Revenue of $467.4 Million, Up 16%
Year-over-year Net Cash Provided by Operating Activities of $145.9
Million and Free Cash Flow of $119.8 Million GAAP Net Income of
$17.5 Million
Dropbox, Inc. (NASDAQ: DBX), today announced financial results
for its second fiscal quarter ended June 30, 2020.
"Our Q2 results are a testament to our teams’ hard work
supporting our customers in this new environment,” said Dropbox
Co-founder and Chief Executive Officer Drew Houston. “Over the past
quarter, we introduced a number of products to help facilitate
distributed work, addressing both team and personal use cases. With
solid revenue growth, robust margin expansion, and continued GAAP
profitability, we remain confident in the resiliency of our
business."
Second Quarter Fiscal 2020 Results
- Total revenue was $467.4 million, an increase of 16% from the
same period last year. On a constant currency basis, year-over-year
growth would have been 18%.(1)
- Total ARR ended at $1.931 billion, an increase of $67.3 million
quarter-over-quarter and an increase of 17% year-over-year. On a
constant currency basis, year-over-year growth would have been
18%.(2)
- Paying users ended at 15.0 million, as compared to 13.6 million
for the same period last year. Average revenue per paying user was
$126.88, as compared to $120.48 for the same period last year.
- GAAP gross margin was 78.1%, as compared to 74.4% in the same
period last year. Non-GAAP gross margin was 79.2%, as compared to
75.8% in the same period last year.
- GAAP operating margin was 2.7%, as compared to (8.5)% in the
same period last year. Non-GAAP operating margin was 20.6%, as
compared to 10.1% in the same period last year.
- GAAP net income (loss) was $17.5 million, as compared to
($21.4) million in the same period last year. Non-GAAP net income
was $93.2 million, as compared to $42.0 million in the same period
last year.
- Net cash provided by operating activities was $145.9 million,
as compared to $128.8 million in the same period last year. Free
cash flow was $119.8 million, as compared to $95.1 million in the
same period last year.
- GAAP basic and diluted net income (loss) per share was $0.04,
as compared to ($0.05) in the same period last year. Non-GAAP
diluted net income per share was $0.22, as compared to $0.10 in the
same period last year.(3)
- Cash, cash equivalents and short-term investments were $1.118
billion at the end of the second quarter of 2020.
(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 is calculated based
upon 420.5 million and 418.7 million diluted weighted-average
shares of common stock for the three months ended June 30, 2020 and
2019, 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.
CFO Transition
Dropbox also announced that Ajay Vashee is stepping down as
Chief Financial Officer after more than eight years at the company.
He’ll remain in the role until September 15, 2020, at which point
Tim Regan, the company’s current Chief Accounting Officer, will
become the company’s new CFO. Ajay will remain as an advisor
through mid-October to ensure a smooth transition.
“Being part of Dropbox has been an amazing experience, and I’m
so proud of everything we’ve accomplished together,” said Ajay.
“We’ve grown from a 100 employee private start-up when I first
started, to a nearly 3,000 employee profitable public company.
Thank you to Drew and the management team for the privilege of
being part of the company’s incredible journey.”
“It’s always hard to see such beloved leaders like Ajay leave
the company, but I’m grateful for the many years of commitment and
dedication he’s given to Dropbox,” said Drew. “I’m also happy to
welcome Tim as our new CFO. With his decades of experience and the
impact he’s already had at Dropbox as our CAO, I’m confident in his
ability to lead our finance organization to the next stage of
growth.”
In his nearly four years at Dropbox, Tim has demonstrated
exceptional leadership, discipline, and the operational skill
needed to run the finance organization. Tim has over two decades of
experience in finance prior to Dropbox, from his role as VP Finance
and Controller at Pandora Media, Inc., to senior positions at Dolby
Laboratories, Inc., and Ernst and Young, LLP.
