Company Quick10K Filing
Quick10K
Docusign
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$46.42 174 $8,068
10-Q 2019-07-31 Quarter: 2019-07-31
10-Q 2019-04-30 Quarter: 2019-04-30
10-K 2019-01-31 Annual: 2019-01-31
10-Q 2018-10-31 Quarter: 2018-10-31
10-Q 2018-07-31 Quarter: 2018-07-31
10-Q 2018-04-30 Quarter: 2018-04-30
8-K 2019-09-05 Earnings, Exhibits
8-K 2019-06-17 Shareholder Vote
8-K 2019-06-06 Earnings, Exhibits
8-K 2019-03-14 Earnings, Exhibits
8-K 2018-12-19 Shareholder Rights, Other Events
8-K 2018-12-06 Earnings, Exhibits
8-K 2018-12-05 Officers
8-K 2018-09-13 Enter Agreement, Off-BS Arrangement, Delisting, Exhibits
8-K 2018-09-04 M&A, Earnings, Exhibits
8-K 2018-07-31 Enter Agreement, Exhibits
8-K 2018-07-06 Officers
8-K 2018-06-07 Earnings, Exhibits
8-K 2018-05-01 Amend Bylaw, Exhibits
CRM Salesforce.com 121,002
ADSK Autodesk 31,324
TTWO Take Two Interactive Software 14,900
MIXT MIX Telematics 8,462
MFGP Micro Focus 7,059
MSTR Microstrategy 1,440
DDD 3D Systems 781
SHSP Sharpspring 126
CYRN Cyren 84
TEAM Atlassian 0
DOCU 2019-07-31
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Revenue and Performance Obligations
Note 3. Fair Value Measurements
Note 4. Property and Equipment, Net
Note 5. Acquisition of Springcm Inc.
Note 6. Goodwill and Intangible Assets, Net
Note 7. Contract Balances
Note 8. Deferred Contract Acquisition and Fulfillment Costs
Note 9. Convertible Senior Notes
Note 10. Leases
Note 11. Commitments and Contingencies
Note 12. Stockholders' Equity
Note 13. Net Loss per Share Attributable To Common Stockholders
Note 14. Income Taxes
Note 15. Geographic Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-10.1 q220exhibit101.htm
EX-10.2 q220exhibit102.htm
EX-31.1 q220exhibit311.htm
EX-31.2 q220exhibit312.htm
EX-32.1 q220exhibit321.htm

Docusign Earnings 2019-07-31

DOCU 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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 July 31, 2019
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)
______________________________________
Delaware
 
91-2183967
(State or Other Jurisdictions of Incorporation)
 
(I.R.S. Employer Identification Number)
 
 
 
 
 
221 Main St.
Suite 1550
San Francisco
California
94105
(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 class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
DOCU
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (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 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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller 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 176.0 million shares of common stock, par value $0.0001, outstanding at August 31, 2019.



DOCUSIGN, INC.
TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 


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. 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 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 successfully integrate SpringCM's operations;
our ability to implement our plans, forecasts and other expectations with respect to SpringCM's business;
our ability to realize the anticipated benefits of the acquisition of SpringCM, including the possibility that the expected benefits from the acquisition will not be realized or will not be realized within the expected time period;
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 identify targets for, execute on and realize the benefits of potential acquisitions;
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, and 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.

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

3


Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law.

4


PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DOCUSIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except per share data)
July 31, 2019
 
January 31, 2019
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
224,290

 
$
517,811

Investments—current
525,963

 
251,203

Restricted cash
133

 
367

Accounts receivable
138,652

 
174,548

Contract assets—current
15,548

 
10,616

Prepaid expense and other current assets
38,907

 
29,976

Total current assets
943,493

 
984,521

Investments—noncurrent
180,146

 
164,220

Property and equipment, net
92,078

 
75,832

Operating lease right-of-use assets
137,292

 

