 55,000 enterprise and commercial customers as of January 31, 2019.

As of January 31, 2021, we had a total of over 890,000 customers, including over 120,000 enterprise and commercial customers, compared to over 585,000 customers and over 70,000 enterprise and commercial customers as of January 31, 2020.

We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract to access our software suite.

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We define commercial customers to include both mid-market companies, which includes companies outside the Global 2000 that have greater than 250 employees, and small-to-medium-sized businesses (“SMBs”), which are companies with between 10 and 249 employees, in each case excluding any enterprise customers.

VSBs include companies with fewer than 10 employees.

We refer to total customers as all enterprises, commercial businesses and VSBs.

We believe that our ability to increase the number of customers using our software suite, particularly the number of enterprise and commercial customers, is an indicator of our market penetration, the growth of our business and our potential future business opportunities.

By increasing awareness of our software suite, further developing our sales and marketing expertise and continuing to build features tuned to different industry needs, we have expanded the diversity of our customer base to include organizations of all sizes across nearly every industry.

By increasing awareness of our software suite, further developing our sales and

DocuSign, Inc.| 2021 Form 10-K | 42

marketing expertise and continuing to build features tuned to different industry needs, we have expanded the diversity of our customer base to include organizations of all sizes across nearly every industry.

Retaining and Expanding Contracts with Existing Enterprise and Commercial Customers

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Increasing International Revenue

Our international revenue represented 18% of our total revenue in the year ended January 31, 2020 and 17% of our total revenue in each of the y ears ended January 31, 2019 and 2018.

Our international revenue represented 20%, 18% and 17% of our total revenue in each of the years ended January 31, 2021, 2020, and 2019, respectively.

We started our international selling efforts in English-speaking common law countries, such as Canada, the United Kingdom and Australia, where we were able to leverage our core technologies due to similar approaches to e-signature in these jurisdictions and the U.S.

We have since made significant investments to be able to offer our solutions in select civil law countries.

We have since made significant investments to be able to offer our products in select civil law countries.

For example, in Europe, we have SBS technology tailored for eIDAS.

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We plan to increase our international revenue by leveraging and continuing to expand the investments we have already made in our technology, direct sales force and strategic partnerships, as well as helping existing U.S.-based customers manage agreements across their international businesses.

Additionally, we expect our strategic partnerships in key international markets, including our current relationships with SAP in Europe, to further grow.

We have experienced tremendous growth in Latin America and are expanding our sales and marketing resources to capitalize on the potential growth of these markets.

Additionally, we expect to continue to develop and enhance our strategic partnerships in key international markets as we grow internationally.

Investing for Growth

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We also plan to continue to invest in expanding the functionality of our software suite and underlying infrastructure and technology to meet the needs of our customers across industries.

Our recent acquisitions of Seal Software and Liveoak Technologies, intended to bring additional functionality to our DocuSign Agreement Cloud and further expand our eNotary offerings, as well as the continuous development of new features internally, are examples of our commitment to investing for ongoing growth.

Components of Results of Operations

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Other revenue includes amounts derived from sales of on-premises solutions.

DocuSign, Inc.| 2021 Form 10-K | 43

Overhead Allocation

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Cost of Revenue

Cost of Subscription Revenue.

Cost of subscription revenue primarily consists of expenses related to hosting our software suite and providing support.

Cost of Subscription Revenue Cost of subscription revenue primarily consists of expenses related to hosting our software suite and providing support.

These expenses consist of employee-related costs, including salaries, bonuses, benefits, stock-based compensation and other related costs, as well as personnel costs for employees associated with our technical infrastructure, customer success and customer support.

These expenses also consist of software and maintenance costs, third-party hosting fees, outside services associated with the delivery of our subscription services, amortization expense associated with capitalized internal-use software and acquired intangible assets, credit card processing fees and allocated overhead costs.

Cost of Professional Services and Other Revenue.

Cost of professional services and other revenue consists primarily of personnel costs for our professional services delivery team, travel-related costs and allocated overhead costs.

We expect our cost of revenue to continue to increase in absolute dollar amounts as we invest in our business.

Cost of Professional Services and Other Revenue Cost of professional services and other revenue consists primarily of personnel costs for our professional services delivery team, travel-related costs and allocated overhead costs.

Gross Profit and Gross Margin

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We expect selling and marketing expense to continue to increase in absolute dollars as we enhance our product offerings and implement marketing strategies.

Research and Development Expense.

Research and development expense consists primarily of personnel costs.

These expenses also include non-personnel costs, such as subcontracting, consulting and professional fees for third-party

development resources, as well as allocated overhead costs.

Research and Development Expense Research and development expense consists primarily of personnel costs.

These expenses also include non-personnel costs, such as subcontracting, consulting and professional fees for third-party development resources, as well as allocated overhead costs.

Our research and development efforts focus on maintaining and enhancing existing functionality and adding new functionality.

We expect research and development expense to increase in absolute dollars as we invest in the enhancement of our software suite.

General and Administrative Expense.

General and administrative expense consists primarily of employee-related costs for those employees associated with administrative services such as legal, human resources, information technology related to internal systems, accounting and finance.

General and Administrative Expense General and administrative expense consists primarily of employee-related costs for those employees providing administrative services such as legal, human resources, information technology related to internal systems, accounting and finance.

These expenses also include certain third-party consulting services, certain facilities costs and allocated overhead costs.

We expect general and administrative expense to increase in absolute dollars to support the overall growth of our operations.

Interest Expense

After our issuance of the Notes in September 2018, interest expense consists primarily of contractual interest expense, amortization of discount and amortization of debt issuance costs on our Notes.

Prior to the issuance of the Notes, interest expense consisted primarily of commitment fees and amortization of costs related to a loan facility, which was terminated in May 2018.

Interest Expense and Loss on Extinguishment

Interest expense consists primarily of contractual interest expense, amortization of discount and amortization of debt issuance costs on our Notes.

The loss on extinguishment of debt consists of the difference between the fair value and the net carrying value of our Notes at settlement.

DocuSign, Inc.| 2021 Form 10-K | 44

Interest income and other income, net

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Provision for (Benefit from) Income Taxes

Our provision for (benefit from) income taxes consists primarily of income taxes in certain foreign jurisdictions where we conduct business, state minimum taxes in the U.S., and certain tax benefits arising from acquisitions.

Our provision for (benefit from) income taxes consists primarily of income taxes in certain foreign jurisdictions where we conduct business, and tax benefits arising from deductions for stock-based compensation.

We have a valuation allowance against our U.S.

deferred tax assets, including U.S.

net operating loss carryforwards.

We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our U.S.

deferred tax assets will be realized by way of expected future taxable income in the U.S.

consolidated group and certain foreign deferred tax assets.

We expect to maintain this valuation allowance for the foreseeable future or until it becomes more likely than not that the benefit of these U.S.

and foreign deferred tax assets will be realized by way of expected future taxable income.

DocuSign, Inc.| 2021 Form 10-K | 45

Discussion of Results of Operations

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Year Ended January 31,

(in thousands) 2020 2019 2018

Subscription $ 918,463 $ 663,657 $ 484,581

Professional services and other 55,508 37,312 33,923

Total revenue 973,971 700,969 518,504

Cost of revenue:

Subscription 163,931 117,764 83,834

Professional services and other 79,303 74,657 34,439

Total cost of revenue 243,234 192,421 118,273

Gross profit 730,737 508,548 400,231

Operating expenses:

Sales and marketing 591,379 539,606 277,930

Research and development 185,552 185,968 92,428

General and administrative 147,315 209,297 81,526

Total operating expenses 924,246 934,871 451,884

Loss from operations (193,509) (426,323) (51,653)

Interest expense (29,254) (10,844) (624)

Interest income and other income, net 19,207 8,959 3,135

Loss before provision for (benefit from) income taxes (203,556) (428,208) (49,142)

Provision for (benefit from) income taxes 4,803 (1,750) 3,134

Net loss $ (208,359) $ (426,458) $ (52,276)

The following table sets forth the components of our consolidated statements of operations data as a percentage of revenue:

Year Ended January 31,

2020 2019 2018

(in thousands) 2021 As % of Revenue 2020 As % of Revenue

Subscription $ 1,381,397 95 % $ 918,463 94 %

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Interest expense (30,799) (2) (29,254) (3)

Loss on extinguishment of debt (33,752) (2) — —

Interest income and other income, net 8,914 — 19,207 2

Loss before provision for (benefit from) income taxes (21) (61) (9)

Provision for (benefit from) income taxes — — 1

Loss before provision for income taxes (229,492) (16) (203,556) (21)

Provision for income taxes 13,775 1 4,803 —

Net loss $ (243,267) (17) % $ (208,359) (21) %

The following discussion and analysis are for the year ended January 31, 2020, compared to the same period in 2019 and the year ended January 31, 2019, compared to the same period in 2018, unless otherwise stated.

Year Ended January 31, 2020 versus 2019 2019 versus 2018

(in thousands, except for percentages) 2020 2019 2018

The following discussion and analysis are for the year ended January 31, 2021, compared to the same period in 2020, unless otherwise stated.

Discussion and analysis for the year ended January 31, 2020 compared to the same period ended January 31, 2019 may be found in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended January 31, 2020, filed with the Securities and Exchange Commission on March 27, 2020.

Year Ended January 31, 2021 vs 2020

(in thousands) 2021 As % of Revenue 2020 As % of Revenue

Subscription $ 1,381,397 95 % $ 918,463 94 % 50 %

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Total revenue $ 1,453,047 100 % $ 973,971 100 % 49 %

Subscription Revenue

Subscription revenue increased $254.8 million, or 38%, in the year ended January 31, 2020, and $179.1 million, or 37%, in the year ended January 31, 2019.

Subscription revenue was 94%, 95% and 93% of total revenue in the years ended January 31, 2020, 2019 and 2018.

The increases in both periods were primarily attributable to increases in subscription sales to new and existing customers.

The increase in the year ended January 31, 2020 also reflects the full year impact of the SpringCM acquisition.

Subscription revenue increased $462.9 million, or 50%, in the year ended January 31, 2021.

Due to the COVID-19 pandemic, there has been a shift to remote, digital business operations that has led to an acceleration of the digital transformation of agreements.

This resulted in a higher growth in our customer base and a significant increase in customer spending across almost all industries and regions we serve.

We continue to invest in a variety of customer programs and initiatives, which, along with expanded customer use cases, have helped increase our subscription revenue over time.

We expect subscription revenue to continue to increase as we offer new functionality, attract new customers and fully realize the potential of our acquisitions in our product offerings.

Professional Services and Other Revenue

Professional services and other revenue increased by $18.2 million, or 49%, in the year ended January 31, 2020, and by $3.4 million, or 10%, in the year ended January 31, 2019 primarily due to increased engagement of professional services to support our growing customer base.

We continue to monitor the COVID-19 pandemic in fiscal 2022 and its impact on customer demand.

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Professional services and other revenue increased by $16.1 million, or 29%, in the year ended January 31, 2021, primarily driven by increased engagement of professional services to support our growing customer base and by the addition of Seal.

Cost of Revenue and Gross Margin

Year Ended January 31, 2020 versus 2019 2019 versus 2018

(in thousands, except for percentages) 2020 2019 2018

Year Ended January 31, 2021 vs 2020

(in thousands) 2021 2020

Cost of revenue:

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Gross margin:

Subscription 82 % 82 % 83 % — pts (1) pts

Professional services and other (43) % (100) % (2) % 57 pts (98) pts

Total gross margin 75 % 73 % 77 % 2 pts (4) pts

Cost of Subscription Revenue

Cost of subscription revenue increased $46.2 million, or 39% in the year ended January 31, 2020, primarily due to:

▪ An increase of $26.9 million in operating costs to support our platform and the full year impact of the SpringCM acquisition;

▪ An increase of $15.8 million in personnel costs primarily due to higher headcount and the full year impact of the addition of SpringCM employees.

Cost of subscription revenue increased $33.9 million, or 40% in the year ended January 31, 2019, primarily due to:

▪ An increase of $15.3 million in stock-based compensation expense primarily driven by the expense related to RSUs with a performance condition satisfied on the effectiveness of our IPO Registration Statement, for which no expense was recorded in the same prior year period, and the expense on RSUs granted with a service-based condition only;

▪ An increase of $9.7 million in data center and other related operating costs to support our software suite and the impact of the acquisition of SpringCM;

▪ An increase of $5.3 million in personnel costs primarily driven by increases in headcount, the addition of SpringCM employees and the employer portion of payroll taxes related to RSU settlements with no such expense in the prior years.

Cost of Professional Services and Other Revenue

Cost of professional service and other revenue increased $4.6 million, or 6%, in the year ended January 31, 2020, primarily due to:

▪ An increase of $8.6 million in personnel costs primarily due to higher headcount and the addition of SpringCM employees;

▪ An increase of $4.5 million in professional service costs, primarily related to SpringCM customer implementation costs.

These increases were partially offset by a decrease of $10.2 million in stock-based compensation expense as the cost of professional service and other revenue in the year ended January 31, 2019 included a cumulative catch-up of stock-based compensation expense on the effective date of our IPO.

Cost of professional service and other revenue increased $40.2 million, or 117%, in the year ended January 31, 2019, primarily due to:

• An increase of $24.9 million in stock-based compensation primarily driven by the expense related to RSUs with a performance condition satisfied on the effectiveness of our IPO Registration Statement, for which no expense was recorded in the same prior year period, and the expense on RSUs granted with a service-based condition only;

• An increase of $11.7 million in personnel costs primarily related to increased headcount in our professional services organization and the addition of SpringCM employees, as well as the employer portion of payroll taxes related to RSU settlements with no such expense in the prior year.

Subscription 81 % 82 % (1) pts

Professional services and other (45) % (43) % (2) pts

Total gross margin 75 % 75 % — pts

Cost of subscription revenue increased $96.1 million, or 59% in the year ended January 31, 2021, primarily driven by higher costs to support our growing customer base and the impact of the addition of Seal.

Significant increases consisted of:

• $31.6 million in personnel costs and $7.9 million in stock-based compensation expense primarily due to higher headcount, including the addition of Seal employees, and annual merit increases;

• $12.5 million in third-party partner costs, $8.5 million in hosting costs and $6.9 million in authentication and processing fees to support the growth in our revenue;

• $13.0 million in depreciation and amortization, which reflects the higher existing technology intangible assets from the acquisition of Seal, as well as higher data center and capitalized software assets;

• $6.4 million in professional fees, mainly in third-party technical support and customer services.

Cost of professional service and other revenue increased $24.8 million, or 31%, in the year ended January 31, 2021 due to the increases of $20.7 million in personnel costs and $6.2 million in stock-based compensation expense primarily due to higher headcount, including the addition of Seal employees and annual merit increases.

We expect our cost of revenue to continue to increase in absolute dollar amounts as we invest in our business and support our growing customer usage and base.

Sales and Marketing

Year Ended January 31, 2020 versus 2019 2019 versus 2018

(in thousands, except for percentages) 2020 2019 2018

Year Ended January 31, 2021 vs 2020

(in thousands) 2021 2020

Sales and marketing $ 798,625 $ 591,379 35 %

Percentage of revenue 55 % 61 %

Sales and marketing expenses increased $51.8 million, or 10%, in the year ended January 31, 2020, primarily due to:

▪ An increase of $77.5 million in personnel costs due to higher headcount, the addition of SpringCM employees, and higher commissions in line with higher sales and headcount;

▪ An increase of $18.9 million in allocated overhead due to higher technology and facility costs;

▪ An increase of $13.6 million in marketing and advertising expense, primarily due to higher spend for online advertising campaigns;

▪ An increase of $7.9 million in depreciation and amortization due to the full year impact of amortization of the intangible assets acquired in the SpringCM acquisition as well as higher overall property and equipment balance;

▪ An increase of $4.4 million primarily due to higher spend on employee-related costs and partner commissions;

▪ An increase of $4.1 million in travel costs driven by higher headcount.

These increases were partially offset by a decrease of $77.3 million in stock-based compensation expense as the sales and marketing expense in the year ended January 31, 2019 included a cumulative catch-up of stock-based compensation expense on the effective date of our IPO.