“Thank you to Drew and the management team for this
opportunity,” said Tim. “It was clear to me when I first joined
Dropbox a few years ago that this was a special company with an
even greater future in store. I’m excited to take on the role of
CFO and continue the great work of the finance organization to
build a sustainable, profitable business for the long-term.”
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 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 11:59 PM ET on August 13, 2020 at (855) 859-2056 from the
United States or (404) 537-3406 internationally with recording
access code 4784405.
Other Upcoming Events
- Ajay Vashee, Chief Financial Officer, will be presenting at the
Canaccord Genuity Growth Conference on Wednesday, August 12th.
- Tim Regan, Chief Accounting Officer, will be presenting at the
Citi 2020 Global Technology Conference on Tuesday, September
8th.
- Lev Finkelstein, VP Corporate Finance & Strategy, will be
presenting at the D.A. Davidson 19th Annual Software & Internet
Virtual Conference on Wednesday, September 9th.
- Lev Finkelstein, VP Corporate Finance & Strategy, will be
presenting at the Jefferies Virtual Software Conference on Tuesday,
September 15th.
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 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 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, statements regarding Dropbox's
strategies and new products and features, future financial and
operational performance as well as trends in our business, the
impact of the COVID-19 pandemic and related public health measures
on our financial results, business operations and the business of
our customers, suppliers and partners, 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)
impacts to our financial results, business operations and the
business of our customers, suppliers and partners as a result of
the COVID-19 pandemic, and related public health measures, (ii) our
ability to retain and upgrade paying users, in particular paying
users impacted by the COVID-19 pandemic, and increase our recurring
revenue; (iii) our ability to attract new users or convert
registered users to paying users, in particular prospective paying
users financially impacted by the COVID-19 pandemic; (iv) our
revenue growth rate; (v) our history of net losses and our ability
to achieve or maintain profitability; (vi) our liability for any
unauthorized access to our data or our users’ content, including
through privacy and data security breaches; (vii) significant
disruption of service on our platform or loss of content,
particularly from any potential disruptions in the supply chain for
hardware necessary to offer our services that may result from the
COVID-19 pandemic; (viii) any decline in demand for our platform or
for content collaboration solutions in general; (ix) changes in the
interoperability of our platform across devices, operating systems,
and third-party applications that we do not control; (x)
competition in our markets; (xi) 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 resulting from remote work; (xii) our
ability to manage our growth or plan for future growth; (xiii) our
acquisition of other businesses and the potential of such
acquisitions to require significant management attention, disrupt
our business, or dilute stockholder value; and (ix) 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,
2020. Additional information will be made available in our
quarterly report on Form 10-Q for the quarter ended June 30, 2020
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
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Revenue $
467.4
$
401.5
$
922.4
$
787.1
Cost of revenue(1)
102.5
102.9
205.6
201.3
Gross profit
364.9
298.6
716.8
585.8
Operating expenses(1): Research and development
185.8
162.4
367.6
312.4
Sales and marketing
102.8
107.3
207.1
208.8
General and administrative
63.5
62.9
102.5
119.9
Total operating expenses
352.1
332.6
677.2
641.1
Income (loss) from operations
12.8
(34.0
)
39.6
(55.3
)
Interest income, net
0.1
3.2
2.5
6.9
Other income, net
9.0
10.0
19.6
14.2
Income (loss) before income taxes
21.9
(20.8
)
61.7
(34.2
)
Benefit from (provision for) income taxes
(4.4
)
(0.6
)
(4.9
)
5.1
Net Income (loss) $
17.5
$
(21.4
)
$
56.8
$
(29.1
)
Net Income (loss) per share attributable to common stockholders,
basic and diluted $
