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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, 2020
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 Jurisdiction 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 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 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 183,508,855 shares of common stock, par value $0.0001, outstanding at May 29, 2020.



DOCUSIGN, INC.
TABLE OF CONTENTS

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risk and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and our objectives for future operations, and the impact of the ongoing coronavirus pandemic (the “COVID-19 pandemic”) on our financial conditions and results of operations are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our ability to effectively sustain and manage our growth and future expenses, and our ability to achieve and maintain future profitability;
our expectations regarding the impact of the COVID-19 pandemic on our business;
our ability to attract new customers and to maintain and expand our existing customer base;
our ability to scale and update our software suite to respond to customers’ needs and rapid technological change;
the effects of increased competition on our market and our ability to compete effectively;
our ability to expand use cases within existing customers and vertical solutions;
our ability to expand our operations and increase adoption of our software suite internationally;
our ability to strengthen and foster our relationship with developers;
our ability to expand our direct sales force, customer success team and strategic partnerships around the world;
our ability to identify targets for and execute potential acquisitions;
our ability to successfully integrate the operations of businesses we may acquire, or to realize the anticipated benefits of such acquisitions;
our ability to maintain, protect and enhance our brand;
the sufficiency of our cash and cash equivalents to satisfy our liquidity needs;
our failure or the failure of our software suite of services to comply with applicable industry standards, laws and regulations;
our ability to maintain, protect and enhance our intellectual property;
our ability to successfully defend litigation against us;
our ability to attract large organizations as users;
our ability to maintain our corporate culture;
our ability to offer high-quality customer support;
our ability to hire, retain and motivate qualified personnel;
our ability to estimate the size and potential growth of our target market; and
our ability to maintain proper and effective internal controls.

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

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, such as the COVID-19 pandemic. Many of the risks and uncertainties are currently elevated by, and may or will continue to be elevated by, the current COVID-19 pandemic. It is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

3


The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law.
4


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, 2020 January 31, 2020
Assets
Current assets
Cash and cash equivalents $ 442,237    $ 241,203   
Investments—current 315,712    414,939   
Restricted cash 280    280   
Accounts receivable 220,602    237,841   
Contract assets—current 13,236    12,502   
Prepaid expenses and other current assets 51,176    37,125   
Total current assets 1,043,243    943,890   
Investments—noncurrent 140,117    239,729   
Property and equipment, net 134,811    128,293   
Operating lease right-of-use assets 161,484    149,833   
Goodwill 193,594    194,882   
Intangible assets, net 52,241    56,500   
Deferred contract acquisition costs—noncurrent 169,686    153,333   
Other assets—noncurrent 26,312    24,678   
Total assets $ 1,921,488    $ 1,891,138   
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 21,504    $ 28,144   
Accrued expenses and other current liabilities 46,475    54,344   
Accrued compensation 81,653    83,189   
Contract liabilities—current 552,345    507,560   
Operating lease liabilities—current 27,613    20,728   
Total current liabilities 729,590    693,965   
Convertible senior notes, net 472,162    465,321   
Contract liabilities—noncurrent 11,287    11,478   
Operating lease liabilities—noncurrent 173,750    162,432   
Deferred tax liability—noncurrent 4,814    4,920   
Other liabilities—noncurrent 7,097    6,695   
Total liabilities 1,398,700    1,344,811   
Commitments and contingencies (Note 10)
Stockholders’ equity
Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding as of April 30, 2020 and January 31, 2020
—    —   
Common stock, $0.0001 par value; 500,000 shares authorized, 183,428 shares outstanding as of April 30, 2020; 500,000 shares authorized, 181,254 shares outstanding as of January 31, 2020
18    18   
Additional paid-in capital 1,714,462    1,685,167   
Accumulated other comprehensive loss (6,703)   (1,673)  
Accumulated deficit (1,184,989)   (1,137,185)  
Total stockholders’ equity
522,788    546,327   
Total liabilities and stockholders’ equity
$ 1,921,488    $ 1,891,138   
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 April 30,
(in thousands, except per share data) 2020 2019
Revenue:
Subscription $ 280,922    $ 201,458   
Professional services and other 16,095    12,504   
Total revenue 297,017    213,962   
Cost of revenue:
Subscription 52,010    33,119   
Professional services and other 22,022    18,900   
Total cost of revenue 74,032    52,019   
Gross profit 222,985    161,943   
Operating expenses:
Sales and marketing 171,793    129,936   
Research and development 54,234    37,183   
General and administrative 38,811    37,261   
Total operating expenses 264,838    204,380   
Loss from operations (41,853)   (42,437)  
Interest expense (7,560)   (7,156)  
Interest income and other income, net 3,742    5,217   
Loss before provision for income taxes (45,671)   (44,376)  
Provision for income taxes 2,133    1,346   
Net loss $ (47,804)   $ (45,722)  
Net loss per share attributable to common stockholders, basic and diluted $ (0.26)   $ (0.27)  
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted 182,978    172,101   
Other comprehensive loss:
Foreign currency translation loss, net of tax $ (5,189)   $ (1,631)  
Unrealized gains on investments, net of tax 159    338   
Other comprehensive loss (5,030)   (1,293)  
Comprehensive loss $ (52,834)   $ (47,015)  
Stock-based compensation expense included in costs and expenses:
Cost of revenue—subscription $ 3,864    $ 2,282   
Cost of revenue—professional services and other 4,125    3,440   
Sales and marketing 24,665    18,102   
Research and development 11,885    7,317   
General and administrative 9,012    11,130   
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity
(in thousands) Shares Amount
Balances at January 31, 2020 181,254    $ 18    $ 1,685,167    $ (1,673)   $ (1,137,185)   $ 546,327   
Exercise of stock options 840    —    7,635    —    —    7,635   
Settlement of RSUs 1,078    —    —    —    —    —   
Tax withholding on RSU settlement —    —    (46,723)   —    —    (46,723)  
Employee stock purchase plan 256    —    13,590    —    —    13,590   
Employee stock-based compensation expense —    —    54,793    —    —    54,793   
Net loss —    —    —    —    (47,804)   (47,804)  
Other comprehensive loss, net —    —    —    (5,030)   —    (5,030)  
Balances at April 30, 2020 183,428    $ 18    $ 1,714,462    $ (6,703)   $ (1,184,989)   $ 522,788   