Sales and marketing expenses increased $261.7 million, or 94%, in the year ended January 31, 2019, primarily due to:

▪ An increase of $162.7 million in stock-based compensation expense primarily driven by the expense related to RSUs with a performance condition satisfied on the effectiveness of our IPO Registration Statement, for which no expense was recorded in the same prior year period, and the expense on RSUs granted with a service-based condition only;

▪ An increase of $58.3 million in personnel costs driven by increased headcount, the addition of SpringCM employees, the employer portion of payroll taxes related to RSU settlements with no such expense in the prior year, and higher commissions in line with higher sales;

▪ An increase of $14.5 million in marketing and advertising expense, primarily due to higher spend for online advertising campaigns;

▪ An increase of $10.4 million in allocated overhead due to increase in headcount and higher allocated IT and facility costs;

▪ An increase of $4.9 million in travel costs to support the increase in personnel;

▪ An increase of $4.3 million primarily due to higher spend on employee-related costs;

▪ An increase of $4.3 million in depreciation and amortization expenses due to the amortization of the intangible assets acquired in the SpringCM acquisition on September 4, 2018.

Sales and marketing expenses increased $207.2 million, or 35%, in the year ended January 31, 2021, primarily driven by higher costs to support the significant increase in demand due to the acceleration of the digital transformation of agreements.

Significant increases consisted of:

• $131.7 million in personnel costs and $36.2 million in stock-based compensation expense due to higher headcount, including the addition of Seal employees, annual merit increases and higher commissions in line with higher sales and higher amortization of deferred contract acquisition costs;

• $29.0 million in marketing and advertising expense, primarily due to a $36.5 million increase in spending on online advertising platforms to help capture the increased market interest in our product offering as a result of the shift to COVID-19 remote work environment.

This was partially offset by $9.1 million decrease in spending on customer events and sponsorships as a result of COVID-19 driven event cancellations;

• $17.4 million in allocated overhead due to higher technology and facility costs;

DocuSign, Inc.| 2021 Form 10-K | 47

• $6.0 million in depreciation and amortization driven by higher fixed assets additions and certain intangible assets acquired in the Seal and Liveoak acquisitions.

These increases were partially offset by a decrease of $19.2 million in travel expenses due to travel restrictions resulting from the COVID-19 pandemic.

Research and Development

Year Ended January 31, 2020 versus 2019 2019 versus 2018

(in thousands, except for percentages) 2020 2019 2018

Year Ended January 31, 2021 vs 2020

(in thousands) 2021 2020

Research and development $ 271,522 $ 185,552 46 %

Percentage of revenue 19 % 19 %

Researc h and development expenses remained flat in the year ended January 31, 2020 as the decrease of $30.9 million in stock-based compensation expense from cumulative catch-up of stock-based compensation expense on the effective date of our IPO during the year ended January 31, 2019 was offset by:

▪ An increase of $20.6 million in personnel costs due to higher headcount and the addition of SpringCM employees;

▪ An increase of $3.7 million in allocated overhead due to higher technology and facility costs;

▪ An increase of $1.7 million in professional fees.

Research and development expenses increased $93.5 million, or 101%, in the year ended January 31, 2019, primarily due to:

• An increase of $69.2 million in stock-based compensation expense, primarily driven by the expense related to RSUs with a performance condition satisfied on the effectiveness of our IPO Registration Statement, for which no expense was recorded in the same prior year period, and the expense on RSUs granted with a service-based condition only;

• An increase of $14.0 million in personnel costs due to higher headcount, the addition of SpringCM employees and the employer portion of payroll taxes related to RSU settlements with no such expense in the prior year;

• An increase of $4.6 million in allocated overhead due to increased allocated IT and facility costs;

• An increase of $1.7 million primarily due to higher employee costs.

Research and development expenses increased $86.0 million, or 46%, in the year ended January 31, 2021, primarily driven by increases of:

• $56.2 million in personnel costs and $22.7 million in stock-based compensation expense due to higher headcount to support growth, the addition of Seal and Liveoak employees and the impact annual merit increases;

• $7.9 million in allocated overhead due to higher technology and facility costs.

These increases were partially offset by a decrease of $2.5 million in travel expenses due to travel restrictions resulting from the COVID-19 pandemic.

General and Administrative

Year Ended January 31, 2020 versus 2019 2019 versus 2018

(in thousands, except for percentages) 2020 2019 2018

Year Ended January 31, 2021 vs 2020

(in thousands) 2021 2020

General and administrative $ 192,697 $ 147,315 31 %

Percentage of revenue 13 % 15 %

General and administrative expenses decreased $62.0 million, or 30%, in the year ended January 31, 2020, primarily due to a decrease of $83.0 million in stock-based compensation expense as the general and administrative expense in the year ended January 31, 2019 included a cumulative catch-up of stock-based compensation expense on the effective date of our IPO.

This decrease in stock-based compensation was partially offset by:

• An increase of $9.1 million in personnel costs primarily due to higher headcount;

• An increase of $3.8 million primarily due to charitable contributions;

• An increase of $3.2 million in professional fees, driven by higher litigation expenses partially offset by legal, audit and consulting costs related to our IPO in the prior year.

General and administrative expenses increased $127.8 million, or 157%, in the year ended January 31, 2019, primarily due to:

▪ An increase of $109.1 million in stock-based compensation expense, primarily driven by the expense related to RSUs with a performance condition satisfied on the effectiveness of our IPO Registration Statement, for which no expense was recorded in the same prior year period, and the expense on RSUs granted with a service-based condition only;

▪ An increase of $10.0 million in professional fees, primarily driven by costs related to our IPO, secondary offering and preparation for operating as a public company, as well as higher audit and consulting costs;

▪ An increase of $9.7 million in personnel costs primarily due to increased headcount and the employer portion of payroll taxes related to RSU settlements with no such expense in the prior year.

General and administrative expenses increased $45.4 million, or 31%, in the year ended January 31, 2021, primarily due to increases of:

• $23.2 million in personnel costs and $7.5 million in stock-based compensation expense primarily due to higher headcount to support growth and the impact of annual merit increases;

• $5.2 million in allocated overhead due to higher technology and facility costs;

• $4.5 million in bad debt reserve.

Other Income and (Expense)

Year Ended January 31, 2021 vs 2020

(in thousands) 2021 2020

Interest expense $ (30,799) $ (29,254) 5 %

Year Ended January 31, 2020 versus 2019 2019 versus 2018

(in thousands, except for percentages) 2020 2019 2018

Interest expense $ 29,254 $ 10,844 $ 624 170 % NM

Percentage of revenue (2) % (3) %

Interest expense increased by $18.4 million and $10.2 million in the years ended January 31, 2020 and 2019, due to interest expense and amortization of discount and transaction costs on our Notes issued in September 2018.

Interest Income and Other Income, Net

Year Ended January 31, 2020 versus 2019 2019 versus 2018

(in thousands, except for percentages) 2020 2019 2018

Loss on extinguishment of debt $ (33,752) $ — 100 %

Percentage of revenue (2) % — %

Interest income $ 7,731 $ 16,214 (52) %

Foreign currency gain (loss) (972) (3,357) 2,206 (71) (252) %

Other 3,965 1,250 (180) 217 % (794) %

Foreign currency gain (loss) 1,936 (972) NM

Other (753) 3,965 NM

Interest income and other income, net $ 8,914 $ 19,207 (54) %

Percentage of revenue — % 2 %

In the year ended January 31, 2020, interest income and other income, net, increased by $10.2 million primarily due to accretion on our debt securities investments as well as higher interest income on our investments in marketable securities.

In the year ended January 31, 2019, interest income and other income, net, increased by $5.8 million primarily due to an $11.5 million increase in interest income on higher cash and cash equivalent balances during the period and on investments in

marketable securities that commenced in the last quarter of fiscal 2019.

This was partially offset by foreign currency losses of $3.4 million compared to foreign currency gains of $2.2 million in the prior year, a change of $5.6 million, driven by the impact of the strengthening of the U.S.

dollar on transactions denominated in foreign currency.

Provision for (Benefit from) Income Taxes

Year Ended January 31,

Interest expense, consisting primarily of the contractual interest expense and amortization of debt discount and issuance costs on our 2023 Notes, which remained relatively flat year over year.

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We incurred a loss of $33.8 million upon the extinguishment of a portion of our 2023 Notes issued in September 2018.

Further details are described in Note 9 to the Consolidated Financial Statements.

Interest income and other income, net, decreased by $10.3 million in the year ended January 31, 2021, primarily due to lower interest income and higher amortization on our debt securities investments.

Provision for Income Taxes

Year Ended January 31, 2021 vs 2020

(in thousands, except for percentages) 2021 2020

Provision for (benefit from) income taxes $ 4,803 $ (1,750) $ 3,134

Provision for income taxes $ 13,775 $ 4,803 187 %

Percentage of revenue 1 % — %

We had a provision for income taxes of $4.8 million in the year ended January 31, 2020, compared to a benefit from income taxes of $1.8 million in the year ended January 31, 2019.

The change was primarily driven by a prior year tax benefit of $7.1 million upon the release of a portion of our deferred tax valuation allowance in connection with the SpringCM acquisition, which was unique to the year ended January 31, 2019.

We had a benefit from income taxes of $1.8 million in the year ended January 31, 2019, compared to a provision for income taxes of $3.1 million in the year ended January 31, 2018.

The change was primarily driven by a tax benefit of $7.1 million upon the release of a portion of our deferred tax valuation allowance in connection with the SpringCM acquisition.

This tax benefit was partially offset by an increase in foreign tax expense, resulting from higher year-over-year earnings in certain foreign jurisdictions as we continue to scale our foreign operations to support our ongoing international growth.

Quarterly Results of Operations

The following table sets forth our unaudited quarterly consolidated results of operations for each of the quarters indicated.

These unaudited quarterly results of operations have been prepared on the same basis as our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

In the opinion of management, the financial information reflects all normal recurring adjustments necessary for the fair statement of results of operations for these periods.

This information should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.

The results of historical periods are not necessarily indicative of the results in any future period and the results of a particular quarter or other interim period are not necessarily indicative of the results for a full year.

Quarterly Consolidated Statements of Operations

Three Months Ended

(in thousands, except per share data) Jan 31, 2020 Oct 31, 2019 Jul 31, 2019 Apr 30, 2019 Jan 31, 2019 Oct 31, 2018 Jul 31, 2018 Apr 30, 2018

Subscription $ 258,122 $ 238,072 $ 220,811 $ 201,458 $ 187,572 $ 169,426 $ 158,461 $ 148,198

Professional services and other 16,773 11,430 14,801 12,504 12,160 8,959 8,583 7,610

Total revenue 274,895 249,502 235,612 213,962 199,732 178,385 167,044 155,808

Cost of revenue:

Subscription 48,162 43,178 39,472 33,119 33,560 28,709 23,057 32,438

Professional services and other 19,913 18,786 21,704 18,900 19,133 16,364 13,304 25,856

Total cost of revenue 68,075 61,964 61,176 52,019 52,693 45,073 36,361 58,294

Gross profit 206,820 187,538 174,436 161,943 147,039 133,312 130,683 97,514

Operating expenses:

Sales and marketing 161,326 149,231 150,886 129,936 127,691 117,051 103,779 191,085

Research and development 52,094 48,758 47,517 37,183 42,921 38,404 33,773 70,870

General and administrative 35,753 33,546 40,755 37,261 39,055 36,274 30,851 103,117

Total operating expenses 249,173 231,535 239,158 204,380 209,667 191,729 168,403 365,072

Loss from operations (42,353) (43,997) (64,722) (42,437) (62,628) (58,417) (37,720) (267,558)

Interest expense (7,461) (7,364) (7,273) (7,156) (7,101) (3,503) (47) (193)

Interest income and other income, net 3,658 5,801 4,531 5,217 4,794 3,395 2,998 (2,228)

Loss before provision for (benefit from) income taxes (46,156) (45,560) (67,464) (44,376) (64,935) (58,525) (34,769) (269,979)

Provision for (benefit from) income taxes 1,251 1,038 1,168 1,346 1,309 (5,712) 1,945 708

Net loss $ (47,407) $ (46,598) $ (68,632) $ (45,722) $ (66,244) $ (52,813) $ (36,714) $ (270,687)

Net loss per share attributable to common stockholders, basic and diluted $ (0.26) $ (0.26) $ (0.39) $ (0.27) $ (0.40) $ (0.31) $ (0.22) $ (7.46)

Stock-based compensation expense included in costs and expenses (1) :

Cost of revenue—subscription $ 3,951 $ 3,534 $ 3,115 $ 2,282 $ 2,241 $ 2,398 $ 1,588 $ 9,955

Cost of revenue—professional services and other 3,826 3,616 4,821 3,440 3,413 3,578 2,822 16,045

Sales and marketing 26,170 24,649 25,942 18,102 20,505 22,338 16,791 112,481

Research and development 12,252 11,679 11,963 7,317 9,562 9,919 7,359 47,268

General and administrative 9,406 9,258 9,951 11,130 13,550 13,515 11,605 84,045

(1) Three months ended April 30, 2018, includes $ 262.8 million of stock-based compensation expense related to RSUs, for which the performance-based condition was satisfied on April 26, 2018, the effective date of our IPO Registration Statement.

Percentage of Revenue Data

Three Months Ended

(in thousands, except per share data) Jan 31, 2020 Oct 31, 2019 Jul 31, 2019 Apr 30, 2019 Jan 31, 2019 Oct 31, 2018 Jul 31, 2018 Apr 30, 2018

Subscription 94 % 95 % 94 % 94 % 94 % 95 % 95 % 95 %

Professional services and other 6 5 6 6 6 5 5 5

Total revenue 100 100 100 100 100 100 100 100

Cost of revenue:

Subscription 18 17 17 15 17 16 14 21

Professional services and other 7 8 9 9 9 9 8 16

Total cost of revenue 25 25 26 24 26 25 22 37

Gross profit 75 75 74 76 74 75 78 63

Operating expenses:

Sales and marketing 59 60 64 61 64 66 62 123

Research and development 19 20 20 17 21 22 20 45

General and administrative 12 13 17 18 20 20 19 67

Total operating expenses 90 93 101 96 105 108 101 235

Loss from operations (15) (18) (27) (20) (31) (33) (23) (172)

Interest expense (3) (3) (3) (3) (4) (2) — —

Interest income and other income, net 1 3 1 2 2 2 2 (1)

Loss before provision for (benefit from) income taxes (17) (18) (29) (21) (33) (33) (21) (173)

Provision for (benefit from) income taxes — 1 — — — (3) 1 1

Net loss (17) % (19) % (29) % (21) % (33) % (30) % (22) % (174) %

Provision for income taxes increased by $9.0 million in the year ended January 31, 2021, primarily due to income taxes in certain foreign jurisdictions where we conduct business, including the impact of an intercompany IP transfer of $12.9 million offset by tax benefits arising from deductions for stock-based compensation.

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Liquidity and Capital Resources

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Since inception we have financed our operations primarily through equity financings and payments by our customers for use of our product offerings and related services.

In addition, in September 2018 we issued and sold $575.0 million in aggregate principal amount of 0.5% Convertible Senior Notes due 2023, which are further described in Note 10 of our consolidated financial statements .

We believe our existing cash and cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditures needs over at least the next 12 months.

While we generated positive cash flows from operations of $115.7 million in the years ended January 31, 2020, 2019 and 2018, we have generated losses from operations in the past as reflected in our accumulated deficit of $1.1 billion as of January 31, 2020.

Additionally, we have issued senior unsecured convertible notes for general corporate purposes and partial redemption of outstanding notes.

In September 2018, we issued and sold $575.0 million in aggregate principal amount of 0.5% Convertible Senior Notes due 2023 ("2023 Notes").

In January 2021, we issued and sol d $690.0 million in aggregate principal amount of 0% Convertible Senior Notes due 2024 ("2024 Notes", and together with the 2023 Notes, the “Notes”).

A portion of the 2024 Notes proceeds was used to repurchase $460.0 million in aggregate principal amount of the 2023 Notes.

In January 2021 we entered into a $500.0 million credit facility, which may be increased by an additional $250.0 million subject to customary terms and conditions.

The credit facility is available for five years until January 11, 2026 to optimize our capital structure and strengthen our balance sheet.

There were no outstanding borrowings under the credit facility as of January 31, 2021.

Further details of these transactions are described in Note 9 to the Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K.

We were in compliance with all debt covenants at January 31, 2021.

We believe our existing cash, cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditures needs over at least the next 12 months.

