Dropbox(US:DBX)2024-11-08 21:05PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Unaudited condensed consolidated financial statements for Q3 2024, including balance sheets, operations, cash flows, and key accounting notes Condensed Consolidated Statements of Operations Details Dropbox's Q3 2024 and YTD 2024 consolidated statements of operations, highlighting revenue, gross profit, and net income Q3 2024 vs Q3 2023 Performance (Three Months Ended Sep 30) | Metric | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Revenue | $638.8M | $633.0M | | Gross Profit | $527.3M | $513.4M | | Income from Operations | $127.8M | $130.7M | | Net Income | $106.7M | $114.1M | | Diluted EPS | $0.34 | $0.33 | YTD 2024 vs YTD 2023 Performance (Nine Months Ended Sep 30) | Metric | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | | Revenue | $1,904.6M | $1,866.6M | | Gross Profit | $1,580.3M | $1,510.1M | | Income from Operations | $398.3M | $271.3M | | Net Income | $349.5M | $226.3M | | Diluted EPS | $1.07 | $0.65 | Condensed Consolidated Balance Sheets Presents Dropbox's balance sheets as of Sep 30, 2024, showing total assets decreased to $2.58 billion and stockholders' deficit increased Balance Sheet Summary (in millions) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $517.6 | $614.9 | | Short-term investments | $373.2 | $741.1 | | Total Assets | $2,576.7 | $2,983.5 | | Total Liabilities | $3,122.8 | $3,149.3 | | Total stockholders' deficit | ($546.1) | ($165.8) | Condensed Consolidated Statements of Cash Flows Summarizes cash flow activities for the nine months ended Sep 30, 2024, noting increased operating cash flow, significant financing outflows, and a net cash decrease Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $680.3 | $583.4 | | Net cash provided by investing activities | $330.0 | $417.2 | | Net cash used in financing activities | ($1,110.5) | ($627.2) | | Common stock repurchases | ($888.3) | ($433.7) | | Change in cash and cash equivalents | ($97.3) | $371.5 | Notes to Condensed Consolidated Financial Statements Detailed notes on accounting policies, including asset useful lives, the Reclaim.ai acquisition, debt, and a subsequent workforce reduction - Effective January 1, 2024, the company changed the estimated useful lives of certain infrastructure server assets from four to five years, which reduced depreciation expense by $26.3 million for the nine months ended September 30, 202436 - On July 26, 2024, the company acquired Reclaim.ai Inc., an AI-powered calendar application, for $40.2 million in cash, resulting in $30.6 million of goodwill112 - As of September 30, 2024, the company had $1.38 billion in convertible senior notes outstanding, split between notes due in 2026 and 2028135 - Subsequent to the quarter's end, on October 30, 2024, Dropbox announced a 20% reduction of its global workforce, estimating total cash expenditures of approximately $63 million to $68 million for severance and related costs200 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2024 performance, highlighting revenue growth, ARR, free cash flow, and a subsequent 20% workforce reduction Key Business Metrics | Metric | Sep 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | | Total ARR | $2,579M | $2,525M | | Paying Users | 18.24M | 18.17M | | ARPU (Q3) | $139.05 | $138.71 | - The company serves over 700 million+ registered users across approximately 180 countries, with 18.24 million paying users as of Q3 2024204205 - In October 2024, the company announced a 20% reduction in its global workforce to streamline its structure and align with long-term growth and profitability goals225 - Free cash flow for the nine months ended September 30, 2024, was $661.1 million, up from $569.1 million in the prior-year period246 Results of Operations Compares Q3 2024 to Q3 2023 results, detailing revenue changes, cost of revenue decreases, and impacts on gross margin and operating expenses - Q3 2024 revenue increased 0.9% YoY, driven by a rise in paying users and a favorable mix of higher-priced and monthly subscription plans273 - Q3 2024 cost of revenue decreased by 6.8% YoY, mainly due to a $7.1 million reduction in infrastructure costs resulting from the change in the useful life estimate for certain assets274 - For the nine months ended Sep 30, 2024, R&D expenses decreased by $42.5 million (5.9%) YoY, primarily due to lower employee-related costs and allocated overhead285 Liquidity and Capital Resources Details Dropbox's liquidity, including cash, investments, stock repurchases, and available credit facility, as of September 30, 2024 - The company repurchased and retired 37.0 million shares of its Class A common stock for an aggregate amount of $895.6 million during the nine months ended September 30, 2024295307 - The company has a $500.0 million revolving credit facility, which terminates in February 2026, with $469.5 million available as of September 30, 2024296298 Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses market risks, primarily interest rate risk affecting investments and foreign currency exchange risk from non-USD denominated sales - A hypothetical 100 basis point increase in interest rates would result in a $4.1 million reduction in the market value of the company's investment portfolio as of September 30, 2024313 - During the nine months ended September 30, 2024, 26% of the company's sales were denominated in currencies other than the U.S. dollar, exposing it to foreign currency exchange risk313 Item 4. Controls and Procedures Management concluded disclosure controls were effective as of Sep 30, 2024, with no material changes to internal control over financial reporting - Management concluded that as of September 30, 2024, the company's disclosure controls and procedures were effective at a reasonable assurance level316 - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2024317 PART II. OTHER INFORMATION Item 1. Legal Proceedings Details the patent infringement litigation with Motion Offense, LLC, including the jury verdict in favor of Dropbox and subsequent post-trial motions - In the patent infringement suit brought by Motion Offense, LLC, a jury found in favor of Dropbox in May 2023, and the court entered a judgment consistent with the verdict in August 2024, though Motion Offense has since filed post-trial motions for a new trial322 Item 1A. Risk Factors Outlines significant risks including user retention, data security, competition, technological changes, macroeconomic conditions, and concentrated voting control - The business depends on its ability to retain and upgrade paying users, and any decline in renewals could adversely affect future results328 - The company has experienced and may continue to experience privacy and data security breaches, referencing the unauthorized access to the Dropbox Sign production environment in April 2024338 - The company operates in highly competitive markets against major players like Microsoft, Amazon, Apple, Google, and Adobe, who may have greater resources and competitive advantages353 - The multi-class stock structure concentrates 77.2% of voting power with directors, executive officers, and their affiliates as of September 30, 2024, limiting the influence of other stockholders487 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details Q3 2024 stock repurchase activities, including shares repurchased and the remaining amount available under the program Q3 2024 Share Repurchases | Period | Total Shares Purchased (millions) | Average Price Paid per Share | | :--- | :--- | :--- | | July 1 - 31 | 1.55 | $22.74 | | August 1 - 31 | 6.65 | $23.60 | | September 1 - 30 | 6.45 | $24.41 | | Total | 14.65 | $23.86 | - As of September 30, 2024, approximately $519.53 million remained available for purchase under the company's stock repurchase programs524 Item 5. Other Information Discloses that a board member adopted a Rule 10b5-1 trading plan for the potential sale of Class A common stock during the quarter - On August 22, 2024, board member Lisa Campbell adopted a Rule 10b5-1 trading plan for the sale of up to 11,388 shares of Class A common stock, effective until May 30, 2025526 Item 6. Exhibits States that required exhibits, including CEO/CFO certifications and Inline XBRL financial statements, are listed in the Exhibit Index