10-Q 1 docu-20220430.htm 10-Q docu-20220430
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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 April 30, 2022
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 199,944,000 shares of common stock, par value $0.0001, outstanding at May 31, 2022.



DOCUSIGN, INC.
TABLE OF CONTENTS

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, 2022January 31, 2022
Assets
Current assets
Cash and cash equivalents$638,190 $509,059 
Investments—current329,425 293,763 
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—current13,368 12,588 
Prepaid expenses and other current assets80,669 63,236 
Total current assets1,362,524 1,319,596 
Investments—noncurrent94,751 94,938 
Property and equipment, net183,704 184,664 
Operating lease right-of-use assets116,589 126,021 
Goodwill354,056 355,058 
Intangible assets, net87,277 98,816 
Deferred contract acquisition costs—noncurrent313,760 311,835 
Other assets—noncurrent61,470 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 liabilities92,936 91,377 
Accrued compensation137,724 160,163 
Convertible senior notes—current16  
Contract liabilities—current1,049,534 1,029,891 
Operating lease liabilities—current37,293 37,404 
Total current liabilities1,343,716 1,371,639 
Convertible senior notes, net—noncurrent719,616 718,487 
Contract liabilities—noncurrent15,794 16,725 
Operating lease liabilities—noncurrent114,976 126,340 
Deferred tax liability—noncurrent9,079 9,316 
Other liabilities—noncurrent22,001 23,255 
Total liabilities2,225,182 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 capital1,835,187 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)20222021
Revenue:
Subscription$569,251 $451,935 
Professional services and other19,441 17,143 
Total revenue588,692 469,078 
Cost of revenue:
Subscription105,159 78,071 
Professional services and other27,257 27,171 
Total cost of revenue132,416 105,242 
Gross profit456,276 363,836 
Operating expenses:
Sales and marketing300,697 239,119 
Research and development112,227 85,416 
General and administrative62,578 50,038 
Total operating expenses475,502 374,573 
Loss from operations(19,226)(10,737)
Interest expense(1,649)(1,672)
Interest income and other income (expense), net(4,650)6,037 
Loss before provision for income taxes(25,525)(6,372)
Provision for income taxes1,848 1,982 
Net loss$(27,373)$(8,354)
Net loss per share attributable to common stockholders, basic and diluted$(0.14)$(0.04)
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted199,666 194,342 
Other comprehensive income (loss):
Foreign currency translation gain (loss), net of tax$(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 other5,082 5,535 
Sales and marketing47,431 38,135 
Research and development32,205 20,462 
General and administrative15,392 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 StockAdditional Paid-In CapitalTreasury StockAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' Equity
(in thousands)SharesAmount
Balances at January 31, 2022198,834 $20 $1,720,013 $(1,532)$(4,809)$(1,438,189)$275,503 
Exercise of stock options179 — 1,938 — — — 1,938 
Settlement of restricted stock units and employee stock purchase plan642 — — — — — — 
Tax withholding on net share settlement of restricted stock units and employee stock purchase plan— — (25,403)(116)— — (25,519)
Employee stock purchase plan265 — 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, 2022199,920 $20 $1,835,187 $(1,648)$(19,048)$(1,465,562)$348,949 
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 2023352 — (446)— — — (446)
Exercise of stock options488 — 6,616 — — — 6,616 
Settlement of restricted stock units955 — — — — — — 
Tax withholding on net share settlement of restricted stock units and employee stock purchase plan— — (113,412)(171)— — (113,583)
Employee stock purchase plans132 — 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, 2021194,734 $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)20222021
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 amortization21,301 20,037 
Amortization of deferred contract acquisition and fulfillment costs43,990 30,933 
Amortization of debt discount and transaction costs1,284 1,319 
Non-cash operating lease costs6,442 6,943 
Stock-based compensation expense110,723 81,637 
Deferred income taxes72 264 
Other4,907 (6,359)
Changes in operating assets and liabilities:
Accounts receivable140,078 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 liabilities5,148 11,080 
Accrued compensation(23,220)(34,048)
Contract liabilities18,712 51,648 
Operating lease liabilities(8,259)(7,731)
Net cash provided by operating activities196,286 135,597 
Cash flows from investing activities:
Purchases of marketable securities(129,735)(96,925)
Sales of marketable securities 2,002 
Maturities of marketable securities91,055 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 options1,938 6,616 
Proceeds from employee stock purchase plan24,151 23,167 
Net cash (used in) provided by financing activities1,350 (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 cash129,942 (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)20222021
Supplemental disclosure:
Cash paid for interest$93 $212 
Cash paid for operating lease liabilities10,423 9,888 
Cash paid for income taxes1,760 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