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 2,634    —    32,254    —    —    32,254   
Settlement of RSUs 1,460    —    —    —    —    —   
Tax withholding on RSU settlement —    —    (56,137)   —    —    (56,137)  
Employee stock purchase plans 231    —    10,563    —    —    10,563   
Employee stock-based compensation expense —    —    43,703    —    —    43,703   
Net loss —    —    —    —    (45,722)   (45,722)  
Cumulative impact of Topic 842 adoption —    —    —    —    (48)   (48)  
Other comprehensive loss, net —    —    —    (1,293)   —    (1,293)  
Balances at April 30, 2019 173,628    $ 17    $ 1,575,471    $ (3,258)   $ (974,548)   $ 597,682   
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended April 30,
(in thousands) 2020 2019
Cash flows from operating activities:
Net loss $ (47,804)   $ (45,722)  
Adjustments to reconcile net to net cash used in operating activities
Depreciation and amortization 14,039    11,971   
Amortization of deferred contract acquisition and fulfillment costs 21,360    14,260   
Amortization of debt discount and transaction costs 6,842    6,454   
Non-cash operating lease costs 6,324    4,128   
Stock-based compensation expense 53,551    42,271   
Deferred income taxes (104)   52   
Other 504    (1,111)  
Changes in operating assets and liabilities
Accounts receivable 17,239    57,414   
Contract assets (740)   (2,701)  
Prepaid expenses and other current assets (9,660)   (7,107)  
Deferred contract acquisition and fulfillment costs (41,037)   (20,487)  
Other assets (1,364)   541   
Accounts payable (2,554)   282   
Accrued expenses and other liabilities (916)   4,710   
Accrued compensation (1,536)   (19,869)  
Contract liabilities 44,594    4,274   
Operating lease liabilities 406    (3,705)  
Net cash provided by operating activities 59,144    45,655   
Cash flows from investing activities:
Purchases of marketable securities —    (375,211)  
Sales of marketable securities 28,986    —   
Maturities of marketable securities 170,071    92,457   
Purchases of strategic investments —    (15,500)  
Purchases of other investments
(3,000)   —   
Purchases of property and equipment (26,389)   (15,237)  
Net cash provided by (used in) investing activities 169,668    (313,491)  
Cash flows from financing activities:
Payment of tax withholding obligation on RSU settlement (46,723)   (56,137)  
Proceeds from exercise of stock options 7,635    32,254   
Proceeds from employee stock purchase plan 13,590    10,563   
Net cash used in financing activities (25,498)   (13,320)  
Effect of foreign exchange on cash, cash equivalents and restricted cash (2,280)   (379)  
Net increase (decrease) in cash, cash equivalents and restricted cash 201,034    (281,535)  
Cash, cash equivalents and restricted cash at beginning of period 241,483    518,178   
Cash, cash equivalents and restricted cash at end of period $ 442,517    $ 236,643   
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)
Three Months Ended April 30,
(in thousands) 2020 2019
Supplemental disclosure:
Cash paid for interest $ 1,438    $ 1,414   
Cash paid for operating lease liabilities 6,389    4,729   
Cash paid for income taxes 416    131   
Non-cash investing and financing activities:
Property and equipment in accounts payable and accrued expenses and other current liabilities $ 3,445    $ 3,791   
Operating lease right-of-use assets exchanged for lease obligations 18,745    53,653   
Derecognition of build-to-suit lease —    2,479   
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9


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


10


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 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 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 2020 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, 2020 was derived from audited financial statements but does not include all disclosures required by GAAP. The results of operations for the three months ended April 30, 2020 are not necessarily indicative of the results to be expected for the year ending January 31, 2021.

Our fiscal year ends on January 31. References to fiscal 2021, for example, are to the fiscal year ending January 31, 2021. Certain prior year amounts have been reclassified to conform to current year presentation. These amounts were not material to any of the periods presented.

Use of Estimates

The preparation of financial statements in conformity with 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 fair value of assets acquired and liabilities assumed in business combinations;
the average period of benefit associated with deferred contract acquisition costs and fulfillment costs;
the valuation of strategic investments;
the fair value of certain stock awards issued;
the fair value of the liability and equity components of convertible notes;
the useful life and recoverability of long-lived assets;
the discount rate used for operating leases; and
the recognition, measurement and valuation of deferred income taxes.

