10-Q 1 docu-20211031.htm 10-Q docu-20211031
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________
FORM 10-Q
______________________________________

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                
Commission File Number: 001-38465
______________________________________
DOCUSIGN, INC.
(Exact name of registrant as specified in its charter)
______________________________________
Delaware91-2183967
(State or Other Jurisdiction of Incorporation)(I.R.S. Employer Identification Number)
221 Main St.Suite 1550San FranciscoCalifornia94105
(Address of Principal Executive Offices) (Zip Code)
(415) 489-4940
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.0001 per shareDOCUThe Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No 
The registrant has 197,876,523 shares of common stock, par value $0.0001, outstanding at November 30, 2021.



DOCUSIGN, INC.
TABLE OF CONTENTS
Condensed Consolidated Balance Sheets as of October 31, 2021 and January 31, 2021

DocuSign, Inc. | 2022 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, 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, and objectives for future operations, and the impact of the ongoing coronavirus pandemic (the “COVID-19 pandemic”) 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. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our ability to effectively sustain and manage our growth and future expenses, and our ability to achieve and maintain future profitability;
our expectations regarding the impact of the ongoing COVID-19 pandemic on our business, the businesses of our customers, partners and suppliers, and the economy;
our ability to attract new customers and to maintain and expand our existing customer base;
our ability to scale and update our software suite to respond to customers’ needs and rapid technological change;
the effects of increased competition on 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 software suite internationally;
our ability to strengthen and foster our relationship with developers;
our ability to expand our direct sales force, customer success team and strategic partnerships around the world;
our ability to identify targets for and execute potential acquisitions;
our ability to successfully integrate the operations of businesses we may acquire, or to realize the anticipated benefits of such acquisitions;
our ability to maintain, protect and enhance our brand;
the sufficiency of our cash and cash equivalents to satisfy our liquidity needs;
our failure or the failure of our software suite of services 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; and
our ability to maintain proper and effective internal controls.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

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. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, including risks and uncertainties related to the COVID-19 pandemic. Many risks and uncertainties are currently elevated by, and may or will continue to be elevated by, the COVID-19 pandemic. It is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

DocuSign, Inc. | 2022 Form 10Q | 3


The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which such statements are made. 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. | 2022 Form 10Q | 4


PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DOCUSIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except per share data)October 31, 2021January 31, 2021
Assets
Current assets
Cash and cash equivalents$503,884 $566,055 
Investments—current314,574 207,450 
Accounts receivable, net of allowance for doubtful accounts of $6,388 and $5,362 as of October 31, 2021 and January 31, 2021
305,599 323,570 
Contract assets—current14,690 16,883 
Prepaid expenses and other current assets67,842 48,390 
Total current assets1,206,589 1,162,348 
Investments—noncurrent89,455 92,717 
Property and equipment, net177,832 165,039 
Operating lease right-of-use assets132,608 159,352 
Goodwill355,353 350,151 
Intangible assets, net102,802 121,828 
Deferred contract acquisition costs—noncurrent300,073 260,130 
Other assets—noncurrent45,791 24,942 
Total assets$2,410,503 $2,336,507 
Liabilities and Equity
Current liabilities
Accounts payable$47,712 $37,367 
Accrued expenses and other current liabilities81,065 66,566 
Accrued compensation144,741 156,158 
Convertible senior notes—current11,510 20,469 
Contract liabilities—current940,111 779,642 
Operating lease liabilities—current35,228 32,971 
Total current liabilities1,260,367 1,093,173 
Convertible senior notes, net—noncurrent718,821 693,219 
Contract liabilities—noncurrent17,070 16,492 
Operating lease liabilities—noncurrent136,240 165,704 
Deferred tax liability—noncurrent6,379 6,464 
Other liabilities—noncurrent32,057 32,328 
Total liabilities2,170,934 2,007,380 
Commitments and contingencies (Note 7)
Convertible senior notes (Note 6)
 3,390 
Stockholders’ equity
Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding as of October 31, 2021 and January 31, 2021
  
