Third Quarter Revenue of $550.2 Million, Up
12.9% Year-over-year GAAP and Non-GAAP Operating Income of $77.3
Million and $161.0 Million, Up 157.7% and 43.5% Year-over-year Net
Cash Provided by Operating Activities of $231.5 Million and Free
Cash Flow of $221.5 Million
Dropbox, Inc. (NASDAQ: DBX), today announced financial results
for its third quarter ended September 30, 2021.
“Q3 was another solid quarter with record free cash flow, strong
revenue growth, and great progress against our strategic objectives
as we focus on delivering more value to our customers and
shareholders,” said Dropbox Co-Founder and Chief Executive Officer
Drew Houston. “We shipped several new product experiences to help
our customers with today’s challenges of distributed and remote
work, and I’m confident in our future as we work toward our vision
of building one organized place for content and all the workflows
around it.”
Third Quarter Fiscal 2021 Results
- Total revenue was $550.2 million, an increase of 12.9% from the
same period last year. On a constant currency basis, year-over-year
growth would have been 10.7%.(1)
- Total ARR ended at $2.218 billion, an increase of $52.1 million
quarter-over-quarter and an increase of 12.0% year-over-year. On a
constant currency basis, year-over-year growth would have been
10.4%.(2)
- Paying users ended at 16.49 million, as compared to 15.25
million for the same period last year. Average revenue per paying
user was $133.79, as compared to $128.03 for the same period last
year.
- GAAP gross margin was 79.6%, as compared to 78.8% in the same
period last year. Non-GAAP gross margin was 81.0%, as compared to
80.0% in the same period last year.
- GAAP operating margin was 14.0%, as compared to 6.2% in the
same period last year. Non-GAAP operating margin was 29.3%, as
compared to 23.0% in the same period last year.
- GAAP net income was $75.6 million, as compared to $32.7 million
in the same period last year. Non-GAAP net income was $147.1
million, as compared to $110.2 million in the same period last
year.
- Net cash provided by operating activities was $231.5 million,
as compared to $200.9 million in the same period last year. Free
cash flow was $221.5 million, as compared to $187.0 million in the
same period last year.
- GAAP diluted net income per share attributable to common
stockholders was $0.19, as compared to $0.08 in the same period
last year. Non-GAAP diluted net income per share attributable to
common stockholders was $0.37, as compared to $0.26 in the same
period last year.(3)
- Cash, cash equivalents and short-term investments ended at
$1.929 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 rate to prior period results.
(3) Non-GAAP diluted net income per share
attributable to common stockholders is calculated based upon 398.1
million and 419.9 million diluted weighted-average shares of common
stock for the three months ended September 30, 2021 and 2020,
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
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 http://investors.dropbox.com.
Following the completion of the call, a telephonic replay will be
available through 7:00 PM ET on November 11, 2021 at (855) 859-2056
from the United States or (404) 537-3406 internationally with
recording access code 2628759.
Other Upcoming Events
- Timothy Young, President, will be presenting at the RBC Capital
Markets Global Technology, Internet, Media and Telecom Virtual
Conference on Tuesday, November 16th.
- Tim Regan, Chief Financial Officer, will be hosting meetings at
the Wells Fargo 5th Annual TMT Summit on Tuesday, November
30th.
- Tim Regan, Chief Financial Officer, will be presenting at the
45th Nasdaq Investor Conference on Thursday, December 2nd.
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 180
countries, we're on a mission to design a more enlightened way of
working. Dropbox is headquartered in San Francisco, CA, and has
offices 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. Dropbox has based these
forward-looking statements largely on its current expectations and
projections about future events and financial trends that Dropbox
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 realize anticipated benefits to our business from
our shift to a Virtual First work model as well as impacts to our
financial results and business operations as a result of this
shift, (ii) impacts to our financial results, business operations
and the business of our customers, suppliers, partners and the
economy as a result of the COVID-19 pandemic, and related public
health measures, as well as the potential for a more permanent
global shift to remote work, (iii) our ability to retain and
upgrade paying users, and increase our recurring revenue; (iv) our
ability to attract new users or convert registered users to paying
users; (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 history of net
losses and 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, particularly in light of potential disruptions to the
productivity of our employees that may result from our shift to a
Virtual First work model; (xiii) our ability to manage our growth
or plan for future growth; (xiv) our acquisition of other
businesses and the potential of such acquisitions to require
significant management attention, disrupt our business, or dilute
stockholder value; (xv) our ability to attract and retain key
personnel and highly qualified personnel; (xvi) our capital
allocation plans with respect to our stock repurchase program and
other investments; and (xvii) 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, 2021.
