0001261333January 31false2022Q1docu:AccountingStandardsUpdate202006Member00012613332021-02-012021-04-30xbrli:shares00012613332021-05-28iso4217:USD00012613332021-04-3000012613332021-01-31iso4217:USDxbrli:shares0001261333us-gaap:SubscriptionAndCirculationMember2021-02-012021-04-300001261333us-gaap:SubscriptionAndCirculationMember2020-02-012020-04-300001261333docu:ProfessionalServicesAndOtherMember2021-02-012021-04-300001261333docu:ProfessionalServicesAndOtherMember2020-02-012020-04-3000012613332020-02-012020-04-300001261333us-gaap:SubscriptionAndCirculationMemberus-gaap:CostOfSalesMember2021-02-012021-04-300001261333us-gaap:SubscriptionAndCirculationMemberus-gaap:CostOfSalesMember2020-02-012020-04-300001261333docu:ProfessionalServicesAndOtherMemberus-gaap:CostOfSalesMember2021-02-012021-04-300001261333docu:ProfessionalServicesAndOtherMemberus-gaap:CostOfSalesMember2020-02-012020-04-300001261333us-gaap:SellingAndMarketingExpenseMember2021-02-012021-04-300001261333us-gaap:SellingAndMarketingExpenseMember2020-02-012020-04-300001261333us-gaap:ResearchAndDevelopmentExpenseMember2021-02-012021-04-300001261333us-gaap:ResearchAndDevelopmentExpenseMember2020-02-012020-04-300001261333us-gaap:GeneralAndAdministrativeExpenseMember2021-02-012021-04-300001261333us-gaap:GeneralAndAdministrativeExpenseMember2020-02-012020-04-300001261333us-gaap:CommonStockMember2021-01-310001261333us-gaap:AdditionalPaidInCapitalMember2021-01-310001261333us-gaap:TreasuryStockMember2021-01-310001261333us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-310001261333us-gaap:RetainedEarningsMember2021-01-310001261333us-gaap:AdditionalPaidInCapitalMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2021-01-310001261333us-gaap:RetainedEarningsMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2021-01-310001261333srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2021-01-310001261333us-gaap:CommonStockMember2021-02-012021-04-300001261333us-gaap:AdditionalPaidInCapitalMember2021-02-012021-04-300001261333us-gaap:TreasuryStockMember2021-02-012021-04-300001261333us-gaap:RetainedEarningsMember2021-02-012021-04-300001261333us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-02-012021-04-300001261333us-gaap:CommonStockMember2021-04-300001261333us-gaap:AdditionalPaidInCapitalMember2021-04-300001261333us-gaap:TreasuryStockMember2021-04-300001261333us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-300001261333us-gaap:RetainedEarningsMember2021-04-300001261333us-gaap:CommonStockMember2020-01-310001261333us-gaap:AdditionalPaidInCapitalMember2020-01-310001261333us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-310001261333us-gaap:RetainedEarningsMember2020-01-3100012613332020-01-310001261333us-gaap:CommonStockMember2020-02-012020-04-300001261333us-gaap:AdditionalPaidInCapitalMember2020-02-012020-04-300001261333us-gaap:RetainedEarningsMember2020-02-012020-04-300001261333us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-02-012020-04-300001261333us-gaap:CommonStockMember2020-04-300001261333us-gaap:AdditionalPaidInCapitalMember2020-04-300001261333us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-300001261333us-gaap:RetainedEarningsMember2020-04-3000012613332020-04-3000012613332019-02-012020-01-310001261333srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:ConvertibleDebtMember2021-01-31xbrli:pure0001261333us-gaap:SalesRevenueNetMemberus-gaap:SubscriptionAndCirculationMemberus-gaap:ProductConcentrationRiskMember2021-02-012021-04-300001261333us-gaap:SalesRevenueNetMemberus-gaap:SubscriptionAndCirculationMemberus-gaap:ProductConcentrationRiskMember2020-02-012020-04-3000012613332021-05-012021-04-300001261333us-gaap:FairValueInputsLevel1Memberus-gaap:CashAndCashEquivalentsMemberus-gaap:MoneyMarketFundsMember2021-04-300001261333us-gaap:ShortTermInvestmentsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2021-04-300001261333us-gaap:ShortTermInvestmentsMemberus-gaap:CorporateNoteSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-04-300001261333us-gaap:ShortTermInvestmentsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2021-04-300001261333us-gaap:ShortTermInvestmentsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-04-300001261333us-gaap:ShortTermInvestmentsMemberus-gaap:FairValueInputsLevel2Member2021-04-300001261333us-gaap:ShortTermInvestmentsMemberus-gaap:CorporateNoteSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-04-300001261333us-gaap:FairValueInputsLevel1Memberus-gaap:CashAndCashEquivalentsMemberus-gaap:MoneyMarketFundsMember2021-01-310001261333us-gaap:ShortTermInvestmentsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2021-01-310001261333us-gaap:ShortTermInvestmentsMemberus-gaap:CorporateNoteSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-01-310001261333us-gaap:ShortTermInvestmentsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2021-01-310001261333us-gaap:ShortTermInvestmentsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-01-310001261333us-gaap:ShortTermInvestmentsMemberus-gaap:FairValueInputsLevel2Member2021-01-310001261333us-gaap:ShortTermInvestmentsMemberus-gaap:CorporateNoteSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-01-310001261333us-gaap:ShortTermInvestmentsMember2021-04-300001261333docu:ConvertibleSeniorNotesDue2023Memberus-gaap:ConvertibleDebtMember2021-04-300001261333docu:ConvertibleSeniorNotesDue2023Memberus-gaap:ConvertibleDebtMember2021-01-310001261333docu:ConvertibleSeniorNotesDue2024Memberus-gaap:ConvertibleDebtMember2021-04-300001261333docu:ConvertibleSeniorNotesDue2024Memberus-gaap:ConvertibleDebtMember2021-01-310001261333us-gaap:ComputerEquipmentMember2021-04-300001261333us-gaap:ComputerEquipmentMember2021-01-310001261333us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2021-04-300001261333us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2021-01-310001261333us-gaap:FurnitureAndFixturesMember2021-04-300001261333us-gaap:FurnitureAndFixturesMember2021-01-310001261333us-gaap:LeaseholdImprovementsMember2021-04-300001261333us-gaap:LeaseholdImprovementsMember2021-01-310001261333docu:PropertyPlantandEquipmentExcludingConstructionInProgressMember2021-04-300001261333docu:PropertyPlantandEquipmentExcludingConstructionInProgressMember2021-01-310001261333us-gaap:ConstructionInProgressMember2021-04-300001261333us-gaap:ConstructionInProgressMember2021-01-310001261333us-gaap:TechnologyBasedIntangibleAssetsMember2021-02-012021-04-300001261333us-gaap:TechnologyBasedIntangibleAssetsMember2021-04-300001261333us-gaap:TechnologyBasedIntangibleAssetsMember2021-01-310001261333us-gaap:CustomerContractsMember2021-02-012021-04-300001261333us-gaap:CustomerContractsMember2021-04-300001261333us-gaap:CustomerContractsMember2021-01-310001261333us-gaap:ServicingContractsMember2021-02-012021-04-300001261333us-gaap:ServicingContractsMember2021-04-300001261333us-gaap:ServicingContractsMember2021-01-310001261333us-gaap:CostOfSalesMember2021-02-012021-04-300001261333us-gaap:CostOfSalesMember2020-02-012020-04-300001261333docu:ContractAcquisitionCostsMember2021-01-310001261333docu:ContractAcquisitionCostsMember2020-01-310001261333docu:ContractAcquisitionCostsMember2021-02-012021-04-300001261333docu:ContractAcquisitionCostsMember2020-02-012020-04-300001261333docu:ContractAcquisitionCostsMember2021-04-300001261333docu:ContractAcquisitionCostsMember2020-04-300001261333docu:ContractFulfillmentCostsMember2021-01-310001261333docu:ContractFulfillmentCostsMember2020-01-310001261333docu:ContractFulfillmentCostsMember2021-02-012021-04-300001261333docu:ContractFulfillmentCostsMember2020-02-012020-04-300001261333docu:ContractFulfillmentCostsMember2021-04-300001261333docu:ContractFulfillmentCostsMember2020-04-300001261333docu:ConvertibleSeniorNotesDue2023Memberus-gaap:ConvertibleDebtMember2018-09-300001261333docu:ConvertibleSeniorNotesDue2023Memberus-gaap:ConvertibleDebtMember2018-09-012018-09-30docu:trading_day0001261333docu:ConvertibleSeniorNotesDue2024Memberus-gaap:ConvertibleDebtMember2021-01-012021-01-310001261333docu:ConvertibleSeniorNotesDue2023Memberus-gaap:ConvertibleDebtMember2021-02-012021-04-300001261333us-gaap:SubsequentEventMemberdocu:ConvertibleSeniorNotesDue2023Memberus-gaap:ConvertibleDebtMember2021-06-030001261333docu:ConvertibleSeniorNotesDue2023Memberus-gaap:ConvertibleDebtMember2021-02-010001261333docu:ConvertibleSeniorNotesDue2024Memberus-gaap:ConvertibleDebtMember2021-02-010001261333us-gaap:ConvertibleDebtMember2021-02-012021-04-300001261333us-gaap:ConvertibleDebtMember2020-02-012020-04-300001261333docu:ConvertibleSeniorNotesDue2023Memberus-gaap:CallOptionMemberus-gaap:ConvertibleDebtMember2021-02-012021-04-300001261333docu:ConvertibleSeniorNotesDue2024Memberus-gaap:CallOptionMemberus-gaap:ConvertibleDebtMember2021-02-012021-04-300001261333docu:ConvertibleSeniorNotesDue2023Memberus-gaap:CallOptionMember2021-02-012021-04-300001261333docu:ConvertibleSeniorNotesDue2024Memberus-gaap:CallOptionMember2021-02-012021-04-300001261333us-gaap:RevolvingCreditFacilityMemberdocu:CreditFacilityMember2021-01-310001261333us-gaap:RevolvingCreditFacilityMembersrt:MinimumMemberdocu:CreditFacilityMember2021-02-012021-04-300001261333us-gaap:RevolvingCreditFacilityMemberdocu:CreditFacilityMembersrt:MaximumMember2021-02-012021-04-30docu:plan0001261333docu:A2018EquityIncentivePlanMember2021-04-300001261333docu:A2018EquityIncentivePlanMember2021-02-012021-04-300001261333docu:A2018EquityIncentivePlanMember2021-02-010001261333us-gaap:RestrictedStockUnitsRSUMember2021-02-012021-04-300001261333us-gaap:RestrictedStockUnitsRSUMemberdocu:A2018EquityIncentivePlanMember2021-02-012021-04-300001261333us-gaap:RestrictedStockUnitsRSUMember2021-01-310001261333us-gaap:RestrictedStockUnitsRSUMember2021-04-3000012613332020-02-012021-01-310001261333docu:A2018EmployeeStockPurchasePlanMember2021-01-310001261333docu:A2018EmployeeStockPurchasePlanMember2021-02-012021-04-300001261333us-gaap:EmployeeStockMember2021-02-012021-04-300001261333us-gaap:EmployeeStockMember2020-02-012020-04-300001261333docu:A2018EmployeeStockPurchasePlanMember2021-04-300001261333us-gaap:RestrictedStockUnitsRSUMember2021-02-012021-04-300001261333us-gaap:RestrictedStockUnitsRSUMember2020-02-012020-04-300001261333us-gaap:EmployeeStockOptionMember2021-02-012021-04-300001261333us-gaap:EmployeeStockOptionMember2020-02-012020-04-300001261333us-gaap:EmployeeStockMember2021-02-012021-04-300001261333us-gaap:EmployeeStockMember2020-02-012020-04-300001261333us-gaap:ConvertibleNotesPayableMember2021-02-012021-04-300001261333us-gaap:ConvertibleNotesPayableMember2020-02-012020-04-30docu:segment0001261333country:US2021-02-012021-04-300001261333country:US2020-02-012020-04-300001261333us-gaap:NonUsMember2021-02-012021-04-300001261333us-gaap:NonUsMember2020-02-012020-04-300001261333country:US2021-04-300001261333country:US2021-01-310001261333country:IE2021-04-300001261333country:IE2021-01-310001261333docu:OtherwiseUndisclosedInternationalLocationsMember2021-04-300001261333docu:OtherwiseUndisclosedInternationalLocationsMember2021-01-31

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, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                
Commission File Number: 001-38465
______________________________________
DOCUSIGN, INC.
(Exact name of registrant as specified in its charter)
______________________________________
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 194,835,125 shares of common stock, par value $0.0001, outstanding at May 28, 2021.