While we generated positive cash flows from operations in the recent years, we have generated losses from operations in the past as reflected in our accumulated deficit of $1.4 billion as of January 31, 2021.

We expect to continue to incur operating losses for the foreseeable future due to the investments we intend to make and may require additional capital resources to execute strategic initiatives to grow our business.

We typically invoice our customers annually in advance.

Therefore, a substantial source of our cash is from such invoices, which are included on our consolidated balance sheets as contract liabilities until revenue is recognized or accounts receivable until cash is collected.

Therefore, a substantial source of our cash is from such invoices, which are included on our consolidated balance sheets in contract liabilities until revenue is recognized and in accounts receivable until cash is collected.

Accordingly, collections from our customers have a material impact on our cash flows from operating activities.

Our accounts receivable increased by $63.3 million in the year ended January 31, 2020 , compared to an increase of $42.6 million, excluding accounts receivable acquired from SpringCM, in the year ended January 31,

2019 , which resulted in a $20.7 million decrease in cash provided by operating activities.

Our accounts receivable increased by $73.9 million in the year ended January 31, 2021 , compared to an increase of $63.3 million, excluding the impact from acquisitions, in the year ended January 31, 2020 , which resulted in a $10.6 million increase in cash used by operating activities year over year.

Contract liabilities consist of the unearned portion of billed fees for our subscriptions, which is subsequently recognized as revenue in accordance with our revenue recognition policy.

As of January 31, 2020, we had contract liabilities of $519.0 million, compared to $388.8 million as of January 31, 2019.

The increase in contract liabilities contributed $130.3 million to net cash provided by operating activities.

Our contract liabilities increased by $267.8 million, excluding the impact from acquisitions, in the year ended January 31, 2021, compared to an increase of $130.3 million in the year ended January 31, 2020.

The year over year increase contributed an additional $137.5 million to cash provided by operating activities.

Therefore, our growth in billings to existing and new customers has a material net beneficial impact on our cash flows from operating activities.

On February 26, 2020, we entered into a Share Purchase Agreement to acquire Seal Software Group Limited, a leading contract analytics and artificial intelligence technology provider, for a cash consideration of approximately $188.0 million, subject to adjustments.

The acquisition is expected to close in the first half of fiscal 2021.

Our future capital requirements will depend on many factors including our growth rate, customer retention and expansion, tax withholding obligations related to the settlement of our RSUs, the timing and extent of spending to support our efforts to develop our software suite, the expansion of sales and marketing activities and the continuing market acceptance of our software suite.

Our future capital requirements will depend on many factors including our growth rate, customer retention and expansion, tax withholding obligations related to settlement of our RSUs, the timing and extent of spending to support our efforts to develop our software suite, the expansion of sales and marketing activities and the continuing market acceptance of our software suite.

We may in the future enter into arrangements to acquire or invest in complementary businesses, technologies and intellectual property rights.

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If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.

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The following table summarizes our cash flows for the periods indicated:

Year Ended January 31, 2020 versus 2019 Change 2019 versus 2018 Change

Year Ended January 31,

(in thousands) 2021 2020

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Net change in cash, cash equivalents and restricted cash $ 324,853 $ (276,695)

The following discussion and analysis are for the years ended January 31, 2021 and 2020, unless otherwise stated.

Cash Flows from Operating Activities

2020 Compared to 2019 .

Cash provided by operating activities increased by $39.6 million in the year ended January 31, 2020.

This change was primarily due to a $218.1 million decrease in net loss, partially offset by a decrease of $124.7 million in non-cash expenses .

The decrease in non-cash expenses was driven by a $204.6 million decrease in stock-based compensation expense as the year ended January 31, 2019 included the cumulative catch-up of stock-based compensation expense on the effective date of our IPO.

This decrease was partially offset by higher non-cash depreciation and amortization expenses in the year ended January 31, 2020.

The changes in operating assets and liabilities in the year ended January 31, 2020 resulted in cash outflows of $47.6 million compared to cash inflows of $6.1 million for such changes in the prior year.

The $53.8 million change is primarily driven by increases of $34.9 million in cash used from changes in deferred contract acquisition and fulfillment costs and $20.7 million in cash used from changes in accounts receivable as well as a decrease of $20.4 million in cash provided by changes in accrued compensation.

These were partially offset by an increase of $23.7 million in cash provided from changes in contract liabilities and assets.

2019 Compared to 2018.

Cash provided by operating activities increased by $21.1 million in the year ended January 31, 2019.

This change was primarily due to an increase of $407.4 million in non-cash expenses, partially offset by a $374.2 million increase in net loss.

The increase in non-cash expenses was driven by a $381.2 million increase in stock-based compensation expense primarily driven by the expense related to RSUs with a performance condition satisfied on the effectiveness of our IPO Registration Statement, for which no expense was recorded in the same prior year period, and the expense on RSUs granted with a service-based condition only.

Net cash provided by operating assets and liabilities decreased by $12.1 million.

Additions to deferred contract acquisition and fulfillment increased by $27.9 million and cash used from changes in accounts receivable increased by $14.5 million in line with higher sales.

Cash used from changes in accounts payable also increased by $10.2 million driven by the timing of payments.

These were partially offset by increases in cash provided from changes in accrued compensation of $16.9 million due to higher sales, addition of SpringCM, business growth and timing of payroll.

Changes in contract liabilities and contract assets provided $13.1 million and $11.1 million in line with higher billings.

Cash provided by operating activities was $297.0 million and $115.7 million for the years ended January 31, 2021, and 2020.

The improvement of $181.3 million in cash flows provided by operating activities in the year ended January 31, 2021, as compared to prior year was primarily the result of increased sales and the related cash collections, partially offset by cash outflows from higher operating expenses driven by increased headcount.

Further, cash provided by operating activities for the fiscal year ended January 31, 2021 also was offset by $75.2 million pertaining to the repayment of 2023 Notes.

Cash Flows from Investing Activities

2020 Compared to 2019 .

Cash used in investing activities decreased by $342.8 million.

This change was primarily due to $218.8 million net cash paid for the SpringCM acquisition that took place in the year ended January 31, 2019, and $627.3 million from maturities of marketable securities.

These decreases were offset by $461.6 million higher purchases of marketable securities and other investments and $41.6 million higher spending on purchases of property and equipment.

2019 Compared to 2018.

Cash used in investing activities increased by $645.6 million.

We used $415.1 million to purchase investments and $218.8 million to acquire SpringCM during the year ended January 31, 2019.

The remainder of the increase in cash used in investing activities related to $11.5 million increase in spend on purchases of property and equipment, in particular due to additional investments for our data centers and servers to support growth and leasehold improvements for our new office spaces.

For the year ended January 31, 2021, cash provided by investing activities of $81.2 million was primarily driven by $352.5 million net maturities and sales of marketable securities, of which $180.4 million was used to fund acquisitions.

We also paid $82.4 million for the purchases of property and equipment as we continued to invest in data center build outs to support our growing operations, capitalized software development projects, and completed several office build outs.

For the year ended January 31, 2020, cash used in investing activities of $321.5 million was primarily driven by $233.9 million net purchases of marketable securities, $72.0 million purchases of property and equipment, and $15.5 million purchases of securities in connection with strategic investments.

Cash Flows from Financing Activities

2020 Compared to 2019 .

In the year ended January 31, 2020, we used $70.5 million in financing activities, compared to generating cash of $853.1 million in the year ended January 31, 2019—a decrease of $923.6 million.

This change was primarily due to the financing activities that occurred during the prior fiscal year, during which we received net proceeds of $560.8 million from the issuance of the Notes, that were partially offset by $67.6 million used to purchase capped calls in connection with the Notes issuance, and net proceeds of $529.3 million from the issuance of common stock in our IPO.

These decreases were offset by a decrease in remittance of tax withholding obligations on RSUs settlement of $48.8 million and an increase in proceeds from exercise of stock options of $22.0 million in the year ended January 31, 2020.

We also received $23.9 million proceeds from purchases under ESPP that was funded for the first time in the year ended January 31, 2020.

2019 Compared to 2018.

Cash provided by financing activities increased by $827.4 million.

We received proceeds, net of transaction costs, of $560.8 million from the Notes issuance and proceeds, net of underwriting discounts and commissions and $529.3 million from the issuance of common stock in our IPO during the year ended January 31, 2019.

We used $215.3 million to remit tax withholding obligations on RSUs settled during the fourth quarter of fiscal 2019 and $67.6 million to purchase capped calls in connection with the Notes issuance and $4.0 million for deferred offering costs related to our IPO.

Proceeds from exercise of stock options increased by $23.8 million during the period compared to the prior year period.

Contractual Obligations and Commitments

The following table represents our future noncancelable contractual obligations as of January 31, 2020, aggregated by type:

Payments Due by Period

Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years

Convertible senior notes $ 575,000 $ — $ — $ 575,000 $ —

Interest payments 10,430 2,875 5,750 1,805 —

Operating leases 215,294 24,327 64,830 59,084 67,053

Purchase obligations 37,954 13,059 18,920 2,409 3,566

For the year ended January 31, 2021, cash used in financing activities of $59.0 million was primarily driven by $318.3 million net payments related to our equity plans.

This was partially offset by $261.8 million of net proceeds from the issuance of our 2024 Notes.

Further details of these transactions are described in Note 9 to the Consolidated Financial Statements.

For the year ended January 31, 2020, cash used in financing activities of $70.5 million was driven by net payments related to our equity plans.

Obligations and Commitments

Our principal contractual obligations and commitments consist of obligations under the Notes (including principal and coupon interest), operating leases, as well as noncancelable contractual commitments that primarily relate to cloud infrastructure support and sales and marketing activities .

Refer to Note 10, Note 11 and Note 12 of the accompanying notes to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K for more information on the Notes and for all other commitments.

As of January 31, 2020, we had unused letters of credit outstanding associated with our various operating leases totaling $ 10.6 million.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Refer to Note 9 , Note 10 and Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information.

We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements.

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Critical Accounting Policies and Estimates

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Changes to the estimates we make from time to time may have a significant impact on our stock-based compensation expense and could materially impact our results of operations.

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We recognize compensation expense net of forfeitures that are estimated at the time of grant based on historical experience and our expectations regarding future pre-vesting termination behavior of employees and revise in subsequent periods if actual forfeitures differ from those estimates.

To the extent our actual forfeiture rate is different from our estimate, stock-based compensation expense is adjusted accordingly.

Valuation of Goodwill and Other Acquired Intangible Assets in Business Combinations

At the acquisition date, we measure goodwill as the excess of consideration transferred over the net of the acquisition-date fair value of the assets acquired and liabilities assumed in a business combination.

When determining the fair value of such assets and liabilities, we make significant estimates and assumptions, especially with respect to acquired intangible assets.

Valuation of Acquired Intangible Assets in Business Combinations

At the acquisition date, we determine the fair value of such assets and liabilities, we make significant estimates and assumptions, especially with respect to acquired intangible assets.

Key assumptions include, but are not limited to:

• future cash flows from our revenue streams;

• future cash flows from our revenue streams net of customer attrition;

• the acquired company's existing customer relationships;

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We record adjustments identified, if any, subsequent to the end of the measurement period in our consolidated statement of operations.

Goodwill, Intangible Assets and Other Long-Lived Assets

Goodwill is tested for impairment at least annually or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

For the purposes of goodwill impairment testing, we have determined that we have one operating segment and one reporting unit.

In accordance with our accounting policy, we elected to perform a qualitative assessment and concluded that it is more likely than not that the fair value of the reporting unit significantly exceeds its carrying value.

As such, we did not perform the quantitative goodwill impairment test for fiscal year ended January 31, 2020.

Intangible assets and other long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable.

Such events and changes may include:

significant changes in performance relative to expected operating results, significant changes in asset use, significant negative industry or economic trends, and changes in our business strategy.

During the year ended January 31, 2020, there were no events or changes in circumstances that would indicate that the carrying values of our intangible assets and other long-lived assets may not be recoverable.

Screening for and assessing whether impairment indicators exist or if events or changes in circumstances have occurred, including market conditions, operating fundamentals, competition and general economic conditions, requires judgment.

Additionally, changes in the technology industry occur frequently and quickly.

To the extent an impairment indicator exists, the measurement of the impairment charge requires judgment, and could result in a material charge to operating expenses.

We use the asset and liability method of accounting for income taxes.

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As additional information becomes available, we may revise our estimates.

Any revisions in the estimates of potential liabilities could have a material impact on our operating results and financial position.

Any revisions in the estimates of potential liabilities could

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have a material impact on our operating results and financial position.

Further, until the final resolution of any such matter, there may be a loss exposure in excess of the liability recognized and such amount could be significant.

Recent Accounting Pronouncements

Refer to Note 1 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for recently issued accounting pronouncements not yet adopted as of the date of this report.

Refer to Note 1 in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for recently issued accounting pronouncements not yet adopted as of the date of this report.

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Non-GAAP Financial Measures and Other Key Metrics

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We believe that these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making.

We are presenting these non-GAAP measures to assist investors in seeing our financial performance using a management view, and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Non-GAAP gross profit, non-GAAP gross margin, non-GAAP income (loss) from operations, non-GAAP operating margin, non-GAAP net income (loss) and non-GAAP net income (loss) per share :

We define these non-GAAP financial measures as the respective GAAP measures, excluding expenses related to stock-based compensation, employer payroll tax on employee stock transactions, amortization of acquisition-related intangibles, amortization of debt discount and issuance costs from our convertible senior notes issued in September 2018, and, as applicable, other special items.

We present these non-GAAP measures to assist investors in seeing our financial performance using a management view, and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP operating margin and non-GAAP net income :

We define these non-GAAP financial measures as the respective GAAP measures, excluding expenses related to stock-based compensation, employer payroll tax on employee stock transactions, amortization of acquisition-related intangibles, amortization of debt discount and issuance costs, acquisition-related expenses, loss on extinguishment of debt, tax impact related to an intercompany IP transfer, and, as applicable, other special items.

The amount of employer payroll tax-related items on employee stock transactions is dependent on our stock price and other factors that are beyond our control and that do not correlate to the operation of the business.

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We believe it is useful to exclude these expenses in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies and over multiple periods.

Free cash flows :

We define free cash flow as net cash provided by (used in) operating activities less purchases of property and equipment.

Free cash flow :

We define free cash flow as net cash provided by operating activities less purchases of property and equipment.

We believe free cash flow is an important liquidity measure of the cash that is available (if any), after purchases of property and equipment, for operational expenses, investment in our business, and to make acquisitions.

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Given that most of our customers pay in annual installments one year in advance, but we typically recognize a majority of the related revenue ratably over time, we use billings to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers.

Reconciliation of gross profit and gross margin:

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Reconciliation of gross profit (loss) and gross margin:

Year Ended January 31,

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Acquisition-related expenses — — 108

Non-GAAP professional services and other gross profit (loss) $ (6,569) $ (10,260) $ 460

Non-GAAP professional services and other gross loss $ (7,509) $ (6,569) $ (10,260)

GAAP professional services and other gross margin (45) % (43) % (100) %

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Acquisition-related expenses 7,962 — 1,768

Non-GAAP income (loss) from operations $ 47,332 $ 15,182 $ (11,863)

Non-GAAP income from operations $ 180,644 $ 47,332 $ 15,182

GAAP operating margin (12) % (20) % (61) %

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Non-GAAP operating margin 12 % 5 % 2 %

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Reconciliation of net income (loss):

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Amortization of debt discount and issuance costs 28,001 26,389 9,507

Loss on extinguishment of debt 33,752 — —

Tax expense related to intercompany IP transfer (1)

Tax effect of the SpringCM acquisition (2)

Non-GAAP net income (loss) $ 58,871 $ 17,545 $ (12,486)

Non-GAAP net income $ 182,279 $ 58,871 $ 17,545

(1) Represents net change in tax liabilities related to an intercompany IP transfer

(2) Represents a tax benefit related to the release of a portion of our deferred tax asset valuation allowance resulting from the SpringCM Acquisition

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Non-GAAP free cash flow $ 214,559 $ 43,650 $ 45,673

Net cash (used in) provided by investing activities $ 81,229 $ (321,489) $ (664,324)

Net cash (used in) provided by financing activities $ (58,976) $ (70,455) $ 853,116

Computation of billings:

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Contract assets and unbilled accounts receivable, end of period (21,021) (15,082) (13,436)

Contract liabilities and refund liability contributed by the acquisition of SpringCM — (11,002) —

Contract assets and unbilled accounts receivable contributed by acquisitions 6,589 — —

Contract liabilities and refund liability contributed by acquisitions (9,344) — (11,002)

Non-GAAP billings $ 1,723,092 $ 1,103,639 $ 801,374

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks in the ordinary course of our business.

