Dropbox, Inc. (NASDAQ: DBX), today announced financial results for its second quarter ended June 30, 2023.
“In Q2, we delivered a solid quarter beating our guidance across all metrics, and introduced exciting AI-powered product experiences to our customers, including Dropbox Dash and Dropbox AI,” said Co-Founder and Chief Executive Officer Drew Houston. “As we navigate this period of economic uncertainty, we remain focused on improving the product experience within core Dropbox and creating more value across workflows and AI driven capabilities.”
Second Quarter Fiscal 2023 Results
- Total revenue was $622.5 million, an increase of 8.7% from the same period last year. On a constant currency basis, year-over-year growth would have been 11.2%.(1)
- Total ARR ended at $2.500 billion, an increase of 7.2% from the same period last year. On a constant currency basis, Total ARR grew $32.6 million quarter-over-quarter, and year-over-year growth would have been 10.9%.(2)
- Paying users ended at 18.04 million, as compared to 17.37 million for the same period last year. Average revenue per paying user was $138.94, as compared to $133.34 for the same period last year.
- GAAP gross margin was 80.7%, as compared to 81.5% for the same period last year. Non-GAAP gross margin was 82.7%, as compared to 83.0% for the same period last year.
- GAAP operating margin was 9.1%, as compared to 14.5% for the same period last year, with such change partially due to $37.5 million in expenses related to the Company's reduction in workforce, such as severance, benefits and other related items, which were incurred in the second quarter of 2023. Non-GAAP operating margin was 34.2%, as compared to 31.9% for the same period last year.
- GAAP net income was $43.2 million, as compared to $62.0 million for the same period last year due to expenses related to the reduction in workforce in the second quarter of 2023, such as severance, benefits and other related items. Non-GAAP net income was $174.0 million, as compared to $138.1 million for the same period last year.
- Net cash provided by operating activities was $187.6 million, as compared to $209.9 million for the same period last year. Free cash flow was $184.6 million, as compared to $205.9 million for the same period last year. Cash flows in the second quarter of 2023 included $34.0 million of expenditures relating to the reduction in workforce.
- GAAP diluted net income per share attributable to common stockholders was $0.13, as compared to $0.17 in the same period last year. Non-GAAP diluted net income per share attributable to common stockholders was $0.51, as compared to $0.38 in the same period last year.(3)
- Cash, cash equivalents and short-term investments ended at $1.228 billion.
Share Repurchase Authorization
- On July 26, 2023, the Board of Directors authorized Dropbox to repurchase an additional $1.2 billion of its Class A common stock. Repurchases will be made from time-to-time, subject to general business and market conditions, other investment opportunities and applicable legal requirements. Repurchases may be made through open market purchases or in privately negotiated transactions, including through Rule 10b5-1 plans.
(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 343.8 million and 365.7 million diluted weighted-average shares of common stock for the three months ended June 30, 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 second 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
- Drew Houston, Co-Founder and Chief Executive Officer, will be presenting at the Goldman Sachs Communacopia + Technology Conference on Tuesday, September 5th, 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-Q for the quarter ended March 31, 2023. Additional information will be made available in our quarterly report on Form 10-Q for the quarter ended June 30, 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.
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Three Months Ended
| Six Months Ended
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2023 | 2022 | 2023 | 2022 | ||||||||||||
Revenue | $ | 622.5 | $ | 572.7 | $ | 1,233.6 | $ | 1,135.1 | |||||||
Cost of revenue(1)(2) | 120.1 | 105.8 | 236.9 | 218.7 | |||||||||||
Gross profit | 502.4 | 466.9 | 996.7 | 916.4 | |||||||||||
Operating expenses(1)(2): | |||||||||||||||
Research and development | 262.8 | 215.0 | 498.0 | 425.8 | |||||||||||
Sales and marketing | 120.9 | 105.0 | 240.1 | 200.7 | |||||||||||
General and administrative | 60.0 | 55.3 | 115.8 | 108.8 | |||||||||||
Impairment related to real estate assets(3) | 2.2 | 8.7 | 2.2 | 8.7 | |||||||||||
Total operating expenses | 445.9 | 384.0 | 856.1 | 744.0 | |||||||||||
Income from operations | 56.5 | 82.9 | 140.6 | 172.4 | |||||||||||
Interest income (expense), net | 3.7 | (0.5 | ) | 7.6 | (1.9 | ) | |||||||||
Other expense, net | (1.2 | ) | (3.3 | ) | (1.6 | ) | 2.4 | ||||||||
Income before income taxes | 59.0 | 79.1 | 146.6 | 172.9 | |||||||||||
Provision for income taxes | (15.8 | ) | (17.1 | ) | (34.4 | ) | (31.2 | ) | |||||||
Net income | $ | 43.2 | $ | 62.0 | $ | 112.2 | $ | 141.7 | |||||||
Basic net income per share | $ | 0.13 | $ | 0.17 | $ | 0.33 | $ | 0.39 | |||||||
Diluted net income per share | $ | 0.13 | $ | 0.17 | $ | 0.32 | $ | 0.38 | |||||||
Weighted-average shares used in computing net income per share attributable to common stockholders, basic | 341.4 | 364.1 | 344.2 | 367.4 | |||||||||||
Weighted-average shares used in computing net income per share attributable to common stockholders, diluted | 343.8 | 365.7 | 346.8 | 369.6 | |||||||||||
(1) | Includes stock-based compensation expense as follows (in millions): |
Three Months Ended
| Six Months Ended
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2023 | 2022 | 2023 | 2022 | ||||||||
Cost of revenue | $ | 6.4 | $ | 6.7 | $ | 11.8 | $ | 12.4 | |||
Research and development(4) | 67.4 | 58.5 | 120.3 | 109.0 | |||||||
Sales and marketing | 6.3 | 5.9 | 11.8 | 10.4 | |||||||
General and administrative | 15.2 | 13.9 | 27.4 | 25.5 | |||||||
(2) | Includes expenses related to our reduction in workforce such as severance, benefits and other related items during the three and six months ended June 30, 2023. | |
(3) | Includes impairment charges related to real estate assets as a result of our Virtual First work model. | |
(4) | On March 15, 2023, the Company's 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.
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As of | |||||||
June 30, 2023 | December 31, 2022 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 510.3 | $ | 232.8 | |||
Short-term investments | 717.2 | 1,110.6 | |||||
Trade and other receivables, net | 60.3 | 53.8 | |||||
Prepaid expenses and other current assets | 92.7 | 92.6 | |||||
Total current assets | 1,380.5 | 1,489.8 | |||||
Property and equipment, net | 298.5 | 308.4 | |||||
Operating lease right-of-use asset | 238.9 | 260.6 | |||||
Intangible assets, net | 73.5 | 88.3 | |||||
Goodwill | 402.1 | 403.3 | |||||
Deferred tax assets | 491.2 | 498.7 | |||||
Other assets | 53.9 | 61.0 | |||||
Total assets | $ | 2,938.6 | $ | 3,110.1 | |||
Liabilities and stockholders' deficit | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 44.3 | $ | 38.6 | |||
Accrued and other current liabilities | 151.1 | 139.9 | |||||
Accrued compensation and benefits | 66.5 | 131.7 | |||||
Operating lease liability | 67.4 | 68.9 | |||||
Finance lease obligation | 113.4 | 114.8 | |||||
Deferred revenue | 734.5 | 702.6 | |||||
Total current liabilities | 1,177.2 | 1,196.5 | |||||
Operating lease liability, non-current | 553.8 | 585.2 | |||||
Finance lease obligation, non-current | 157.1 | 151.7 | |||||
Convertible senior notes, net, non-current | 1,375.9 | 1,374.0 | |||||
Other non-current liabilities | 86.5 | ||||||