DOCUSIGN, INC.
TABLE OF CONTENTS
5
6
7
8

DocuSign, Inc. | 2022 Form 10Q | 2


NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

DocuSign, Inc. | 2022 Form 10Q | 3


The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law.
DocuSign, Inc. | 2022 Form 10Q | 4


PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DOCUSIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except per share data) April 30, 2021 January 31, 2021
Assets
Current assets
Cash and cash equivalents $ 518,972  $ 566,055 
Investments—current 261,660  207,450 
Accounts receivable, net of allowance for doubtful accounts of $5,393 and $5,362 as of April 30, 2021 and January 31, 2021
250,365  323,570 
Contract assets—current 15,267  16,883 
Prepaid expenses and other current assets 65,172  48,390 
Total current assets 1,111,436  1,162,348 
Investments—noncurrent 94,930  92,717 
Property and equipment, net 164,128  165,039 
Operating lease right-of-use assets 152,185  159,352 
Goodwill 351,511  350,151 
Intangible assets, net 115,009  121,828 
Deferred contract acquisition costs—noncurrent 274,039  260,130 
Other assets—noncurrent 33,882  24,942 
Total assets $ 2,297,120  $ 2,336,507 
Liabilities and Equity
Current liabilities
Accounts payable $ 14,870  $ 37,367 
Accrued expenses and other current liabilities 75,438  66,566 
Accrued compensation 129,640  156,158 
Convertible senior notes—current 13,343  20,469 
Contract liabilities—current 829,844  779,642 
Operating lease liabilities—current 34,777  32,971 
Total current liabilities 1,097,912  1,093,173 
Convertible senior notes, net—noncurrent 742,577  693,219 
Contract liabilities—noncurrent 17,938  16,492 
Operating lease liabilities—noncurrent 155,998  165,704 
Deferred tax liability—noncurrent 6,484  6,464 
Other liabilities—noncurrent 32,974  32,328 
Total liabilities 2,053,883  2,007,380 
Commitments and contingencies (Note 8)
Convertible senior notes (Note 7)
—  3,390 
Stockholders’ equity
Preferred stock, $0.0001 par value; 10,000 shares authorized, 0 shares issued and outstanding as of April 30, 2021 and January 31, 2021
—  — 
Common stock, $0.0001 par value; 500,000 shares authorized, 194,734 shares outstanding as of April 30, 2021; 500,000 shares authorized, 192,807 shares outstanding as of January 31, 2021
19  19 
Treasury stock, at cost: 5 shares as of April 30, 2021 and 5 shares as of January 31, 2021
(1,219) (1,048)
Additional paid-in capital 1,615,646  1,702,254 
Accumulated other comprehensive income 5,358  4,964 
Accumulated deficit (1,376,567) (1,380,452)
Total stockholders’ equity
243,237  325,737 
Total liabilities and equity $ 2,297,120  $ 2,336,507 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
DocuSign, Inc. | 2022 Form 10Q | 5


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
Three Months Ended April 30,
(in thousands, except per share data) 2021 2020
Revenue:
Subscription $ 451,935  $ 280,922 
Professional services and other 17,143  16,095 
Total revenue 469,078  297,017 
Cost of revenue:
Subscription 78,071  52,010 
Professional services and other 27,171  22,022 
Total cost of revenue 105,242  74,032 
Gross profit 363,836  222,985 
Operating expenses:
Sales and marketing 239,119  171,793 
Research and development 85,416  54,234 
General and administrative 50,038  38,811 
Total operating expenses 374,573  264,838 
Loss from operations (10,737) (41,853)
Interest expense (1,672) (7,560)
Interest income and other income, net 6,037  3,742 
Loss before provision for income taxes (6,372) (45,671)
Provision for income taxes 1,982  2,133 
Net loss $ (8,354) $ (47,804)
Net loss per share attributable to common stockholders, basic and diluted $ (0.04) $ (0.26)
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted 194,342  182,978 
Other comprehensive income (loss):
Foreign currency translation gain (loss), net of tax $ 636  $ (5,189)
Unrealized gains (losses) on investments, net of tax (242) 159 
Other comprehensive income (loss) 394  (5,030)
Comprehensive loss $ (7,960) $ (52,834)
Stock-based compensation expense included in costs and expenses:
Cost of revenue—subscription $ 6,018  $ 3,864 
Cost of revenue—professional services and other 5,535  4,125 
Sales and marketing 38,135  24,665 
Research and development 20,462  11,885 
General and administrative 10,986  9,012 

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 Treasury Stock Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity
(in thousands) Shares Amount
Balances at January 31, 2021 192,807  $ 19  $ 1,702,254  $ (1,048) $ 4,964  $ (1,380,452) $ 325,737 
Cumulative impact of Accounting Standards Update 2020-06 adoption —  —  (86,144) —  —  12,239  (73,905)
Settlement of convertible senior notes due in 2023 352  —  (446) —  —  —  (446)
Exercise of stock options 488  —  6,616  —  —  —  6,616 
Settlement of restricted stock units 955  —  —  —  —  —  — 
Tax withholding on net share settlement of restricted stock units and employee stock purchase plan —  —  (113,412) (171) —  —  (113,583)
Employee stock purchase plan 132  —  23,167  —  —  —  23,167 
Employee stock-based compensation —  —  83,611  —  —  —  83,611 
Net loss —  —  —  —  —  (8,354) (8,354)
Other comprehensive income, net —  —  —  —  394  —  394 
Balances at April 30, 2021 194,734  $ 19  $ 1,615,646  $ (1,219) $ 5,358  $ (1,376,567) $ 243,237 
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 restricted stock units 1,078  —  —  —  —  —  — 
Tax withholding on net share settlement of restricted stock units —  —  (46,723) —  —  —  (46,723)
Employee stock purchase plan 256  —  13,590  —  —  —  13,590 
Employee stock-based compensation —  —  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 

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) 2021 2020
Cash flows from operating activities:
Net loss $ (8,354) $ (47,804)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization 20,037  14,039 
Amortization of deferred contract acquisition and fulfillment costs 30,933  21,360 
Amortization of debt discount and transaction costs 1,319  6,842 
Fair value adjustments to strategic investments (5,119) — 
Non-cash operating lease costs 6,943  6,324 
Stock-based compensation expense 81,637  53,551 
Deferred income taxes 264  (104)
Other (1,240) 504 
Changes in operating assets and liabilities
Accounts receivable 73,205  17,239 
Contract assets 1,607  (740)
Prepaid expenses and other current assets (15,670) (9,660)
Deferred contract acquisition and fulfillment costs (46,154) (41,037)
Other assets (3,167) (1,364)
Accounts payable (21,593) (2,554)
Accrued expenses and other liabilities 11,080  (916)
Accrued compensation (34,048) (1,536)
Contract liabilities 51,648  44,594 
Operating lease liabilities (7,731) 406 
Net cash provided by operating activities 135,597  59,144 
Cash flows from investing activities:
Purchases of marketable securities (96,925) — 
Sales of marketable securities 2,002  28,986 
Maturities of marketable securities 37,513  170,071 
Purchases of strategic investments (500) — 
Purchases of other investments —  (3,000)
Purchases of property and equipment (12,596) (26,389)
Net cash (used in) provided by investing activities (70,506) 169,668 
Cash flows from financing activities:
Repayments of convertible senior notes (36,684) — 
Payment of tax withholding obligation on net share settlement of restricted stock units (106,053) (46,723)
Proceeds from exercise of stock options 6,616  7,635 
Proceeds from employee stock purchase plan 23,167  13,590 
Net cash used in financing activities (112,954) (25,498)
Effect of foreign exchange on cash, cash equivalents and restricted cash 779  (2,280)
Net increase (decrease) in cash, cash equivalents and restricted cash (47,084) 201,034 
Cash, cash equivalents and restricted cash at beginning of period (1)
566,336  241,483 
Cash, cash equivalents and restricted cash at end of period (1)
$ 519,252  $ 442,517 
(1) $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.
8


DOCUSIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)
Three Months Ended April 30,
(in thousands) 2021 2020
Supplemental disclosure:
Cash paid for interest $ 212  $ 1,438 
Cash paid for operating lease liabilities 9,888  6,389 
Cash paid for income taxes 2,507  416 
Non-cash investing and financing activities:
Property and equipment in accounts payable and accrued expenses and other current liabilities $ 1,275  $ 3,445 
Operating lease right-of-use assets exchanged for lease obligations —  18,745 
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.
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, sign, act on and manage agreements, thereby simplifying and accelerating the process of doing business.

Basis of Presentation and Principles of Consolidation

Our condensed consolidated financial statements include those of DocuSign, Inc. and our subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our fiscal 2021 Annual Report on Form 10-K.

Our condensed consolidated financial statements are unaudited and have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and, in our opinion, include all adjustments of a normal recurring nature necessary for the fair statement of our financial position, results of operations and cash flows. Our condensed consolidated balance sheet as of January 31, 2021 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended April 30, 2021 are not necessarily indicative of the results to be expected for the year ending January 31, 2022.

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

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in the condensed consolidated financial statements and notes thereto.

Significant items subject to such estimates and assumptions made by management include, but are not limited to, the determination of:
the 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.

Since the emergence of the COVID-19 pandemic, 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 October 4, 2021. 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, for example, vaccine deployments, national and regional outbreaks, and the emergence of disease variants) have created and may continue to create significant uncertainty in global financial markets, which may decrease technology spending, depress demand for our products and harm our business and results of operations. As of the date of issuance of the financial statements, we are not aware of any specific event or circumstance that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities. 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
11


become known. Actual results could differ from those estimates and any such differences may be material to our financial statements.

Significant Accounting Policies

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

Convertible Debt

On February 1, 2021, we early adopted Accounting Standards Update (“ASU”) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) using the modified retrospective approach.

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

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

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

Recently Adopted Accounting Pronouncements

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

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

Subscription revenue is recognized over time and accounted for approximately 96% and 95% of our revenue for the three months ended April 30, 2021 and 2020.

Performance Obligations
    
As of April 30, 2021, the amount of the transaction price allocated to remaining performance obligations for contracts greater than one year was $1.2 billion. We expect to recognize 53% of the transaction price allocated to remaining performance obligations within the 12 months following April 30, 2021 in our consolidated statement of operations and comprehensive loss.

12


Contract Balances

Contract assets represent amounts for which we have recognized revenue, pursuant to our revenue recognition policy, for contracts that have not yet been fully invoiced to our customers where there remains a performance obligation, typically for our multi-year arrangements. Total contract assets were $15.9 million and $17.5 million as of April 30, 2021 and January 31, 2021, of which $0.6 million and $0.6 million were noncurrent and included within “Other assets—noncurrent” on our condensed consolidated balance sheets. The change in contract assets reflects the difference in timing between the satisfaction of our remaining performance obligations and our contractual right to bill our customers.

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, 2021 and 2020, we recognized revenue of $357.8 million and $224.7 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 3. Fair Value Measurements
The following table summarizes our financial assets that are measured at fair value on a recurring basis:
April 30, 2021
(in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Level 1:
Cash equivalents(1)
Money market funds $ 147,875  $ —  $ —  $ 147,875 
Level 2:
Available-for-sale securities
Commercial paper 100,804  (22) 100,784 
Corporate notes and bonds 199,701  164  (95) 199,770 
U.S. Treasury securities 4,999  —  5,000 
U.S. government agency securities 50,535  (7) 50,536 
Level 2 total 356,039  175  (124) 356,090 
Level 3:
Available-for-sale securities
Corporate notes and bonds 500  —  —  500 
Total $ 504,414  $ 175  $ (124) $ 504,465 
January 31, 2021
(in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Level 1:
Cash equivalents(1)
Money market funds $ 284,312  $ —  $ —  $ 284,312 
Level 2:
Available-for-sale securities
Commercial paper 42,048  (23) 42,026 
Corporate notes and bonds 199,277  375  (67) 199,585 
U.S. Treasury securities 4,998  —  —  4,998 
U.S. government agency securities 53,052  12  (6) 53,058 
Level 2 total 299,375  388  (96) 299,667 
Level 3:
Available-for-sale securities
Corporate notes and bonds 500  —  —  500 
Total $ 584,187  $ 388  $ (96) $ 584,479 

(1)    Included in “cash and cash equivalents” in our consolidated balance sheets as of April 30, 2021, and January 31, 2021, in addition to cash of $371.1 million and $281.7 million.

We use quoted prices in active markets for identical assets to determine the fair value of our Level 1 investments. The fair value of our Level 2 investments is determined using pricing based on quoted market prices or alternative market observable inputs. The fair value of our Level 3 investments is determined based on an income approach using unobservable inputs.

14


The fair value of our available-for-sale securities as of April 30, 2021, by remaining contractual maturities, were as follows (in thousands):
Due in one year or less $ 261,660 
Due in one to two years 94,930 
$ 356,590 

As of April 30, 2021 and January 31, 2021, securities in an unrealized loss position were individually and in aggregate not material. An allowance for credit losses was deemed unnecessary for these securities, given the extent of the unrealized loss positions as well the issuers' high credit ratings and consistent payment history.

We had no liabilities measured at fair value on a recurring basis as of April 30, 2021 and January 31, 2021.

Strategic Investments

During the three months ended April 30, 2021, investments in equity securities without readily determinable fair values increased by $5.1 million due to adjustments related to observable price changes. Such investments are recorded in “Other assets—noncurrent” on our condensed consolidated balance sheets.

Convertible Senior Notes

We estimated the fair value of the 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 7 for further information.