0.04
$
(0.05
)
$
0.14
$
(0.07
)
Weighted-average shares used in computing net income (loss) per
share attributable to common stockholders: Basic
414.1
412.4
415.7
411.5
Diluted
420.5
412.4
419.7
411.5
(1) Includes stock-based compensation expense as follows:
Three Months Ended Six Months Ended June
30, June 30,
2020
2019
2020
2019
Cost of revenue $
4.5
$
4.7
$
8.0
$
7.7
Research and development
47.0
37.7
84.2
68.2
Sales and marketing
9.5
8.8
16.2
15.9
General and administrative(2)
15.6
16.9
8.0
31.9
(2) On March 19, 2020, one of the Company's co-founders
resigned as a member of the board and as an officer of the Company,
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
June 30, 2020
December 31, 2019
Assets Current assets: Cash and cash equivalents
$
334.1
$
551.3
Short-term investments
783.5
607.7
Trade and other receivables, net
45.6
36.7
Prepaid expenses and other current assets
59.1
47.5
Total current assets
1,222.3
1,243.2
Property and equipment, net
475.6
445.3
Operating lease right-of-use asset
701.6
657.9
Intangible assets, net
40.5
47.4
Goodwill
234.7
234.5
Other assets
67.6
70.9
Total assets
$
2,742.3
$
2,699.2
Liabilities and stockholders’ equity Current liabilities:
Accounts payable
$
26.3
$
40.7
Accrued and other current liabilities
134.5
161.9
Accrued compensation and benefits
71.1
101.4
Operating lease liability
82.6
79.9
Finance lease obligation
83.8
76.7
Deferred revenue
583.5
554.2
Total current liabilities
981.8
1,014.8
Operating lease liability, non-current
771.3
711.9
Finance lease obligation, non-current
152.1
138.2
Other non-current liabilities
33.7
25.9
Total liabilities
1,938.9
1,890.8
Stockholders’ equity: Additional paid-in capital
2,560.4
2,531.3
Accumulated deficit
(1,764.4
)
(1,726.2
)
Accumulated other comprehensive income
7.4
3.3
Total stockholders’ equity
803.4
808.4
Total liabilities and stockholders’ equity
$
2,742.3
$
2,699.2
Dropbox, Inc.
Condensed Consolidated
Statements of Cash Flows
(In millions)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Cash flow from operating activities Net Income (loss)
$
17.5
$
(21.4
)
$
56.8
$
(29.1
)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: Depreciation and amortization
40.1
46.1
79.6
91.9
Stock-based compensation
76.6
68.1
116.4
123.7
Net gains on equity investments
(6.5
)
(7.4
)
(17.5
)
(7.4
)
Amortization of deferred commissions
5.7
4.2
10.8
8.1
Other
(1.3
)
(3.2
)
(0.1
)
(7.6
)
Changes in operating assets and liabilities: Trade and other
receivables, net
(7.6
)
(3.4
)
(8.8
)
(8.5
)
Prepaid expenses and other current assets
(7.7
)
(4.3
)
(22.4
)
(18.5
)
Other assets
15.3
15.0
33.1
26.2
Accounts payable
(5.0
)
3.4
(12.8
)
(1.8
)
Accrued and other current liabilities
(14.8
)
0.5
(24.7
)
10.5
Accrued compensation and benefits
29.4
21.1
(30.3
)
(24.8
)
Deferred revenue
6.5
9.4
28.7
28.0
Other non-current liabilities
(9.7
)
(14.0
)
(26.2
)
(27.2
)
Tenant improvement allowance reimbursement
7.4
14.7
16.6
28.5
Net cash provided by operating activities
145.9
128.8
199.2
192.0
Cash flow from investing activities Capital expenditures
(26.1
)
(33.7
)
(53.9
)
(63.4
)
Business combinations, net of cash acquired
-
0.5
-
(171.6
)
Purchases of short-term investments
(308.7
)
(236.7
)
(429.2
)
(389.7
)
Proceeds from sales of short-term investments
80.2
70.8
145.3
181.0
Proceeds from maturities of short-term investments
71.2
95.0
138.9
161.6
Other
5.5
6.9
9.3
11.6
Net cash used in investing activities
(177.9
)
(97.2
)
(189.6
)
(270.5
)
Cash flow from financing activities Shares repurchased for
tax withholdings on release of restricted stock units and awards
(25.1
)
(22.6
)
(44.0
)
(48.1
)
Proceeds from issuance of common stock, net of repurchases
0.8
1.1
1.5
2.0
Principal payments on finance lease obligations
(21.7
)
(24.4
)
(43.4
)
(50.6
)
Common stock repurchases
(75.8
)
-
(139.8
)
-
Other
(0.1
)
(0.5
)
(0.5
)
(0.7
)
Net cash used in financing activities
(121.9
)
(46.4
)
(226.2
)
(97.4
)
Effect of exchange rate changes on cash and cash equivalents
1.6
(0.8
)
(0.6
)
0.2
Change in cash and cash equivalents
(152.3
)
(15.6
)
(217.2
)
(175.7
)
Cash and cash equivalents - beginning of period
486.4
359.2
551.3
519.3
Cash and cash equivalents - end of period
$
334.1
$
343.6
$
334.1
$
343.6
Supplemental cash flow data: Property and equipment
acquired under finance leases
$
29.7
$
35.5
$
64.4
$
75.4
Dropbox, Inc.