The World Health Organization declared in March 2020 that the outbreak of the coronavirus disease named COVID-19 constitutes a pandemic. We have undertaken measures to protect our employees, partners and customers. There can be no assurance that these measures will be effective, however, or that we can adopt them without adversely affecting our business operations. In addition, the COVID-19 pandemic has created and may continue to create significant uncertainty in global financial markets, which may decrease technology spending, depress demand for our solutions 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, judgments or revise the carrying value of our assets or liabilities.
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These estimates may change, as new events occur and additional information is obtained, and are 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 2020 Annual Report on Form 10-K that have had a material impact on our consolidated financial statements and related notes.

Concentration of Credit Risk

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable. Although we deposit our cash with multiple financial institutions, the deposits, at times, may exceed federally insured limits. We have not experienced any losses on our deposits of cash and cash equivalents. Cash equivalents consist of money market funds which are invested through financial institutions in the U.S. Management believes that the institutions are financially stable and, accordingly, minimal credit risk exists.

We perform ongoing credit evaluations of our customers, do not require collateral and maintain allowances for potential credit losses on customers’ accounts using the expected loss model.

Investments

Investments in marketable securities consist of commercial paper, corporate notes and bonds, as well as U.S. Treasury and government agency securities. Management determines the appropriate classification of investments at the time of purchase and reevaluates such determination at each balance sheet date. Marketable securities are classified as available-for-sale and are carried at fair value in the consolidated balance sheet and are classified as short-term or long-term based on their remaining contractual maturities.

We evaluate our investments with unrealized loss positions at the individual security level to determine whether the unrealized loss was related to credit or noncredit factors. We consider whether a credit loss exists based on the extent of the unrealized loss position, any adverse conditions specifically related to the security or the issuer's operating environment, pay structure of the security, the issuer's payment history and any changes in the issuer's credit rating. Estimated credit losses are determined using a discounted cash flow model and recorded as an allowance, with changes in expected credit losses on our investments recorded in “Interest income and other income, net” in the consolidated statements of operations and comprehensive loss. Unrealized gains and losses related to noncredit factors are reflected in “Other comprehensive income (loss)” on the consolidated balance sheets.

Recently Adopted Accounting Pronouncements

On February 1, 2020, we adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial InstrumentsCredit Losses (Topic 326). The FASB subsequently issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. These updates change 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. The effect of adopting ASU 2016-13 and ASU 2019-04 on our consolidated financial statements and related disclosures was not material for the three months ended April 30, 2020.

On February 1, 2020, we adopted 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 update. The impact of prospectively adopting ASU 2018-15 on our consolidated financial statements was not material for the three months ended April 30, 2020.
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Other Recent Accounting Pronouncements

Other recently issued accounting pronouncements are not expected to have a material impact on our consolidated financial statements.

Note 2. Revenue and Performance Obligations

Subscription revenue is recognized over time and accounted for approximately 95% and 94% of our revenue for the three months ended April 30, 2020 and 2019.
        
As of April 30, 2020, the amount of the transaction price allocated to remaining performance obligations for contracts greater than one year was $784.9 million. We expect to recognize 54% of the transaction price allocated to remaining performance obligations within the 12 months following April 30, 2020, in our consolidated statement of operations and comprehensive loss.

Note 3. Fair Value Measurements
The following table summarizes our financial assets that are measured at fair value on a recurring basis:
April 30, 2020
(in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Level 1:
Cash equivalents(1)
Money market funds $ 169,397    $ —    $ —    $ 169,397   
Level 2:
Available-for-sale securities
Commercial paper 9,472    20    —    9,492   
Corporate notes and bonds 283,699    1,204    (523)   284,380   
U.S. Treasury securities 53,062    310    —    53,372   
U.S. government agency securities 108,313    320    (48)   108,585   
Level 2 total 454,546    1,854    (571)   455,829   
Total $ 623,943    $ 1,854    $ (571)   $ 625,226   
January 31, 2020
(in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Level 1:
Cash equivalents(1)
Money market funds $ 165,424    $ —    $ —    $ 165,424   
Level 2:
Available-for-sale securities
Commercial paper 14,919      (1)   14,925   
Corporate notes and bonds 372,844    891    (31)   373,704   
U.S. Treasury securities 90,697    153    (1)   90,849   
U.S. government agency securities 175,086    153    (49)   175,190   
Level 2 total 653,546    1,204    (82)   654,668   
Total $ 818,970    $ 1,204    $ (82)   $ 820,092   

(1) Included in “cash and cash equivalents” in our consolidated balance sheets as of April 30, 2020 and January 31, 2020, in addition to cash of $272.8 million and $75.8 million.
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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 available-for-sale securities as of April 30, 2020, by remaining contractual maturities, were as follows (in thousands):
Due in one year or less $ 315,712   
Due in one to two years 140,117   
$ 455,829   

As of April 30, 2020, we had a total of 133 available-for-sale securities, with 43 securities in an unrealized loss position. 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. As of January 31, 2020, we had 178 available-for-sale securities, none of which were considered to be other-than-temporarily impaired.

We had no liabilities measured at fair value on a recurring basis as of April 30, 2020 and January 31, 2020.

Convertible Senior Notes

As of April 30, 2020 and January 31, 2020, the estimated fair value of our 0.5% Convertible Senior Notes (the “Notes”) with aggregate principal amount of $575.0 million was $903.0 million and $743.5 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 8 for further information.