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.

Our market risk exposure is primarily the result of fluctuations in foreign currency exchange and interest rates.

Interest Rate Risk

As of January 31, 2020, we had cash, cash equivalents and investments totaling $895.9 million, which consisted primarily of bank deposits, money market funds, commercial paper, corporate notes and bonds and U.S.

Treasury and government agency securities.

Interest-earning instruments carry a degree of interest rate risk.

Our investment portfolio is comprised of highly rated securities and limits the amount of credit exposure to any one issuer.

A hypothetical 100 basis point increase in interest rates would result in a $2.9 million decrease of the fair value of our investment portfolio as of January 31, 2020.

Such losses would only be realized if we sold the investments prior to maturity.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

On September 18, 2018, we offered and issued $ 575.0 million aggregate principal amount of Notes.

The Notes have fixed annual interest rate of 0.5 %, and, therefore, we do not have economic interest rate exposure on the Notes.

The fair value of the Notes changes when the market price of our stock fluctuates or interest rates change.

However, we carry the Notes at face value less unamortized discount on our balance sheet and present the fair value for required disclosure purposes only.

Foreign Currency Exchange Risk

Our reporting currency is the U.S.

dollar, and the functional currency of each of our subsidiaries is either its local currency or the U.S.

dollar, depending on the circumstances.

The assets and liabilities of each of our subsidiaries are translated into U.S.

dollars at exchange rates in effect at each balance sheet date.

Operations accounts are translated using the average exchange rate for the relevant period.

A strengthening or weakening of the U.S.

dollar against the other currencies may negatively or positively affect our operating results as expressed in U.S.

Foreign currency translation adjustments are accounted for as a component of " Accumulated other comprehensive loss " within " Stockholders’ equity ".

Gains or losses due to remeasurements of transactions denominated in foreign currencies are included in “Interest and other income, net” in our consolidated statements of operations and comprehensive loss.

We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future.

We do not believe that an immediate 10% increase or decrease in the relative value of the U.S.

dollar to other currencies would have a material effect on our operating results.

CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of DocuSign, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of DocuSign, Inc.

and its subsidiaries (the “Company”) as of January 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, of redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended January 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of January 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2020 and 2019 , and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases effective February 1, 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to

permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Identifying and Evaluating Terms and Conditions in Contracts

As described in Note 1 to the consolidated financial statements, revenue recognition is determined by management through the following steps:

(i) identification of the contract, or contracts, with the customer;

(ii) identification of the performance obligations in the contract;

(iii) determination of the transaction price;

(iv) allocation of the transaction price to the performance obligation in the contract;

and (v) recognition of the revenue when, or as, the Company satisfies a performance obligation.

Management applies significant judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition.

For the year ended January 31, 2020, the Company’s revenue was $974 million.

The principal considerations for our determination that performing procedures relating to revenue recognition, specifically identifying and evaluating terms and conditions in contracts, is a critical audit matter are that there was significant judgment by management in identifying and evaluating terms and conditions in contracts that impact revenue recognition.

This in turn led to significant auditor judgment and effort in performing procedures and evaluating audit evidence to determine whether terms and conditions were appropriately identified and evaluated by management.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls related to the identification and evaluation of terms and conditions that impact the determination of revenue recognition.

These procedures also included, among others, testing the completeness and accuracy of management’s identification and evaluation of the specific terms and conditions in contracts with customers by examining revenue contracts on a test basis and testing management’s process for identifying and evaluating the terms and conditions in contracts, including management’s determination of the impact of those terms and conditions on revenue recognition.

/s/ PricewaterhouseCoopers LLP

San Jose, California

March 27, 2020

We have served as the Company’s auditor since 2009, which includes periods before the Company became subject to SEC reporting requirements.

DOCUSIGN, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data) 2020 2019

Current assets

Cash and cash equivalents $ 241,203 $ 517,811

Investments—current 414,939 251,203

Restricted cash 280 367

Accounts receivable 237,841 174,548

Contract assets—current 12,502 10,616

Prepaid expenses and other current assets 37,125 29,976

Total current assets 943,890 984,521

Investments—noncurrent 239,729 164,220

Property and equipment, net 128,293 75,832

Operating lease right-of-use assets 149,833 —

Goodwill 194,882 195,225

Intangible assets, net 56,500 74,203

Deferred contract acquisition costs—noncurrent 153,333 112,583

Other assets—noncurrent 24,678 8,833

Total assets $ 1,891,138 $ 1,615,417

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable $ 28,144 $ 19,590

Accrued expenses and other current liabilities 54,344 35,658

Accrued compensation 83,189 77,553

Contract liabilities—current 507,560 381,060

Operating lease liabilities—current 20,728 —

Deferred rent—current — 2,452

Total current liabilities 693,965 516,313

Convertible senior notes, net 465,321 438,932

Contract liabilities—noncurrent 11,478 7,712

Operating lease liabilities—noncurrent 162,432 —

Deferred rent—noncurrent — 24,195

Deferred tax liability—noncurrent 4,920 4,207

Other liabilities—noncurrent 6,695 9,696

Total liabilities 1,344,811 1,001,055

Commitments and contingencies (Note 12)

Stockholders’ equity

Preferred stock, $0.0001 par value;

10,000 shares authorized, 0 shares issued and outstanding as of January 31, 2020 and 2019 — —

Common stock, $0.0001 par value;

500,000 shares authorized, 181,254 shares outstanding as of January 31, 2020;

500,000 shares authorized, 169,303 shares outstanding as of January 31, 2019 18 17

Additional paid-in capital 1,685,167 1,545,088

Accumulated other comprehensive loss ( 1,673 ) ( 1,965 )

Accumulated deficit ( 1,137,185 ) ( 928,778 )

Total stockholders’ equity 546,327 614,362

Total liabilities and stockholders’ equity $ 1,891,138 $ 1,615,417

The accompanying notes are an integral part of these consolidated financial statements.

DOCUSIGN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Year Ended January 31,

(in thousands, except per share data) 2020 2019 2018

Subscription $ 918,463 $ 663,657 $ 484,581

Professional services and other 55,508 37,312 33,923

Total revenue 973,971 700,969 518,504

Cost of revenue:

Subscription 163,931 117,764 83,834

Professional services and other 79,303 74,657 34,439

Total cost of revenue 243,234 192,421 118,273

Gross profit 730,737 508,548 400,231

Operating expenses:

Sales and marketing 591,379 539,606 277,930

Research and development 185,552 185,968 92,428

General and administrative 147,315 209,297 81,526

Total operating expenses 924,246 934,871 451,884

Loss from operations ( 193,509 ) ( 426,323 ) ( 51,653 )

Interest expense ( 29,254 ) ( 10,844 ) ( 624 )

Interest income and other income, net 19,207 8,959 3,135

Loss before provision for (benefit from) income taxes ( 203,556 ) ( 428,208 ) ( 49,142 )

Provision for (benefit from) income taxes 4,803 ( 1,750 ) 3,134

Net loss $ ( 208,359 ) $ ( 426,458 ) $ ( 52,276 )

Net loss per share attributable to common stockholders, basic and diluted $ ( 1.18 ) $ ( 3.16 ) $ ( 1.66 )

Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted 176,704 135,163 32,294

Other comprehensive income (loss):

Foreign currency translation gains (losses), net of tax $ ( 573 ) $ ( 5,626 ) $ 6,149

Unrealized gains on investments, net of tax 865 258 —

Other comprehensive income (loss) 292 ( 5,368 ) 6,149

Comprehensive loss $ ( 208,067 ) $ ( 431,826 ) $ ( 46,127 )

Stock-based compensation expense included in costs and expenses:

Cost of revenue—subscription $ 12,882 $ 16,182 $ 911

Cost of revenue—professional services and other 15,703 25,858 976

Sales and marketing 94,863 172,115 9,386

Research and development 43,211 74,108 4,896

General and administrative 39,745 122,715 13,578

The accompanying notes are an integral part of these consolidated financial statements.

DOCUSIGN, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss (Income) Accumulated Deficit Total Stockholders’ Equity (Deficit)

(in thousands) Shares Amount Shares Amount

Balances at January 31, 2017 100,226 546,040 29,439 3 105,432 ( 2,746 ) ( 450,044 ) ( 347,355 )

Exercise of stock options — — 6,261 1 26,432 — — 26,433

Employee stock-based compensation expense — — — — 28,496 — — 28,496

Non-employee stock-based compensation expense — — — — 1,366 — — 1,366

Accretion of preferred stock — 1,461 — — ( 1,461 ) — — ( 1,461 )

Net loss — — — — — — ( 52,276 ) ( 52,276 )

Other comprehensive income, net — — — — — 6,149 — 6,149

Balances at January 31, 2018 100,226 547,501 35,700 4 160,265 3,403 ( 502,320 ) ( 338,648 )

Exercise of stock options — — 5,791 — 50,211 — — 50,211

Settlement of RSUs — — 8,126 1 ( 1 ) — — —

Tax withholding on RSU settlement — — — — ( 215,332 ) — — ( 215,332 )

Employee stock-based compensation expense — — — — 411,803 — — 411,803

Non-employee stock-based compensation expense — — — — 1,058 — — 1,058

Accretion of preferred stock — 353 — — ( 353 ) — — ( 353 )

Issuance of common stock in connection with initial public offering, net of offering costs — — 19,314 2 524,977 — — 524,979

Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering ( 100,226 ) ( 547,854 ) 100,350 10 547,844 — — 547,854

Conversion of preferred stock warrant to common stock warrant in connection with initial public offering — — — — 848 — — 848

Equity component of convertible senior notes — — — — 131,331 — — 131,331

Purchase of capped calls related to issuance of convertible senior notes — — — — ( 67,563 ) — — ( 67,563 )

Exercise of common stock warrants — — 22 — — — — —

Net loss — — — — — — ( 426,458 ) ( 426,458 )

Other comprehensive loss, net — — — — — ( 5,368 ) — ( 5,368 )

Balances at January 31, 2019 — — 169,303 17 1,545,088 ( 1,965 ) ( 928,778 ) 614,362

DOCUSIGN, INC.

CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)

Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss (Income) Accumulated Deficit Total Stockholders’ Equity (Deficit)

(in thousands) Shares Amount

Balances at January 31, 2019 169,303 17 1,545,088 ( 1,965 ) ( 928,778 ) 614,362

Exercise of stock options 6,737 1 72,176 — — 72,177

Settlement of RSUs 4,706 — — — — —

Tax withholding on RSU settlement — — ( 166,504 ) — — ( 166,504 )

Employee stock purchase plan 508 — 23,872 — — 23,872

Employee stock-based compensation expense — — 210,535 — — 210,535

Net loss — — — — ( 208,359 ) ( 208,359 )

Cumulative impact of Topic 842 adoption — — — — ( 48 ) ( 48 )

Other comprehensive income, net — — — 292 — 292

Balances at January 31, 2020 181,254 $ 18 $ 1,685,167 $ ( 1,673 ) $ ( 1,137,185 ) $ 546,327

The accompanying notes are an integral part of these consolidated financial statements.

DOCUSIGN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended January 31,

(in thousands) 2020 2019 2018

Cash flows from operating activities:

Net loss $ ( 208,359 ) $ ( 426,458 ) $ ( 52,276 )

Adjustments to reconcile net loss to net cash used in operating activities

Depreciation and amortization 50,182 38,027 31,750

Amortization of deferred contract acquisition and fulfillment costs 69,747 42,112 30,377

Amortization of debt discount and transaction costs 26,389 9,507 —

Non-cash operating lease costs 19,435 — —

Stock-based compensation expense 206,404 410,978 29,747

Deferred income taxes 1,287 ( 5,001 ) ( 996 )

Other ( 1,741 ) 800 ( 1,877 )

Changes in operating assets and liabilities

Accounts receivable ( 63,293 ) ( 42,571 ) ( 28,077 )

Contract assets ( 1,508 ) 4,204 ( 6,934 )

Prepaid expenses and other current assets ( 3,142 ) ( 3,283 ) ( 1,507 )

Deferred contract acquisition and fulfillment costs ( 115,723 ) ( 80,869 ) ( 52,978 )

Other assets 1,538 2,658 ( 1,604 )

Accounts payable 3,849 ( 7,380 ) 2,864

Accrued expenses and other liabilities 9,353 6,449 9,548

Accrued compensation 5,636 26,039 9,168

Contract liabilities 130,266 100,874 87,774

Operating lease liabilities ( 14,624 ) — —

Net cash provided by operating activities 115,696 76,086 54,979

Cash flows from investing activities:

Purchases of marketable securities ( 861,252 ) ( 415,132 ) —

Maturities of marketable securities 627,309 — —

Purchases of strategic investments ( 15,500 ) — —

Cash paid for acquisition, net of acquired cash — ( 218,779 ) ( 299 )

Purchases of property and equipment ( 72,046 ) ( 30,413 ) ( 18,929 )

Proceeds from sale of business held for sale — — 467

Net cash used in investing activities ( 321,489 ) ( 664,324 ) ( 18,761 )

Cash flows from financing activities:

Proceeds from issuance of convertible senior notes, net of initial purchasers' discounts and transaction costs — 560,756 —

Purchase of capped calls related to issuance of convertible senior notes — ( 67,563 ) —

Proceeds from issuance of common stock in initial public offering, net of underwriting commissions — 529,305 —

Payment of tax withholding obligation on RSU settlement ( 166,504 ) ( 215,332 ) —

Proceeds from exercise of stock options 72,177 50,211 26,433

Proceeds from employee stock purchase plan 23,872 — —

Payment of deferred offering costs — ( 4,011 ) ( 315 )

Other financing — ( 250 ) ( 390 )

Net cash provided by (used in) financing activities ( 70,455 ) 853,116 25,728

Effect of foreign exchange on cash, cash equivalents and restricted cash ( 447 ) ( 4,136 ) 4,246

Net increase (decrease) in cash, cash equivalents and restricted cash ( 276,695 ) 260,742 66,192

Cash, cash equivalents and restricted cash at beginning of period 518,178 257,436 191,244

Cash, cash equivalents and restricted cash at end of period $ 241,483 $ 518,178 $ 257,436

The accompanying notes are an integral part of these consolidated financial statements.

DOCUSIGN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Year Ended January 31,

(in thousands) 2020 2019 2018

Supplemental disclosure:

Cash paid for interest $ 2,852 $ 204 $ 599

Cash paid for operating lease liabilities 22,034 — —

Cash paid for taxes 1,970 3,213 617

Non-cash investing and financing activities:

Property and equipment in accounts payable and accrued expenses and other current liabilities $ 14,082 $ 2,293 $ 3,967

Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering — 547,854 —

Conversion of preferred stock warrant to common stock warrant in connection with initial public offering — 848 —

Preferred stock accretion — 353 1,461

Recognition of build-to-suit lease — 2,479 —

Operating lease right-of-use assets exchanged for lease obligations 77,391 — —

Derecognition of build-to-suit lease 2,479 — —

Deferred offering costs accrued and unpaid — — 1,381

The accompanying notes are an integral part of these consolidated financial statements.

DOCUSIGN, INC.

Index for Notes to the Consolidated Financial Statements

Summary of Significant Accounting Policies

Revenue and Performance Obligations

Fair Value Measurements

Property and Equipment, Net

Acquisition of SpringCM Inc.

Goodwill and Intangible Assets, Net

Balance Sheet Components

Contract Balances

Deferred Contract Acquisition and Fulfillment Costs

Convertible Senior Notes

Commitments and Contingencies

Stockholders' Equity

Net Loss Per Share Attributable to Common Stockholders

Employee Benefit Plan

Geographic Information

Subsequent Events

DOCUSIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Organization and Description of Business

DocuSign, Inc.

(“we,” “our” or “us”) was incorporated in the State of Washington in April 2003.

We merged with and into DocuSign, Inc., a Delaware corporation, in March 2015.

