Revenue of $428.2 Million, Up 19%
Year-Over-Year
Net Cash Provided by Operating Activities of
$149.7 Million and Free Cash Flow of $102.5 Million
Dropbox, Inc. (NASDAQ: DBX), the world’s first smart workspace,
today announced financial results for its third fiscal quarter
ended September 30, 2019.
“We had a strong Q3 highlighted by 19% top line growth and
margin expansion,” said Dropbox Co-founder and Chief Executive
Officer Drew Houston. “We’re excited about the early momentum we’ve
seen with our new desktop app — millions are already using it since
it was made generally available on September 25. Together with the
launch of Dropbox Spaces, we’re making great progress towards
building the world's first smart workspace where people can focus
on the work that matters.”
Third Quarter Fiscal 2019 Results
- Total revenue was $428.2 million, an increase of 19% from the
same period last year.
- Paying users totaled 14.0 million, as compared to 12.3 million
for the same period last year. Average revenue per paying user was
$123.15, as compared to $118.60 for the same period last year.
- GAAP gross margin was 75.5%, as compared to 75.0% in the same
period last year. Non-GAAP gross margin was 76.7%, as compared to
75.9% in the same period last year.
- GAAP operating margin was (4.3)%, as compared to (2.5)% in the
same period last year. Non-GAAP operating margin, which excludes
stock-based compensation, acquisition-related and other expenses,
and amortization of acquired intangible assets, was 13.1%, as
compared to 12.8% in the same period last year.
- GAAP net loss was ($17.0) million, as compared to ($5.8)
million in the same period last year. Non-GAAP net income was $55.9
million, as compared to $45.0 million in the same period last
year.
- Net cash provided by operating activities was $149.7 million,
as compared to $128.0 million in the same period last year. Free
cash flow was $102.5 million, as compared to $120.0 million in the
same period last year.
- GAAP basic and diluted net loss per share was ($0.04), as
compared to ($0.01) in the same period last year. Non-GAAP diluted
net income per share was $0.13, as compared to $0.11 in the same
period last year. (1)
- Cash, cash equivalents and short-term investments were $1.031
billion at the end of the third quarter of 2019.
(1) Non-GAAP diluted net income per share is calculated based
upon 418.7 million and 420.0 million diluted weighted-average
shares of common stock for the three months ended September 30,
2019 and 2018, 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
investors.dropbox.com.
Conference Call Information
Dropbox plans to host a conference call today to review its
third 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 dialing (877) 300-7844 from the
United States or (786) 815-8440 internationally with reference to
the company name and conference title, and a live webcast and
replay of the conference call can be accessed from the Dropbox
investor relations website at investors.dropbox.com. Following the
completion of the call, a telephonic replay will be available
through 11:59 PM ET on November 14, 2019 at (855) 859-2056 from the
United States or (404) 537-3406 internationally with recording
access code 1636338.
Other Upcoming Events
- Lev Finkelstein, Vice President of Corporate Finance &
Strategy, will be presenting at the RBC Capital Markets Technology,
Internet, Media and Telecommunications Conference in New York, NY
on Tuesday, November 19, 2019 at 4:05 p.m. ET.
At the time of this event, a live webcast will be accessible
from the Dropbox investor relations website at
investors.dropbox.com. Following the event, a replay will be made
available at the same location.
