Dropbox: Fiscal 1Q18 Financial Results

Dropbox, Inc. announced financial results for its first fiscal quarter ended March 31, 2018.

“2018 has already been a banner year for Dropbox, and we’re proud of our strong first quarter as a public company,” said co-founder and CEO Drew Houston. “Growth in paying users and increased adoption of premium plans helped drive first quarter revenue of $316 million, up 28% year-over-year. We continued to add value to our platform with new product features, and enhanced our ecosystem through partnerships with Salesforce and Google. Our team is focused on building a great business for the long-term, and we’re excited for the opportunities ahead of us.”

First Quarter Fiscal 2018 Results
• Total revenue was $316.3 million, an increase of 28% from the same period last year.
• Paying users totaled 11.5 million, as compared to 9.3 million for the same period last year. Average revenue per paying user was $114.30, as compared to $110.79 for the same period last year.
• GAAP gross margin was 61.9%, as compared to 62.3% in the same period last year. Non-GAAP gross margin was 74.2%, as compared to 63.5% in the same period last year.
• GAAP operating margin was (147.3%), as compared to (13.5%) in the same period last year. Non-GAAP operating margin was 10.9%, as compared to 2.2% in the same period last year.
• GAAP net loss was ($465.5) million, as compared to ($33.1) million in the same period last year. Non-GAAP net income was $30.9 million, as compared to $5.2 million in the same period last year.
• GAAP operating margin and net loss for the first quarter of 2018 included a $418.7 million stock-based compensation charge due to the achievement of the liquidity event-related performance condition in connection with IPO for two-tier restricted stock units that met their service-based vesting condition as of the end of the first quarter of 2018, and a $13.9 million employer payroll tax charge related to these restricted stock units.
• Net cash provided by operating activities was $61.8 million, as compared to $61.6 million in the same period last year. Free cash flow was $51.9 million, as compared to $56.5 million in the same period last year.
• GAAP basic and diluted net loss per share was ($2.13), compared to ($0.17) in the same period last year. Non-GAAP diluted net income per share was $0.08, compared to $0.02 in the same period last year. (1)
• Cash, cash equivalents and short-term investments were $846.0 million at the end of the first quarter of 2018.

(1) Non-GAAP diluted net income per share is calculated based upon 373.1 million and 342.3 million diluted weighted-average shares of common stock for the three months ended March 31, 2018 and 2017, respectively.

Initial Public Offering and Private Placement
On March 27, 2018, the company completed an IPO and a concurrent private placement where 40,761,905 shares of Class A common stock were sold at $21 per share, including 26,822,409 shares by the company and 9,177,591 shares by selling stockholders in the IPO, and 4,761,905 shares by the company in a private placement to Salesforce Ventures LLC. The underwriters of the IPO exercised in full their option to purchase an additional 5,400,000 shares of Class A common stock at $21 per share, which closed on April 3, 2018. As a result of this IPO and the concurrent private placement, the firm received total gross proceeds of $776.7 million, before deducting underwriting fees and estimated offering expenses. The proceeds from the exercise of the underwriters’ option, net of underwriting fees totaled $108.4 million and are not reflected in the ending cash, cash equivalents, and short-term investment balance at the end of the first quarter of 2018 as the transaction closed in April.

Stock-Based Compensation and Employer Payroll Tax Expense
Related to Restricted Stock Units
The company historically granted two-tier restricted stock units (RSUs) to employees, with its last two-tier award grant occurring in 2015. These awards have both a service-based vesting condition and a liquidity event-related performance condition. The stock-based compensation expense related to these awards was previously unrecognized as the satisfaction of the performance condition was not deemed probable. The liquidity event-related performance condition was satisfied upon the IPO. As a result, the firm recognized $418.7 million in stock-based compensation expense related to two-tier RSUs for which the service-based vesting condition had been met as of the end of the first quarter of 2018. It expects to record additional stock-based compensation of $2.6 million relating to two-tier RSUs throughout the remainder of 2018 as their respective service-based vesting conditions are met. During the quarter, it also released 26.8 million shares of common stock underlying the vested two-tier RSUs, and as a result recorded $13.9 million in employer related payroll tax expenses associated with these same awards.