Dropbox(DBX) - 2024 Q1 - Quarterly Results

First Quarter Fiscal 2024 Results Highlights Dropbox reported solid Q1 2024 results, achieving $631.3 million revenue, 3.3% YoY growth, strong profitability, and robust cash flow Q1 2024 Key Financial Metrics | Metric | Value (Millions) | YoY Change (%) | | :--- | :--- | :--- | | Revenue | $631.3 | +3.3 | | GAAP Operating Margin | 22.7% | N/A | | Non-GAAP Operating Margin | 36.5% | N/A | | Net Cash Provided by Operating Activities | $175.5 | N/A | | Free Cash Flow | $166.3 | N/A | CEO Statement and Business Outlook CEO Drew Houston noted Q1 revenue met expectations, profitability exceeded forecasts, and emphasized investing in AI-powered product experiences - The core business delivered in-line revenue and better-than-anticipated profitability in Q1[3] - The company recently launched product updates to enhance content security, organization, and sharing across various platforms[3] - Future strategy involves maintaining operational discipline while investing in AI-powered product experiences to improve distributed work[3] Detailed Financial Performance Dropbox achieved steady Q1 2024 growth with revenue up 3.3% to $631.3 million, ARR up 3.6% to $2.556 billion, and significant profitability gains Q1 2024 Performance vs. Q1 2023 | Metric | Q1 2024 | Q1 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue (Millions) | $631.3 | $611.1 | +3.3% | | Total ARR (Billions) | $2.556 | N/A | +3.6% | | Paying Users (Millions) | 18.16 | 17.90 | +1.45% | | Avg. Revenue per Paying User ($) | $139.59 | $138.97 | +0.45% | | GAAP Gross Margin (%) | 83.2 | 80.9 | +2.3 p.p. | | Non-GAAP Gross Margin (%) | 84.6 | 82.4 | +2.2 p.p. | | GAAP Operating Margin (%) | 22.7 | 13.8 | +8.9 p.p. | | Non-GAAP Operating Margin (%) | 36.5 | 28.6 | +7.9 p.p. | | GAAP Net Income (Millions) | $132.3 | $69.0 | +91.7% | | Non-GAAP Net Income (Millions) | $196.7 | $146.1 | +34.6% | | Free Cash Flow (Millions) | $166.3 | $138.0 | +20.5% | | GAAP Diluted EPS ($) | $0.39 | $0.20 | +95.0% | | Non-GAAP Diluted EPS ($) | $0.58 | $0.42 | +38.1% | - The company increased the useful lives of certain infrastructure assets from four to five years, which reduced depreciation expense by $10.4 million in Q1 2024[6] - Cash, cash equivalents, and short-term investments stood at $1.176 billion at the end of the quarter[6] Financial Outlook and Corporate Events Dropbox will provide forward-looking guidance during its Q1 earnings call, and CFO Tim Regan will attend the Jefferies Software Conference - Forward-looking guidance will be provided on the company's conference call and investor relations website[7] - CFO Tim Regan will participate in the Jefferies Software Conference on Wednesday, May 29th, 2024[9] Consolidated Financial Statements This section presents Dropbox's condensed consolidated statements of operations, balance sheets, and cash flows for the reported period Condensed Consolidated Statements of Operations Dropbox's Q1 2024 revenue grew to $631.3 million, with income from operations increasing to $143.5 million and net income nearly doubling Q1 2024 Statement of Operations (in millions) | Line Item | Q1 2024 (Millions) | Q1 2023 (Millions) | | :--- | :--- | :--- | | Revenue | $631.3 | $611.1 | | Gross Profit | $525.5 | $494.3 | | Total Operating Expenses | $382.0 | $410.2 | | Income from Operations | $143.5 | $84.1 | | Net Income | $132.3 | $69.0 | | Diluted Net Income per Share | $0.39 | $0.20 | Condensed Consolidated Balance Sheets As of March 31, 2024, Dropbox reported total assets of $2.798 billion, a decrease from year-end 2023, and an increased total stockholders' deficit Balance Sheet Highlights (in millions) | Account | March 31, 2024 (Millions) | Dec 31, 2023 (Millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $548.9 | $614.9 | | Short-term investments | $627.0 | $741.1 | | Total Assets | $2,797.7 | $2,983.5 | | Deferred revenue | $741.8 | $725.0 | | Convertible senior notes, net | $1,378.7 | $1,377.8 | | Total Liabilities | $3,074.9 | $3,149.3 | | Total stockholders' deficit | ($277.2) | ($165.8) | Condensed Consolidated Statements of Cash Flows In Q1 2024, Dropbox generated $175.5 million in operating cash flow, with financing activities using $352.7 million, leading to a net decrease in cash Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2024 (Millions) | Q1 2023 (Millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $175.5 | $139.9 | | Net cash provided by investing activities | $113.7 | $200.8 | | Net cash used in financing activities | ($352.7) | ($241.3) | | Change in cash and cash equivalents | ($66.0) | $99.9 | | Cash and cash equivalents - end of period | $548.9 | $332.7 | - Common stock repurchases significantly increased to $279.4 million in Q1 2024 from $175.4 million in Q1 2023, driving the higher cash outflow from financing activities[18] Reconciliation of GAAP to Non-GAAP Financial Measures This section provides a reconciliation of Dropbox's GAAP financial results to its non-GAAP measures, including operating income, net income, and free cash flow Reconciliation of GAAP to Non-GAAP Results In Q1 2024, Dropbox's GAAP income from operations of $143.5 million was adjusted to a Non-GAAP income of $230.7 million, yielding a 36.5% Non-GAAP operating margin Q1 2024 GAAP to Non-GAAP Reconciliation (in millions) | Item | GAAP (Millions) | Adjustments (Millions) | Non-GAAP (Millions) | | :--- | :--- | :--- | :--- | | Gross Profit | $525.5 | $8.3 | $533.8 | | Income from Operations | $143.5 | $87.2 | $230.7 | | Operating Margin (%) | 22.7 | 13.8 | 36.5 | Reconciliation of GAAP Net Income to Non-GAAP Net Income In Q1 2024, GAAP net income of $132.3 million was reconciled to Non-GAAP net income of $196.7 million, resulting in a Non-GAAP diluted EPS of $0.58 Net Income Reconciliation (in millions, except per share data) | Item | Q1 2024 (Millions) | Q1 2023 (Millions) | | :--- | :--- | :--- | | GAAP net income | $132.3 | $69.0 | | Stock-based compensation | $78.0 | $76.0 | | Acquisition-related and other expenses | $3.0 | $7.4 | | Amortization of acquired intangible assets | $6.2 | $7.0 | | Income tax effects of non-GAAP adjustments | ($22.8) | ($13.3) | | Non-GAAP net income | $196.7 | $146.1 | | Non-GAAP diluted net income per share ($) | $0.58 | $0.42 | Reconciliation of Free Cash Flow Free cash flow for Q1 2024 was $166.3 million, a 20.5% increase from Q1 2023, with the free cash flow margin improving to 26.3% Free Cash Flow Reconciliation (in millions) | Item | Q1 2024 (Millions) | Q1 2023 (Millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $175.5 | $139.9 | | Less: Capital expenditures | ($9.2) | ($1.9) | | Free cash flow | $166.3 | $138.0 | | Free cash flow margin (%) | 26.3 | 22.6 | About Non-GAAP Financial Measures Dropbox uses non-GAAP financial measures to provide investors with additional insight into operational performance, excluding certain non-recurring or non-cash expenses - Non-GAAP measures are used to supplement GAAP results by excluding expenses not reflective of ongoing operations, such as stock-based compensation, amortization of acquired intangibles, and other acquisition-related costs[27] - Management utilizes these non-GAAP figures for internal budgeting, forecasting, and evaluating financial performance against previous periods and peer companies[28] - Free Cash Flow (FCF) is defined as net cash from operating activities minus capital expenditures and is considered a key indicator of long-term liquidity[27][30]