First Quarter Revenue of $611.1 Million, up
8.7% year-over-year; on a constant currency basis, up 11.6%
year-over-year
Net Cash Provided by Operating Activities of
$139.9 Million and Free Cash Flow of $138.0 Million
Dropbox, Inc. (NASDAQ: DBX), today announced financial results
for its first quarter ended March 31, 2023.
“We’re pleased with our financial results in Q1, beating our
guidance across all metrics," said Dropbox Co-Founder and Chief
Executive Officer Drew Houston. "While the economic backdrop
remains tough for our existing businesses, the AI era of computing
has arrived and we see a huge opportunity to apply AI/ML to our
products to transform knowledge work. I’m committed to ensuring
Dropbox is at the forefront of this era and excited to bring more
AI-powered products to market for our customers."
First Quarter Fiscal 2023 Results
- Total revenue was $611.1 million, an increase of 8.7% from the
same period last year. On a constant currency basis, year-over-year
growth would have been 11.6%.(1)
- Total ARR ended at $2.468 billion, an increase of 7.8% from the
same period last year. On a constant currency basis, Total ARR grew
$37.5 million quarter-over-quarter, and year-over-year growth would
have been 11.6%.(2)
- Paying users ended at 17.90 million, as compared to 17.09
million for the same period last year. Average revenue per paying
user was $138.97, as compared to $134.63 for the same period last
year.
- GAAP gross margin was 80.9%, as compared to 79.9% for the same
period last year. Non-GAAP gross margin was 82.4%, as compared to
81.3% for the same period last year.
- GAAP operating margin was 13.8%, as compared to 15.9% for the
same period last year. Non-GAAP operating margin was 28.6%, as
compared to 30.3% for the same period last year.
- GAAP net income was $69.0 million, as compared to $79.7 million
for the same period last year. Non-GAAP net income was $146.1
million, as compared to $141.5 million for the same period last
year.
- Net cash provided by operating activities was $139.9 million,
as compared to $141.4 million for the same period last year. Free
cash flow was $138.0 million, as compared to $130.7 million for the
same period last year.
- GAAP diluted net income per share attributable to common
stockholders was $0.20, as compared to $0.21 for the same period
last year. Non-GAAP diluted net income per share attributable to
common stockholders was $0.42, as compared to $0.38 for the same
period last year.(3)
- Cash, cash equivalents and short-term investments ended at
$1.253 billion.
(1) We calculate constant currency revenue growth rates by
applying the prior period weighted average exchange rates to
current period results.
(2) We calculate total annual recurring revenue ("Total ARR") as
the number of users who have active paid licenses for access to our
platform as of the end of the period, multiplied by their
annualized subscription price to our platform. We adjust our
exchange rates used to calculate Total ARR on an annual basis, at
the beginning of each fiscal year. We calculate constant currency
Total ARR growth rates by applying the current period exchange rate
to prior period results.
(3) GAAP and Non-GAAP diluted net income per share attributable
to common stockholders is calculated based upon 348.8 million and
372.9 million diluted weighted-average shares of common stock for
the three months ended March 31, 2023 and 2022, respectively.
Financial Outlook
Dropbox will provide forward-looking guidance in connection with
this quarterly earnings announcement on its conference call,
webcast, and on its investor relations website at
http://investors.dropbox.com.
Conference Call Information
Dropbox plans to host a conference call today to review its
first quarter financial results and to discuss its financial
outlook. This call is scheduled to begin at 2:00 p.m. PT / 5:00
p.m. ET and can be accessed by using the web link at
http://investors.dropbox.com.
Other Upcoming Events
- Tim Regan, Chief Financial Officer, will be presenting at the
J.P. Morgan Global Technology, Media and Communications Conference
on Monday, May 22, 2023.
- Tim Regan, Chief Financial Officer, will be hosting meetings at
the Bank of America Securities Global Technology Conference on
Wednesday, June 7, 2023.
During these events, a live webcast will be accessible from the
Dropbox investor relations website at http://investors.dropbox.com.
Following the event, a replay will be made available at the same
location.
About Dropbox
Dropbox is the one place to keep life organized and keep work
moving. With more than 700 million registered users across
approximately 180 countries, we're on a mission to design a more
enlightened way of working. Dropbox is headquartered in San
Francisco, CA, and has employees around the world. For more
information on our mission and products, visit
http://dropbox.com.
