DOCUSIGN INC

Index for Notes to the Condensed Consolidated Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Organization and Description of Business

Docusign, Inc. (“we,” “our”, “us”, “Docusign”, or “Company”) was incorporated in the State of Washington in April 2003. We merged with and into Docusign, Inc., a Delaware corporation, in March 2015.

Docusign offers solutions that address agreement workflows and digital transformation. Docusign’s core offerings, including the world’s leading electronic signature and contract lifecycle management (“CLM”) products, allow organizations to boost productivity, accelerate contract review cycles, and transform agreement data into insights and actions while providing a better experience for their customers. Additionally, Docusign has introduced its Intelligent Agreement Management (“IAM”) platform, enabling organizations to create, commit to, and manage agreements, from virtually anywhere in the world, securely.

Basis of Presentation and Principles of Consolidation

Our condensed consolidated financial statements include those of Docusign, Inc. and our subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our fiscal 2024 Annual Report on Form 10-K.

Our condensed consolidated financial statements are unaudited and have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and, in our opinion, include all adjustments of a normal recurring nature necessary for the fair statement of our financial position, results of operations and cash flows. Our condensed consolidated balance sheet as of January 31, 2024 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the three and six months ended July 31, 2024 are not necessarily indicative of the results to be expected for the year ending January 31, 2025.

Our fiscal year ends on January 31. References to fiscal 2025, for example, are to the fiscal year ending January 31, 2025. Certain prior year amounts have been reclassified to conform to current year presentation. These amounts were not material to any of the prior periods presented.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in the condensed consolidated financial statements and notes thereto.

Significant items subject to such estimates and assumptions made by management include, but are not limited to, the determination of:

•the fair value of intangible assets acquired in business combinations;

•the average period of benefit associated with deferred contract acquisition costs and fulfillment costs;

•the fair value of certain stock awards issued;

•the useful life and recoverability of long-lived assets;

•the discount rate used for operating leases;

•the recognition and measurement of loss contingencies; and

•the recognition, measurement and valuation of deferred income taxes.

Significant Accounting Policies

There have been no changes to our significant accounting policies described in our fiscal 2024 Annual Report on Form 10-K that have had a material impact on our condensed consolidated financial statements and related notes.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which enhances disclosures required for operating segments. ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment. ASU 2023-07 is effective for annual filings for the Company’s fiscal year beginning February 1, 2024, and interim filings for the fiscal year beginning February 1, 2025, and should be applied on a retrospective basis to all periods presented. We are currently evaluating the effect of adopting ASU 2023-07 on our financial statement disclosures.

In December 2023, the FASB issued Accounting Standards Update 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), amending existing income tax disclosure guidance, primarily requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retrospective basis. We are currently evaluating the effect of adopting ASU 2023-09 on our income tax disclosures.

In March 2024, the SEC adopted the final rules under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which requires registrants to provide certain climate-related information in their registration statements and annual reports. As it pertains to the financial statements, the final rules require the financial statement footnotes to include certain disclosures regarding the amounts of expenses (or capitalized costs) incurred that relate to severe weather events and other natural conditions, as well as other disclosures regarding the material impact on financial estimates and assumptions of severe weather events and other natural conditions or disclosed targets or disclosed targets or transition plans. It also requires disclosure of financial statement amounts related to carbon offsets and renewable energy credits. The disclosure requirements will be phased in beginning with our annual filing for the fiscal year ending January 31, 2026. In April 2024, the SEC issued an order staying these rules pending the completion of judicial review of litigation challenging the validity of the rules. We are currently evaluating the disclosure impact of adoption of the standard on our consolidated financial statements.

We have not adopted accounting pronouncements during the three and six months ended July 31, 2024.

Note 2. Revenue

Subscription revenue is recognized over time and accounted for approximately 97% of our revenue in each of the three and six month periods ended July 31, 2024 and 2023.

Performance Obligations

As of July 31, 2024, the amount of the transaction price allocated to remaining performance obligations for contracts greater than one year was $2.2 billion. We expect to recognize 56% of the transaction price allocated to remaining performance obligations within the 12 months following July 31, 2024 in our condensed consolidated statement of operations and comprehensive income.

Contract Balances

Contract assets represent amounts for which we have recognized revenue, pursuant to our revenue recognition policy, for contracts that have not yet been invoiced to our customers where there is a remaining performance obligation, typically for multi-year arrangements. Total contract assets were $13.4 million and $15.9 million as of July 31, 2024 and January 31, 2024. The change in contract assets reflects the difference in timing between our satisfaction of remaining performance obligations and our contractual right to bill our customers.

