What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-06-09 compared with 2021-12-06 · 123 added, 148 removed, 271 unchanged (50% of the section changed)

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Our fiscal year ends January 31.

Executive Overview of Third Quarter Results

DocuSign accelerates the process of doing business for companies and simplifies life for their customers and employees.

We accomplish this by transforming the foundational element of business:

the agreement.

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.

Executive Overview of First Quarter Results

DocuSign offers the world’s leading electronic signature product, enabling an agreement to be signed electronically on a wide variety of devices, from virtually anywhere in the world, securely.

This is the foundation of the DocuSign Agreement Cloud, which allows organizations to do business efficiently and effectively, while providing better experiences for customers and employees.

We offer the world’s #1 e-signature product as the core part of our broader software platform that automates and connects the agreement process, which we call the DocuSign Agreement Cloud.

It is designed to allow companies of all sizes and across all industries to quickly and easily make nearly every agreement, approval process or transaction digital.

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

As a result, over one million customers and one billion users worldwide utilize DocuSign to create, upload and send documents for multiple parties to sign electronically.

It provides comprehensive functionality across DocuSign eSignature and addresses the broader agreement process.

As a result, over 1.2 million customers and more than a billion 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.

DocuSign eSignature integrates with popular business apps, and our functionality can also be embedded using our API.

The DocuSign Agreement Cloud integrates with popular business apps, and our functionality can also be embedded using our application programming interfaces (“APIs”).

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.

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| 2023 Form 10Q | 19

We generate substantially all our revenue from sales of subscriptions, which accounted for 97% and 96% of our revenue in the three months ended October 31, 2021 and 2020 and 97% and 95% in the nine months ended October 31, 2021 and 2020.

Our subscription fees include the use of our software suite and access to customer support.

We generate substantially all our revenue from sales of subscriptions, which accounted for 97% and 96% of our revenue in the three months ended April 30, 2022 and 2021.

Our subscription fees include the use of our software platform and access to customer support.

Subscriptions generally range from one to three years, and substantially all our multi-year customers pay in annual installments, one year in advance.

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

Professional services and other revenue accounted for the remainder of total revenue in the three and the nine months ended October 31, 2021 and 2020.

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.

We offer subscriptions to our software suite to enterprise businesses, commercial businesses and very small businesses (“VSBs”), which we define as companies with fewer than 10 employees and includes professionals, sole proprietorships and individuals.

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 platform, which helps drive customer retention and expansion of the use of the DocuSign Agreement Cloud.

We offer subscriptions to our software platform to businesses at all scales, from global enterprise down to local very small businesses (“VSBs”) (including professionals, sole proprietorships, nonprofits and individuals).

We sell to customers through multiple channels.

Our go-to-market strategy relies on our direct sales force and partnerships to sell to enterprises and commercial businesses and our web-based self-service channel to sell to VSBs, which we believe is the most cost-effective way to reach our smallest customers.

We offer more than 350 off-the-shelf, prebuilt integrations with the applications that many of our customers already use—including those offered by Google, Microsoft, NetSuite, Oracle, Salesforce, SAP, SAP SuccessFactors and Workday—so that they can create, sign, send and manage agreements from directly within these applications.

We have a diverse customer base spanning various industries and countries with no significant customer concentration.

We offer more than 400 off-the-shelf, prebuilt integrations with the applications that many of our customers already use—including those offered by Google, Microsoft, Oracle, Salesforce, SAP, and Workday—so that they can create, sign, send and manage agreements from directly within these applications.

We have a diverse customer base spanning across virtually all industries and around the world with no significant customer concentration.

No single customer accounted for more than 10% of total revenue in any of the periods presented.

We focused initially on selling our e-signature solutions to commercial businesses and VSBs, and later expanded our focus to target enterprise customers.

To demonstrate this growth over time, the number of our customers with greater than $300,000 in annual contract value (measured in billings) has increased from approximately 30 customers as of January 31, 2013 to 785 customers as of October 31, 2021.

The number of our customers with greater than $300,000 in annual contract value (measured in billings) has increased from 673 customers as of April 30, 2021 to 886 customers as of April 30, 2022.

Each of our customer types has a different purchasing pattern.

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 continues to have large-scale, rapidly shifting effects on workforces, organizations, customers, economies and financial markets globally, contributing to increased market volatility.