Goodwill
195,427

 
195,225

Intangible assets, net
65,070

 
74,203

Deferred contract acquisition costs—noncurrent
124,434

 
112,583

Other assets—noncurrent
23,896

 
8,833

Total assets
$
1,761,836

 
$
1,615,417

Liabilities and Stockholders' Equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
23,452

 
$
19,590

Accrued expenses
34,227

 
21,755

Accrued compensation
79,980

 
77,553

Contract liabilities—current
402,734

 
381,060

Operating lease liabilities—current
17,193

 

Deferred rent—current

 
2,452

Other liabilities—current
16,563

 
13,903

Total current liabilities
574,149

 
516,313

Convertible senior notes, net
451,934

 
438,932

Contract liabilities—noncurrent
7,784

 
7,712

Operating lease liabilities—noncurrent
150,493

 

Deferred rent—noncurrent

 
24,195

Deferred tax liability—noncurrent
4,270

 
4,207

Other liabilities—noncurrent
6,527

 
9,696

Total liabilities
1,195,157

 
1,001,055

Commitments and contingencies (Note 11)

 

Stockholders' equity
 
 
 
Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding as of July 31, 2019 and January 31, 2019

 

Common stock, $0.0001 par value; 500,000 shares authorized, 175,953 shares outstanding as of July 31, 2019; 500,000 shares authorized, 169,303 shares outstanding as of January 31, 2019
18

 
17

Additional paid-in capital
1,612,786

 
1,545,088

Accumulated other comprehensive loss
(2,945
)
 
(1,965
)
Accumulated deficit
(1,043,180
)
 
(928,778
)
Total stockholders' equity
566,679

 
614,362

Total liabilities and stockholders' equity
$
1,761,836

 
$
1,615,417

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

5


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
 
Three Months Ended July 31,
 
Six Months Ended July 31,
(in thousands, except per share data)
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Subscription
$
220,811

 
$
158,461

 
$
422,269

 
$
306,659

Professional services and other
14,801

 
8,583

 
27,305

 
16,193

Total revenue
235,612

 
167,044

 
449,574

 
322,852

Cost of revenue:
 
 
 
 
 
 
 
Subscription
39,472

 
23,057

 
72,591

 
55,495

Professional services and other
21,704

 
13,304

 
40,604

 
39,160

Total cost of revenue
61,176

 
36,361

 
113,195

 
94,655

Gross profit
174,436

 
130,683

 
336,379

 
228,197

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
150,886

 
103,779

 
280,822

 
294,864

Research and development
47,517

 
33,773

 
84,700

 
104,643

General and administrative
40,755

 
30,851

 
78,016

 
133,968

Total expenses
239,158

 
168,403

 
443,538

 
533,475

Loss from operations
(64,722
)
 
(37,720
)
 
(107,159
)
 
(305,278
)
Interest expense
(7,273
)
 
(47
)
 
(14,429
)
 
(240
)
Interest income and other income, net
4,531

 
2,998

 
9,748

 
770

Loss before provision for income taxes
(67,464
)
 
(34,769
)
 
(111,840
)
 
(304,748
)
Provision for income taxes
1,168

 
1,945

 
2,514

 
2,653

Net loss
$
(68,632
)
 
$
(36,714
)
 
$
(114,354
)
 
$
(307,401
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.39
)
 
$
(0.22
)
 
$
(0.66
)
 
$
(3.01
)
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted
175,389

 
166,084

 
173,773

 
102,284

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation losses, net of tax
$
(45
)
 
$
(3,085
)
 
$
(1,676
)
 
$
(5,413
)
Unrealized gains on investments, net of tax
358

 

 
696

 

Other comprehensive income (loss)
313

 
(3,085
)
 
(980
)
 
(5,413
)
Comprehensive loss
$
(68,319
)
 
$
(39,799
)
 
$
(115,334
)
 
$
(312,814
)
 
 
 
 
 
 
 
 
Stock-based compensation expense included in costs and expenses:
 
 
 
 
 
 
 
