DocuSign Announces Third Quarter Fiscal 2021 Financial Results

SAN FRANCISCO, Dec. 3, 2020 /PRNewswire/ -- DocuSign, Inc. (NASDAQ: DOCU), which offers the world's #1 eSignature solution as part of the DocuSign Agreement Cloud, today announced results for its fiscal quarter ended October 31, 2020.

"As companies accelerate the digital transformation of their business and agreement processes, DocuSign's role as an essential cloud platform continues to grow," said Dan Springer, DocuSign CEO. "Our Q3 results reflect that tailwind, as well as the immediate and long-term value that customers see from eSignature and our broader Agreement Cloud."

Third Quarter Financial Highlights

    --  Total revenue was $382.9 million, an increase of 53% year-over-year.
        Subscription revenue was $366.6 million, an increase of 54%
        year-over-year. Professional services and other revenue was $16.3
        million, an increase of 43% year-over-year.
    --  Billings were $440.4 million, an increase of 63% year-over-year.
    --  GAAP gross margin was 74% compared to 75% in the same period last year.
        Non-GAAP gross margin was 79% in both comparative periods.
    --  GAAP net loss per basic and diluted share was $0.31 on 186 million
        shares outstanding compared to $0.26 on 178 million shares outstanding
        in the same period last year.
    --  Non-GAAP net income per diluted share was $0.22 on 206 million shares
        outstanding compared to $0.11 on 191 million shares outstanding in the
        same period last year.
    --  Net cash provided by operating activities was $57.4 million compared to
        $1.9 million net cash used in operating activities in the same period
        last year.
    --  Free cash flow was $38.1 million compared to negative $14.1 million in
        the same period last year.
    --  Cash, cash equivalents, restricted cash and investments were $675.6
        million at the end of the quarter.

A reconciliation of GAAP to non-GAAP financial measures has been provided in the tables included in this press release. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures and Other Key Metrics."

Operational and Other Financial Highlights

    --  DocuSign Agreement Cloud 2020 Product Release 3. DocuSign announced more
        than a dozen new product capabilities to help customers get remote work
        done faster and easier. This includes:
        --  eSignature for Slack which enables users to send and sign important
            documents from directly within Slack;
        --  Drawing which streamlines processes by enabling a sender or signer
            to upload an image and leave free-form markups on the image;
        --  Agreement Actions which allow admins to easily configure rules to
            automate common post-signature actions; and
        --  iOS App Updates which includes an improved user experience and new
            features (including drag-and-drop tagging) for DocuSign's eSignature
            app for iOS.
    --  New Products. DocuSign continues to expand the Agreement Cloud with new
        products that make agreement processes smarter, faster, and more secure.
        --  DocuSign Analyzer helps customers negotiate better agreements,
            faster. It applies the AI-powered advanced contract analytics of
            DocuSign Insight to incoming contracts, accelerating contract review
            and negotiation while helping to manage risk.
        --  DocuSign CLM+ adds AI-driven analytics from DocuSign Analyzer and
            Insight to DocuSign's market-leading CLM solution. This combination
            empowers organizations to automate manual tasks, orchestrate complex
            workflows and eliminate unnecessary risks intelligently by embedding
            analytics and machine learning across every stage of the agreement
            lifecycle.
        --  DocuSign Monitor helps protect agreements with round-the-clock
            activity tracking. It uses advanced analytics to provide near
            real-time alerts--empowering security teams to detect unusual
            account activity, investigate incidents and respond to verified
            threats.
        --  DocuSign Quote Gen for Salesforce CPQ+ allows Salesforce CPQ
            customers to leverage Gen for Salesforce as their
            document-generation solution within CPQ+.