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

These effects are dependent on highly uncertain future developments, including the duration, spread and severity of the pandemic, the emergence of coronavirus variants, the actions undertaken to contain the virus or mitigate its impacts, including actions mandated by governments and health authorities and changing public health directives or restrictions, the speed and breadth of vaccination progress, vaccine efficacy against COVID-19 variants, current or future travel restrictions and how quickly and to what extent normal global economic and operating conditions can or will resume , all of which are highly uncertain and cannot be accurately predicted.

The effects of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods as a result of our subscription-based business model.

During the pandemic, we have taken a number of precautionary measures to ensure the health and safety of our employees, partners and customers, including by shifting to a largely remote work environment, imposing work-related travel restrictions for all employees and shifting most planned customer, partner and investor events to virtual-only formats.

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 reopening of our offices and resumption of in-person business activities, 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, since the beginning of the pandemic as the shift to remote, digital business operations caused more organizations to adopt or expand their use of digital agreements.

This acceleration of the digital transformation of agreements contributed to growth in our customer base and increases in customer spending across industries and regions.

While we have experienced a significant increase in paying customers and revenue due to the pandemic, there is no assurance that we will experience a continued increase in paying customers or that new or existing customers will continue to utilize our products at similar levels after the COVID-19 pandemic has tapered globally.

As vaccinations

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| 2023 Form 10Q | 20

become widely available and the pandemic wanes, this may result in a decline in paying customers once individuals are no longer working or attending school from home and/or their priorities change.

COVID-19 Update

As the pandemic continued in 2022, the rate of vaccinations, emerging COVID-19 variants, and shifting governmental policies on vaccination mandates and other pandemic restrictions have had variable impacts on different regions of the world and areas of the economy.

This has caused and may continue to cause new, existing and potential customers to experience rapidly changing conditions and disruptions to their businesses.

This may result in differing levels of demand for our products as our customers’ priorities, resources, financial conditions and economic outlook change, which could adversely affect or increase the volatility of our financial results.

Additionally, as a service provider to U.S.

state and federal government agencies, we are subject to a variety of COVID-19 vaccination, testing, and related health and safety requirements, including the requirement that our U.S.-based employees be fully vaccinated against COVID-19 by January 4, 2022, absent a medical or religious exemption.

We are not able to currently predict the full impact this requirement may have on our business.

See the section below titled “ 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 Three and Nine Months Ended October 31, 2021 and 2020

Three Months Ended October 31, Nine Months Ended October 31,

While we experienced a significant increase in paying customers and revenue during the pandemic, we later experienced periods in which the urgency of customer demand slowed.

It can be difficult to predict customer demand, especially as our customers’ priorities, resources and economic outlook change, along with other shifting market conditions.

These shifts have occurred and may in the future occur more quickly than we anticipate.

Additionally, due to our subscription-based business model, the full effects of these changes may not be fully reflected in our results of operations until future periods.

If the COVID-19 pandemic continues to have a substantial impact on our employees’, partners’ or customers’ productivity or if the abatement of the pandemic results in decreased demand or a more challenging sales environment, our results of operations and overall financial performance may be harmed.

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

Financial Results for the Three Months Ended April 30, 2022 and 2021

Three Months Ended April 30,

(in thousands) 2022 2021

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Purchases of property and equipment (21,709) (12,596)

Cash, cash equivalents, restricted cash and investments were $908.2 million as of October 31, 2021 .

Cash, cash equivalents, restricted cash and investments were $1.1 billion as of April 30, 2022 .

Key Factors Affecting Our Performance

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

As of October 31, 2021, we had a total of over 1.1 million customers, including over 159,000 enterprise and commercial customers, comp ared to almost 820,000 customers and over 110,000 enterprise and commercial customers as of October 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.

As of April 30, 2022, we had a total of over 1.2 million customers, including almost 182,000 enterprise and commercial customers, comp ared to over 980,000 customers and over 135,000 enterprise and commercial customers as of April 30, 2021.

We define enterprise customers as companies generally included in the Global 2000.

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, which are companies with between 10 and 249 employees, in each case excluding any enterprise customers.

We define VSBs as 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.

We believe that our ability to increase the number of customers using our software platform, 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 platform, 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.

DocuSign, Inc.

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Many of our customers have increased spend with us as they have expanded their use of our offerings in both existing and new use cases across their front or back office operations.

Our enterprise and commercial customers may start with just one use case and gradually implement additional use cases across their organization once they see the benefits of our software suite.