Additional information will be made available in our quarterly
report on Form 10-Q for the quarter ended September 30, 2021 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 September
30,
Nine Months Ended September
30,
2021
2020
2021
2020
Revenue
$
550.2
$
487.4
$
1,592.4
$
1,409.8
Cost of revenue(1)
112.0
103.2
328.4
308.8
Gross profit
438.2
384.2
1,264.0
1,101.0
Operating expenses(1):
Research and development
187.3
183.3
554.0
550.9
Sales and marketing
115.7
105.8
319.2
312.9
General and administrative
57.9
65.1
169.3
167.6
Impairment related to real estate
assets
—
—
17.3
—
Total operating expenses
360.9
354.2
1,059.8
1,031.4
Income from operations
77.3
30.0
204.2
69.6
Interest income (expense), net
(1.7
)
0.1
(3.8
)
2.6
Other income, net
0.5
3.5
13.1
23.1
Income before income taxes
76.1
33.6
213.5
95.3
Provision for income taxes
(0.5
)
(0.9
)
(2.3
)
(5.8
)
Net income
$
75.6
$
32.7
$
211.2
$
89.5
Basic net income per share
$
0.20
$
0.08
$
0.54
$
0.22
Diluted net income per share
$
0.19
$
0.08
$
0.53
$
0.21
Weighted-average shares used in computing
net income per share attributable to common
stockholders, basic
385.5
414.2
390.6
415.2
Weighted-average shares used in computing
net income per share attributable to common
stockholders, diluted
398.1
419.9
400.3
419.9
(1) Includes stock-based compensation
expense as follows (in millions):
Three Months Ended September
30,
Nine Months Ended September
30,
2021
2020
2021
2020
Cost of revenue
$
6.0
$
4.6
$
17.3
$
12.6
Research and development
48.7
46.9
141.7
131.1
Sales and marketing
5.9
8.9
19.0
25.1
General and administrative(2)
12.2
15.3
36.6
23.3
(2) On March 19, 2020, one of our
co-founders resigned as a member of the board and as an officer of
Dropbox, resulting in the reversal of $23.8 million in stock-based
compensation expense. Of the total amount reversed, $21.5 million
related to expense recognized prior to December 31, 2019.
Dropbox, Inc.
Condensed Consolidated Balance
Sheets
(In millions)
(Unaudited)
As of
September 30, 2021
December 31, 2020
Assets
Current assets:
Cash and cash equivalents
$
688.9
$
314.9
Short-term investments
1,239.8
806.4
Trade and other receivables, net
40.9
43.4
Prepaid expenses and other current
assets
86.7
62.8
Total current assets
2,056.3
1,227.5
Property and equipment, net
345.8
338.7
Operating lease right-of-use asset
464.8
470.5
Intangible assets, net
49.6
33.5
Goodwill
347.2
236.9
Other assets
75.4
80.1
Total assets
$
3,339.1
$
2,387.2
Liabilities and stockholders' (deficit)
equity
Current liabilities:
Accounts payable
$
23.0
$
18.7
Accrued and other current liabilities
170.9
156.7
Accrued compensation and benefits
107.1
113.6
Operating lease liability
85.2
88.7
Finance lease obligation
120.9
99.6
Deferred revenue
668.0
610.5
Total current liabilities
1,175.1
1,087.8
Operating lease liability, non-current
743.6
759.6
Finance lease obligation, non-current
182.2
171.6
Convertible senior notes, net,
non-current
1,369.3
—
Other non-current liabilities
31.5
34.4
Total liabilities
3,501.7
2,053.4
Stockholders' (deficit) equity:
Additional paid-in-capital
2,468.1
2,564.3
Accumulated deficit
(2,635.5
)
(2,241.4
)
Accumulated other comprehensive income
4.8
10.9
Total stockholders' (deficit) equity
(162.6
)
333.8
Total liabilities and stockholders'
(deficit) equity
$
3,339.1
$
2,387.2
Dropbox, Inc.