(in thousands) April 30, 2021 January 31, 2021
0.5% Convertible Senior Notes due in 2023
Aggregate principal amount $ 78,318  $ 115,000 
Fair value amount 245,245  373,928 
0% Convertible Senior Notes due in 2024
Aggregate principal amount $ 690,000  $ 690,000 
Fair value amount 684,825  725,100 

Note 4. Property and Equipment, Net

Property and equipment consisted of the following:
(in thousands) April 30, 2021 January 31, 2021
Computer and network equipment $ 104,017  $ 102,163 
Software, including capitalized software development costs 66,282  56,858 
Furniture and office equipment 21,575  21,682 
Leasehold improvements 79,749  79,892 
271,623  260,595 
Less: Accumulated depreciation (131,924) (121,029)
139,699  139,566 
Work in progress 24,429  25,473 
$ 164,128  $ 165,039 

Depreciation and amortization expense associated with property and equipment was $13.5 million and $9.8 million for the three months ended April 30, 2021 and 2020.

15


For the three months ended April 30, 2021 and 2020, we capitalized $7.8 million and $5.1 million of internally developed software.

Note 5. Intangible Assets, Net

Intangible assets consisted of the following:
As of April 30, 2021 As of January 31, 2021
(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 3.7 $ 72,994  $ (38,808) $ 34,186  $ 72,994  $ (35,613) $ 37,381 
Customer contracts & related relationships 7.7 110,082  (32,022) 78,060  110,082  (29,393) 80,689 
Other 1.0 22,534  (20,107) 2,427  22,534  (19,356) 3,178 
6.4 $ 205,610  $ (90,937) 114,673  $ 205,610  $ (84,362) 121,248 
Cumulative translation adjustment 336  580 
Total $ 115,009  $ 121,828 

Amortization of finite-lived intangible assets was as follows:
Three Months Ended April 30,
(in thousands) 2021 2020
Cost of subscription revenue $ 3,171  $ 1,348 
Sales and marketing 3,358  2,911 
Total $ 6,529  $ 4,259 

As of April 30, 2021, future amortization of finite-lived intangibles that will be recorded is estimated as follows, excluding cumulative translation adjustment:
Fiscal Period: Amount (in thousands)
2022, remainder $ 17,707 
2023 19,906 
2024 18,575 
2025 17,998 
2026 12,388 
Thereafter 28,099 
Total $ 114,673 

16


Note 6. 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) 2021 2020
Deferred Contract Acquisition Costs
Beginning balance $ 262,519  $ 155,697 
Additions to deferred contract acquisition costs 39,700  34,158 
Amortization of deferred contract acquisition costs (25,842) (16,941)
Cumulative translation adjustment 240  (1,533)
Ending balance $ 276,617  $ 171,381 
Deferred Contract Fulfillment Costs
Beginning balance $ 12,506  $ 8,218 
Additions to deferred contract fulfillment costs 6,454  6,879 
Amortization of deferred contract fulfillment costs (5,091) (4,419)
Ending balance $ 13,869  $ 10,678 

Note 7. 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.

In each fiscal quarter since the quarter ended July 31, 2020, the last reported sales price of our common stock for at least 20 trading days during a period of 30 consecutive trading days ending on, and including, the last trading day was greater than or equal to 130% of the conversion price of the 2023 Notes. The 2023 Notes therefore became convertible on August 1, 2020 and continue to be convertible through April 30, 2021.

In January 2021, we issued $690.0 million in aggregate principal amount of the 0% Convertible Senior Notes due in 2024 (“2024 Notes,” and together with the 2023 Notes, the “Notes”). The net proceeds from the issuance of the 2024 Notes were $677.3 million after deducting the initial purchasers’ discounts and transaction costs. As of April 30, 2021, the conversion conditions for the 2024 Notes described in our 2021 Annual Report on Form 10-K were not met.

Conversions of the 2023 Notes

Early conversions and settlements of the Notes during the three months ended April 30, 2021 were accounted for under ASU 2020-06. Refer to Note 1 for further discussion of early adoption.

During the three months ended April 30, 2021, we settled $36.7 million aggregate amount of the principal of 2023 Notes, including $23.9 million elected for conversion as of January 31, 2021, for aggregate consideration of $111.3 million, consisting of $36.7 million in cash and 0.4 million shares of our common stock with a value of $74.7 million. The $0.4 million excess of the cash consideration over the corresponding carrying value was recorded as a reduction to additional paid-in capital.

Additionally, as of April 30, 2021, we had received conversion notices on our 2023 Notes for $13.5 million in aggregate principal amount to be settled in the following quarter. The corresponding carrying value is reflected in Convertible senior notes—current on our condensed consolidated balance sheet.

From May 1, 2021 through June 3, 2021, we received conversion notices on our 2023 Notes for $10.0 million in aggregate principal amount, for which we elected to settle the principal amount in cash during the three months ended July 31, 2021.

17


The net carrying amounts of the liability and equity components of the Notes were as follows:
(in thousands) April 30, 2021 January 31, 2021
2023 Notes:
Principal $ 78,318  $ 115,000 
Less: unamortized debt discount (1)
—  (15,116)
Less: unamortized transaction costs (928) (1,224)
Net carrying value of current and noncurrent liability component $ 77,390  $ 98,660 
Proceeds allocated to the conversion option (debt discount) (1)
$ 134,667 
Less: extinguishment or conversion (31,933)
Less: transaction costs (3,336)
Net carrying value of mezzanine and permanent equity component $ 99,398 
2024 Notes:
Principal $ 690,000  $ 690,000 
Less: unamortized debt discount (1)
—  (63,619)
Less: unamortized transaction costs (11,464) (11,353)
Net carrying value of noncurrent liability component $ 678,536  $ 615,028 
Proceeds allocated to the conversion option (debt discount) (1)
$ 64,453 
Less: transaction costs (1,185)
Net carrying value of permanent equity component $ 63,268 
(1) Not applicable under ASU 2020-06

The effective interest rate on the liability component of the 2023 Notes was 5.9% prior to the adoption of ASU 2020-06 and 1.0% after adoption. The effective interest rate on the liability component of the 2024 notes was 3.8% prior to the adoption of ASU 2020-06 and 0.6% after adoption. Interest expense recognized related to the Notes was as follows:
Three Months Ended April 30,
(in thousands) 2021 2020
Contractual interest expense $ 36  $ 718 
Amortization of debt discount —  6,329 
Amortization of transaction costs 1,181  513 
Total $ 1,217  $ 7,560 

Capped Calls

To minimize the potential economic dilution to our common stock upon conversion of the Notes, we entered into privately-negotiated capped call transactions (“Capped Calls”) with certain counterparties.

The material terms of the capped call transactions were as follows:
(in thousands, except per share amounts) 2023 Notes 2024 Notes
Aggregate cost of capped calls $ 67,563  $ 31,395 
Initial strike price per share (1)
$ 71.50  $ 420.24 
Initial cap price per share (1)
$ 110.00  $ 525.30 
Shares of our common stock covered by the capped calls (1)
8,042  1,642 
(1) Subject to adjustments for certain events, such as merger events and tender offers, and anti-dilution adjustments
18



Impact on Loss Per Share

After February 1, 2021, the date of the adoption of ASU 2020-06, 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. As of the beginning of the fourth quarter of 2021, share settlement was presumed, and shares subject to the Notes would have been included under the if-converted method. In periods prior to that, cash settlement was presumed and shares subject to the Notes would have been included under the treasury stock 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, 2021, the market price of our common stock exceeded the $110.00 per share cap price associated with the 2023 Notes but not the $525.30 cap price associated with the 2024 Notes; therefore, the 2023 Notes would 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, capital expenditures and for other general corporate purposes, including permitted acquisitions.

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, 2021. As of April 30, 2021, 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 8. Commitments and Contingencies

As of April 30, 2021, we had unused letters of credit outstanding associated with our various operating leases totaling $7.7 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, 2021, the 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)
2022, remainder $ 15,698 
2023 33,368 
2024 19,091 
2025 9,783 
2026 8,178 
Thereafter 3,145 
Total $ 89,263 
19



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, 2021, and January 31, 2021. 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.

Note 9. 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, 2021, 43.1 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 9.6 million shares occurred on February 1, 2021.

Restricted Stock Units

Restricted stock units (“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.
20



RSU activity for the three months ended April 30, 2021 was as follows:
(in thousands, except per share data) Number of Units Weighted-Average Grant Date Fair Value
Unvested at January 31, 2021 10,586  $ 83.98 
Granted 436  227.30 
Vested (1,375) 60.04 
Canceled (453) $ 85.88 
Unvested at April 30, 2021 9,194  $ 94.26 

As of April 30, 2021, our total unrecognized compensation cost related to RSUs was $671.2 million. We expect to recognize this expense over the remaining weighted-average period of approximately 2.2 years.

Stock Options
    
Option activity for the three months ended April 30, 2021 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, 2021 4,798  $ 15.55  5.0 $ 1,042,879 
Exercised (488) 13.48 
Outstanding at April 30, 2021, all vested and exercisable 4,310  $ 15.78  4.9 $ 892,949 

As of April 30, 2021, 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, of up to 15% of their earnings, subject to the terms of the ESPP and applicable law. 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, 2021, 0.1 million shares of our common stock were purchased under the ESPP. Compensation expense related to the ESPP was $4.3 million and $1.9 million for the three months ended April 30, 2021 and 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, 2021, 8.1 million shares of our common stock were reserved for issuance under the ESPP.

21


Note 10. 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) 2021 2020
Numerator:
Net loss attributable to common stockholders $ (8,354) $ (47,804)
Denominator:
Weighted-average common shares outstanding 194,342  182,978 
Net loss per share attributable to common stockholders:
Basic and diluted $ (0.04) $ (0.26)

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) 2021 2020
RSUs 9,194  12,550 
Stock options 4,310  6,030 
ESPP 158  227 
Convertible senior notes 2,737  2,553 
Total antidilutive securities 16,399  21,360 

Note 11. 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. There were no material discrete items in the quarter.

Our income tax provision was $2.0 million and $2.1 million for the three months ended April 30, 2021 and 2020.

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 United States 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, 2021, our gross unrecognized tax benefits totaled $35.7 million, excluding related accrued interest and penalties, of which $16.3 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 United States and various foreign jurisdictions. Our tax years from inception in 2003 through April 30, 2021 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 2016 through 2019. We are not under examination in any other material jurisdiction. We believe that adequate amounts have been reserved in all jurisdictions.

Note 12. 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.

22


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) 2021 2020
U.S. $ 368,423  $ 242,168 
International 100,655  54,849 
Total revenue $ 469,078  $ 297,017 

No single country other than the U.S. had revenue greater than 10% of total revenue in the three months ended April 30, 2021 and 2020.

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, 2021 January 31, 2021
U.S. $ 216,952  $ 221,549 
Ireland 64,842  66,670 
International 34,519  36,172 
Total long-lived assets $ 316,313  $ 324,391 

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 2021 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 2021 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 980,000 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 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.
23



We generate substantially all our revenue from sales of subscriptions, which accounted for 96% and 95% of our revenue in the three months ended April 30, 2021 and 2020. 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 on-premises solutions. Professional services and other revenue accounted for the remainder of total revenue in the three months ended April 30, 2021 and 2020. 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 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 350 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 673 customers as of April 30, 2021. 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 spread across the world including the United States, where we are headquartered and the majority of our workforce is located. 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 pandemic, the actions taken to contain the virus, the distribution of vaccines, and how quickly and to what extent normal economic and operating conditions can or will resume — they are extremely difficult to predict. While our revenue, 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 March 2020, we have taken a number of precautionary measures to ensure the health and safety of our employees, partners and customers. DocuSign has shifted to a largely remote work environment, providing nearly all employees the opportunity to work from home until at least October 4, 2021. We have 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, as well as expenses associated with planning and risk mitigation for potential and actual reopening of our offices, and may incur similar expenses in the future. 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 products, particularly DocuSign eSignature, as the shift to remote, digital business operations has caused more organizations to adopt or expand their use of digital agreements. This acceleration of the digital transformation of agreements has resulted in growth in our customer base and a significant increase in customer spending across almost all industries and regions we serve.

24


We believe that businesses that have shifted to digital agreement processes will not return to manual ones. However, if our expectations are incorrect, and if demand for our products decreases as the COVID-19 pandemic lessens in severity and businesses resume in-person operations, our business could suffer. See the section below titled “Risk Factors for further discussion of the potential impact of the COVID-19 pandemic, including the conclusion or tapering of the pandemic, on our business, financial condition and results of operations.

Financial Results for the Three Months Ended April 30, 2021 and 2020

Three Months Ended April 30,
(in thousands) 2021 2020
Total revenue $ 469,078  $ 297,017 
Total costs and expenses 479,815  338,870 
Total stock-based compensation expense 81,136  53,551 
Loss from operations (10,737) (41,853)
Net loss (8,354) (47,804)
Net cash provided by operating activities 135,597  59,144 
Purchases of property and equipment (12,596) (26,389)

Cash, cash equivalents, restricted cash and investments were $875.8 million as of April 30, 2021.