Three months ended June 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
$
102.5
$
(4.5
)
$
—
$
(1.0
)
$
97.0
Cost of revenue margin
21.9
%
(0.9
)%
—
%
(0.2
)%
20.8
%
Gross profit
364.9
4.5
—
1.0
370.4
Gross margin
78.1
%
0.9
%
—
%
0.2
%
79.2
%
Research and development
185.8
(47.0
)
(4.3
)
—
134.5
Research and development margin
39.8
%
(10.1
)%
(0.9
)%
—
%
28.8
%
Sales and marketing
102.8
(9.5
)
—
(1.4
)
91.9
Sales and marketing margin
22.0
%
(2.0
)%
—
%
(0.3
)%
19.7
%
General and administrative
63.5
(15.6
)
(0.1
)
—
47.8
General and administrative margin
13.6
%
(3.4
)%
—
%
—
%
10.2
%
Income from operations
$
12.8
$
76.6
$
4.4
$
2.4
$
96.2
Operating margin
2.7
%
16.5
%
0.9
%
0.5
%
20.6
%
Dropbox, Inc.
Three months ended June 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
$
102.9
$
(4.7
)
$
—
$
(0.9
)
$
97.3
Cost of revenue margin
25.6
%
(1.2
)%
—
%
(0.2
)%
24.2
%
Gross profit
298.6
4.7
—
0.9
304.2
Gross margin
74.4
%
1.2
%
—
%
0.2
%
75.8
%
Research and development
162.4
(37.7
)
(4.1
)
—
120.6
Research and development margin
40.4
%
(9.4
)%
(1.0
)%
—
%
30.0
%
Sales and marketing
107.3
(8.8
)
—
(1.4
)
97.1
Sales and marketing margin
26.7
%
(2.2
)%
—
%
(0.3
)%
24.2
%
General and administrative
62.9
(16.9
)
—
—
46.0
General and administrative margin
15.7
%
(4.3
)%
—
%
—
%
11.5
%
Income (loss) from operations
$
(34.0
)
$
68.1
$
4.1
$
2.3
$
40.5
Operating margin
(8.5
)%
17.1
%
1.0
%
0.5
%
10.1
%
Dropbox, Inc.
Six months ended June 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
$
205.6
$
(8.0
)
$
—
$
(2.0
)
$
195.6
Cost of revenue margin
22.3
%
(0.9
)%
—
%
(0.2
)%
21.2
%
Gross profit
716.8
8.0
—
2.0
726.8
Gross margin
77.7
%
0.9
%
—
%
0.2
%
78.8
%
Research and development
367.6
(84.2
)
(8.5
)
—
274.9
Research and development margin
39.9
%
(9.2
)%
(0.9
)%
—
%
29.8
%
Sales and marketing
207.1
(16.2
)
—
(2.7
)
188.2
Sales and marketing margin
22.5
%
(1.8
)%
—
%
(0.3
)%
20.4
%
General and administrative
102.5
(8.0
)
(0.1
)
—
94.4
General and administrative margin
11.1
%
(0.9
)%
—
%
—
%
10.2
%
Income from operations
$
39.6
$
116.4
$
8.6
$
4.7
$
169.3
Operating margin
4.3
%
12.6
%
0.9
%
0.5
%
18.4
%
Dropbox, Inc.