Outlook

The company currently expects the following guidance:

? Quarter ending January 31, 2021 (in millions, except percentages):



     Total revenue                      $404  to $408



     Subscription revenue               $384  to $388



     Billings                           $512  to $522



     Non-GAAP gross margin               78% to  80%


      Non-GAAP sales and marketing        42% to  44%


      Non-GAAP research and development   14% to  16%


      Non-GAAP general and
       administrative                      9% to  11%


      Non-GAAP interest and other income
       (expense)                         $(1) to   $1



     Provision for income taxes           $2  to   $3


      Non-GAAP diluted weighted-average
       shares outstanding                 205  to  210

? Year ending January 31, 2021 (in millions, except percentages):



     Total revenue                      $1,426  to $1,430



     Subscription revenue               $1,355  to $1,359



     Billings                           $1,700  to $1,710



     Non-GAAP gross margin                 78% to    80%


      Non-GAAP sales and marketing          44% to    46%


      Non-GAAP research and development     13% to    15%


      Non-GAAP general and
       administrative                        9% to    11%


      Non-GAAP interest and other income     $3  to     $5


      Provision for income taxes             $7  to     $8


      Non-GAAP diluted weighted-average
       shares outstanding                   200  to    205

The company has not reconciled its expectations of non-GAAP financial measures to the corresponding GAAP measures because stock-based compensation expense cannot be reasonably calculated or predicted at this time. Accordingly, a reconciliation is not available without unreasonable effort.

Webcast Conference Call Information

The company will host a conference call on December 3, 2020 at 1:30 p.m. PT (4:30 p.m. ET) to discuss its financial results. A live webcast of the event will be available on the DocuSign Investor Relations website at investor.docusign.com. A live dial-in will be available domestically at 877-407-0784 or internationally at 201-689-8560. A replay will be available domestically at 844-512-2921 or internationally at 412-317-6671 until midnight (ET) December 17, 2020 using the passcode 13713254.

About DocuSign

DocuSign helps organizations connect and automate how they prepare, sign, act on, and manage agreements. As part of the DocuSign Agreement Cloud, DocuSign offers eSignature, the world's #1 way to sign electronically on practically any device, from almost anywhere, at any time. Today, over 820,000 customers and hundreds of millions of users in over 180 countries use DocuSign to accelerate the process of doing business and to simplify people's lives.

For more information, visit www.docusign.com, call +1-877-720-2040, or follow @DocuSign on Twitter, LinkedIn, Facebook and Instagram.

Copyright 2020. DocuSign, Inc. is the owner of DOCUSIGN® and all its other marks (www.docusign.com/IP).

Investor Relations:
Annie Leschin
VP Investor Relations
investors@docusign.com

Media Relations:
Adrian Wainwright
Head of Communications
media@docusign.com

Forward-Looking Statements

This press release contains "forward-looking" statements that are based on our management's beliefs and assumptions and on information currently available to management. Forward-looking statements include all statements that are not historical facts and can be identified by terms 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 in this press release include, among other things, statements under "Outlook" above and any other statements about expected financial metrics, such as revenue, billings, non-GAAP gross margin, non-GAAP diluted weighted-average shares outstanding, and non-financial metrics, such as customer growth, as well as statements related to our expectations regarding the benefits of the DocuSign Agreement Cloud and enhancements to it, additions to the Agreement Cloud suite of products, and the anticipated benefits of the acquisition and integration of Seal Software and Liveoak Technologies. They also include statements about our future operating results and financial position, our business strategy and plans, market growth and trends, and our objectives for future operations. These statements are subject to substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

These risks include, among other things, risks related to the impact of the COVID-19 pandemic on our business, financial condition and results of operations as well as the businesses of our customers and partners and the economy as a whole; our ability to estimate the size of our total addressable market; our ability to effectively sustain and manage our growth and future expenses, achieve and maintain future profitability, attract new customers and maintain and expand our existing customer base; our ability to scale and update our platform to respond to customers' needs and rapid technological change; the effects of increased competition in our market and our ability to compete effectively; our ability to expand use cases within existing customers and vertical solutions; our ability to expand our operations and increase adoption of our platform internationally; our ability to strengthen and foster our 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, execute on, integrate the operations of and realize the anticipated benefits of potential 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 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; and our ability to maintain proper and effective internal controls. Additional risks and uncertainties that could affect our financial results are included in the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K for the fiscal year ended January 31, 2020 filed on March 27, 2020, our quarterly report on Form 10-Q for the quarter ended July 31, 2020 filed on September 4, 2020, and other filings that we make from time to time with the with the Securities and Exchange Commission (the "SEC"). In addition, any forward-looking statements contained in this press release are based on assumptions that we believe to be reasonable as of this date. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons if actual results differ materially from those anticipated in the forward-looking statements.