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, 2021, we had a total of over 980,000 customers, including over 135,000 enterprise and commercial customers, compared to over 660,000 customers and over 85,000 enterprise and commercial customers as of April 30, 2020. 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, 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 represented 21% and 18% of our total revenue in the three months ended April 30, 2021 and 2020.

25


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 products in select civil law countries. For example, in Europe, we have Standards-Based Signature (“SBS”) technology tailored for electronic IDentification, Authentication and trust Services (“eIDAS”). SBS supports signatures that involve digital certificates, including those specified in the European Union’s (“EU”) 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 in Latin America 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 suite and underlying infrastructure and technology to meet the needs of our customers across industries. Our acquisitions of Seal Software and Liveoak Technologies, intended to bring additional functionality to our DocuSign Agreement Cloud and further expand our eNotary 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 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.

26


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, 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 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 Convertible Senior Notes (the “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, changes in fair value of our strategic investments and foreign currency transaction gains and losses.

27


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.

28


Discussion of Results of Operations

The following table summarizes our historical consolidated statements of operations data:
Three Months Ended April 30,
(in thousands) 2021 As % of revenue 2020 As % of revenue
Revenue:
Subscription $ 451,935  96  % $ 280,922  95  %
Professional services and other 17,143  16,095 
Total revenue 469,078  100  297,017  100 
Cost of revenue:
Subscription 78,071  17  52,010  18 
Professional services and other 27,171  22,022 
Total cost of revenue 105,242  22  74,032  25 
Gross profit 363,836  78  222,985  75 
Operating expenses:
Sales and marketing 239,119  51  171,793  58 
Research and development 85,416  18  54,234  18 
General and administrative 50,038  11  38,811  13 
Total operating expenses 374,573  80  264,838  89 
Loss from operations (10,737) (2) (41,853) (14)
Interest expense (1,672) —  (7,560) (3)
Interest income and other income, net 6,037  3,742 
Loss before provision for income taxes (6,372) (1) (45,671) (15)
Provision for income taxes 1,982  2,133 
Net loss $ (8,354) (2) % $ (47,804) (16) %

The following discussion and analysis is for the three months ended April 30, 2021, compared to the same period in 2020, unless otherwise stated.

Revenue
Three Months Ended April 30, 2021 versus 2020
(in thousands, except for percentages) 2021 2020
Revenue:
Subscription $ 451,935  $ 280,922  61  %
Professional services and other 17,143  16,095  %
Total revenue $ 469,078  $ 297,017  58  %

Subscription revenue increased by $171.0 million, or 61%, in the three months ended April 30, 2021. Due to the COVID-19 pandemic, there has been a shift to remote digital business operations that has led to an increase in demand for our solutions. This resulted in a higher growth in our customer base and a significant increase in customer spending across almost all industries and regions we serve.

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. We continue to monitor the COVID-19 pandemic in fiscal 2022 and its impact on the economy, the digital transformation of business and demand for our solutions.

Professional services and other revenue had a slight increase in the three months ended April 30, 2021.

29


Cost of Revenue and Gross Margin
Three Months Ended April 30, 2021 versus 2020
(in thousands, except for percentages) 2021 2020
Cost of revenue:
Subscription $ 78,071  $ 52,010  50  %
Professional services and other 27,171  22,022  23  %
Total cost of revenue $ 105,242  $ 74,032  42  %
Gross margin:
Subscription 83  % 81  % pts
Professional services and other (58) % (37) % (21) pts
Total gross margin 78  % 75  % pts

Cost of subscription revenue increased $26.1 million, or 50%, in the three months ended April 30, 2021, primarily driven by higher costs to support our growing customer base and the impact of the Seal acquisition. Significant increases consisted of:
$9.7 million in personnel costs and $2.2 million in stock-based compensation expense primarily due to higher headcount, including the addition of Seal employees, and annual merit increases;
$6.2 million in operating costs to support our platform and the growth in our revenue, including increases in subscription reseller fees, hosting costs and authentication and processing fees; and
$5.3 million in depreciation and amortization, which reflects the impact of higher data center and capitalized software assets as well as the higher existing technology intangible assets from the Seal acquisition.

Cost of professional services and other revenue increased $5.1 million, or 23%, in the three months ended April 30, 2021, primarily due to an increase in personnel costs driven by higher headcount, including the addition of Seal employees to our workforce, and annual merit increases.

Sales and Marketing
Three Months Ended April 30, 2021 versus 2020
(in thousands, except for percentages) 2021 2020
Sales and marketing $ 239,119  $ 171,793  39  %
Percentage of revenue 51  % 58  %

Sales and marketing expenses increased $67.3 million, or 39%, in the three months ended April 30, 2021, primarily driven by investments in workforce and technology infrastructure to support the significant increase in demand due to the acceleration of the digital transformation of agreements. Significant increases consisted of:
$40.8 million in personnel costs and $13.5 million in stock-based compensation expense due to higher headcount, annual merit increases, the addition of Seal employees to our workforce, higher commissions in line with higher sales and higher taxes on employee stock transactions; and
$10.9 million in marketing and advertising expense, primarily due to higher spend on online advertising platforms to help capture the increased market interest in our product offering as a result of the shift to COVID-19 remote work environment.

Research and Development
Three Months Ended April 30, 2021 versus 2020
(in thousands, except for percentages) 2021 2020
Research and development $ 85,416  $ 54,234  57  %
Percentage of revenue 18  % 18  %

Research and development expenses increased $31.2 million, or 57%, in the three months ended April 30, 2021, primarily due to investments in workforce and technology infrastructure to support growth. Personnel costs increased by $19.2 million and stock-based compensation by $8.6 million due to higher headcount, the addition of Seal and Liveoak employees to our workforce and annual merit increases.

30


General and Administrative
Three Months Ended April 30, 2021 versus 2020
(in thousands, except for percentages) 2021 2020
General and administrative $ 50,038  $ 38,811  29  %
Percentage of revenue 11  % 13  %

General and administrative expenses increased $11.2 million or 29%, in the three months ended April 30, 2021, primarily due to investments in workforce and technology infrastructure to support growth. Personnel costs increased by $6.3 million and stock-based compensation by $2.0 million due to higher headcount and the impact of annual merit increases.

Other Income and Expense
Three Months Ended April 30, 2021 versus 2020
(in thousands, except for percentages) 2021 2020
Interest expense $ 1,672  $ 7,560  (78) %
Percentage of revenue —  % (3) %
Interest income $ 1,126  3,381  (67) %
Foreign currency gain (loss) 266  (545) NM
Fair value adjustments to strategic investments 5,119  —  100  %
Other (474) 906  NM
Interest income and other income, net $ 6,037  3,742  61  %
Percentage of revenue % %

Interest expense decreased by $5.9 million in the three months ended April 30, 2021 primarily due to lower amortization expense under ASU 2020-06 effective February 1, 2021.
Interest income and other income, net, for the three months ended April 30, 2021 included $5.1 million adjustments to fair value of certain strategic investments resulting from observable price changes that occurred during the quarter.
31


Liquidity and Capital Resources

Our principal sources of liquidity were cash, cash equivalents and investments as well as cash generated from operations. As of April 30, 2021, we had $780.6 million in cash and cash equivalents and short-term investments. We also had $94.9 million in long-term investments that provide additional capital resources. We finance our operations primarily through payments by our customers for use of our product offerings and related services and through debt financings.

In September 2018, we issued and sold $575.0 million in aggregate principal amount of 0.5% Convertible Senior Notes due 2023 ("2023 Notes"). In January 2021, we issued and sold $690.0 million in aggregate principal amount of 0% Convertible Senior Notes due 2024 ("2024 Notes", and together with the 2023 Notes, the “Notes”). A portion of the 2024 Notes proceeds was used to repurchase $460.0 million in aggregate principal amount of the 2023 Notes.

In January 2021 we entered into a $500.0 million credit facility, which may be increased by an additional $250.0 million subject to customary terms and conditions. The credit facility is available until January 11, 2026 to optimize our capital structure and strengthen our balance sheet. There were no outstanding borrowings under the credit facility as of April 30, 2021.

Further details of these transactions are described in Note 7 to the Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Form 10-Q.

We were in compliance with all debt covenants at April 30, 2021.

We believe our existing cash, cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditures needs over at least the next 12 months. While we have generated positive cash flows from operations in recent years, we have generated losses from operations in the past as reflected in our accumulated deficit of $1.4 billion as of April 30, 2021. We may not achieve profitability in the foreseeable future due to the investments we intend to make and may require additional capital resources to execute strategic initiatives to grow our business.

We typically invoice our customers annually in advance. Therefore, a substantial source of our cash is from such invoices, which are included on our consolidated balance sheets in contract liabilities until revenue is recognized or in accounts receivable until cash is collected. Accordingly, collections from our customers have a material impact on our cash flows from operating activities. Our accounts receivable decreased by $73.2 million in the three months ended April 30, 2021, compared to a decrease of $17.2 million in the three months ended April 30, 2020, which resulted in a $56.0 million increase in cash provided by operating activities year over year. Contract liabilities consist of the unearned portion of billed fees for our subscriptions, which is subsequently recognized as revenue in accordance with our revenue recognition policy. Our contract liabilities increased by $51.6 million in the three months ended April 30, 2021, compared to an increase of $44.6 million in the three months ended April 30, 2020. The year over year increase contributed an additional $7.1 million to cash provided by operating activities.

Our future capital requirements will depend on many factors including our growth rate, customer retention and expansion, tax withholding obligations related to settlement of our RSUs, the timing and extent of spending to support our efforts to develop our software suite, the expansion of sales and marketing activities and the continuing market acceptance of our software suite. We may in the future enter into arrangements to acquire or invest in complementary businesses, technologies and intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.

32


Cash Flows

The following table summarizes our cash flows for the periods indicated:
Three Months Ended April 30,
(in thousands) 2021 2020
Net cash provided by (used in):
Operating activities $ 135,597  $ 59,144 
Investing activities (70,506) 169,668 
Financing activities (112,954) (25,498)
Effect of foreign exchange on cash, cash equivalents and restricted cash 779  (2,280)
Net change in cash, cash equivalents and restricted cash $ (47,084) $ 201,034 

Cash Flows from Operating Activities

Cash provided by operating activities was $135.6 million and $59.1 million for the three months ended April 30, 2021 and 2020. The improvement of $76.5 million, as compared to prior year, was primarily the result of increased sales and the related cash collections, partially offset by higher operating costs from increased headcount and to support growth.

Cash Flows from Investing Activities

For the three months ended April 30, 2021, net cash used in investing activities of $70.5 million was primarily driven by $57.4 million net purchases of marketable securities and $12.6 million purchases of property and equipment.

For the three months ended April 30, 2020, cash provided by investing activities of $169.7 million was primarily driven by $199.1 million from maturities and sales of marketable securities, partially offset by $26.4 million purchases of property and equipment.

Cash Flows from Financing Activities

For the three months ended April 30, 2021, cash used in financing activities of $113.0 million was primarily driven by $76.3 million in net payments related to our equity plans, as compared to $25.5 million in the prior year for similar activities. We also used $36.7 million for repayments of our 2023 Notes.

Obligations and Commitments

Our principal contractual obligations and commitments consist of obligations under the Notes (including principal and coupon interest), operating leases, as well as noncancelable contractual commitments that primarily relate to cloud infrastructure support and sales and marketing activities. Refer to Note 7 and Note 8 to the Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Form 10-Q, for our leases and other commitments.

We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements.

Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
The critical accounting estimates, assumptions and judgments that we believe to have the most significant impact on our consolidated financial statements are revenue recognition, deferred contract acquisition costs, stock-based compensation, valuation of acquired intangible assets in business combinations and income taxes.
    
There have been no material changes to our critical accounting policies and estimates as described in our 2021 Annual Report on Form 10-K.

33


Recent Accounting Pronouncements

Refer to Note 1 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for recently issued accounting pronouncements not yet adopted as of the date of this report.

34


Non-GAAP Financial Measures and Other Key Metrics

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We believe that these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making. We present these non-GAAP measures to assist investors in seeing our financial performance using a management view, and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP operating margin and non-GAAP net income: We define these non-GAAP financial measures as the respective GAAP measures, excluding expenses related to stock-based compensation, employer payroll tax on employee stock transactions, amortization of acquisition-related intangibles, amortization of debt discount and issuance costs, acquisition-related expenses, fair value adjustments to strategic investments and, as applicable, other special items. The amount of employer payroll tax-related items on employee stock transactions is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of the business. When evaluating the performance of our business and making operating plans, we do not consider these items (for example, when considering the impact of equity award grants, we place a greater emphasis on overall stockholder dilution rather than the accounting charges associated with such grants). We believe it is useful to exclude these expenses in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies and over multiple periods.

Free cash flow: We define free cash flow as net cash provided by operating activities less purchases of property and equipment. We believe free cash flow is an important liquidity measure of the cash that is available (if any), after purchases of property and equipment, for operational expenses, investment in our business and to make acquisitions. Free cash flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash in excess of our capital investments in property and equipment. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth.

