DocuSign Inc.

06/05/2026 | Press release | Distributed by Public on 06/05/2026 14:51

Quarterly Report for Quarter Ending April 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 fiscal 2026 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 fiscal 2026 Annual Report on Form 10-K. Our fiscal year ends January 31.
Executive Overview of First Quarter Results
Overview
Docusign solutions bring agreements to life, accelerating and simplifying the process of doing business. Docusign's core offerings - our AI-native IAM platform, the world's leading e-signature solution, and CLM solution - allow organizations to boost productivity, accelerate contract review cycles, and transform agreement data into insights and actions, while providing a customer-centric experience. The Docusign IAM platform is a system of record that enables customers of all sizes to ingest a vast, complex body of agreements into a single repository, build agreement workflows that operate at scale, and take action on high-accuracy insights from agreement data. As of April 30, 2026, nearly 1.9 million customers and more than a billion users worldwide utilize Docusign to accelerate and simplify the process of doing business.
We generate substantially all our revenue from sales of subscriptions, which accounted for 98% of our revenue in the three months ended April 30, 2026 and 2025. Our subscription fees include the use of our products 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 with deployment and integration services.
One pillar of our long-term strategy is to evolve our go-to-market ("GTM") channels from the historically direct sales-driven approach. We are currently investing in three routes to market, including direct sales, our partner channel, and digital self-service purchasing. We expect that Docusign's IAM platform will increasingly be offered across all three channels.
We offer subscriptions to our products to businesses of all sizes, from global enterprises down to small and medium-sized businesses ("SMBs"). We offer more than 1,100 active partner integrations with the applications that many of our customers already use so that they can create, commit and manage agreements 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 products to commercial businesses and SMBs and later expanded our focus to target enterprise customers. The number of our customers with greater than $300,000 in annualized contract value was 1,258 customers as of April 30, 2026 compared to 1,123 customers as of April 30, 2025. Each of our customer types has a different purchasing pattern. SMBs typically become customers by quickly utilizing our digital and self-serve channels 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.
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Financial Results for the Three Months Ended April 30, 2026 and 2025
Three Months Ended April 30,
(in thousands) 2026 2025
Total revenue $ 830,235 $ 763,654
Total costs and expenses 718,926 703,399
Total stock-based compensation expense 141,377 145,596
Income from operations 111,309 60,255
Net income 78,197 72,087
Net cash provided by operating activities 321,688 251,439
Purchases of property and equipment (32,253) (23,624)
Cash, cash equivalents, restricted cash and investments were $1.0 billion as of April 30, 2026.
Key Factors Affecting Our Performance
We believe that our future performance will depend on many factors, including the following:
Investing for Growth
We believe that our market opportunity is large, and we plan to invest to support long-term growth. We have two priorities in our long-term strategy. The first is to transform IAM into an end-to-end platform for customers. IAM enables customers to manage agreements across every part of an organization and build workflows in functions including sales, human resources, legal, and procurement.
Our second priority is to expand our AI data and innovation advantage through IAM as the orchestration layer for agreements. At Docusign, we have leveraged differentiated and large-scale proprietary data, built an expansive ecosystem of integrations with leading AI providers, and developed AI solutions that operate at enterprise scale. We aim to deliver category-leading value in the agreement management market while continuing our evolution as a platform company.
We believe these combined efforts will strengthen our ability to retain and grow within our existing customer base, while also attracting new customers.
Growing Customer Base
As of April 30, 2026, we had nearly 1.9 million total customers, including approximately 284,000 direct customers across our large enterprise, commercial, and small and medium-sized business (SMB) segments, served by our direct sales force. We had over 1.7 million customers, including approximately 268,000 direct customers as of April 30, 2025.
In fiscal 2027, we categorize our total customer base into three groups based on annual recurring revenue ("ARR"). We generally define through a flexible framework companies with ARR (actual or potential) exceeding certain dollar thresholds as enterprise customers, commercial customers, and SMB customers. While the vast majority of our SMB customers are served through digital and self-service channels, a portion of this segment is managed via our direct sales channels and included in our direct customer count. Total customers reflects the aggregate of all segments across both direct and self-service channels.
We believe that our ability to increase the number of customers using our products, 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 products, 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.
Increasing International Revenue
International revenue increased by 17% in the three months ended April 30, 2026, compared to the three months ended April 30, 2025. Additionally, our international revenue represented 31% of our total revenue in the three months ended April 30, 2026, compared to 28% in the three months ended April 30, 2025.
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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 electronic 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 European Union's ("EU") 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.