Note 4. Property and Equipment, Net

Property and equipment consisted of the following:
(in thousands) April 30, 2020 January 31, 2020
Computer and network equipment $ 74,146    $ 66,937   
Software, including capitalized software development costs 38,595    33,373   
Furniture and office equipment 17,529    16,752   
Leasehold improvements 69,327    59,564   
199,597    176,626   
Less: Accumulated depreciation (89,286)   (81,228)  
110,311    95,398   
Work in progress 24,500    32,895   
$ 134,811    $ 128,293   

As of April 30, 2020 and January 31, 2020, work in progress consisted primarily of capitalized costs of internally-developed software projects under development and leasehold improvements related to office build-out projects.

We capitalized $5.1 million and $5.9 million of internally developed software and implementation costs incurred in hosting arrangements for the three months ended April 30, 2020 and 2019. Such amounts included capitalized stock-based compensation of $1.2 million and $1.4 million in the three months ended April 30, 2020 and 2019.

Depreciation expense associated with property and equipment $9.8 million and $7.2 million for the three months ended April 30, 2020 and 2019.

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Note 5. Goodwill and Intangible Assets, Net

The changes in the carrying amount of goodwill were as follows (in thousands):
Balance at January 31, 2020 $ 194,882   
Cumulative translation adjustment (1,288)  
Balance at April 30, 2020 $ 193,594   

Intangible assets consisted of the following:
As of April 30, 2020 As of January 31, 2020
(in thousands, except years) Weighted-average Remaining Useful Life (Years) Estimated Fair Value Accumulated Amortization Acquisition-related Intangibles, Net Estimated Fair Value Accumulated Amortization Acquisition-related Intangibles, Net
Existing technology 1.4 $ 31,594    $ (26,191)   $ 5,403    $ 31,594    $ (25,164)   $ 6,430   
Tradenames / trademarks 0.0 2,419    (2,419)   —    2,419    (2,369)   50   
Customer contracts & related relationships 7.3 65,782    (21,032)   44,750    65,782    (19,071)   46,711   
Certifications 0.5 6,917    (6,575)   342    6,917    (6,229)   688   
Maintenance contracts & related relationships 0.5 1,498    (1,478)   20    1,498    (1,403)   95   
Backlog—Subscription 0.4 6,400    (5,308)   1,092    6,400    (4,508)   1,892   
6.5 $ 114,610    $ (63,003)   51,607    $ 114,610    $ (58,744)   55,866   
Cumulative translation adjustment 634    634   
Total $ 52,241    $ 56,500   

Amortization of finite-lived intangible assets was as follows:
Three Months Ended April 30,
(in thousands) 2020 2019
Cost of subscription revenue $ 1,348    $ 1,627   
Sales and marketing 2,911    3,106   
Total $ 4,259    $ 4,733   

As of April 30, 2020, future amortization of finite-lived intangibles that will be recorded in cost of revenue and operating expenses is estimated as follows:
Fiscal Period: Amount (in thousands)
2021, remainder $ 9,559   
2022 8,370   
2023 6,023   
2024 6,023   
2025 6,023   
Thereafter 15,609   
Total $ 51,607   

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Note 6. 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 invoiced to our customers where there is a remaining performance obligation, typically for multi-year arrangements. Total contract assets were $14.2 million and $13.4 million as of April 30, 2020 and January 31, 2020, of which $0.9 million were noncurrent for both periods and included within Other assets—noncurrent on our condensed consolidated balance sheets. The change in contract assets reflects the difference in timing between our satisfaction of 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, 2020 and 2019, we recognized revenue of $224.7 million and $157.0 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.

Note 7. 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) 2020 2019
Deferred Contract Acquisition Costs
Beginning balance $ 155,697    $ 115,985   
Additions to deferred contract acquisition costs 34,158    17,401   
Amortization of deferred contract acquisition costs (16,941)   (13,150)  
Cumulative translation adjustment (1,533)   (1,103)  
Ending balance $ 171,381    $ 119,133   
Deferred Contract Fulfillment Costs
Beginning balance $ 8,218    $ 3,432   
Additions to deferred contract fulfillment costs 6,879    3,086   
Amortization of deferred contract fulfillment costs (4,419)   (1,110)  
Ending balance $ 10,678    $ 5,408   

Note 8. Senior Notes

In September 2018, we issued $575.0 million in aggregate principal amount of the Notes due in 2023, which included the initial purchasers’ exercise in full of their option to purchase an additional $75.0 million principal amount of the Notes, in a private placement to qualified institutional buyers in an offering exempt from registration under the Securities Act of 1933, as amended. The net proceeds from the issuance of the Notes were $560.8 million after deducting the initial purchasers’ discounts and transaction costs.

As of April 30, 2020, the conversion conditions described in our 2020 Annual Report on Form 10-K have not been met and therefore the Notes are not yet convertible.

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The net carrying value of the liability component of the Notes was as follows:
(in thousands) April 30, 2020 January 31, 2020
Principal $ 575,000    $ 575,000   
Less: unamortized debt discount (95,132)   (101,461)  
Less: unamortized transaction costs (7,706)   (8,218)  
Net carrying amount $ 472,162    $ 465,321   

As of April 30, 2020 and January 31, 2020, the net carrying amount of the equity component of the Notes was $131.3 million, net of $3.3 million transaction costs.

