Dropbox: Fiscal 2Q18 Financial Results

Dropbox, Inc. announced financial results for its second fiscal quarter ended June 30, 2018.

“We delivered another solid quarter of revenue growth in Q2, reflecting the strength of our unique business model,” said co-founder and CEO Drew Houston. “We added over a dozen new product features to our user and admin experiences, and strengthened our infrastructure, all while driving a 30% free cash flow margin. With our massive scale and continued product innovation, we’re well on our way to advancing our mission of designing a more enlightened way of working.”

Second Quarter Fiscal 2018 Results
• Total revenue was $339.2 million, an increase of 27% from the same period last year.
• Paying users totaled 11.9 million, as compared to 9.9 million for the same period last year. Average revenue per paying user was $116.66, as compared to $111.19 for the same period last year.
• GAAP gross margin was 73.6%, as compared to 65.4% in the same period last year. Non-GAAP gross margin was 74.5%, as compared to 66.7% in the same period last year.
• GAAP operating margin was (2.1%), as compared to (10.0%) in the same period last year. Non-GAAP operating margin was 14.1%, as compared to 8.0% in the same period last year.
• GAAP net loss was ($4.1) million, as compared to ($26.8) million in the same period last year. Non-GAAP net income was $48.0 million, as compared to $20.0 million in the same period last year.
• Net cash provided by operating activities was $111.9 million, as compared to $86.1 million in the same period last year. Free cash flow was $102.2 million, as compared to $82.4 million in the same period last year.
• GAAP basic and diluted net loss per share was ($0.01), as compared to ($0.14) in the same period last year. Non-GAAP diluted net income per share was $0.11, as compared to $0.06 in the same period last year.(1)
• Cash, cash equivalents and short-term investments were $981.8 million at the end of the second quarter of 2018.

(1) Non-GAAP diluted net income per share is calculated based upon 423.1 million and 346.9 million diluted weighted-average shares of common stock for the three months ended June 30, 2018 and 2017, respectively.

COO Transition
The company also announced that Dennis Woodside is stepping down as COO. He’ll remain at the company until early September and serve as an advisor through the end of the year.

During his time at Dropbox, he helped build a leadership bench, and Dropbox announced the promotion of two of these senior leaders. They’ll join the executive team, which will be restructured to take on Woodside’ responsibilities and drive greater focus on our customers and partners. As a result, the company does not plan to hire another COO.

• Yamini Rangan, currently VP of business strategy and operations, will become chief customer officer reporting to CEO Drew Houston. In this new role, she’ll be responsible for customer-focused business functions, including global sales, marketing, customer experience, business development, and business strategy and operations. She joined Dropbox in 2016 and has 20 years of leadership experience across sales, marketing, and operations. Most recently, she led global sales strategy and operations at Workday, and prior to that, she held senior positions at Appirio and SAP.

• Lin-Hua Wu, VP of communications, will also report to CEO Drew Houston. She joined Dropbox in 2016 and oversees external and internal communications, and analyst relations. Her role will help ensure the company has the right market context informing its decisions, and that its communications are aligned with business strategy. She brings more than two decades of experience to Dropbox, coming most recently from Square, where she led corporate communications, and Brunswick Group, where she was a partner.

“I’ve had an amazing four years at Dropbox, and am proud of what we’ve accomplished together. It’s been an honor to work with such exceptionally talented people and help grow and scale our business,” said Woodside. “I couldn’t be happier for Yamini and Lin on their promotions, and am confident that the new executive team will take the company to even greater heights.”

“We’re grateful for everything Dennis has done for us,” said Houston. “He’s helped transform Dropbox into a publicly-traded company with over $1 billion in annual revenue and 12 offices around the world. Dennis will always be part of the Dropbox family, and we wish him all the best.”

Other Upcoming Events
• Dropbox to Present at KeyBanc Capital Markets 20th Annual Technology Leadership Forum: Ajay Vashee, CFO, will be presenting at the KeyBanc Capital Markets 20th Annual Technology Leadership Forum in Vail, CO, on Monday, August 13, 2018.
• Dropbox Lock-up Expiration: In connection with company’s IPO of Class A common stock , all executive officers, directors and holders of firm’s capital stock and securities convertible into or exchangeable for our capital stock as of the IPO entered into market standoff agreements with the company or entered into lock-up agreements with the underwriters that restrict their ability to sell or transfer their shares. The lock-up period is scheduled to end on September 18, 2018, which falls within our quarterly blackout period that commences at the close of trading on September 7, 2018. Therefore, in accordance with the lock-up agreements with the underwriters, the restricted period will end at the close of market on August 23, 2018, which is ten trading days prior to the commencement of our quarterly blackout period. We will also release our market standoff agreements when the restricted period expires.