DocuSign’s CFO Cynthia Gaylor to Step Down – C-Suite Transitions

It appears to have been a particularly challenging week for CFOs and Chief Accounting Officers. Five out of the seven sudden departures during the last week were CFOs or Chief Accounting Officers.

Welcome to edition 32 of C-Suite Transitions, a weekly series on InsideArbitrage that tracks appointments and departures at publicly traded companies during the prior week. We highlight five appointments and departures each week by picking the largest companies from the full list of management changes.

Sudden Departures

1. Mullen Automotive (MULN): On March 6, 2023, Mullen Automotive received notification from Kerri Sadler, the company’s Chief Accounting Officer, of her resignation effective immediately.
2. Digital Realty Trust (DLR): On March 6, 2023, Camilla Harris, Chief Accounting Officer and Principal Accounting Officer of the company, notified the company of her intent to resign, effective March 17, 2023.
3. MariaDB (MRDB): On March 6, 2023, Jon Bakke, Chief Revenue Officer informed the company of his resignation, effective March 31, 2023.
4. Accelerate Diagnostics (AXDX): On March 9, 2023, Steve Reichling notified Accelerate Diagnostics of his decision to resign as Chief Financial Officer, effective March 31, 2023.
5. EQRx (EQRX): On March 8, 2023, Jami Rubin notified EQRx of her decision to step down as Chief Financial Officer effective March 31, 2023.
6. Ipsidy (AUID): On March 6, 2023, Tom Thimot tendered his resignation as Chief Executive Officer to the company, effective upon the appointment of his successor, and April 3, 2023.
7. SPX Corp. (SPXC): On March 14, 2023, Michael A. Reilly, Chief Accounting Officer, and Vice President, informed the company of his decision to retire effective as of April 7, 2023.

DocuSign (DOCU)

Headquartered in San Francisco, California, DocuSign provides electronic signature software in the United States and globally. DocuSign provides eSignature, a way to sign electronically on various devices and has customers in more than 180 countries. DocuSign has more than a million clients and hundreds of millions of users.

IPO

DocuSign filed for an initial public offering and went public in April 2018. Sigma Partners, Ignition Partners, and Frazier Technology Ventures were the largest shareholders at the time of the IPO, and former CEO Keith Krach was the largest individual shareholder. The company priced its IPO at $29 per share and closed its first day of trading up 37% to $39.73. The stock shot up during the tech bubble and peaked at over $310 per share in September 2021 before coming back to earth.

Cynthia Gaylor Chief Financial Officer 

On March 8, 2023, Cynthia Gaylor, the company’s Chief Financial Officer, notified the company about her intention to resign effective June 15, 2023. Considering she is giving the company more than three months notice, we are not classifying this as a sudden departure, unlike DocuSign’s CEO who exited last June. Ms. Gaylor was appointed as CFO in September 2020 and served as a DocuSign Board Member, including as Chair of the Audit Committee from December 2018 to September 2020.

Ms. Gaylor also held the positions of SVP & CFO at Pivotal Software, where she was in charge of overseeing the global finance and operations teams. Ms. Gaylor led corporate development at Twitter prior to joining Pivotal, and before that, she served as a managing director in Morgan Stanley’s technology division.

“Cynthia has been an instrumental part of DocuSign’s story. We have benefited from her unwavering commitment and leadership these last few years, and we are grateful for the strong foundation she leaves behind,” said Allan Thygesen, CEO of DocuSign

“It has been an honor to serve as DocuSign’s CFO the past few years, and to work alongside the talented team we have in place across our CFO organization and DocuSign more broadly. Together we have played an important role in shaping how the world agrees. I am proud of what we accomplished together and am excited for the future,” said Ms. Gaylor.

DocuSign announced that it was looking for a replacement for Ms. Gaylor.