Billings: We define billings as total revenues plus the change in our contract liabilities and refund liability less contract assets and unbilled accounts receivable in a given period. Billings reflects sales to new customers plus subscription renewals and additional sales to existing customers. Only amounts invoiced to a customer in a given period are included in billings. We believe billings is a key metric to measure our periodic performance. Given that most of our customers pay in annual installments one year in advance, but we typically recognize a majority of the related revenue ratably over time, we use billings to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers.

35


Reconciliation of gross profit and gross margin:
Three Months Ended April 30,
(in thousands) 2021 2020
GAAP gross profit $ 363,836  $ 222,985 
Add: Stock-based compensation 11,553  7,989 
Add: Amortization of acquisition-related intangibles 3,171  1,348 
Add: Employer payroll tax on employee stock transactions 2,774  1,036 
Non-GAAP gross profit $ 381,334  $ 233,358 
GAAP gross margin 78  % 75  %
Non-GAAP adjustments % %
Non-GAAP gross margin 81  % 79  %
GAAP subscription gross profit $ 373,864  $ 228,912 
Add: Stock-based compensation 6,018  3,864 
Add: Amortization of acquisition-related intangibles 3,171  1,348 
Add: Employer payroll tax on employee stock transactions 1,442  535 
Non-GAAP subscription gross profit $ 384,495  $ 234,659 
GAAP subscription gross margin 83  % 81  %
Non-GAAP adjustments % %
Non-GAAP subscription gross margin 85  % 84  %
GAAP professional services and other gross loss $ (10,028) $ (5,927)
Add: Stock-based compensation 5,535  4,125 
Add: Employer payroll tax on employee stock transactions 1,332  501 
Non-GAAP professional services and other gross loss $ (3,161) $ (1,301)
GAAP professional services and other gross margin (58) % (37) %
Non-GAAP adjustments 40  % 29  %
Non-GAAP professional services and other gross margin (18) % (8) %

Reconciliation of income (loss) from operations and operating margin:
Three Months Ended April 30,
(in thousands) 2021 2020
GAAP loss from operations $ (10,737) $ (41,853)
Add: Stock-based compensation 81,136  53,551 
Add: Amortization of acquisition-related intangibles 6,529  4,259 
Add: Employer payroll tax on employee stock transactions 16,283  6,548 
Add: Acquisition-related expenses —  694 
Non-GAAP income from operations $ 93,211  $ 23,199 
GAAP operating margin (2) % (14) %
Non-GAAP adjustments 22  % 22  %
Non-GAAP operating margin 20  % %

36


Reconciliation of net income (loss):
Three Months Ended April 30,
(in thousands) 2021 2020
GAAP net loss $ (8,354) $ (47,804)
Add: Stock-based compensation 81,136  53,551 
Add: Amortization of acquisition-related intangibles 6,529  4,259 
Add: Employer payroll tax on employee stock transactions 16,283  6,548 
Add: Acquisition-related expenses —  694 
Add: Amortization of debt discount and issuance costs 1,319  6,842 
Less: Fair value adjustments to strategic investments (5,119) — 
Non-GAAP net income $ 91,794  $ 24,090 

Computation of free cash flow:
Three Months Ended April 30,
(in thousands) 2021 2020
Net cash provided by operating activities $ 135,597  $ 59,144 
Less: Purchases of property and equipment (12,596) (26,389)
Non-GAAP free cash flow $ 123,001  $ 32,755 
Net cash (used in) provided by investing activities $ (70,506) $ 169,668 
Net cash used in financing activities $ (112,954) $ (25,498)

Computation of billings:
Three Months Ended April 30,
(in thousands) 2021 2020
Revenue $ 469,078  $ 297,017 
Add: Contract liabilities and refund liability, end of period 857,969  568,544 
Less: Contract liabilities and refund liability, beginning of period (800,940) (522,201)
Add: Contract assets and unbilled accounts receivable, beginning of period 21,021  15,082 
Less: Contract assets and unbilled accounts receivable, end of period (19,737) (16,390)
Non-GAAP billings $ 527,391  $ 342,052 

37


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in foreign currency exchange and interest rates.
Interest Rate Risk
As of April 30, 2021, we had cash, cash equivalents and investments totaling $875.6 million, which consisted primarily of bank deposits, money market funds, commercial paper, corporate notes and bonds and U.S. Treasury and government agency securities. Interest-earning instruments carry a degree of interest rate risk. Our investment portfolio is comprised of highly rated securities and limits the amount of credit exposure to any one issuer. A hypothetical 100 basis point increase in interest rates would result in an approximately $1.9 million decrease of the fair value of our investment portfolio as of April 30, 2021. Such losses would only be realized if we sold the investments prior to maturity. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
We had no exposure to changes in interest rates from debt obligations at April 30, 2021 as our 2023 Notes and 2024 Notes were issued at fixed rates of 0.5% and 0.0%, respectively. The fair value of the Notes changes when the market price of our stock fluctuates or interest rates change. However, we carry the Notes at face value less unamortized discount on our balance sheet and present the fair value for required disclosure purposes only.

Foreign Currency Exchange Risk
Our reporting currency is the U.S. dollar, and the functional currency of each of our subsidiaries is either its local currency or the U.S. dollar, depending on the circumstances. The assets and liabilities of each of our subsidiaries are translated into U.S. dollars at exchange rates in effect at each balance sheet date. Operations accounts are translated using the average exchange rate for the relevant period. A strengthening or weakening of the U.S. dollar against the other currencies may negatively or positively affect our operating results as expressed in U.S. dollars. Foreign currency translation adjustments are accounted for as a component of “Accumulated other comprehensive income” within “Stockholders’ equity.” Gains or losses due to remeasurements of transactions denominated in foreign currencies are included in “Interest income and other income, net” in our consolidated statements of operations and comprehensive loss. We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have a material effect on our operating results.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of April 30, 2021, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified by Securities and Exchange Commission (“SEC”) rules and forms and (b) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) under the Exchange Act during the first quarter of fiscal 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

38


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be subject to legal proceedings and claims, including intellectual property, commercial, employment and employee benefits claims, that arise in the ordinary course of business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows. We have received, and may in the future continue to receive, claims, including claims from third parties asserting, among other things, infringement of their intellectual property rights, claims concerning employment and employee-related matters, and other various claims and controversies. Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability and validity of claims, including any claims related to third-party proprietary rights, to establish our proprietary rights, or to respond to claims generally. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.


ITEM 1A. RISK FACTORS

Risk Factors Summary

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this Risk Factors Summary. These summary risks provide an overview of many of the risks we are exposed to in the normal course of our business. As a result, the following summary risks do not contain all of the information that may be important to you, and you should read them together with the more detailed discussion of risks set forth following this section under the heading “Risk Factors,” and with the other information in this Quarterly Report on Form 10-Q. Additional risks beyond those summary risks discussed below, in “Risk Factors” or elsewhere in this Quarterly Report on Form 10-Q, could have an adverse effect on our business, results of operations, financial condition or prospects, and could cause the trading price of our common stock to decline. Our business, results of operations, financial condition or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. Consistent with the foregoing, we are exposed to a variety of risks, including the following significant risks:

We cannot predict the full impact of the COVID-19 pandemic on our business, results of operations and financial condition.

We have a history of operating losses and may not achieve or sustain profitability in the future.

We derive a majority of our revenue from our e-signature solutions, and slower or declining adoption of our e-signature solutions, without a corresponding increase in the use of our other products and solutions, could cause our operating results to suffer.

The market for our products and solutions is relatively new and evolving. If the market does not develop further, develops more slowly, or in a way that we do not expect, our business will be adversely affected.

If we are unable to attract new customers and retain and expand sales to existing customers, our revenue growth will be adversely affected.

We depend on co-located data centers and third-party cloud providers as well as our own technical operations infrastructure to provide our products and solutions to our customers in a timely manner. Interruptions or delays in performance of our products and solutions could result in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.

Our systems and security measures have been, and may in the future be, compromised or subject to data breaches, cyberattacks or other malicious activity. Consequently, our products and solutions may be perceived as not being secure. This may result in customers reducing or stopping their use of our products or solutions, our reputation being harmed, our incurring significant liabilities and adverse effects on our operating results and growth prospects.

Our recent rapid growth may not be indicative of our future growth, and, if we continue to grow rapidly, we may not be able to manage our growth effectively.
39



Because we recognize revenue from subscriptions over the term of the relevant contract, downturns or upturns in sales contracts are not immediately reflected in full in our operating results.

The market in which we participate is highly competitive, which may negatively affect our ability to add new customers, retain existing customers and grow our business.

If our products and solutions fail to perform properly and if we fail to develop enhancements to resolve any defect or other problems, we could lose customers or become subject to service performance or warranty claims and our market share could decline.

We have incurred substantial indebtedness that may decrease our business flexibility, access to capital and/or increase our borrowing costs, and we may still incur substantially more debt, which may adversely affect our operations and financial results.

We are subject to laws and regulations affecting our business, including those related to e-signature, marketing, advertising, privacy, data protection and information security. Our actual or perceived failure to comply with laws or regulations could harm our business. Complying with laws and regulations, in particular those related to privacy and data protection, could also result in additional costs and liabilities to us or inhibit sales of our software.

Risk Factors

Our business involves significant risks, some of which are described below. You should carefully consider the following risks, together with all of the other information in this Quarterly Report on Form 10-Q, including in the preceding Risk Factors Summary, our consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q.

Risks Related to Our Business and Industry

We cannot predict the full impact of the COVID-19 pandemic on our business, results of operations and financial condition.

The full impact of the continuing COVID-19 pandemic and related public health measures on our business will depend largely on future developments, including the duration and severity of the COVID-19 pandemic, which are highly uncertain and cannot be accurately predicted. The full effects of the COVID-19 pandemic cannot be predicted as a result of uncertainties including the extent and rate of the ongoing spread of the virus, the emergence of potential variants of the virus, the deployment of vaccines worldwide, national, local and state governmental responses to the crisis including restrictions on travel and business activities, and the potential for additional peaks in infection rates in 2021.

The COVID-19 pandemic has created and is likely to continue to create significant uncertainty in global financial markets. To date, due to the widespread shift by businesses to remote, web-enabled operations and digital agreements, we have experienced a substantial increase in overall demand for our products, in particular DocuSign eSignature. Although this has resulted in a significant increase in customer spending across almost all industries and regions we serve, the growth we have experienced may not continue in future periods. In addition,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, 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.

We have undertaken measures to mitigate the effect of the COVID-19 pandemic on our business and to protect our employees, partners and customers, including by imposing travel restrictions for our employees, providing almost all employees the opportunity to work remotely until at least October 4, 2021, limiting capacity at any of our offices which have reopened or may reopen during the pandemic’s duration, and shifting customer, partner and investor events to virtual-only formats. However, there can be no assurance that these measures will be effective, or that we can adopt them without adversely affecting our business operations. For example, our management team has been focusing additional time on planning for and mitigating the risks of the COVID-19 pandemic, including plans to reopen our offices, which may reduce the amount of time available for other initiatives. Changes in our operations with respect to COVID-19 or employee illnesses resulting from the COVID-19 pandemic may result in inefficiencies or delays that cannot be fully mitigated through succession planning, employees working remotely or teleconferencing technologies.
40


These changes may also lead to inefficiencies of our employees, operational and cybersecurity risks and other circumstances which could have an adverse impact to our results of operations.

Finally, to the extent that the COVID-19 pandemic harms our business and results of operations, many of the other risks described in this “Risk Factors” section will be exacerbated.

We have a history of operating losses and may not achieve or sustain profitability in the future.

We began operations in 2003 and have experienced net losses since inception. We generated a net loss of $8.4 million and $47.8 million in the three months ended April 30, 2021 and 2020, and as of April 30, 2021, we had an accumulated deficit of $1.4 billion. We will need to generate and sustain increased revenue levels in future periods to become profitable and, even if we do, we may not be able to maintain or increase our level of profitability. We intend to continue to incur significant expenses to support growth, further develop and enhance our products and solutions, expand our infrastructure and technology, increase our sales headcount and marketing activities, and grow our international operations and customer base. Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our increased operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described herein, and unforeseen expenses, difficulties, complications and delays and other unknown events. If we are unable to achieve and sustain profitability, the value of our business and common stock may significantly decrease.

We expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors, the price of our common stock could decline.

Our operating results have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance and comparing our operating results on a period-to-period basis may not be meaningful. In addition to the other risks described herein, factors that may affect our operating results include the following:

fluctuations in demand for or pricing of our products and solutions, including due to the COVID-19 pandemic;
our ability to attract new customers;
our ability to renew our subscriptions with, and expand sales of our products and solutions to, our existing customers;
timing of revenue recognition;
customer delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors;
changes in customers’ budgets and in the timing of their budget cycles and purchasing decisions, including cost-cutting measures or other effects of the COVID-19 pandemic;
the timing and success of new product and service introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation or new entrants among competitors, customers, or strategic partners;
our ability to control costs, including our operating expenses;
our ability to continue operating remotely due to the COVID-19 pandemic;
potential accelerations of prepaid expenses and deferred costs;
the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments and other non-cash charges;
the amount and timing of costs associated with recruiting, training and integrating new employees;
issues relating to acquisitions and partnerships with third parties;
general economic, market and industry conditions, including resulting from the COVID-19 pandemic;
the impact of new accounting pronouncements;
changes in laws and regulations that affect our business;
significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our products and solutions; and
awareness of our brand on a global basis.