Several of our largest enterprise customers have deployed our software suite for hundreds of use cases across their organizations.

We believe there is significant expansion opportunity with our customers following their initial adoption of our software suite.

Our enterprise and commercial customers may start with just one use case and gradually implement additional use cases across their organization once they see the benefits of our software platform.

Several of our largest enterprise customers have deployed our software platform for hundreds of use cases across their organizations.

We believe there is significant expansion opportunity with our customers following their initial adoption of our software platform.

Increasing International Revenue

Our international revenue represented 23% and 20% of our total revenue in the three months ended October 31, 2021 and 2020 and 22% and 19% in the nine months ended October 31, 2021 and 2020.

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 United States (“U.S.”).

Our international revenue represented 25% and 21% of our total revenue in the three months ended April 30, 2022 and 2021.

We started our international selling efforts in English-speaking common law countries, such as Canada, the UK 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 products in select civil law countries.

For example, in Europe, we have Standards-Based Signature (“SBS”) technology tailored for electronic IDentification, Authentication and trust Services (“eIDAS”).

SBS supports signatures that involve digital certificates, including those specified in the European Union’s (“EU”) eIDAS regulations for advanced and qualified electronic signatures.

For example, in Europe, we offer Standards-Based Signature (“SBS”) technology tailored for the EU’s electronic Identification, Authentication and Trust Services (“eIDAS”) regulations.

SBS supports signatures that involve digital certificates, including those specified in the EU’s eIDAS regulations for advanced and qualified electronic signatures.

In addition, to follow longstanding tradition in Japan, we enable signers to upload and apply their personal eHanko stamp to represent their signatures on an agreement.

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This includes expanding our sales headcount and increasing our marketing initiatives.

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 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.

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

Our acquisitions intend to bring additional functionality to our DocuSign Agreement Cloud 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

We derive revenue primarily from the sale of subscriptions and, to a lesser extent, professional services.

Subscription Revenue

Subscription revenue consists of fees for the use of our software suite and our technical infrastructure and access to customer support, which includes phone or email support.

Subscription Revenue Subscription revenue consists of fees for the use of our software platform and our technical infrastructure and access to customer support, which includes phone or email support.

We typically invoice customers in advance on an annual basis.

We recognize subscription revenue ratably over the term of the contract subscription period beginning on the date access to our software suite is provided.

Professional Services and Other Revenue

Professional services revenue includes fees associated with new customers requesting deployment and integration services.

We recognize subscription revenue ratably over the term of the contract subscription period beginning on the date access to our software platform is provided.

Professional Services and Other Revenue Professional services revenue includes fees associated with new customers requesting deployment and integration services.

We price professional services on a time and materials basis and on a fixed fee basis.

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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 platform and providing support.

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

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Gross margin is gross profit expressed as a percentage of total revenue.

We expect that gross profit and gross margin will continue to be affected by various factors including our pricing, timing and amount of investment to maintain or expand our hosting capability, the growth of our software suite support and professional services team, stock-based compensation expenses, amortization of costs associated with capitalized internal use software and acquired intangible assets and allocated overhead costs.

We expect that gross profit and gross margin will continue to be affected by various factors including our pricing, timing and amount of investment to maintain or expand our hosting capability, the growth of our software platform support and professional services team, stock-based compensation expenses, amortization of costs associated with capitalized internal use software and acquired intangible assets and allocated overhead costs.

Operating Expenses

Our operating expenses consist of selling and marketing, research and development and general and administrative expenses.

As our revenues continue to increase, our operating expenses as a percentage of revenue may increase or decrease at different rates, driven by the timing of revenue recognition, our investments in growth and other factors.

Selling and Marketing Expense

Selling and marketing expense consists primarily of personnel costs, including sales commissions.

Our operating expenses consist of sales and marketing, research and development and general and administrative expenses.

Sales and Marketing Expense Sales and marketing expense consists primarily of personnel costs, including sales commissions.

These expenses also include expenditures related to advertising, marketing, promotional events and brand awareness activities, as well as allocated overhead costs.

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

We expect sales 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.

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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.

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

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.

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Interest Expense

Interest expense consists primarily of contractual interest expense, amortization of discount and amortization of debt issuance costs on our Convertible Senior Notes (the “ Notes”).

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

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Interest income and other income (expense), net , consists primarily of interest earned on our cash, cash equivalents and investments, changes in fair value of our strategic investments and foreign currency transaction gains and losses.

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, and tax benefits arising from deductions for stock-based compensation.

Provision for Income Taxes

Our provision for 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.

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The following table summarizes our historical consolidated statements of operations data:

Three Months Ended October 31, Nine Months Ended October 31,

(in thousands, except percentages) 2021 As % of revenue 2020 As % of revenue 2021 As % of revenue 2020 As % of revenue

Three Months Ended April 30,

(in thousands, except percentages) 2022 As % of revenue 2021 As % of revenue

Subscription $ 569,251 97 % $ 451,935 96 %

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Interest income and other income (expense), net (4,650) (1) 6,037 1

Loss before provision for (benefit from) income taxes (5,783) (1) (56,550) (15) (37,498) (2) (165,939) (16)

Provision for (benefit from) income taxes (107) — 1,941 — 2,033 1 4,916 1

Loss before provision for income taxes (25,525) (4) (6,372) (1)

Provision for income taxes 1,848 1 1,982 1

Net loss $ (27,373) (5) % $ (8,354) (2) %

The following discussion and analysis is for the three and nine months ended October 31, 2021, compared to the same period in 2020, unless otherwise stated.

Three Months Ended October 31, 2021 versus 2020 Nine Months Ended October 31, 2021 versus 2020

The following discussion and analysis is for the three months ended April 30, 2022, compared to the same period in 2021, unless otherwise stated.

Three Months Ended April 30, 2022 versus 2021

(in thousands, except for percentages) 2022 2021

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Total revenue $ 588,692 $ 469,078 25 %

Subscription revenue increased by $162.0 million, or 44%, in the three months ended October 31, 2021 and by $502.1 million, or 52%, in the nine months ended October 31, 2021.

The increase was primarily due to a combination of the acquisition of new customers and upsells to our existing customer base.

Subscription revenue increased $117.3 million, or 26%, in the three months ended April 30, 2022.

The increase was primarily due to the expansion of existing customers and the addition of new customers.

This growth was mainly driven by an increase in sales to our mid-market and enterprise customers through our direct and indirect sales channels.

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Cost of Revenue and Gross Margin

Three Months Ended October 31, 2021 versus 2020 Nine Months Ended October 31, 2021 versus 2020

Three Months Ended April 30, 2022 versus 2021

(in thousands, except for percentages) 2022 2021

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Gross margin:

Subscription 84 % 81 % 3 pts 83 % 81 % 2 pts

Professional services and other (86) % (71) % (15) pts (65) % (49) % (16) pts

Total gross margin 79 % 74 % 5 pts 78 % 74 % 4 pts

Cost of subscription revenue increased $14.7 million, or 21%, in the three months ended October 31, 2021 and $60.5 million, or 32%, in the nine months ended October 31, 2021, primarily driven by higher costs to support our growing customer base.

Increases in the three months ended October 31, 2021 primarily consisted of:

▪ $4.3 million in personnel costs and $2.3 million in stock-based compensation driven by higher headcount and annual salary increases;

▪ $4.0 million in operating costs to support our platform and the growth in our revenue, including increases in hosting costs and processing fees.

Increases in the nine months ended October 31, 2021 primarily consisted of:

▪ $19.6 million in personnel costs and $7.0 million in stock-based compensation driven by higher headcount and annual salary increases;

Subscription 82 % 83 % (1) pts

Professional services and other (40) % (58) % 18 pts

Total gross margin 78 % 78 % — pts

Cost of subscription revenue increased $27.1 million, or 35%, in the three months ended April 30, 2022, primarily driven by higher costs to support our growing customer base.

Significant increases consisted of:

▪ $9.5 million in personnel costs and $4.6 million in stock-based compensation expense driven by higher headcount and annual salary increases;

▪ $7.0 million in operating costs to support our platform and the growth in our revenue, including increases in hosting costs, authentication and processing fees and subscription reseller fees.

▪ $13.3 million in depreciation and amortization, which reflects the impact of higher data center and capitalized software assets as well as the higher existing technology intangible assets from acquisitions.

Cost of professional services and other revenue increased $3.5 million, or 12%, in the three months ended October 31, 2021 and $12.1 million, or 16%, in the nine months ended October 31, 2021, primarily due to an increase in personnel costs driven by higher headcount, annual salary increases and stock-based compensation.

Sales and Marketing

Three Months Ended October 31, 2021 versus 2020 Nine Months Ended October 31, 2021 versus 2020

Three Months Ended April 30, 2022 versus 2021

(in thousands, except for percentages) 2022 2021

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Percentage of revenue 51 % 51 %

Sales and marketing expenses increased $65.7 million, or 31%, in the three months ended October 31, 2021 and $200.4 million, or 35%, in the nine months ended October 31, 2021 primarily driven by investments in workforce and technology support to accommodate demand for our products and increased interest in digital transformation of agreements.

Increases in the three months ended October 31, 2021 primarily consisted of:

▪ $38.9 million in personnel costs and $12.8 million in stock-based compensation due to higher headcount, annual salary increases, higher commissions in line with higher sales and higher payroll taxes;

▪ $8.7 million in marketing and advertising expense due to higher spend on online advertising platforms to help capture the continued market interest in our product offering.

Increases in the nine months ended October 31, 2021 primarily consisted of:

▪ $113.5 million in personnel costs and $40.9 million in stock-based compensation due to higher headcount, annual salary increases, higher commissions in line with higher sales and higher payroll taxes;

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| 2022 Form 10Q | 29

Sales and marketing expenses increased $61.6 million, or 26%, in the three months ended April 30, 2022 primarily driven by investments in workforce and technology support to accommodate demand for our products and increased interest in digital transformation of agreements.

Significant increases consisted of:

▪ $35.5 million in personnel costs and $9.3 million in stock-based compensation expense due to higher headcount, annual salary increases, higher commissions in line with higher sales and higher payroll taxes;

▪ $8.9 million in marketing and advertising expense due to higher spend on online advertising platforms to help capture the continued market interest in our product offering.

▪ $12.2 million due to higher information technology costs.

Research and Development

Three Months Ended October 31, 2021 versus 2020 Nine Months Ended October 31, 2021 versus 2020

Three Months Ended April 30, 2022 versus 2021

(in thousands, except for percentages) 2022 2021

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Percentage of revenue 19 % 18 %

Research and development expenses increased $29.2 million, or 40%, in the three months ended October 31, 2021 and $91.3 million, or 48%, in the nine months ended October 31, 2021, primarily due to investments in workforce and technology support to accommodate growth.

Personnel costs and stock-based compensation increased $15.6 million and $11.2 million in the three months ended October 31, 2021 and $50.3 million and $31.2 million in the nine months ended October 31, 2021, due to higher headcount and annual salary increases, which also reflects the impact of the addition of Seal and Liveoak employees to our workforce.

Additionally, the increase in the nine months ended October 31, 2021 includes $7.2 million due to higher information technology costs.

Research and development expenses increased $26.8 million, or 31%, in the three months ended April 30, 2022, primarily due to investments in workforce and technology support to accommodate growth.

Personnel costs and stock-based compensation expense increased $11.2 million and $11.7 million in the three months ended April 30, 2022, due to higher headcount and annual salary increases.

General and Administrative

Three Months Ended October 31, 2021 versus 2020 Nine Months Ended October 31, 2021 versus 2020

Three Months Ended April 30, 2022 versus 2021

(in thousands, except for percentages) 2022 2021

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Percentage of revenue 11 % 11 %

General and administrative expenses increased $4.4 million, or 9%, in the three months ended October 31, 2021 and $27.8 million, or 20%, in the nine months ended October 31, 2021, primarily due to investments in workforce and technology support to accommodate growth.

Personnel costs and stock-based compensation increased $1.4 million and $1.5 million in the three months ended October 31, 2021 and $10.0 million and $5.3 million in the nine months ended October 31, 2021, due to higher headcount and the impact of annual salary increases.

The expense for the nine months ended October 31, 2021 also includes $3.9 million impairment of operating lease right-of-use assets.

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General and administrative expenses increased $12.5 million, or 25%, in the three months ended April 30, 2022, primarily due to investments in workforce and technology support to accommodate growth.

Personnel costs and stock-based compensation expense increased $3.0 million and $4.4 million in the three months ended April 30, 2022, due to higher headcount and the impact of annual salary increases.

Other Income and Expense

Three Months Ended October 31, 2021 versus 2020 Nine Months Ended October 31, 2021 versus 2020

Three Months Ended April 30, 2022 versus 2021

(in thousands, except for percentages) 2022 2021

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Percentage of revenue (1) % 1 %

Interest expense decreased by $6.3 million in the three months ended October 31, 2021 and $18.2 million in the nine months ended October 31, 2021, primarily due to lower amortization expense under ASU 2020-06 effective February 1, 2021.

Interest income and other income, net, for the nine months ended October 31, 2021 included $4.8 million adjustments to fair value of certain strategic investments resulting from observable price changes that occurred during the quarter ended April 30, 2021.

Interest income and other income (expense), net, for the three months ended April 30, 2021 included $5.1 million in adjustments to fair value of certain strategic investments resulting from observable price changes that occurred during the quarter.

Additionally, foreign currency exchange losses increased $5.4 million due to rate fluctuations, primarily the weakening of the euro and the British pound compared to the U.S.

dollar, in the three months ended April 30, 2022.

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Our principal sources of liquidity were cash, cash equivalents and investments as well as cash generated from operations.

As of October 31, 2021, we had $818.5 million in cash and cash equivalents and short-term investments.

As of April 30, 2022, we had $967.6 million in cash and cash equivalents and short-term investments.

We also had $94.8 million in long-term investments that provide additional capital resources.

We finance our operations primarily through payments by our customers for use of our product offerings and related services and through debt financings.

In September 2018, we issued and sold $575.0 million in aggregate principal amount of 0.5% Convertible Senior Notes due 2023, of which $524.8 million has been settled as of October 31, 2021.

We finance our operations primarily through payments by our customers for use of our product offerings and related services and through debt financing.

In September 2018, we issued and sold $575.0 million in aggregate principal amount of 0.5% Convertible Senior Notes due 2023, of which $537.9 million has been settled as of April 30, 2022.

In January 2021, we issued and sol d $690.0 million in aggregate principal amount of 0% Convertible Senior Notes due 2024.

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 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 October 31, 2021 .

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 April 30, 2022 .

Further details of these transactions are described in Note 6 to the Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Form 10-Q.

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

We were in compliance with all debt covenants at April 30, 2022 .

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

We may not achieve profitability in 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 direct customers annually in advance.

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 or in accounts receivable until cash is collected.

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 $1.5 billion as of April 30, 2022.

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 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 decreased by $18.0 million in the nine months ended October 31, 2021, compared to an increase of $11.4 million in the nine months ended October 31, 2020, which resulted in a $29.4 million increase in cash provided by operating activities year over year.

Our accounts receivable decreased by $140.1 million in the three months ended April 30, 2022, compared to a decrease of $73.2 million in the three months ended April 30, 2021, which resulted in a $66.9 million increase in cash provided 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.

Our contract liabilities increased by $161.0 million in the nine months ended October 31, 2021, compared to an increase of $172.5 million in the nine months ended October 31, 2020, which resulted in an $11.5 million decrease in cash provided by operating activities.

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.

Our contract liabilities increased by $18.7 million in the three months ended April 30, 2022, compared to an increase of $51.6 million in the three months ended April 30, 2021.

The year-over-year decrease resulted in a $32.9 million decrease in cash provided by operating activities.

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

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

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

Nine Months Ended October 31,

Three Months Ended April 30,

(in thousands) 2022 2021

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Cash Flows from Operating Activities

Cash provided by operating activities was $418.7 million and $234.7 million for the nine months ended October 31, 2021 and 2020.

The improvement of $184.0 million compared to the prior year, was primarily the result of increased sales and the related cash collections, partially offset by higher operating costs to support growth and increased headcount.

Cash provided by operating activities was $196.3 million and $135.6 million for the three months ended April 30, 2022 and 2021.

The year-over-year improvement of $60.7 million was primarily the result of increased sales and higher cash collections, partially offset by higher operating costs to support growth and increased headcount.

Cash Flows from Investing Activities

For the nine months ended October 31, 2021, net cash used in investing activities of $157.7 million was primarily driven by $106.6 million net purchases of marketable securities, $43.9 million purchases of property and equipment, and $6.4 million cash paid for acquisitions.

For the nine months ended October 31, 2020 , cash provided by investing activities of $100.1 million was primarily driven by $353.1 million from maturities and sales of marketable securities, partially offset by $180.4 million paid for acquisitions, net of cash acquired, $64.1 million purchases of property and equipment and $8.5 million purchases of strategic and other investments.

For the three months ended April 30, 2022, net cash used in investing activities of $62.5 million was primarily driven by $38.7 million net purchases of marketable securities and $21.7 million purchases of property and equipment as we continued to invest in data center build outs to support our growing operations and capitalized software development projects.

For the three months ended April 30, 2021 , cash used in investing activities of $70.5 million was primarily driven by $57.4 million net purchases of marketable securities and $12.6 million in purchases of property and equipment.

Cash Flows from Financing Activities

For the nine months ended October 31, 2021, cash used in financing activities of $320.7 million was primarily driven by $255.9 million in net payments related to our equity plans, as compared to $202.4 million in the prior year for similar activities.

We also used $64.8 million for repayments of our 2023 Notes.

For the three months ended April 30, 2022, cash provided by financing activities was primarily driven by $1.4 million proceeds associated with equity plans, net of payments for tax withholding on share settlements.

F or the three months ended April 30, 2021, cash used in financing activities was primarily driven by $76.3 million payments for tax withholding on share settlements, net of proceeds associated with equity plans and $36.7 million in repayments of our 2023 Notes.

Obligations and Commitments

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

DocuSign, Inc.

| 2022 Form 10Q | 32

Critical Accounting Policies and Estimates

W e prepare our financial statements in accordance with U.S.

generally accepted accounting principles (“GAAP”).

W e prepare our financial statements in accordance with GAAP.

Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.

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There have been no material changes to our critical accounting policies and estimates as described in our 2022 Annual Report on Form 10-K.

Recent Accounting Pronouncements

Refer to Note 1 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

DocuSign, Inc.

| 2023 Form 10Q | 29

Recent Accounting Pronouncements

There have been no accounting pronouncements that are significant or potentially significant to the Company.

Non-GAAP Financial Measures and Other Key Metrics

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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.

However, these non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results.

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, fair value adjustments to strategic investments, impairment of operating lease right-of-use assets, and, as applicable, other special items.

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, fair value adjustments to strategic investments, 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 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.

In addition to these exclusions, we subtract an assumed provision for income taxes to calculate non-GAAP net income.

We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods.

For fiscal 2023, we determined the projected non-GAAP tax rate to be 20% tax rate.

Free cash flow :

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| 2023 Form 10Q | 30

Reconciliation of gross profit and gross margin:

Three Months Ended October 31, Nine Months Ended October 31,

Reconciliation of gross profit (loss) and gross margin:

Three Months Ended April 30,

(in thousands) 2022 2021

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Reconciliation of income (loss) from operations and operating margin:

Three Months Ended October 31, Nine Months Ended October 31,

Three Months Ended April 30,

(in thousands) 2022 2021

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Employer payroll tax on employee stock transactions 5,099 16,283

Acquisition-related expenses — 336 387 7,962

Impairment of operating lease right-of-use assets — — 3,892 —

Non-GAAP income from operations $102,204 $93,211

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Reconciliation of net income (loss):

Three Months Ended October 31, Nine Months Ended October 31,

Three Months Ended April 30,

(in thousands) 2022 2021

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Employer payroll tax on employee stock transactions 5,099 16,283

Acquisition-related expenses — 336 387 7,962

Amortization of debt discount and issuance costs 1,284 1,319

Fair value adjustments to strategic investments (340) (5,119)

Impairment of operating lease right-of-use assets — — 3,892 —

Income tax effect of non-GAAP adjustments (1)

Non-GAAP net income $ 77,479 $ 91,794

(1) Represents the income tax adjustment using our estimated non-GAAP tax rate of 20%.

Estimating a non-GAAP tax rate of 20%, the income tax effect of non-GAAP adjustments for the three months ended April 30, 2021 was $16.8 million.

Computation of free cash flow:

Three Months Ended October 31, Nine Months Ended October 31,

Three Months Ended April 30,

(in thousands) 2022 2021

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Non-GAAP free cash flow $ 174,577 $ 123,001

Net cash (used in) provided by investing activities $ (52,808) $ 9,691 $ (157,685) $ 100,064

Net cash used in financing activities $ (65,387) $ (95,203) $ (320,691) $ (202,435)

Net cash used in investing activities $ (62,514) $ (70,506)

Net cash (used in) provided by financing activities $ 1,350 $ (112,954)

Computation of billings:

Three Months Ended October 31, Nine Months Ended October 31,

Three Months Ended April 30,

(in thousands) 2022 2021

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Contract assets and unbilled accounts receivable, end of period (18,756) (19,737)

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

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

Non-GAAP billings $ 613,563 $ 527,391

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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-Q

Item 2. Management’s Discussion and Analysis