We believe there is a substantial opportunity for us to increase our international customer base by leveraging and expanding investments in our technology, direct sales force, and strategic partnerships around the world, 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 focusing 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, with a particular focus on IAM.
Components of Results of Operations
Revenue
We derive revenue primarily from the sale of subscriptions and, to a lesser extent, professional services.
Revenue
Revenue consists primarily of subscription revenue, which includes 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 annually in advance. We recognize subscription revenue ratably over the term of the contract subscription period beginning on the date access to our software platform is provided. Revenue also includes professional services revenue, which consists of fees associated with new 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.
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 cost of revenue and each operating expense category.
Cost of Revenue
Cost of Revenue
Cost of Revenue consists primarily of costs related to subscription revenue. These costs primarily consist 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, third-party AI infrastructure costs, 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 Revenue also includes costs related to professional services revenue. These costs primarily consist of 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.
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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 Expense Research and development expense consists primarily of personnel costs. 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 Expense
General and administrative expense consists primarily of 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 lease-related charges. 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 commitment fees on the undrawn balance of the Credit Facility and the amortization of the associated issuance costs.
Interest Income and Other Income, Net
Interest income and other income, 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 income tax provision consists primarily of U.S. federal, state and foreign income taxes. The difference between the effective tax rate and the federal statutory tax rate is primarily driven by tax expense related to stock-based compensation partially offset by a benefit for the U.S. federal research tax credit.
We regularly assess the need for a valuation allowance on our deferred tax assets. In making this assessment we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all the deferred tax assets will not be realized. In the event we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.
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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,
(in thousands, except percentages) 2026 As % of revenue 2025 As % of revenue
Revenue (1)
$ 830,235 100 % $ 763,654 100 %
Cost of revenue (1)
171,270 21 157,269 21
Gross profit 658,965 79 606,385 79
Operating expenses:
Sales and marketing 296,175 36 296,413 39
Research and development 159,586 19 159,447 21
General and administrative 91,895 11 90,270 11
Total operating expenses 547,656 66 546,130 71
Income from operations 111,309 13 60,255 8
Interest expense (551) - (478) -
Interest income and other income, net 6,998 1 14,013 1
Income before provision for income taxes 117,756 14 73,790 9
Provision for income taxes 39,559 5 1,703 -
Net income $ 78,197 9 % $ 72,087 9 %
(1) Effective in the first quarter of fiscal 2027, we changed the presentation of revenue and cost of revenue in our Consolidated Statements of Operations to combine the financial statement line items labeled "Subscription" and "Professional services and other".
The following discussion and analysis is for the three months ended April 30, 2026, compared to the same period in 2025, unless otherwise stated.
Revenue
Three Months Ended April 30,
2026 versus 2025
(in thousands, except for percentages) 2026 2025
Revenue $ 830,235 $ 763,654 9 %
Revenue increased by $66.6 million, or 9%, in the three months ended April 30, 2026. The increase was primarily due to the expansion of revenue from our commercial and enterprise accounts, as well as our digital channel. 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.
Cost of Revenue and Gross Margin
Three Months Ended April 30,
2026 versus 2025
(in thousands, except for percentages) 2026 2025
Cost of revenue $ 171,270 $ 157,269 9 %
Gross margin 79 % 79 % - pts
Cost of revenue increased by $14.0 million, or 9%, in the three months ended April 30, 2026, primarily driven by higher costs to support our growing customer base. The increase in the three months ended April 30, 2026 primarily consisted of a $6.3 million increase in information technology costs, particularly hosting costs to support the expansion of IAM and to continue our migration of customer data to cloud storage.
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Sales and Marketing
Three Months Ended April 30,
2026 versus 2025
(in thousands, except for percentages) 2026 2025
Sales and marketing $ 296,175 $ 296,413 - %
Percentage of revenue 36 % 39 %
Sales and marketing expenses remained relatively flat in the three months ended April 30, 2026. Marketing and advertising costs decreased in line with our go-to-market strategy, primarily due to changes in timing of our customer events in addition to a reduction in spending on paid search. This was largely offset by an increase in personnel costs due to annual merit increases as we continue to invest in our workforce.
Research and Development
Three Months Ended April 30,
2026 versus 2025
(in thousands, except for percentages) 2026 2025
Research and development $ 159,586 $ 159,447 - %
Percentage of revenue 19 % 21 %
Research and development expenses remained relatively flat in the three months ended April 30, 2026. Personnel costs, including stock-based compensation, increased primarily due to higher headcount, annual merit increases, and higher incentive compensation as we continue to invest in our workforce to support product innovation. This was largely offset by an increase in capitalized software development costs.