The interest expense recognized related to the Notes was as follows:
Three Months Ended April 30,
(in thousands) 2020 2019
Contractual interest expense $ 718    $ 710   
Amortization of debt discount 6,329    5,970   
Amortization of transaction costs 513    484   
Total $ 7,560    $ 7,164   

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 and incurred costs of $67.6 million related to the transactions. The Capped Calls each have an initial strike price of approximately $71.50 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have initial cap prices of $110.00 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, approximately 8.0 million shares of common stock.

Impact on Loss Per Share

In periods when we have net income, the Notes will not have an impact on our diluted earnings per share until the average market price of our common stock exceeds the initial conversion price of $71.50 per share, as we intend and have the ability to settle the principal amount of the Notes in cash upon conversion. We are required under the treasury stock method to compute the potentially dilutive shares of common stock related to the Notes for periods we report net income. However, upon conversion, there will be no economic dilution from the Notes until the average market price of our common stock exceeds the cap price of $110.00 per share, as exercise of the Capped Calls offsets any dilution from the Notes from the conversion price up to the cap price. Capped Calls are excluded from the calculation of diluted earnings per share, as they would be antidilutive.

Note 9. Leases

We lease offices under noncancelable operating lease agreements that expire at various dates through February 2032. As of April 30, 2020, we had no finance leases. Some operating leases contain escalation provisions for adjustments in the consumer price index.
        
The following table is a summary of our lease costs:
Three Months Ended April 30,
(in thousands) 2020 2019
Operating lease cost $ 7,995    $ 5,706   
Short-term lease cost 165    269   
Total lease cost $ 8,160    $ 5,975   

Future lease payments under noncancelable operating leases as of April 30, 2020, were as follows:
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Fiscal Period: Amount (in thousands)
2021, remainder $ 26,611   
2022 36,542   
2023 36,922   
2024 37,285   
2025 28,882   
Thereafter 67,650   
Total undiscounted cash flows $ 233,892   
Less: imputed interest (32,529)  
Present value of lease liabilities $ 201,363   

The weighted average remaining lease term and discount rate for operating leases as of April 30, 2020 were 7.2 years and 4.3%.

As of April 30, 2020, we had commitments of $6.0 million for an operating lease with commencement date subsequent to quarter end. This lease has a term of six years.

Note 10. Commitments and Contingencies

As of April 30, 2020, we had unused letters of credit outstanding associated with our various operating leases totaling $9.0 million.

We have entered into certain noncancelable 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, 2020, our future noncancelable minimum payments due under these contractual obligations with a remaining term of more than one year were as follows:
Fiscal Period: Amount (in thousands)
2021, remainder $ 7,523   
2022 14,985   
2023 2,041   
2024 1,419   
2025 990   
Thereafter 3,566   
Total $ 30,524   

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, 2020, and January 31, 2020. 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.
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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.

Note 11. 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”).

The 2018 Plan serves as a successor to the 2011 Plan and 2003 Plan and provides for the grant of stock-based awards to our employees, directors and consultants. Shares available for grant under the 2011 Plan that were reserved but not issued as of the effective date of the 2018 Plan were added to the reserves of the 2018 Plan. No additional awards under the 2011 Plan or 2003 Plan have been made since the effective date of the 2018 Plan. Outstanding awards under these two plans continue to be subject to the terms and conditions of the respective plans.

As of April 30, 2020, 33.9 million shares of our common stock were available for issuance under the 2018 Plan.

The 2018 Plan provides that the number of shares reserved will automatically increase on the first day of each fiscal year, beginning on February 1, 2019, and ending on February 1, 2028, by 5% of the total number of shares of our capital stock outstanding on the immediately preceding January 31st  (or such lesser number of shares as our board of directors or a committee of our board of directors may approve). The most recent automatic increase of 9.1 million shares occurred on February 1, 2020.

Stock Options
        
Option activity for the three months ended April 30, 2020 was as follows:
(in thousands, except years and per share data) Number of Options Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value
Outstanding at January 31, 2020 6,882    $ 14.39    5.38 $ 441,247   
Exercised (840)   9.01   
Canceled/expired (12)   18.05   
Outstanding at April 30, 2020 6,030    $ 15.13    5.61 $ 540,435   
Vested and expected to vest at April 30, 2020 6,007    $ 15.12    5.61 $ 538,408   
Exercisable at April 30, 2020 5,451    $ 14.87    5.49 $ 489,893   

As of April 30, 2020, our total unrecognized compensation cost related to stock option grants was $4.2 million. We expect to recognize this expense over the remaining weighted-average period of approximately 0.7 years.

RSUs

RSUs granted under the 2018 Plan generally vest over a four-year period, either quarterly or with 25% vesting at the end of one year and the remainder quarterly thereafter. The majority of RSUs vest upon the satisfaction of a service-based vesting condition. From time to time, we also grant RSUs that are subject to either a performance-based or market-based vesting condition. The performance-based conditions will be satisfied upon satisfaction of certain financial performance targets. The market-based conditions will be satisfied if certain milestones based on our common stock price or relative total shareholder return are met.
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RSU activity for the three months ended April 30, 2020 was as follows:
(in thousands, except per share data) Number of Units Weighted-Average Grant Date Fair Value
Unvested at January 31, 2020 13,859    $ 46.28   
Granted 959    82.02   
Vested (1,675)   38.95   
Canceled (512)   $ 47.37   
Unvested at April 30, 2020 12,631    $ 49.93   

As of April 30, 2020, our total unrecognized compensation cost related to RSUs was $474.1 million. We expect to recognize this expense over the remaining weighted-average period of approximately 2.4 years.

