DocuSign, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended April 30, 2022; comparison is the three months ended April 30, 2021. DocuSign provides subscription-based e-signature and agreement workflow software. Financial statements are unaudited.
Financial performance and position
| Metric | Q1 FY2023 | Q1 FY2022 | Change / context |
|---|---|---|---|
| Revenue | $588.7 million | $469.1 million | Up 25%; subscription revenue rose 26% to $569.3 million. |
| Gross profit / margin | $456.3 million / 78% | $363.8 million / 78% | Subscription gross margin was 82%, versus 83%. |
| Operating expenses | $475.5 million | $374.6 million | Up 27%; sales and marketing rose 26%, R&D 31%, and G&A 25%. |
| Operating loss | $19.2 million | $10.7 million | GAAP operating margin was -3%, versus -2%. |
| Net loss | $27.4 million; $0.14/share | $8.4 million; $0.04/share | Loss widened year over year. |
| Operating cash flow | $196.3 million | $135.6 million | Improved with higher sales and collections. |
| Free cash flow (non-GAAP) | $174.6 million | $123.0 million | Operating cash flow less property and equipment purchases. |
| Cash, equivalents and investments | $1.062 billion | — | Includes $967.6 million cash, equivalents and short-term investments, plus $94.8 million long-term investments. |
Other measures: Non-GAAP operating income was $102.2 million (17% margin), versus $93.2 million (20%); non-GAAP net income was $77.5 million, versus $91.8 million. Billings were $613.6 million, up from $527.4 million. Stock-based compensation expense was $110.7 million, versus $81.1 million.
Liquidity, debt and commitments
- At April 30, 2022, principal outstanding on convertible notes was $727.1 million: $37.1 million of 0.5% notes due 2023 and $690.0 million of 0% notes due 2024. The balance sheet carries the notes net of unamortized costs.
- The $500 million revolving credit facility, which matures in January 2026, had no borrowings outstanding. The company reported compliance with its covenants.
- Management said existing cash, cash equivalents and marketable securities should cover working capital and capital expenditure needs for at least 12 months, while noting expected operating losses for the foreseeable future.
- In May 2022, the company entered a five-year cloud-provider commitment of $175 million. It also reported $144.0 million of future minimum payments under certain existing noncancellable commitments with remaining terms over one year.
Changes, outlook and risks
- Revenue growth reflected expansion among existing customers and new customer additions, particularly through mid-market and enterprise channels. International revenue increased to 25% of total revenue from 21%.
- Customer counts increased to more than 1.2 million from more than 980,000; enterprise and commercial customers approached 182,000, versus more than 135,000. Customers with over $300,000 in annual contract value rose to 886 from 673.
- Higher operating costs, including personnel, stock compensation, hosting and marketing, offset revenue growth. Management expects subscription revenue to continue increasing but supplied no numerical financial guidance in this filing.
- Other income and expense moved to a $4.7 million expense from $6.0 million of income. The prior-year period included a $5.1 million gain from strategic-investment fair-value adjustments; foreign-exchange losses also increased in the current quarter.
- Management cited uncertain post-pandemic demand, changing customer priorities, inflation, rising interest rates, market volatility and the possibility that growth will moderate after pandemic-driven adoption. Other significant risks include competition, reliance on eSignature, cybersecurity and service disruptions, privacy and regulatory compliance, and the company’s history of losses.
- A securities class action filed in February 2022 alleges misleading statements about business prospects during the pandemic; the company says it believes the claim is without merit. Three related derivative actions were filed in May, seeking unspecified relief. Outcomes and potential financial effects are not stated clearly in the filing.
- The filing notes the CRO’s planned transition, announced in March, and the General Counsel’s resignation in May. Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether customer demand, renewals and expansion sustain revenue growth as pandemic-related demand normalizes.
- Whether expense growth and substantial stock-based compensation can be managed while improving GAAP operating profitability.
- Cash generation, billings and collections trends, including the effect of annual advance billing and deferred revenue.
- Convertible-note settlement and liquidity exposure, and the impact of the $175 million cloud commitment.
- Developments, costs and potential consequences of the securities and derivative litigation, alongside cybersecurity, privacy and regulatory risks.