DocuSign Ticked The Right Financial Metric Boxes But The Market Cared About Something Else

The San-Francisco-based electronic-signature software company posted better-than-expected results, yet shares dropped with fears of DocuSign Inc DOCU facing deteriorating demand trends, competition from no other than Microsoft Corporation MSFT and CFO Cynthia Gaylor’s exit that caught investors by surprise. 

Key Fourth Quarter Figures

For the quarter that ended on January 31st, 2023, total revenue rose 14% YoY as it amounted to $659.6 million. Subscriptions generated $643.7 million, also rising 14% YoY while professional services and other revenue dropped 5% YoY as it amounted to $15.9 million.

Billings rose 10% YoY as they amounted $739.0 million and net cash provided by operating activities rose from last year’s $87.8 million to $137.1 million. 

Free cash flow rose from $70.3 million made during last year’s comparable quarter to $113.0 million with cash and cash equivalents amounting $1.2 billion on January 31st.  

Fiscal 2023 Financial Highlights

DocuSign generated $2.5 billion in revenue which marks a 19% YoY increase. Subscription revenue contributed $2.4 billion as it increased 20% YoY, while professional services and other revenue rose 5% YoY to $73.7 million.Billings rose 13% YoY to $2.7 billion. When looking at basic and diluted shares, GAAP net loss was $0.49 on 201 million shares outstanding with Non-GAAP net income per diluted share being $2.03 on 206 million shares outstanding.

February’s Restructuring Update

Joining Twilio Inc TWLO, Amazon.com Inc AMZN, Meta Platforms Inc META, Alphabet Inc’s GOOG Google and Salesforce Inc CRM, DocuSign announced significant job cuts back in February. Trimming 10% of its workforce, or about 700 employees are an addition to the Septemberround of layoffs which affected 9% of its head count, as part of its strategy to achieve growth, scale and profitability. The layoffs will result in an impairment charge of approximately $25 million to $35 million, primarily during the undergoing, first, quarter of fiscal 2024. The restructuring plan will likely be complete by the end of the second quarter, with the restructuring mainly impacting the worldwide field organization.

Redefining The Agreement Process

During the reported quarter, the electronic signature company released several new product enhancements, including expanded integrations to better collaborate with Microsoft Teams, Slack, and Zoom Video Communications Inc ZM video conferencing platform. It also enabled new AI-assisted document highlighting and signing capabilities on mobile and web to speed up the process. 

Management emphasized that the company is just at the beginning of capitalizing on the opportunities to redefine agreements. Today, the market leader is providing an online replica of a static document, but its goal is to transform these flat agreements into structured data that can be used to make intelligent decisions. DocuSign claims it is uniquely positioned to redefine this process across industries as the value of the agreement is in the data with endless possibilities to simplify and improve this experience in an automated and intelligent way that is integrated into core business systems. 

In April, it plans to release web forms that will help its customers move away from legacy contract forms to a modern web and app experience.

Outlook

The macro environment will remain challenging and management also expects to see a modest near-term disruption as the company realigns its sales force and shifts to more of a self-serve concept. For the first quarter, management guided for a total revenue in the range between $639 million to $643 million which implies a 9% YoY growth. As for the fiscal 2024, it expects revenue in the range between $2.695 billion to $2.707 billion, which translates to a growth rate between 7% and 8% YoY.

Better-than-expected Financial Metrics Were Not Enough

The e-signature leader ended 2022 on a strong note, ticking the boxes of its financial metrics and making tangible progress on its strategic goals as it continues to redefine itself in a self-service capacity.  CEO Allan Thygesen noted that the way forward is continuing to drive profitable growth at scale by executing the company’s mission of making agreements smarter, easier, and more trustworthy. Unfortunately, the earnings and revenue beat did not manage to offset the sudden news of Gaylor’s departure that will be taking place later in the year, causing shares to plunge 13.1% in pre-market trading on Friday. 

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.