Electronic signature solutions provider DocuSign (DOCU.US) reported better-than-expected third-quarter earnings, driven by strong subscription revenue growth, and raised its full-year performance outlook.

For the fiscal third quarter ended October 31, DocuSign posted adjusted earnings per share (EPS) of $1.01, with revenue rising 8.4% year-over-year to $818.35 million. Analysts had expected adjusted EPS of $0.92 and revenue of $807.1 million.

Subscription revenue, the company's core growth driver, increased 9% to $801 million, surpassing the consensus estimate of $788 million. Professional services and other revenue grew 14% to $17.4 million.

Operating cash flow surged 24% to $290.3 million, while free cash flow rose 25% to $262.9 million. The company returned $215.1 million to shareholders through stock repurchases during the quarter. As of quarter-end, DocuSign held approximately $1 billion in cash, cash equivalents, and investments.

Operationally, DocuSign recently secured FedRAMP and GovRAMP certifications, expanding its access to government contracts. The company has also integrated AI capabilities with platforms such as ChatGPT, Microsoft Copilot, GitHub Copilot, Anthropic Claude, and Gemini, positioning itself to capitalize on enterprise AI adoption trends.

CEO Allan Thygesen stated, "Our strong third-quarter performance reflects growing customer adoption of our Identity and Access Management (IAM) platform, which now serves over 25,000 users. This quarter marked one of our strongest revenue growth and profitability performances in the past two years, driven by continued execution efficiency."

However, professional services revenue declined 14% to $17.4 million, potentially indicating customers are handling more implementation work independently or signaling a shift toward a pure software model. Gross margin also dipped 70 basis points year-over-year to 81.8%.

For Q4, DocuSign expects revenue between $825 million and $829 million (midpoint $827 million, slightly below the $827.4 million consensus). Subscription revenue is projected at $808 million to $812 million, with billings forecast between $992 million and $1 billion. Adjusted gross margin is anticipated to be 80.8%–81.1%.

The company raised its full-year guidance: - Revenue: $3.208 billion–$3.212 billion (prior $3.19 billion–$3.2 billion) - Subscription revenue: $3.14 billion–$3.144 billion (prior $3.12 billion–$3.13 billion) - Billings: $3.38 billion–$3.39 billion - Adjusted gross margin: 81.7%–81.8% (prior 81%–82%) - Adjusted operating margin: 29.8%–29.9% (prior 28.6%–29.6%)

Following the earnings release, DocuSign shares initially rose over 3% in after-hours trading but later reversed to a nearly 6% decline. The stock has fallen more than 20% year-to-date.