We provide a platform that enables businesses of all sizes to digitally prepare, execute and act on agreements, thereby simplifying and accelerating the process of doing business.

Basis of Presentation and Principles of Consolidation

Our consolidated financial statements include those of DocuSign, Inc.

and our subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”).

Our fiscal year ends on January 31.

References to fiscal 2020, for example, are to the fiscal year ended January 31, 2020.

Certain prior year amounts have been reclassified to conform to current year presentation.

These amounts were not material to any of the periods presented.

Initial Public Offering

On May 1, 2018, we completed our initial public offering (“IPO”), in which we issued and sold 19.3 million shares of common stock at price to the public of $ 29.00 per share, including 3.3 million shares of common stock purchased by the underwriters in the full exercise of the over-allotment option granted to them.

Certain of our existing stockholders sold an additional 5.6 million shares at the public offering price.

We received net proceeds of $ 523.9 million after deducting underwriting discounts and commissions of $ 30.8 million and offering expenses of $ 5.4 million.

We did not receive any proceeds from the sale of shares by our stockholders.

Upon the completion of our IPO, all 100.2 million shares of our convertible preferred stock automatically converted into an aggregate of 100.4 million shares of our common stock;

all our outstanding warrants to purchase shares of convertible preferred stock converted into warrants to purchase approximately 22 thousand shares of common stock with the related warrant liability of $ 0.8 million reclassified into additional paid-in capital;

and our Amended and Restated Certificate of Incorporation was filed and went in effect authorizing a total of 500.0 million shares of common stock and 10.0 million shares of preferred stock.

Follow-On Offering

On September 18, 2018, we completed our follow-on offering, in which certain stockholders sold 8.1 million shares of common stock.

The price per share to the public was $ 55.00 .

We did not receive any proceeds from the sale of shares by the selling stockholders.

We incurred and expensed issuance costs of $ 1.3 million associated with the sale of such shares.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in the consolidated financial statements and notes thereto.

Significant items subject to such estimates and assumptions made by management include, but are not limited to, the determination of:

• the fair value of assets acquired and liabilities assumed for business combinations;

• the average period of benefit associated with deferred contract acquisition and fulfillment costs;

• the valuation of strategic investments;

• the fair value of certain stock awards issued;

• the f air value of the liability and equity components of convertible notes;

• the useful life and recoverability of long-lived assets;

• the recognition, measurement and valuation of deferred income taxes.

The World Health Organization declared in March 2020 that the recent outbreak of the coronavirus disease named COVID-19 constitutes a pandemic.

We have undertaken measures to protect our employees, partners and customers.

There can be no assurance that these measures will be effective, however, or that we can adopt them without adversely affecting our business operations.

In addition, the coronavirus outbreak has created and may continue to create significant uncertainty in global financial markets, which may decrease technology spending, depress demand for our solutions and harm our business and results of operations.

As of the date of issuance of the financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities.

These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known.

Actual results could differ from those estimates and any such differences may be material to our financial statements.

Concentration of Credit Risk

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable.

Although we deposit our cash with multiple financial institutions, the deposits, at times, may exceed federally insured limits.

We have not experienced any losses on our deposits of cash and cash equivalents.

Cash equivalents consist of money market funds which are invested through financial institutions in the U.S.

Management believes that the institutions are financially stable and, accordingly, minimal credit risk exists.

No customer individually accounted for more than 10% of our revenues in the years ended January 31, 2020, 2019 and 2018.

One of our customers accounted for 9 % and 10 % of our accounts receivable as of January 31, 2020 and 2019.

We perform ongoing credit evaluations of our customers, do not require collateral and maintain allowances for potential credit losses on customers’ accounts when deemed necessary.

Revenue Recognition

We recognize revenue when a customer obtains control of promised services.

We apply significant judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition.

The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these services.

To achieve the core principle of this standard, we apply the following steps:

Identification of the contract, or contracts, with the customer

We consider the terms and conditions of the contract and our customary business practices in identifying our contracts under ASC 606.

We determine we have a contract with a customer when the contract is approved, we can identify each party’s rights regarding the services to be transferred, we can identify the payment terms for the services, we have determined the customer has the ability and intent to pay and the contract has commercial substance.

At contract inception we evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation.

We apply judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.

Identification of the performance obligations in the contract

Performance obligations promised in a contract are identified based on the services and the products that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services and the products is separately identifiable from other promises in the contract.

Our performance obligations consist of (i) subscription services, (ii) professional services, (iii) on-premises solutions, and (iv) maintenance and support for on-premises solutions.

Determination of the transaction price

The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer.

Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

None of our contracts contain a significant financing component.

Allocation of the transaction price to the performance obligation in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price ("SSP").

Recognition of the revenue when, or as, we satisfy a performance obligation

Revenue is recognized at the time the related performance obligation is satisfied by transferring the control of the promised service to a customer.

Revenue is recognized as control of the service is transferred to the customer, in an amount that reflects the consideration that we expect to receive in exchange for those services.

We generate all our revenue from contracts with customers.

Subscription Revenue

We generate revenue primarily from sales of subscriptions to access our software suite and related subscriptions of our customers.

Our subscription revenue is driven by our go-to-market model, which includes a combination of direct sales, partner-assisted sales and web-based self-service purchasing.

Subscription arrangements with customers do not provide the customer with the right to take possession of our software operating our software suite at any time.

Instead, customers are granted continuous access to our software suite over the contractual period.

A time-elapsed method is used to measure progress because we transfer control evenly over the contractual period.

Accordingly, the fixed consideration related to subscription revenue is generally recognized on a straight-line basis over the contract term beginning on the date access to our software suite is provided.

Professional Services and Other Revenue

Professional services and other revenue consists of fees associated with consulting and training services from assisting customers in implementing and expanding the use of our software suite.

These services are generally distinct from subscription services.

Professional services do not result in significant customization of the subscription service.

Revenue from professional services provided on a time and materials basis is recognized as the services are performed.

Other revenue includes amounts derived from the sale of our on-premises solutions, which are recognized upon passage of control, which occurs upon shipment of the product.

The maintenance and support on the on-premises solutions is a stand-ready obligation to perform this service over the term of the arrangement and, as a result, is accounted for ratably over the term of the arrangement.

Contracts with Multiple Performance Obligations

Most of our contracts with customers contain multiple performance obligations that are distinct and accounted for separately.

The transaction price is allocated to the separate performance obligations on a relative SSP basis.

We determine SSP for our performance obligations based on our observable inputs, such as standalone sales and historical contract pricing.

SSP is consistent with our overall pricing objectives, taking into consideration the type of subscription services and professional and other services.

Variable Consideration

Revenue from sales is recorded at the net sales price, which is the transaction price, and includes estimates of variable consideration.

The amount of variable consideration that is included in the transaction price is constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue will not occur when the uncertainty is resolved.

If our services do not meet certain service level commitments, our customers are entitled to receive service credits, and in certain cases, refunds, each representing a form of variable consideration.

We have historically not experienced any significant incidents affecting the defined levels of reliability and performance as required by our subscription contracts.

Accordingly, the amount of any estimated refunds related to these agreements in the consolidated financial statements is not material during the periods presented.

Deferred Contract Acquisition Costs

We capitalize sales commissions, certain parts of the company bonus and associated payroll taxes paid to internal sales personnel that are incremental to the acquisition of customer contracts as deferred contract acquisition costs in "Prepaid expenses and other current assets" and "Deferred contract acquisition costs—noncurrent" on our consolidated balance sheets.

We determine whether costs should be deferred based on our sales compensation plans, if the commissions are in fact incremental and would not have occurred absent the customer contract.

These deferred commissions are amortized on a straight-line basis over the periods of benefit, commensurate with the pattern of revenue recognition.

Commissions paid for renewal of a subscription contract are not considered commensurate with the commissions paid for the acquisition of the initial subscription contract given the substantive difference in commission rates between new and renewal contracts.

The period of benefit for commissions paid for the acquisition of the initial subscription contract, of five years , is determined by taking into consideration our initial estimated customer life and the technological life of our software suite and related significant features.

The period of benefit for renewal subscription contracts, of two years , is determined by considering the average contractual term for renewal contracts.

Commissions paid on professional services contracts are amortized over the period of benefit, being the period the associated revenue is earned as the commissions paid on new and renewal professional services contracts are commensurate with each other.

Amortization of deferred contract acquisition costs is primarily included in the “Sales and marketing” expense in the consolidated statements of operations and comprehensive loss.

We periodically review these deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred contract acquisition costs.

There were no material impairment losses recorded during the periods presented.

Deferred Contract Fulfillment Costs

We capitalize third-party costs to fulfill contracts with a customer in “Prepaid expenses and other current assets” and “Other assets—noncurrent” on our consolidated balance sheets.

We amortize these costs on a straight-line basis consistent with the ratable revenue recognition of the performance obligations in the associated contracts.

Cost of Revenue

“Subscription” cost of revenue primarily consists of personnel and related costs to support our software suite, amortization expense associated with capitalized internally-developed software and technology-related intangible assets, property and equipment depreciation, allocated overhead expenses, merchant processing fees and server hosting costs.

“Professional services and other” cost of revenue consists primarily of personnel costs for our professional services delivery team, travel-related costs and allocated overhead.

Advertising costs are expensed as incurred and are included in “Sales and marketing” expense in our consolidated statements of operations and comprehensive loss.

Advertising expense was $ 41.6 million, $ 34.1 million and $ 19.3 million in the years ended January 31, 2020, 2019 and 2018.

Research and Development

Research and development costs are expensed as incurred and consist primarily of personnel costs, including salaries, bonuses and benefits, and stock-based compensation.

Stock-Based Compensation

Compensation cost for stock-based awards issued to employees, including stock options, ESPP purchase rights and restricted stock units (“RSUs”), is measured at fair value on the date of grant and recognized over the service period, generally on a straight-line basis.

The fair value of stock options and ESPP purchase rights is estimated on the date of grant using a Black-Scholes option-pricing model.

The fair value of RSUs is estimated on the date of grant based on the fair value of our underlying common stock.

From time to time, we grant RSUs that also include performance-based or market-based conditions.

For RSUs granted with a market condition, we use a lattice model simulation analysis to value the RSUs.

Compensation expense for RSUs granted prior to January 31, 2018, is recognized on a graded basis over the requisite service period as long as the performance condition in the form of a specified liquidity event is probable to occur.

The liquidity event condition was satisfied upon the effectiveness of our registration statement on Form S-1 (“IPO Registration Statement”) on April 26, 2018.

On that date we recorded a cumulative stock-based compensation expense of $ 262.8 million using the accelerated attribution method for all the RSUs, for which the service condition has been fully satisfied as of April 26, 2018.

The remaining unrecognized stock-based compensation expense related to the RSUs will be recorded over their remaining requisite service periods.

RSUs granted after January 31, 2018, generally vest on the satisfaction of service-based condition only.

Compensation expense for RSUs granted with a market or a performance condition is recognized on a graded vesting basis over the requisite service period.

The amount of compensation expense related to the RSUs granted with a performance condition is determined after assessing the probability of achieving requisite performance criteria.

We recognize compensation expense related to shares issued pursuant to the 2018 Employee Stock Purchase Plan (“ESPP”) on a straight-line basis over the offering period of six months .

Compensation expense is recognized net of forfeitures that are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates.

We capitalize stock-based compensation costs incurred as a result of qualifying internally-developed software development activities.

We may elect to issue shares on the settlement dates net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees.

In these instances, we record the liability for withholding amounts to be paid by us as a reduction to additional paid-in capital when paid, and include these payments as a reduction of cash flows from financing activities.

We use the asset and liability method of accounting for income taxes.

Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year.

In addition, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carryforwards.

We record a valuation allowance to reduce our deferred tax assets to an amount for which realization is more likely than not.

Foreign Currency

The functional currency of our foreign entities is generally the local currency.

The functional currency of our branches is the U.S.

Monetary assets and liabilities and transactions denominated in currencies other than an entity's functional currency are remeasured into its functional currency using current exchange rates, whereas nonmonetary assets and liabilities are remeasured using historical exchange rates.

We recognize gains and losses from such remeasurements within "Interest income and other income, net" in the consolidated statements of operations and comprehensive loss in the period of occurrence.

We recorded foreign currency transaction losses of $ 1.0 million and $ 3.4 million for the year ended January 31, 2020 and 2019 and a foreign currency transaction gain of $ 2.2 million for the year ended January 31, 2018.

We present our financial statements in U.S.

Adjustments resulting from translating foreign functional currency financial statements into U.S.

dollars are recorded as a separate component on our consolidated statements of comprehensive loss, net of tax.

All assets and liabilities denominated in a foreign currency are translated at the exchange rate on the balance sheet date.

Revenues and expenses are translated at the average exchange rate during the period.

Equity transactions are translated using the historical exchange rate.

Net Loss Per Share Attributable to Common Stockholders

In periods when we have net income, we compute basic and diluted net loss per share in conformity with the two-class method required for participating securities.

The undistributed earnings are allocated between common stock and participating securities as if all earnings had been distributed during the period presented.

We consider all series of convertible preferred stock to be participating securities as the holders of such stock are entitled to receive noncumulative dividends on a pari passu basis in the event that a dividend is paid on common stock.

We also consider any shares issued on the early exercise of stock options subject to repurchase to be participating securities because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock.

The holders of convertible preferred stock and early exercised shares do not have a contractual obligation to share in our losses.

As such, our net losses in all the years presented were not allocated to these participating securities.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share attributable to common stockholders is computed by giving effect to all potential shares of common stock, including common stock underlying our convertible preferred stock, our warrants to purchase common stock, and convertible preferred stock, early exercised stock options and outstanding stock options, to the extent they are dilutive.

Since we have reported net losses for all periods presented, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders.

Dilutive common shares are not assumed to have been issued as their effect would have been antidilutive.

Cash and Cash Equivalents

Cash and cash equivalents consist of money market funds, highly liquid investments with original maturities of three months or less at the date of purchase and deposits with financial institutions and are carried at fair value.

Investments in marketable securities consist of commercial paper, corporate notes and bonds, as well as U.S.

Treasury and government agency securities.

Management determines the appropriate classification of investments at the time of purchase and reevaluates such determination at each balance sheet date.

Marketable securities are classified as available-for-sale and are carried at fair value in the consolidated balance sheet, with all unrealized gains and losses reflected in “Other comprehensive income (loss)” on the consolidated balance sheets.

These securities are classified as short-term or long-term based on their remaining contractual maturities.

We evaluate our investments to assess whether those with unrealized loss positions are other than temporarily impaired.

We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis.

Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in "Interest income and other income, net" in the consolidated statements of operations and comprehensive loss.

Strategic Investments

Our strategic investments consist of non-marketable equity investments in privately-held companies in which we do not have a controlling interest or significant influence.

We have elected to apply the measurement alternative for equity investments that do not have readily determinable fair values, measuring them at cost, less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

An impairment loss is recorded when an event or circumstance indicates a decline in value has occurred.

In March 2019, we purchased equity investments in privately-held companies totaling $ 15.5 million that are classified in “Other assets—noncurrent” on our consolidated balance sheets.

As there have been no material observable price changes, we have not recorded any adjustments resulting from observable price changes for identical or similar investments or impairment charges for any of our equity investments in privately-held companies in the year ended January 31, 2020.

We had no such investments as of January 31, 2019.

Restricted Cash

Restricted cash consists of a money market account and certificates of deposits collateralizing our operating lease agreements for office space.

Fair Value of Financial Instruments

We measure assets and liabilities at fair value based on an expected exit price, which represents the amount that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability.

The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

The following are the hierarchical levels of inputs to measure fair value:

Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 Inputs reflect quoted prices for identical assets or liabilities in markets that are not active;

quoted prices for similar assets or liabilities in active markets;

inputs other than quoted prices that are observable for the assets or liabilities;

or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 Unobservable inputs reflecting our own assumptions incorporated in valuation techniques used to determine fair value.

These assumptions are required to be consistent with market participant assumptions that are reasonably available

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities being measured within the fair value hierarchy.

The carrying values of cash, accounts receivable and accounts payable approximate their respective fair values due to the short period of time to maturity, receipt or payment.

Accounts Receivable, Unbilled Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable primarily consist of amounts billed currently due from customers.

Our accounts receivable are subject to collection risk.

Gross accounts receivable are reduced for this risk by an allowance for doubtful accounts.