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.

Our fiscal year ends on January 31. 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 fair 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)20222021
U.S.$444,453 $368,423 
International144,239 100,655 
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 CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Level 1:
Cash equivalents(1)
Money market funds$178 $ $ $178 
Level 2:
Cash equivalents(1)
Commercial paper66,452  (13)66,439 
U.S. governmental securities10,000   10,000 
Available-for-sale securities
Commercial paper118,361  (513)117,848 
Corporate notes and bonds272,963 2 (3,147)269,818 
U.S. governmental securities36,799  (289)36,510 
Level 2 total504,575 2 (3,962)500,615 
Total$504,753 $2 $(3,962)$500,793 
January 31, 2022
(in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Level 1:
Cash equivalents(1)
Money market funds$110,716 $ $ $110,716 
Level 2:
Cash equivalents(1)
Commercial paper3,499   3,499 
Available-for-sale securities
Commercial paper126,371 1 (175)126,197 
Corporate notes and bonds243,840  (1,296)242,544 
U.S. governmental securities20,036  (76)19,960 
Level 2 total393,746 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 years94,751 
$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, 2022January 31, 2022
0.5% Convertible Senior Notes due in 2023
Aggregate principal amount$37,099 $37,099 
Fair value amount42,664 65,440 
0% Convertible Senior Notes due in 2024
Aggregate principal amount$690,000 $690,000 
Fair value amount644,460 656,363 

Note 4. Property and Equipment, Net

Property and equipment consisted of the following:
(in thousands)April 30, 2022January 31, 2022
Computer and network equipment$132,220 $127,799 
Software, including capitalized software development costs84,483 82,537 
Furniture and office equipment20,905 20,939 
Leasehold improvements79,370 79,811 
316,978 311,086 
Less: Accumulated depreciation(180,800)(170,261)
136,178 140,825 
Work in progress47,526 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)20222021
Deferred Contract Acquisition Costs:
Beginning balance$315,158 $262,519 
Additions to deferred contract acquisition costs38,286 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 costs12,226 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, 2022January 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)20222021
Contractual interest expense$46 $36 
Amortization of transaction costs1,101 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 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)
$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 
202457,517 
202521,903 
20269,397 
20272,694 
Thereafter2,015 
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 UnitsWeighted-Average Grant Date Fair Value
Unvested at January 31, 20227,843 $146.52 
Granted2,459 97.19 
Vested(978)97.59 
Canceled(639)139.40 
Unvested at April 30, 20228,685 $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 OptionsWeighted-Average Exercise Price Per ShareWeighted-Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Outstanding at January 31, 2022, all vested and exercisable3,105 $16.41 4.45$339,286 
Exercised(179)10.94 
Outstanding at April 30, 2022, all vested and exercisable2,926 $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)20222021
Numerator:
Net loss attributable to common stockholders$(27,373)$(8,354)
Denominator:
Weighted-average common shares outstanding199,666 194,342 
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)20222021
RSUs8,685 9,194 
Stock options2,926 4,310 
ESPP437 158 
Convertible senior notes2,161 2,737 
Total antidilutive securities14,209 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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our 2022 Annual Report on Form 10-K. As discussed in the section titled “Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q and in our 2022 Annual Report on Form 10-K. Our fiscal year ends January 31.

