Dropbox Announces Fourth Quarter and Fiscal 2022 Results

Fourth Quarter Revenue of $598.8 Million, up 5.9% year-over-year; on a constant currency basis, up 9.2% year-over-year
Net Cash Provided by Operating Activities of $194.6 Million and Free Cash Flow of $181.7 Million

Fiscal 2022 Revenue of $2.325 Billion, up 7.7% year-over-year; on a constant currency basis, up 9.4% year-over-year
Net Cash Provided by Operating Activities of $797.3 Million and Free Cash Flow of $763.5 Million

SAN FRANCISCO--(BUSINESS WIRE)--Dropbox, Inc. (NASDAQ: DBX), today announced financial results for its fourth quarter and fiscal year ended December 31, 2022.

"2022 was a solid year for Dropbox amidst a challenging macroeconomic environment,” said Dropbox Co-Founder and Chief Executive Officer Drew Houston. "We increased our profitability and free cash flow and continued to use M&A as an engine for growth, welcoming FormSwift to Dropbox. Looking ahead to 2023, we remain focused on executing against our strategic objectives, improving our operational efficiency, and continuing to leverage advancements in AI and ML into our product roadmap as we work towards our mission of designing a more enlightened way of working."

Fourth Quarter Fiscal 2022 Results

Total revenue was $598.8 million, an increase of 5.9% from the same period last year. On a constant currency basis, year-over-year growth would have been 9.2%.⁽¹⁾
Total ARR ended at $2.514 billion, an increase of $82.8 million quarter-over-quarter and an increase of 11.2% year-over-year.On a constant currency basis, year-over-year growth would have been 11.8%.⁽²⁾
Paying users ended at 17.77 million, as compared to 16.79 million for the same period last year. Average revenue per paying user was $134.53, as compared to $134.78 for the same period last year.
GAAP gross margin was 80.7%, as compared to 79.5% in the same period last year. Non-GAAP gross margin was 82.0%, as compared to 80.9% in the same period last year.
GAAP operating margin was (13.4%), as compared to 12.4% in the same period last year. In the fourth quarter of 2022, the Company recorded impairment charges related to real estate assets of $162.5 million as a result of adverse changes in the corporate real estate market in the San Francisco Bay area, which has impacted its subleasing strategy in conjunction with its shift to Virtual First. In the fourth quarter of 2021, the Company recorded impairment charges related to real estate assets of $14.0 million. Non-GAAP operating margin was 29.9%, as compared to 29.7% in the same period last year.
GAAP net income was $328.3 million, as compared to $124.6 million in the same period last year due to a one-time income tax benefit from the release of a valuation allowance of $420.2 million on the Company's U.S. federal and certain state deferred tax assets in the fourth quarter of 2022, offset by the aforementioned impairment charge. In the fourth quarter of 2021, the Company released a valuation allowance of $38.1 million, resulting in a one-time income tax benefit on the Company's Irish deferred tax assets. Non-GAAP net income was $141.2 million, as compared to $159.9 million in the same period last year.
Net cash provided by operating activities was $194.6 million, as compared to $162.7 million in the same period last year. Free cash flow was $181.7 million, as compared to $161.4 million in the same period last year. For the fourth quarter of 2022, payments were made in the amount of $34.7 million related to deal consideration holdbacks pertaining to acquisitions, including $32.7 million of holdbacks paid to escrow related to two acquisitions completed within the quarter, including FormSwift.
GAAP diluted net income per share attributable to common stockholders was $0.93, as compared to $0.32 in the same period last year. Non-GAAP diluted net income per share attributable to common stockholders was $0.40, as compared to $0.41 in the same period last year.⁽³⁾
Cash, cash equivalents and short-term investments ended at $1.343 billion.