Use of Non-GAAP Financial Measures
Reconciliations of non-GAAP financial measures to the most
directly comparable financial results as determined in accordance
with GAAP are included at the end of this press release following
the accompanying financial data. For a description of these
non-GAAP financial measures, including the reasons management uses
each measure, please see the section of the tables titled "About
Non-GAAP Financial Measures."
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
including, among other things, our expectations regarding
distributed work trends, related market opportunities and our
ability to capitalize on those opportunities. Words such as
"believe," "may," "will," "estimate," "continue," "anticipate,"
"intend," "expect," "plans," and similar expressions are intended
to identify forward-looking statements. We have based these
forward-looking statements largely on our current expectations and
projections about future events and financial trends that we
believe may affect our business, financial condition, and results
of operations. These forward-looking statements speak only as of
the date of this press release and are subject to risks,
uncertainties, and assumptions including, but not limited to: (i)
our ability to retain and upgrade paying users, and increase our
recurring revenue; (ii) our ability to attract new users or convert
registered users to paying users; (iii) our expectations regarding
general economic, political, and market trends and their respective
impacts on our business; (iv) impacts to our financial results and
business operations as a result of pricing and packaging changes to
our subscription plans; (v) our future financial performance,
including trends in revenue, costs of revenue, gross profit or
gross margin, operating expenses, paying users, and free cash flow;
(vi) our ability to achieve or maintain profitability; (vii) our
liability for any unauthorized access to our data or our users’
content, including through privacy and data security breaches;
(viii) significant disruption of service on our platform or loss of
content; (ix) any decline in demand for our platform or for content
collaboration solutions in general; (x) changes in the
interoperability of our platform across devices, operating systems,
and third-party applications that we do not control; (xi)
competition in our markets; (xii) our ability to respond to rapid
technological changes, extend our platform, develop new features or
products, or gain market acceptance for such new features or
products; (xiii) our ability to improve quality and ease of
adoption of our new and enhanced product experiences, features, and
capabilities; (xiv) our ability to manage our growth or plan for
future growth; (xv) our various acquisitions of businesses and the
potential of such acquisitions to require significant management
attention, disrupt our business, or dilute stockholder value; (xvi)
our ability to attract, retain, integrate, and manage key and other
highly qualified personnel, including as a result of our transition
to a Virtual First model with an increasingly distributed workforce
and in light of the recently announced reduction of our workforce;
(xvii) our capital allocation plans with respect to our stock
repurchase program and other investments; and (xviii) the dual
class structure of our common stock and its effect of concentrating
voting control with certain stockholders who held our capital stock
prior to the completion of our initial public offering. Further
information on risks that could affect Dropbox’s results is
included in our filings with the Securities and Exchange Commission
("SEC"), including our Form 10-K for the year ended December 31,
2022. Additional information will be made available in our
quarterly report on Form 10-Q for the quarter ended March 31, 2023
and other reports that we may file with the SEC from time to time,
which could cause actual results to vary from expectations. If the
risks materialize or assumptions prove incorrect, actual results
could differ materially from the results implied by these
forward-looking statements. Dropbox assumes no obligation to, and
does not currently intend to, update any such forward-looking
statements after the date of this release, except as required by
applicable law.
Dropbox, Inc.
Condensed Consolidated
Statements of Operations
(In millions, except per share
data)
(Unaudited)
Three Months Ended
March 31,
2023
2022
Revenue
$
611.1
$
562.4
Cost of revenue(1)
116.8
112.9
Gross profit
494.3
449.5
Operating expenses(1):
Research and development
235.2
210.8
Sales and marketing
119.2
95.7
General and administrative
55.8
53.5
Total operating expenses
410.2
360.0
Income from operations
84.1
89.5
Interest income (expense), net
3.9
(1.4
)
Other income (expense), net
(0.4
)
5.7
Income before income taxes
87.6
93.8
Provision for income taxes
(18.6
)
(14.1
)
Net income
$
69.0
$
79.7
Basic net income per share
$
0.20
$
0.22
Diluted net income per share
$
0.20
$
0.21
Weighted-average shares used in computing
net income per share attributable to common stockholders, basic
347.1
370.7
Weighted-average shares used in computing
net income per share attributable to common stockholders,
diluted
348.8
372.9
(1) Includes stock-based compensation
expense as follows (in millions):
Three Months Ended
March 31,
2023
2022
Cost of revenue
$
5.4
$
5.7
Research and development(2)
52.9
50.5
Sales and marketing
5.5
4.5
General and administrative
12.2
11.6
(2) On March 15, 2023, our President resigned, resulting in the
reversal of $6.7 million in stock-based compensation expense. Of
the total amount reversed, $4.4 million related to expense
recognized prior to January 1, 2023.