This allowance is for estimated losses resulting from the inability of our customers to make required payments.

It is an estimate and is regularly evaluated for adequacy by taking into consideration a combination of factors.

To determine whether a provision for doubtful accounts should be recorded, we look at such factors as past collection experience, credit quality of the customer, age of the receivable balance, and current economic conditions.

The allowance for doubtful accounts was $ 3.0 million and $ 0.6 million as of January 31, 2020 and 2019.

We do not have any off-balance-sheet credit exposure related to our customers.

Unbilled accounts receivable represent amounts for which we have recognized revenue, pursuant to our revenue recognition policy, and have an unconditional right to consideration prior to invoicing the customer.

The unbilled accounts receivable balance was $ 1.6 million and $ 1.5 million as of January 31, 2020 and 2019.

We do not typically offer right of refund in our contracts.

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in our receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence.

We have not experienced significant credit losses from our accounts receivable.

We perform a regular review of our customers’ payment histories and associated credit risks and do not require collateral from our customers.

Changes in the allowance for doubtful accounts were not material in all periods presented.

Property and Equipment

Property and equipment, including costs incurred to bring to the location and condition necessary for intended use, are recorded at cost and depreciated over their estimated useful lives using the straight-line method and the following estimated useful lives:

Estimated Useful Life

Computer and network equipment 2-3 years

Software, including capitalized software development costs 3 years

Furniture and office equipment 3-4 years

Leasehold improvements Lesser of lease term and 10 years

Disposals are removed at cost less accumulated depreciation, and any gain or loss from disposition is reflected in the statement of operations in the year of disposition.

Additions and improvements that increase the value or extend the life of an asset are capitalized.

Maintenance and repairs are expensed as incurred.

Prior to February 1, 2019, the adoption date of Accounting Standards Update No.

2016-02, Leases (Topic 842), we were deemed to be the owner, for accounting purposes, during the construction phase of certain long-lived assets under a build-to-suit lease arrangement because of our involvement with the construction, our exposure to any potential cost overruns or our other commitments under the arrangements.

In these cases, we recognized build-to-suit lease assets under construction and corresponding build-to-suit lease liabilities on our consolidated balance sheets.

Once construction was completed, if a lease met certain “sale-leaseback” criteria, we remove the asset and liability and accounted for the lease as an operating lease.

Otherwise, the lease was accounted for as a capital lease.

Leases arise from contractual obligations that convey the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

We determine whether an arrangement is or contains a lease at inception, based on whether there is an identified asset and whether we control the use of the identified asset throughout the period of use.

At lease commencement date, we determine lease classification between finance and operating, allocate the consideration to the lease and nonlease components and recognize a right-of-use asset and corresponding lease liability for each lease component.

A right-of-use asset represents our right to use an underlying asset and a lease liability represents our obligation to make payments during the lease term.

The lease liability is initially measured as the present value of the remaining lease payments over the lease term.

The discount rate used to determine the present value is our incremental borrowing rate unless the interest rate implicit in the lease is readily determinable.

We estimate our incremental borrowing rate based on the information available at lease commencement date for borrowings with a similar term.

The right-of-use asset is initially measured as the present value of the lease payments, adjusted for initial direct costs, prepaid lease payments to lessors and lease incentives.

Our operating lease right-of-use assets and liabilities recognized at February 1, 2019, the adoption date of Topic 842, were based on the present value of lease payments over the remaining lease term as of that date, using the incremental borrowing rate as of that date.

We do not recognize right-of-use assets and liabilities for leases with a term of twelve months or less.

Additionally, we do not separate nonlease components from the associated lease components for our office leases and certain other asset classes.

The total consideration includes fixed payments and contractual escalation provisions.

We are responsible for maintenance, insurance, property taxes and other variable payments, which are expensed as incurred.

Our leases include options to renew or terminate.

We include the option to renew or terminate in our determination of the lease term when the option is deemed to be reasonably assured to be exercised.

Operating leases are classified in “Operating lease right-of-use assets”, “Operating lease liabilities—current”, and “Operating lease liabilities—noncurrent” on our consolidated balance sheets.

Operating lease expense is recognized on a straight-line basis over the expected lease term and included in “Loss from operations” in our consolidated statements of operations and comprehensive loss.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for using the acquisition method of accounting and is not amortized.

We test goodwill for impairment at least annually, in the fourth quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Our test for goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test.

If qualitative factors indicate that the fair value of the reporting unit is more likely than not less than its carrying amount, then a quantitative goodwill impairment test is performed.

For the purposes of impairment testing, we have determined that we have one operating segment and one reporting unit.

There was no impairment of goodwill recorded in the years ended January 31, 2020, 2019 and 2018.

Intangible Assets

Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives.

The estimated useful lives of intangible assets, estimated based on our expected period of benefit, are as follows:

Estimated Useful Life

Customer contracts & related relationships 5-9 years

Certifications 5 years

Maintenance contracts & related relationships 5 years

Existing technology 3 years

Backlog—subscription 2 years

Tradenames/trademarks 1-2 years

We evaluate the estimated remaining useful lives of intangible assets and other long-lived assets to assess whether a revision to the remaining periods of amortization is required.

Impairment of Long-Lived Assets

We review long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

There was no impairment of long-lived assets recognized in the periods presented.

Software Development Costs

We capitalize qualifying internally-developed software development costs incurred during the application development stage, as long as it is probable the project will be completed, and the software will be used to perform the function intended.

Capitalization of such costs ceases once the project is substantially complete and ready for its intended use.

Capitalized software development costs are included in “Property and equipment, net” on our consolidated balance sheets and are amortized on a straight-line basis over their expected useful lives of approximately three years .

Business Combinations

We account for our acquisitions using the acquisition method of accounting, which requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date.

The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill.

Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain.

During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill if new information is obtained related to facts and circumstances that existed as of the acquisition date.

After the measurement period, any subsequent adjustments are reflected in the consolidated statements of operations and comprehensive loss.

Acquisition costs, such as legal and consulting fees, are expensed as incurred.

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by our Chief Operating Decision Maker “CODM”) in deciding how to allocate resources to an individual segment and in assessing performance.

Our Chief Executive Officer is our CODM.

Our CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

As such, we have determined that we operate in one operating and one reportable segment.

Convertible Senior Notes

In September 2018, we issued $ 575.0 million aggregate principal amount of 0.5 % Convertible Senior Notes (the “Notes”) due 2023.

We account for the Notes as separate liability and equity components.

We determined the carrying amount of the liability component as the present value of its cash flows using a discount rate of 6 % based on comparable convertible transactions for similar companies.

The carrying amount of the equity component representing the conversion option was calculated by deducting the fair value of the liability component from the principal amount of the Notes as a whole.

This difference represents a debt discount that is amortized to interest expense over the term of the Notes using the effective interest rate method.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The transaction costs incurred related to the issuance of the Notes were allocated to the liability and equity components based on their relative initial carrying value of the Notes.

Transaction costs attributable to the liability component are being amortized to interest expense over the respective terms of the Notes, and transaction costs attributable to the equity component are netted against the equity component of the Notes in stockholders’ equity.

The capped calls entered into in connection with the offering of the Notes are considered indexed to our own stock and are considered equity classified.

They are recorded in stockholders’ equity and are not accounted for as derivatives.

The cost incurred in connection with the capped calls was recorded as a reduction to additional paid-in capital.

Legal Contingencies

We evaluate contingent liabilities including threatened or pending litigation and make provisions for such liabilities when it is both probable that a loss has been incurred and its amount can be reasonably estimated.

We periodically assess the likelihood of any adverse judgments or outcomes from potential claims or legal proceedings, as well as potential ranges of probable losses, when the outcomes of the claims or proceedings are probable and reasonably estimable.

A determination of the amount of the liabilities required, if any, for these contingencies is made after the analysis of each separate matter.

Recently Adopted Accounting Pronouncements

On February 1, 2019, we adopted Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842).

We elected the optional transition approach to not apply Topic 842 in the comparative periods presented.

We elected the practical expedient to use hindsight when determining the lease term and the package of practical expedients to not reassess whether existing contracts contain leases, the lease classification for existing leases and whether existing initial direct costs meet the new definition.

The adoption of Topic 842 resulted in the derecognition of $ 26.6 million in deferred rent and the recognition of total right-of-use assets of $ 93.9 million and total lease liabilities of $ 121.8 million as of the adoption date, with the most significant impact related to our office space leases, with cumulative effect adjustment being recorded in our accumulated deficit.

Additionally, we derecognized $ 2.5 million related to the build-to-suit asset and corresponding liability upon adoption of this standard pursuant to the transition guidance provided for build-to-suit leases.

The adoption of Topic 842 did not have a material impact on our consolidated statements of operations or statements of cash flows.

On January 1, 2020, we elected to early adopt ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

The ASU, which was issued by the Financial Accounting Standards Board (the "FASB") in December 2019, eliminates certain exceptions related to the general principles of Topic 740 and makes amendments to other areas with the intention of simplifying various aspects related to accounting for income taxes.

The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

Other Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326).

The FASB subsequently issued ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to eliminate inconsistencies and provide clarifications to the transition requirements of ASU No.

These updates change the impairment model for most financial assets and will require the use of an expected loss model in place of the currently used incurred loss method.

Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset.

The updates are effective for interim and annual periods beginning after December 15, 2019.

The effect of adopting ASU 2016-13 and ASU 2019-04 on our consolidated financial statements and related disclosures is not expected to be material.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license).

The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update.

The update is effective for public business entities for interim and annual periods beginning after December 15, 2019.

We are evaluating the impact of adoption of ASU 2018-15 on our consolidated financial statements.

Revenue and Performance Obligations

Subscription revenue is recognized over time and accounted for approximately 94 %, 95 % and 93 % of our revenue for the years ended January 31, 2020, 2019 and 2018.

As of January 31, 2020, the amount of the transaction price allocated to remaining performance obligations for contracts greater than one year was $ 768.7 million.

We expect to recognize 53 % of the transaction price allocated to remaining performance obligation within the 12 months following January 31, 2020 in our consolidated statement of operations and comprehensive loss.

Fair Value Measurements

The following table summarizes our financial assets that are measured at fair value on a recurring basis:

January 31, 2020

(in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

Cash equivalents (1)

Money market funds $ 165,424 $ — $ — $ 165,424

Available-for-sale securities

Commercial paper 14,919 7 ( 1 ) 14,925

Corporate notes and bonds 372,844 891 ( 31 ) 373,704

Treasury securities 90,697 153 ( 1 ) 90,849

government agency securities 175,086 153 ( 49 ) 175,190

Level 2 total 653,546 1,204 ( 82 ) 654,668

Total $ 818,970 $ 1,204 $ ( 82 ) $ 820,092

January 31, 2019

(in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

Cash equivalents (1)

Money market funds $ 350,063 $ — $ — $ 350,063

Cash equivalents (1)

Commercial paper 76,828 — ( 11 ) 76,817

Corporate notes and bonds 2,998 — — 2,998

government agency securities 6,491 — — 6,491

Available-for-sale securities

Commercial paper 86,655 4 ( 21 ) 86,638

Corporate notes and bonds 287,496 389 ( 105 ) 287,780

Treasury securities 4,982 — ( 1 ) 4,981

government agency securities 36,021 7 ( 4 ) 36,024

Level 2 total 501,471 400 ( 142 ) 501,729

Total $ 851,534 $ 400 $ ( 142 ) $ 851,792

(1) Included in "cash and cash equivalents" in our consolidated balance sheets as of January 31, 2020 and 2019, in addition to cash of $ 75.8 million and $ 81.4 million

We use quoted prices in active markets for identical assets to determine the fair value of our Level 1 investments.

The fair value of our Level 2 investments is determined using pricing based on quoted market prices or alternative market observable inputs .

The fair value of our available-for-sale securities as of January 31, 2020, by remaining contractual maturities, were as follows (in thousands):

Due in one year or less $ 414,939

Due in one to two years 239,729

As of January 31, 2020 and 2019, we had a total of 178 and 119 available-for-sale securities, none of which were considered to be other-than-temporarily impaired for the periods presented.

We had no liabilities measured at fair value on recurring basis as of January 31, 2020 and 2019.

Convertible Senior Notes

As of January 31, 2020 and 2019, the estimated fair value of our 0.5 % Convertible Senior Notes with aggregate principal amount of $ 575.0 million was $ 743.5 million and $ 575.0 million.

We estimated the fair value based on the quoted market prices in an inactive market on the last trading day of the reporting period (Level 2).

The Notes are recorded at face value less unamortized debt discount and transaction costs as “Convertible senior notes, net” on our consolidated balance sheets.

Refer to Note 10 for further information.

Property and Equipment, Net

Property and equipment consisted of the following:

(in thousands) 2020 2019

Computer and network equipment $ 66,937 $ 55,233

Software, including capitalized software development costs 33,373 27,959

Furniture and office equipment 16,752 9,511

Leasehold improvements 59,564 41,464

176,626 134,167

Accumulated depreciation ( 81,228 ) ( 66,479 )

95,398 67,688

Work in progress 32,895 8,144

$ 128,293 $ 75,832

As of January 31, 2020, work in progress consisted primarily of capitalized costs of internally-developed software projects under development and leasehold improvements related to office build-out projects.

Depreciation expense associated with property and equipment was $ 32.5 million, $ 24.9 million and $ 21.7 million in the years ended January 31, 2020, 2019 and 2018.

This included amortization expense related to capitalized internally-developed software costs of $ 4.1 million, $ 2.8 million and $ 3.6 million in the respective years .

We capitalized $ 17.1 million , $ 7.6 million and $ 2.4 million of internally developed software in the years ended January 31, 2020, 2019 and 2018.

Such amounts included capitalized stock-based compensation of $ 4.1 million, $ 1.9 million and $ 0.1 million in the years ended January 31, 2020, 2019 and 2018.

Acquisition of SpringCM Inc.

On September 4, 2018, we completed the acquisition of SpringCM Inc.

(“SpringCM”), a cloud-based document generation and contract lifecycle management software company based in Chicago, Illinois.

With the addition of SpringCM's capabilities in document generation, redlining, advanced document management and end-to-end agreement workflow, the acquisition further accelerates the broadening of our solution beyond e-signature to the rest of the agreement process—from preparing to signing, acting-on and managing agreements.

Under the terms of the merger agreement, we acquired SpringCM for approximately $ 218.8 million in cash, excluding cash acquired, working capital and transaction cost adjustments.

Of the cash paid at closing, $ 8.2 million is held in escrow until 18 months after closing to partially secure our indemnification rights under the merger agreement.

Additionally, we granted certain continuing employees of SpringCM RSUs with service and performance conditions covering up to 0.5 million shares of our common stock with an aggregate grant date fair value of $ 26.5 million that will be accounted for as a post-acquisition compensation expense over the vesting period.

The performance-based condition was partially met upon SpringCM meeting certain revenue targets for the year ended January 31, 2020.

We accounted for the transaction as a business combination using the acquisition method of accounting.

We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date.

Fair values were determined using the valuation performed by management, using the income approach.

Excess purchase price consideration was recorded as goodwill and is primarily attributable to the assembled workforce and expanded market opportunities when integrating SpringCM’s capabilities in document generation, redlining, advanced document management and end-to-end agreement workflow with our other offerings.

The following table summarizes the acquisition date fair values of assets acquired and liabilities assumed at the date of acquisition:

(in thousands) September 4, 2018

Cash and cash equivalents $ 6,950

Accounts receivable and other assets 10,542

Property and equipment 6,108

Goodwill 159,097

Intangible assets 73,000

Contract liabilities ( 9,973 )

Other liabilities ( 12,948 )

Deferred tax liability ( 7,047 )

None of the goodwill recognized upon acquisition was deductible for U.S.

federal income tax purposes.

The estimated useful lives, primarily based on the expected period of benefit to us, and fair values of the identifiable intangible assets at acquisition date were as follows:

(in thousands, except years) Estimated Fair Value Expected Useful Life

Existing technology $ 11,900 3 years

Customer relationships—subscription 54,200 9 years

Backlog—subscription 6,400 2 years

Tradenames / trademarks 500 1 year

Total intangible assets $ 73,000

In the year ended January 31, 2019, we incurred acquisition costs of $ 1.8 million.

These costs included legal, accounting fees and other costs directly related to the acquisition and are recognized within operating expenses in our consolidated statements of operations.

