Core subscription business continues to deliver strong performance! DocuSign (DOCU.US) Q3 revenue and profit exceed expectations, raising full-year performance guidance.

Thanks to the growth in subscription revenue, electronic signature solution provider DocuSign (DOCU.US) released better-than-expected third quarter financial results and raised its full-year performance guidance. According to the financial report, for the third fiscal quarter ending October 31, DocuSign's adjusted earnings per share were $1.01, with revenue increasing by 8.4% year-over-year to reach $818.35 million. Analysts had generally expected adjusted earnings per share of $0.92 and revenue of $807.1 million. Among this, subscription revenue, which is the core engine driving DocuSign's business, increased by 9% year-over-year to $801 million, exceeding analysts' expectations of $788 million, while professional services and other revenue grew by 14% to $17.4 million. The company's Q3 operating cash flow surged by 24% to $290.3 million, and free cash flow increased by 25% to $262.9 million. DocuSign stated that in the third quarter, it returned $215.1 million to shareholders through share buybacks. As of the end of the period, the company held total cash, cash equivalents, and investments of approximately $1 billion. In terms of operations, DocuSign recently obtained FedRAMP and GovRAMP certifications, opening up pathways to government contracts. Additionally, the company has integrated AI functionalities with platforms like ChatGPT, Microsoft Copilot, GitHub Copilot, Anthropic Claude, and Gemini, which help it stay on top of the AI application trends in the enterprise software field. DocuSign's CEO Allan Thygesen stated in a release, "The company performed strongly in the third quarter, with customer investment in the Identity and Access Management (IAM) platform continuing to increase, now surpassing 25,000 users. Thanks to ongoing steady efficiency improvements, this quarter achieved one of the strongest revenue growth and profitability performances in the past two years." It is worth noting, however, that the professional services revenue decreased by 14% to $17.4 million. Although this business segment is relatively small, the declining trend may indicate that customers are taking on more implementation work themselves or that the company is transitioning towards a pure software model. At the same time, gross margin decreased by 70 basis points year-over-year to 81.8%. Looking ahead to the fourth quarter, DocuSign expects revenue to be between $825 million and $829 million, with the midpoint of $827 million slightly lower than the market's expectation of $827.4 million. Subscription revenue is expected to be between $808 million and $812 million, with billings estimated at $992 million to $1 billion. The adjusted gross margin for the quarter is expected to be between 80.8% and 81.1%. In addition, DocuSign raised its full-year performance guidance: the revenue outlook was increased to $3.208 billion to $3.212 billion, previously $3.19 billion to $3.2 billion; subscription revenue is now expected to be between $3.14 billion and $3.144 billion, previously $3.12 billion to $3.13 billion. Full-year billings are projected to be between $3.38 billion and $3.39 billion; adjusted gross margin is expected to be 81.7% to 81.8% (previously 81% to 82%); and adjusted operating margin is expected to increase to 29.8% to 29.9% (previously 28.6% to 29.6%). After the financial report was released, the company's stock price initially rose by over 3% in after-hours trading, but later fell by nearly 6%. This year, the stock has declined by over 20% in total.