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 are presenting 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 operating expenses, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share: 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 from our convertible senior notes issued in September 2018, acquisition-related expenses, 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 that 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 flows: 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.

For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure, please see "Reconciliation of GAAP to Non-GAAP Financial Measures" below.


                                                                                        
              
                DOCUSIGN, INC.

                                                                       
              
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                         
              
                (Unaudited)




                                                                    Three Months Ended October 31,                                        Nine Months Ended October 31,

                                                                                                                                    ---

                   (in thousands, except per
                    share data)                        2020                                  2019                                           2020                      2019

                                                                                                                                                                    ---


     
                Revenue:



     Subscription                                             $
         366,617                                       $
              238,072                                        $
          971,182       $
            660,341


      Professional services and
       other                                         16,306                                  11,430                                           50,967                                     38,735




     Total revenue                                 382,923                                 249,502                                        1,022,149                                    699,076




     
                Cost of revenue:



     Subscription                                   69,905                                  43,178                                          186,645                                    115,769


      Professional services and
       other                                         27,926                                  18,786                                           75,833                                     59,390



      Total cost of revenue                          97,831                                  61,964                                          262,478                                    175,159



                   Gross profit                     285,092                                 187,538                                          759,671                                    523,917




     
                Operating expenses:


      Sales and marketing                           209,944                                 149,231                                          576,729                                    430,053


      Research and development                       73,362                                  48,758                                          191,387                                    133,458


      General and administrative                     50,256                                  33,546                                          140,513                                    111,562



      Total operating expenses                      333,562                                 231,535                                          908,629                                    675,073



                   Loss from operations            (48,470)                               (43,997)                                        (148,958)                                  (151,156)



     Interest expense                              (7,769)                                (7,364)                                        (23,013)                                  (21,793)


      Interest income and other
       income (expense), net                          (311)                                  5,801                                            6,032                                     15,549



                   Loss before provision for
                    income taxes                   (56,550)                               (45,560)                                        (165,939)                                  (157,400)


      Provision for income taxes                      1,941                                   1,038                                            4,916                                      3,552



                   Net loss                                   $
         (58,491)                                     $
              (46,598)                                     $
          (170,855)    $
            (160,952)



                   Net loss per share
                    attributable to common
                    stockholders, basic and
                    diluted                                     $
         (0.31)                                       $
              (0.26)                                        $
          (0.92)       $
            (0.92)



                   Weighted-average number of
                    shares used in computing
                    net loss per share
                    attributable to common
                    stockholders, basic and
                    diluted                         186,423                                 178,314                                          184,767                                    175,303




                   Stock-based compensation expense included in
                    costs and expenses:


      Cost of revenue-
       subscription                                              $
         5,777                                         $
              3,534                                         $
          14,655         $
            8,931


      Cost of revenue-
       professional services and
       other                                          6,005                                   3,616                                           15,355                                     11,877


      Sales and marketing                            36,881                                  24,649                                           93,851                                     68,693


      Research and development                       18,896                                  11,679                                           45,562                                     30,959


      General and administrative                     13,361                                   9,258                                           33,815                                     30,339


                                                        
       
                DOCUSIGN, INC.

                                                     
      
         CONDENSED CONSOLIDATED BALANCE SHEETS

                                                          
       
                (Unaudited)




                   (in thousands)                                  October 31, 2020                                      January 31, 2020

                                                                                                                  ---


     
                Assets



     Current assets


      Cash and cash equivalents                                                         $
              374,984                              $
        241,203



     Investments-current                                                   223,590                              414,939



     Restricted cash                                                           281                                  280



     Accounts receivable, net                                              261,085                              237,841



     Contract assets-current                                                22,477                               12,502


      Prepaid expenses and other current
       assets                                                                47,343                               37,125




     Total current assets                                                  929,760                              943,890



     Investments-noncurrent                                                 76,782                              239,729