About Dropbox
Dropbox is the world's first smart workspace that helps people
and teams focus on the work that matters. With more than 600
million registered users across 180 countries, we're on a mission
to design a more enlightened way of working. Dropbox is
headquartered in San Francisco, CA, and has 12 offices around the
world. For more information on our mission and products, visit
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, statements regarding Dropbox's
strategies and new products and features, future financial and
operational performance, the demand for and engagement with our
platform and product features, and the benefits from new product
experiences and acquisitions. Words such as "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "expect,"
"plans," and similar expressions are intended to identify
forward-looking statements. Dropbox has based these forward-looking
statements largely on its current expectations and projections
about future events and financial trends that the Company believes
may affect its 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; (ii) our ability to attract new
users or convert registered users to paying users; (iii) our
revenue growth rate; (iv) our history of net losses; (v) our
liability for any unauthorized access to our data or our users’
content, including through privacy and data security breaches; (vi)
significant disruption of service on our platform or loss of
content; (vii) any decline in demand for our platform or for
content collaboration solutions in general; (viii) changes in the
interoperability of our platform across devices, operating systems,
and third-party applications that we do not control; (ix)
competition in our markets; (x) our ability to respond to rapid
technological changes, extend our platform, or develop new
features; (xi) our ability to manage our growth or plan for future
growth; (xii) our acquisition of other businesses and the potential
of such acquisitions to require significant management attention,
disrupt our business, or dilute stockholder value; and (xiii) 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
June 30, 2019. Additional information will be made available in our
quarterly report on Form 10-Q and other future 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 September
30,
Nine months ended September
30,
2019
2018
2019
2018
Revenue
$
428.2
$
360.3
$
1,215.3
$
1,015.8
Cost of revenue(1)
104.8
90.2
306.1
300.3
Gross profit
323.4
270.1
909.2
715.5
Operating expenses(1):
Research and development
172.8
133.2
485.2
631.4
Sales and marketing
108.2
95.0
317.0
339.4
General and administrative
61.0
50.8
180.9
226.7
Total operating expenses
342.0
279.0
983.1
1,197.5
Loss from operations
(18.6
)
(8.9
)
(73.9
)
(482.0
)
Interest income, net
3.0
2.4
9.9
3.2
Other income, net
0.2
0.5
14.4
6.1
Loss before income taxes
(15.4
)
(6.0
)
(49.6
)
(472.7
)
Benefit from (provision for) income
taxes
(1.6
)
0.2
3.5
(2.7
)
Net loss
$
(17.0
)
$
(5.8
)
$
(46.1
)
$
(475.4
)
Net loss per share attributable to common
stockholders, basic and diluted
$
(0.04
)
$
(0.01
)
$
(0.11
)
$
(1.39
)
Weighted-average shares used in computing
net loss per share attributable to common stockholders, basic and
diluted
414.4
403.9
412.4
342.0
(1) Includes stock-based compensation
expense as follows:
Three months ended September
30,
Nine months ended September
30,
2019
2018
2019
2018
Cost of revenue
$
4.1
$
3.2
$
11.8
$
43.9
Research and development
38.9
28.2
107.1
339.0
Sales and marketing
7.7
8.1
23.6
88.4
General and administrative
17.5
15.5
49.4
125.3
Dropbox, Inc.
Condensed Consolidated Balance
Sheets
(In millions)
(Unaudited)
As of
September 30, 2019
December 31, 2018
Assets
Current assets:
Cash and cash equivalents
$
443.2
$
519.3
Short-term investments
587.7
570.0
Trade and other receivables, net
38.4
28.6
Prepaid expenses and other current
assets
64.3
92.3
Total current assets
1,133.6
1,210.2
Property and equipment, net
416.6
310.6
Operating lease right-of-use asset
581.7
—
Intangible assets, net
50.1
14.7
Goodwill
231.8
96.5
Other assets
72.8
62.1
Total assets
$
2,486.6
$
1,694.1
Liabilities and stockholders’
equity
Current liabilities:
Accounts payable
$
31.3
$
33.3
Accrued and other current liabilities
149.9
164.5
Accrued compensation and benefits
79.1
80.9
Operating lease liability
76.0
—
Finance lease obligation
70.9
73.8
Deferred revenue
541.1
485.0
Total current liabilities
948.3
837.5
Operating lease liability, non-current
626.2
—
Finance lease obligation, non-current
128.0
89.9
Other non-current liabilities(1)
21.5
89.9
Total liabilities
1,724.0
1,017.3
Stockholders’ equity:
Additional paid-in-capital
2,478.6
2,337.5
Accumulated deficit
(1,718.1
)
(1,659.5
)
Accumulated other comprehensive income
(loss)
2.1
(1.2
)
Total stockholders’ equity
762.6
676.8
Total liabilities and stockholders’
equity
$
2,486.6
$
1,694.1
(1) As of December 31, 2018 the Company
had non current deferred rent of $81.0 million. As of September 30,
2019, deferred rent is now included in the determination of the
Company's operating lease right of use asset due to the adoption of
ASC 842.