Cost of revenue—subscription
$
3,115

 
$
1,588

 
$
5,397

 
$
11,543

Cost of revenue—professional services
4,821

 
2,822

 
8,261

 
18,867

Sales and marketing
25,942

 
16,791

 
44,044

 
129,272

Research and development
11,963

 
7,359

 
19,280

 
54,627

General and administrative
9,951

 
11,605

 
21,081

 
95,650


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

6


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited)
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total Stockholders’ Equity
(in thousands)
Shares
 
Amount
 
 
 
 
Balances at April 30, 2019
173,628

 
$
17

 
$
1,575,471

 
$
(3,258
)
 
$
(974,548
)
 
$
597,682

Exercise of stock options
1,235

 

 
10,194

 

 

 
10,194

Settlement of RSUs
1,681

 
1

 
(1
)
 

 

 

Tax withholding on RSU settlement
(591
)
 

 
(29,841
)
 

 

 
(29,841
)
Employee stock-based compensation expense

 

 
56,928

 

 

 
56,928

Non-employee stock-based compensation expense

 

 
35

 

 

 
35

Net loss

 

 

 

 
(68,632
)
 
(68,632
)
Other comprehensive income, net

 

 

 
313

 

 
313

Balances at July 31, 2019
175,953

 
$
18

 
$
1,612,786

 
$
(2,945
)
 
$
(1,043,180
)
 
$
566,679


 
Redeemable Convertible Preferred Stock
 
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total Stockholders’ Equity (Deficit)
(in thousands)
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
 
Balances at April 30, 2018
100,226

 
$
547,854

 
 
36,776

 
$
4

 
$
438,200

 
$
1,075

 
$
(773,007
)
 
$
(333,728
)
Exercise of stock options

 

 
 
324

 

 
2,503

 

 

 
2,503

Employee stock-based compensation expense

 

 
 

 

 
40,380

 

 

 
40,380

Non-employee stock-based compensation expense

 

 
 

 

 
113

 

 

 
113

Issuance of common stock in connection with initial public offering, net of offering costs

 

 
 
19,314

 
2

 
525,297

 

 

 
525,299

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

 
10

 
547,844

 

 

 
547,854

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

 

 
 

 

 
848

 

 

 
848

Exercise of warrants

 

 
 
22

 

 

 

 

 

Net loss

 

 
 

 

 

 

 
(36,714
)
 
(36,714
)
Other comprehensive loss, net

 

 
 

 

 

 
(3,085
)
 

 
(3,085
)
Balances at July 31, 2018

 
$

 
 
156,786

 
$
16

 
$
1,555,185

 
$
(2,010
)
 
$
(809,721
)
 
$
743,470


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

7


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (Continued) (Unaudited)
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total Stockholders’ Equity
(in thousands)
Shares
 
Amount
 
 
 
 
Balances at January 31, 2019
169,303

 
$
17

 
$
1,545,088

 
$
(1,965
)
 
$
(928,778
)
 
$
614,362

Exercise of stock options
3,869

 

 
42,448

 

 

 
42,448

Settlement of RSUs
4,144

 
1

 
(1
)
 

 

 

Tax withholding on RSU settlement
(1,594
)
 

 
(85,978
)
 

 

 
(85,978
)
Employee stock purchase plan
231

 

 
10,563

 

 

 
10,563

Employee stock-based compensation expense

 

 
100,597

 

 

 
100,597

Non-employee stock-based compensation expense

 

 
69

 

 

 
69

Net loss

 

 

 

 
(114,354
)
 
(114,354
)
Cumulative impact of Topic 842 adoption

 

 

 

 
(48
)
 
(48
)
Other comprehensive loss, net

 

 

 
(980
)
 

 
(980
)
Balances at July 31, 2019
175,953

 
$
18

 
$
1,612,786

 
$
(2,945
)
 
$
(1,043,180
)
 