Dropbox, Inc.
Condensed Consolidated Balance
Sheets
(In millions)
(Unaudited)
As of
March 31, 2023
December 31, 2022
Assets
Current assets:
Cash and cash equivalents
$
332.7
$
232.8
Short-term investments
920.4
1,110.6
Trade and other receivables, net
57.6
53.8
Prepaid expenses and other current
assets
89.0
92.6
Total current assets
1,399.7
1,489.8
Property and equipment, net
307.2
308.4
Operating lease right-of-use asset
248.2
260.6
Intangible assets, net
80.8
88.3
Goodwill
402.5
403.3
Deferred tax assets
495.4
498.7
Other assets
59.9
61.0
Total assets
$
2,993.7
$
3,110.1
Liabilities and stockholders'
deficit
Current liabilities:
Accounts payable
$
38.6
$
38.6
Accrued and other current liabilities
167.1
139.9
Accrued compensation and benefits
40.1
131.7
Operating lease liability
64.8
68.9
Finance lease obligation
114.2
114.8
Deferred revenue
727.7
702.6
Total current liabilities
1,152.5
1,196.5
Operating lease liability, non-current
569.6
585.2
Finance lease obligation, non-current
154.8
151.7
Convertible senior notes, net,
non-current
1,375.0
1,374.0
Other non-current liabilities
107.0
112.1
Total liabilities
3,358.9
3,419.5
Stockholders' deficit:
Additional paid-in-capital
2,501.6
2,511.6
Accumulated deficit
(2,827.5
)
(2,772.1
)
Accumulated other comprehensive loss
(39.3
)
(48.9
)
Total stockholders' deficit
(365.2
)
(309.4
)
Total liabilities and stockholders'
deficit
$
2,993.7
$
3,110.1
Dropbox, Inc.
Condensed Consolidated
Statements of Cash Flows
(In millions)
(Unaudited)
Three Months Ended
March 31,
2023
2022
Cash flows from operating
activities
Net income
$
69.0
$
79.7
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
42.5
39.4
Stock-based compensation
76.0
72.3
Amortization of debt issuance costs
1.0
1.0
Amortization of deferred commissions
10.7
9.0
Non-cash operating lease expense
12.7
17.2
Deferred taxes
3.4
6.4
Other
0.7
1.8
Changes in operating assets and
liabilities:
Trade and other receivables, net
(3.8
)
4.8
Prepaid expenses and other current
assets
(7.2
)
(9.7
)
Other assets
1.1
2.5
Accounts payable
(0.3
)
(1.0
)
Accrued and other current liabilities
25.6
14.7
Accrued compensation and benefits
(91.6
)
(94.5
)
Deferred revenue
24.7
19.5
Other non-current liabilities
(4.7
)
(2.3
)
Operating lease liabilities
(19.9
)
(20.3
)
Tenant improvement allowance
reimbursement
—
0.9
Net cash provided by operating
activities
139.9
141.4
Cash flows from investing
activities
Capital expenditures
(1.9
)
(10.7
)
Purchases of short-term investments
(30.9
)
(81.6
)
Proceeds from sales of short-term
investments
152.7
51.8
Proceeds from maturities of short-term
investments
77.6
137.5
Other
3.3
4.0
Net cash provided by investing
activities
200.8
101.0
Cash flows from financing
activities
Payments for taxes related to net share
settlement of restricted stock units and awards
(34.1
)
(36.7
)
Proceeds from issuance of common stock,
net of taxes withheld
0.2
0.2
Principal payments on finance lease
obligations
(32.0
)
(32.4
)
Common stock repurchases
(175.4
)
(259.9
)
Net cash (used in) financing
activities
(241.3
)
(328.8
)
Effect of exchange rate changes on cash
and cash equivalents
0.5
(1.1
)
Change in cash and cash equivalents
99.9
(87.5
)
Cash and cash equivalents - beginning
of period
232.8
533.0
Cash and cash equivalents - end of
period
$
332.7
$
445.5
Supplemental cash flow data:
Property and equipment acquired under
finance leases
$
34.5
$
19.7
Dropbox, Inc.
Three Months Ended March 31,
2023
Reconciliation of GAAP to
Non-GAAP results
(In millions, except for
percentages, which may not foot due to rounding)
(Unaudited)
GAAP
Stock-based
compensation
Acquisition- related and other
expenses
Intangibles
amortization
Non-GAAP
Cost of revenue
$
116.8
$
(5.4
)
$
—
$
(3.6
)
$
107.8
Cost of revenue margin
19.1
%
(0.9
%)
—
%
(0.6
%)
17.6
%
Gross profit
494.3
5.4
—
3.6
503.3
Gross margin
80.9
%
0.9
%
—
%
0.6
%
82.4
%
Research and development
235.2
(52.9
)
(5.4
)
—
176.9
Research and development margin
38.5
%
(8.7
%)
(0.9
%)
—
%
28.9
%
Sales and marketing
119.2
(5.5
)
(1.7
)
(3.4
)
108.6
Sales and marketing margin
19.5
%
(0.9
%)
(0.3
%)
(0.6
%)
17.8
%
General and administrative
55.8
(12.2
)
(0.3
)
—
43.3
General and administrative margin
9.1
%
(2.0
%)
—
%
—
%
7.1
%
Income from operations
$
84.1
$
76.0
$
7.4
$
7.0
$
174.5
Operating margin
13.8
%
12.4
%
1.2
%
1.1
%
28.6
%
Dropbox, Inc.
Three Months Ended March 31,
2022
Reconciliation of GAAP to
Non-GAAP results
(In millions, except for
percentages, which may not foot due to rounding)
(Unaudited)
GAAP
Stock-based
compensation
Acquisition- related and other
expenses
Intangibles
amortization
Non-GAAP
Cost of revenue
$
112.9
$
(5.7
)
$
—
$
(2.0
)
$
105.2
Cost of revenue margin
20.1
%
(1.0
%)
—
%
(0.4
%)
18.7
%
Gross profit
449.5
5.7
—
2.0
457.2
Gross margin
79.9
%
1.0
%
—
%
0.4
%
81.3
%
Research and development
210.8
(50.5
)
(3.2
)
—
157.1
Research and development margin
37.5
%
(9.0
%)
(0.6
%)
—
%
27.9
%
Sales and marketing
95.7
(4.5
)
(1.7
)
(1.5
)
88.0
Sales and marketing margin
17.0
%
(0.8
%)
(0.3
) %
(0.3
%)
15.6
%
General and administrative
53.5
(11.6
)
(0.1
)
—
41.8
General and administrative margin
9.5
%
(2.1
%)
—
%
—
%
7.4
%
Income from operations
$
89.5
$
72.3
$
5.0
$
3.5
$
170.3
Operating margin
15.9
%
12.9
%
0.9
%
0.6
%
30.3
%
Dropbox, Inc.
Three Months Ended March 31,
2023 and 2022
Reconciliation of GAAP net
income to Non-GAAP net income and Non-GAAP diluted net income per
share
(In millions, except per share
data)
(Unaudited)
Three Months Ended
March 31,
2023
2022
GAAP net income
$
69.0
$
79.7
Stock-based compensation
76.0
72.3
Acquisition-related and other expenses
7.4
5.0
Amortization of acquired intangible
assets
7.0
3.5
Income tax effects of non-GAAP
adjustments
(13.3
)
(19.0
)
Non-GAAP net income
$
146.1
$
141.5
Non-GAAP diluted net income per share
$
0.42
$
0.38
Weighted-average shares used to compute
Non-GAAP diluted net income per share
348.8
372.9
Dropbox, Inc.
Three Months Ended March 31,
2023 and 2022
Reconciliation of free cash
flow and supplemental cash flow disclosure
(In millions, except for
percentages)
(Unaudited)
Three Months Ended
March 31,
2023
2022
Free cash flow reconciliation:
Net cash provided by operating
activities
$
139.9
$
141.4
Less:
Capital expenditures
(1.9
)
(10.7
)
Free cash flow
$
138.0
$
130.7
Free cash flow margin
22.6
%
23.2
%
Supplemental disclosures:
Key employee holdback payments related to
acquisitions(1)
$
10.7
$
14.3
(1) For the first quarter ended March 31, 2023, we made payments
in the amount of $10.7 million related to employee holdbacks
pertaining to our acquisitions. The related expenses are recognized
within research and development and sales and marketing expenses
over the required service period.
About Non-GAAP Financial Measures
To provide investors and others with additional information
regarding Dropbox's results, we have disclosed the following
non-GAAP financial measures: revenue growth and Total ARR growth
excluding foreign exchange effect, which we refer to as on a
constant currency basis, non-GAAP cost of revenue, non-GAAP gross
profit, non-GAAP operating expenses (including research and
development, sales and marketing and general and administrative),
non-GAAP income from operations, non-GAAP net income, free cash
flow ("FCF") and non-GAAP diluted net income per share. Dropbox has
provided a reconciliation of each non-GAAP financial measure used
in this earnings release to the most directly comparable GAAP
financial measure. Non-GAAP cost of revenue, gross profit,
operating expenses, income from operations, and net income differ
from GAAP in that they exclude stock-based compensation expense,
amortization of acquired intangible assets, other
acquisition-related expenses, which include third-party diligence
costs and expenses related to key employee holdback agreements, and
the income tax effect of the aforementioned adjustments. FCF
differs from GAAP net cash provided by operating activities in that
it treats capital expenditures as a reduction to net cash provided
by operating activities. Free cash flow margin is calculated as FCF
divided by revenue. In order to present revenue on a constant
currency basis for the quarter ended March 31, 2023, Dropbox
calculates constant currency revenue growth rates by applying the
prior period weighted average exchange rates to current period
results. Dropbox calculates constant currency Total ARR growth
rates by applying the current period rate to prior period results.
Dropbox presents constant currency information to provide a
framework for assessing how our underlying business performed
excluding the effect of foreign currency rate fluctuations.
Dropbox's management uses these non-GAAP financial measures to
understand and compare operating results across accounting periods,
for internal budgeting and forecasting purposes, for short and
long-term operating plans, and to evaluate Dropbox's financial
performance and the ability to generate cash from operations.
Management believes these non-GAAP financial measures reflect
Dropbox's ongoing business in a manner that allows for meaningful
period-to-period comparisons and analysis of trends in Dropbox's
business, as they exclude expenses that are not reflective of
ongoing operating results. Management also believes that these
non-GAAP financial measures provide useful supplemental information
to investors and others in understanding and evaluating Dropbox's
operating results and future prospects in the same manner as
management and in comparing financial results across accounting
periods and to those of peer companies.
We believe that the non-GAAP financial measures, non-GAAP cost
of revenue, gross profit, operating expenses, income from
operations, net income, and diluted net income per share are
meaningful to investors because they help identify underlying
trends in our business that could otherwise be masked by the effect
of the expenses that we exclude.
We believe that FCF is an indicator of our liquidity over the
long term and provides useful information regarding cash provided
by operating activities and cash used for investments in property
and equipment required to maintain and grow our business. FCF is
presented for supplemental informational purposes only and should
not be considered a substitute for financial information presented
in accordance with GAAP. FCF has limitations as an analytical tool,
and it should not be considered in isolation or as a substitute for
analysis of other GAAP financial measures, such as net cash
provided by operating activities. Some of the limitations of FCF
are that FCF does not reflect our future contractual commitments,
excludes investments made to acquire assets under finance leases,
includes capital expenditures, and may be calculated differently by
other companies in our industry, limiting its usefulness as a
comparative measure.
The use of non-GAAP cost of revenue, gross profit, operating
expenses, income from operations, net income, free cash flow, and
diluted net income per share measures has certain limitations as
they do not reflect all items of income, expense, and cash
expenditures, as applicable, that affect Dropbox's operations.
Dropbox mitigates these limitations by reconciling the non-GAAP
financial measures to the most comparable GAAP financial measures.
Additionally, we have provided supplemental disclosures in our
reconciliation of net cash provided by operating activities to free
cash flow to include expenses related to key employee holdback
payments related to our various acquisitions. These non-GAAP
financial measures should be considered in addition to, not as a
substitute for or in isolation from, measures prepared in
accordance with GAAP. Further, these non-GAAP measures may differ
from the non-GAAP information used by other companies, including
peer companies, and therefore comparability may be limited.
Management encourages investors and others to review Dropbox's
financial information in its entirety and not rely on a single
financial measure.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230504005716/en/
Investors: Kern Kapoor ir@dropbox.com or Media:
Alissa Stewart press@dropbox.com
Dropbox (NASDAQ:DBX)
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