Dropbox, Inc.
Condensed Consolidated
Statements of Cash Flows
(In millions)
(Unaudited)
Three months ended September
30,
Nine months ended September
30,
2019
2018
2019
2018
Cash flow from operating
activities
Net loss
$
(17.0
)
$
(5.8
)
$
(46.1
)
$
(475.4
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization
40.6
45.7
132.5
121.6
Stock-based compensation
68.2
55.0
191.9
596.6
Net losses (gains) on equity
investments
1.7
—
(5.7
)
—
Amortization of deferred commissions
4.6
3.2
12.7
8.5
Other
(0.7
)
0.2
(8.3
)
(0.9
)
Changes in operating assets and
liabilities:
Trade and other receivables, net
(1.0
)
2.3
(9.5
)
0.4
Prepaid expenses and other current
assets
(7.6
)
(13.4
)
(26.1
)
(47.3
)
Other assets
15.6
7.1
41.8
(10.4
)
Accounts payable
(0.6
)
4.6
(2.4
)
(3.9
)
Accrued and other current liabilities
(1.0
)
(3.9
)
9.5
40.6
Accrued compensation and benefits
21.7
18.1
(3.1
)
7.2
Deferred revenue
26.7
14.4
54.7
60.8
Other non-current liabilities
(18.4
)
0.5
(45.6
)
3.9
Tenant improvement allowance
reimbursement
16.9
—
45.4
—
Net cash provided by operating
activities
149.7
128.0
341.7
301.7
Cash flow from investing
activities
Capital expenditures
(47.2
)
(8.0
)
(110.6
)
(27.6
)
Business combinations, net of cash
acquired
—
—
(171.6
)
—
Purchases of short-term investments
(193.0
)
(168.4
)
(582.7
)
(664.3
)
Proceeds from sales of short-term
investments
160.0
58.5
341.0
61.6
Proceeds from maturities of short-term
investments
75.1
85.5
236.7
101.9
Other
(3.2
)
1.0
8.4
(0.6
)
Net cash used in investing
activities
(8.3
)
(31.4
)
(278.8
)
(529.0
)
Cash flow from financing
activities
Proceeds from initial public offering and
private placement, net of underwriters' discounts and
commissions
—
—
—
746.6
Payments of deferred offering costs
—
(1.1
)
—
(4.5
)
Shares repurchased for tax withholdings on
release of restricted stock
(19.0
)
(44.3
)
(67.1
)
(326.7
)
Proceeds from issuance of common stock,
net of repurchases
—
8.8
2.0
9.8
Principal payments on finance lease
obligations
(21.2
)
(25.8
)
(71.8
)
(84.1
)
Other
0.3
(2.0
)
(0.4
)
(6.1
)
Net cash provided by (used in)
financing activities
(39.9
)
(64.4
)
(137.3
)
335.0
Effect of exchange rate changes on cash
and cash equivalents
(1.9
)
(0.1
)
(1.7
)
(1.5
)
Change in cash and cash equivalents
99.6
32.1
(76.1
)
106.2
Cash and cash equivalents - beginning
of period
343.6
504.1
519.3
430.0
Cash and cash equivalents - end of
period
$
443.2
$
536.2
$
443.2
$
536.2
Supplemental cash flow data:
Property and equipment acquired under
finance leases
$
31.6
$
28.5
$
107.0
$
72.7
Dropbox, Inc.