Dan Springer – CEO Sudden Departure

On June 21, 2022, DocuSign (DOCU) announced that Dan Springer has agreed to step aside as Chief Executive Officer effective immediately. Chairman of the Board Mary Agnes Wilderotter was appointed interim CEO. In October 2022, Allan Thygesen joined the company as the permanent CEO.

Mr. Springer was appointed CEO in 2017 right before the company went public in 2018.

We wrote the following about Daniel Springer’s insider purchases in December 2021 in our Insider Weekends posts titled Insider Weekends: Daniel Springer Purchases $5 Million Worth Of DocuSign:

The huge 42% single day drop in DocuSign (DOCU) we discussed last week triggered an insider purchase at the company with the CEO purchasing 34,751 shares worth $4.99 million on the open market. This is the first insider purchase at the company since it went public in April 2018 at $29 per share. The tides have certainly changed as we are now seeing insiders of high-growth companies starting to buy shares after years of mostly selling them.

Just like Asana (ASAN), DocuSign (DOCU) was hit by a deceleration in its growth rate and soft Q4 2022 guidance (fiscal year ends in January 2022). The company reported a 42% year-over-year increase in revenue to $545 million in Q3 2022 and at the midpoint of its guidance of $560 million for Q4 2022, expects to grow revenue 30% year-over-year.  The biggest concern beyond the soft Q4 forecast was a decline in billings and the pandemic related tailwinds subsiding.

Unlike Asana, DocuSign generates a significant amount of free cash flow even though net income is consistently negative. For the trailing twelve months ending October 2021, the company generated $419 million in free cash flow. The company was also free cash flow positive pre-pandemic generating $44 million of free cash flow in the twelve months ending January 2020. You probably guessed it that the reason the company is reporting negative net income is on account of very high stock-based compensation. In addition to stock buyback announcements, we also track shares outstanding data from 10-Q and 10-K filings and when I pulled up the shares outstanding data for DocuSign, I was not surprised to see that the company diluted shareholders to the tune of 45% from January 2019 to October 2021 as it focused on growth and issued shares to employees.

The bigger concerns should probably be competition from large companies like Adobe and smaller ones like HelloSign and PandaDoc. DocuSign was founded in 2003 and Adobe acquired EchoSign in 2011 to create its Adobe Sign product, which it launched broadly in 2016. Given how ubiquitous Adobe Acrobat is, I would not be surprised if DocuSign loses market share to Adobe. The good news is that the overall pie for e-signature solutions is growing rapidly and DocuSign has barely made a dent in international sales. In fiscal Q3 2022, the company saw its international sales grow 68% year-over-over and the international segment now represents 23% of overall revenue despite a presence in just a handful of countries. DocuSign is interesting enough that I am going to build a model taking its share dilution into account to see if the company makes sense at current levels.

The following month, I wrote the following in an article titled Insider Weekends: Daniel Springer Buys More DocuSign:

It is interesting to see Mr. Springer buy shares again about a month after his first purchase. We haven’t seen any other insiders step in to buy shares but we have seen insiders including a Director and the COO sell shares. After writing about the company last month, I did end up building a model. I had to use very optimistic assumptions including a revenue CAGR of 30% over the next 5 years, 75% gross margins and a big decline in operating expenses from 81% of revenue (TTM) to 55% by January 2027 to get a Jan 2027 forward P/E of 28. In order words, pretty much everything has to go right for the company over the next 5 years for the current valuation to work.

DocuSign Recent Insider Transactions

It is fascinating to see that while Mr. Springer, as the CEO of the company, was buying last year at much higher prices, he is now selling shares despite the big decline in the stock. In 2023 he has already sold more than twice what he purchased in 2021 and 2022.

You can view the latest insider transactions for DocuSign here.

Layoffs

DocuSign announced plans to reduce its workforce by about 10% in February. 9% of its workforce were impacted by an earlier round of layoffs that were announced in September last year.

According to the report, the layoffs will result in an impairment charge of roughly $25 million to $35 million in the first quarter of fiscal 2024.

Joel Greenblatt Adds to DocuSign Position

In the fourth quarter of 2022, Mr. Greenblatt’s company Gotham Asset Management acquired 94,187 shares of the stock, bringing its total holdings to 122,607 shares.

This latest iteration of Gotham holds a very diversified portfolio and hence its stake in DocuSign is only 0.19% of the portfolio.

DocuSign Announces Fourth Quarter and Fiscal Year 2023 Financial Results (Investor Presentation)

On March 9, 2023, DocuSign announced results for its fourth quarter and fiscal year ended January 31, 2023. The stock is down about 29% over the last 12 months.

On the earnings call, Chief Financial Officer Cynthia Gaylor stated, “When you look at the macro environment, it certainly hasn’t gotten better and you could probably tend to say we’ve gotten a little worse. And on top of that, we have made some changes to the fields, which we think could cause some disruption.”

Fourth Quarter Financial Highlights

• Total revenue was $659.6 million, an increase of 14% YoY.
• Subscription revenue was $643.7 million, an increase of 14% YoY.
• Professional services and other revenue was $15.9 million, a decrease of 5% YoY.
• Billings were $739.0 million, an increase of 10% year-over-year.
• Free cash flow was $113.0 million compared to $70.3 million in the same period last year.
• GAAP gross margin was 79%, up from 77% during the same time last year. Compared to the same period last year, non-GAAP gross margin increased to 83% from 81%.
• Non-GAAP operating margin was 21 to 22%.

Fiscal 2023 Financial Highlights

• Total revenue was $2.5 billion, an increase of 19% year-over-year.
• Subscription revenue was $2.4 billion, an increase of 20% year-over-year.
• Professional services and other revenue was $73.7 million, an increase of 5% year-over-year.
• Billings were $2.7 billion, an increase of 13% year-over-year.
• GAAP gross margin was 79%, compared to 78% in fiscal 2022. Non-GAAP gross margin was 82% for both periods.
• Non-GAAP operating margin was 21 to 23%.

It is interesting to see that the company continues to grow despite the pace of growth moderating over time. Free cash flow also increased significantly. With all these executive departures and layoffs, I expect stock-based compensation expenses to continue dropping and the company may generate GAAP earnings at some point. The stock trades at 4.43 sales and has forward EV/EBITDA of 15.51.

Appointments

1.  Honeywell International (HON): $188.12

On March 13, 2023, Honeywell named 34-Year Honeywell Veteran Vimal Kapur to succeed Darius Adamczyk as Chief Executive Office effective June 1, 2023.

MarketCap: $7.85B	Avg. Daily Volume (30 days): 1,536,072	Revenue (TTM): $2.91B
Net Income Margin (TTM): -0.67%	ROE (TTM): -0.50%	Net Debt: $3.58B
P/E: N/A	Forward P/E: 123.46	EV/EBIDTA (TTM): 24.95
P/S (TTM): 2.74	P/B (TTM): 2.12	52 Week Range: $21.32 – $32.45

3. Five Below (FIVE): $198.17

On March 8, 2023, the Board of Directors of Five Below approved the promotion of Kenneth R. Bull to the role of Chief Operating Officer, effective March 13, 2023.

MarketCap: $10.98B	Avg. Daily Volume (30 days): 642,328	Revenue (TTM): $2.95B
Net Income Margin (TTM): 7.81%	ROE (TTM): 20.78%	Net Debt: $1.48B
P/E: 48.04	Forward P/E: 36.10	EV/EBIDTA (TTM): 30.44
P/S (TTM): 3.80	P/B (TTM): 9.41	52 Week Range: $109.49 – $212.56

4. Herc Holdings (HRI): $113.38

On March 9, 2023, Herc Holdings announced the appointment of W. Mark Humphrey to serve as the Senior Vice President and Chief Financial Officer, effective March 10, 2023.

MarketCap: $3.50B	Avg. Daily Volume (30 days): 316,579	Revenue (TTM): $2.74B
Net Income Margin (TTM): 12.05%	ROE (TTM): 31.64%	Net Debt: $3.62B
P/E: 10.38	Forward P/E: 9.93	EV/EBIDTA (TTM): 5.94
P/S (TTM): 1.58	P/B (TTM): 3.77	52 Week Range: $82.69 – $169.32

5. CRISPR Therapeutics AG (CRSP): $44.92

On March 13, 2023, CRISPR Therapeutics AG announced the hiring and appointment of Raju Prasad, Ph.D. as its Chief Financial Officer, effective March 14, 2023.

MarketCap: $3.55B	Avg. Daily Volume (30 days): 1,131,055	Revenue (TTM): $1.20M
Net Income Margin (TTM): N/A	ROE (TTM): -30.42%	Net Debt: $1.57B
P/E: -5.37	Forward P/E: N/A	EV/EBIDTA (TTM): -2.97
P/S (TTM): N/A	P/B (TTM): 2.01	52 Week Range: $38.94 – $86.95

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 Departures

1. Honeywell International (HON): $188.12

On March 13, 2023, Darius Adamczyk steps down as CEO but remain an employee of the company in the capacity of Executive Chairman of the Board.

MarketCap: $128.93B	Avg. Daily Volume (30 days): 3,052,740	Revenue (TTM): $35.47B
Net Income Margin (TTM): 14.00%	ROE (TTM): 27.16%	Net Debt: $10.43B
P/E: 25.88	Forward P/E: 21.74	EV/EBIDTA (TTM): 16.92
P/S (TTM): 3.80	P/B (TTM): 7.88	52 Week Range: $164.02 – $219.80

2. DocuSign (DOCU): $56.55

On March 8, 2023, Cynthia Gaylor, the company’s Chief Financial Officer and principal accounting and financial officer, notified the company of her intention to resign effective June 15, 2023.

MarketCap: $11.16B	Avg. Daily Volume (30 days): 3,510,917	Revenue (TTM): $2.52B
Net Income Margin (TTM): -3.87%	ROE (TTM): -21.83%	Net Cash: $141.71M
P/E: -115.41	Forward P/E: 30.77	EV/EBIDTA (TTM): N/A
P/S (TTM): 5.33	P/B (TTM): 27.86	52 Week Range: $39.57 – $113.67

3.  American Electric Power Company (AEP): $92.59

On March 13, 2023, American Electric Power Company announced that Joseph M. Buonaiuto, SVP, Chief Accounting Officer and Controller, will retire on June 30, 2023. Mr. Buonaiuto will resign from his current position effective May 8, 2023 and will then serve as Senior Vice President – Accounting of the company until his retirement.

MarketCap: $46.38B	Avg. Daily Volume (30 days): 2,819,823	Revenue (TTM): $19.64B
Net Income Margin (TTM): 11.75%	ROE (TTM): 9.85%	Net Debt: $39.7B
P/E: 20.62	Forward P/E: 16.86	EV/EBIDTA (TTM): 12.15
P/S (TTM): 2.33	P/B (TTM): 1.92	52 Week Range: $78.82 – $103.66

4. Albany International (AIN): $89.35

Albany International Corp. announced that President and CEO A. William Higgins has notified the Board of Directors of his desire to retire.

MarketCap: $2.78B	Avg. Daily Volume (30 days): 161,555	Revenue (TTM): $1.03B
Net Income Margin (TTM): 9.25%	ROE (TTM): 11.06%	Net Debt: $203.34M
P/E: 29.39	Forward P/E: N/A	EV/EBIDTA (TTM): 11.97
P/S (TTM): 2.82	P/B (TTM): 3.26	52 Week Range: $74.86 – $115.39

5. CRISPR Therapeutics AG (CRSP): $44.92

On March 9, 2023, Brendan Smith resigned as of the close of business on March 13, 2023, from his position as Executive Vice President and Chief Financial Officer of the company.