Contract liabilities consist of deferred revenue and payments received in advance of performance under the contract. Such amounts are generally recognized as revenue over the contractual period. For the six months ended July 31, 2024 and 2023, we recognized revenue of $969.4 million and$876.0 million that was included in the corresponding contract liability balance at the beginning of the periods presented.

We receive payments from customers based upon contractual billing schedules. We record accounts receivable when the right to consideration becomes unconditional. Payment terms on invoiced amounts are typically 30 days.

Geographic Information

Revenue by geography is based on the address of the customer as specified in our master subscription agreements with our customers. Revenue by geographic area was as follows:

Note 3. Fair Value Measurements

The following table summarizes our financial assets that are measured at fair value on a recurring basis:

(1)Included in“cash and cash equivalents” in our consolidated balance sheets as of July 31, 2024 and January 31, 2024, in addition to cash of $482.1 million and $444.8 million.

We use quoted prices in active markets for identical assets to determine the fair value of our Level 1 investments. The fair value of our Level 2 investments is determined using pricing based onquoted market prices or alternative market observable inputs.

The fair values of our available-for-sale securities as of July 31, 2024, by remaining contractual maturities, were as follows (in thousands):

As of July 31, 2024 and January 31, 2024, securities in an unrealized loss position were, individually and in aggregate, not material. An allowance for credit losses was deemed unnecessary for these securities, given the extent of the unrealized loss positions as well as the issuers' high credit ratings and consistent payment history.

We had no liabilities measured at fair value on a recurring basis as of July 31, 2024 and January 31, 2024.

Note 4. Property and Equipment, Net

Property and equipment, net consisted of the following:

Depreciation and amortization expense associated with property and equipment was $20.8 million and $20.3 million for the three months ended July 31, 2024 and 2023, and$40.6 million and $38.1 million for the six months ended July 31, 2024 and 2023. This included amortization expense related to capitalized internally developed software costs of $13.4 million and $8.8 million for the three months ended July 31, 2024 and 2023, and$25.1 million and$15.6 million for thesix months ended July 31, 2024 and 2023.

For the three months ended July 31, 2024 and 2023, we capitalized$26.8 million and $22.2 million of internally developed software, including $9.1 million and $6.9 million of capitalized stock-based compensation expense in the three months ended July 31, 2024 and 2023. For the six months ended July 31, 2024 and 2023, we capitalized$51.5 million and $43.9 million of internally developed software, including $17.7 million and $13.7 million of capitalized stock-based compensation expense in the six months ended July 31, 2024 and 2023.

Note 5. Acquisitions

Acquisition of DocuSmart, Inc. d/b/a Lexion

On May 31, 2024 (“Acquisition Date”), we acquired 100% of the outstanding equity interests of Lexion, Inc. (“Lexion”), an AI-powered contract management platform which features intelligent contract repository and agreement workflow automation and reporting. We expect to integrate Lexion’s technology comprehensively across the Docusign IAM platform to better enable organizations to create, commit to, and manage agreements. The results of Lexion’s operations have been included in the accompanying consolidated financial statements since the Acquisition Date.

The acquisition purchase consideration, in accordance with ASC 805, totaled $154.0 million and was paid in cash. The Company paid $17.4 million of the consideration to an escrow account held for 18 months by a third party for post-closing indemnification obligations.

We accounted for the transaction as a business combination using the acquisition method of accounting. We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the Acquisition Date. Fair values were determined using the replacement cost method. Excess purchase price consideration was recorded as goodwill and is primarily attributable to the assembled workforce and expanded market opportunities when integrating Lexion’s intelligent contract repository and agreement workflow automation capabilities within Docusign’s IAM platform. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Quarterly Report on Form 10-Q. We continue to collect information with regards to our estimates and assumptions, including potential liabilities, contingencies, and the allocation of the purchase price. We will record adjustments to the fair value of the net assets acquired, liabilities assumed and goodwill within the measurement period, if necessary.

The following table summarizes preliminary allocation of purchase consideration to assets acquired and liabilities assumed based on their respective estimated fair values as of the date of acquisition:

None of the goodwill recognized upon acquisition is deductible for U.S. federal income tax purposes.