Condensed Consolidated
Statements of Cash Flows
(In millions)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021
2020
2021
2020
Cash flows from operating
activities
Net Income
$
75.6
$
32.7
$
211.2
$
89.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
38.8
40.9
110.3
120.5
Stock-based compensation
72.8
75.7
214.6
192.1
Impairment related to real estate
assets
—
—
17.3
—
Amortization of debt issuance costs
1.1
0.1
2.8
0.4
Net gains on equity investments
—
—
—
(17.5
)
Amortization of deferred commissions
8.2
6.7
23.6
17.5
Other
0.7
(0.8
)
(5.5
)
(0.9
)
Changes in operating assets and
liabilities:
Trade and other receivables, net
11.2
(4.1
)
2.6
(12.9
)
Prepaid expenses and other current
assets
(24.0
)
(1.6
)
(47.8
)
(24.0
)
Other assets
26.9
22.2
66.0
55.0
Accounts payable
(7.5
)
3.9
4.7
(8.9
)
Accrued and other current liabilities
11.1
2.0
2.8
(22.7
)
Accrued compensation and benefits
30.8
22.2
(6.8
)
(8.1
)
Deferred revenue
12.2
14.7
56.6
43.4
Other non-current liabilities
(27.6
)
(16.4
)
(88.1
)
(42.6
)
Tenant improvement allowance
reimbursement
1.2
2.7
2.8
19.3
Net cash provided by operating
activities
231.5
200.9
567.1
400.1
Cash flows from investing
activities
Capital expenditures
(10.0
)
(13.9
)
(20.8
)
(67.8
)
Business combinations, net of cash
acquired
0.1
—
(125.3
)
—
Purchases of short-term investments
(366.9
)
(111.9
)
(1,060.6
)
(541.1
)
Proceeds from sales of short-term
investments
99.1
37.7
270.3
183.0
Proceeds from maturities of short-term
investments
83.9
83.0
347.9
221.9
Other
10.9
3.1
28.4
12.4
Net cash used in investing
activities
(182.9
)
(2.0
)
(560.1
)
(191.6
)
Cash flows from financing
activities
Proceeds from issuance of convertible
senior notes
—
—
1,389.1
—
Purchase of convertible note hedge in
connection with issuance of convertible senior notes
—
—
(265.3
)
—
Proceeds from sale of warrants in
connection with issuance of convertible senior notes
—
—
202.9
—
Payments of debt issuance costs
—
—
(23.7
)
—
Payments for taxes related to net share
settlement of restricted stock units and awards
(35.5
)
(22.5
)
(98.2
)
(66.5
)
Proceeds from issuance of common stock,
net of taxes withheld
1.1
0.1
6.6
1.6
Principal payments on finance lease
obligations
(28.5
)
(21.5
)
(79.2
)
(64.9
)
Common stock repurchases
(181.0
)
(37.5
)
(763.7
)
(177.3
)
Other
—
(0.3
)
—
(0.8
)
Net cash provided by (used in)
financing activities
(243.9
)
(81.7
)
368.5
(307.9
)
Effect of exchange rate changes on cash
and cash equivalents
(1.1
)
1.4
(1.5
)
0.8
Change in cash and cash equivalents
(196.4
)
118.6
374.0
(98.6
)
Cash and cash equivalents - beginning
of period
885.3
334.1
314.9
551.3
Cash and cash equivalents - end of
period
$
688.9
$
452.7
$
688.9
$
452.7
Supplemental cash flow data:
Property and equipment acquired under
finance leases
$
43.8
$
41.5
$
111.1
$
105.9
Dropbox, Inc.