$
566,679


 
Redeemable Convertible Preferred Stock
 
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated Deficit
 
Total Stockholders’ Equity (Deficit)
(in thousands)
Shares
 
Amount
 
 
Shares
 
Amount
 
 
 
 
Balances at January 31, 2018
100,226

 
$
547,501

 
 
35,700

 
$
4

 
$
160,265

 
$
3,403

 
$
(502,320
)
 
$
(338,648
)
Exercise of stock options

 

 
 
1,400

 

 
10,318

 

 

 
10,318

Employee stock-based compensation expense

 

 
 

 

 
310,133

 

 

 
310,133

Non-employee stock-based compensation expense

 

 
 

 

 
833

 

 

 
833

Accretion of preferred stock

 
353

 
 

 

 
(353
)
 

 

 
(353
)
Issuance of common stock in connection with initial public offering, net of offering costs

 

 
 
19,314

 
2

 
525,297

 

 

 
525,299

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

 
10

 
547,844

 

 

 
547,854

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

 

 
 

 

 
848

 

 

 
848

Exercise of warrants

 

 
 
22

 

 

 

 

 

Net loss

 

 
 

 

 

 

 
(307,401
)
 
(307,401
)
Other comprehensive loss, net

 

 
 

 

 

 
(5,413
)
 

 
(5,413
)
Balances at July 31, 2018

 
$

 
 
156,786

 
$
16

 
$
1,555,185

 
$
(2,010
)
 
$
(809,721
)
 
$
743,470


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


8


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Six Months Ended July 31,
(in thousands)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(114,354
)
 
$
(307,401
)
Adjustments to reconcile net loss to net cash used in operating activities
 
 
 
Depreciation and amortization
24,261

 
15,681

Amortization of deferred contract acquisition and fulfillment costs
31,149

 
19,146

Amortization of debt discount and transaction costs
13,002

 

Non-cash operating lease costs
8,863

 

Stock-based compensation expense
98,063

 
309,959

Deferred income taxes
28

 
(12
)
Other
(2,371
)
 
(875
)
Changes in operating assets and liabilities
 
 
 
Accounts receivable
35,896

 
15,385

Contract assets
(4,905
)
 
1,149

Prepaid expenses and other current assets
(3,157
)
 
(3,406
)
Deferred contract acquisition and fulfillment costs
(48,439
)
 
(30,339
)
Other assets
959

 
1,335

Accounts payable
1,588

 
(5,034
)
Accrued expenses
12,439

 
2,306

Accrued compensation
2,427

 
360

Contract liabilities
21,746

 
19,503

Operating lease liabilities
(7,198
)
 

Other liabilities
2,063

 
(69
)
Net cash provided by operating activities
72,060

 
37,688

Cash flows from investing activities:
 
 
 
Purchases of marketable securities
(530,886
)
 

Maturities of marketable securities
244,449

 

Purchases of strategic investments
(15,500
)
 

Purchases of property and equipment
(29,791
)
 
(10,520
)
Net cash used in investing activities
(331,728
)
 
(10,520
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock in initial public offering, net of underwriting commissions

 
529,305

Payment of tax withholding obligation on RSU settlement
(85,978
)
 

Proceeds from exercise of stock options
42,448

 
10,318

Proceeds from employee stock purchase plan
10,563

 

Payment of deferred offering costs

 
(3,522
)
Net cash provided by (used in) financing activities
(32,967
)
 
536,101

Effect of foreign exchange on cash, cash equivalents and restricted cash
(1,120
)
 
(1,543
)
Net increase (decrease) in cash, cash equivalents and restricted cash
(293,755
)
 
561,726

Cash, cash equivalents and restricted cash at beginning of period
518,178

 
257,436

Cash, cash equivalents and restricted cash at end of period
$
224,423

 
$
819,162


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


9


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)
 
Six Months Ended July 31,
(in thousands)
2019
 
2018
Supplemental disclosure:
 
 
 
Cash paid for interest
$
1,414

 
$
204

Cash paid for operating lease liabilities
10,984

 

Cash paid for taxes
1,109

 
2,001

Non-cash investing and financing activities:
 
 
 
Property and equipment in accounts payable and other accrued liabilities
$
4,046

 
$
2,100

Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering

 
547,854

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

 
848

Preferred stock accretion

 
353

Deferred offering costs accrued and unpaid

 
169

Operating lease right-of-use assets exchanged for lease obligations
53,754

 

Derecognition of build-to-suit lease
2,479

 


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

10


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



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, execute and act on agreements, thereby simplifying and accelerating the process of doing business.