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 by accumulating funds, normally through payroll deductions, of up to 15% of their earnings. The purchase price for common stock under the ESPP is equal to 85% of the fair market value of our common stock on the first or last day of the offering period, whichever is lower. The ESPP provides for separate six-month offering periods that begin in the first and third quarter of each year. In the three months ended April 30, 2020, 0.3 million shares of our common stock were purchased under the ESPP. Compensation expense related to the ESPP was $1.9 million for the three months ended April 30, 2020.

The number of shares reserved under the ESPP will automatically increase on the first day of each fiscal year, starting on February 1, 2019 and continuing through February 1, 2028, in an amount equal to the lesser of (i) 1% of the total number of shares of our common stock outstanding on January 31 of the preceding fiscal year, (ii) 3.8 million shares, or (iii) a lesser number of shares determined by our board of directors. As of April 30, 2020, 6.5 million shares of our common stock were reserved for issuance under the ESPP.

Note 12. 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) 2020 2019
Numerator:
Net loss attributable to common stockholders $ (47,804)   $ (45,722)  
Denominator:
Weighted-average common shares outstanding 182,978    172,101   
Net loss per share attributable to common stockholders:
Basic and diluted $ (0.26)   $ (0.27)  

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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) 2020 2019
RSUs 12,550    14,620   
Stock options 6,030    10,989   
ESPP 227    288   
Convertible senior notes 2,553    —   
Total antidilutive securities 21,360    25,897   

Note 13. Income Taxes

Our tax provision or benefit 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.

Our income tax provision was $2.1 million and $1.3 million for the three months ended April 30, 2020 and 2019, respectively. The increase in the tax provision was primarily driven by higher foreign tax expenses, resulting from higher year-over-year earnings in certain foreign jurisdictions as we continue to scale our foreign operations to support our ongoing international growth.

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. 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 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, 2020, our gross unrecognized tax benefits totaled $13.7 million, excluding related accrued interest and penalties, of which $2.5 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, 2020 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 tax years 2015 through 2018. We are not under examination in any other material jurisdiction. We believe that adequate amounts have been reserved in all jurisdictions.

Note 14. Geographic Information

We operate in one operating segment and one reportable segment as we only report financial information on an aggregate and consolidated basis to the Chief Executive Officer, who is our chief operating decision maker.

Revenue by geography is based on the address of the customer as specified in our master subscription agreement. Revenue by geographic area was as follows:
Three Months Ended April 30,
(in thousands) 2020 2019
U.S. $ 242,168    $ 176,266   
International 54,849    37,696   
Total revenue $ 297,017    $ 213,962   

No single country other than the U.S. had revenue greater than 10% of total revenue in the three months ended April 30, 2020 and 2019.

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Our long-lived assets by geographic area, which consist of property and equipment, net and operating lease right-of-use assets were as follows:
(in thousands) April 30, 2020 January 31, 2020
U.S. 201,842    $ 182,288   
International 94,453    95,838   
Total long-lived assets $ 296,295    $ 278,126   

Note 15. Subsequent Events

On February 26, 2020, we entered into a Share Purchase Agreement to acquire all outstanding equity in Seal Software Group Limited, a leading contract analytics and artificial intelligence technology provider, for approximately $185.1 million in cash, subject to adjustments. The acquisition closed on May 1, 2020.

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 2020 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 2020 Annual Report on Form 10-K. Our fiscal year ends January 31.

Executive Overview of First Quarter Results

Overview

DocuSign accelerates the process of doing business for companies and simplifies life for their customers and employees. We accomplish this by transforming the foundational element of business: the agreement.

We offer the world’s #1 e-signature solution as the core part of our broader software suite for automating the agreement process, which we call the DocuSign Agreement Cloud. It is designed to allow companies of all sizes and across all industries to quickly and easily make nearly every agreement, approval process or transaction digital. It provides comprehensive functionality across e-signature and addresses the broader agreement process. As a result, over 660,000 customers and hundreds of millions of users worldwide utilize DocuSign to create, upload and send documents for multiple parties to sign electronically. The DocuSign Agreement Cloud allows users to complete approvals, agreements and transactions faster by building end-to-end processes. DocuSign eSignature integrates with popular business apps, and our functionality can also be embedded using our API. 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 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.

We generate substantially all our revenue from sales of subscriptions, which accounted for 95% and 94% of our revenue in the three months ended April 30, 2020 and 2019. Our subscription fees include the use of our software suite 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
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on-premises solutions. Professional services and other revenue accounted for 5% and 6% of our revenue in the three months ended April 30, 2020 and 2019. We anticipate continuing to invest in customer success through our professional services offerings as we believe it plays an important role in accelerating our customers’ deployment of our software suite, which helps to drive customer retention and expansion of the use of the DocuSign Agreement Cloud.

We offer subscriptions to our software suite to enterprise businesses, commercial businesses and very small businesses (“VSBs”), which we define as companies with fewer than 10 employees and includes professionals, sole proprietorships and individuals. 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 300 off-the-shelf, prebuilt integrations with the applications that many of our customers already use—including those offered by Google, Microsoft, NetSuite, Oracle, Salesforce, SAP, SAP SuccessFactors and Workday—so that they can create, sign, send and manage agreements from directly within these applications. We have a diverse customer base spanning various industries and countries with no significant customer concentration. No single customer accounted for more than 10% of total revenue in any of the periods presented.

We focused initially on selling our e-signature solutions to commercial businesses and VSBs, and later expanded our focus to target enterprise customers. To demonstrate this growth over time, the number of our customers with greater than $300,000 in annual contract value (measured in billings) has increased from approximately 30 customers as of January 31, 2013 to 473 customers as of April 30, 2020. Each of our customer types has a different purchasing pattern. VSBs tend to become customers quickly with very little to no direct sales or customer support interaction and generate smaller average contract values, while commercial and enterprise customers typically involve longer sales cycles, larger contract values and greater expansion opportunities for us.

COVID-19 Update

The COVID-19 pandemic has continued to spread rapidly across the world. The pandemic and the public health measures taken in response to it have adversely affected workforces, organizations, customers, economies, and financial markets globally, leading to an economic downturn and increased market volatility. We are continuing to monitor the actual and potential effects of the pandemic across our business. Because these effects are dependent on highly uncertain future developments--including the duration, spread and severity of the outbreak, the actions taken to contain the virus, and how quickly and to what extent normal economic and operating conditions can resume--they are extremely difficult to predict. While our revenues, billings and earnings are relatively predictable as a result of our subscription-based business model, the effects of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods.

Since mid-March, we have taken a number of precautionary measures to ensure the health and safety of our employees, partners and customers. DocuSign shifted to a remote workplace, requiring nearly all employees to work from home. We suspended all business travel other than for essential functions. We have cancelled or replaced planned events, such as our Momentum conferences, with virtual-only experiences. We have incurred expenses to support our employees working from home, including reimbursements for home office equipment and a stipend for other qualifying expenses, and may incur similar expenses in the future as remote operations continue. The impact of these and any other operational changes we may implement is uncertain, but as of the date of this filing they have not materially affected our ability to maintain operations.

We have experienced a substantial increase in overall demand for our solutions, particularly DocuSign eSignature, as the shift to remote, web-enabled business operations has caused more organizations to adopt or expand their use of digital agreements. This has resulted in a significant increase in customer spending across almost all industries and regions we serve, though we have experienced slower growth or declining spending in certain industries most impacted by the pandemic, such as travel and hospitality. As the pandemic continues, however, we may experience volatility in customer demand; increased customer churn; increases in late payment or non-payment by customers; delayed purchasing decisions; and increased pressure on pricing, discounts and payment terms, any of which could materially harm our business, results of operations and overall financial performance.

See the section below titled “Risk Factors” for further discussion of the potential impact of the COVID-19 pandemic on our business, financial condition and results of operations.

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Financial Results:
Three Months Ended April 30,
(in thousands) 2020 2019
Total revenue $ 297,017    $ 213,962   
Total costs and expenses 338,870    256,399   
Total stock-based compensation expense 53,551    42,271   
Loss from operations (41,853)   (42,437)  
Net loss (47,804)   (45,722)  
Net cash provided by operating activities 59,144    45,655   
Capital expenditures (26,389)   (15,237)  

Cash, cash equivalents and investments were $898.1 million as of April 30, 2020.

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, 2020, we had a total of over 660,000 customers, including over 85,000 enterprise and commercial customers, compared to over 500,000 customers and over 60,000 enterprise and commercial customers as of April 30, 2019. We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract to access our software suite. 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 (“SMBs”), which are companies with between 10 and 249 employees, in each case excluding any enterprise customers. We refer to total customers as all enterprises, commercial businesses and VSBs.

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

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 suite. Several of our largest enterprise customers have deployed our software suite for hundreds of use cases across their organizations. We believe there is significant expansion opportunity with our customers following their initial adoption of our software suite.

Increasing International Revenue
        
Our international revenue in three months ended April 30, 2020 increased by 46% from the three months ended April 30, 2019 and represented 18% of our total revenue in both periods.

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We started our international selling efforts in English-speaking common law countries, such as Canada, the United Kingdom and Australia, where we were able to leverage our core technologies due to similar approaches to e-signature in these jurisdictions and the United States (“U.S.”). We have since made significant investments to be able to offer our solutions in select civil law countries. For example, in Europe, we have Standards-Based Signature technology tailored for electronic IDentification, Authentication and trust Services (“eIDAS”). Standards-Based Signatures support 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. Additionally, we expect our strategic partnerships in key international markets, including our current relationships with SAP in Europe, to further grow.

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 suite and underlying infrastructure and technology to meet the needs of our customers across industries.

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 suite and our technical infrastructure and access to customer support, which includes phone or email support. We typically invoice customers in advance on an annual basis. We recognize subscription revenue ratably over the term of the contract subscription period beginning on the date access to our software suite is provided.

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

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 suite and providing support. These expenses consist of employee-related costs, including salaries, bonuses, benefits, stock-based compensation and other related costs, as well as personnel costs for employees 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.

We expect our cost of revenue to continue to increase in absolute dollar amounts as we invest in our business.
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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 suite support and professional services team, stock-based compensation expenses, amortization of costs associated with capitalized internal use software and acquired intangible assets and allocated overhead costs.