Three Months Ended September
30, 2021
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
Workforce reduction
expense(1)
Non-GAAP
Cost of revenue
$
112.0
$
(6.0)
$
—
$
(1.6)
$
—
$
104.4
Cost of revenue margin
20.4
%
(1.1
%)
—
%
(0.3
%)
—
%
19.0
%
Gross profit
438.2
6.0
—
1.6
—
445.8
Gross margin
79.6
%
1.1
%
—
%
0.3
%
—
%
81.0
%
Research and development
187.3
(48.7)
(5.1)
—
(0.1)
133.4
Research and development margin
34.0
%
(8.9
%)
(0.9
%)
—
%
—
%
24.2
%
Sales and marketing
115.7
(5.9)
(1.7)
(1.9)
(0.4)
105.8
Sales and marketing margin
21.0
%
(1.1
%)
(0.3
%)
(0.3
%)
(0.1
%)
19.2
%
General and administrative
57.9
(12.2)
—
—
(0.1)
45.6
General and administrative margin
10.5
%
(2.2
%)
—
%
—
%
—
%
8.3
%
Income from operations
$
77.3
$
72.8
$
6.8
$
3.5
$
0.6
$
161.0
Operating margin
14.0
%
13.2
%
1.2
%
0.6
%
0.1
%
29.3
%
(1) Includes expenses related to workforce
reduction such as severance, benefits and other related items.
Dropbox, Inc.
Three Months Ended September
30, 2020
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
$
103.2
$
(4.6)
$
—
$
(1.0)
$
97.6
Cost of revenue margin
21.2
%
(0.9
%)
—
%
(0.2
%)
20.0
%
Gross profit
384.2
4.6
—
1.0
389.8
Gross margin
78.8
%
0.9
%
—
%
0.2
%
80.0
%
Research and development
183.3
(46.9)
(4.1)
—
132.3
Research and development margin
37.6
%
(9.6
%)
(0.8
%)
—
%
27.1
%
Sales and marketing
105.8
(8.9)
—
(1.4)
95.5
Sales and marketing margin
21.7
%
(1.8
%)
—
%
(0.3
%)
19.6
%
General and administrative
65.1
(15.3)
—
—
49.8
General and administrative margin
13.4
%
(3.1
%)
—
%
—
%
10.2
%
Income from operations
$
30.0
$
75.7
$
4.1
$
2.4
$
112.2
Operating margin
6.2
%
15.5
%
0.8
%
0.5
%
23.0
%
Dropbox, Inc.
Nine Months Ended September
30, 2021
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
Impairment related to real
estate assets
Workforce reduction
expense(1)
Non-GAAP
Cost of revenue
$
328.4
$
(17.3)
$
—
$
(4.2)
$
—
$
(1.7)
$
305.2
Cost of revenue margin
20.6
%
(1.1
%)
—
%
(0.3
%)
—
%
(0.1
%)
19.2
%
Gross profit
1,264.0
17.3
—
4.2
—
1.7
1,287.2
Gross margin
79.4
%
1.1
%
—
%
0.3
%
—
%
0.1
%
80.8
%
Research and development
554.0
(141.7)
(14.4)
—
—
(3.2)
394.7
Research and development margin
34.8
%
(8.9
%)
(0.9
%)
—
%
—
%
(0.2
%)
24.8
%
Sales and marketing
319.2
(19.0)
(3.6)
(5.2)
—
(6.9)
284.5
Sales and marketing margin
20.0
%
(1.2
%)
(0.2
%)
(0.3
%)
—
%
(0.4
%)
17.9
%
General and administrative
169.3
(36.6)
(1.2)
—
—
(2.5)
129.0
General and administrative margin
10.6
%
(2.3
%)
(0.1
%)
—
%
—
%
(0.2
%)
8.1
%
Impairment related to real estate
assets
17.3
—
—
—
(17.3)
—
—
Impairment related to real estate assets
margin
1.1
%
—
%
—
%
—
%
(1.1
%)
—
%
—
%
Income from operations
$
204.2
$
214.6
$
19.2
$
9.4
$
17.3
$
14.3
$
479.0
Operating margin
12.8
%
13.5
%
1.2
%
0.6
%
1.1
%
0.9
%
30.1
%
(1) Includes expenses related to workforce
reduction such as severance, benefits and other related items.