Full Year Fiscal 2022 Results

Total revenue was $2.325 billion, an increase of 7.7% year over year. On a constant currency basis, year-over-year growth would have been 9.4%.⁽¹⁾
Average revenue per paying user was $134.51, as compared to $133.73 in the prior year.
GAAP gross margin was 80.9%, as compared to 79.4% in the prior year. Non-GAAP gross margin was 82.3%, as compared to 80.8% in the prior year.
GAAP operating margin was 7.8%, as compared to 12.7% in the prior year. During the fiscal year of 2022, the Company recorded impairment charges related to real estate assets of $175.2 million as a result of adverse changes in the corporate real estate market in the San Francisco Bay area, which has impacted its subleasing strategy in conjunction with its shift to Virtual First, as well as an increase in common area fees for its San Francisco headquarters. During the fiscal year of 2021, the Company recorded impairment charges related to real estate assets of $31.3 million. Non-GAAP operating margin was 30.9%, as compared to 30.0% in the prior year.
GAAP net income was $553.2 million, as compared to $335.8 million in the prior year due to a one-time income tax benefit from the release of a valuation allowance of $420.2 million on the Company's U.S. federal and certain state deferred tax assets in the fourth quarter of 2022, offset by the aforementioned impairment charge. In the fourth quarter of 2021, the Company released a valuation allowance of $38.1 million, resulting in a one-time income tax benefit on the Company's Irish deferred tax assets. Non-GAAP net income was $573.9 million, as compared to $609.3 million in the prior year.
Net cash provided by operating activities was $797.3 million as compared to $729.8 million in the prior year. Free cash flow was $763.5 million as compared to $707.7 million in the prior year. For the fiscal year of 2022, payments were made in the amount of $49.0 million related to deal consideration holdbacks pertaining to acquisitions, including $32.7 million of holdbacks paid to escrow related to two acquisitions completed in the fourth quarter of 2022, including FormSwift.
GAAP diluted net income per share attributable to common stockholders was $1.52, as compared to $0.85 in the prior year. Non-GAAP diluted net income per share attributable to common stockholders was $1.58, as compared to $1.54 in the prior year.⁽⁴⁾

⁽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 354.0 million and 386.5 million diluted weighted-average shares of common stock for the three months ended December 31, 2022 and 2021, respectively.
⁽⁴⁾Non-GAAP diluted net income per share attributable to common stockholders is calculated based upon 363.3 million and 395.8 million diluted weighted-average shares of common stock for the fiscal year ended December 31, 2022 and 2021, respectively.

FormSwift Acquisition

Dropbox completed the acquisition of FormSwift, a cloud-based service that gives individuals and businesses a simple solution to create, complete, edit and save critical business forms and agreements, on December 15, 2022 for approximately $95 million, consisting primarily of cash payments, subject to customary purchase price adjustments. Of the approximately $95 million of consideration, $25.7 million is subject to ongoing employee service. The combination of Dropbox, Dropbox Sign, DocSend and FormSwift will help customers across industries manage end-to-end document workflows—from closing deals to onboarding teams—giving them more control over their business results.

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 fourth 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 using the web link at http://investors.dropbox.com.

Other Upcoming Events

Tim Regan, Chief Financial Officer, will be presenting at the JMP Securities Technology Conference on Monday, March 6th.