Three months ended September
30, 2019
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
$
104.8
$
(4.1
)
$
—
$
(1.0
)
$
99.7
Cost of revenue margin
24.5
%
(1.0
)%
—
%
(0.2
)%
23.3
%
Gross profit
323.4
4.1
—
1.0
328.5
Gross margin
75.5
%
1.0
%
—
%
0.2
%
76.7
%
Research and development
172.8
(38.9
)
(4.0
)
—
129.9
Research and development margin
40.4
%
(9.2
)%
(0.9
)%
—
%
30.3
%
Sales and marketing
108.2
(7.7
)
—
(1.4
)
99.1
Sales and marketing margin
25.3
%
(1.9
)%
—
%
(0.3
)%
23.1
%
General and administrative
61.0
(17.5
)
—
—
43.5
General and administrative margin
14.2
%
(4.0
)%
—
%
—
%
10.2
%
Income (loss) from operations
$
(18.6
)
$
68.2
$
4.0
$
2.4
$
56.0
Operating margin
(4.3
)%
16.0
%
0.9
%
0.5
%
13.1
%
Dropbox, Inc.
Three months ended September
30, 2018
Reconciliation of GAAP to
Non-GAAP results
(In millions, except for
percentages, which may not foot due to rounding)
(Unaudited)
GAAP
Stock-based
compensation
Non-GAAP
Cost of revenue
$
90.2
$
(3.2
)
$
87.0
Cost of revenue margin
25.0
%
(0.9
)%
24.1
%
Gross profit
270.1
3.2
273.3
Gross margin
75.0
%
0.9
%
75.9
%
Research and development
133.2
(28.2
)
105.0
Research and development margin
37.0
%
(7.9
)%
29.1
%
Sales and marketing
95.0
(8.1
)
86.9
Sales and marketing margin
26.4
%
(2.3
)%
24.1
%
General and administrative
50.8
(15.5
)
35.3
General and administrative margin
14.1
%
(4.3
)%
9.8
%
Income (loss) from operations
$
(8.9
)
$
55.0
$
46.1
Operating margin
(2.5
)%
15.3
%
12.8
%
Dropbox, Inc.
Nine months ended September
30, 2019
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
$
306.1
$
(11.8
)
$
—
$
(2.5
)
$
291.8
Cost of revenue margin
25.2
%
(1.0
)%
—
%
(0.2
)%
24.0
%
Gross profit
909.2
11.8
—
2.5
923.5
Gross margin
74.8
%
1.0
%
—
%
0.2
%
76.0
%
Research and development
485.2
(107.1
)
(10.4
)
—
367.7
Research and development margin
39.9
%
(8.7
)%
(0.9
)%
—
%
30.3
%
Sales and marketing
317.0
(23.6
)
—
(3.6
)
289.8
Sales and marketing margin
26.1
%
(2.0
)%
—
%
(0.3
)%
23.8
%
General and administrative
180.9
(49.4
)
(1.0
)
—
130.5
General and administrative margin
14.9
%
(4.1
)%
(0.1
)%
—
%
10.7
%
Income (loss) from operations
$
(73.9
)
$
191.9
$
11.4
$
6.1
$
135.5
Operating margin
(6.1
)%
15.9
%
0.9
%
0.4
%
11.1
%
Dropbox, Inc.
Nine months ended September
30, 2018
Reconciliation of GAAP to
Non-GAAP results
(In millions, except for
percentages, which may not foot due to rounding)
(Unaudited)
GAAP
Stock-based
compensation
Employer payroll taxes related
to the release of two-tier RSUs
Non-GAAP
Cost of revenue
$
300.3
$
(43.9
)
$
(1.1
)
$
255.3
Cost of revenue margin
29.6
%
(4.4
)%
(0.1
)%
25.1
%
Gross profit
715.5
43.9
1.1
760.5
Gross margin
70.4
%
4.4
%
0.1
%
74.9
%
Research and development
631.4
(339.0
)
(8.3
)
284.1
Research and development margin
62.2
%
(33.4
)%
(0.8
)%
28.0
%
Sales and marketing
339.4
(88.4
)
(2.2
)
248.8
Sales and marketing margin
33.4
%
(8.7
)%
(0.2
)%
24.5
%
General and administrative
226.7
(125.3
)
(2.3
)
99.1
General and administrative margin
22.3
%
(12.3
)%
(0.2
)%
9.8
%
Income (loss) from operations
$
(482.0
)
$
596.6
$
13.9
$
128.5
Operating margin
(47.5
)%
58.8
%
1.4
%
12.7
%
Dropbox, Inc.