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition occurred on February 1, 2017.

It includes pro forma adjustments related to the amortization of acquired intangible assets, stock-based compensation expense, professional services revenue and contract acquisitions costs adjustments under the new revenue recognition standard, and contract liabilities fair value adjustment.

The unaudited pro forma results have been prepared based on estimates and assumptions, which we believe are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the acquisition occurred on February 1, 2017, or of future results of operations:

Year Ended January 31,

(in thousands, except per share data) 2019 2018

Revenue $ 720,321 $ 544,680

Net loss ( 459,895 ) ( 69,078 )

Net loss per share attributable to common stockholders, basic and diluted ( 3.40 ) ( 2.18 )

Goodwill and Intangible Assets, Net

The changes in the carrying amount of goodwill were as follows (in thousands):

Balance at January 31, 2018 $ 37,306

Additions—SpringCM 159,097

Foreign currency translation ( 1,178 )

Balance at January 31, 2019 195,225

Foreign currency translation ( 343 )

Balance at January 31, 2020 $ 194,882

Intangible assets consisted of the following:

As of January 31, 2020 As of January 31, 2019

(in thousands, except years) Weighted-average Remaining Useful Life (Years) Estimated Fair Value Accumulated Amortization Acquisition-related Intangibles, Net Estimated Fair Value Accumulated Amortization Acquisition-related Intangibles, Net

Existing technology 1.7 $ 31,594 $ ( 25,164 ) $ 6,430 $ 31,594 $ ( 20,747 ) $ 10,847

Tradenames / trademarks 0.3 2,419 ( 2,369 ) 50 2,419 ( 1,858 ) 561

Customer contracts & related relationships 7.5 65,782 ( 19,071 ) 46,711 65,782 ( 11,168 ) 54,614

Certifications 0.6 6,917 ( 6,229 ) 688 6,917 ( 4,846 ) 2,071

Maintenance contracts & related relationships 0.4 1,498 ( 1,403 ) 95 1,498 ( 1,104 ) 394

Backlog—Subscription 0.7 6,400 ( 4,508 ) 1,892 6,400 ( 1,304 ) 5,096

6.5 $ 114,610 $ ( 58,744 ) 55,866 $ 114,610 $ ( 41,027 ) 73,583

Cumulative translation adjustment 634 620

Total $ 56,500 $ 74,203

Amortization of finite-lived intangible assets was as follows:

Year Ended January 31,

(in thousands) 2020 2019 2018

Cost of subscription revenue $ 5,704 $ 6,081 $ 6,793

Sales and marketing 12,013 7,021 3,250

Total $ 17,717 $ 13,102 $ 10,043

As of January 31, 2020, future amortization of finite-lived intangibles that will be recorded in cost of revenue and operating expenses is estimated as follows, excluding cumulative translation adjustment:

Fiscal Period Amount

(in thousands)

2021 $ 13,818

Thereafter 15,609

Total $ 55,866

Balance Sheet Components

Components of certain balance sheet line items were as follows:

As of January 31,

(in thousands) 2020 2019

Prepaid expenses and other current assets

Prepaid expenses $ 24,429 $ 18,415

Other current assets 12,696 11,561

Total $ 37,125 $ 29,976

Accrued expenses and other current liabilities

Accrued expenses $ 39,350 $ 21,755

Other current liabilities 14,994 13,903

Total $ 54,344 $ 35,658

Contract Balances

Contract assets represent amounts for which we have recognized revenue, pursuant to our revenue recognition policy, for contracts that have not yet been invoiced to our customers where there is a remaining performance obligation, typically for multi-year arrangements.

Total contract assets were $ 13.4 million and $ 11.9 million as of January 31, 2020 and 2019, of which $ 0.9 million and $ 1.3 million were noncurrent and included within “ Other assets—noncurrent ” on our consolidated balance sheets.

The change in contract assets reflects the difference in timing between our satisfaction of remaining performance obligations and our contractual right to bill our customers.

Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract.

Such amounts are generally recognized as revenue over the contractual period.

For the years ended January 31, 2020 , 2019 and 2018, we recognized revenue of $ 374.8 million , $ 264.0 million and $ 180.4 million that was included in the corresponding contract liability balance at the beginning of the periods presented.

We receive payments from customers based upon contractual billing schedules.

We record accounts receivable when the right to consideration becomes unconditional.

Payment terms on invoiced amounts are typically 30 days.

Deferred Contract Acquisition and Fulfillment Costs

The following table represents a rollforward of our deferred contract acquisition and fulfillment costs:

Year Ended January 31,

(in thousands) 2020 2019

Deferred Contract Acquisition Costs

Beginning balance $ 115,985 $ 77,344

Additions to deferred contract acquisition costs 99,382 78,983

Amortization of deferred contract acquisition costs ( 58,192 ) ( 40,342 )

Cumulative translation adjustment ( 1,478 ) —

Ending balance $ 155,697 $ 115,985

Deferred Contract Fulfillment Costs

Beginning balance $ 3,432 $ 3,316

Additions to deferred contract fulfillment costs 16,341 1,886

Amortization of deferred contract fulfillment costs ( 11,555 ) ( 1,770 )

Ending balance $ 8,218 $ 3,432

Convertible Senior Notes

In September 2018, we issued $ 575.0 million in aggregate principal amount of the Notes due in 2023, which included the initial purchasers’ exercise in full of their option to purchase an additional $ 75.0 million principal amount of the Notes, in a private placement to qualified institutional buyers in an offering exempt from registration under the Securities Act of 1933, as amended.

The net proceeds from the issuance of the Notes were $ 560.8 million after deducting the initial purchasers’ discounts and transaction costs.

The Notes are senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes;

equal in right of payment to any of our unsecured indebtedness then existing and future liabilities that are not so subordinated;

effectively junior in right of payment to any of our secured indebtedness, to the extent of the value of the assets securing such indebtedness;

and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.

Upon conversion of the Notes, holders will receive cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

The Notes are governed by an indenture (the “Indenture”) between us, as the issuer, and U.S.

Bank National Association, as trustee.

The Indenture does not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our subsidiaries.

The Notes mature on September 15, 2023 unless earlier repurchased or redeemed by us or earlier converted in accordance with their terms prior to the maturity date.

Interest is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2019.

The Notes have an initial conversion rate of 13.9860 shares of our common stock per $1,000 principal amount of Notes, which is equal to an initial conversion price of approximately $ 71.50 per share of our common stock and is subject to adjustment in some events.

Following certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, we will increase the conversion rate for a holder who elects to convert its Notes in connection with such corporate event or during the related redemption period in certain circumstances.

Additionally, upon the occurrence of a corporate event that constitutes a “fundamental change” under the Indenture, holders of the Notes may require us to repurchase for cash all or a portion of their Notes at a purchase price equal to 100 % of the principal amount of the Notes plus accrued and unpaid interest.

Holders of the Notes may convert all or any portion of their Notes at any time prior to the close of business on June 14, 2023, in integral multiples of $1,000 principal amount, only under the following circumstances (the "conversion conditions"):

• During any fiscal quarter commencing after the fiscal quarter ending on January 31, 2019 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

• During the 5 -business day period after any 10 consecutive trading day period (the “measurement period”) in which the trading price as defined in the Indenture per $1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

• If we call any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;

• Upon the occurrence of specified corporate events described in the Indenture.

On or after June 15, 2023, until the close of business on September 13, 2023, holders may convert all or any portion of their Notes at any time regardless of whether the conditions set forth above have been met.

We may also redeem for cash or shares all or any portion of the Notes, at our option, at a redemption price equal to 100 % of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, beginning on or after September 20, 2021 if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price on each applicable trading day.

As of January 31, 2020, the conversion conditions have not been met and therefore the Notes are not yet convertible.

The net carrying value of the liability component of the Notes was as follows:

(in thousands) 2020 2019

Principal $ 575,000 $ 575,000

unamortized debt discount ( 101,461 ) ( 125,872 )

unamortized transaction costs ( 8,218 ) ( 10,196 )

Net carrying amount $ 465,321 $ 438,932

The net carrying amount of the equity component of the Notes was as follows:

(in thousands) January 31, 2020 and 2019

Proceeds allocated to the conversion option (debt discount) $ 134,667

transaction costs ( 3,336 )

Net carrying amount $ 131,331

The interest expense recognized related to the Notes was as follows:

Year Ended January 31,

(in thousands) 2020 2019

Contractual interest expense $ 2,865 $ 1,071

Amortization of debt discount 24,411 8,795

Amortization of transaction costs 1,978 712

Total $ 29,254 $ 10,578

To minimize the potential economic dilution to our common stock upon conversion of the Notes, we entered into privately-negotiated capped call transactions ("Capped Calls") with certain counterparties and incurred costs of $ 67.6 million related to the transactions.

The Capped Calls each have an initial strike price of approximately $ 71.50 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes.

The Capped Calls have initial cap prices of $ 110.00 per share, subject to certain adjustments.

The Capped Calls cover, subject to anti-dilution adjustments, approximately 8.0 million shares of common stock.

Impact on Loss Per Share

In periods when we have net income, the Notes will not have an impact on our diluted earnings per share until the average market price of our common stock exceeds the initial conversion price of $ 71.50 per share, as we intend and have the ability to settle the principal amount of the Notes in cash upon conversion.

We are required under the treasury stock method to compute the potentially dilutive shares of common stock related to the Notes for periods we report net income.

However, upon conversion, there will be no economic dilution from the Notes until the average market price of our common stock exceeds the cap price of $ 110.00 per share, as exercise of the Capped Calls offsets any dilution from the Notes from the conversion price up to the cap price.

Capped Calls are excluded from the calculation of diluted earnings per share, as they would be antidilutive.

We lease offices under noncancelable operating lease agreements that expire at various dates through March 2032.

As of January 31, 2020, we had no finance leases.

Some operating leases contain escalation provisions for adjustments in the consumer price index.

The following table is a summary of our lease costs:

(in thousands) Year Ended

January 31, 2020

Operating lease cost $ 26,490

Short-term lease cost 837

Total lease cost $ 27,327

Future lease payments under noncancelable operating leases as of January 31, 2020, were as follows:

Fiscal Period:

Amount (in thousands)

2021 $ 24,327

Thereafter 67,053

Total undiscounted cash flows $ 215,294

imputed interest ( 32,134 )

Present value of lease liabilities $ 183,160

The weighted average remaining lease term and discount rate for operating leases as of January 31, 2020 were 7.7 years and 4.4 %.

We have commitments of $ 26.2 million, including $ 17.6 million entered into after January 31, 2020, for operating leases that have not yet commenced.

These leases have terms of 4 to 6 years.

The future minimum annual lease payments as of January 31, 2019, prior to the adoption of Topic 842, related to the outstanding lease agreements were as follows:

Fiscal Period:

Amount (in thousands)

2020 $ 22,198

Thereafter 34,634

Total minimum lease payments $ 148,551

Israel Build-to-Suit Lease

In July 2018, we entered into a long-term lease of a new-construction office space in Giv'at Shmuel, Israel.

The lease has a term of 10 years with an option to cancel after five years and six months and an option to extend for five years .

Since the office space was delivered to us as a cold shell and we are performing construction activities, for accounting purposes only, we were deemed to be the owner of the entire project, including the office space shell.

In August 2018, upon commencement of the construction, we began to capitalize the related costs, including the fair value of the office space shell, as a build-to-suit property within “Property and equipment, net” and recognize a corresponding build-to-suit lease obligation, including interest.

Fair value of the office space shell was estimated at $ 2.5 million using comparable market prices per square foot for similar space for public real estate transactions in the surrounding area.

As of January 31, 2019, $ 4.2 million was capitalized for the building and construction costs.

Construction was completed on the office in December 2018 and, as such, a portion of the monthly lease payment is allocated to land rent and recorded as an operating lease expense and the non-interest portion of the amortized lease payments to the landlord related to the rent of the building is applied to reduce the build-to-suit lease obligation.

Upon adoption of Topic 842 on February 1, 2019, we derecognized the build-to-suit asset and recognized an operating right-of-use asset for the related lease within the consolidated balance sheet as of January 31, 2020.

Refer to Note 1 for additional information.

Commitments and Contingencies

As of January 31, 2020, we had unused letters of credit outstanding associated with our various operating leases totaling $ 10.6 million.

We have entered into certain noncancelable contractual arrangements that require future purchases of goods and services.

These arrangements primarily relate to cloud infrastructure support and sales and marketing activities.

As of January 31, 2020, our future noncancelable minimum payments due under these contractual obligations with a remaining term of more than one year were as follows:

Fiscal Period:

Amount (in thousands)

2021 $ 13,059

Thereafter 3,566

Total $ 37,954

Indemnification

We enter into indemnification provisions under our agreements with customers and other companies in the ordinary course of business, including business partners, contractors and parties performing our research and development.

Pursuant to these arrangements, we agree to indemnify and defend the indemnified party for certain claims and related losses suffered or incurred by the indemnified party from actual or threatened third-party claims because of our activities.

The duration of these indemnification agreements is generally perpetual.

The maximum potential amount of future payments we could be required to make under these indemnification agreements is not determinable.

Historically, we have not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements.

As a result, we believe the fair value of these indemnification agreements is not material as of January 31, 2020 and 2019 .

We maintain commercial general liability insurance and product liability insurance to offset certain of our potential liabilities under these indemnification agreements.

We have entered into indemnification agreements with each of our directors, executive officers and certain other officers.

These agreements require us to indemnify such individuals, to the fullest extent permitted by Delaware law, for certain liabilities to which they may become subject as a result of their affiliation with us.

Claims and Litigation

From time to time, we may be subject to legal proceedings, claims and litigation made against us in the ordinary course of business.

We believe the final outcome of these matters will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows.

Stockholders' Equity

Redeemable Convertible Preferred Stock

Prior to the IPO we issued Series A, Series A-1, Series B, Series B-1, Series C, Series D, Series E, and Series F redeemable convertible preferred stock.

Upon completion of the IPO, all 100.2 million shares of our convertible preferred stock automatically converted into an aggregate of 100.4 million shares of our common stock.

Refer to Note 1 for further information.

Common Stock Reserved for Future Issuance

We have reserved the following shares of common stock, on an as-if converted basis, for future issuance as follows:

(in thousands) 2020 2019

RSUs outstanding 14,246 17,558

Options issued and outstanding 6,882 13,648

Remaining shares available for future issuance under the Equity Incentive Plans 24,726 17,519

Remaining shares available for future issuance under the ESPP 4,985 3,800

Total shares of common stock reserved 50,839 52,525

Equity Incentive Plans

We maintain three stock-based compensation plans:

the 2018 Equity Incentive Plan (“2018 Plan”), the Amended and Restated 2011 Equity Incentive Plan (the “2011 Plan”) and the Amended and Restated 2003 Stock Plan (the “2003 Plan”).

Our board of directors adopted, and our stockholders approved, the 2018 Plan during the year ended January 31, 2019.

The 2018 Plan went into effect in April 2018, upon the effectiveness of our IPO Registration Statement.

The 2018 Plan serves as a successor to the 2011 Plan and 2003 Plan and provides for the grant of stock-based awards to our employees, directors and consultants.

No additional awards under the 2011 Plan or 2003 Plan have been made since the effective date of the 2018 Plan.

Outstanding awards under these two plans continue to be subject to the terms and conditions of the respective plans.

Shares available for grant under the 2011 Plan that were reserved but not issued as of the effective date of the 2018 Plan were added to the reserves of the 2018 Plan.

Additionally, any shares subject to outstanding awards originally granted under the 2011 Plan that:

(i) expire or terminate for any reason prior to exercise or settlement;

(ii) are forfeited because of the failure to

meet a contingency or condition required to vest such shares or otherwise returned to DocuSign, Inc.;

or (iii) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award are added to the reserves of the 2018 Plan.

The 2018 Plan permits the granting of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other stock awards.

RSUs granted under the 2018 Plan generally vest over a four -year period, either quarterly or with 25 % vesting at the end of one year and the remainder quarterly thereafter.

Additionally, the Company grants performance-based and market-based RSUs to its executives on an annual basis.

