DOCUSIGN, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-Q and with our audited consolidated financial statements
included in our 2022 Annual Report on Form 10-K. As discussed in the section
titled "Note Regarding Forward-Looking Statements," the following discussion and
analysis contains forward-looking statements that involve risks and
uncertainties, as well as assumptions that, if they never materialize or prove
incorrect, could cause our results to differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause or
contribute to these differences include, but are not limited to, those
identified below and those discussed in the section titled "Risk Factors" under
Part II, Item 1A in this Quarterly Report on Form 10-Q and in our 2022 Annual
Report on Form 10-K. Our fiscal year ends January 31.

Executive Overview of First Quarter Results

Overview


DocuSign offers the world's leading electronic signature product, enabling an
agreement to be signed electronically on a wide variety of devices, from
virtually anywhere in the world, securely. This is the foundation of the
DocuSign Agreement Cloud, which allows organizations to do business efficiently
and effectively, while providing better experiences for customers and employees.

We offer the world's #1 e-signature product as the core part of our broader
software platform that automates and connects the agreement process, which we
call the DocuSign Agreement Cloud. It is designed to allow companies of all
sizes and across all industries to quickly and easily make nearly every
agreement, approval process or transaction digital. It provides comprehensive
functionality across DocuSign eSignature and addresses the broader agreement
process. As a result, over 1.2 million customers and more than a billion users
worldwide utilize DocuSign to create, upload and send documents for multiple
parties to sign electronically. The DocuSign Agreement Cloud allows users to
complete approvals, agreements and transactions faster by building end-to-end
processes. The DocuSign Agreement Cloud integrates with popular business apps,
and our functionality can also be embedded using our application programming
interfaces ("APIs"). Finally, the DocuSign Agreement Cloud allows our customers
to automate and streamline their business-critical workflows to save time and
money, while staying secure and legally compliant.

We generally offer access to our platform on a subscription basis with prices
based on the functionality our customers require and the quantity of Envelopes
provisioned. Similar to the physical envelopes historically used to mail paper
documents, an Envelope is a digital container used to send one or more documents
for signature or approval to one or more recipients. Our customers have the
flexibility to put a large number of documents in an Envelope. For a number of
use cases, such as buying a home, multiple Envelopes are used over the course of
the process. To drive customer reach and adoption, we also offer for free
certain limited-time or feature-constrained versions of our platform.

                      DocuSign, Inc. | 2023 Form 10Q | 19
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We generate substantially all our revenue from sales of subscriptions, which
accounted for 97% and 96% of our revenue in the three months ended April 30,
2022 and 2021. Our subscription fees include the use of our software platform
and access to customer support. Subscriptions generally range from one to three
years, and substantially all our multi-year customers pay in annual
installments, one year in advance.

We also generate revenue from professional and other non-subscription services,
which consists primarily of fees associated with providing new customers
deployment and integration services. Other revenue includes amounts derived from
sales of on-premises solutions. Professional services and other revenue
accounted for the remainder of total revenue. We anticipate continuing to invest
in customer success through our professional services offerings as we believe it
plays an important role in accelerating our customers' deployment of our
software platform, which helps drive customer retention and expansion of the use
of the DocuSign Agreement Cloud.

We offer subscriptions to our software platform to businesses at all scales,
from global enterprise down to local very small businesses ("VSBs") (including
professionals, sole proprietorships, nonprofits and individuals). We sell to
customers through multiple channels. Our go-to-market strategy relies on our
direct sales force and partnerships to sell to enterprises and commercial
businesses and our web-based self-service channel to sell to VSBs, which we
believe is the most cost-effective way to reach our smallest customers. We offer
more than 400 off-the-shelf, prebuilt integrations with the applications that
many of our customers already use-including those offered by Google, Microsoft,
Oracle, Salesforce, SAP, and Workday-so that they can create, sign, send and
manage agreements from directly within these applications. We have a diverse
customer base spanning across virtually all industries and around the world with
no significant customer concentration. No single customer accounted for more
than 10% of total revenue in any of the periods presented.

We focused initially on selling our e-signature solutions to commercial
businesses and VSBs, and later expanded our focus to target enterprise
customers. The number of our customers with greater than $300,000 in annual
contract value (measured in billings) has increased from 673 customers as of
April 30, 2021 to 886 customers as of April 30, 2022. Each of our customer types
has a different purchasing pattern. VSBs tend to become customers quickly with
very little to no direct sales or customer support interaction and generate
smaller average contract values, while commercial and enterprise customers
typically involve longer sales cycles, larger contract values and greater
expansion opportunities for us.

                      DocuSign, Inc. | 2023 Form 10Q | 20
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COVID-19 Update


As the pandemic continued in 2022, the rate of vaccinations, emerging COVID-19
variants, and shifting governmental policies on vaccination mandates and other
pandemic restrictions have had variable impacts on different regions of the
world and areas of the economy. This has caused and may continue to cause new,
existing and potential customers to experience rapidly changing conditions and
disruptions to their businesses. While we experienced a significant increase in
paying customers and revenue during the pandemic, we later experienced periods
in which the urgency of customer demand slowed. It can be difficult to predict
customer demand, especially as our customers' priorities, resources and economic
outlook change, along with other shifting market conditions. These shifts have
occurred and may in the future occur more quickly than we anticipate.
Additionally, due to our subscription-based business model, the full effects of
these changes may not be fully reflected in our results of operations until
future periods. If the COVID-19 pandemic continues to have a substantial impact
on our employees', partners' or customers' productivity or if the abatement of
the pandemic results in decreased demand or a more challenging sales
environment, our results of operations and overall financial performance may be
harmed.

See Risk Factors for further discussion of the potential impact of the
COVID-19 pandemic, including the impact to our business, financial condition and
results of operations.

Financial Results for the Three Months Ended April 30, 2022 and 2021

                                                      Three Months Ended April 30,
(in thousands)                                                                2022           2021
Total revenue                                                              $ 588,692      $ 469,078
Total costs and expenses                                                     607,918        479,815
Total stock-based compensation expense                                       110,723         81,136
Loss from operations                                                         (19,226)       (10,737)
Net loss                                                                     (27,373)        (8,354)
Net cash provided by operating activities                                    196,286        135,597
Purchases of property and equipment                                         

(21,709) (12,596)

Cash, cash equivalents, restricted cash and investments were $1.1 billion as of
April 30, 2022.

Key Factors Affecting Our Performance

We believe that our future performance will depend on many factors, including
the following:


Growing Customer Base

We are highly focused on continuing to acquire new customers to support our
long-term growth. We have invested, and expect to continue to invest, heavily in
our sales and marketing efforts to drive customer acquisition. As of April 30,
2022, we had a total of over 1.2 million customers, including almost 182,000
enterprise and commercial customers, compared to over 980,000 customers and over
135,000 enterprise and commercial customers as of April 30, 2021. We define a
customer as a separate and distinct buying entity, such as a company, an
educational or government institution or a distinct business unit of a large
company that has an active contract to access our software platform. We define
enterprise customers as companies generally included in the Global 2000. We
define commercial customers to include both mid-market companies, which includes
companies outside the Global 2000 that have greater than 250 employees, and
small-to-medium-sized businesses, which are companies with between 10 and 249
employees, in each case excluding any enterprise customers. We define VSBs as
companies with fewer than 10 employees. We refer to total customers as all
enterprises, commercial businesses and VSBs.

We believe that our ability to increase the number of customers using our
software platform, particularly the number of enterprise and commercial
customers, is an indicator of our market penetration, the growth of our business
and our potential future business opportunities. By increasing awareness of our
software platform, further developing our sales and marketing expertise and
continuing to build features tuned to different industry needs, we have expanded
the diversity of our customer base to include organizations of all sizes across
nearly every industry.

                      DocuSign, Inc. | 2023 Form 10Q | 21
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Retaining and Expanding Contracts with Existing Enterprise and Commercial
Customers


Many of our customers have increased spend with us as they have expanded their
use of our offerings in both existing and new use cases across their front or
back office operations. Our enterprise and commercial customers may start with
just one use case and gradually implement additional use cases across their
organization once they see the benefits of our software platform. Several of our
largest enterprise customers have deployed our software platform for hundreds of
use cases across their organizations. We believe there is significant expansion
opportunity with our customers following their initial adoption of our software
platform.

Increasing International Revenue

Our international revenue represented 25% and 21% of our total revenue in the
three months ended April 30, 2022 and 2021.


We started our international selling efforts in English-speaking common law
countries, such as Canada, the UK and Australia, where we were able to leverage
our core technologies due to similar approaches to e-signature in these
jurisdictions and the U.S. We have since made significant investments to be able
to offer our products in select civil law countries. For example, in Europe, we
offer Standards-Based Signature ("SBS") technology tailored for the EU's
electronic Identification, Authentication and Trust Services ("eIDAS")
regulations. SBS supports signatures that involve digital certificates,
including those specified in the EU's eIDAS regulations for advanced and
qualified electronic signatures. In addition, to follow longstanding tradition
in Japan, we enable signers to upload and apply their personal eHanko stamp to
represent their signatures on an agreement.

We plan to increase our international revenue by leveraging and continuing to
expand the investments we have already made in our technology, direct sales
force and strategic partnerships, as well as helping existing U.S.-based
customers manage agreements across their international businesses. We have
experienced increased demand across multiple regions and are expanding our sales
and marketing resources to capitalize on the potential growth of these markets.
Additionally, we expect to continue to develop and enhance our strategic
partnerships in key international markets as we grow internationally.

Investing for Growth


We believe that our market opportunity is large, and we plan to invest to
continue to support further growth. This includes expanding our sales headcount
and increasing our marketing initiatives. We also plan to continue to invest in
expanding the functionality of our software platform and underlying
infrastructure and technology to meet the needs of our customers across
industries. Our acquisitions intend to bring additional functionality to our
DocuSign Agreement Cloud offerings, as well as the continuous development of new
features internally, are examples of our commitment to investing for ongoing
growth.

Components of Results of Operations

Revenue

We derive revenue primarily from the sale of subscriptions and, to a lesser
extent, professional services.

Subscription Revenue          Subscription revenue consists of fees for the use of our software
                              platform and our technical infrastructure and access to customer
                              support, which includes phone or email

support. We typically invoice

                              customers in advance on an annual basis. We recognize subscription
                              revenue ratably over the term of the contract subscription period
                              beginning on the date access to our software platform is provided.
Professional Services and     Professional services revenue includes fees associated with new
Other Revenue                 customers requesting deployment and

integration services. We price

                              professional services on a time and materials basis and on a fixed fee
                              basis. We generally have standalone value for our professional
                              services and recognize revenue based on standalone selling price as
                              services are performed or upon completion of services for fixed fee
                              contracts. Other revenue includes amounts derived from sales of
                              on-premises solutions.

                      DocuSign, Inc. | 2023 Form 10Q | 22
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Overhead Allocation


We allocate shared overhead costs, such as facilities (including rent, utilities
and depreciation on equipment shared by all departments), information
technology, information security and recruiting costs to all departments based
on headcount. As such, these allocated overhead costs are reflected in each cost
of revenue and operating expense category.

Cost of Revenue

Cost of Subscription Revenue Cost of subscription revenue primarily consists of expenses related to

                              hosting our software platform and providing support. These expenses
                              consist of employee-related costs, including salaries, bonuses,
                              benefits, stock-based compensation and other related costs, associated
                              with our technical infrastructure, customer success and customer
                              support. These expenses also consist of

software and maintenance costs,

                              third-party hosting fees, outside services associated with the delivery
                              of our subscription services, amortization expense associated with
                              capitalized internal-use software and

acquired intangible assets, credit

                              card processing fees and allocated overhead 

costs.

Cost of Professional Services Cost of professional services and other revenue consists primarily of
and Other Revenue             personnel costs for our professional services delivery team,
                              travel-related costs and allocated overhead costs.


Gross Profit and Gross Margin


Gross profit is total revenue less total cost of revenue. Gross margin is gross
profit expressed as a percentage of total revenue. We expect that gross profit
and gross margin will continue to be affected by various factors including our
pricing, timing and amount of investment to maintain or expand our hosting
capability, the growth of our software platform support and professional
services team, stock-based compensation expenses, amortization of costs
associated with capitalized internal use software and acquired intangible assets
and allocated overhead costs.

Operating Expenses


Our operating expenses consist of sales and marketing, research and development
and general and administrative expenses. As our revenues continue to increase,
our operating expenses as a percentage of revenue may increase or decrease at
different rates, driven by the timing of revenue recognition, the timing of
hiring, our investments in growth and other factors.

Sales and Marketing Expense    Sales and marketing expense consists primarily of personnel costs,
                               including sales commissions. These expenses also include expenditures
                               related to advertising, marketing, promotional events and brand
                               awareness activities, as well as allocated overhead costs. We expect
                               sales and marketing expense to continue to increase in absolute dollars
                               as we enhance our product offerings and implement marketing strategies.
Research and Development       Research and development expense consists primarily of personnel costs.
Expense                        These expenses also include non-personnel costs, such as
                               subcontracting, consulting and professional fees for third-party
                               development resources, as well as allocated overhead costs. Our
                               research and development efforts focus on maintaining and enhancing
                               existing functionality and adding new

functionality. We expect research

                               and development expense to increase in 

absolute dollars as we invest in

                               the enhancement of our software platform.
General and Administrative     General and administrative expense consists primarily of
Expense                        employee-related costs for those employees providing administrative
                               services such as legal, human resources,

information technology related

                               to internal systems, accounting and finance. 

These expenses also

                               include certain third-party consulting 

services, certain facilities

                               costs, allocated overhead costs, and 

impairment of operating lease

                               right-of-use assets. We expect general and administrative expense to
                               increase in absolute dollars to support the overall growth of our
                               operations.



Interest Expense

Interest expense consists primarily of contractual interest expense and
amortization of debt issuance costs on our Notes.

                      DocuSign, Inc. | 2023 Form 10Q | 23
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Interest Income and Other Income (Expense), Net


Interest income and other income (expense), net, consists primarily of interest
earned on our cash, cash equivalents and investments, changes in fair value of
our strategic investments and foreign currency transaction gains and losses.

Provision for Income Taxes


Our provision for income taxes consists primarily of income taxes in certain
foreign jurisdictions where we conduct business, and tax benefits arising from
deductions for stock-based compensation. We have a valuation allowance against
our U.S. consolidated group and certain foreign deferred tax assets. We expect
to maintain this valuation allowance for the foreseeable future or until it
becomes more likely than not that the benefit of these U.S. and foreign deferred
tax assets will be realized by way of expected future taxable income.

                      DocuSign, Inc. | 2023 Form 10Q | 24
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Discussion of Results of Operations


The following table summarizes our historical consolidated statements of
operations data:
                                                               Three Months Ended April 30,
                                                                                                      As % of                                As % of
(in thousands, except percentages)                                                  2022              revenue              2021              revenue

Revenue:

Subscription                                                                    $ 569,251                  97  %       $ 451,935                  96  %
Professional services and other                                                    19,441                   3             17,143                   4
Total revenue                                                                     588,692                 100            469,078                 100
Cost of revenue:
Subscription                                                                      105,159                  18             78,071                  17
Professional services and other                                                    27,257                   4             27,171                   5
Total cost of revenue                                                             132,416                  22            105,242                  22
Gross profit                                                                      456,276                  78            363,836                  78
Operating expenses:
Sales and marketing                                                               300,697                  51            239,119                  51
Research and development                                                          112,227                  19             85,416                  18
General and administrative                                                         62,578                  11             50,038                  11
Total operating expenses                                                          475,502                  81            374,573                  80
Loss from operations                                                              (19,226)                 (3)           (10,737)                 (2)
Interest expense                                                                   (1,649)                  -             (1,672)                  -
Interest income and other income (expense), net                                    (4,650)                 (1)             6,037                   1
Loss before provision for income taxes                                            (25,525)                 (4)            (6,372)                 (1)
Provision for income taxes                                                          1,848                   1              1,982                   1
Net loss                                                                        $ (27,373)                 (5) %       $  (8,354)                 (2) %


The following discussion and analysis is for the three months ended April 30,
2022
, compared to the same period in 2021, unless otherwise stated.

Revenue
                                                                       Three Months Ended
                                                                           April 30,                 2022 versus
(in thousands, except for percentages)                                   2022                2021       2021

Revenue:

Subscription                                                                   $ 569,251            $  451,935                26  %
Professional services and other                                                   19,441                17,143                13  %
Total revenue                                                                  $ 588,692            $  469,078                25  %



Subscription revenue increased $117.3 million, or 26%, in the three months ended
April 30, 2022. The increase was primarily due to the expansion of existing
customers and the addition of new customers. This growth was mainly driven by an
increase in sales to our mid-market and enterprise customers through our direct
and indirect sales channels. We continue to invest in a variety of customer
programs and initiatives, which, along with expanded customer use cases, have
helped increase our subscription revenue over time.

We expect subscription revenue to continue to increase as existing customers
increase their usage across their organizations while we offer new
functionality, attract new customers and fully realize the potential of our
acquisitions in our product offerings.

                      DocuSign, Inc. | 2023 Form 10Q | 25
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Cost of Revenue and Gross Margin

                                                                    Three Months Ended April 30,
(in thousands, except for percentages)                                      2022                    2021   2022 versus 2021
Cost of revenue:
Subscription                                                                              $105,159                  $78,071             35    %
Professional services and other                                                             27,257                   27,171              -    %
Total cost of revenue                                                                     $132,416                 $105,242             26    %
Gross margin:
Subscription                                                                                 82  %                    83  %             (1) pts
Professional services and other                                                             (40) %                   (58) %             18  pts
Total gross margin                                                                           78  %                    78  %              -  pts



Cost of subscription revenue increased $27.1 million, or 35%, in the three
months ended April 30, 2022, primarily driven by higher costs to support our
growing customer base. Significant increases consisted of:
?$9.5 million in personnel costs and $4.6 million in stock-based compensation
expense driven by higher headcount and annual salary increases; and
?$7.0 million in operating costs to support our platform and the growth in our
revenue, including increases in hosting costs, authentication and processing
fees and subscription reseller fees.

Sales and Marketing

                                                                    Three Months Ended April 30,
(in thousands, except for percentages)                                      2022                    2021   2022 versus 2021
Sales and marketing                                                                       $300,697                 $239,119             26  %
Percentage of revenue                                                                        51  %                    51  %



Sales and marketing expenses increased $61.6 million, or 26%, in the three
months ended April 30, 2022 primarily driven by investments in workforce and
technology support to accommodate demand for our products and increased interest
in digital transformation of agreements. Significant increases consisted of:
?$35.5 million in personnel costs and $9.3 million in stock-based compensation
expense due to higher headcount, annual salary increases, higher commissions in
line with higher sales and higher payroll taxes; and
?$8.9 million in marketing and advertising expense due to higher spend on online
advertising platforms to help capture the continued market interest in our
product offering.

Research and Development
                                                                    Three Months Ended April 30,             2022 versus
(in thousands, except for percentages)                                      2022                    2021        2021
Research and development                                                                  $112,227                 $85,416             31  %
Percentage of revenue                                                                        19  %                   18  %


Research and development expenses increased $26.8 million, or 31%, in the three
months ended April 30, 2022, primarily due to investments in workforce and
technology support to accommodate growth. Personnel costs and stock-based
compensation expense increased $11.2 million and $11.7 million in the three
months ended April 30, 2022, due to higher headcount and annual salary
increases.


General and Administrative
                                                                     Three Months Ended April 30,            2022 versus
(in thousands, except for percentages)                                       2022                   2021        2021
General and administrative                                                                 $62,578                 $50,038             25  %
Percentage of revenue                                                                        11  %                   11  %



                      DocuSign, Inc. | 2023 Form 10Q | 26
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General and administrative expenses increased $12.5 million, or 25%, in the
three months ended April 30, 2022, primarily due to investments in workforce and
technology support to accommodate growth. Personnel costs and stock-based
compensation expense increased $3.0 million and $4.4 million in the three months
ended April 30, 2022, due to higher headcount and the impact of annual salary
increases.

Other Income and Expense
                                                                    Three Months Ended April 30,            2022 versus
(in thousands, except for percentages)                                      2022                    2021        2021
Interest expense                                                                            $1,649                 $1,672              (1) %
Percentage of revenue                                                                         -  %                   -  %

Interest income and other income (expense), net                                           $(4,650)                 $6,037            (177) %
Percentage of revenue                                                                        (1) %                   1  %



Interest income and other income (expense), net, for the three months ended
April 30, 2021 included $5.1 million in adjustments to fair value of certain
strategic investments resulting from observable price changes that occurred
during the quarter. Additionally, foreign currency exchange losses increased
$5.4 million due to rate fluctuations, primarily the weakening of the euro and
the British pound compared to the U.S. dollar, in the three months ended April
30, 2022.
                      DocuSign, Inc. | 2023 Form 10Q | 27
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Liquidity and Capital Resources


Our principal sources of liquidity were cash, cash equivalents and investments
as well as cash generated from operations. As of April 30, 2022, we had $967.6
million in cash and cash equivalents and short-term investments. We also had
$94.8 million in long-term investments that provide additional capital
resources. We finance our operations primarily through payments by our customers
for use of our product offerings and related services and through debt
financing.

In September 2018, we issued and sold $575.0 million in aggregate principal
amount of 0.5% Convertible Senior Notes due 2023, of which $537.9 million has
been settled as of April 30, 2022. In January 2021, we issued and sold $690.0
million in aggregate principal amount of 0% Convertible Senior Notes due 2024.

In January 2021, we entered into a $500.0 million credit facility, which may be
increased by an additional $250.0 million subject to customary terms and
conditions. The credit facility is available for five years until January 11,
2026, to optimize our capital structure and strengthen our balance sheet. There
were no outstanding borrowings under the credit facility as of April 30, 2022.

Further details of these transactions are described in Note 6 to the
Condensed Consolidated Financial Statements, included in Part I, Item 1 of
this Form 10-Q.

We were in compliance with all debt covenants at April 30, 2022.


We believe our existing cash, cash equivalents and marketable securities will be
sufficient to meet our working capital and capital expenditures needs over at
least the next 12 months. While we generated positive cash flows from operations
in the recent years, we have generated losses from operations in the past as
reflected in our accumulated deficit of $1.5 billion as of April 30, 2022. We
expect to continue to incur operating losses for the foreseeable future due to
the investments we intend to make and may require additional capital resources
to execute strategic initiatives to grow our business.

We typically invoice our customers annually in advance. Therefore, a substantial
source of our cash is from such invoices, which are included on our consolidated
balance sheets in contract liabilities until revenue is recognized and in
accounts receivable until cash is collected. Accordingly, collections from our
customers have a material impact on our cash flows from operating activities.
Our accounts receivable decreased by $140.1 million in the three months ended
April 30, 2022, compared to a decrease of $73.2 million in the three months
ended April 30, 2021, which resulted in a $66.9 million increase in cash
provided by operating activities year over year. Contract liabilities consist of
the unearned portion of billed fees for our subscriptions, which is subsequently
recognized as revenue in accordance with our revenue recognition policy. Our
contract liabilities increased by $18.7 million in the three months ended
April 30, 2022, compared to an increase of $51.6 million in the three months
ended April 30, 2021. The year-over-year decrease resulted in a $32.9 million
decrease in cash provided by operating activities.

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

                      DocuSign, Inc. | 2023 Form 10Q | 28
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Cash Flows

The following table summarizes our cash flows for the periods indicated:

                                                                   Three Months Ended April 30,
(in thousands)                                                       2022                   2021
Net cash provided by (used in):
Operating activities                                          $       196,286          $   135,597
Investing activities                                                  (62,514)             (70,506)
Financing activities                                                    1,350             (112,954)

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

                                                        (5,180)                 779

Net change in cash, cash equivalents and restricted cash $ 129,942 $ (47,084)

Cash Flows from Operating Activities


Cash provided by operating activities was $196.3 million and $135.6 million for
the three months ended April 30, 2022 and 2021. The year-over-year improvement
of $60.7 million was primarily the result of increased sales and higher cash
collections, partially offset by higher operating costs to support growth and
increased headcount.

Cash Flows from Investing Activities


For the three months ended April 30, 2022, net cash used in investing activities
of $62.5 million was primarily driven by $38.7 million net purchases of
marketable securities and $21.7 million purchases of property and equipment as
we continued to invest in data center build outs to support our growing
operations and capitalized software development projects.

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

Cash Flows from Financing Activities


For the three months ended April 30, 2022, cash provided by financing activities
was primarily driven by $1.4 million proceeds associated with equity plans, net
of payments for tax withholding on share settlements. For the three months ended
April 30, 2021, cash used in financing activities was primarily driven by $76.3
million payments for tax withholding on share settlements, net of proceeds
associated with equity plans and $36.7 million in repayments of our 2023 Notes.

Obligations and Commitments


Our principal contractual obligations and commitments consist of obligations
under the Notes (including principal and coupon interest), operating leases, as
well as noncancellable contractual commitments that primarily relate to cloud
infrastructure support and sales and marketing activities. Refer to   Note 6
and   Note 7   to the Condensed Consolidated Financial Statements, included in

Part I, Item 1 of this Form 10-Q.

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

Critical Accounting Policies and Estimates


We prepare our financial statements in accordance with GAAP. Preparing these
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenue, expenses and related
disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our
estimates are based on historical experience and various other assumptions that
we believe to be reasonable under the circumstances. Our actual results could
differ from these estimates.
The critical accounting estimates, assumptions and judgments that we believe to
have the most significant impact on our consolidated financial statements are
revenue recognition, deferred contract acquisition costs, stock-based
compensation, valuation of acquired intangible assets in business combinations
and income taxes.

There have been no material changes to our critical accounting policies and
estimates as described in our 2022 Annual Report on Form 10-K.

                      DocuSign, Inc. | 2023 Form 10Q | 29
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Recent Accounting Pronouncements

There have been no accounting pronouncements that are significant or potentially
significant to the Company.

Non-GAAP Financial Measures and Other Key Metrics


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

We believe that these non-GAAP financial measures provide useful information
about our financial performance, enhance the overall understanding of our past
performance and future prospects, and allow for greater transparency with
respect to important metrics used by our management for financial and
operational decision-making. We present these non-GAAP measures to assist
investors in seeing our financial performance using a management view, and
because we believe that these measures provide an additional tool for investors
to use in comparing our core financial performance over multiple periods with
other companies in our industry. However, these non-GAAP measures are not
intended to be considered in isolation from, a substitute for, or superior to
our GAAP results.

Non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations,
non-GAAP operating margin and non-GAAP net income: We define these non-GAAP
financial measures as the respective GAAP measures, excluding expenses related
to stock-based compensation, employer payroll tax on employee stock
transactions, amortization of acquisition-related intangibles, amortization of
debt discount and issuance costs, fair value adjustments to strategic
investments, and, as applicable, other special items. The amount of employer
payroll tax-related items on employee stock transactions is dependent on our
stock price and other factors that are beyond our control and do not correlate
to the operation of the business. When evaluating the performance of our
business and making operating plans, we do not consider these items (for
example, when considering the impact of equity award grants, we place a greater
emphasis on overall stockholder dilution rather than the accounting charges
associated with such grants). We believe it is useful to exclude these expenses
in order to better understand the long-term performance of our core business and
to facilitate comparison of our results to those of peer companies and over
multiple periods. In addition to these exclusions, we subtract an assumed
provision for income taxes to calculate non-GAAP net income. We utilize a fixed
long-term projected tax rate in our computation of the non-GAAP income tax
provision to provide better consistency across the reporting periods. For fiscal
2023, we determined the projected non-GAAP tax rate to be 20% tax rate.

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

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

                      DocuSign, Inc. | 2023 Form 10Q | 30
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Reconciliation of gross profit (loss) and gross margin:

                                                                             Three Months Ended April
                                                                                        30,
(in thousands)                                                                               2022                   2021
GAAP gross profit                                                                              $456,276               $363,836
Add: Stock-based compensation                                                                    15,695                 11,553
Add: Amortization of acquisition-related intangibles                                              2,403                  3,171
Add: Employer payroll tax on employee stock transactions                                            791                  2,774

Non-GAAP gross profit                                                                          $475,165               $381,334
GAAP gross margin                                                                                 78  %                  78  %
Non-GAAP adjustments                                                                               3  %                   3  %
Non-GAAP gross margin                                                                             81  %                  81  %

GAAP subscription gross profit                                                                 $464,092               $373,864
Add: Stock-based compensation                                                                    10,613                  6,018
Add: Amortization of acquisition-related intangibles                                              2,403                  3,171
Add: Employer payroll tax on employee stock transactions                                            508                  1,442

Non-GAAP subscription gross profit                                                             $477,616               $384,495
GAAP subscription gross margin                                                                    82  %                  83  %
Non-GAAP adjustments                                                                               2  %                   2  %
Non-GAAP subscription gross margin                                                                84  %                  85  %

GAAP professional services and other gross loss                                                $(7,816)              $(10,028)
Add: Stock-based compensation                                                                     5,082                  5,535
Add: Employer payroll tax on employee stock transactions                                            283                  1,332

Non-GAAP professional services and other gross loss                                            $(2,451)               $(3,161)
GAAP professional services and other gross margin                                                (40) %                 (58) %
Non-GAAP adjustments                                                                              27  %                  40  %
Non-GAAP professional services and other gross margin                                            (13) %                 (18) %



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

                                                                            Three Months Ended April 30,
(in thousands)                                                                               2022                    2021
GAAP loss from operations                                                                      $(19,226)               $(10,737)
Add: Stock-based compensation                                                                    110,723                  81,136
Add: Amortization of acquisition-related intangibles                                               5,608                   6,529
Add: Employer payroll tax on employee stock transactions                                           5,099                  16,283

Non-GAAP income from operations                                                                 $102,204                 $93,211
GAAP operating margin                                                                              (3) %                   (2) %
Non-GAAP adjustments                                                                               20  %                   22  %
Non-GAAP operating margin                                                                          17  %                   20  %



                      DocuSign, Inc. | 2023 Form 10Q | 31
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Reconciliation of net income (loss):

                                                                               Three Months Ended
                                                                                   April 30,
(in thousands)                                                                           2022               2021
GAAP net loss                                                                        $ (27,373)         $  (8,354)
Add: Stock-based compensation                                                          110,723             81,136
Add: Amortization of acquisition-related intangibles                                     5,608              6,529
Add: Employer payroll tax on employee stock transactions                                 5,099             16,283

Add: Amortization of debt discount and issuance costs                                    1,284              1,319
Less: Fair value adjustments to strategic investments                                     (340)            (5,119)

Add: Income tax effect of non-GAAP adjustments (1)                                     (17,522)                 -
Non-GAAP net income                                                                  $  77,479          $  91,794


(1) Represents the income tax adjustment using our estimated non-GAAP tax rate
of 20%. Estimating a non-GAAP tax rate of 20%, the income tax effect of non-GAAP
adjustments for the three months ended April 30, 2021 was $16.8 million.

Computation of free cash flow:

                                                                         Three Months Ended
                                                                             April 30,
(in thousands)                                                                     2022               2021
Net cash provided by operating activities                                      $ 196,286          $  135,597
Less: Purchases of property and equipment                                        (21,709)            (12,596)
Non-GAAP free cash flow                                                        $ 174,577          $  123,001
Net cash used in investing activities                                          $ (62,514)         $  (70,506)
Net cash (used in) provided by financing activities                         

$ 1,350 $ (112,954)




Computation of billings:
                                                                          Three Months Ended
                                                                              April 30,
(in thousands)                                                                      2022                2021
Revenue                                                                        $   588,692          $ 469,078
Add: Contract liabilities and refund liability, end of period                    1,074,460            857,969

Less: Contract liabilities and refund liability, beginning of
period

(1,049,106) (800,940)
Add: Contract assets and unbilled accounts receivable, beginning
of period

                                                                           18,273             21,021
Less: Contract assets and unbilled accounts receivable, end of
period                                                                             (18,756)           (19,737)

Non-GAAP billings                                                              $   613,563          $ 527,391



                      DocuSign, Inc. | 2023 Form 10Q | 32

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