Basis of Presentation and Principles of Consolidation

Our condensed consolidated financial statements include the accounts of DocuSign, Inc. and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
    
Our 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 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 2019 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, 2019 was derived from audited financial statements but does not include all disclosures required by GAAP. The results of operations for the six months ended July 31, 2019 are not necessarily indicative of the results to be expected for the year ending January 31, 2020.

Our fiscal year ends on January 31. References to fiscal 2020, for example, are to the fiscal year ending January 31, 2020.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant items subject to such estimates and assumptions include those related to the allocation of revenue between recognized and deferred amounts, allowance for bad debts, goodwill, intangible assets, deferred contract acquisition costs, customer benefit period, fair value of financial instruments, valuation of stock-based compensation, valuation of common stock, fair value of the liability and equity components of the convertible notes, whether an arrangement is or contains a lease, the discount rate used for operating leases, and the valuation allowance for deferred income taxes.

Significant Accounting Policies

Other than described below, there have been no changes to our significant accounting policies described in our 2019 Annual Report on Form 10-K that have had a material impact on our consolidated financial statements and related notes.

Leases

Leases arise from contractual obligations that convey the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. We determine whether an arrangement is or contains a lease at inception, based on whether there is an identified asset and whether we control the use of the identified asset throughout the period of use. At lease commencement date, we determine lease classification between finance and operating, allocate the

12



consideration to the lease and nonlease components and recognize a right-of-use asset and corresponding lease liability for each lease component. A right-of-use asset represents our right to use an underlying asset and a lease liability represents our obligation to make payments during the lease term.

The lease liability is initially measured as the present value of the remaining lease payments over the lease term. The discount rate used to determine the present value is our incremental borrowing rate unless the interest rate implicit in the lease is readily determinable. We estimate our incremental borrowing rate based on the information available at lease commencement date for borrowings with a similar term. The right-of-use asset is initially measured as the present value of the lease payments, adjusted for initial direct costs, prepaid lease payments to lessors and lease incentives. Our operating lease right-of-use assets and liabilities recognized at February 1, 2019, the adoption date, were based on the present value of lease payments over the remaining lease term as of that date, using the incremental borrowing rate as of that date.

We elected the practical expedients to not recognize right-of-use assets and liabilities for leases with a term of twelve months or less and to not separate nonlease components from the associated lease components for our office leases and certain other asset classes. The total consideration includes fixed payments and contractual escalation provisions. We are responsible for maintenance, insurance, property taxes and other variable payments, which are expensed as incurred. Our leases include options to renew or terminate. We include the option to renew or terminate in our determination of the lease term when the option is deemed to be reasonably assured to be exercised. 

Operating leases are classified in "Operating lease right-of-use assets", "Operating lease liabilities—current", and "Operating lease liabilities—noncurrent" on our condensed consolidated balance sheets. Operating lease expense is recognized on a straight-line basis over the expected lease term and included in "Loss from operations" in our condensed consolidated statements of operations and comprehensive loss.

Strategic Investments

Our strategic investments consist of non-marketable equity investments in privately-held companies in which we do not have a controlling interest or significant influence. We have elected to apply the measurement alternative for equity investments that do not have readily determinable fair values, measuring them at cost, less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. An impairment loss is recorded when event or circumstance indicates a decline in value has occurred.

