Dropbox: Fiscal 2Q23 Financial Results

(in $ million)	2Q22	2Q23	6 mo. 22	6 mo. 23
Revenue	572.7	622.5	1,135	1,233
*Growth*		9%		9%
Net income (loss)	62.0	43.2	141.7	112.2

Dropbox, Inc. announced financial results for its second quarter ended June 30, 2023.

“In 2Q, we delivered a solid quarter beating our guidance across all metrics, and introduced exciting AI-powered product experiences to our customers, including Dropbox Dash and Dropbox AI,” said co-founder and CEO Drew Houston. “As we navigate this period of economic uncertainty, we remain focused on improving the product experience within core Dropbox and creating more value across workflows and AI driven capabilities.”

2FQ23 Results
• Total revenue was $622.5 million, an increase of 8.7% from 2FQ22. On a constant currency basis, Y/Y growth would have been 11.2%.
• Total ARR ended at $2.500 billion, an increase of 7.2% from 2FQ22. On a constant currency basis, total ARR grew $32.6 million Q/Q, and Y/Y growth would have been 10.9%.
• Paying users ended at 18.04 million, as compared to 17.37 million for 2FQ22. Average revenue per paying user was $138.94, as compared to $133.34 for 2FQ22.
• GAAP gross margin was 80.7%, as compared to 81.5% for 2FQ22. Non-GAAP gross margin was 82.7%, as compared to 83.0% for 2FQ22.
• GAAP operating margin was 9.1%, as compared to 14.5% for 2FQ22, with such change partially due to $37.5 million in expenses related to the company’s reduction in workforce, such as severance, benefits and other related items, which were incurred in 2FQ23. Non-GAAP operating margin was 34.2%, as compared to 31.9% for 2FQ22.
• GAAP net income was $43.2 million, as compared to $62.0 million for 2FQ22 due to expenses related to the reduction in workforce in 2FQ22, such as severance, benefits and other related items. Non-GAAP net income was $174.0 million, as compared to $138.1 million for 2FQ22.
• Net cash provided by operating activities was $187.6 million, as compared to $209.9 million for 2FQ22. Free cash flow was $184.6 million, as compared to $205.9 million for 2FQ22. Cash flows in the second quarter of 2023 included $34.0 million of expenditures relating to the reduction in workforce.
• GAAP diluted net income per share attributable to common stockholders was $0.13, as compared to $0.17 in 2FQ22. Non-GAAP diluted net income per share attributable to common stockholders was $0.51, as compared to $0.38 in 2FQ22.
• Cash, cash equivalents and short-term investments ended at $1.228 billion.

Share Repurchase Authorization
On July 26, 2023, the board of directors authorized the company to repurchase an additional $1.2 billion of its Class A common stock. Repurchases will be made from time-to-time, subject to general business and market conditions, other investment opportunities and applicable legal requirements. Repurchases may be made through open market purchases or in privately negotiated transactions, including through Rule 10b5-1 plans.

GAAP and Non-GAAP diluted net income per share attributable to common stockholders is calculated based upon 343.8 million and 365.7 million diluted weighted-average shares of common stock for the three months ended June 30, 2023 and 2022, respectively.

Comments

Total revenue in 2FQ23 increased 8.7% Y/Y to $622 million, beating guidance range of $612 million to $615 million.

The upside to revenue guidance was driven by outperformance from FormSwift as well as the improvement saw across individuals plan.

Total ARR for the quarter grew 7.2% Y/Y for a total of $2.5 billion. ARR grew $33 million sequentially, driven by the retention improvements within Individuals plans.

Dropbox exited the quarter with 18 million paying users and added approximately 140,000 net new paying users sequentially, a modest improvement from 1FQ23, driven by some improvement in Individuals churn as compared to the trend in prior quarters, as well as an uptick in professional users from firm's more targeted top-of-funnel efforts.

Average revenue per paying user for 2FQ23 was $138.94, which is flat compared to 1FQ23 as the benefit the company saw from its pricing initiatives was largely offset by FX headwinds and the continued adoption of Family plan. ARPU increased by over $5 year-over-year, driven by the Teams pricing increase, FormSwift, and a shift to premium plans.

The company had a solid quarter, once again beating guidance across all metrics, led by revenue outperformance in FormSwift and some recovery within our Individuals SKUs as the progress it saw in late 1FQ23 continued into 2FQ23. However, it are still navigating a difficult macroenvironment that continues to impact Teams customers and pressures growth in DocSend and Sign businesses.

For 3Q23, revenue is expected to be in the range of $626 million to $629 million.

For FY23, Dropbox is raising the midpoint of its as-reported revenue guidance up by $14.5 million to $2.487 billion to $2.497 billion from its previous range of $2.470 billion to $2.485 billion.

It expects gross margin to be approximately 82%, up from prior guidance of 81.5% to 82%.

It expects non-GAAP operating margin to be approximately 32%, up from prior guidance of 31% to 32%. This is inclusive of an approximately 100 basis point headwind from FX and FormSwift.

It is maintaining free cash flow guidance of $820 million to $840 million.