Executive Overview of First Quarter Results

Overview

DocuSign offers the world’s leading electronic signature product, enabling an agreement to be signed electronically on a wide variety of devices, from virtually anywhere in the world, securely. This is the foundation of the DocuSign Agreement Cloud, which allows organizations to do business efficiently and effectively, while providing better experiences for customers and employees.

We offer the world’s #1 e-signature product as the core part of our broader software platform that automates and connects the agreement process, which we call the DocuSign Agreement Cloud. It is designed to allow companies of all sizes and across all industries to quickly and easily make nearly every agreement, approval process or transaction digital. It provides comprehensive functionality across DocuSign eSignature and addresses the broader agreement process. As a result, over 1.2 million customers and more than a billion users worldwide utilize DocuSign to create, upload and send documents for multiple parties to sign electronically. The DocuSign Agreement Cloud allows users to complete approvals, agreements and transactions faster by building end-to-end processes. The DocuSign Agreement Cloud integrates with popular business apps, and our functionality can also be embedded using our application programming interfaces (“APIs”). Finally, the DocuSign Agreement Cloud allows our customers to automate and streamline their business-critical workflows to save time and money, while staying secure and legally compliant.

We generally offer access to our platform on a subscription basis with prices based on the functionality our customers require and the quantity of Envelopes provisioned. Similar to the physical envelopes historically used to mail paper documents, an Envelope is a digital container used to send one or more documents for signature or approval to one or more recipients. Our customers have the flexibility to put a large number of documents in an Envelope. For a number of use cases, such as buying a home, multiple Envelopes are used over the course of the process. To drive customer reach and adoption, we also offer for free certain limited-time or feature-constrained versions of our platform.

DocuSign, Inc. | 2023 Form 10Q | 19


We generate substantially all our revenue from sales of subscriptions, which accounted for 97% and 96% of our revenue in the three months ended April 30, 2022 and 2021. Our subscription fees include the use of our software platform and access to customer support. Subscriptions generally range from one to three years, and substantially all our multi-year customers pay in annual installments, one year in advance.

We also generate revenue from professional and other non-subscription services, which consists primarily of fees associated with providing new customers deployment and integration services. Other revenue includes amounts derived from sales of on-premises solutions. Professional services and other revenue accounted for the remainder of total revenue. We anticipate continuing to invest in customer success through our professional services offerings as we believe it plays an important role in accelerating our customers’ deployment of our software platform, which helps drive customer retention and expansion of the use of the DocuSign Agreement Cloud.

We offer subscriptions to our software platform to businesses at all scales, from global enterprise down to local very small businesses (“VSBs”) (including professionals, sole proprietorships, nonprofits and individuals). We sell to customers through multiple channels. Our go-to-market strategy relies on our direct sales force and partnerships to sell to enterprises and commercial businesses and our web-based self-service channel to sell to VSBs, which we believe is the most cost-effective way to reach our smallest customers. We offer more than 400 off-the-shelf, prebuilt integrations with the applications that many of our customers already use—including those offered by Google, Microsoft, Oracle, Salesforce, SAP, and Workday—so that they can create, sign, send and manage agreements from directly within these applications. We have a diverse customer base spanning across virtually all industries and around the world with no significant customer concentration. No single customer accounted for more than 10% of total revenue in any of the periods presented.

We focused initially on selling our e-signature solutions to commercial businesses and VSBs, and later expanded our focus to target enterprise customers. The number of our customers with greater than $300,000 in annual contract value (measured in billings) has increased from 673 customers as of April 30, 2021 to 886 customers as of April 30, 2022. Each of our customer types has a different purchasing pattern. VSBs tend to become customers quickly with very little to no direct sales or customer support interaction and generate smaller average contract values, while commercial and enterprise customers typically involve longer sales cycles, larger contract values and greater expansion opportunities for us.