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 approximately 180 countries, we're on a mission to design a more enlightened way of working. Dropbox is headquartered in San Francisco, CA, and has employees 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. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our 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, and increase our recurring revenue; (ii) our ability to attract new users or convert registered users to paying users; (iii) our expectations regarding general economic, political, and market trends and their respective impacts on our business; (iv) impacts to our financial results and business operations as a result of pricing and packaging changes to our subscription plans; (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 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; (xiii) our ability to improve quality and ease of adoption of our new and enhanced product experiences, features, and capabilities; (xiv) our ability to manage our growth or plan for future growth; (xv) our various acquisitions of businesses and the potential of such acquisitions to require significant management attention, disrupt our business, or dilute stockholder value; (xvi) our ability to attract, retain, integrate, and manage key and other highly qualified personnel, including as a result of our transition to a Virtual First model with an increasingly distributed workforce; (xvii) our capital allocation plans with respect to our stock repurchase program and other investments; and (xviii) 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 September 30, 2022. Additional information will be made available in our annual report on Form 10-K for the year ended December 31, 2022 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 December 31,						Twelve Months Ended December 31,
	2022			2021			2022		2021
Revenue	$	598.8		$	565.5		$	2,324.9	$	2,157.9
Cost of revenue⁽¹⁾		115.8			115.8			444.2		444.2
Gross profit		483.0			449.7			1,880.7		1,713.7
Operating expenses⁽¹⁾:
Research and development		238.5			201.9			891.9		755.9
Sales and marketing		105.1			108.3			409.4		427.5
General and administrative		57.3			55.3			222.9		224.6
Impairment related to real estate assets⁽²⁾		162.5			14.0			175.2		31.3
Total operating expenses		563.4			379.5			1,699.4		1,439.3
Income (loss) from operations		(80.4	)		70.2			181.3		274.4
Interest income (expense), net		3.5			(1.4	)		3.3		(5.2	)
Other income (expense), net		(1.5	)		17.0			8.1		30.1
Income (loss) before income taxes		(78.4	)		85.8			192.7		299.3
Benefit from income taxes⁽³⁾		406.7			38.8			360.5		36.5
Net income	$	328.3		$	124.6		$	553.2	$	335.8
Basic net income per share	$	0.93		$	0.33		$	1.53	$	0.87
Diluted net income per share	$	0.93		$	0.32		$	1.52	$	0.85
Weighted-average shares used in computing net income per share attributable to common stockholders, basic		352.1			380.1			361.2		388.0
Weighted-average shares used in computing net income per share attributable to common stockholders, diluted		354.0			386.5			363.3		395.8

⁽¹⁾ Includes stock-based compensation expense as follows (in millions):

	Three Months Ended December 31,				Twelve Months Ended December 31,
	2022		2021		2022		2021
Cost of revenue	$	5.9	$	5.9	$	24.7	$	23.2
Research and development		62.7		48.4		232.3		190.1
Sales and marketing		6.0		6.0		22.4		25.0
General and administrative		12.7		12.2		51.3		48.8

⁽²⁾ Includes impairment charges related to real estate assets as a result of adverse changes in the corporate real estate market in the San Francisco Bay area, which has impacted the Company's subleasing strategy in conjunction with its shift to Virtual First.
⁽³⁾ Fourth quarter and full-year 2022 benefit from income taxes include a $420.2 million one-time income tax benefit from the release of a valuation allowance on the Company's U.S. federal and certain state deferred tax assets. Fourth quarter and full-year 2021 benefit from income taxes include a $38.1 million one-time income tax benefit from the release of a valuation allowance on the Company's Irish deferred tax assets.

Dropbox, Inc.
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)

	As of December 31,
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	232.8		$	533.0
Short-term investments		1,110.6			1,185.1
Trade and other receivables, net		53.8			49.6
Prepaid expenses and other current assets		92.6			82.1
Total current assets		1,489.8			1,849.8
Property and equipment, net		308.4			322.0
Operating lease right-of-use asset		260.6			413.9
Intangible assets, net		88.3			53.6
Goodwill		403.3			356.6
Deferred tax assets		498.7			41.2
Other assets		61.0			54.2
Total assets	$	3,110.1		$	3,091.3
Liabilities and stockholders' (deficit) equity
Current liabilities:
Accounts payable	$	38.6		$	25.7
Accrued and other current liabilities		139.9			140.8
Accrued compensation and benefits		131.7			139.1
Operating lease liability		68.9			78.3
Finance lease obligation		114.8			120.4
Deferred revenue		702.6			671.5
Total current liabilities		1,196.5			1,175.8
Operating lease liability, non-current		585.2			632.0
Finance lease obligation, non-current		151.7			167.7
Convertible senior notes, net, non-current		1,374.0			1,370.3
Other non-current liabilities		112.1			39.4
Total liabilities		3,419.5			3,385.2
Stockholders' deficit:
Additional paid-in-capital		2,511.6			2,448.1
Accumulated deficit		(2,772.1	)		(2,739.4	)
Accumulated other comprehensive loss		(48.9	)		(2.6	)
Total stockholders' deficit		(309.4	)		(293.9	)
Total liabilities and stockholders' deficit	$	3,110.1		$	3,091.3

Dropbox, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)

	Three Months Ended December 31,						Twelve Months Ended December 31,
	2022			2021			2022			2021
Cash flows from operating activities
Net income	$	328.3		$	124.6		$	553.2		$	335.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		39.6			41.1			157.1			151.4
Stock-based compensation		87.3			72.5			330.7			287.1
Impairment related to real estate assets		162.5			14.0			175.2			31.3
Amortization of debt issuance costs		1.1			1.0			4.2			3.8
Net gains on equity investments		—			—			(5.0	)		—
Amortization of deferred commissions		10.6			8.7			39.5			32.3
Net gains on lease termination		—			(13.6	)		—			(13.6	)
Non-cash operating lease expense		14.8			11.6			39.4			60.3
Deferred taxes		(414.8	)		(37.4	)		(396.3	)		(37.5	)
Other		(8.3	)		1.1			(0.8	)		(4.4	)
Changes in operating assets and liabilities:
Trade and other receivables, net		(2.9	)		(8.8	)		(5.5	)		(6.2	)
Prepaid expenses and other current assets		(26.4	)		(10.6	)		(50.0	)		(58.4	)
Other assets		(12.8	)		10.2			14.7			27.7
Accounts payable		2.7			2.9			13.0			7.6
Accrued and other current liabilities		2.3			(34.6	)		4.7			(28.6	)
Accrued compensation and benefits		29.1			30.3			(6.8	)		23.5
Deferred revenue		(0.5	)		3.2			25.6			59.8
Other non-current liabilities		(4.7	)		(0.8	)		(17.9	)		(13.1	)
Operating lease liabilities		(13.8	)		(23.0	)		(86.4	)		(102.1	)
Tenant improvement allowance reimbursement		0.5			2.3			8.7			5.1
Cash paid for lease termination		—			(32.0	)		—			(32.0	)
Net cash provided by operating activities		194.6			162.7			797.3			729.8
Cash flows from investing activities
Capital expenditures		(12.9	)		(1.3	)		(33.8	)		(22.1	)
Purchase of intangible assets		—			—			(1.1	)		(6.8	)
Business combinations, net of cash acquired		(75.4	)		(14.7	)		(75.4	)		(140.0	)
Purchases of short-term investments		(131.3	)		(77.8	)		(571.2	)		(1,138.4	)
Proceeds from sales of short-term investments		59.5			23.3			213.7			293.6
Proceeds from maturities of short-term investments		49.3			100.8			389.1			448.7
Proceeds from sales of equity investments		—			—			10.6			—
Other		5.7			5.0			19.6			40.2
Net cash provided by (used in) investing activities		(105.1	)		35.3			(48.5	)		(524.8	)
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		(28.4	)		(26.6	)		(119.4	)		(124.8	)
Proceeds from issuance of common stock, net of taxes withheld		0.1			0.3			0.5			6.9
Principal payments on finance lease obligations		(31.5	)		(31.2	)		(127.5	)		(110.4	)
Common stock repurchases		(174.3	)		(294.8	)		(795.4	)		(1,058.5	)
Net cash provided by (used in) financing activities		(234.1	)		(352.3	)		(1,041.8	)		16.2
Effect of exchange rate changes on cash and cash equivalents		5.4			(1.6	)		(7.2	)		(3.1	)
Change in cash and cash equivalents		(139.2	)		(155.9	)		(300.2	)		218.1
Cash and cash equivalents - beginning of period		372.0			688.9			533.0			314.9
Cash and cash equivalents - end of period	$	232.8		$	533.0		$	232.8		$	533.0