Stock award activity was as follows:

(in thousands) Year Ended

January 31, 2020

Available at beginning of fiscal year 17,519

Awards authorized 8,570

Options canceled/expired 29

RSUs granted ( 6,507 )

RSUs cancelled 2,336

Shares withheld 2,779

Available at end of fiscal year 24,726

The 2018 Plan provides that the number of shares reserved will automatically increase on the first day of each fiscal year, beginning on February 1, 2019, and ending on February 1, 2028, by (i) 5 % of the total number of shares of our capital stock outstanding on the immediately preceding January 31st (or such lesser number of shares as our board of directors or a committee of our board of directors may approve).

The most recent automatic increase of 9.1 million shares occurred on February 1, 2020.

Stock Options

There were no options granted during the years ended January 31, 2020 and 2019.

For the options granted during the year ended January 31, 2018, w e calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model.

We used the risk-free interest rates between 1.86 % and 2.17 % based on the U.S.

Treasury yield curve in effect at the time of grant for the expected life of the award.

We computed the expected life based on safe harbor rules as prescribed by the “simplified” method for estimating expected term, which resulted in an expected term of 6.05 .

We have assumed a 0 % dividend yield, as we did not declare or expect to declare dividends.

The expected volatility ranged between 44.99 % and 45.53 % based on a calculation using the historical stock information of companies deemed comparable to us for the period matching the expected term of each option and with an end date matching each of the various measurement dates.

Determination of these assumptions involves management’s best estimates at that time.

The estimated weighted-average grant date fair value for stock options granted during the year ended January 31, 2018 was

$ 7.41 per share.

The decrease in the value was primarily driven by an increase in the time-to-liquidity estimate, changes in industry trends and prices at which our common stock was transacted between third parties, such as employees, existing and outside investors.

All such options were granted with an exercise price equal to the estimated fair value of our common stock at the date of grant.

Option activity was as follows:

(in thousands, except per share data and years) Number of Options Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value

Outstanding at January 31, 2019 13,648 $ 12.27 5.38 $ 507,371

Exercised ( 6,737 ) 10.09

Canceled/expired ( 29 ) 17.67

Outstanding at January 31, 2020 6,882 $ 14.39 5.38 $ 441,247

Vested and expected to vest at January 31, 2020 6,836 $ 14.37 5.37 $ 438,502

Exercisable at January 31, 2020 6,099 $ 13.98 5.17 $ 393,603

As of January 31, 2020, our total unrecognized compensation cost related to stock option grants was $ 5.7 million.

We expect to recognize this expense over the remaining weighted-average period of approximately 1 year.

The aggregate intrinsic value of options exercised during the years ended January 31, 2020, 2019 and 2018 was $ 325.7 million, $ 171.6 million and $ 83.6 million.

The total grant date fair value of options vested during the years ended January 31, 2020, 2019 and 2018 was $ 10.5 million, $ 25.8 million and $ 33.6 million.

Substantially all the RSUs that we have issued on or before January 31, 2018 vest upon the satisfaction of both service-based and performance-based vesting conditions.

The service-based condition is typically satisfied over a four -year service period.

The performance-based condition related to these awards was satisfied upon the effectiveness of our IPO Registration Statement on April 26, 2018.

On that date we recorded a cumulative stock-based compensation expense of $ 262.8 million using the accelerated attribution method for all the RSUs whose service conditions were fully satisfied.

The total grant date fair value of RSUs vested during the years ended January 31, 2020 and 2019 was $ 223.0 million and $ 260.8 million.

No RSUs vested during the year ended January 31, 2018.

The majority of RSUs granted after January 31, 2018, vest upon the satisfaction of a service-based vesting condition.

From time to time, we also grant RSUs that are subject to either a performance-based or market-based vesting condition.

The performance-based conditions will be satisfied upon satisfaction of certain financial performance targets.

The market-based conditions will be satisfied if certain milestones based on our common stock price or relative total shareholder return are met.

The weighted-average grant date fair value for RSUs granted during the years ended January 31, 2020, 2019 and 2018 was $ 56.05 , $ 53.77 and $ 17.04 per share.

RSU activity was as follows:

(in thousands, except per share data) Number of Units Weighted-Average Grant Date Fair Value

Unvested at January 31, 2019 17,142 $ 34.56

Granted 6,507 56.05

Vested ( 7,454 ) 29.91

Canceled ( 2,336 ) 39.72

Unvested at January 31, 2020 13,859 $ 46.28

As of January 31, 2020, our total unrecognized compensation cost related to RSUs was $ 465.3 million.

We expect to recognize this expense over the remaining weighted-average period of approximately 2.3 years.

2018 Employee Stock Purchase Plan

During the year ended January 31, 2019, our board of directors adopted, and our stockholders approved the ESPP.

In April 2018, the ESPP went into effect upon the effectiveness of our IPO Registration Statement.

The ESPP allows eligible employees to purchase shares of our common stock at a discounted price by accumulating funds, normally through payroll deductions, of up to 15 % of their earnings.

The purchase price for common stock under the ESPP is equal to 85 % of the fair market value of our common stock on the first or last day of the offering period, whichever is lower.

The ESPP provides for separate six -month offering periods that begin in the first and third quarter of each year.

We calculated the fair value of the ESPP purchase right using the Black-Scholes option-pricing model, based on the following assumptions:

Year Ended January 31,

Risk-free interest rate 1.92 - 2.52 % 2.33 %

Expected dividend yield — % — %

Expected life of purchase right (in years) 0.5 0.5

Expected volatility 39 - 52 % 40 %

Weighted-average grant date fair value per share $ 14.88 - 18.56 $ 14.24

The expected term for the ESPP purchase rights is estimated using the offering period, which is typically six months.

We estimate volatility for ESPP purchase rights based on the historical volatility of our common stock price.

The interest rate is derived from government bonds with a similar term to the ESPP purchase right granted.

We have not declared, nor do we expect to declare dividends.

During the year ended January 31, 2020, 0.5 million shares of common stock were purchased under the ESPP.

Compensation expense related to the ESPP was $ 8.9 million and $ 2.9 million for the years ended January 31, 2020 and 2019.

The number of shares reserved under the ESPP will automatically increase on the first day of each fiscal year, starting on February 1, 2019 and continuing through February 1, 2028, in an amount equal to the lesser of (i) 1 % of the total number of shares of our common stock outstanding on January 31 of the preceding fiscal year, (ii) 3.8 million shares, or (iii) a lesser number of shares determined by our board of directors.

As of January 31, 2020, 5.0 million shares of common stock were reserved for issuance under the ESPP.

Net Loss per Share Attributable to Common Stockholders

The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders for periods presented:

Year Ended January 31,

(in thousands, except per share data) 2020 2019 2018

Net loss $ ( 208,359 ) $ ( 426,458 ) $ ( 52,276 )

preferred stock accretion — ( 353 ) ( 1,461 )

Net loss attributable to common stockholders $ ( 208,359 ) $ ( 426,811 ) $ ( 53,737 )

Weighted-average common shares outstanding 176,704 135,163 32,294

Net loss per share attributable to common stockholders:

Basic and diluted $ ( 1.18 ) $ ( 3.16 ) $ ( 1.66 )

Outstanding potentially dilutive securities that were excluded from the diluted per share calculations because they would have been antidilutive are as follows:

(in thousands) 2020 2019 2018

RSUs 13,555 16,568 —

Stock options 6,882 13,648 19,832

ESPP 274 295 —

Convertible senior notes 788 — —

Convertible preferred stock as-converted — — 100,350

Warrants to purchase convertible preferred stock — — 22

Warrants to purchase common stock — — 18

Total antidilutive securities 21,499 30,511 120,222

The table above does not include 0.3 million, 0.6 million and 23.1 million RSUs outstanding as of January 31, 2020, 2019 and 2018 as these RSUs are subject to performance-based or market-based vesting conditions that were not considered to be met or probable of being met as of the end of the reporting period.

Employee Benefit Plan

We have a qualified defined contribution plan under Section 401(k) of the Internal Revenue Code (the “Plan”).

This Plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis.

In the fourth quarter of fiscal 2019, we began to match 50 % of each participant’s contribution up to a maximum of 6 % of the participant’s base salary and commissions paid during the period.

During the year ended January 31, 2020 and 2019, we recognized expenses of $ 11.0 million and $ 1.7 million related to matching contributions.

We did not make any contributions nor recognize any related expenses in the year ended January 31, 2018.

The domestic and foreign components of pre-tax loss were as follows:

Year Ended January 31,

(in thousands) 2020 2019 2018

$ ( 228,476 ) $ ( 460,627 ) $ ( 54,485 )

International 24,920 32,419 5,343

Loss before income taxes $ ( 203,556 ) $ ( 428,208 ) $ ( 49,142 )

The components of our income tax provision (benefit) were as follows:

Year Ended January 31,

(in thousands) 2020 2019 2018

Federal $ — $ — $ 37

State 239 413 ( 46 )

Foreign 3,277 2,838 4,139

Total current 3,516 3,251 4,130

Federal — ( 7,083 ) ( 110 )

State ( 43 ) ( 2 ) 15

Foreign 1,330 2,084 ( 901 )

Total deferred 1,287 ( 5,001 ) ( 996 )

Provision for (benefit from) income taxes $ 4,803 $ ( 1,750 ) $ 3,134

The reconciliation of the statutory federal income tax rate to our effective tax rate was as follows:

Year Ended January 31,

(in thousands) 2020 2019 2018

U.S statutory rate 21.0 % 21.0 % 32.9 %

State taxes 3.5 3.1 10.9

Foreign tax rate differential 0.5 0.3 ( 7.3 )

Stock-based compensation 47.2 17.5 38.3

Change in valuation allowance ( 80.3 ) ( 43.6 ) 28.2

Overall impact of federal tax rate change from 34% to 21% — — ( 121.1 )

Research and development credits 8.2 4.0 2.3

Other ( 2.4 ) ( 1.9 ) 9.4

Effective tax rate ( 2.3 ) % 0.4 % ( 6.4 ) %

The significant components of net deferred tax balances were as follows:

(in thousands) 2020 2019

Deferred tax assets

Net operating loss carryforwards $ 423,379 $ 280,835

Accruals and reserves 5,668 3,180

Stock-based compensation 33,405 39,334

Operating lease liability 40,495 —

Research and development credits 39,480 22,876

Other 7,536 10,715

Total deferred tax assets 549,963 356,940

Deferred tax liabilities

Operating lease right-of-use asset ( 32,736 ) —

Deferred contract acquisition costs ( 36,567 ) ( 28,103 )

Convertible debt ( 24,737 ) ( 29,531 )

Acquired intangibles ( 13,493 ) ( 16,766 )

Other ( 1,457 ) ( 3,885 )

Total deferred tax liabilities ( 108,990 ) ( 78,285 )

Valuation allowance ( 445,746 ) ( 282,141 )

Net deferred tax liabilities $ ( 4,773 ) $ ( 3,486 )

We intend to invest substantially all of our foreign subsidiary earnings, as well as our capital in our foreign subsidiaries, indefinitely outside of the U.S.

in those jurisdictions in which we would incur significant, additional costs upon repatriation of such amounts.

Therefore, no deferred tax liabilities for foreign withholding taxes have been recorded relating to the earnings of our foreign subsidiaries.

In the years ended January 31, 2020, 2019 and 2018, total stock-based compensation expense was $ 206.4 million, $ 411.0 million and $ 29.7 million.

Recognized tax benefits on total stock-based compensation expense, which are reflected in the "Provision for (benefit from) income taxes" in the consolidated statements of operations and comprehensive loss, were $ 1.0 million and $ 1.7 million in the years ended January 31, 2020 and 2019 and immaterial in the year ended January 31, 2018.

As of January 31, 2020, we had accumulated net operating loss carryforwards of $ 1.7 billion for federal and $ 856.8 million for state.

Of the federal net operating losses, $ 105.8 million is carried forward indefinitely and is not limited to 80% of taxable income, and $ 1.2 billion is carried forward indefinitely, but is limited to 80% of taxable income.

The remaining federal and state net operating loss carryforwards will begin to expire in 2025 and 2021.

As of January 31, 2020, we also had total foreign net operating loss carryforwards of $ 16.6 million, which do not expire under local law.

As of January 31, 2020, we had accumulated U.S.

research tax credits of $ 41.0 million for federal and $ 10.6 million for state.

federal research tax credits will begin to expire in 2033.

state research tax credits do not expire.

Available net operating losses may be subject to annual limitations due to ownership change limitations provided by the Internal Revenue Code, as amended (the "Code"), and similar state provisions.

Under Section 382 of the Code, substantial changes in our ownership and the ownership of acquired companies may limit the amount of net operating loss carryforwards that are available to offset taxable income.

Our ability to carry forward our federal and state net operating losses is limited due to an ownership change that occurred in a prior fiscal year.

This limitation has been accounted for in calculating the available net operating loss carryforwards.

The foreign jurisdictions in which we operate may have similar provisions that may limit our ability to use net operating loss carryforwards incurred by entities that we have acquired.

Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examination from various taxing authorities.

A reconciliation of the beginning and ending balance of total unrecognized tax benefits was as follows:

(in thousands) 2020 2019

Unrecognized tax benefits balance at February 1 $ 9,733 $ 7,733

Gross increase for tax positions of prior years 90 —

Gross decrease for tax positions of prior years ( 94 ) ( 407 )

Gross increase for tax positions of current year 3,156 2,407

Unrecognized tax benefits balance at January 31 $ 12,885 $ 9,733

As of January 31, 2020, the total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, would have been $ 2.5 million.

A significant portion of the unrecognized tax benefit was recorded as a reduction in our gross deferred tax assets, offset by a reduction in our valuation allowance.

We have net uncertain tax positions of $ 3.3 million, $ 2.9 million and $ 2.5 million included in other liabilities on our consolidated balance sheet as of January 31, 2020, 2019 and 2018.

We do not expect our gross unrecognized tax benefit to change significantly within the next 12 months.

We recognize interest and penalties related to uncertain tax positions in provision for income taxes.

As of January 31, 2020, accrued interest or penalties was $ 0.8 million.

Our tax years from inception in 2003 through January 31, 2020, remain subject to examination by the U.S.

and California, as well as various other jurisdictions.

We are under examination by the Israeli Tax Authorities for the calendar years 2013 through 2016.

We recognize valuation allowances on deferred tax assets if it is more likely than not that some or all the deferred tax assets will not be realized.

Due to our history of losses in the U.S., the net cumulative U.S.

deferred tax assets have been fully offset by a valuation allowance.

The valuation allowance increased by $ 163.6 million in the year ended January 31, 2020 and by $ 163.0 million in the year ended January 31, 2019.

The following table represents the rollforward of our valuation allowance:

Year Ended January 31,

(in thousands) 2020 2019 2018

Beginning balance $ 282,141 $ 119,153 $ 133,029

Valuation allowance charged to income tax provision 163,605 201,646 56,566

Adoption of new accounting principle — — 5,610

Valuation allowance credited as a result of U.S.

Tax Act — — ( 59,520 )

Convertible senior notes issued — ( 31,594 ) —

Acquisition of SpringCM — ( 7,064 ) —

Valuation allowance credited to income tax provision — — ( 16,532 )

Ending balance $ 445,746 $ 282,141 $ 119,153

Geographic Information

We operate in one operating segment and one reportable segment as we only report financial information on an aggregate and consolidated basis to the Chief Executive Officer, who is our CODM.

Revenue by geography is based on the address of the customer as specified in our master subscription agreement.

Revenue by geographic area was as follows:

Year Ended January 31,

(in thousands) 2020 2019 2018

$ 802,480 $ 581,011 $ 428,551

International 171,491 119,958 89,953

Total revenue $ 973,971 $ 700,969 $ 518,504

No single country other than the U.S.

had revenue greater than 10% of total revenue in the years ended January 31, 2020, 2019 and 2018.

Our long-lived assets by geographic area, which consist of property and equipment, net and operating lease right-of-use assets were as follows:

(in thousands) 2020 2019

$ 182,288 $ 60,625

International 95,838 15,207

Total long-lived assets $ 278,126 $ 75,832

Subsequent Events

On February 26, 2020, we entered into a Share Purchase Agreement to acquire all outstanding equity in Seal Software Group Limited, a leading contract analytics and artificial intelligence technology provider, for a purchase consideration of approximately $ 188.0 million in cash, subject to adjustments.

The acquisition is subject to closing conditions and is expected to close in the first half of our fiscal year ending January 31, 2021.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

DocuSign, Inc.| 2021 Form 10-K | 57

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis