DOCUSIGN, INC. 10-Q

Item 1. Financial Statements (unaudited) Condensed Consolidated Balance Sheets as of April 30, 2022 and January 31, 2022 4 Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended April 30, 2022 and 2021 5 Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended April 30, 2022 and 2021 6 Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2022 and 2021 7 Notes to Condensed Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk 33 Item 4. Controls and Procedures 33 PART II - OTHER INFORMATION Item 1. Legal Proceedings 34 Item 1A. Risk Factors 34 Item 6. Exhibits 60 Exhibit Index 61 Signatures 62 DocuSign, Inc. | 2023 Form 10Q | 2 NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management's beliefs and assumptions and on information currently available to management, and which statements involve substantial risk and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, objectives for future operations, and the continuing impact of the coronavirus pandemic (the “COVID-19 pandemic”) and its effects on our financial conditions and results of operations are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These risks and uncertainties include, among other things, risks related to our expectations regarding the continuing impact of the COVID-19 pandemic, including the easing of related regulations and measures as the pandemic and its related effects begin to abate or have abated, on our business, results of operations, financial condition, and future profitability and growth; our expectations regarding the impact of the evolving COVID-19 pandemic on the businesses of our customers, partners and suppliers, and the economy, as well as the macro- and micro-effects of the pandemic, including the pace of the digital transformation of business and differing levels of demand for our products as our customers’ priorities, resources, financial conditions and economic outlook change; global macro-economic conditions, including the effects of inflation, rising interest rates and market volatility on the global economy; our ability to estimate the size of our total addressable market, and the development of the market for our products, which is new and evolving; our ability to effectively sustain and manage our growth and future expenses, achieve and maintain future profitability, attract new customers and maintain and expand our existing customer base; our ability to scale and update our platform to respond to customers’ needs and rapid technological change; the effects of increased competition in our market and our ability to compete effectively; our ability to expand use cases within existing customers and vertical solutions; our ability to expand our operations and increase adoption of our platform internationally; our ability to strengthen and foster our relationships with developers; our ability to expand our direct sales force, customer success team and strategic partnerships around the world; the impact of any data breaches, cyberattacks or other malicious activity on our technology systems; our ability to identify targets for and execute potential acquisitions; our ability to successfully integrate the operations of businesses we may acquire, and to realize the anticipated benefits of such acquisitions; our ability to maintain, protect and enhance our brand; the sufficiency of our cash, cash equivalents and capital resources to satisfy our liquidity needs; limitations on us due to obligations we have under our credit facility or other indebtedness; our failure or the failure of our software to comply with applicable industry standards, laws and regulations; our ability to maintain, protect and enhance our intellectual property; our ability to successfully defend litigation against us; our ability to attract large organizations as users; our ability to maintain our corporate culture; our ability to offer high-quality customer support; our ability to hire, retain and motivate qualified personnel; our ability to estimate the size and potential growth of our target market; uncertainties regarding the impact of general economic and market conditions, including as a result of regional and global conflicts or related government sanctions; and our ability to maintain proper and effective internal controls. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. We undertake no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law. DocuSign, Inc. | 2023 Form 10Q | 3 PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DOCUSIGN, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except per share data) April 30, 2022 January 31, 2022 Assets Current assets Cash and cash equivalents $ 638,190 $ 509,059 Investments—current 329,425 293,763 Accounts receivable, net of allowance for doubtful accounts of $ 5,076 and $ 5,807 as of April 30, 2022 and January 31, 2022 300,872 440,950 Contract assets—current 13,368 12,588 Prepaid expenses and other current assets 80,669 63,236 Total current assets 1,362,524 1,319,596 Investments—noncurrent 94,751 94,938 Property and equipment, net 183,704 184,664 Operating lease right-of-use assets 116,589 126,021 Goodwill 354,056 355,058 Intangible assets, net 87,277 98,816 Deferred contract acquisition costs—noncurrent 313,760 311,835 Other assets—noncurrent 61,470 50,337 Total assets $ 2,574,131 $ 2,541,265 Liabilities and Equity Current liabilities Accounts payable $ 26,213 $ 52,804 Accrued expenses and other current liabilities 92,936 91,377 Accrued compensation 137,724 160,163 Convertible senior notes—current 16 — Contract liabilities—current 1,049,534 1,029,891 Operating lease liabilities—current 37,293 37,404 Total current liabilities 1,343,716 1,371,639 Convertible senior notes, net—noncurrent 719,616 718,487 Contract liabilities—noncurrent 15,794 16,725 Operating lease liabilities—noncurrent 114,976 126,340 Deferred tax liability—noncurrent 9,079 9,316 Other liabilities—noncurrent 22,001 23,255 Total liabilities 2,225,182 2,265,762 Commitments and contingencies ( Note 7 ) Stockholders’ equity Preferred stock, $ 0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding as of April 30, 2022 and January 31, 2022 — — Common stock, $ 0.0001 par value; 500,000 shares authorized, 199,920 shares outstanding as of April 30, 2022; 500,000 shares authorized, 198,834 shares outstanding as of January 31, 2022 20 20 Treasury stock, at cost: 8 and 7 shares as of April 30, 2022 and January 31, 2022 ( 1,648 ) ( 1,532 ) Additional paid-in capital 1,835,187 1,720,013 Accumulated other comprehensive loss ( 19,048 ) ( 4,809 ) Accumulated deficit ( 1,465,562 ) ( 1,438,189 ) Total stockholders’ equity 348,949 275,503 Total liabilities and stockholders' equity $ 2,574,131 $ 2,541,265 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. DocuSign, Inc. | 2023 Form 10Q | 4 DOCUSIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) Three Months Ended April 30, (in thousands, except per share data) 2022 2021 Revenue: Subscription $ 569,251 $ 451,935 Professional services and other 19,441 17,143 Total revenue 588,692 469,078 Cost of revenue: Subscription 105,159 78,071 Professional services and other 27,257 27,171 Total cost of revenue 132,416 105,242 Gross profit 456,276 363,836 Operating expenses: Sales and marketing 300,697 239,119 Research and development 112,227 85,416 General and administrative 62,578 50,038 Total operating expenses 475,502 374,573 Loss from operations ( 19,226 ) ( 10,737 ) Interest expense ( 1,649 ) ( 1,672 ) Interest income and other income (expense), net ( 4,650 ) 6,037 Loss before provision for income taxes ( 25,525 ) ( 6,372 ) Provision for income taxes 1,848 1,982 Net loss $ ( 27,373 ) $ ( 8,354 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.14 ) $ ( 0.04 ) Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted 199,666 194,342 Other comprehensive income (loss): Foreign currency translation gain (loss), net of tax $ ( 11,825 ) $ 636 Unrealized losses on investments, net of tax ( 2,414 ) ( 242 ) Other comprehensive income (loss) ( 14,239 ) 394 Comprehensive loss $ ( 41,612 ) $ ( 7,960 ) Stock-based compensation expense included in costs and expenses Cost of revenue—subscription $ 10,613 $ 6,018 Cost of revenue—professional services and other 5,082 5,535 Sales and marketing 47,431 38,135 Research and development 32,205 20,462 General and administrative 15,392 10,986 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. DocuSign, Inc. | 2022 Form 10Q | 5 DOCUSIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Common Stock Additional Paid-In Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity (in thousands) Shares Amount Balances at January 31, 2022 198,834 $ 20 $ 1,720,013 $ ( 1,532 ) $ ( 4,809 ) $ ( 1,438,189 ) $ 275,503 Exercise of stock options 179 — 1,938 — — — 1,938 Settlement of restricted stock units and employee stock purchase plan 642 — — — — — — Tax withholding on net share settlement of restricted stock units and employee stock purchase plan — — ( 25,403 ) ( 116 ) — — ( 25,519 ) Employee stock purchase plan 265 — 24,151 — — — 24,151 Employee stock-based compensation — — 114,488 — — — 114,488 Net loss — — — — — ( 27,373 ) ( 27,373 ) Other comprehensive loss, net — — — — ( 14,239 ) — ( 14,239 ) Balances at April 30, 2022 199,920 $ 20 $ 1,835,187 $ ( 1,648 ) $ ( 19,048 ) $ ( 1,465,562 ) $ 348,949 Balances at January 31, 2021 192,807 $ 19 $ 1,702,254 $ ( 1,048 ) $ 4,964 $ ( 1,380,452 ) $ 325,737 Cumulative impact of Accounting Standards Update 2020-06 adoption — — ( 86,144 ) — — 12,239 ( 73,905 ) Settlement of convertible senior notes due in 2023 352 — ( 446 ) — — — ( 446 ) Exercise of stock options 488 — 6,616 — — — 6,616 Settlement of restricted stock units 955 — — — — — — Tax withholding on net share settlement of restricted stock units and employee stock purchase plan — — ( 113,412 ) ( 171 ) — — ( 113,583 ) Employee stock purchase plans 132 — 23,167 — — — 23,167 Employee stock-based compensation — — 83,611 — — — 83,611 Net loss — — — — — ( 8,354 ) ( 8,354 ) Other comprehensive income, net — — — — 394 — 394 Balances at April 30, 2021 194,734 $ 19 $ 1,615,646 $ ( 1,219 ) $ 5,358 $ ( 1,376,567 ) $ 243,237 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. DocuSign, Inc. | 2022 Form 10Q | 6 DOCUSIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended April 30, (in thousands) 2022 2021 Cash flows from operating activities: Net loss $ ( 27,373 ) $ ( 8,354 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 21,301 20,037 Amortization of deferred contract acquisition and fulfillment costs 43,990 30,933 Amortization of debt discount and transaction costs 1,284 1,319 Non-cash operating lease costs 6,442 6,943 Stock-based compensation expense 110,723 81,637 Deferred income taxes 72 264 Other 4,907 ( 6,359 ) Changes in operating assets and liabilities: Accounts receivable 140,078 73,205 Contract assets ( 808 ) 1,607 Prepaid expenses and other current assets ( 16,351 ) ( 15,670 ) Deferred contract acquisition and fulfillment costs ( 50,512 ) ( 46,154 ) Other assets ( 6,651 ) ( 3,167 ) Accounts payable ( 23,197 ) ( 21,593 ) Accrued expenses and other liabilities 5,148 11,080 Accrued compensation ( 23,220 ) ( 34,048 ) Contract liabilities 18,712 51,648 Operating lease liabilities ( 8,259 ) ( 7,731 ) Net cash provided by operating activities 196,286 135,597 Cash flows from investing activities: Purchases of marketable securities ( 129,735 ) ( 96,925 ) Sales of marketable securities — 2,002 Maturities of marketable securities 91,055 37,513 Purchases of strategic and other investments ( 2,125 ) ( 500 ) Purchases of property and equipment ( 21,709 ) ( 12,596 ) Net cash used in investing activities ( 62,514 ) ( 70,506 ) Cash flows from financing activities: Repayments of convertible senior notes — ( 36,684 ) Payment of tax withholding obligation on net RSU settlement and ESPP purchase ( 24,739 ) ( 106,053 ) Proceeds from exercise of stock options 1,938 6,616 Proceeds from employee stock purchase plan 24,151 23,167 Net cash (used in) provided by financing activities 1,350 ( 112,954 ) Effect of foreign exchange on cash, cash equivalents and restricted cash ( 5,180 ) 779 Net increase (decrease) in cash, cash equivalents and restricted cash 129,942 ( 47,084 ) Cash, cash equivalents and restricted cash at beginning of period (1) 509,679 566,336 Cash, cash equivalents and restricted cash at end of period (1) $ 639,621 $ 519,252 (1) $ 1.4 million and $ 0.6 million of restricted cash was included in both Prepaid expenses and other current assets and Other assets—noncurrent at April 30, 2022 and January 31, 2022. $ 0.3 million of restricted cash was included in Other assets—noncurrent at April 30, 2021 and January 31, 2021. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. DocuSign, Inc. | 2022 Form 10Q | 7 DOCUSIGN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued) Three Months Ended April 30, (in thousands) 2022 2021 Supplemental disclosure: Cash paid for interest $ 93 $ 212 Cash paid for operating lease liabilities 10,423 9,888 Cash paid for income taxes 1,760 2,507 Non-cash investing and financing activities: Property and equipment in accounts payable and accrued expenses and other current liabilities $ 5,358 $ 1,275 Fair value of shares issued as part of the repayments of convertible senior notes — 74,657 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. DocuSign, Inc. | 2022 Form 10Q | 8 DOCUSIGN, INC. Index for Notes to the Condensed Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies 10 Note 2 Revenue 11 Note 3 Fair Value Measurements 12 Note 4 Property and Equipment, Net 13 Note 5 Deferred Contract Acquisition and Fulfillment Costs 14 Note 6 Debt 14 Note 7 Commitments and Contingencies 16 Note 8 Stockholders' Equity 17 Note 9 Net Loss Per Share Attributable to Common Stockholders 18 Note 10 Income Taxes 18 DocuSign, Inc. | 2022 Form 10Q | 9 DOCUSIGN, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 . 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, sign, act on and manage agreements, thereby simplifying and accelerating the process of doing business. Basis of Presentation and Principles of Consolidation Our condensed consolidated financial statements include those of DocuSign, Inc. and our subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our fiscal 2022 Annual Report on Form 10-K. Our condensed consolidated financial statements are unaudited and have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and, in our opinion, include all adjustments of a normal recurring nature necessary for the fair statement of our financial position, results of operations and cash flows. Our condensed consolidated balance sheet as of January 31, 2022 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended April 30, 2022 are not necessarily indicative of the results to be expected for the year ending January 31, 2023 . O ur fiscal year ends on January 3 1. References to fiscal 2023, for example, are to the fiscal year ending January 31, 2023 . Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in the condensed 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 average period of benefit associated with deferred contract acquisition costs and fulfillment costs; • the valuation of strategic investments; • the fair value of certain stock awards issued; • the f air value of convertible notes; • the useful life and recoverability of long-lived assets; • the discount rate used for operating leases; and • the recognition, measurement and valuation of deferred income taxes. Since the emergence of the COVID-19 pandemic in March 2020, we have undertaken measures to protect our employees, partners and customers, including providing the majority of our employees the option to work remotely until at least February 1, 2023. However, there can be no assurance that these measures will be effective, that we will be able to adopt new measures as needed or that we will be able to discontinue these measures without adversely affecting our business operations. In addition, the COVID-19 pandemic and related recent developments (including the emergence of new 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, 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 ) have created and may continue to create significant uncertainty in global financial markets, which may decrease technology spending, depress demand for our products 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 or judgments or revise the carrying DocuSign, Inc. | 2022 Form 10Q | 10 value of our assets or liabilities, except for certain subleases that resulted in an impairment of $ 5.1 million on operating lease right-of-use assets recorded during the year ended January 31, 2022. These estimates may change as new events occur and additional information is obtained, which could be recognized in the condensed 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. Significant Accounting Policies There have been no changes to our significant accounting policies described in our fiscal 2022 Annual Report on Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes. Note 2. Revenue Subscription revenue is recognized over time and accounted for approximately 97 % and 96 % of our revenue for the three months ended April 30, 2022 and 2021. Performance Obligations As of April 30, 2022, the amount of the transaction price allocated to remaining performance obligations for contracts greater than one year was $ 1.6 billion. We expect to recognize 55 % of the transaction price allocated to remaining performance obligations within the 12 months following April 30, 2022 in our condensed consolidated statement of operations and comprehensive loss. 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 fully invoiced to our customers where there remains a performance obligation, typically for our multi-year arrangements. Total contract assets were $ 13.4 million and $ 12.6 million as of April 30, 2022 and January 31, 2022. The change in contract assets reflects the difference in timing between the satisfaction of our 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 three months ended April 30, 2022 and 2021, we recognized revenue of $ 450.7 million and $ 357.8 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. Geographic Information Revenue by geography is based on the address of the customer as specified in our master subscription agreements with our customers. Revenue by geographic area was as follows: Three Months Ended April 30, (in thousands) 2022 2021 U.S. $ 444,453 $ 368,423 International 144,239 100,655 Total revenue $ 588,692 $ 469,078 DocuSign, Inc. | 2022 Form 10Q | 11 Note 3 . Fair Value Measurements The following table summarizes our financial assets that are measured at fair value on a recurring basis: April 30, 2022 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Level 1: Cash equivalents (1) Money market funds $ 178 $ — $ — $ 178 Level 2: Cash equivalents (1) Commercial paper 66,452 — ( 13 ) 66,439 U.S. governmental securities 10,000 — — 10,000 Available-for-sale securities Commercial paper 118,361 — ( 513 ) 117,848 Corporate notes and bonds 272,963 2 ( 3,147 ) 269,818 U.S. governmental securities 36,799 — ( 289 ) 36,510 Level 2 total 504,575 2 ( 3,962 ) 500,615 Total $ 504,753 $ 2 $ ( 3,962 ) $ 500,793 January 31, 2022 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Level 1: Cash equivalents (1) Money market funds $ 110,716 $ — $ — $ 110,716 Level 2: Cash equivalents (1) Commercial paper 3,499 — — 3,499 Available-for-sale securities Commercial paper 126,371 1 ( 175 ) 126,197 Corporate notes and bonds 243,840 — ( 1,296 ) 242,544 U.S. governmental securities 20,036 — ( 76 ) 19,960 Level 2 total 393,746 1 ( 1,547 ) 392,200 Total $ 504,462 $ 1 $ ( 1,547 ) $ 502,916 (1) Included in “cash and cash equivalents” in our consolidated balance sheets as of April 30, 2022 and January 31, 2022, in addition to cash of $ 561.6 million and $ 394.9 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 Level 3 investments is determined based on an income approach using unobservable inputs. The fair value of our available-for-sale securities as of April 30, 2022, by remaining contractual maturities, were as follows (in thousands): Due in one year or less $ 329,425 Due in one to two years 94,751 $ 424,176 DocuSign, Inc. | 2023 Form 10Q | 12 As of April 30, 2022 and January 31, 2022, securities in an unrealized loss position were, individually and in aggregate, not material. An allowance for credit losses was deemed unnecessary for these securities, given the extent of the unrealized loss positions as well the issuers' high credit ratings and consistent payment history. We had no liabilities measured at fair value on a recurring basis as of April 30, 2022 and January 31, 2022. Strategic Investments During the three months ended April 30, 2022, investments in equity securities without readily determinable fair values increased by $ 0.3 million due to adjustments related to observable price changes that occurred during the quarter. Such investments are recorded in “Other assets—noncurrent” on our condensed consolidated balance sheets. Convertible Senior Notes We estimated the fair value of the convertible senior notes 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—current” and “Convertible senior notes, net—noncurrent” on our condensed consolidated balance sheets. Refer to Note 6 for further information. (in thousands) April 30, 2022 January 31, 2022 0.5 % Convertible Senior Notes due in 2023 Aggregate principal amount $ 37,099 $ 37,099 Fair value amount 42,664 65,440 0 % Convertible Senior Notes due in 2024 Aggregate principal amount $ 690,000 $ 690,000 Fair value amount 644,460 656,363 Note 4 . Property and Equipment, Net Property and equipment consisted of the following: (in thousands) April 30, 2022 January 31, 2022 Computer and network equipment $ 132,220 $ 127,799 Software, including capitalized software development costs 84,483 82,537 Furniture and office equipment 20,905 20,939 Leasehold improvements 79,370 79,811 316,978 311,086 Less: Accumulated depreciation ( 180,800 ) ( 170,261 ) 136,178 140,825 Work in progress 47,526 43,839 Total $ 183,704 $ 184,664 Depreciation and amortization expense associated with property and equipment was $ 15.7 million and $ 13.5 million for the three months ended April 30, 2022 and 2021 . This included amortization expense related to capitalized internally-developed software costs of $ 4.3 million and $ 1.7 million for the three months ended April 30, 2022 and 2021 . For the three months ended April 30, 2022 and 2021, we capitalized $ 10.5 million and $ 7.8 million of internally developed software, including $ 2.8 million and $ 2.0 million of capitalized stock-based compensation in the three months ended April 30, 2022 and 2021. DocuSign, Inc. | 2023 Form 10Q | 13 Note 5 . Deferred Contract Acquisition and Fulfillment Costs The following table represents a rollforward of our deferred contract acquisition and fulfillment costs: Three Months Ended April 30, (in thousands) 2022 2021 Deferred Contract Acquisition Costs: Beginning balance $ 315,158 $ 262,519 Additions to deferred contract acquisition costs 38,286 39,700 Amortization of deferred contract acquisition costs ( 32,227 ) ( 25,842 ) Cumulative translation adjustment ( 2,903 ) 240 Ending balance $ 318,314 $ 276,617 Deferred Contract Fulfillment Costs: Beginning balance $ 19,088 $ 12,506 Additions to deferred contract fulfillment costs 12,226 6,454 Amortization of deferred contract fulfillment costs ( 11,763 ) ( 5,091 ) Cumulative translation adjustment ( 627 ) — Ending balance $ 18,924 $ 13,869 Note 6. Debt Convertible Senior Notes In September 2018 we issued $ 575.0 million in aggregate principal amount of the 0.5 % Convertible Senior Notes due in 2023 (“2023 Notes”). The net proceeds from the issuance of the 2023 Notes were $ 560.8 million after deducting the initial purchasers’ discounts and transaction costs. Based upon the reported sales price of our common stock, the 2023 Notes became convertible on August 1, 2020 and continued to be convertible through April 30, 2022. In January 2021 we issued $ 690.0 million in aggregate principal amount of the 0 % Convertible Senior Notes due in 2024 (“2024 Notes,” and together with the 2023 Notes, the “Notes”). The net proceeds from the issuance of the 2024 Notes were $ 677.3 million after deducting the initial purchasers’ discounts and transaction costs. As of April 30, 2022, the conversion conditions for the 2024 Notes described in our 2022 Annual Report on Form 10-K were not met. Conversions of the 2023 Notes As of April 30, 2022, we received conversion notices on our 2023 Notes for an immaterial amount. No settlements occurred during the three months ended April 30, 2022. Additionally, from May 1, 2022 to June 8, 2022, we had not received any conversion notices on our 2023 Notes. DocuSign, Inc. | 2023 Form 10Q | 14 The net carrying amounts of the Notes were as follows: (in thousands) April 30, 2022 January 31, 2022 2023 Notes: Principal $ 37,099 $ 37,099 Less: unamortized transaction costs ( 255 ) ( 303 ) Net carrying value of current and noncurrent liability component $ 36,844 $ 36,796 2024 Notes: Principal $ 690,000 $ 690,000 Less: unamortized transaction costs ( 7,253 ) ( 8,309 ) Net carrying value of noncurrent liability component $ 682,747 $ 681,691 The effective interest rate on the 2023 Notes was 1.0 %. The effective interest rate on the 2024 notes was 0.6 %. Interest expense recognized related to the Notes was as follows: Three Months Ended April 30, (in thousands) 2022 2021 Contractual interest expense $ 46 $ 36 Amortization of transaction costs 1,101 1,181 Total $ 1,147 $ 1,217 Capped Calls 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. The material terms of the capped call transactions were as follows: (in thousands, except per share amounts) 2023 Notes 2024 Notes Aggregate cost of capped calls $ 67,563 $ 31,395 Initial strike price per share (1) $ 71.50 $ 420.24 Initial cap price per share (1) $ 110.00 $ 525.30 Shares of our common stock covered by the capped calls (1) 8,042 1,642 (1) Subject to adjustments for certain events, such as merger events and tender offers, and anti-dilution adjustments Impact on Loss Per Share In periods when we have net income, the shares of our common stock subject to the Notes outstanding during the period are included in our diluted earnings per share under the if-converted method. Capped Calls are excluded from the calculation of diluted earnings per share, as they would be antidilutive. Upon conversion, there will be no economic dilution from the Notes unless the market price of our common stock exceeds the cap prices listed above in the Capped Calls section, as exercise of the Capped Calls offsets any dilution from the Notes from the conversion price up to the cap price. As of April 30, 2022, the market price of our common stock did not exceed the $ 110.00 per share cap price associated with the 2023 Notes nor the $ 525.30 cap price associated with the 2024 Notes; therefore, the 2023 Notes would not have caused economic dilution if converted. Revolving Credit Facility In January 2021, we entered into a credit agreement with a syndicate of banks. The credit agreement extended a senior secured revolving credit facility (the “Credit Facility”) to us in an aggregate principal amount of $ 500.0 million, which amount may be increased by an additional $ 250.0 million subject to the terms of the credit agreement. We may use the proceeds of future borrowings under the credit facility to finance working capital, for capital expenditures and for other general corporate purposes, including permitted acquisitions. DocuSign, Inc. | 2023 Form 10Q | 15 The Credit Facility matures in January 2026 and requires us to comply with customary affirmative and negative covenants. We were in compliance with all covenants as of April 30, 2022. As of April 30, 2022, there were no outstanding borrowings under the Credit Facility. The Credit Facility is subject to customary fees for loan facilities of this type, including ongoing commitment fees at a rate between 0.25 % and 0.30 % per annum on the daily undrawn balance. Note 7 . Commitments and Contingencies As of April 30, 2022, we had outstanding unused letters of credit associated with our various operating leases totaling $ 7.3 million. We have entered into certain noncancellable 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 April 30, 2022, the future noncancellable minimum payments due under these contractual obligations with a remaining term of more than one year were as follows: Fiscal Period: Amount (in thousands) 2023, remainder $ 50,468 2024 57,517 2025 21,903 2026 9,397 2027 2,694 Thereafter 2,015 Total $ 143,994 In May 2022, the Company entered into an agreement with a public cloud computing service provider for a five-year commitment of $ 175.0 million. 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 clauses or 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 April 30, 2022, and January 31, 2022. 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. DocuSign, Inc. Securities Litigation and Related Derivative Litigation On February 8, 2022, a putative securities class action was filed in the U.S. District Court for the Northern District of California, captioned Weston v. DocuSign, Inc., et al., Case No. 3:22-cv-00824, naming DocuSign and certain of our current and former officers as defendants. The complaint purports to allege claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, based on allegedly false and misleading statements about our business and prospects during the course of the COVID-19 pandemic. The suit is purportedly DocuSign, Inc. | 2023 Form 10Q | 16 brought on behalf of purchasers of our securities between June 4, 2020 and December 2, 2021. We are not yet required to respond to the complaint, but believe it is devoid of merit. An earlier action alleging similar claims against the same defendants, captioned Collins v. DocuSign, Inc., et al., Case No. 3:22-cv-00851, filed in the Eastern District of New York and subsequently transferred to the Northern District of California, was voluntarily dismissed on February 14, 2022. Three putative shareholder derivative cases have been filed containing allegations based on or similar to those in the securities class action. The cases were filed on May 17, 2022, in the U.S. District Court for the District of Delaware, captioned Potteti v. Springer, et al., Case No. 1:22-cv-00652; on May 19, 2022 in the U.S. District Court for the Northern District of California, captioned Lapin v. Springer, et al., Case No. 3:22-cv-02980; and on May 20, 2022, also in the U.S. District Court for the Northern District of California, captioned Votto v. Springer, et al., Case No. 3:22-cv-02987. Each case is allegedly brought on the Company’s behalf. The suits name the Company as a nominal defendant and, depending on the particular case, the members of our board of directors or, in certain instances, current or former officers, as defendants. While the complaints vary, they are based largely on the same allegations as the securities class action suit described above, including allegations relating to our disclosures between June 4, 2020 and December 2, 2021 as well as, in certain instances, alleged insider trading. Collectively, these lawsuits purport to assert claims for, among other things, breach of fiduciary duty, aiding and abetting such breach, corporate waste, unjust enrichment, and under Sections 10(b) and 21D of the Securities Exchange Act of 1934. The Complaints seek to recover unspecified damages and other relief on the Company’s behalf. We are not yet required to respond to any of these derivative suits. Note 8. Stockholders' Equity Equity Incentive Plans We maintain three stock-based compensation plans: the 2018 Equity Incentive Plan (the “2018 Plan”), the Amended and Restated 2011 Equity Incentive Plan (the “2011 Plan”) and the Amended and Restated 2003 Stock Plan (the “2003 Plan”). As of April 30, 2022, 50.7 million shares of our common stock were available for issuance under the 2018 Plan. Restricted Stock Units Restricted stock unit (“RSU”) activity for the three months ended April 30, 2022 was as follows: (in thousands, except per share data) Number of Units Weighted-Average Grant Date Fair Value Unvested at January 31, 2022 7,843 $ 146.52 Granted 2,459 97.19 Vested ( 978 ) 97.59 Canceled ( 639 ) 139.40 Unvested at April 30, 2022 8,685 $ 138.68 As of April 30, 2022, our total unrecognized compensation cost related to RSUs was $ 911.6 million. We expect to recognize this expense over the remaining weighted-average period of approximately 2.3 years. We have $ 49.4 million and $ 55.7 million of unvested RSUs that are subject to market-based vesting conditions as of April 30, 2022 and January 31, 2022. DocuSign, Inc. | 2023 Form 10Q | 17 Stock Options Option activity for the three months ended April 30, 2022 was as follows: (in thousands, except years and per share data) Number of Options Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding at January 31, 2022, all vested and exercisable 3,105 $ 16.41 4.45 $ 339,286 Exercised ( 179 ) 10.94 Outstanding at April 30, 2022, all vested and exercisable 2,926 $ 16.74 4.30 $ 187,884 As of April 30, 2022, there was no remaining unrecognized compensation cost related to stock option grants. 2018 Employee Stock Purchase Plan The Employee Stock Purchase Plan (“ESPP”) allows eligible employees to purchase shares of our common stock at a discounted price, normally through payroll deductions, subject to the terms of the ESPP and applicable law. As of April 30, 2022, 9.7 million shares of our common stock were reserved for issuance under the ESPP. Compensation expense related to the ESPP was $ 5.0 million and $ 4.3 million for the three months ended April 30, 2022 and 2021. Note 9 . 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: Three Months Ended April 30, (in thousands, except per share data) 2022 2021 Numerator: Net loss attributable to common stockholders $ ( 27,373 ) $ ( 8,354 ) Denominator: Weighted-average common shares outstanding 199,666 194,342 Net loss per share attributable to common stockholders: Basic and diluted $ ( 0.14 ) $ ( 0.04 ) Outstanding potentially dilutive securities that were excluded from the diluted per share calculations because they would have been antidilutive are as follows: April 30, (in thousands) 2022 2021 RSUs 8,685 9,194 Stock options 2,926 4,310 ESPP 437 158 Convertible senior notes 2,161 2,737 Total antidilutive securities 14,209 16,399 Note 10 . Income Taxes Our tax provision from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. There were no material discrete items in the quarter. DocuSign, Inc. | 2023 Form 10Q | 18 Our income tax provision was $ 1.8 million and $ 2.0 million for the three months ended April 30, 2022 and 2021. We review the likelihood that we will realize the benefit of our deferred tax assets and, therefore, the need for valuation allowances, on a quarterly basis. We maintain a valuation allowance against certain deferred tax assets, including all U.S. consolidated group deferred tax assets and certain foreign deferred tax assets as a result of our history of losses in the U.S. and certain foreign jurisdictions, and the variability and uncertainty of our operating results. In the event we determine our deferred tax assets are realizable based on our assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made. As of April 30, 2022, our gross unrecognized tax benefits totaled $ 48.1 million, excluding related accrued interest and penalties, of which $ 14.1 million would impact the effective tax rate if recognized. Our policy is to account for interest and penalties related to uncertain tax positions as a component of income tax provision. We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months. We are subject to taxation in the U.S. and various foreign jurisdictions. Our tax years from inception in 2003 through April 30, 2022 remain subject to examination by U.S. and California taxing authorities, as well as taxing authorities in various other state and foreign jurisdictions. We are under examination by the Israel Tax Authority for the period January 1, 2016 through January 31, 2021. We are not under examination in any other material jurisdiction. We believe that adequate amounts have been reserved in all jurisdictions.