If our operating results fall below the expectations of investors and securities analysts who follow our stock, the price of our common stock could decline substantially, and we could face costly lawsuits, including securities class action lawsuits.

41


We derive a majority of our revenue from our e-signature solutions, and slower or declining adoption of our e-signature solutions, without a corresponding increase in the use of our other products and solutions, could cause our operating results to suffer.

Sales of subscriptions to our e-signature solutions account for substantially all of our subscription revenue and are the source of substantially all of our professional services revenue. Although we continue to add to our suite of products and solutions for automating the agreement process, we expect that we will be substantially dependent on our e-signature solutions to generate revenue for the foreseeable future. As a result, our operating results could suffer due to:

any decline in demand for our e-signature solutions;
macro- and micro-economic effects of the COVID-19 pandemic;
the failure of our e-signature solutions to maintain market acceptance;
the market for electronic signatures failing to grow, or growing more slowly than we expect;
new products and technologies that replace or represent an improvement over, our e-signature solutions;
new technological innovations or standards that our e-signature solutions do not address;
changes in regulations;
sensitivity to our current or future pricing; and
our inability to release enhanced versions of our e-signature solutions on a timely basis.

If we experience a material decline in sales of subscriptions to our e-signature solutions, without a corresponding increase in subscriptions to our other products and solutions, our revenue and operating results would be harmed.

The market for our products and solutions is relatively new and evolving. If the market does not develop further, develops more slowly, or in a way that we do not expect, our business will be adversely affected.

The market for our products and solutionsincluding our e-signature solution, which is the core part of our broader DocuSign Agreement Cloud platform for automating the agreement processis relatively new and evolving, which makes our business and future prospects difficult to evaluate. We have customers in a wide variety of industries, including real estate, financial services, insurance, manufacturing, and healthcare and life sciences. It is difficult to predict customer demand for our products and solutions, customer retention and expansion rates, the size and growth rate of the market for agreement automation, the entry of competitive products or the success of existing competitive products. We expect that we will continue to need intensive sales efforts to educate prospective customers, particularly enterprise and commercial customers, about the uses and benefits of our products and solutions, and such sales efforts could be hindered by the current COVID-19 pandemic. The size and growth of our addressable market depends on a number of factors, including our customers’ desire to differentiate themselves through e-signature solutions and other products and solutions that automate the agreement process, as well as changes in the competitive landscape, technological changes, budgetary constraints of our customers, changes in business practices, changes in regulations and changes in economic conditions. If customers do not accept the value proposition of our offerings, then a viable market for products and solutions may not develop further, or it may develop more slowly than we expect, either of which would adversely affect our business and operating results.

If we are unable to attract new customers and retain and expand sales to existing customers, our revenue growth will be adversely affected.

To increase our revenue, we must continue to grow our customer base. As our market matures, product and service offerings evolve, and competitors introduce lower cost and/or differentiated products or solutions that are perceived to compete with our products and solutions, our ability to attract new customers could be impaired. This may be especially challenging where organizations have already invested significantly in an existing solution. If our pricing is not competitive or we cannot attract new customers and subsequently maintain and expand those customer relationships, our business and operating results may be harmed.

Our ability to increase our revenue also depends on our ability to expand the sales of our products and solutions to, and renew subscriptions with, existing customers and their organizations. Our existing customers, especially our enterprise customers, must increase their use of our products and solutions by purchasing new products, additional subscriptions and our enhanced products and solutions. If our efforts to expand sales to our existing customers are not successful, our business, operating results and financial condition may suffer.

Moreover, a majority of our subscription contracts are for one year. Our customers have no obligation to renew their subscriptions and we cannot guarantee that our customers will renew their subscriptions with us for a similar or greater contract period or on the same or more favorable terms. Our renewal and expansion rates may decline or fluctuate as a result of a number of factors, including customer spending levels, customer dissatisfaction, decreases in the number of
42


users at our customers, changes in the type and size of our customers, pricing, competitive conditions, customer attrition and general economic conditions, including as a result of the current COVID-19 pandemic. If our customers do not renew their subscriptions for our products and solutions or if they reduce their subscription amounts at the time of renewal, our revenue will decline, and our business will suffer.

The market in which we participate is highly competitive, which may negatively affect our ability to add new customers, retain existing customers and grow our business.

Our products and solutions address a market that is evolving and highly competitive. The products and solutions in our products and solutions face competition from different companies depending on the product or solution. For example, our primary global e-signature competitor is currently Adobe Systems Incorporated. We also face competition from a select number of specialized vendors that focus on specific industries, geographies or use cases. In addition to competition in the e-signature market, our other products and solutions, such as DocuSign CLM, DocuSign Payments and DocuSign ID Verification separately face competition from companies in the contract lifecycle management, payment processing and identity verification software markets. As we attempt to sell access to our products and solutions to potential customers with existing products and solutions, we must convince them that our products and solutions are superior to the solutions that their organizations have used in the past.

Many of our competitors have longer operating histories than us, significantly greater financial, technical, marketing and other resources, stronger brand and customer recognition, larger intellectual property portfolios and broader global distribution. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. Further, we could lose customers if our competitors develop new competitive products and solutions, acquire competitive products, reduce prices, form strategic alliances with other companies, are acquired by third parties with greater resources or develop and market new technologies that render our existing or future products less competitive, unmarketable or obsolete. If we are unable to effectively compete, our business, operating results and financial condition would be harmed.

We depend on co-location data centers and third-party cloud providers, as well as our own technical operations infrastructure, to provide our products and solutions to our customers in a timely manner. Interruptions or delays in performance of our products and solutions could result in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.

We currently serve our customers from third-party data center hosting facilities. Our customers need to be able to access our products at any time, without interruption or degradation of performance. In some cases, third-party cloud providers run their own platforms that we access, and we are, therefore, vulnerable to their service interruptions. As a result, we depend, in part, on our data center providers’ ability to protect these facilities against damage or interruption, including from natural disasters, power or telecommunications failures, criminal acts and similar events. In the event that our data center arrangements are terminated, or if there are any lapses of service or damage to a data center, we could experience lengthy interruptions in our service as well as delays and additional expenses in arranging new facilities and services. Even with current and planned disaster recovery arrangements, including the existence of secondary data centers that become active during certain lapses of service or damage at a primary data center, our business could be harmed.

In addition to third-party data centers and cloud providers, we also rely on our own technical operations infrastructure to support and serve our rapidly growing customer base. We must maintain sufficient excess capacity in our operations infrastructure to ensure that our products and solutions are accessible within an acceptable load time. Design and mechanical errors, spikes in usage volume and failure to follow system protocols and procedures could cause our systems to fail, resulting in interruptions in our products and solutions. Any interruptions or delays in our service, whether or not caused by our products, whether as a result of third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with customers and cause our revenue to decrease and/or our expenses to increase. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject us to liability and cause us to issue credits or cause customers to fail to renew their subscriptions, any of which could adversely affect our business.

Our systems and security measures have been, and may in the future be, compromised or subject to data breaches, cyberattacks or other malicious activity. Consequently, our products and solutions may be perceived as not being secure. This may result in customers reducing or stopping their use of our products or solutions, our reputation being harmed, our incurring significant liabilities and adverse effects on our operating results and growth prospects.

43


Our operations involve the storage and transmission of customer data, personal data and other sensitive information, and our corporate environment contains important company data and/or business records, employee data and data from partner, vendor or other relationships, as well as a wide variety of our own internal company, partner and employee information. Like other organizations providing valuable technology and services, we are subject to cyberattacks from malicious third parties using a wide variety of tactics, including credential stuffing and account takeover attacks, denial or degradation of service attacks, malicious code (e.g., viruses and worms) and many other techniques. While we have security measures in place designed to protect our production, development and other systems, maintain the integrity of customer, company, partner and employee information, and prevent data loss, misappropriation and other security breaches and incidents, we have faced security incidents in the past. For example, in March 2017, a malicious third party used a phishing attack to gain access to a remote employee’s laptop and then accessed a list of email addresses which were uploaded to a third-party website. In addition, in April 2020, a malicious third party used a brute force password attack to gain access to an isolated testing environment, and exfiltrated a portion of our source code. In both cases, upon detection we took immediate action to prevent any additional unauthorized access, put further security controls in place and worked with law enforcement agencies. These efforts may not completely eliminate potential risks from such incidents, however. While these attempts had no impact on our operations, products or services, there can be no assurance that there will be no impact from these or similar incidents in the future.

Despite our prevention and response efforts, any security incident or breach, even if immaterial and properly addressed, could result in negative publicity, loss of customers, damage to our reputation and could impair our sales and harm our business. Moreover, due to the ongoing COVID-19 pandemic, there is an increased risk that we may experience cybersecurity related incidents as a result of our employees, service providers and third parties working remotely on less secure systems during office closures or when access to facilities may be limited, including due to government mandated shelter-in-place orders. Further, we may face additional security incidents in the future, resulting in unauthorized access to, loss of or unauthorized disclosure of sensitive and proprietary information of DocuSign or our customers, partners or employees, and such incidents may in the future result in regulatory enforcement actions, litigation (including a new private right of action under the California Consumer Privacy Act, as described in the risk factor below titled “We are subject to laws and regulations affecting our business, including those related to e-signature, marketing, advertising, privacy, data protection and information security. Our actual or perceived failure to comply with laws or regulations could harm our business. Complying with laws and regulations could also result in additional costs and liabilities to us or inhibit sales of our software.”), indemnity obligations and other possible liabilities, in addition to the potential harms described above.

Additionally, as we rely on third-party and public-cloud infrastructure, we depend in part on third-party security measures to protect against unauthorized access, cyberattacks and the mishandling of customer data. Our ability to monitor our third-party service providers’ data security is limited and any breach of our providers’ security measures may result in unauthorized access to, or misuse, loss or destruction of, our and our customers’ data.

Cyberattacks and other malicious internet-based activity continue to increase, and cloud-based service providers have been and are expected to continue to be targeted. Further, advances in technology and the increasing sophistication of attackers have led to more frequent and effective cyberattacks, including advanced persistent threats by state-sponsored actors, cyberattacks relying on complex social engineering or “phishing” tactics, ransomware attacks and other methods that may lead to the loss, theft or misuse of personal, corporate or financial information, fraudulent payments and identity theft. Despite significant efforts to create security barriers to such threats, it is virtually impossible for us, our service providers, our partners and our customers to entirely mitigate these risks. In addition, as computer malware, viruses and computer hacking, fraudulent use attempts and phishing attacks have become more prevalent, we face increased risk from these activities to maintain the performance, reliability, security and availability of our products and technical infrastructure to the satisfaction of our customers. If our security measures, or the security measures of our service providers, partners or customers, are compromised, our reputation could be damaged, our ability to attract and retain customers could be adversely affected and our business may be harmed.

Many U.S. and foreign laws and regulations require companies to provide notice of data security breaches and/or incidents involving certain types of personal data to individuals, the media, government authorities or other third parties. In addition, some of our customers contractually require notification of data security breaches. Security compromises experienced by our competitors, by our customers or by us may lead to public disclosures, which may lead to widespread negative publicity. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively affect our ability to attract new customers, cause existing customers to elect not to renew their subscriptions or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our business and operating results.

There can be no assurance that any limitations of liability provisions in our contracts would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim. We also cannot
44


be sure that our existing general liability insurance coverage and coverage for errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims, or that insurers will not deny coverage as to any future claim. One or more large, successful claims against us in excess of our available insurance coverage, or changes in our insurance policies, including premium increases or large deductible or co-insurance requirements, could have an adverse effect on our business, operating results and financial condition.

If our products and solutions do not evolve to meet the needs of our customers or fail to achieve sufficient market acceptance, our financial results and competitive position will suffer.

We spend substantial amounts of time and money to research, develop and enhance our existing products, add new offerings, incorporate additional functionality, and solve new use cases to meet our customers’ rapidly evolving demands. Maintaining adequate research and development resources, such as the appropriate personnel and development technology, to meet the demands of our customers and potential customers is essential to our business. If we are unable to develop products and solutions internally due to a lack of research and development resources, we may be forced to rely on acquisitions to expand into certain markets or technologies, which can be costly. When we develop or acquire new or enhanced products and solutions, we typically incur expenses and expend resources upfront to develop, market, promote and sell them. As a result, when we introduce new or enhanced products and solutions, they must achieve high levels of market acceptance to justify the amount of our investment in developing or acquiring them and bringing them to market. If the release of our new and enhanced products and solutions do not meet customer needs or if our customers do not accept them, our business, operating results and financial conditions would be harmed. The adverse effect on our financial results may be particularly acute because of the significant research, development, marketing, sales and other expenses we will have incurred.