Dropbox, Inc.
Nine Months Ended September
30, 2020
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
$
308.8
$
(12.6)
$
—
$
(3.0)
$
293.2
Cost of revenue margin
21.9
%
(0.9
%)
—
%
(0.2
%)
20.8
%
Gross profit
1,101.0
12.6
—
3.0
1,116.6
Gross margin
78.1
%
0.9
%
—
%
0.2
%
79.2
%
Research and development
550.9
(131.1)
(12.6)
—
407.2
Research and development margin
39.1
%
(9.3
%)
(0.9
%)
—
%
28.9
%
Sales and marketing
312.9
(25.1)
—
(4.1)
283.7
Sales and marketing margin
22.2
%
(1.8
%)
—
%
(0.3
%)
20.1
%
General and administrative
167.6
(23.3)
(0.1)
—
144.2
General and administrative margin
11.9
%
(1.7
%)
—
%
—
%
10.2
%
Income from operations
$
69.6
$
192.1
$
12.7
$
7.1
$
281.5
Operating margin
4.9
%
13.6
%
0.9
%
0.5
%
20.0
%
Dropbox, Inc.
Three and Nine Months Ended
September 30, 2021 and 2020
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
September 30,
Nine Months Ended
September 30,
2021
2020
2021
2020
GAAP net income
$
75.6
$
32.7
$
211.2
$
89.5
Stock-based compensation
72.8
75.7
214.6
192.1
Acquisition-related and other expenses
6.8
4.1
19.2
12.7
Amortization of acquired intangible
assets
3.5
2.4
9.4
7.1
Impairment related to real estate
assets
—
—
17.3
—
Workforce reduction expense
0.6
—
14.3
—
Net gains on equity investments
—
—
—
(17.5
)
Income tax effects of non-GAAP
adjustments
(12.2
)
(4.7
)
(36.6
)
(10.7
)
Non-GAAP net income
$
147.1
$
110.2
$
449.4
$
273.2
Non-GAAP diluted net income per share
$
0.37
$
0.26
$
1.12
$
0.65
Weighted-average shares used to compute
Non-GAAP diluted net income per share
398.1
419.9
400.3
419.9
Dropbox, Inc.
Three and Nine Months Ended
September 30, 2021 and 2020
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,
2021
2020
2021
2020
Free cash flow reconciliation:
Net cash provided by operating
activities
$
231.5
$
200.9
$
567.1
$
400.1
Less:
Capital expenditures
(10.0
)
(13.9
)
(20.8
)
(67.8
)
Free cash flow
$
221.5
$
187.0
$
546.3
$
332.3
Free cash flow margin
40.3
%
38.4
%
34.3
%
23.6
%
Supplemental disclosures:
Key employee holdback payments related to
the acquisition of HelloSign(1)
$
4.1
$
4.0
$
12.1
$
24.2
Payments related to workforce
reduction(2)
$
0.4
$
—
$
14.1
$
—
(1) As part of our acquisition of
HelloSign in 2019, we have employee holdback agreements with key
HelloSign personnel consisting of $48.5 million in cash payments
subject to ongoing employee service. The related expenses are
recognized within research and development expenses over the
required service period of three years. The payments began in the
first quarter of 2020, and will be paid evenly in quarterly
installments over the remaining required service period.
(2) Includes payments made related to
workforce reduction such as severance, benefits, and other related
items.
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,
impairment charges related to real estate assets, and expenses
related to our reduction in force. Non-GAAP net income also
excludes net gains and losses on equity investments, and includes
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. For periods that we are in a GAAP net income
position, the weighted average shares used in the computation are
the same as the shares used in our non-GAAP diluted net income per
share computation. In order to present revenue on a constant
currency basis for the quarter ended September 30, 2021, 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 reduction in workforce and
key employee holdback payments related to the acquisition of
HelloSign. 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/20211104006217/en/
Investors: Kern Kapoor ir@dropbox.com or Media:
Alissa Stewart press@dropbox.com
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