DocuSign, Inc. | 2023 Form 10Q | 20


COVID-19 Update

As the pandemic continued in 2022, the rate of vaccinations, emerging COVID-19 variants, and shifting governmental policies on vaccination mandates and other pandemic restrictions have had variable impacts on different regions of the world and areas of the economy. This has caused and may continue to cause new, existing and potential customers to experience rapidly changing conditions and disruptions to their businesses. While we experienced a significant increase in paying customers and revenue during the pandemic, we later experienced periods in which the urgency of customer demand slowed. It can be difficult to predict customer demand, especially as our customers’ priorities, resources and economic outlook change, along with other shifting market conditions. These shifts have occurred and may in the future occur more quickly than we anticipate. Additionally, due to our subscription-based business model, the full effects of these changes may not be fully reflected in our results of operations until future periods. If the COVID-19 pandemic continues to have a substantial impact on our employees’, partners’ or customers’ productivity or if the abatement of the pandemic results in decreased demand or a more challenging sales environment, our results of operations and overall financial performance may be harmed.

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

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

Three Months Ended April 30,
(in thousands)20222021
Total revenue$588,692 $469,078 
Total costs and expenses607,918 479,815 
Total stock-based compensation expense110,723 81,136 
Loss from operations(19,226)(10,737)
Net loss(27,373)(8,354)
Net cash provided by operating activities196,286 135,597 
Purchases of property and equipment(21,709)(12,596)

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

Key Factors Affecting Our Performance

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

Growing Customer Base
    
We are highly focused on continuing to acquire new customers to support our long-term growth. We have invested, and expect to continue to invest, heavily in our sales and marketing efforts to drive customer acquisition. As of April 30, 2022, we had a total of over 1.2 million customers, including almost 182,000 enterprise and commercial customers, compared to over 980,000 customers and over 135,000 enterprise and commercial customers as of April 30, 2021. We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution or a distinct business unit of a large company that has an active contract to access our software platform. We define enterprise customers as companies generally included in the Global 2000. We define commercial customers to include both mid-market companies, which includes companies outside the Global 2000 that have greater than 250 employees, and small-to-medium-sized businesses, which are companies with between 10 and 249 employees, in each case excluding any enterprise customers. We define VSBs as companies with fewer than 10 employees. We refer to total customers as all enterprises, commercial businesses and VSBs.

We believe that our ability to increase the number of customers using our software platform, particularly the number of enterprise and commercial customers, is an indicator of our market penetration, the growth of our business and our potential future business opportunities. By increasing awareness of our software platform, further developing our sales and marketing expertise and continuing to build features tuned to different industry needs, we have expanded the diversity of our customer base to include organizations of all sizes across nearly every industry.

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Retaining and Expanding Contracts with Existing Enterprise and Commercial Customers
    
Many of our customers have increased spend with us as they have expanded their use of our offerings in both existing and new use cases across their front or back office operations. Our enterprise and commercial customers may start with just one use case and gradually implement additional use cases across their organization once they see the benefits of our software platform. Several of our largest enterprise customers have deployed our software platform for hundreds of use cases across their organizations. We believe there is significant expansion opportunity with our customers following their initial adoption of our software platform.

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

We started our international selling efforts in English-speaking common law countries, such as Canada, the UK and Australia, where we were able to leverage our core technologies due to similar approaches to e-signature in these jurisdictions and the U.S. We have since made significant investments to be able to offer our products in select civil law countries. For example, in Europe, we offer Standards-Based Signature (“SBS”) technology tailored for the EU’s electronic Identification, Authentication and Trust Services (“eIDAS”) regulations. SBS supports signatures that involve digital certificates, including those specified in the EU’s eIDAS regulations for advanced and qualified electronic signatures. In addition, to follow longstanding tradition in Japan, we enable signers to upload and apply their personal eHanko stamp to represent their signatures on an agreement.
    
We plan to increase our international revenue by leveraging and continuing to expand the investments we have already made in our technology, direct sales force and strategic partnerships, as well as helping existing U.S.-based customers manage agreements across their international businesses. We have experienced increased demand across multiple regions and are expanding our sales and marketing resources to capitalize on the potential growth of these markets. Additionally, we expect to continue to develop and enhance our strategic partnerships in key international markets as we grow internationally.