New products and solutions or enhancements to our existing products and solutions could fail to attain sufficient market acceptance for many reasons, including:

failure to predict market demand for particular features or functions, or to timely meet demand;
defects, errors or failures in our products and solutions;
negative publicity about their performance or effectiveness;
changes in applicable legal or regulatory requirements, or increased legal or regulatory scrutiny, adversely affecting our products and solutions;
delays in releasing our products and solutions to the market; and
introduction or anticipated introduction of competing products by our competitors.

Our sales cycle with enterprise and commercial customers can be long and unpredictable, and our sales efforts require considerable time and expense.

Our ability to increase our revenue and grow our business is partially dependent on the widespread acceptance of our products and solutions by large businesses and other commercial organizations. We often need to spend significant time and resources to better educate and familiarize these potential customers with the value proposition of our products and solutions. The length of our sales cycle for these customers from initial evaluation to payment for our offerings is generally three to nine months, but can vary substantially from customer to customer and from offering to offering. Customers frequently require considerable time to evaluate, test and qualify our offerings prior to entering into or expanding a subscription. This is particularly true of DocuSign CLM and our other advanced offerings, where longer evaluation, testing and qualification processes often result in longer sales cycles than for our e-signature solutions. The timing of our sales with our enterprise customers and related revenue recognition is difficult to predict because of the length and unpredictability of the sales cycle for these customers. During the sales cycle, we expend significant time and money on sales and marketing and contract negotiation activities, which may not result in a sale.

Additional factors that may influence the length and variability of our sales cycle include:

the effectiveness of our sales force;
the discretionary nature of purchasing and budget cycles and decisions;
the obstacles placed by customers’ procurement process;
economic conditions and other factors impacting customer budgets;
the customer’s integration complexity;
the customer’s familiarity with e-signature and agreement automation processes;
customer evaluation of competing products during the purchasing process; and
evolving customer demands.

45


Our recent rapid growth may not be indicative of our future growth, and, if we continue to grow rapidly, we may not be able to manage our growth effectively.

Our revenue grew from $974.0 million in the year ended January 31, 2020 to $1.5 billion in the year ended January 31, 2021. We expect that, in the future, as our revenue increases, our revenue growth rate will decline as the scale of our business increases.

We also believe that the COVID-19 pandemic caused many businesses to accelerate the process of shifting to digital agreement processes, contributing to our significant revenue growth during the fiscal year ended January 31, 2021. While we believe that once businesses have shifted to digital agreement processes they will not return to manual ones, we have no way of knowing how much of this growth will be permanent as the COVID-19 pandemic lessens in severity and businesses return to a more normalized, in-person work environment, nor whether demand for our products will remain strong.

We believe that future growth of our revenue depends on a number of factors, including our ability to:

price our products and solutions effectively so that we are able to attract and retain customers;
attract new customers, increase our existing customers’ use of our products and solutions and provide our customers with excellent customer support;
expand our DocuSign Agreement Cloud offerings for our customers;
continue to introduce our products and solutions to new markets outside of the United States;
hire, maintain and train our employee base including our sales force, research and development teams, and key employees;
successfully identify and develop, acquire or invest in businesses, products or technologies that we believe could complement or expand our products and solutions; and
increase global awareness of our brand.

We may not successfully accomplish any of these objectives. We expect to continue to expend substantial financial and other resources on:

sales and marketing, including a significant expansion of our sales organization, particularly in the United States;
our technology infrastructure, including systems architecture, management tools, scalability, availability, performance and security, as well as disaster recovery measures;
product development;
acquisitions or strategic investments;
international expansion; and
general administration, including legal and accounting expenses.

In addition to growth in revenue, we have also experienced significant growth in the number of our customers and users, the number and complexity of the transactions we handle, and the amount of data that our infrastructure supports. Our growth has placed and may continue to place significant demands on our management and our operational and financial resources.

Finally, our business is becoming more complex as we increase our product and solution offerings, add additional staff and acquire complementary companies, products and technologies. In connection with this increased complexity, we are working to improve our operational, financial and management controls as well as our reporting systems and procedures, including streamlining or automating manual processes, all of which requires capital expenditures and management attention. Failure to effectively manage our growth could have an adverse effect on our business, operating results and financial condition.

Because we recognize revenue from subscriptions over the term of the relevant contract, downturns or upturns in sales contracts are not immediately reflected in full in our operating results.

We recognize revenue over the term of each of our contracts, which are typically one year in length but may be up to three years or longer. As a result, much of our revenue is generated from the recognition of contract liabilities from contracts entered into during previous periods. Consequently, a shortfall in demand for our products and solutions and professional services or a decline in new or renewed contracts in any one quarter may not significantly reduce our revenue for that quarter but could negatively affect our revenue in future quarters. Our revenue recognition model also makes it difficult for us to rapidly increase our revenue through additional sales contracts in any period, as revenue from new customers is recognized over the applicable term of their contracts.
46



If we fail to forecast our revenue accurately, or if we fail to match our expenditures with corresponding revenue, our operating results could be adversely affected.

Because our recent growth has resulted in the rapid expansion of our business and product offerings, we do not have a long history upon which to base forecasts of future revenues and operating results. Accordingly, we may be unable to prepare accurate internal financial forecasts or replace anticipated revenue that we do not receive as a result of delays arising from these factors. If we do not address these risks successfully, our operating results could differ materially from our estimates and forecasts or the expectations of investors, causing our business to suffer and our stock price to decline.

If we have overestimated the size of our total addressable market, our future growth rate may be limited.

We have estimated the size of our total addressable market based on internally generated data and assumptions, as well as data published by third parties, which we have not independently verified. While we believe our market size estimates are reasonable, such information is inherently imprecise and subject to a high degree of uncertainty. If our third-party or internally generated data prove to be inaccurate or we make errors in our assumptions based on that data, our actual market may be more limited than our estimates. In addition, these inaccuracies or errors may cause us to misallocate capital and other critical business resources, which could harm our business. Even if our total addressable market meets our size estimates and experiences growth, we may not continue to grow our share of the market.

We have in the past, and may in the future, engage in merger and acquisition activities, which could divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our operating results and financial condition.

As part of our business strategy, we continually evaluate opportunities to acquire or invest in businesses, products or technologies that we believe could complement or expand our products and solutions, enhance our technical capabilities or otherwise offer growth opportunities. For example, in September 2018, we acquired SpringCM, a provider of cloud-based document generation and contract lifecycle management software, in May 2020 we acquired Seal Software Group Ltd., a provider of contract analytics software, and in July 2020 we acquired Liveoak Technologies, Inc., a provider of a secure agreement-collaboration and identity verification platform. In the future, we may be unable to identify suitable acquisition candidates and, even if we do, we may not be able to complete desired acquisitions on favorable terms, if at all. If we are unable to complete acquisitions, we may not be able to strengthen our competitive position or achieve our goals. Future acquisitions and investments may result in unforeseen operating difficulties and expenditures, including disrupting our ongoing operations, diverting management attention, increasing our expenses, and subjecting us to additional liabilities. An acquisition may also negatively affect our financial results because it may:

require us to incur charges or assume substantial debt;
cause adverse tax consequences or unfavorable accounting treatment;
expose us to claims and disputes by third parties, including intellectual property claims and disputes;
not generate sufficient financial return to offset additional costs and expenses related to the acquisition;
cause us to incur liabilities for activities of the acquired company before the acquisition;
cause us to record impairment charges associated with goodwill and other acquired intangible assets; and
cause other unforeseen operating difficulties and expenditures.

Moreover, to pay for an acquisition or investment, we would have to use cash, incur debt and/or issue equity securities, each of which may affect our financial condition or the value of our common stock and (in the case of equity financing) could result in dilution to our stockholders.

In addition, a failure to successfully integrate the operations, personnel or technologies of an acquired business could impact our ability to realize the full benefits of such an acquisition. Our limited experience acquiring companies increases these risks. If we are unable to achieve the anticipated strategic benefits of an acquisition or if the integration or the anticipated financial and strategic benefits, including any anticipated cost savings, revenue opportunities or operational synergies, of such an acquisition are not realized as rapidly as or to the extent anticipated by us, our business, operating results and financial condition could suffer.

Our sales to government entities and highly regulated organizations are subject to a number of challenges and risks.

We sell to U.S. federal, state and local, as well as foreign, government agencies and public sector customers, as well as to customers in highly regulated industries such as financial services, pharmaceuticals, insurance, healthcare and life
47


sciences. Sales to such entities are subject to a number of challenges and risks. Selling to such entities can be highly competitive, expensive and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. These longer sale cycles make the timing of future revenue from these entities difficult to predict. Further, government certification requirements may change, restricting our ability to sell into the government sector until we have met those revised requirements. Government demand and payment for our offerings are affected by public sector budgetary cycles and funding authorizations, and funding reductions or delays, including as a result of the COVID-19 pandemic, may adversely affect public sector demand for our products and solutions.

In addition, both government agencies and entities in highly regulated industries may demand shorter subscription periods or other contract terms that differ from our standard arrangements, including terms that can lead those customers to obtain broader rights in our offerings than would be standard. Such agencies and entities may have statutory, contractual or other legal rights to terminate contracts with us or our partners due to a default or for other reasons, and any such termination may adversely affect our business, operating results and financial condition.

We may need to reduce or change our pricing model to remain competitive.

We price our subscriptions for e-signature solutions based on the number of users within an organization who use our products and solutions to send agreements digitally for signature or the number of Envelopes that such users are provisioned to send. We expect that we may need to change our pricing from time to time, including in connection with the launch of new or enhanced offerings for automating the agreement process. As new or existing competitors introduce new competitive products or reduce their prices, we may be unable to attract new customers or retain existing customers based on our historical pricing. We also must determine the appropriate price to enable us to compete effectively internationally. Moreover, mid- to large-size enterprises may demand substantial price discounts as part of the negotiation of sales contracts. As a result, we may be required or choose to reduce our prices or otherwise change our pricing model, which could adversely affect our business, operating results and financial condition.

Failure to effectively develop and expand our marketing and sales capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our products and solutions.

Our ability to increase our customer base and achieve broader market acceptance of our products and solutions depends to a significant extent on our ability to expand our marketing and sales operations. We are continuously expanding our sales force and strategic partnerships, both domestically and internationally. We also dedicate significant resources to our sales and marketing efforts by investing in advertising campaigns on a variety of media platforms, including online and social media. The effectiveness of our online advertising has varied over time and may vary in the future due to competition for key search terms, changes in search engine use and changes in the search algorithms used by major search engines. If we cannot cost-effectively deploy our expanding sales force and use our marketing tools, or if we fail to promote our products and solutions efficiently and effectively, our ability to acquire new customers and our financial condition may suffer.

We may not be able to scale our business quickly enough to meet the growing needs of our customers and if we are not able to grow efficiently, our operating results could be harmed.

As use of our products and solutions grows and as customers use them for more types of transactions, we will need to devote additional resources to improving our application architecture, integrating with third-party systems and maintaining infrastructure performance. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support and professional services, to serve our growing customer base.

Any failure of or delay in these efforts could cause impaired system performance and reduced customer satisfaction. These issues make our products and solutions less attractive to customers, resulting in decreased sales to new customers, lower renewal rates by existing customers, or the issuance of service credits or refunds, which could hurt our revenue growth and our reputation. Even if we are able to upgrade our systems and expand our staff, any such expansion will be expensive and complex, requiring management time and attention. We could also face inefficiencies or operational failures as a result of our efforts to scale our infrastructure. Moreover, there are inherent risks associated with upgrading, improving and expanding our systems infrastructure. We cannot be sure that the expansion and improvements to our systems infrastructure will be effectively implemented on a timely basis, if at all. These efforts may be costly and could adversely affect our financial results.

If our products and solutions fail to perform properly and if we fail to develop enhancements to resolve any defect or other problems, we could lose customers or become subject to service performance or warranty claims and our market share could decline.
48



Our operations are dependent upon our ability to prevent system interruptions and, as we continue to grow, we will need to devote additional resources to improving our infrastructure in order to maintain the performance of our products and solutions. The applications underlying our products and solutions are inherently complex and may contain material defects or errors, which may cause disruptions in availability or other performance problems. We have from time to time found defects in our products and solutions and may discover additional defects in the future that could result in data unavailability or unauthorized access or other harm to, or loss or corruption of, our customers’ data. While we implement bug fixes and upgrades as part of our regularly scheduled system maintenance, we may not be able to detect and correct defects or errors before implementing our products and solutions. Consequently, we or our customers may discover defects or errors after our products and solutions have been employed. If we fail to perform timely maintenance or if customers are otherwise dissatisfied with the frequency and/or duration of our maintenance services and related system outages, our existing customers could elect not to renew their subscriptions, delay or withhold payment to us, or cause us to issue credits, make refunds or pay penalties, potential customers may not adopt our products and solutions and our brand and reputation could be harmed. In addition, the occurrence of any material defects, errors, disruptions in service or other performance problems with our software could result in warranty or other legal claims against us and diversion of our resources. The costs incurred in addressing and correcting any material defects or errors in our software and expanding our infrastructure and architecture in order to accommodate increased demand for our products and solutions may be substantial and could adversely affect our operating results.

If we fail to offer high-quality support, our business and reputation could suffer.