The estimated useful lives of intangible assets, primarily based on the expected period of benefit to us, and fair values of the identifiable intangible assets at Acquisition Date were as follows:

Additionally, the purchase agreement provides for $19.1 million of deferred compensation for key employees for which post acquisition employment service is required. The deferred compensation was paid into an escrow account at closing and recorded as prepaid asset that will amortize into compensation expense on a straight-line basis over thethree year term of the arrangement.

We granted certain continuing employees and founders of Lexion restricted stock units (“RSUs”) with an aggregate grant date fair value of $34.8 million that will be accounted for as a post-acquisition compensation expense over the vesting period.

During the six months ended July 31, 2024, we incurred acquisition related expenses of $4.7 million which are recognized within general and administrative expenses in the consolidated statement of operations.

The following unaudited pro forma information has been prepared for illustrative purposes only and assumes the acquisition occurred on February 1, 2023. It includes pro forma adjustments related to the amortization of acquired intangible assets, share-based compensation expense, deferred compensation, and transaction related expenses. The impact of pro forma adjustments during the three and six months ended July 31, 2024 is not material. For the purpose of computing the pro forma tax effects of the acquisition, we applied the historical annual effective tax rate for the three and six months ended July 31, 2023 to the combined entity results. The unaudited pro forma results have been prepared based on estimates and assumptions, which we believe are reasonable, however, they are not necessarily indicative of the consolidated results of operations had the acquisition occurred on February 1, 2023, or of future results of operations:

Note 6. Goodwill and Intangible Assets, Net

The changes in the carrying amount of goodwill were as follows (in thousands):

Intangible assets consisted of the following:

Amortization of finite-lived intangible assets was as follows:

As of July 31, 2024, future amortization of finite-lived intangibles that will be recorded is estimated as follows, excluding cumulative translation adjustment:

Note 7. Deferred Contract Acquisition and Fulfillment Costs

The following table represents a rollforward of our deferred contract acquisition and fulfillment costs:

Note 8. Debt

Convertible Senior Notes

In September 2018, we issued $575.0 million in aggregate principal amount of the 0.5% Convertible Senior Notes due in 2023 (“2023 Notes”). The net proceeds from the issuance of the 2023 Notes were $560.8 million after deducting the initial purchasers’ discounts and transaction costs.

In January 2021, we issued $690.0 million in aggregate principal amount of the 0% Convertible Senior Notes due in 2024 (“2024 Notes,” and together with the 2023 Notes, the “Notes”). The net proceeds from the issuance of the 2024 Notes were $677.3 million after deducting the initial purchasers’ discounts and transaction costs.

The 2023 Notes and 2024 Notes were extinguished, and all outstanding amounts were repaid in full during the third and fourth quarters of fiscal 2024, respectively. We repaid in cash $37.1 million and $689.9 million in aggregate principal amount of the 2023 Notes and 2024 Notes.

The effective interest rate on the 2023 Notes was 1.0%. The effective interest rate on the 2024 Notes was 0.6%. Interest expense recognized related to the Notes was as follows:

Capped Calls

To minimize the potential economic dilution to our common stock upon conversion of the Notes, we entered into privately negotiated capped call transactions (“Capped Calls”) with certain counterparties. In the first quarter of fiscal 2024, we unwound $23.7 million of the Capped Calls in relation to our 2023 Notes and received cash from the counterparties. All remaining Capped Calls associated with the 2023 Notes and 2024 Notes expired during the third and fourth quarters of fiscal 2024, respectively.

Impact on Net Income Per Share

In periods when we have net income, the shares of our common stock subject to the Notes outstanding during the period are included in our diluted earnings per share under the if-converted method. In the three months ended April 30, 2023, the Capped Calls were excluded from the calculation of diluted earnings per share, as they were antidilutive.

Revolving Credit Facility

In January 2021, we entered into a credit agreement, as subsequently amended in May 2023, with a syndicate of banks. The credit agreement extended a senior secured revolving credit facility (the “Credit Facility”) to us in an aggregate principal amount of $500.0 million, which amount may be increased by an additional $250.0 million subject to the terms of the credit agreement. We may use the proceeds of future borrowings under the credit facility to finance working capital, for capital expenditures and for other general corporate purposes, including permitted acquisitions.

The Credit Facility matures in January 2026 and requires us to comply with customary affirmative and negative covenants. We were in compliance with all covenants as of July 31, 2024. As of July 31, 2024, there wereno outstanding borrowings under the Credit Facility. The Credit Facility is subject to customary fees for loan facilities of this type, including ongoing commitment fees at a rate between 0.25% and 0.30% per annum on the daily undrawn balance.