Operating Expenses

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

Selling and Marketing Expense. Selling and marketing expense consists primarily of personnel costs, including sales commissions. These expenses also include expenditures related to advertising, marketing, promotional events and brand awareness activities, as well as allocated overhead costs. We expect selling and marketing expense to continue to increase in absolute dollars as we enhance our product offerings and implement marketing strategies.

Research and Development Expense. Research 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 suite.

General and Administrative Expense. General and administrative expense consists primarily of employee-related costs for those employees providing administrative services such as legal, human resources, information technology related to internal systems, accounting and finance. These expenses also include certain third-party consulting services, certain facilities costs and allocated overhead costs. 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, amortization of discount and amortization of debt issuance costs on our Notes.

Interest Income and Other Income, Net

Interest income and other income, net, consists primarily of interest earned on our cash, cash equivalents and investments, as well as 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, state minimum taxes in the U.S., and tax benefits arising from deductions for stock options. We have a valuation allowance against our U.S. deferred tax assets, including U.S. net operating loss carryforwards. We expect to maintain this valuation allowance for the foreseeable future or until it becomes more likely than not that the benefit of our U.S. deferred tax assets will be realized by way of expected future taxable income in the U.S.

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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) 2020 2019
Revenue:
Subscription $ 280,922    $ 201,458   
Professional services and other 16,095    12,504   
Total revenue 297,017    213,962   
Cost of revenue:
Subscription 52,010    33,119   
Professional services and other 22,022    18,900   
Total cost of revenue 74,032    52,019   
Gross profit 222,985    161,943   
Operating expenses:
Sales and marketing 171,793    129,936   
Research and development 54,234    37,183   
General and administrative 38,811    37,261   
Total operating expenses 264,838    204,380   
Loss from operations (41,853)   (42,437)  
Interest expense (7,560)   (7,156)  
Interest income and other income, net 3,742    5,217   
Loss before provision for income taxes (45,671)   (44,376)  
Provision for income taxes 2,133    1,346   
Net loss $ (47,804)   $ (45,722)  

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The following table sets forth the components of our consolidated statements of operations data as a percentage of revenue:
Three Months Ended April 30,
(in thousands) 2020 2019
Revenue:
Subscription 95  % 94  %
Professional services and other    
Total revenue 100    100   
Cost of revenue:
Subscription 18    15   
Professional services and other    
Total cost of revenue 25    24   
Gross profit 75    76   
Operating expenses:
Sales and marketing 58    61   
Research and development 18    17   
General and administrative 13    18   
Total operating expenses 89    96   
Loss from operations (14)   (20)  
Interest expense (3)   (3)  
Interest income and other income, net    
Loss before provision for income taxes (15)   (21)  
Provision for income taxes   —   
Net loss (16) % (21) %

The following discussion and analysis is for the three months ended April 30, 2020, compared to the same period in 2019.

Revenue
Three Months Ended April 30,
(in thousands, except for percentages) 2020 2019 2020 versus 2019
Revenue:
Subscription $ 280,922    $ 201,458    39  %
Professional services and other 16,095    12,504    29  %
Total revenue $ 297,017    $ 213,962    39  %

Subscription Revenue

Subscription revenue increased $79.5 million, or 39%, in the three months ended April 30, 2020, primarily driven by customer growth.

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 we offer new functionality, attract new customers and fully realize the potential of our acquisitions in our product offerings.

Professional Services and Other Revenue

Professional services and other revenue increased by $3.6 million, or 29%, in the three months ended April 30, 2020, primarily due to increased engagement of professional services to support our growing customer base.

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Cost of Revenue and Gross Margin
Three Months Ended April 30,
(in thousands, except for percentages) 2020 2019 2020 versus 2019
Cost of revenue:
Subscription $ 52,010    $ 33,119    57  %
Professional services and other 22,022    18,900    17  %
Total cost of revenue $ 74,032    $ 52,019    42  %
Gross margin:
Subscription 81  % 84  % (3) pts
Professional services and other (37) % (51) % 14  pts
Total gross margin 75  % 76  % (1) pts

Cost of Subscription Revenue

Cost of subscription revenue increased $18.9 million, or 57%, in the three months ended April 30, 2020, primarily due to:
An increase of $10.4 million in operating costs, primarily related to an increase in reseller partnership fees and higher data center costs;
An increase of $5.4 million in personnel costs primarily due to higher headcount.

Cost of Professional Services and Other Revenue

Cost of professional services and other revenue increased $3.1 million, or 17%, in the three months ended April 30, 2020, primarily due to an increase of $2.9 million in personnel costs as a result of higher headcount.

Sales and Marketing
Three Months Ended April 30,
(in thousands, except for percentages) 2020 2019 2020 versus 2019
Sales and marketing $ 171,793    $ 129,936    32  %
Percentage of revenue 58  % 61  %

Sales and marketing expenses increased $41.9 million, or 32%, in the three months ended April 30, 2020, primarily due to:
An increase of $27.1 million in personnel costs due to higher headcount and higher commissions in line with higher sales;
An increase of $6.6 million in stock-based compensation expense due to higher headcount;
An increase of $4.8 million in marketing and advertising expense, primarily due to higher spend on online advertising platforms to capture the increase in demand in the current quarter.

Research and Development
Three Months Ended April 30,