Many of our customers rely on our customer support and professional services personnel to deploy and use our products and solutions successfully. High-quality support is important for the renewal and expansion of our agreements with existing customers. The importance of high-quality support will increase as we expand our business and pursue new customers. If we do not help our customers quickly resolve issues and provide effective ongoing support, our ability to sell our products and solutions to existing and new customers could suffer and our reputation with existing or potential customers could be harmed.

If we are unable to maintain successful relationships with our partners, our business, operating results and financial condition could be harmed.

In addition to our direct sales force and our website, we use strategic partners, such as global system integrators, value-added resellers and independent software vendors, to sell our subscription offerings and solutions. Our agreements with our partners are generally nonexclusive, meaning our partners may offer their customers products and services of several different companies, including products and services that compete with ours, or may themselves be or become competitors. If our partners do not effectively market and sell our subscription offerings and solutions, choose to use greater efforts to market and sell their own products and services or those of our competitors, or fail to meet the needs of our customers, our ability to grow our business and sell our subscription offerings and solutions may be harmed. Our partners may cease marketing our subscription offerings or solutions with limited or no notice and with little or no penalty. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our products and solutions by potential customers. The loss of a substantial number of our partners, our possible inability to replace them, or the failure to recruit additional partners could harm our growth objectives and operating results. Even if we are successful in maintaining and recruiting new partners, we cannot assure you that these relationships will result in increased customer usage of our products and solutions or increased revenue. Additionally, as the scale of our partnership efforts increases with our growth, the successful implementation of these relationships may become more time-consuming, difficult and costly to realize, which could negatively impact our business performance or our brand reputation.

Failure to establish and maintain relationships with partners that can provide complementary technology offerings and software integrations could limit our ability to grow our business.

Our products and solutions seamlessly integrate with hundreds of other software applications, including Salesforce, Google and Microsoft. Our growth strategy includes expanding the use of our products and solutions through complementary technology offerings and software integrations, such as third-party APIs. While we have established partnerships with providers of complementary offerings and software integrations, we cannot guarantee that we will be successful in continuing to maintain and scale these partnerships or establishing partnerships with additional providers as we grow. In the future, third-party providers of complementary technology offerings and software integrations may decline to enter into, or may later terminate, relationships with us; change their features or platforms; restrict our access to their applications and platforms; alter the terms governing use of and access to their applications and APIs; or implement other changes that could functionally limit or terminate our ability to use these third-party technology offerings and software integrations with our platform, any of which could negatively impact our offerings and harm our business.
49



Further, these third-party providers may experience operational difficulties due to the current COVID-19 pandemic, which could limit or alter our ability to use these third-party technology offerings, which in turn could have an adverse impact on our results of operations.

Unfavorable conditions in our industry or the global economy or reductions in information technology spending could limit our ability to grow our business and negatively affect our operating results.

Our operating results may vary based on the impact of changes in our industry or the global economy on us and our existing and prospective customers. The revenue growth and potential profitability of our business depend on demand for our products and solutions. Current or future economic uncertainties or downturns could adversely affect our business and operating results. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, political turmoil, natural catastrophes, warfare and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments, including spending on information technology, and negatively affect the growth of our business. In addition, the COVID-19 pandemic has created significant additional uncertainty in the global economy. If the COVID-19 pandemic worsens, or continues for longer than expected, especially in regions in which we have material operations or sales, such as the United States, Canada, the United Kingdom, France, Germany, Ireland, Israel, Australia, Singapore, Japan, Brazil, Egypt or Sweden, our business activities originating from affected areas, including sales-related activities, could be adversely affected. Disruptive activities could include business closures in impacted areas and restrictions in our employees’ and other service providers’ ability to travel. To the extent our products and solutions are perceived by customers and potential customers as costly, or too difficult to deploy or migrate to, our revenue may be disproportionately affected by delays or reductions in general information technology spending. Also, competitors, many of whom are larger and more established than we are, may respond to market conditions by lowering prices and attempting to lure away our customers. In addition, the increased pace of consolidation in certain industries may result in reduced overall spending on our products and solutions. We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry. If the economic conditions of the general economy or markets in which we operate worsen from present levels, our business, operating results and financial condition could be adversely affected.

We may require additional capital to support business growth and objectives, and this capital might not be available to us on reasonable terms, if at all, and may result in stockholder dilution.

We fund our operations through payments by our customers for use of our product offerings and related services. In addition, as of April 30, 2021, we had issued and outstanding $78.3 million aggregate principal amount of 0.5% Convertible Senior Notes due 2023 (the “2023 Notes), $690.0 million aggregate principal amount of 0.0% Convertible Senior Notes due 2024 (the “2024 Notes” and together with the 2023 Notes, the “Notes”) and available borrowing capacity of $500.0 million under our credit facility. We cannot be certain when or if our operations will generate sufficient cash to fund our ongoing operations or the growth of our business.

We intend to continue to make investments to support our business and, in the future, we may require additional funds. Additional financing may not be available on favorable terms, if at all. In addition, in the event that we incur additional debt, including under the credit facility, the debt holders would have rights senior to holders of common stock to make claims on our assets. Additionally, the credit facility restricts our ability to pay dividends on common stock and the terms of any future debt could restrict our operations. Further, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. If adequate funds are not available on acceptable terms when we require it, we may be unable to invest in future growth opportunities, which could harm our business, operating results and financial condition.

We have incurred substantial indebtedness that may decrease our business flexibility, access to capital and/or increase our borrowing costs, and we may still incur substantially more debt, which may adversely affect our operations and financial results.

As of April 30, 2021, we had $78.3 million principal amount of indebtedness outstanding under our 2023 Notes, $690.0 million principal amount of indebtedness outstanding under our 2024 Notes and available borrowing capacity of $500.0 million under our credit facility . Our indebtedness may:

limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes;
limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes;
50


require us to use a substantial portion of our cash flow from operations to make debt service payments;
limit our flexibility to plan for, or react to, changes in our business and industry;
place us at a competitive disadvantage compared to our less leveraged competitors; and
increase our vulnerability to the impact of adverse economic and industry conditions, including as a result of the COVID-19 pandemic.

If we fail to maintain our brand, our ability to expand our customer base will be impaired and our financial condition may suffer.

We believe that maintaining the DocuSign brand is important to supporting continued acceptance of our existing and future solutions, attracting new customers to our products and solutions and retaining existing customers. We also believe that the importance of our brand will increase as competition in our market increases. Successfully maintaining our brand will depend largely on the effectiveness of our marketing efforts, and our ability to provide reliable and useful solutions to meet the needs of our customers at competitive prices, maintain our customers’ trust, continue to develop new functionality and solutions and successfully differentiate our products and solutions from our competitors’. Additionally, the performance of our partners may affect our brand and reputation if customers do not have a positive experience with our partners’ services. Brand promotion activities may not generate customer awareness or yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. If we fail to successfully promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business could suffer.

We could incur substantial costs in protecting or defending our proprietary rights, and any failure to adequately protect our rights could impair our competitive position and we may lose valuable assets, experience reduced revenue and incur costly litigation to protect our rights.

Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws and contractual provisions in an effort to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. While we have been issued patents in the United States and other countries and have additional patent applications pending, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, any patents issued in the future may not provide us with competitive advantages or may be successfully challenged by third parties. Any of our patents, trademarks or other intellectual property rights may be challenged or circumvented by others or invalidated through administrative process or litigation. There can be no guarantee that others will not independently develop similar products, duplicate any of our products or design around our patents. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and solutions that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our products may be unenforceable under the laws of jurisdictions outside the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information may increase.

We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing technologies that are substantially equivalent or superior to our products and solutions.

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect and enforce these rights, including through litigation. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our products and solutions, impair the functionality of our products and solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our products and solutions or injure our reputation. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Moreover, policing unauthorized use of our technologies, trade secrets and intellectual property may be difficult, expensive and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for
51


enforcement of intellectual property rights may be weak. If we fail to adequately protect our intellectual property and proprietary rights, our business, operating results and financial condition could be adversely affected.

We may be subject to legal proceedings and litigation for a variety of claims, including labor and employment issues, intellectual property disputes, securities law violations and other matters, which may be costly and may subject us to significant liability and increased costs of doing business. Our business may suffer if it is alleged or determined that our technology infringes the intellectual property rights of others or if the cost and time-commitment of litigation diverts resources from our other business activities.

From time to time, we may be involved as a party or an indemnitor in disputes or regulatory inquiries that arise in the ordinary course of business. These may include alleged claims, lawsuits and proceedings regarding labor and employment issues, commercial disagreements, securities law violations and other matters. In particular, companies in the software industry are often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Our technologies may not be able to withstand any third-party claims or rights against their use. In addition, many of these companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. Any litigation may also involve patent holding companies or other adverse patent owners that have no relevant product revenue and against which our patents may therefore provide little or no deterrence. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop technology for any infringing aspect of our business, we would be forced to limit or stop sales of our software or cease business activities covered by such intellectual property and may be unable to compete effectively. Any inability to license third-party technology in the future would have an adverse effect on our business or operating results and would adversely affect our ability to compete.

We also may be required to redesign our products, delay releases, enter into costly settlement or license agreements, pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling our products and solutions. Requiring us to change one or more aspects of the way we deliver our products and solutions may harm our business. We may also be contractually obligated to indemnify our customers in the event of infringement of a third party’s intellectual property rights. Responding to such claims, including those currently pending, regardless of their merit, can be time consuming and costly to defend in litigation and damage our reputation and brand.

Regardless of the merits or ultimate outcome of any claims that have been or may be brought against us or that we may bring against others, lawsuits are time-consuming and expensive to resolve, divert management’s time and attention, and could harm our reputation. Although we carry general liability insurance, our insurance may not cover potential claims that arise or may not be adequate to indemnify us for all liability that may be imposed. We may also determine that the most cost-effective way to resolve a dispute is to enter into a settlement agreement. Litigation is inherently unpredictable and we cannot predict the timing, nature, controversy or outcome of lawsuits or assure you that the results of any of these actions will not have an adverse effect on our business, operating results or financial condition.

We use open source software in our products, which could subject us to litigation or other actions.

We use open source software in our products and solutions. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our products. In addition, if we were to combine our proprietary software products with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software products. If we inappropriately use or incorporate open source software subject to certain types of open source licenses that challenge the proprietary nature of our software products, we may be required to re-engineer our products, discontinue the sale of our products and solutions or take other remedial actions.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, data protection and other losses.

Our agreements with some customers and other third parties include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, data protection, damages caused by us to property or persons, or other liabilities relating to or arising from our offerings, solutions or other contractual obligations. Some of these indemnity agreements provide for uncapped liability for which we would be responsible, and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, operating and financial condition. Although we normally
52


contractually limit our liability with respect to such obligations, we may still incur substantial liability related to them and we may be required to cease use of certain functions of our products and solutions as a result of any such claims. In addition, our customer agreements generally include a warranty that the proper use of DocuSign by a customer in accordance with the agreement and applicable law will be sufficient to meet the definition of an “electronic signature” as defined in the ESIGN Act and eIDAS. Any warranty or indemnification claim brought by our customers could result in damage to our reputation and harm our business and operating results.

We rely on the performance of highly skilled personnel, including our management and other key employees, and the loss of one or more of such personnel, or of a significant number of our team members, could harm our business.

Our success and future growth depend upon the continued services of our management team and other key employees. From time to time, there may be changes in our management team resulting from the hiring or departure of executives and key employees, which could disrupt our business. For example, on September 8, 2020, Cynthia Gaylor became our Chief Financial Officer and Michael Sheridan, our outgoing Chief Financial Officer, became President of International. Our senior management and key employees are employed on an at-will basis. We may terminate any employee’s employment at any time, with or without cause, and any employee may resign at any time, with or without cause. If we lose one or more of our senior management or other key employees and are unable to find adequate replacements, or if we fail to attract, retain and motivate members of our senior management team and key employees, our business could be harmed.

We also are dependent on the continued service of our existing software engineers because of the complexity of our products and solutions. In particular, we compete with many other companies for software developers with high levels of experience and skilled sales and operations professionals. We also require skilled product development, marketing, sales, and operations professionals, and we may not be successful in attracting and retaining the professionals we need, particularly in our principal U.S. locations in the San Francisco Bay Area and Seattle. Competition for these employees in our industry (and especially in our principal U.S. locations) is intense, and many of the companies we compete with for experienced personnel have greater resources than we do.

Our current operations are international in scope and we plan further geographic expansion, creating a variety of operational challenges.

A component of our growth strategy involves the further expansion of our operations and customer base internationally. In each of the years ended January 31, 2021, 2020 and 2019 total revenue generated from customers outside the U.S. was 20%, 18% and 17% of our total revenue, respectively. As of April 30, 2021, we have offices in 12 countries and approximately 30% of our full-time employees were located outside of the United States. We are continuing to adapt to and develop strategies to address international markets but there is no guarantee that such efforts will have the desired effect. We expect that our international activities will continue to grow as we continue to pursue opportunities in existing and new international markets, which will require significant management attention and financial resources.

Our current international operations and future initiatives involve a variety of risks, including: