Summary
DocuSign put up another fast-growing quarter in its fiscal 2021 second quarter, which ended July 31, 2020. Total revenue reached $342.2 million, up 45.2% from the prior-year quarter. Billings, a non-GAAP metric that tracks invoiced sales, rose 61% to $405.7 million. Subscription sales carry the model; management said subscriptions were 95% of revenue in the quarter. Professional services and other revenue made up the rest.
Demand reached the profit lines, though the company remains unprofitable on a GAAP basis. Gross profit rose 44.2% to $251.6 million, while gross margin slipped to 73.5% from 74.0%. The operating loss narrowed to $58.6 million, an operating margin of negative 17.1% against negative 27.5% a year earlier. Net loss narrowed to $64.6 million, or $0.35 per diluted share. Non-GAAP gross margin held at 78% in both periods.
Cash generation stood out. Operating cash flow was $118.1 million for the quarter, against $26.4 million a year earlier. Free cash flow, a non-GAAP measure defined as operating cash flow less purchases of property and equipment, was $99.8 million compared with $11.9 million. Capital expenditures rose to $18.4 million. On the balance sheet, current deferred revenue climbed 54.9% to $624.0 million, and remaining performance obligations rose 35.1% to $849.0 million. Cash, cash equivalents, restricted cash and investments totaled $740.6 million at quarter end. For the six months ended July 31, 2020, operating cash flow was $177.3 million.
The customer base keeps expanding. DocuSign reported nearly 750,000 customers, including over 95,000 enterprise and commercial customers, against over 535,000 customers and over 60,000 enterprise and commercial customers a year earlier. It counted 520 customers with more than $300,000 in annual contract value, measured in billings, as of July 31, 2020, against approximately 30 as of January 31, 2013. International revenue rose 59% year over year and was 19% of total revenue. Subscriptions generally run one to three years, and substantially all multi-year customers pay annually in advance.
Guidance points to more growth. For the quarter ending October 31, 2020, management guided subscription revenue of $343 million to $347 million and billings of $380 million to $390 million, with non-GAAP gross margin of 78% to 80%. For the full fiscal year ending January 31, 2021, it guided billings of $1,623 million to $1,643 million and the same 78% to 80% non-GAAP gross margin. The company said it had not reconciled these non-GAAP expectations to the corresponding GAAP measures because stock-based compensation cannot be reasonably predicted.
The pandemic is both the demand driver and the largest risk. Management described a substantial increase in demand, particularly for eSignature, as organizations shifted to remote work, and said those effects had not materially harmed its ability to operate as of the filing date. Travel and hospitality customers show slower growth or declining spend. The company flagged possible volatility in customer demand, higher churn, late payment or non-payment by customers, delayed purchasing decisions, and pressure on pricing, discounts and payment terms. Integration of Seal Software and Liveoak Technologies adds execution risk, and DocuSign carried an accumulated deficit of $1.2 billion after a $112.4 million net loss for the six months ended July 31, 2020.
Product work continued alongside the numbers. The company shipped the Agreement Cloud 2020 Product Release 2, announced eSignature for Workplace from Facebook, and said a beta of DocuSign Notary is slated for November 2020 after the Liveoak deal. Leadership also shifted: Michael Sheridan, CFO for more than five years, became President of International, where he will run a business of more than $200 million outside the United States. Board member Cynthia Gaylor took over as CFO, and DocuSign added Teresa Briggs and James Beer to its board.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $342.2M | $297.0M | +15.2% | $235.6M | +45.2% |
| Gross profit | $251.6M | $223.0M | +12.8% | $174.4M | +44.2% |
| Gross margin | 73.5% | 75.1% | -1.5 pp | 74.0% | -0.5 pp |
| Research & development | $63.8M | $54.2M | +17.6% | $47.5M | +34.2% |
| Sales & marketing | $195.0M | $171.8M | +13.5% | $150.9M | +29.2% |
| General & administrative | $51.4M | $38.8M | +32.6% | $40.8M | +26.2% |
| Total operating expenses | $310.2M | $264.8M | +17.1% | $239.2M | +29.7% |
| Operating income (loss) | -$58.6M | -$41.9M | -40.1% | -$64.7M | +9.4% |
| Operating margin | -17.1% | -14.1% | -3.0 pp | -27.5% | +10.3 pp |
| Net income (loss) | -$64.6M | -$47.8M | -35.1% | -$68.6M | +5.9% |
| Net margin | -18.9% | -16.1% | -2.8 pp | -29.1% | +10.3 pp |
| Customers | 750,000 | 660,000 | +13.6% | 535,000 | +40.2% |
Risks
The COVID-19 pandemic creates significant uncertainty, and the filing warns that global technology spending may decline, customer operations may be disrupted, and the company may see volatility in customer demand, increased churn, delayed purchasing decisions and pressure on pricing, discounts and payment terms. MD&A notes that while overall demand for DocuSign eSignature increased substantially, growth slowed or spending declined in industries most impacted by the pandemic such as travel and hospitality.
The filing discloses that in April 2020 a malicious third party used a brute force password attack to access an isolated testing environment and exfiltrated a portion of the company's source code, following a March 2017 phishing incident. It warns that COVID-19-driven remote work on less secure systems increases the risk of further cybersecurity incidents and that any breach could lead to regulatory enforcement, litigation (including a private right of action under the CCPA), and reputational harm.
The July 16, 2020 invalidation of the EU-U.S. Privacy Shield by the Court of Justice created uncertainty over the legality of EU-U.S. personal data transfers. DocuSign relies on Binding Corporate Rules as an alternative but notes that further limits on EU-to-U.S. data transfers could cause it to incur GDPR penalties and increase the cost and complexity of operating its business.
The California Consumer Privacy Act became enforceable by the California Attorney General and enforcement began on July 1, 2020, with unlimited civil penalties and a private right of action for data breaches. The company states this may increase its compliance costs and potential liability, particularly in the event of a data breach.
Because the last reported sales price of the common stock exceeded 130% of the conversion price for at least 20 of 30 consecutive trading days ending July 31, 2020, the $575.0 million 0.5% Convertible Senior Notes became convertible on August 1, 2020 and remain convertible through October 31, 2020. Conversion elections or accounting reclassification of the principal to a current liability could reduce net working capital and adversely affect liquidity.
Subscriptions to the company's e-signature solutions account for substantially all subscription revenue and are the source of substantially all professional services revenue, so slower or declining adoption of e-signature without offsetting growth in other product lines would harm revenue and operating results.
The sales cycle for enterprise and commercial customers is generally three to nine months and can be longer for contract lifecycle management and other advanced offerings. The company notes it expends significant time and money on sales and marketing and contract negotiation that may not result in a sale, and that remote selling conditions during the pandemic may hinder these efforts.
The market is highly competitive, with Adobe named as the primary global e-signature competitor, and DocuSign CLM, DocuSign Payments and DocuSign ID Verification facing separate competition. Many competitors have longer operating histories and significantly greater financial, technical and marketing resources, and could reduce prices or bundle competing products.
The company acquired Seal Software Group Limited on May 1, 2020 and Liveoak Technologies on July 6, 2020, which are being integrated into the DocuSign Agreement Cloud. The filing cites limited acquisition experience and warns that integration failures, unforeseen operating difficulties, impairment charges or failure to realize anticipated synergies could harm results.
Selling and marketing expense rose 29% in the quarter driven by higher headcount and commissions, and the company must hire, train and retain sales personnel and integrate acquired Seal employees. Difficulty expanding or effectively deploying the sales force, or failure to manage rapid growth, could impair revenue growth.
Revenue grew from $701.0 million in the year ended January 31, 2019 to $974.0 million in the year ended January 31, 2020, and the company expects its revenue growth rate to decline in the future. Increasing product complexity, headcount and acquired businesses place significant demands on management and operational and financial resources.
SaaS KPIs
All quarters →Total Customers
Free Cash Flow
Non-GAAP Operating Margin
Billings
Non-GAAP Gross Margin
Enterprise and Commercial Customers
Non-GAAP Subscription Gross Margin
Summary, forecast, risks and KPIs are extracted from DOCUSIGN, INC.'s SEC filings for Q2 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.