Yield

Yield

On Ruchir's basis — reported free cash flow less stock-based compensation less the five-year average of acquisitions — DocuSign's FY2026 adjusted FCF is about $406M, a 4.1% yield on the ~$9.84B market cap. Reported FCF yields ~10.8%; the gap is $622M of annual SBC, ~19% of revenue. The balance sheet is net cash (fortress), so the reference line is the lowest bar, ~8–9% — and 4.1% sits below it. Consensus forward FCF clears 10%, but only on the unadjusted number that overstates.

A note on the source of these figures

The deterministic feature file marks adjusted FCF, its yield, the yield baseline, the balance-sheet class, and float-retirement years all not_computable — the structured cash-flow feed it reads carries no stock-based-compensation line and no acquisitions line, so it could compute none of them. Those figures are not missing from the record, only from the feed: every component below is lifted directly from the filed 10-K cash-flow statements and cited to the page. The arithmetic here is therefore filing-anchored, not a re-derivation against a feature figure. The pipeline gap is logged in this tab's data gaps.

1. The adjustment, line by line

Adjusted FCF = reported FCF − SBC − trailing 5-fiscal-year average acquisition spend; derived from company filings. Reported FCF and SBC from Consolidated Statements of Cash Flows [1]; earlier-year SBC and acquisitions [2] [3].

The adjustment is dominated by one line. FY2026 reported FCF was $1,058.6M — operating cash of $1,165.0M less $106.4M capex [4]. Stock-based compensation that same year was $622.3M [5], roughly 19% of the $3,219.5M in revenue [6]. Subtracting it removes 59% of reported FCF. The point of Ruchir's basis is exactly this: SBC is a real cost of the business paid in dilution, and a yield that ignores it is not a yield he will underwrite.

The acquisition adjustment is small and shrinking. DocuSign spent $180.4M on acquisitions in FY2021 and $143.6M in FY2025, with near-zero in the intervening and surrounding years [7] [8]. The five-year average runs $30–66M — a rounding item next to SBC. Note the feature feed's implicit-zero rule would have set this to zero; using the filed figures raises the deduction slightly and is the conservative choice.

The trajectory matters. Adjusted FCF was negative or nil in FY2022–FY2023 — SBC ran ahead of cash generation — and turned firmly positive from FY2024 as operating margins expanded and SBC flattened. FY2026's $406.2M is a genuine improvement, not a one-off.

2. The yield, three ways

Yields = adjusted FCF ÷ market cap of ~$9.84B (209.1M diluted shares × $47.04 close, 23 Jul 2026). Adjusted FCF derived from filings [9]; market cap per Metrics (fit_features.market_cap). Fortress bar is a framework reference line.

Three cuts, all on today's ~$9.84B market cap:

• Current (FY2026): $406.2M ÷ $9,836.9M = 4.1%.
• Three-year average (FY2024–FY2026): mean adjusted FCF of $294.4M ÷ $9,836.9M = 3.0%.
• Reported, for contrast: FY2026 reported FCF of $1,058.6M yields 10.8% — the number a screen shows.

On whether the current level is a jump from a stable low baseline — the fortress signature Ruchir hunts, a Microsoft 4%→9% on a fear spike — DocuSign does not fit the shape. Its adjusted yield was near zero or negative through FY2022–FY2023 and has climbed gradually to ~4% as the business turned cash-generative; there is no formerly-stable ~3.5% baseline that suddenly doubled. The move up in yield is an operational improvement in adjusted FCF, not a fear-driven repricing of an already-high cash yield. The 61% price drawdown is real (covered in Dislocation), but even at the trough the adjusted yield reached only ~4.6% — the SBC drag is large enough that a two-thirds fall in the stock still did not carry the adjusted yield to the fortress bar.

Adjusted FCF ÷ (fiscal year-end shares × last close on/before Jan-31); derived from filings [10] and the daily price feed. Illustrative; yield_baseline is not_computable in the feature feed.

3. Which bar applies

The balance sheet is net cash, which puts DocuSign in the fortress class and selects the lowest reference line.

Cash, current and non-current investments from the Consolidated Balance Sheets [11]; no debt outstanding [12].

DocuSign held $602.4M in cash and equivalents, $264.1M in current investments, and $208.4M in non-current investments at January 31, 2026 — about $1,074.9M in total [13]. It carries no debt: the convertible notes were extinguished in FY2024, and the $750M revolving credit facility had no outstanding borrowings at year-end [14]. Net debt is therefore roughly −$1.07B; the framework's rule (net debt ≤ 0 → fortress) places DocuSign at the ~8–9% bar. The feature feed marks the class unknown for want of the debt and cash inputs; the filed statements resolve it plainly to fortress.

Against that bar, the arithmetic is unambiguous:

• 4.1% on FY2026 adjusted FCF against the 8% edge of the fortress bar — about 390 bps short (against 9%, ~490 bps short).
• The 3-year average of 3.0% sits ~500–600 bps below the same line.
• Even the reported 10.8% clears only the 10% default bar, and that bar does not apply to a net-cash name.

There is no bar on which DocuSign's adjusted yield currently qualifies.

4. Normalization

DocuSign is a subscription-software business — subscription was $3,150.6M of $3,219.5M in FY2026 revenue [15] — with high renewal-driven visibility and no commodity cycle. It is not meaningfully cyclical, so no mid-cycle normalization is warranted. If anything the caution runs the other way: FY2026 adjusted FCF sits near a high, not a trough. The acquisition deduction is depressed by a pause in M&A (five-year average only $30M), and reported FY2026 cash benefited from collections timing that management itself flagged as variable quarter-to-quarter. A conservative reader would treat 4.1% as a favorable rather than depressed reading — which cuts against, not toward, a dislocation-yield case.

5. The consensus check

Consensus forward FCF clears the default bar — but on the unadjusted number. CapIQ carries no SBC-adjusted FCF line, so the closest vendor proxy is its Free Cash Flow consensus mean (a reported-basis figure, vintage 24 Jul 2026).

Reported consensus FCF from CapIQ estimates (fit_features.consensus_forward_yield; source data/sp/estimates.json). Adjusted-implied = consensus FCF − assumed SBC (17%/15%/12% of consensus revenue for FY27/28/29) − ~$30M acquisitions; derived. FY2026 SBC per filing [16].

On the reported basis, consensus FCF rises from $989.9M (FY2026) to $1,328.0M (FY2029) — forward yields of 10.1% to 13.5% on today's market cap, comfortably above 10%. The sell side already agrees the reported cash engine is strong. But that is the number Ruchir's adjustment exists to discount. Consensus does not publish an SBC-adjusted FCF, so the bar must be tested by adjusting the consensus figure ourselves.

The mean-reversion underwrite — path to the fortress bar. Clearing the ~8–9% fortress bar on a genuinely adjusted basis requires adjusted FCF near $787–885M against today's $9.84B cap, roughly double the current $406M. The only credible path runs through SBC compression, since a pure cash-for-equity swap (which management is executing) lowers SBC and reported FCF by roughly equal amounts and leaves adjusted FCF unchanged — the improvement has to come from total compensation falling as a share of revenue, i.e. real operating leverage. SBC/revenue has moved from ~19% (FY2026) toward 17% in Q1 FY2027 [17], and diluted share count fell 8% year-over-year to 196.5M as buybacks began to outrun dilution [18]. Holding those trends:

• FY2027: consensus FCF $1,133M − SBC at 17% of revenue (~$594M) − ~$30M acq ≈ $509M → 5.2%.
• FY2028: $1,233M − SBC at 15% (~$564M) − $30M ≈ $639M → 6.5%.
• FY2029: $1,328M − SBC at 12% (~$479M) − $30M ≈ $819M → 8.3%, the lower edge of the fortress bar.

So a plausible path reaches the fortress bar only around FY2029 — three-plus years out — and only if SBC falls another ~600–700 bps of revenue while consensus FCF growth also lands. What consensus would have to concede beyond its current numbers is not higher FCF (it already has that) but SBC/revenue continuing to fall ~150–200 bps per year; management guidance for a "meaningful reduction" in share count and cash-for-equity substitution supports the direction [19], but the adjusted gain depends on leverage, not mix. Estimated probability of the adjusted yield clearing the ~8–9% fortress bar within three years (by FY2029): roughly 30–40%. Probability of clearing the 10% default bar in that window: near zero. Within one to two years (FY2027–FY2028), the adjusted yield most likely sits ~5–6.5% — improving, but still short of every bar.

6. FCF/revenue trend

Conversion is improving and strong on the reported line, and improving from a low base once adjusted.

Reported and adjusted FCF ÷ revenue; derived from filings [20] [21].

Reported FCF margin rose from ~21% (FY2022) to ~33% (FY2026) and has held near a third of revenue for three years — a genuinely strong cash engine that supports the durability read in Durability. The adjusted margin tells the framework's version of the story: negative through FY2023, then 8.4% → 8.2% → 12.6%. The direction is favorable and the trend does not undercut the flywheel — it is improving, not deteriorating. What it does not yet do is clear the bar. A deteriorating adjusted margin would be a red flag; a rising one that still reads 12.6% of revenue against a fortress requirement is simply a business that has not yet earned the yield the framework demands.

One further caution the reader should weigh: a large share of the reported cash benefit is non-cash tax. DocuSign released a valuation allowance and carries ~$482.5M of net operating loss carryforwards and ~$231.7M of R&D credits [22]; as those attributes deplete, cash taxes — $12.9M in FY2026 [23] — will rise toward the statutory rate, a headwind to the reported FCF that both consensus and the adjusted-yield path lean on [24].