      Property and equipment, net                                           159,652                              128,293


      Operating lease right-of-use
       assets                                                               160,362                              149,833



     Goodwill                                                              348,504                              194,882



     Intangible assets, net                                                128,414                               56,500


      Deferred contract acquisition
       costs-noncurrent                                                     225,115                              153,333



     Other assets-noncurrent                                                22,530                               24,678



                   Total assets                                                       $
              2,051,119                            $
        1,891,138



                   Liabilities and Stockholders' Equity



     Current liabilities



     Accounts payable                                                                   $
              32,309                               $
        28,144


      Accrued expenses and other current
       liabilities                                                           59,752                               54,344



     Accrued compensation                                                  114,221                               83,189


      Contract liabilities-current                                          686,185                              507,560


      Operating lease liabilities-
       current                                                               30,633                               20,728



      Total current liabilities                                             923,100                              693,965


      Convertible senior notes, net                                         486,149                              465,321


      Contract liabilities-noncurrent                                        14,717                               11,478


      Operating lease liabilities-
       noncurrent                                                           169,078                              162,432


      Deferred tax liability-noncurrent                                       7,974                                4,920


      Other liabilities-noncurrent                                           24,069                                6,695




     Total liabilities                                                   1,625,087                            1,344,811




     Stockholders' equity



     Common stock                                                               19                                   18



     Treasury stock                                                        (1,048)


      Additional paid-in capital                                          1,736,241                            1,685,167


      Accumulated other comprehensive
       loss                                                                 (1,140)                             (1,673)



     Accumulated deficit                                               (1,308,040)                         (1,137,185)



      Total stockholders' equity                                            426,032                              546,327



                   Total liabilities and stockholders'
                    equity                                                            $
              2,051,119                            $
        1,891,138


                                                                                    
              
                DOCUSIGN, INC.

                                                                   
              
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                     
              
                (Unaudited)




                                                             Three Months Ended October 31,                                        Nine Months Ended October 31,

                                                                                                                              ---

                   (in thousands)                 2020                                 2019                                           2020                      2019

                                                                                                                                                           ---

                   Cash flows from operating activities:



     Net loss                                           $
       (58,491)                                      $
              (46,598)                                     $
        (170,855)    $
        (160,952)


      Adjustments to reconcile net loss to net cash
       provided by (used in) operating activities


      Depreciation and amortization             19,479                                 12,655                                           51,455                                   36,916


      Amortization of deferred
       contract acquisition and
       fulfillment costs                        25,593                                 18,211                                           70,787                                   49,360


      Amortization of debt discount
       and transaction costs                     7,044                                  6,645                                           20,828                                   19,647


      Non-cash operating lease
       costs                                     6,963                                  4,980                                           20,082                                   13,843


      Stock-based compensation
       expense                                  80,920                                 52,736                                          203,238                                  150,799


      Deferred income taxes                      (766)                                    14                                          (1,050)                                      42



     Other                                      1,699                                    229                                            1,206                                  (2,142)


      Changes in operating assets and liabilities



     Accounts receivable                     (36,583)                              (20,812)                                        (11,429)                                  15,084



     Contract assets                          (5,460)                               (2,318)                                         (3,890)                                 (7,223)


      Prepaid expenses and other
       current assets                            3,553                                  (341)                                         (1,835)                                 (2,036)


      Deferred contract acquisition
       and fulfillment costs                  (52,225)                              (27,899)                                       (144,639)                                 (77,800)



     Other assets                               (331)                                  (33)                                         (6,463)                                     926



     Accounts payable                         (2,620)                                   718                                            3,655                                    2,306


      Accrued expenses and other
       liabilities                              10,242                                (9,811)                                          21,952                                    4,691


      Accrued compensation                         688                                (9,120)                                          23,553                                  (6,693)


      Contract liabilities                      65,034                                 22,563                                          172,520                                   44,309


      Operating lease liabilities              (7,296)                               (3,688)                                        (14,394)                                (10,886)



      Net cash provided by (used in)
       operating activities                     57,443                                (1,869)                                         234,721                                   70,191


                   Cash flows from investing activities:


      Cash paid for acquisition, net
       of acquired cash                              -                                                                             (180,370)


      Purchases of marketable
       securities                             (68,982)                             (223,048)                                         (80,649)                               (753,934)


      Sales of marketable securities                 -                                                                                28,986


      Maturities of marketable
       securities                              103,366                                216,261                                          404,782                                  460,710


      Purchases of strategic
       investments                             (5,300)                                                                               (5,300)                                (15,500)


      Purchases of other investments                 -                                                                               (3,241)


      Purchases of property and
       equipment                              (19,393)                              (12,280)                                        (64,144)                                (42,071)



      Net cash provided by (used in)
       investing activities                      9,691                               (19,067)                                         100,064                                (350,795)


                   Cash flows from financing activities:


      Payment of tax withholding
       obligation on RSU settlement          (113,417)                              (39,310)                                       (247,277)                                (125,288)


      Proceeds from exercise of
       stock options                             1,945                                 19,815                                           14,983                                   62,263


      Proceeds from employee stock
       purchase plan                            16,269                                 13,309                                           29,859                                   23,872



      Net cash used in financing
       activities                             (95,203)                               (6,186)                                       (202,435)                                 (39,153)


      Effect of foreign exchange on
       cash, cash equivalents and
       restricted cash                         (1,208)                                   810                                            1,432                                    (310)



      Net increase (decrease) in
       cash, cash equivalents and
       restricted cash                        (29,277)                              (26,312)                                         133,782                                (320,067)


      Cash, cash equivalents and
       restricted cash at beginning
       of period                               404,542                                224,423                                          241,483                                  518,178



      Cash, cash equivalents and
       restricted cash at end of
       period                                             $
       375,265                                        $
              198,111                                       $
         375,265     $
          198,111


                                                                                                 
             
                DOCUSIGN, INC.

                                                                              
              
               RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

                                                                                                   
             
                (Unaudited)





     
                Reconciliation of gross profit and gross margin:




                                                                    Three Months Ended October 31,                                          Nine Months Ended October 31,

                                                                                                                                         ---

                   (in thousands)                 2020                                 2019                          2020                                    2019

                                                                                                                                                           ---

      GAAP gross profit                                   $
              285,092                                              $
              187,538                               $
              759,671      $
         523,917


      Add: Stock-based
       compensation                             11,782                                                7,150                                               30,010                           20,808


      Add: Amortization of
       acquisition-related
       intangibles                               3,376                                                1,348                                                7,856                            4,356


      Add: Employer payroll tax
       on employee stock
       transactions                              1,676                                                  715                                                4,450                            1,908



      Non-GAAP gross profit                               $
              301,926                                              $
              196,751                               $
              801,987      $
         550,989



      GAAP gross margin                   74
            %                                         75
           %                                        74
            %                    75
            %


      Non-GAAP adjustments                 5
            %                                          4
           %                                         4
            %                     4
            %


      Non-GAAP gross margin               79
            %                                         79
           %                                        78
            %                    79
            %




      GAAP subscription gross
       profit                                             $
              296,712                                              $
              194,894                               $
              784,537      $
         544,572


      Add: Stock-based
       compensation                              5,777                                                3,534                                               14,655                            8,931


      Add: Amortization of
       acquisition-related
       intangibles                               3,376                                                1,348                                                7,856                            4,356


      Add: Employer payroll tax
       on employee stock
       transactions                                722                                                  337                                                2,183                              769



      Non-GAAP subscription
       gross profit                                       $
              306,587                                              $
              200,113                               $
              809,231      $
         558,628



      GAAP subscription gross
       margin                             81
            %                                         82
           %                                        81
            %                    82
            %


      Non-GAAP adjustments                 3
            %                                          2
           %                                         2
            %                     3
            %


      Non-GAAP subscription
       gross margin                       84
            %                                         84
           %                                        83
            %                    85
            %




      GAAP professional services
       and other gross loss                              $
              (11,620)                                             $
              (7,356)                             $
              (24,866)    $
         (20,655)


      Add: Stock-based
       compensation                              6,005                                                3,616                                               15,355                           11,877


