DocuSign, Inc. — Form 10-Q Summary
Reporting period: Fiscal 2020 third quarter and nine months ended October 31, 2019; comparisons are to the corresponding 2018 periods. The company provides a subscription-based e-signature and agreement-management platform. Financial statements are unaudited.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $249.5 million | $178.4 million | $699.1 million | $501.2 million |
| Gross margin (GAAP) | 75% | 75% | 75% | 72% |
| Operating loss | $44.0 million | $58.4 million | $151.2 million | $363.7 million |
| Net loss | $46.6 million | $52.8 million | $161.0 million | $360.2 million |
| Operating cash flow | $(1.9) million | $4.3 million | $70.2 million | $41.9 million |
| Free cash flow (non-GAAP) | $(14.1) million | $(4.3) million | $28.1 million | $22.9 million |
- Q3 subscription revenue was $238.1 million, up 41%; professional services and other revenue was $11.4 million, up 28%. Subscription revenue was 95% of total revenue.
- Q3 non-GAAP operating income was $16.9 million, versus a $1.0 million loss a year earlier. This measure excludes specified expenses, including stock-based compensation; it is not a GAAP result.
- At October 31, cash and cash equivalents were $197.7 million, current investments $456.1 million, and noncurrent investments $257.8 million: $911.6 million combined cash, cash equivalents and investments. Current assets were $869.4 million and current liabilities $588.5 million.
- Convertible notes had $575.0 million principal and a $458.6 million net carrying amount; they bear 0.5% interest and mature in September 2023. The notes were not convertible as of quarter-end. The company also reported $169.1 million of operating lease liabilities.
- Remaining performance obligations were $673.3 million; management expected 54% to be recognized as subscription revenue in the following 12 months.
Changes versus prior comparable periods
- Revenue rose 40% in Q3 and 39% for the nine-month period, driven by sales to new and existing customers and SpringCM-related offerings.
- Q3 operating loss narrowed by $14.4 million and net loss by $6.2 million. For nine months, the smaller net loss partly reflects the unusually large prior-year IPO-related stock-compensation catch-up; stock-based compensation was $150.8 million versus $361.7 million.
- Nine-month operating cash flow increased to $70.2 million from $41.9 million. Investing cash use was $350.8 million, including net marketable-security purchases and $42.1 million of property and equipment purchases. Financing cash use was $39.2 million, including $125.3 million for RSU tax withholding.
- International revenue was 17% of Q3 revenue and 18% of nine-month revenue. The company reported more than 560,000 total customers and more than 65,000 enterprise and commercial customers, compared with more than 450,000 and 50,000, respectively, a year earlier.
Outlook, risks and unusual items
- No specific numerical revenue or earnings guidance is provided in the filing. Management expects subscription and professional-services revenue to continue increasing, plans continued investment in product, infrastructure, sales and marketing, and expects operating losses for the foreseeable future. It stated existing cash and cash equivalents should cover working capital and capital expenditures for at least 12 months.
- Management identifies customer acquisition, retention and expansion; competition and pricing; international growth; product reliability and cybersecurity; privacy and regulatory compliance; and effective management of growth and acquisitions as key uncertainties. The company has a history of operating losses and an accumulated deficit of $1.1 billion.
- In August 2019, DocuSign settled and dismissed two RPost patent-infringement cases. The company said ordinary-course legal matters were not expected to have a material adverse effect; it noted an ongoing Israel tax examination for tax years 2013–2016.
- Adoption of lease accounting in February 2019 added lease right-of-use assets and liabilities; it had no material effect on operations or cash flows. The company also made $125.3 million of RSU-related tax-withholding payments during the nine months.
Important facts for investors to verify
- Whether recurring revenue growth, customer retention and expansion, and billings sustain the reported growth; billings were $269.4 million in Q3 and $736.7 million for nine months.
- How much of reported operating improvement reflects underlying performance versus noncash compensation and other exclusions in non-GAAP measures.
- Cash generation and liquidity after capital spending, RSU tax withholding, lease payments, and any future investment or acquisition needs.
- Potential dilution or cash requirements if the convertible notes become convertible, are repurchased, or reach maturity, and the effect of future equity awards.
- Execution and integration of the Agreement Cloud/SpringCM strategy, and exposure to competition, cybersecurity, privacy regulation, litigation and tax contingencies.