Supplemental cash flow data:
Property and equipment acquired under finance leases	$	53.4		$	16.2		$	105.8		$	127.3

Dropbox, Inc.
Three Months Ended December 31, 2022
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⁽¹⁾			Non-GAAP
Cost of revenue	$	115.8		$	(5.9	)	$	—		$	(2.4	)	$	—		$	107.5
Cost of revenue margin		19.3	%		(1.0	%)		—	%		(0.4	%)		—	%		18.0	%
Gross profit		483.0			5.9			—			2.4			—			491.3
Gross margin		80.7	%		1.0	%		—	%		0.4	%		—	%		82.0	%
Research and development		238.5			(62.7	)		(2.2	)		—			—			173.6
Research and development margin		39.8	%		(10.6	%)		(0.4	%)		—	%		—	%		29.0	%
Sales and marketing		105.1			(6.0	)		(1.7	)		(1.6	)		—			95.8
Sales and marketing margin		17.6	%		(1.0	%)		(0.3	%)		(0.3	%)		—	%		16.0	%
General and administrative		57.3			(12.7	)		(1.8	)		—			—			42.8
General and administrative margin		9.6	%		(2.1	%)		(0.3	%)		—	%		—	%		7.1	%
Impairment related to real estate assets		162.5			—			—			—			(162.5	)		—
Impairment related to real estate assets margin		27.1	%		—	%		—	%		—	%		(27.1	%)		—	%
Income from operations	$	(80.4	)	$	87.3		$	5.7		$	4.0		$	162.5		$	179.1
Operating margin		(13.4	%)		14.4	%		1.0	%		0.7	%		27.1	%		29.9	%

⁽¹⁾Includes impairment charges related to real estate assets as a result of adverse changes in the corporate real estate market in the San Francisco Bay area, which has impacted the Company's subleasing strategy in conjunction with its shift to Virtual First.

Dropbox, Inc.
Three Months Ended December 31, 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⁽¹⁾			Non-GAAP
Cost of revenue	$	115.8		$	(5.9	)	$	—		$	(1.8	)	$	—		$	108.1
Cost of revenue margin		20.5	%		(1.0	%)		—	%		(0.3	%)		—	%		19.1	%
Gross profit		449.7			5.9			—			1.8			—			457.4
Gross margin		79.5	%		1.0	%		—	%		0.3	%		—	%		80.9	%
Research and development		201.9			(48.4	)		(5.3	)		—			—			148.2
Research and development margin		35.7	%		(8.6	%)		(0.9	%)		—	%		—	%		26.2	%
Sales and marketing		108.3			(6.0	)		(1.7	)		(1.9	)		—			98.7
Sales and marketing margin		19.2	%		(1.1	%)		(0.3	) %		(0.3	%)		—	%		17.5	%
General and administrative		55.3			(12.2	)		(0.6	)		—			—			42.5
General and administrative margin		9.8	%		(2.2	%)		(0.1	%)		—	%		—	%		7.5	%
Impairment related to real estate assets		14.0			—			—			—			(14.0	)		—
Impairment related to real estate assets margin		2.5	%		—	%		—	%		—	%		(2.5	%)		—	%
Income from operations	$	70.2		$	72.5		$	7.6		$	3.7		$	14.0		$	168.0
Operating margin		12.4	%		12.8	%		1.3	%		0.7	%		2.5	%		29.7	%

Contacts

Investors:
Kern Kapoor
ir@dropbox.com
or
Media:
Alissa Stewart
press@dropbox.com

Read full story here

First published on Fri, Feb 17, 2023

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Dropbox Announces Fourth Quarter and Fiscal 2022 Results

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