Three and nine months ended
September 30, 2019 and 2018
Reconciliation of GAAP net
loss to Non-GAAP net income and Non-GAAP diluted net income per
share
(In millions, except per share
data)
(Unaudited)
Three months ended September
30,
Nine months ended September
30,
2019
2018
2019
2018
GAAP net loss
$
(17.0
)
$
(5.8
)
$
(46.1
)
$
(475.4
)
Stock-based compensation
68.2
55.0
191.9
596.6
Acquisition-related and other expenses
4.0
—
11.4
—
Amortization of acquired intangible
assets
2.4
—
6.1
—
Net losses (gains) on equity
investments
1.7
—
(5.7
)
—
Employer payroll taxes related to the
release of two-tier RSUs
—
—
—
13.9
Income tax effects of non-GAAP
adjustments
(3.4
)
(4.2
)
(18.0
)
(11.2
)
Non-GAAP net income
$
55.9
$
45.0
$
139.6
$
123.9
Non-GAAP diluted net income per share
$
0.13
$
0.11
$
0.33
$
0.30
Weighted-average shares used to compute
Non-GAAP diluted net income per share
418.7
420.0
418.3
408.0
Dropbox, Inc.
Three and nine months ended
September 30, 2019 and 2018
Reconciliation of free cash
flow and supplemental cash flow disclosure
(In millions, except for
percentages)
(Unaudited)
Three months ended September
30,
Nine months ended September
30,
2019
2018
2019
2018
Free cash flow reconciliation:
Net cash provided by operating
activities
$
149.7
$
128.0
$
341.7
$
301.7
Less:
Capital expenditures
(47.2
)
(8.0
)
(110.6
)
(27.6
)
Free cash flow
$
102.5
$
120.0
$
231.1
$
274.1
Free cash flow margin
23.9
%
33.3
%
19.0
%
27.0
%
Supplemental disclosures:
Capital expenditures related to our new
corporate headquarters, net of tenant improvement allowances(1)
$
29.2
$
2.5
$
51.1
$
4.7
(1) Capital expenditures include cash
outflows related to the build out of our new corporate headquarters
in San Francisco, CA. Net cash provided by operating activities
include tenant improvement allowances related to our new corporate
headquarters, and represents cash received from our landlord to
partially offset this build out. These amounts are presented net in
the table above.
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: 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 differs
from GAAP in that it excludes stock-based compensation expense,
amortization of acquired intangible assets, other
acquisition-related expenses, which include third-party diligence
costs and compensation expense for key acquired personnel, and
employer payroll tax expense relating to the release of two-tier
RSUs in connection with our initial public offering during the six
months ended June 30, 2018. Non-GAAP net income also excludes net
gains and losses on equity investments, and includes the income tax
effect of the aforementioned adjustments, including the tax effects
of acquired intangible assets. 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. Non-GAAP diluted net income per share differs from GAAP
diluted net loss per share in that the numerator utilizes the
non-GAAP net income as described above, and the weighted-average
shares used in the computation include certain shares that are
excluded from the GAAP diluted net loss per share calculation
because their effect would have been anti-dilutive.
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 capital leases,
includes capital expenditures related to our new corporate
headquarters, 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 compensates for 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 capital expenditures related to our
new corporate headquarters, net of tenant improvement allowances.
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/20191107005974/en/
Investors: Darren Yip ir@dropbox.com or Media:
Tessa Chen press@dropbox.com
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