DocuSign Announces Second Quarter Fiscal 2019 Financial Results

SAN FRANCISCO, Sept. 5, 2018 /PRNewswire/ -- DocuSign (NASDAQ: DOCU), which offers the world's #1 eSignature solution as part of its broader platform for automating the agreement process, today announced results for its fiscal quarter ended July 31, 2018.

DocuSign, Inc. (PRNewsFoto/DocuSign, Inc.)

"We had a strong second quarter, driven by 35% year-over-year growth in subscription revenue. We added more than 25,000 customers, bringing our customer base to almost 430,000 worldwide," said Dan Springer, CEO of DocuSign. "And this week, we also closed our previously-announced acquisition of SpringCM, which accelerates our vision to modernize the world's Systems of Agreement—all the way from preparing to signing, acting-on, and managing agreements. With SpringCM, we have a broader set of products to sell, additional technologies to commercialize and a team whose experience complements ours almost perfectly."

Second Quarter Financial Highlights

  • Total revenue was $167.0 million, an increase of 33% year-over-year. Subscription revenue was $158.5 million, an increase of 35% year-over-year. Professional services and other revenue was $8.6 million, an increase of 7% year-over-year.
  • Billings were $172.2 million, an increase of 32% year-over-year.
  • GAAP gross margin was 78%, compared to 77% in the same period last year. Non-GAAP gross margin was 81% compared to 79% in the same period last year.
  • GAAP net loss per basic and diluted share was $0.22 in the second quarter of fiscal 2019 on 166 million shares outstanding compared to GAAP net loss per share of $0.39 in the second quarter of fiscal 2018 on 32 million shares outstanding.
  • Non-GAAP net income per diluted share was $0.03 in the second quarter of fiscal 2019 based on 191 million shares outstanding compared to a non-GAAP net loss per share of $0.05 in the second quarter of fiscal 2018 based on 32 million shares outstanding.
  • Net cash provided by operating activities was $22.7 million, compared to $12.1 million in the same period last year.
  • Free cash flow was $18.4 million in the second quarter of fiscal 2019 compared to free cash flow of $7.8 million in the same period last year.
  • Cash, cash equivalents and restricted cash was $819.2 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

  • SpringCM Inc. Acquisition. The company signed a definitive agreement to acquire Spring CM Inc. for approximately $220 million in cash, subject to adjustment, on July 31, 2018. The acquisition was completed on September 4, 2018.
  • Board and Management Transitions. Effective August 29, 2018, three new directors joined DocuSign's board: former GoDaddy CEO Blake Irving, Docker chairman and CEO Steve Singh, and IBM Watson business unit GM Inhi Cho Suh, replacing Scott Darling, Rory O'Driscoll and Jonathan Roberts. As part of this planned transition, DocuSign founder Tom Gonser, and current chairman Keith Krach will leave their board roles on December 31, 2018 and January 1, 2019, respectively. In addition, Neil Hudspith notified us that after six years of leading DocuSign's sales and customer operations, he intends to retire from his role as President, Worldwide Field Operations at the end of this fiscal year.

Outlook

Quarter ending October 31, 2018* (in millions, except percentages):




Total revenue

$172

to

$175


Billings

$169

to

$179


Non-GAAP gross margin

78%

to

81%


Non-GAAP sales and marketing

50%

to

52%


Non-GAAP research and development

17%

to

19%


Non-GAAP general and administrative

11%

to

13%


Other expense

<$0.5




Provision for income taxes

$0.75




Non-GAAP diluted weighted-average shares outstanding

190

to

195











Year ending January 31, 2019* (in millions, except percentages):




Total revenue

$683

to

$688


Billings

$732

to

$752


Non-GAAP gross margin

78%

to

81%


Non-GAAP sales and marketing

50%

to

52%


Non-GAAP research and development

17%

to

19%


Non-GAAP general and administrative

11%

to

13%


Other expense

<$2




Provision for income taxes

$3




Non-GAAP diluted weighted-average shares outstanding

160

to

165




*These guidance ranges include estimated revenue contributions from SpringCM of $2 to $4 million in the third quarter of fiscal 2019 and $7 to $9 million in fiscal 2019 and operating losses of $5 to $7 million in the third quarter of fiscal 2019 and $9 to $12 million in fiscal 2019, including $3 to $4 million of one-time integration costs.

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 September 5, 2018 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 docusign.com/investors. 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) September 19, 2018 using the passcode 13682692.

About DocuSign

DocuSign (Nasdaq: DOCU) helps organizations become more agree-able by connecting and automating how they prepare, sign, act-on, and manage agreements. As part of our System of Agreement (SofA) platform, we offer DocuSign eSignature—the world's #1 way to sign electronically on practically any device, from anywhere, at any time. Almost 430,000 customers and hundreds of millions of users worldwide already use DocuSign to accelerate the process of doing business and simplify people's lives.

Investor Relations:
Annie Leschin
VP Investor Relations
[email protected]

Media Relations:
Adrian Wainwright
Head of Communications
[email protected]

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 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 the benefits of the acquisition of SpringCM and our ability to develop our System of Agreement platform and deliver product innovation. They also include statements about our possible or assumed business strategies, potential growth opportunities, new products and potential market opportunities.

Forward-looking statements include all statements that are not historical facts and can be identified by terms such as "believe," "could," "potential," "will," "would" or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These risks include, but are not limited to, risks and uncertainties related to: our ability to successfully integrate SpringCM's operations; our ability to implement our plans, forecasts and other expectations with respect to SpringCM's business; our ability to realize the anticipated benefits of acquisition of SpringCM, including the possibility that the expected benefits from the acquisition will not be realized or will not be realized within the expected time period; disruption from the acquisition making it more difficult to maintain business and operational relationships; the negative effects of consummation of the acquisition on the market price of our common stock or on our operating results; unknown liabilities from the acquisition; our ability to 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, increased competition on our market and our ability to compete effectively, and expansion of our operations and increased adoption of our platform internationally. Additional risks and uncertainties that could affect our financial results are included in the section titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our quarterly report on Form 10-Q for the quarter ended April 30, 2018 and other filings that we make from time to time with 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 (loss) from operations, non-GAAP operating margin, non-GAAP net income (loss) and non-GAAP net income (loss) per share: We define these non-GAAP financial measures as the respective GAAP measures, excluding expenses related to stock-based compensation, amortization of acquisition-related intangibles and, as applicable, other special items. We believe it is useful to exclude stock-based compensation 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. We also view amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company's developed technology and trade names, as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are continually evaluated for impairment, amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any particular period.

Free cash flows: We define free cash flow as net cash provided by (used in) operating activities less purchases of property and equipment. We believe free cash flow is an important liquidity measure of the cash (if any) that is available, 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 July 31,


Six Months Ended July 31,

(in thousands, except share and per share data)

2018


2017


2018


2017

Revenue:








Subscription

$

158,461



$

117,553



$

306,659



$

224,400


Professional services and other

8,583



7,990



16,193



14,641


Total revenue

167,044



125,543



322,852



239,041


Cost of revenue:








Subscription

23,057



20,040



55,495



39,333


Professional services and other

13,304



8,418



39,160



16,249


Total cost of revenue

36,361



28,458



94,655



55,582


Gross profit

130,683



97,085



228,197



183,459


Operating expenses:








Sales and marketing

103,779



68,943



294,864



133,634


Research and development

33,773



23,767



104,643



46,475


General and administrative

30,851



18,156



133,968



36,395


Total expenses

168,403



110,866



533,475



216,504


Loss from operations

(37,720)



(13,781)



(305,278)



(33,045)


Interest expense

(47)



(169)



(240)



(320)


Interest and other income, net

2,998



2,034



770



1,924


Loss before provision for (benefit from) income taxes

(34,769)



(11,916)



(304,748)



(31,441)


Provision for (benefit from) income taxes

1,945



121



2,653



(22)


Net loss

$

(36,714)



$

(12,037)



$

(307,401)



$

(31,419)


Net loss per share attributable to common stockholders, basic and diluted

$

(0.22)



$

(0.39)



$

(3.01)



$

(1.05)


Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted

166,083,686



31,638,340



102,284,494



30,715,624










Stock-based compensation expense included in costs and expenses:








Cost of revenue—subscription

$

1,588



$

231



$

11,543



$

469


Cost of revenue—professional services

2,822



254



18,867



489


Sales and marketing

16,791



2,883



129,272



5,588


Research and development

7,359



1,288



54,627



2,679


General and administrative

11,605



3,856



95,650



7,693


 

DOCUSIGN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in thousands, except share and per share data)

July 31, 2018


January 31, 2018

Assets




Current assets




Cash and cash equivalents

$

818,795



$

256,867


Restricted cash

367



569


Accounts receivable

108,365



123,750


Contract assets—current

13,760



14,260


Prepaid expense and other current assets

26,776



23,349


Total current assets

968,063



418,795


Property and equipment, net

60,415



63,019


Goodwill

35,369



37,306


Intangible assets, net

10,139



14,148


Deferred contract acquisition costs—noncurrent

86,199



75,535


Other assets—noncurrent

9,513



11,170


Total assets

$

1,169,698



$

619,973


Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)




Current liabilities




Accounts payable

$

16,653



$

23,713


Accrued expenses

18,368



15,734


Accrued compensation

51,212



50,852


Contract liabilities—current

289,724



270,188


Deferred rent—current

1,872



1,758


Other liabilities—current

11,761



11,574


Total current liabilities

389,590



373,819


Contract liabilities—noncurrent

7,703



7,736


Deferred rent—noncurrent

22,633



23,044


Deferred tax liability—noncurrent

2,499



2,511


Other liabilities—noncurrent

3,803



4,010


Total liabilities

426,228



411,120


Redeemable convertible preferred stock



547,501


Stockholders' equity (deficit)




Preferred stock




Common stock

16



4


Additional paid-in capital

1,555,185



160,265


Accumulated other comprehensive (loss) income

(2,010)



3,403


Accumulated deficit

(809,721)



(502,320)


Total stockholders' equity (deficit)

743,470



(338,648)


Total liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit)

$

1,169,698



$

619,973


 

DOCUSIGN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,

(in thousands)

2018


2017


2018


2017

Cash flows from operating activities:








Net loss

$

(36,714)



$

(12,037)



$

(307,401)



$

(31,419)


Adjustments to reconcile net loss to net cash used in operating activities








Depreciation and amortization

7,081



7,699



15,681



15,385


Amortization of deferred contract acquisition and fulfillment costs

9,900



7,278



19,146



14,291


Stock-based compensation expense

40,165



8,512



309,959



16,918


Deferred income taxes

(6)



13



(12)




Other

(3,100)



(1,023)



(875)



(1,826)


Changes in operating assets and liabilities








Accounts receivable

(4,237)



1,531



15,385



13,108


Contract assets

(1,397)



(937)



1,149



(975)


Prepaid expenses and other current assets

3,113



4,914



(3,406)



(656)


Deferred contract acquisition and fulfillment costs

(18,013)



(10,827)



(30,339)



(20,199)


Other assets

895



(1,052)



1,335



(168)


Accounts payable

2,184



(4,146)



(5,034)



(6,271)


Accrued expenses

(996)



529



2,306



(517)


Accrued compensation

17,307



4,148



360



(4,980)


Contract liabilities

6,892



6,109



19,503



19,136


Deferred rent

(168)



2,138



(297)



(64)


Other liabilities

(211)



(751)



228



(362)


Net cash provided by operating activities

22,695



12,098



37,688



11,401


Cash flows from investing activities:








Purchases of property and equipment

(4,336)



(4,319)



(10,520)



(11,089)


Proceeds from sale of business held for sale



467





467


Net cash used in investing activities

(4,336)



(3,852)



(10,520)



(10,622)


Cash flows from financing activities:








Proceeds from issuance of common stock in initial public offering, net of underwriting commissions

529,305





529,305




Proceeds from the exercise of stock options

2,503



7,679



10,318



13,509


Payment of deferred offering costs

(1,328)





(3,522)




Net cash provided by financing activities

530,480



7,679



536,101



13,509


Effect of foreign exchange on cash, cash equivalents and restricted cash

527



1,659



(1,543)



2,143


Net increase in cash, cash equivalents and restricted cash

549,366



17,584



561,726



16,431


Cash, cash equivalents and restricted cash at beginning of period

269,796



190,091



257,436



191,244


Cash, cash equivalents and restricted cash at end of period

$

819,162



$

207,675



$

819,162



$

207,675


 

DOCUSIGN, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)


Reconciliation of gross profit and gross margin:



Three Months Ended July 31,


Six Months Ended July 31,

(in thousands)

2018


2017


2018


2017

GAAP gross profit

$

130,683



$

97,085



$

228,197



$

183,459


Add: Stock-based compensation

4,410



485



30,410



958


Add: Amortization of acquisition-related intangibles

1,003



1,691



2,671



3,388


Non-GAAP gross profit

$

136,096



$

99,261



$

261,278



$

187,805


GAAP gross margin

78

%


77

%


71

%


77

%

Non-GAAP adjustments

3

%


2

%


10

%


2

%

Non-GAAP gross margin

81

%


79

%


81

%


79

%









GAAP subscription gross profit

$

135,404



$

97,513



$

251,164



$

185,067


Add: Stock-based compensation

1,588



231



11,543



469


Add: Amortization of acquisition-related intangibles

1,003



1,691



2,671



3,388


Non-GAAP subscription gross profit

$

137,995



$

99,435



$

265,378



$

188,924


GAAP subscription gross margin

85

%


83

%


82

%


82

%

Non-GAAP adjustments

2

%


2

%


5

%


2

%

Non-GAAP subscription gross margin

87

%


85

%


87

%


84

%









GAAP professional services and other gross loss

$

(4,721)



$

(428)



$

(22,967)



$

(1,608)


Add: Stock-based compensation

2,822



254



18,867



489


Non-GAAP professional services and other gross loss

$

(1,899)



$

(174)



$

(4,100)



$

(1,119)


GAAP professional services and other gross loss

(55)

%


(5)

%


(142)

%


(11)

%

Non-GAAP adjustments

33

%


3

%


117

%


3

%

Non-GAAP professional services and other gross loss

(22)

%


(2)

%


(25)

%


(8)

%

 

Reconciliation of operating expenses:



Three Months Ended July 31,


Six Months Ended July 31,

(in thousands)

2018


2017


2018


2017

GAAP sales and marketing

$

103,779



$

68,943



$

294,864



$

133,634


Less: Stock-based compensation

(16,791)



(2,883)



(129,272)



(5,588)


Less: Amortization of acquisition-related intangibles

(765)



(665)



(1,530)



(1,505)


Non-GAAP sales and marketing

$

86,223



$

65,395



$

164,062



$

126,541


GAAP sales and marketing as a percentage of revenue

62

%


55

%


91

%


56

%

Non-GAAP sales and marketing as a percentage of revenue

52

%


52

%


51

%


53

%









GAAP research and development

$

33,773



$

23,767



$

104,643



$

46,475


Less: Stock-based compensation

(7,359)



(1,288)



(54,627)



(2,679)


Non-GAAP research and development

$

26,414



$

22,479



$

50,016



$

43,796


GAAP research and development as a percentage of revenue

20

%


19

%


33

%


19

%

Non-GAAP research and development as a percentage of revenue

16

%


18

%


15

%


18

%









GAAP general and administrative

$

30,851



$

18,156



$

133,968



$

36,395


Less: Stock-based compensation

(11,605)



(3,856)



(95,650)



(7,693)


Non-GAAP general and administrative

$

19,246



$

14,300



$

38,318



$

28,702


GAAP general and administrative as a percentage of revenue

19

%


14

%


42

%


16

%

Non-GAAP general and administrative as a percentage of revenue

12

%


11

%


12

%


12

%

 

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



Three Months Ended July 31,


Six Months Ended July 31,

(in thousands)

2018


2017


2018


2017

GAAP operating loss

$

(37,720)



$

(13,781)



$

(305,278)



$

(33,045)


Add: Stock-based compensation

40,165



8,512



309,959



16,918


Add: Amortization of acquisition-related intangibles

1,768



2,356



4,201



4,893


Non-GAAP operating income (loss)

$

4,213



$

(2,913)



$

8,882



$

(11,234)


GAAP operating margin

(23)

%


(11)

%


(95)

%


(14)

%

Non-GAAP adjustments

26

%


9

%


98

%


9

%

Non-GAAP operating margin (loss)

3

%


(2)

%


3

%


(5)

%

 

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



Three Months Ended July 31,


Six Months Ended July 31,

(in thousands, except per share data)

2018


2017


2018


2017

GAAP net loss

$

(36,714)



$

(12,037)



$

(307,401)



$

(31,419)


Add: Stock-based compensation

40,165



8,512



309,959



16,918


Add: Amortization of acquisition-related intangibles

1,768



2,356



4,201



4,893


Non-GAAP net income (loss)

$

5,219



$

(1,169)



$

6,759



$

(9,608)










Numerator:








Non-GAAP net income (loss)

$

5,219



$

(1,169)



$

6,759



$

(9,608)


Less: preferred stock accretion



(366)



(353)



(721)


Less: net income allocated to participating securities





(2,085)




Non-GAAP net income (loss) attributable to common stockholders

$

5,219



$

(1,535)



$

4,321



$

(10,329)










Denominator:








Weighted-average common shares outstanding, basic

166,084



31,638



102,284



30,716


Effect of dilutive securities

25,339





24,586




Non-GAAP weighted-average common shares outstanding, diluted

191,423



31,638



126,870



30,716










GAAP net loss per share, basic and diluted

$

(0.22)



$

(0.39)



$

(3.01)



$

(1.05)


Non-GAAP net income (loss) per share, basic

0.03



(0.05)



0.04



(0.34)


Non-GAAP net income (loss) per share, diluted

0.03



(0.05)



0.03



(0.34)


 

Computation of free cash flow:



Three Months Ended July 31,


Six Months Ended July 31,

(in thousands)

2018


2017


2018


2017

Net cash provided by operating activities

$

22,695



$

12,098



$

37,688



$

11,401


Less: purchase of property and equipment

(4,336)



(4,319)



(10,520)



(11,089)


Non-GAAP free cash flow

$

18,359



$

7,779



$

27,168



$

312


 

Computation of billings:



Three Months Ended July 31,


Six Months Ended July 31,

(in thousands)

2018


2017


2018


2017

Revenue

$

167,044



$

125,543



$

322,852



$

239,041


Add: Contract liabilities and refund liability, end of period

300,426



214,405



300,426



214,405


Less: Contract liabilities and refund liability, beginning of period

(293,667)



(208,882)



(282,943)



(195,501)


Add: Contract assets and unbilled accounts receivable, beginning of period

14,555



10,400



16,899



10,095


Less: Contract assets and unbilled accounts receivable, end of period

(16,196)



(11,381)



(16,196)



(11,381)


Non-GAAP billings

$

172,162



$

130,085



$

341,038



$

256,659


 

SOURCE DocuSign, Inc.