Investing for Growth

We believe that our market opportunity is large, and we plan to invest to continue to support further growth. This includes expanding our sales headcount and increasing our marketing initiatives. We also plan to continue to invest in expanding the functionality of our software platform and underlying infrastructure and technology to meet the needs of our customers across industries. Our acquisitions intend to bring additional functionality to our DocuSign Agreement Cloud offerings, as well as the continuous development of new features internally, are examples of our commitment to investing for ongoing growth.

Components of Results of Operations

Revenue

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

Subscription Revenue
Subscription revenue consists of fees for the use of our software platform and our technical infrastructure and access to customer support, which includes phone or email support. We typically invoice customers in advance on an annual basis. We recognize subscription revenue ratably over the term of the contract subscription period beginning on the date access to our software platform is provided.
Professional Services and Other Revenue
Professional services revenue includes fees associated with new customers requesting deployment and integration services. We price professional services on a time and materials basis and on a fixed fee basis. We generally have standalone value for our professional services and recognize revenue based on standalone selling price as services are performed or upon completion of services for fixed fee contracts. Other revenue includes amounts derived from sales of on-premises solutions.
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Overhead Allocation

We allocate shared overhead costs, such as facilities (including rent, utilities and depreciation on equipment shared by all departments), information technology, information security and recruiting costs to all departments based on headcount. As such, these allocated overhead costs are reflected in each cost of revenue and operating expense category.

Cost of Revenue

Cost of Subscription Revenue
Cost of subscription revenue primarily consists of expenses related to hosting our software platform and providing support. These expenses consist of employee-related costs, including salaries, bonuses, benefits, stock-based compensation and other related costs, associated with our technical infrastructure, customer success and customer support. These expenses also consist of software and maintenance costs, third-party hosting fees, outside services associated with the delivery of our subscription services, amortization expense associated with capitalized internal-use software and acquired intangible assets, credit card processing fees and allocated overhead costs.
Cost of Professional Services and Other Revenue
Cost of professional services and other revenue consists primarily of personnel costs for our professional services delivery team, travel-related costs and allocated overhead costs.

Gross Profit and Gross Margin

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

Operating Expenses

Our operating expenses consist of sales and marketing, research and development and general and administrative expenses. As our revenues continue to increase, our operating expenses as a percentage of revenue may increase or decrease at different rates, driven by the timing of revenue recognition, the timing of hiring, our investments in growth and other factors.

Sales and Marketing ExpenseSales and marketing expense consists primarily of personnel costs, including sales commissions. These expenses also include expenditures related to advertising, marketing, promotional events and brand awareness activities, as well as allocated overhead costs. We expect sales and marketing expense to continue to increase in absolute dollars as we enhance our product offerings and implement marketing strategies.
Research and Development ExpenseResearch and development expense consists primarily of personnel costs. These expenses also include non-personnel costs, such as subcontracting, consulting and professional fees for third-party development resources, as well as allocated overhead costs. Our research and development efforts focus on maintaining and enhancing existing functionality and adding new functionality. We expect research and development expense to increase in absolute dollars as we invest in the enhancement of our software platform.
General and Administrative ExpenseGeneral and administrative expense consists primarily of employee-related costs for those employees providing administrative services such as legal, human resources, information technology related to internal systems, accounting and finance. These expenses also include certain third-party consulting services, certain facilities costs, allocated overhead costs, and impairment of operating lease right-of-use assets. We expect general and administrative expense to increase in absolute dollars to support the overall growth of our operations.

Interest Expense

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

DocuSign, Inc. | 2023 Form 10Q | 23


Interest Income and Other Income (Expense), Net

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

Provision for Income Taxes

Our provision for income taxes consists primarily of income taxes in certain foreign jurisdictions where we conduct business, and tax benefits arising from deductions for stock-based compensation. We have a valuation allowance against our U.S. consolidated group and certain foreign deferred tax assets. We expect to maintain this valuation allowance for the foreseeable future or until it becomes more likely than not that the benefit of these U.S. and foreign deferred tax assets will be realized by way of expected future taxable income.