Common stock, $0.0001 par value; 500,000 shares authorized, 197,754 shares outstanding as of October 31, 2021; 500,000 shares authorized, 192,807 shares outstanding as of January 31, 2021
20 19 
Treasury stock, at cost: 7 and 5 shares as of October 31, 2021 and January 31, 2021
(1,532)(1,048)
Additional paid-in capital1,650,714 1,702,254 
Accumulated other comprehensive income (loss)(1,889)4,964 
Accumulated deficit(1,407,744)(1,380,452)
Total stockholders’ equity
239,569 325,737 
Total liabilities and equity$2,410,503 $2,336,507 

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 OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
Three Months Ended October 31,Nine Months Ended October 31,
(in thousands, except per share data)2021202020212020
Revenue:
Subscription$528,573 $366,617 $1,473,266 $971,182 
Professional services and other16,890 16,306 53,119 50,967 
Total revenue545,463 382,923 1,526,385 1,022,149 
Cost of revenue:
Subscription84,579 69,905 247,105 186,645 
Professional services and other31,396 27,926 87,892 75,833 
Total cost of revenue115,975 97,831 334,997 262,478 
Gross profit429,488 285,092 1,191,388 759,671 
Operating expenses:
Sales and marketing275,619 209,944 777,110 576,729 
Research and development102,603 73,362 282,670 191,387 
General and administrative54,624 50,256 168,314 140,513 
Total operating expenses432,846 333,562 1,228,094 908,629 
Loss from operations(3,358)(48,470)(36,706)(148,958)
Interest expense(1,485)(7,769)(4,826)(23,013)
Interest income and other income (expense), net(940)(311)4,034 6,032 
Loss before provision for (benefit from) income taxes(5,783)(56,550)(37,498)(165,939)
Provision for (benefit from) income taxes(107)1,941 2,033 4,916 
Net loss$(5,676)$(58,491)$(39,531)$(170,855)
Net loss per share attributable to common stockholders, basic and diluted$(0.03)$(0.31)$(0.20)$(0.92)
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted197,597 186,423 195,996 184,767 
Other comprehensive income (loss):
Foreign currency translation gain (loss), net of tax$(4,720)$(2,413)$(6,142)$1,112 
Unrealized losses on investments, net of tax(415)(825)(711)(579)
Other comprehensive income (loss)(5,135)(3,238)(6,853)533 
Comprehensive loss$(10,811)$(61,729)$(46,384)$(170,322)
Stock-based compensation expense included in costs and expenses
Cost of revenue—subscription$8,095 $5,777 $21,652 $14,655 
Cost of revenue—professional services and other7,270 6,005 19,250 15,355 
Sales and marketing49,663 36,881 134,720 93,851 
Research and development30,074 18,896 76,811 45,562 
General and administrative14,338 13,361 38,103 33,815 

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 STOCKHOLDERS’ EQUITY (Unaudited)
Common StockAdditional Paid-In CapitalTreasury StockAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' Equity
(in thousands)SharesAmount
Balances at July 31, 2021196,467 $20 $1,611,897 $(1,219)$3,246 $(1,402,068)$211,876 
Settlement of convertible senior notes due in 202332 — (32)— — — (32)
Exercise of stock options357 — 9,358 — — — 9,358 
Settlement of restricted stock units and employee stock purchase plan767 — — — — — — 
Tax withholding on net share settlement of restricted stock units and employee stock purchase plan— — (106,098)(313)— — (106,411)
Employee stock purchase plan131 — 22,910 — — — 22,910 
Employee stock-based compensation— — 112,679 — — — 112,679 
Net loss— — — — — (5,676)(5,676)
Other comprehensive loss, net— — — — (5,135)— (5,135)
Balances at October 31, 2021197,754 $20 $1,650,714 $(1,532)$(1,889)$(1,407,744)$239,569 
Balances at July 31, 2020185,137 $19 $1,749,323 $ $2,098 $(1,249,549)$501,891 
Exercise of stock options171 — 1,945 — — — 1,945 
Settlement of restricted stock units1,015 — — — — — — 
Tax withholding on net share settlement of restricted stock units— — (114,277)(1,048)— — (115,325)
Employee stock purchase plans208 — 16,269 — — — 16,269 
Employee stock-based compensation— — 82,981 — — — 82,981 
Net loss— — — — — (58,491)(58,491)
Other comprehensive loss, net— — — — (3,238)— (3,238)
Balances at October 31, 2020186,531 $19 $1,736,241 $(1,048)$(1,140)$(1,308,040)$426,032 

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 STOCKHOLDERS’ EQUITY (Unaudited) (Continued)
Common StockAdditional Paid-In CapitalTreasury StockAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' Equity
(in thousands)SharesAmount
Balances at January 31, 2021192,807 $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 2023619 1 (757)— — — (756)
Exercise of stock options1,468 — 21,176 — — — 21,176 
Settlement of restricted stock units and employee stock purchase plan2,586 — — — — — — 
Tax withholding on net share settlement of restricted stock units and employee stock purchase plan— — (333,991)(484)— — (334,475)
Employee stock purchase plan264 — 46,077 — — — 46,077 
Charitable donation of common stock10 — 3,000 — — — 3,000 
Employee stock-based compensation— — 299,099 — — — 299,099 
Net loss— — — — — (39,531)(39,531)
Other comprehensive loss, net— — — — (6,853)— (6,853)
Balances at October 31, 2021197,754 $20 $1,650,714 $(1,532)$(1,889)$(1,407,744)$239,569 
Balances at January 31, 2020181,254 $18 $1,685,167 $ $(1,673)$(1,137,185)$546,327 
Exercise of stock options1,471 — 14,983 — — — 14,983 
Settlement of restricted stock units3,095 1 (1)— — —  
Tax withholding on net share settlement of restricted stock units— — (250,449)(1,048)— — (251,497)
Employee stock purchase plan464 — 29,859 — — — 29,859 
Issuance of common stock as consideration for acquisition247 — 48,361 — — — 48,361 
Employee stock-based compensation— — 208,321 — — — 208,321 
Net loss— — — — — (170,855)(170,855)
Other comprehensive income, net— — — — 533 — 533 
Balances at October 31, 2020186,531 $19 $1,736,241 $(1,048)$(1,140)$(1,308,040)$426,032 

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

DocuSign, Inc. | 2022 Form 10Q | 8


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended October 31,
(in thousands)20212020
Cash flows from operating activities:
Net loss$(39,531)$(170,855)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization61,163 51,455 
Amortization of deferred contract acquisition and fulfillment costs100,759 70,787 
Amortization of debt discount and transaction costs3,848 20,828 
Non-cash operating lease costs20,176 20,082 
Stock-based compensation expense290,536 203,238 
Deferred income taxes(2,360)(1,050)
Other5,598 1,206 
Changes in operating assets and liabilities:
Accounts receivable17,969 (11,429)
Contract assets2,422 (3,890)
Prepaid expenses and other current assets(12,890)(1,835)
Deferred contract acquisition and fulfillment costs(147,946)(144,639)
Other assets(13,712)(6,463)
Accounts payable6,703 3,655 
Accrued expenses and other liabilities11,886 21,952 
Accrued compensation(22,781)23,553 
Contract liabilities161,047 172,520 
Operating lease liabilities(24,212)(14,394)
Net cash provided by operating activities418,675 234,721 
Cash flows from investing activities:
Cash paid for acquisition, net of acquired cash(6,388)(180,370)
Purchases of marketable securities(302,762)(80,649)
Sales of marketable securities3,070 28,986 
Maturities of marketable securities193,071 404,782 
Purchases of strategic and other investments(750)(8,541)
Purchases of property and equipment(43,926)(64,144)
Net cash (used in) provided by investing activities(157,685)100,064 
Cash flows from financing activities:
Repayments of convertible senior notes(64,835) 
Payment of tax withholding obligation on net share settlement of restricted stock units(323,109)(247,277)
Proceeds from exercise of stock options21,176 14,983 
Proceeds from employee stock purchase plan46,077 29,859 
Net cash used in financing activities(320,691)(202,435)
Effect of foreign exchange on cash, cash equivalents and restricted cash(2,472)1,432 
Net increase (decrease) in cash, cash equivalents and restricted cash(62,173)133,782 
Cash, cash equivalents and restricted cash at beginning of period (1)
566,337 241,483 
Cash, cash equivalents and restricted cash at end of period (1)
$504,164 $375,265 
(1) $0.3 million of restricted cash was included in Prepaid expenses and other current assets at October 31, 2021, and in Other assets—noncurrent at January 31, 2021.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
DocuSign, Inc. | 2022 Form 10Q | 9


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
Nine Months Ended October 31,
(in thousands)20212020
Supplemental disclosure:
Cash paid for interest$349 $2,875 
Cash paid for operating lease liabilities30,178 24,740 
Cash paid for income taxes5,637 3,205 
Non-cash investing and financing activities:
Property and equipment in accounts payable and accrued expenses and other current liabilities$9,128 $7,256 
Operating lease right-of-use assets exchanged for lease obligations 27,447 
Fair value of shares issued as part of the repayments of convertible senior notes142,501  
Fair value of shares issued as consideration for acquisition 48,361 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
DocuSign, Inc. | 2022 Form 10Q | 10


DOCUSIGN, INC.
Index for Notes to the Condensed Consolidated Financial Statements

DocuSign, Inc. | 2022 Form 10Q | 11


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 2021 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, 2021 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the three and nine months ended October 31, 2021 are not necessarily indicative of the results to be expected for the year ending January 31, 2022.

Our fiscal year ends on January 31. References to fiscal 2022, for example, are to the fiscal year ending January 31, 2022.

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 fair value of the liability and equity components 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 January 10, 2022. 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 vaccine deployments, national and regional outbreaks and the emergence of disease variants) 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 value of our assets or liabilities, except for a sublease that resulted in an impairment of $3.9 million on operating lease right-of-use assets recorded during the three months ended July 31, 2021. These estimates may change as new events occur and additional information is obtained, which could be recognized in the
DocuSign, Inc. | 2022 Form 10Q | 12


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

Other than as described below, there have been no changes to our significant accounting policies described in our fiscal 2021 Annual Report on Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes.

Convertible Debt

Effective February 1, 2021, we account for our convertible debt instruments as a single liability measured at its amortized cost. See “Recently Adopted Accounting Pronouncements” below. At issuance, the carrying amount is calculated as the proceeds, net of initial purchasers’ discounts and transaction costs. The difference between the principal amount and carrying value is amortized to interest expense over the term of the convertible debt instruments using the effective interest rate method.

At settlement, the carrying amount of the liability is derecognized and the excess of the cash consideration, if any, over the carrying amount is recorded as a reduction to additional paid-in capital.

Refer to Note 1 of our 2021 Annual Report on Form 10-K for our convertible debt policy prior to the adoption of ASU 2020-06.

Recently Adopted Accounting Pronouncements

On February 1, 2021, we early adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) using the modified retrospective approach. This ASU removes separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. Such convertible debt is accounted for as a single liability measured at its amortized cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The ASU also requires the if-converted method to be used for convertible instruments and the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares. The adoption of the ASU using the modified retrospective method resulted in:
an increase of $77.3 million to the total carrying value of our convertible senior notes to reflect the full principal amount of the convertible notes outstanding net of issuance costs,
reductions of $86.1 million to additional paid-in capital and $3.4 million to mezzanine equity to remove the equity component separately recorded for the conversion features associated with the convertible notes, and
a cumulative-effect adjustment of $12.2 million to the beginning balance of accumulated deficit as of February 1, 2021.

Note 2. Revenue

Subscription revenue is recognized over time and accounted for approximately 97% and 96% of our revenue for the three months ended October 31, 2021 and 2020 and approximately 97% and 95% of our revenue for the nine months ended October 31, 2021 and 2020.

Performance Obligations
    
As of October 31, 2021, the amount of the transaction price allocated to remaining performance obligations for contracts greater than one year was $1.5 billion. We expect to recognize 52% of the transaction price allocated to remaining performance obligations within the 12 months following October 31, 2021 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 $15.0 million and $17.5 million as of October 31, 2021 and January 31, 2021, of which $0.3 million and $0.6 million were noncurrent and included within “Other assets—noncurrent” on our condensed consolidated balance sheets. 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.
DocuSign, Inc. | 2022 Form 10Q | 13



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 nine months ended October 31, 2021 and 2020, we recognized revenue of $730.7 million and $463.1 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 October 31,Nine Months Ended October 31,
(in thousands)2021202020212020
U.S.$417,296 $306,680 $1,183,601 $824,342 
International128,167 76,243 342,784 197,807 
Total revenue$545,463 $382,923 $1,526,385 $1,022,149
DocuSign, Inc. | 2022 Form 10Q | 14


Note 3. Fair Value Measurements
The following table summarizes our financial assets that are measured at fair value on a recurring basis:
October 31, 2021
(in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Level 1:
Cash equivalents(1)
Money market funds$93,622 $ $ $93,622 
Level 2:
Available-for-sale securities
Commercial paper(1)
169,417 3 (42)169,378 
Corporate notes and bonds215,952 5 (366)215,591 
U.S. governmental securities25,078 1 (22)25,057 
Level 2 total410,447 9 (430)410,026 
Total$504,069 $9 $(430)$503,648 
January 31, 2021
(in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Level 1:
Cash equivalents(2)
Money market funds$284,312 $ $ $284,312 
Level 2:
Available-for-sale securities
Commercial paper42,048 1 (23)42,026 
Corporate notes and bonds199,277 375 (67)199,585 
U.S. governmental securities58,050 12 (6)58,056 
Level 2 total299,375 388 (96)299,667 
Level 3:
Available-for-sale securities
Corporate notes and bonds500   500 
Total$584,187 $388 $(96)$584,479 

(1)    Included in “cash and cash equivalents” in our consolidated balance sheets as of October 31, 2021, in addition to cash of $404.3 million and commercial paper of $6.0 million.
(2)    Included in “cash and cash equivalents” in our consolidated balance sheets as of January 31, 2021, in addition to cash of $281.7 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 October 31, 2021, by remaining contractual maturities, were as follows (in thousands):
Due in one year or less$320,571 
Due in one to two years89,455 
$410,026 

DocuSign, Inc. | 2022 Form 10Q | 15


As of October 31, 2021 and January 31, 2021, 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.

Strategic Investments

During the nine months ended October 31, 2021, investments in equity securities without readily determinable fair values increased by $4.8 million due to adjustments related to observable price changes that occurred primarily during the three months ended April 30, 2021. 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)October 31, 2021January 31, 2021
0.5% Convertible Senior Notes due in 2023
Aggregate principal amount$50,169 $115,000 
Fair value amount191,746 373,928 
0% Convertible Senior Notes due in 2024
Aggregate principal amount$690,000 $690,000 
Fair value amount721,167 725,100 

Note 4. Property and Equipment, Net

Property and equipment consisted of the following:
(in thousands)October 31, 2021January 31, 2021
Computer and network equipment$122,551 $102,163 
Software, including capitalized software development costs73,164 56,858 
Furniture and office equipment21,037 21,682 
Leasehold improvements80,071 79,892 
296,823 260,595 
Less: Accumulated depreciation(156,447)(121,029)
140,376 139,566 
Work in progress37,456 25,473 
     Total$177,832 $165,039 

Depreciation and amortization expense associated with property and equipment was $14.2 million and $12.1 million for the three months ended October 31, 2021 and 2020, and $42.0 million and $32.4 million for the nine months ended October 31, 2021 and 2020.

For the three months ended October 31, 2021 and 2020, we capitalized $9.5 million of internally developed software. For the nine months ended October 31, 2021 and 2020, we capitalized $26.6 million and $20.5 million of internally developed software.

DocuSign, Inc. | 2022 Form 10Q | 16


Note 5. Deferred Contract Acquisition and Fulfillment Costs

The following table represents a rollforward of our deferred contract acquisition and fulfillment costs:
Nine Months Ended October 31,
(in thousands)20212020
Deferred Contract Acquisition Costs:
Beginning balance$262,519 $155,697 
Additions to deferred contract acquisition costs124,688 129,555 
Amortization of deferred contract acquisition costs(82,043)(57,549)
Cumulative translation adjustment(2,312)(275)
Ending balance$302,852 $227,428 
Deferred Contract Fulfillment Costs:
Beginning balance$12,506 $8,218 
Additions to deferred contract fulfillment costs23,258 15,084 
Amortization of deferred contract fulfillment costs(18,695)(13,238)
Ending balance$17,069 $10,064 

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 continue to be convertible through October 31, 2021.

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 October 31, 2021, the conversion conditions for the 2024 Notes described in our 2021 Annual Report on Form 10-K were not met.

Conversions of the 2023 Notes

We accounted for early conversions and settlements of the 2023 Notes during the nine months ended October 31, 2021 under ASU 2020-06. Refer to Note 1 for further discussion of early adoption.

During the nine months ended October 31, 2021, we settled $64.8 million aggregate amount of the principal of 2023 Notes, including $23.9 million elected for conversion as of January 31, 2021, for aggregate consideration of $207.3 million, consisting of $64.8 million in cash and 0.6 million shares of our common stock with a value of $142.5 million. The $0.8 million excess of the cash consideration over the corresponding carrying value was recorded as a reduction to additional paid-in capital.

Additionally, as of October 31, 2021, we had received conversion notices on our 2023 Notes for $11.6 million in aggregate principal amount, the corresponding carrying value is reflected in Convertible senior notes—current on our condensed consolidated balance sheet. From November 1, 2021 through December 3, 2021, we received conversion notices on our 2023 Notes for $1.5 million in aggregate principal amount. We plan to settle the principal amount in cash during the three months ended January 31, 2022.

DocuSign, Inc. | 2022 Form 10Q | 17


The net carrying amounts of the liability and equity components of the Notes were as follows:
(in thousands)October 31, 2021January 31, 2021
2023 Notes:
Principal$50,169 $115,000 
Less: unamortized debt discount (1)
 (15,116)
Less: unamortized transaction costs(477)(1,224)
Net carrying value of current and noncurrent liability component$49,692 $98,660 
Proceeds allocated to the conversion option (debt discount) (1)
$134,667 
Less: extinguishment or conversion(31,933)
Less: transaction costs(3,336)
Net carrying value of mezzanine and permanent equity component$99,398 
2024 Notes:
Principal$690,000 $690,000 
Less: unamortized debt discount (1)
 (63,619)
Less: unamortized transaction costs(9,362)(11,353)
Net carrying value of noncurrent liability component$680,638 $615,028 
Proceeds allocated to the conversion option (debt discount) (1)
$64,453 
Less: transaction costs(1,185)
Net carrying value of permanent equity component$63,268 
(1) Not applicable under ASU 2020-06

The effective interest rate on the liability component of the 2023 Notes was 5.9% prior to the adoption of ASU 2020-06 and 1.0% after adoption. The effective interest rate on the liability component of the 2024 notes was 3.8% prior to the adoption of ASU 2020-06 and 0.6% after adoption. Interest expense recognized related to the Notes was as follows:
Three Months Ended October 31,Nine Months Ended October 31,
(in thousands)2021202020212020
Contractual interest expense$41 $719 $143 $2,157 
Amortization of debt discount 6,516  19,267 
Amortization of transaction costs1,116 528 3,432 1,561 
Total$1,157 $7,763 $3,575 $22,985 

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 Notes2024 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)