Six months ended June 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
$
201.3
$
(7.7
)
$
—
$
(1.5
)
$
192.1
Cost of revenue margin
25.6
%
(1.0
)%
—
%
(0.2
)%
24.4
%
Gross profit
585.8
7.7
—
1.5
595.0
Gross margin
74.4
%
1.0
%
—
%
0.2
%
75.6
%
Research and development
312.4
(68.2
)
(6.4
)
—
237.8
Research and development margin
39.7
%
(8.7
)%
(0.8
)%
—
%
30.2
%
Sales and marketing
208.8
(15.9
)
—
(2.2
)
190.7
Sales and marketing margin
26.5
%
(2.0
)%
—
%
(0.3
)%
24.2
%
General and administrative
119.9
(31.9
)
(1.0
)
—
87.0
General and administrative margin
15.2
%
(4.1
)%
(0.1
)%
—
%
11.1
%
Income (loss) from operations
$
(55.3
)
$
123.7
$
7.4
$
3.7
$
79.5
Operating margin
(7.0
)%
15.7
%
0.9
%
0.5
%
10.1
%
Dropbox, Inc.
Three and six months ended
June 30, 2020 and 2019
Reconciliation of GAAP net
income (loss) to Non-GAAP net income and Non-GAAP diluted net
income per share
(In millions, except per share
data)
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
GAAP net income (loss)
$
17.5
$
(21.4
)
$
56.8
$
(29.1
)
Stock-based compensation
76.6
68.1
116.4
123.7
Acquisition-related and other expenses
4.4
4.1
8.6
7.4
Amortization of acquired intangible assets
2.4
2.3
4.7
3.7
Net gains on equity investments
(6.5
)
(7.4
)
(17.5
)
(7.4
)
Income tax effects of non-GAAP adjustments
(1.2
)
(3.7
)
(6.0
)
(14.6
)
Non-GAAP net income
$
93.2
$
42.0
$
163.0
$
83.7
Non-GAAP diluted net income per share
$
0.22
$
0.10
$
0.39
$
0.20
Weighted-average shares used to compute Non-GAAP diluted net income
per share
420.5
418.7
419.7
418.1
Dropbox, Inc.
Three and six months ended
June 30, 2020 and 2019
Reconciliation of free cash
flow and supplemental cash flow disclosure
(In millions, except for
percentages)
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Free cash flow reconciliation: Net cash provided by
operating activities $
145.9
$
128.8
$
199.2
$
192.0
Less: Capital expenditures
(26.1
)
(33.7
)
(53.9
)
(63.4
)
Free cash flow $
119.8
$
95.1
$
145.3
$
128.6
Free cash flow margin
25.6
%
23.7
%
15.8
%
16.3
%
Supplemental disclosures: Capital expenditures related to
our new corporate headquarters, net of tenant improvement
allowances(1) $
8.2
$
14.4
$
20.9
$
21.9
Key employee holdback payments related to the acquisition of
HelloSign(2) $
4.0
$
—
$
20.2
$
—
(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.
(2) 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 on-going 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.
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: including 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 differs
from GAAP in that they exclude stock-based compensation expense,
amortization of acquired intangible assets, and other
acquisition-related expenses, which include third-party diligence
costs and expenses related to key employee holdback agreements.
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. 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 June 30, 2020,
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 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
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/20200806005916/en/
Investors: Lev Finkelstein ir@dropbox.com or
Media: Tessa Chen press@dropbox.com
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