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Discussion of Results of Operations

The following table summarizes our historical consolidated statements of operations data:
Three Months Ended April 30,
(in thousands, except percentages)2022As % of revenue2021As % of revenue
Revenue:
Subscription$569,251 97 %$451,935 96 %
Professional services and other19,441 17,143 
Total revenue588,692 100 469,078 100 
Cost of revenue:
Subscription105,159 18 78,071 17 
Professional services and other27,257 27,171 
Total cost of revenue132,416 22 105,242 22 
Gross profit456,276 78 363,836 78 
Operating expenses:
Sales and marketing300,697 51 239,119 51 
Research and development112,227 19 85,416 18 
General and administrative62,578 11 50,038 11 
Total operating expenses475,502 81 374,573 80 
Loss from operations(19,226)(3)(10,737)(2)
Interest expense(1,649)— (1,672)— 
Interest income and other income (expense), net(4,650)(1)6,037 
Loss before provision for income taxes(25,525)(4)(6,372)(1)
Provision for income taxes1,848 1,982 
Net loss$(27,373)(5)%$(8,354)(2)%

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

Revenue
Three Months Ended April 30,
2022 versus 2021
(in thousands, except for percentages)20222021
Revenue:
Subscription$569,251 $451,935 26 %
Professional services and other19,441 17,143 13 %
Total revenue$588,692 $469,078 25 %

Subscription revenue increased $117.3 million, or 26%, in the three months ended April 30, 2022. The increase was primarily due to the expansion of existing customers and the addition of new customers. This growth was mainly driven by an increase in sales to our mid-market and enterprise customers through our direct and indirect sales channels. We continue to invest in a variety of customer programs and initiatives, which, along with expanded customer use cases, have helped increase our subscription revenue over time.

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

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Cost of Revenue and Gross Margin
Three Months Ended April 30,2022 versus 2021
(in thousands, except for percentages)20222021
Cost of revenue:
Subscription$105,159$78,07135 %
Professional services and other27,25727,171— %
Total cost of revenue$132,416$105,24226 %
Gross margin:
Subscription82 %83 %(1)pts
Professional services and other(40)%(58)%18 pts
Total gross margin78 %78 %— pts

Cost of subscription revenue increased $27.1 million, or 35%, in the three months ended April 30, 2022, primarily driven by higher costs to support our growing customer base. Significant increases consisted of:
$9.5 million in personnel costs and $4.6 million in stock-based compensation expense driven by higher headcount and annual salary increases; and
$7.0 million in operating costs to support our platform and the growth in our revenue, including increases in hosting costs, authentication and processing fees and subscription reseller fees.

Sales and Marketing
Three Months Ended April 30,2022 versus 2021
(in thousands, except for percentages)20222021
Sales and marketing$300,697$239,11926 %
Percentage of revenue51 %51 %

Sales and marketing expenses increased $61.6 million, or 26%, in the three months ended April 30, 2022 primarily driven by investments in workforce and technology support to accommodate demand for our products and increased interest in digital transformation of agreements. Significant increases consisted of:
$35.5 million in personnel costs and $9.3 million in stock-based compensation expense due to higher headcount, annual salary increases, higher commissions in line with higher sales and higher payroll taxes; and
$8.9 million in marketing and advertising expense due to higher spend on online advertising platforms to help capture the continued market interest in our product offering.

Research and Development
Three Months Ended April 30,2022 versus 2021
(in thousands, except for percentages)20222021
Research and development$112,227$85,41631 %
Percentage of revenue19 %18 %

Research and development expenses increased $26.8 million, or 31%, in the three months ended April 30, 2022, primarily due to investments in workforce and technology support to accommodate growth. Personnel costs and stock-based compensation expense increased $11.2 million and $11.7 million in the three months ended April 30, 2022, due to higher headcount and annual salary increases.

General and Administrative