General and Administrative
Three Months Ended April 30,
2026 versus 2025
(in thousands, except for percentages) 2026 2025
General and administrative $ 91,895 $ 90,270 2 %
Percentage of revenue 11 % 11 %
General and administrative expenses increased by $1.6 million, or 2%, in the three months ended April 30, 2026, primarily due to an increase in personnel expense related to higher headcount, higher incentive compensation, and annual merit increases. This was partially offset by a reduction in professional fees including an increase in litigation related insurance reimbursements.
Other Income
Three Months Ended April 30,
2026 versus 2025
(in thousands, except for percentages) 2026 2025
Interest income and other income, net $ 6,998 $ 14,013 (50) %
Percentage of revenue 1 % 1 %
Interest income and other income, net decreased by $7.0 million in the three months ended April 30, 2026. The interest income earned during the three months ended April 30, 2026 was partially offset by foreign currency exchange losses. The decrease was primarily due to the strengthening of the euro and British pound compared to the U.S. dollar, which resulted in a net increase in foreign currency exchange losses of $5.5 million.
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Provision for Income Taxes
Three Months Ended April 30,
2026 versus 2025
(in thousands, except for percentages) 2026 2025
Provision for income taxes $ 39,559 $ 1,703 2,223 %
Percentage of revenue 5 % - %
Provision for income taxes increased by $37.9 million, or 2,223%, in the three months ended April 30, 2026. The increase is primarily attributable to higher profit before taxes and higher forecasted annual effective tax rate driven by the impacts of the OBBBA enacted in the second quarter of fiscal 2026, and an increase in tax expense related to stock-based compensation in the first quarter of fiscal 2027.
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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, 2026, we had $814.2 million in cash and cash equivalents and short-term investments. We also had $209.9 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 we have additional borrowing capacity available from our credit facility.
In May 2025, we entered into an agreement with a syndicate of banks, which provides for a revolving credit facility in the aggregate principal amount of $750.0 million and may be increased by an additional $250.0 million subject to customary terms and conditions. The Credit Facility superseded and replaced the revolving credit facility that we previously entered into in January 2021. As of April 30, 2026, there were no outstanding borrowings under the Credit Facility, and we were in compliance with related covenants. The Credit Facility matures in May 2030 and is available to optimize our capital structure and strengthen our balance sheet. We have included additional information in Note 6 to the Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We believe that our sources of liquidity, including our cash, cash equivalents and investments, and expected future operating cash flows, and borrowing capacity available to us from our Credit Facility, are adequate to meet our potential cash commitments as well as meet our working capital and capital expenditure needs for the foreseeable future, including upcoming maturities of our contractual obligations over the next 12 months.
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. 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 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.
Our principal contractual obligations and commitments consist of obligations under operating leases, as well as noncancelable contractual commitments that primarily relate to cloud infrastructure support and sales and marketing activities. Refer to Note 7 to the Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We do not have any special purpose entities, and we do not engage in off-balance sheet financing arrangements.
In addition to our contractual commitments, our board of directors has authorized a stock repurchase program, which commenced in March 2022. During the three months ended April 30, 2026, we repurchased 6.8 million shares of common stock for $317.5 million through our stock repurchase program. The program has no minimum purchase and no mandated end date. The repurchase program may be suspended or discontinued at any time at our discretion. We expect that our existing sources of liquidity, including our existing cash, cash equivalents and investments, expected future operating cash flows, and the borrowing capacity of our credit facility, will finance the repurchase of common stock at management's discretion. The timing and amount of any repurchases of common stock will be determined by management based on its evaluation of market conditions and other factors.
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Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended April 30,
(in thousands) 2026 2025
Net cash provided by (used in):
Operating activities $ 321,688 $ 251,439
Investing activities (39,247) (24,925)
Financing activities (334,414) (223,515)
Effect of foreign exchange on cash, cash equivalents and restricted cash (481) 9,923
Net change in cash, cash equivalents and restricted cash $ (52,454) $ 12,922
Cash Flows from Operating Activities
Cash provided by operating activities was $321.7 million in the three months ended April 30, 2026. Our primary sources of cash provided by operating activities were billings and the related cash collections in addition to interest income. Our primary uses of cash include the payment of employee salaries and benefits in addition to vendor payments.
Cash provided by operating activities was $251.4 million for the three months ended April 30, 2025. Our primary sources of cash provided by operating activities were billings and the related cash collections in addition to interest income. Our primary uses of cash include payment of employee salaries and benefits in addition to vendor payments.
Cash Flows from Investing Activities
For the three months ended April 30, 2026, net cash used in investing activities of $39.2 million was primarily driven by $32.3 million in purchases of property and equipment as we continued to invest in capitalized software development projects in addition to $4.4 million net purchase of marketable securities.
For the three months ended April 30, 2025, net cash used in investing activities of $24.9 million was primarily driven by $23.6 million in purchases of property and equipment as we continued to invest in capitalized software development projects and to support operations at our data centers.
Cash Flows from Financing Activities
For the three months ended April 30, 2026, net cash used in financing activities of $334.4 million was primarily driven by $317.5 million to repurchase 6.8 million shares of common stock through our stock repurchase program and $16.7 million payments for tax withholding on share settlements, net of proceeds associated with equity plans.
For the three months ended April 30, 2025, net cash used in financing activities of $223.5 million was primarily driven by $183.4 million to repurchase 2.3 million shares of common stock through our stock repurchase program and $40.1 million payments for tax withholding on share settlements, net of proceeds associated with equity plans.
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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, income taxes, and loss contingencies.
There have been no material changes to our critical accounting policies and estimates as described in our fiscal 2026 Annual Report on Form 10-K.
Recent Accounting Pronouncements
Refer to Note 1 in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
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Non-GAAP Financial Measures and Other Key Metrics
To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. 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, 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 the three months ended April 30, 2026 and 2025, we have determined the projected non-GAAP tax rate to be 21% and 20%, respectively.
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.
Annual Recurring Revenue: We calculate ARR as the annualized value of active customer contracts as of the measurement date. This calculation assumes that any contract expiring within the next 12 months renews on its existing terms, and excludes non-recurring revenue streams recognized at a point in time. When evaluating ARR on a product basis for contracts spanning multiple product lines, we allocate the support contract value to each product offering based on its proportional share of the total contract value. To annualize contracts, we divide the total committed contract value by the number of months in the subscription term and multiply by twelve. For international contracts denominated in foreign currencies, ARR is translated into U.S. dollars using a fixed exchange rate set at the beginning of each fiscal year. We adjust previously reported ARR annually to reflect these exchange rate changes for comparative purposes. We believe ARR measures our business performance and serves as a leading indicator of future revenue growth. We report total ARR annually at the end of the fiscal year. Because quarterly net new ARR represents only a fraction of our overall book of business, it is subject to timing volatility and can be highly volatile on a year-over-year basis. Because the objective of ARR is to evaluate the long-term growth of our business, these quarterly timing fluctuations can detract from the insight and usefulness of ARR. ARR is an operating metric and should be viewed independently of revenue, deferred revenue, and remaining performance obligations; it does not represent revenue under U.S. GAAP on an annual basis. IAM represented 12.6% of our total ARR as of April 30, 2026, and 10.8% of our total ARR as of January 31, 2026.
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Reconciliation of gross profit and gross margin:
Three Months Ended April 30,
(in thousands) 2026 2025
GAAP gross profit $ 658,965 $ 606,385
Add: Stock-based compensation 15,309 16,904
Add: Employer payroll tax on employee stock transactions 1,126 1,873
Add: Amortization of acquisition-related intangibles 1,495 3,565
Non-GAAP gross profit $ 676,895 $ 628,727
GAAP gross margin 79.4 % 79.4 %
Non-GAAP adjustments 2.1 % 2.9 %
Non-GAAP gross margin 81.5 % 82.3 %
Reconciliation of income from operations and operating margin:
Three Months Ended April 30,
(in thousands) 2026 2025
GAAP income from operations $ 111,309 $ 60,255
Add: Stock-based compensation 141,377 145,596
Add: Employer payroll tax on employee stock transactions 8,185 12,259
Add: Amortization of acquisition-related intangibles 4,735 6,919
Non-GAAP income from operations $ 265,606 $ 225,029
GAAP operating margin 13.4 % 7.9 %
Non-GAAP adjustments 18.6 % 21.6 %
Non-GAAP operating margin 32.0 % 29.5 %
Reconciliation of net income:
Three Months Ended April 30,
(in thousands) 2026 2025
GAAP net income $ 78,197 $ 72,087
Add: Stock-based compensation 141,377 145,596
Add: Employer payroll tax on employee stock transactions 8,185 12,259
Add: Amortization of acquisition-related intangibles 4,735 6,919
Add: Income tax and other tax adjustments (17,572) (46,010)
Non-GAAP net income $ 214,922 $ 190,851
Computation of free cash flow:
Three Months Ended April 30,
(in thousands) 2026 2025
Net cash provided by operating activities $ 321,688 $ 251,439
Less: Purchases of property and equipment (32,253) (23,624)
Non-GAAP free cash flow $ 289,435 $ 227,815
Net cash used in investing activities $ (39,247) $ (24,925)
Net cash used in financing activities $ (334,414) $ (223,515)
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