In March 2019, we purchased equity investments in privately-held companies totaling $15.5 million that were classified in "Other assets—noncurrent" on our condensed consolidated balance sheets. As there have been no material observable price changes, we have not recorded any adjustments resulting from observable price changes for identical or similar investments or impairment charges for any of our equity investments in privately-held companies in the six months ended July 31, 2019. We had no such investments as of January 31, 2019.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the "FASB") issued accounting standards update ("ASU") No. 2016-02, Leases (Topic 842), which supersedes current guidance related to accounting for leases. This guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. The ASU makes 16 technical corrections to the new lease standard and other accounting topics, alleviating unintended consequences from applying the new standard. It does not make any substantive changes to the core provisions or principles of the new standard. In July 2018, the FASB also issued ASU No. 2018-11, Leases (Topic 842). The ASU provides (1) an optional transition method that entities can use when adopting the standard and (2) a practical expedient that permits lessors to not separate nonlease components from the associated lease component if certain conditions are met.


13



The standard is effective for public entities for annual and interim reporting periods beginning after December 15, 2018. We adopted the new standard as of February 1, 2019, and recognized a cumulative-effect adjustment to the opening balance of accumulated deficit as of the adoption date. We elected the optional transition approach to not apply Topic 842 in the comparative periods presented. We elected the practical expedient to use hindsight when determining the lease term and the package of practical expedients to not reassess whether existing contracts contain leases, the lease classification for existing leases and whether existing initial direct costs meet the new definition. The adoption of Topic 842 resulted in the recognition of total right-of-use assets of $93.9 million and total lease liabilities of $121.8 million as of adoption date, with the most significant impact related to our office space leases. Additionally, we derecognized $26.6 million in deferred rent and $2.5 million related to the build-to-suit asset and liability upon adoption of this standard pursuant to the transition guidance provided for build-to-suit leases. The adoption of Topic 842 did not have a material impact to the consolidated statements of operations or statements of cash flows.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act ("TCJA"). As the amendment only relates to the reclassification of the income tax effects of the TCJA, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The standard is effective for annual and interim reporting periods beginning after December 15, 2018 for all entities. The amendment is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recognized. Early adoption is permitted. The adoption of the standard did not have an impact on our consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The ASU aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date. The ASU is effective for public business entities in annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted, including in an interim period, but not before an entity adopts the topic 606 revenue guidance. The adoption of the standard did not have a material impact on our consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements, which clarifies, corrects errors in and makes improvements to several topics in the FASB Accounting Standard Codification. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and were effective upon issuance of the ASU. Amendments that do have transition guidance are effective for public business entities for annual periods beginning after December 15, 2018. The adoption of the standard did not have a material impact on our consolidated financial statements.

Other Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial InstrumentsCredit Losses (Topic 326). ASU 2016-13 changes the impairment model for most financial assets and will require the use of an expected loss model in place of the currently used incurred loss method. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to eliminate inconsistencies and provide clarifications to the transition requirements of ASU No. 2016-13. The updates to the standard are effective for interim and annual periods beginning after December 15, 2019. We are evaluating the impact of the adoption of the ASUs on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies, removes and adds certain disclosure requirements on fair value measurements based on the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. We are in the process of evaluating the impact of the adoption of the ASU on our consolidated financial statements.


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In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. We are in the process of evaluating the impact of the adoption of the ASU on our consolidated financial statements.

Note 2.    Revenue and Performance Obligations

Subscription revenue is recognized over time and accounted for approximately 94% and 95% for the three months ended July 31, 2019 and 2018, and 94% and 95% of our revenue for the six months ended July 31, 2019 and 2018.
    
The typical subscription term is one to three years. Most of our subscription contracts are noncancelable over the contractual term. Customers typically have the right to terminate their contracts for cause, if we fail to perform. As of July 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $628.6 million, which consists of both billed and unbilled consideration that we expect to recognize as subscription revenue. We expect to recognize 53% of the transaction price in the twelve months following July 31, 2019, in our consolidated statement of operations and comprehensive loss with the remainder recognized thereafter.

We elected to apply the practical expedient to not disclose the transaction price allocated to remaining performance obligations for contracts with a contract term of one year or less. In addition, we do not disclose the transaction price related to revenue from professional services, training services and web revenue as revenue from these sources is recognized within one year.

Note 3.    Fair Value Measurements
We carry certain assets and liabilities at fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs based on the observability as of the measurement date, is as follows:
Level 1
Quoted prices in active markets for identical assets or liabilities;
Level 2
Observable inputs other than the quoted prices in active markets for identical assets and liabilities; and
Level 3
Unobservable inputs for which there is little or no market data, which require us to develop assumptions of what market participants would use in pricing the asset or liability.


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The following table summarizes our financial assets that are measured at fair value on a recurring basis during the period:
 
July 31, 2019
(in thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Level 1:
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
 
Money market funds
$
95,787

 
$

 
$

 
$
95,787

Level 2:
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
Commercial paper
41,197

 
45

 
(2
)
 
41,240

Corporate notes and bonds
351,691

 
835

 
(68
)
 
352,458

U.S. Treasury securities
174,897

 
172

 
(31
)
 
175,038

U.S. government agency securities
137,369

 
63

 
(59
)
 
137,373

Level 2 total
705,154

 
1,115

 
(160
)
 
706,109

Total
$
800,941

 
$
1,115

 
$
(160
)
 
$
801,896

 
 
 
 
 
 
 
 
 
January 31, 2019
(in thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Level 1:
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
 
Money market funds
$
350,063

 
$

 
$

 
$
350,063

Level 2:
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
 
Commercial paper
76,828

 

 
(11
)
 
76,817

Corporate notes and bonds
2,998

 

 

 
2,998

U.S. government agency securities
6,491

 

 

 
6,491

Available-for-sale securities
 
 
 
 
 
 
 
Commercial paper
86,655

 
4

 
(21
)
 
86,638

Corporate notes and bonds
287,496

 
389

 
(105
)
 
287,780

U.S. Treasury securities
4,982

 

 
(1
)
 
4,981

U.S. government agency securities
36,021

 
7

 
(4
)
 
36,024

Level 2 total
501,471

 
400

 
(142
)
 
501,729

Total
$
851,534

 
$
400

 
$
(142
)
 
$
851,792



Money market funds consist of cash equivalents with original maturities of three months or less at the date of purchase. We use quoted prices in active markets for identical assets or liabilities to determine the fair value of our Level 1 investments in money market funds. The fair value of our Level 2 investments is determined using pricing based on quoted market prices or alternative market observable inputs.

The fair value of our available-for-sale marketable securities as of July 31, 2019, by remaining contractual maturities, were as follows (in thousands):
Due in one year or less
$
525,963

Due in one to two years
180,146

 
$
706,109


As of July 31, 2019, we had a total of 168 available-for-sale securities, none of which were considered to be other-than-temporarily impaired.

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Convertible Senior Notes

As of July 31, 2019, the estimated fair value of our 0.5% Convertible Senior Notes (the "Notes") with aggregate principal amount of $575.0 million was $605.8 million. We estimated the fair value based on the quoted market prices in an inactive market on the last trading day of the reporting period (Level 2). The Notes are recorded at face value less unamortized debt discount and transaction costs as "Convertible senior notes, net" on our consolidated balance sheets. Refer to Note 9 for further information.

Note 4.    Property and Equipment, Net

Property and equipment consisted of the following:
(in thousands)
July 31, 2019
 
January 31, 2019
Computer and network equipment
$
62,751

 
$
55,233

Software, including capitalized software development costs
31,435

 
27,959

Furniture and office equipment
11,982

 
9,511

Leasehold improvements
48,109

 
41,464

 
154,277

 
134,167

Less: Accumulated depreciation
(73,942
)
 
(66,479
)
 
80,335

 
67,688

Work in progress
11,743