      Add: Employer payroll tax
       on employee stock
       transactions                                954                                                  378                                                2,267                            1,139



      Non-GAAP professional
       services and other gross
       loss                                               $
              (4,661)                                             $
              (3,362)                              $
              (7,244)     $
         (7,639)



      GAAP professional services
       and other gross margin           (71)
            %                                       (64)
           %                                      (49)
            %                  (53)
            %


      Non-GAAP adjustments                42
            %                                         35
           %                                        35
            %                    33
            %


      Non-GAAP professional
       services and other gross
       margin                           (29)
            %                                       (29)
           %                                      (14)
            %                  (20)
            %



     
                Reconciliation of operating expenses:


                                                             Three Months Ended October 31,                      Nine Months Ended October 31,



                   (in thousands)                   2020                        2019               2020                         2019



      GAAP sales and marketing                           $
        209,944                                  $
      149,231                            $
             576,729 $
      430,053


      Less: Stock-based
       compensation                             (36,881)                                  (24,649)                       (93,851)                      (68,693)


      Less: Amortization of
       acquisition-related
       intangibles                               (3,981)                                   (2,957)                       (11,176)                       (9,102)


      Less: Acquisition-related
       expenses                                                                                                             (186)


      Less: Employer payroll tax on
       employee stock transactions               (4,125)                                   (1,682)                       (10,992)                       (5,610)



      Non-GAAP sales and marketing                       $
        164,957                                  $
      119,943                            $
             460,524 $
      346,648



      GAAP sales and marketing as a
       percentage of revenue                55
            %                              60
            %                   56
            %                  62
            %


      Non-GAAP sales and marketing
       as a percentage of revenue           43
            %                              48
            %                   45
            %                  50
            %




      GAAP research and development                       $
        73,362                                   $
      48,758                            $
             191,387 $
      133,458


      Less: Stock-based
       compensation                             (18,896)                                  (11,679)                       (45,562)                      (30,959)


      Less: Employer payroll tax on
       employee stock transactions               (1,752)                                     (712)                        (5,317)                       (2,888)



      Non-GAAP research and
       development                                        $
        52,714                                   $
      36,367                            $
             140,508  $
      99,611



      GAAP research and development
       as a percentage of revenue           19
            %                              20
            %                   19
            %                  19
            %


      Non-GAAP research and
       development as a percentage
       of revenue                           14
            %                              15
            %                   14
            %                  14
            %




      GAAP general and
       administrative                                     $
        50,256                                   $
      33,546                            $
             140,513 $
      111,562


      Less: Stock-based
       compensation                             (13,361)                                   (9,258)                       (33,815)                      (30,339)


      Less: Acquisition-related
       expenses                                    (336)                                                                  (7,776)


      Less: Employer payroll tax on
       employee stock transactions               (1,406)                                     (735)                        (4,007)                       (3,057)



      Non-GAAP general and
       administrative                                     $
        35,153                                   $
      23,553                             $
             94,915  $
      78,166



      GAAP general and
       administrative as a
       percentage of revenue                13
            %                              13
            %                   14
            %                  16
            %


      Non-GAAP general and
       administrative as a
       percentage of revenue                 9
            %                               9
            %                    9
            %                  11
            %



     
                Reconciliation of income (loss) from operations and operating margin:


                                                                Three Months Ended October 31,                         Nine Months Ended October 31,



                   (in thousands)             2020                                 2019               2020                                       2019



      GAAP loss from
       operations                                    $
              (48,470)                                  $
        (43,997)                             $
             (148,958)    $
        (151,156)


      Add: Stock-based
       compensation                         80,920                                             52,736                                203,238                          150,799


      Add: Amortization of
       acquisition-related
       intangibles                           7,357                                              4,305                                 19,032                           13,458


      Add: Acquisition-
       related expenses                        336                                                                                    7,962


      Add: Employer payroll
       tax on employee stock
       transactions                          8,959                                              3,844                                 24,766                           13,463


      Non-GAAP income from
       operations                                      $
              49,102                                     $
        16,888                               $
              106,040     $
           26,564



      GAAP operating margin                   (13)                                              (18)
                                                 %                                                 %                        (15)
            %                  (22)
            %


      Non-GAAP adjustments            26
            %                                       25
           %                          25
            %                    26
            %


      Non-GAAP operating
       margin                         13
            %                                        7
           %                          10
            %                     4
            %



     
                Reconciliation of net income (loss) and net income (loss) per share, basic and diluted:


                                                                        Three Months Ended October 31,                      Nine Months Ended October 31,



                   (in thousands, except per
                    share data)                       2020                                      2019                       2020                    2019




     GAAP net loss                                          $
              (58,491)                          $
        (46,598)                                 $
         (170,855)    $
           (160,952)


      Add: Stock-based
       compensation                                 80,920                                      52,736                      203,238                                   150,799


      Add: Amortization of
       acquisition-related
       intangibles                                   7,357                                       4,305                       19,032                                    13,458


      Add: Acquisition-related
       expenses                                        336                                                                   7,962


      Add: Employer payroll tax
       on employee stock
       transactions                                  8,959                                       3,844                       24,766                                    13,463


      Add: Amortization of debt
       discount and issuance
       costs                                         7,044                                       6,645                       20,828                                    19,647


      Non-GAAP net income                                      $
              46,125                             $
        20,932                                    $
         104,971        $
           36,415





                   Numerator:


      Non-GAAP net income                                      $
              46,125                             $
        20,932                                    $
         104,971        $
           36,415




                   Denominator:


      Weighted-average common
       shares outstanding, basic                   186,423                                     178,314                      184,767                                   175,303


      Effect of dilutive
       securities                                   19,425                                      12,478                       17,623                                    14,503



      Non-GAAP weighted-
       average common shares
       outstanding, diluted                        205,848                                     190,792                      202,390                                   189,806




      GAAP net loss per share,
       basic and diluted                                       $
              (0.31)                            $
        (0.26)                                    $
         (0.92)       $
           (0.92)


      Non-GAAP net income per
       share, basic                                   0.25                                        0.12                         0.57                                      0.21


      Non-GAAP net income per
       share, diluted                                 0.22                                        0.11                         0.52                                      0.19



     
                Computation of free cash flow:


                                                             Three Months Ended October 31,              Nine Months Ended October 31,



                   (in thousands)                 2020                                2019                2020                    2019



      Net cash provided by operating
       activities                                        $
         57,443                       $
      (1,869)                                  $
        234,721      $
         70,191


      Less: Purchases of property
       and equipment                          (19,393)                             (12,280)              (64,144)                               (42,071)



      Non-GAAP free cash flow                            $
         38,050                      $
      (14,149)                                  $
        170,577      $
         28,120



      Net cash provided by (used in)
       investing activities                               $
         9,691                      $
      (19,067)                                  $
        100,064   $
         (350,795)



      Net cash used in financing
       activities                                      $
         (95,203)                      $
      (6,186)                                $
        (202,435)   $
         (39,153)



     
                Computation of billings:


                                                   Three Months Ended October 31,              Nine Months Ended October 31,



                   (in thousands)          2020                             2019                2020                    2019




     Revenue                                   $
      382,923                        $
     249,502                                $
      1,022,149  $
     699,076


      Add: Contract
       liabilities and
       refund liability,
       end of period                    702,691                            435,898               702,691                            435,898


      Less: Contract
       liabilities and
       refund liability,
       beginning of period            (638,790)                         (412,953)             (522,201)                          (390,887)


      Add: Contract assets
       and unbilled
       accounts receivable,
       beginning of period               20,395                             17,757                15,082                             13,436


      Less: Contract assets
       and unbilled
       accounts receivable,
       end of period                   (26,808)                          (20,805)             (26,808)                          (20,805)


      Add: Contract assets
       and unbilled
       accounts receivable
       by acquisitions                                                                           6,589


      Less: Contract
       liabilities and
       refund liability
       contributed by
       acquisitions                                                                            (9,344)



      Non-GAAP billings                         $
      440,411                        $
     269,399                                $
      1,188,158  $
     736,718

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SOURCE DocuSign, Inc.