Financial Data and Key Metrics Changes - Total revenue in Q2 increased 8.7% year-over-year to $622 million, beating guidance of $612 million to $615 million [76] - Operating margin was approximately 34%, up roughly 200 basis points year-over-year, exceeding guidance by over 250 basis points [79] - Net income for Q2 was $174 million, up 26% versus the second quarter of 2022, with diluted EPS at $0.51 per share [80] Business Line Data and Key Metrics Changes - Total ARR for the quarter grew 7.2% year-over-year to $2.5 billion, with constant currency ARR growth at 10.9% [44] - Average revenue per paying user (ARPU) for Q2 was $138.94, flat compared to Q1 2023, but up over $5 year-over-year [45] - FormSwift outperformed expectations for the second consecutive quarter, driven by improved retention and increased account creation [73] Market Data and Key Metrics Changes - The company exited the quarter with 18 million paying users, adding approximately 140,000 net new paying users sequentially [77] - The macro environment remains challenging, particularly impacting Teams customers, while individual plans showed some improvement in retention [124][142] Company Strategy and Development Direction - The company is focused on building AI-powered product experiences, with initiatives like Dropbox Dash aimed at improving knowledge work [22][30] - There is a commitment to evolving the existing Dropbox file sync and share user experience to better address customer workflows around documents and videos [35] - The company plans to invest in AI talent and early-stage product development, leveraging savings from recent workforce reductions [126] Management's Comments on Operating Environment and Future Outlook - Management acknowledged significant headwinds from macroeconomic factors but remains focused on achieving long-term targets, including $1 billion in annual free cash flow by 2024 [10][54] - The company is maintaining its free cash flow guidance of $820 million to $840 million, despite raising revenue and operating margin guidance [85] - Management expressed optimism about the early engagement with new AI features and the potential for improved customer productivity [66] Other Important Information - The company has authorized an additional $1.2 billion share repurchase program, bringing total capacity to approximately $1.6 billion [86] - Cash flow from operations was $188 million in Q2, down from $210 million in the same quarter of 2022, primarily due to severance payments [48] Q&A Session Summary Question: Can you elaborate on the strategy around Dash and its use cases? - Management highlighted Dash as an AI-powered universal search product that connects various cloud tools, addressing the common pain point of scattered information across multiple platforms [63][115] Question: What is the monetization strategy for generative AI features? - The company plans to offer a portfolio of AI applications, with some features available only in higher-tier plans and others as explicit add-ons [94][121] Question: How is the company addressing churn and retention? - Management noted improvements in churn rates for individual plans due to product enhancements and better user experience, while Teams customers continue to face challenges [68][142]

Shared team workspace Data governance and audit logs Advanced security alerts & notifications Non-GAAP reconciliation Twelve Months Ended Note: % are rounded for presentation purposes Note: % are rounded for presentation purposes *Vault is only available in Plus, Family, and Professional. Size of Dropbox Transfer varies based on Dropbox plan: Basic (100MB), Plus, Family, & Standard (2GB), Professional, Advanced, and Enterprise (100GB). Professional, Advanced, and Enterprise plans also receive advanced Trans ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________to________ Commission File Number 001-38434 Dropbox, Inc. (Exact name of Registrant as specified in its charter) Indicate by check mark whether the regi ...

Summary of Dropbox, Inc. Conference Call Company Overview - **Company**: Dropbox, Inc. (NASDAQ: DBX) - **Annual Conference**: 51st Annual J.P. Morgan Global Technology, Media and Communications Conference - **Date**: May 22, 2023 - **Key Metrics**: - Annual Recurring Revenue (ARR): $2.5 billion - Registered Users: 700 million - Content Stored: Over 800 billion pieces [3][5][29] Core Business and Strategy - **Business Model**: Primarily focused on file sync and share, which remains the majority of revenue but is diversifying into other areas [5][9] - **Recent Acquisitions**: - **HelloSign** (2019): Rebranded to Dropbox Sign, an e-signature product [5] - **DocSend** (2021): A secure sharing and analytics platform [6] - **FormSwift** (Q4 2022): A templates company that offers a library of forms [6][41] - **Product Development**: Introduction of new products like Capture (screen sharing and video creation) and Replay (video editing tool) [7] Market Conditions and Performance - **Macro Environment**: Consistent with previous quarters, with heightened price sensitivity noted among team users, particularly in tech companies experiencing layoffs [9][10] - **User Trends**: - Individual sign-ups improved year-over-year due to enhancements in onboarding processes [10][14] - E-signature demand has decreased post-pandemic [11] - **ARR Growth**: Grew approximately 12% in constant currency in Q1, attributed to pricing changes and acquisitions [12][15] Financial Metrics - **Paid User Growth**: 120,000 new paid users in Q1, down from previous years' higher numbers [37] - **Cost Management**: Implemented a 16% reduction in workforce to improve efficiency and redirect resources towards AI and cloud organization initiatives [20][23] - **Pricing Strategy**: A 20% price increase on team plans was implemented in June 2022, which initially performed well but faced challenges due to economic conditions [55][56] AI and Future Initiatives - **AI Development**: Working on an AI-driven search product to enhance user experience by organizing cloud content and providing personalized search capabilities [25][26][32] - **Customer Trust**: Emphasizes the importance of customer trust and data privacy as a competitive advantage [34][36] - **Future Monetization**: Plans to potentially offer AI features as a standalone product while focusing on customer adoption first [30][32] Conclusion - **Strategic Focus**: Dropbox is positioning itself to leverage its existing user base and content while expanding its product offerings through acquisitions and new developments, particularly in AI and cloud organization [23][35] - **Growth Potential**: The company aims to enhance customer awareness of its diverse product suite to drive future growth in both paid users and ARR [52][53]

User Base and Revenue - Dropbox serves over 700 million registered users across approximately 180 countries[202] - The company has 17.90 million paying users as of March 31, 2023[203][232] - Total Annual Recurring Revenue (ARR) reached $2.468 billion as of March 31, 2023, up from $2.290 billion in March 2022[226] - Average Revenue Per User (ARPU) increased to $138.97 for Q1 2023, compared to $134.63 in Q1 2022[237] - Revenue grew by 8.7% to $611.1 million in Q1 2023, driven by an increase in paying users, the acquisition of FormSwift, and repricing of Dropbox plans[265] - Revenue is primarily generated from subscriptions to the platform, with 17.90 million paying users as of March 31, 2023, up from 8.81 million in December 2016[367] - Dropbox has paying users across approximately 180 countries, with approximately half of its revenue in 2022 generated from users outside the United States[369] Financial Performance - Free cash flow (FCF) increased to $138.0 million in Q1 2023, up from $130.7 million in Q1 2022, primarily due to a decrease in capital expenditures[242] - Gross profit increased by 10.0% to $494.3 million in Q1 2023, with gross margin improving to 81% from 80% in Q1 2022[266] - Net income decreased to $69.0 million in Q1 2023, down from $79.7 million in Q1 2022, primarily due to higher operating expenses and a provision for income taxes[261] - The company generated net income of $553.2 million and $335.8 million during the years ended December 31, 2022 and 2021, respectively[401] - The company had an accumulated deficit of $2,772.1 million as of March 31, 2023[401] - The company's revenue growth rate has declined and may continue to slow due to factors such as increased competition and slowing demand for its platform[400] Expenses and Costs - Cost of revenue rose by 3.5% to $116.8 million in Q1 2023, primarily due to increases in credit card fees, employee-related costs, and amortization of intangible assets[266] - Research and development expenses increased to $235.2 million in Q1 2023, up from $210.8 million in Q1 2022, driven by employee-related costs and stock-based compensation[261] - Sales and marketing expenses grew to $119.2 million in Q1 2023, compared to $95.7 million in Q1 2022, reflecting increased investment in user growth and brand awareness[261] - Research and development expenses increased by $24.4 million (11.6%) in Q1 2023 compared to Q1 2022, driven by $16.0 million in employee-related costs, $5.4 million in software licenses, and $3.0 million in overhead, partially offset by a $6.7 million reversal of stock-based compensation[268] - Sales and marketing expenses rose by $23.5 million (24.6%) in Q1 2023, primarily due to $15.3 million in advertising, $4.8 million in employee costs, $2.2 million in intangible asset amortization, and $1.0 million in app store fees[270] - General and administrative expenses increased by $2.3 million (4.3%) in Q1 2023, mainly from $4.8 million in employee costs, offset by a $3.9 million decrease in non-income taxes[271] - The company's research and development expenses may increase as it plans to hire more employees for engineering, product, and design teams[401] Cash Flow and Investments - The company had $332.7 million in cash and cash equivalents and $920.4 million in short-term investments as of March 31, 2023[275] - The company repurchased 8.1 million shares of Class A common stock for $176.5 million in Q1 2023, including a 1% excise tax under the Inflation Reduction Act[278] - Net cash provided by operating activities was $139.9 million in Q1 2023, driven by $69.0 million in net income, $76.0 million in stock-based compensation, and $42.5 million in depreciation and amortization[288] - Net cash provided by investing activities was $200.8 million in Q1 2023, primarily from $199.4 million in net investment inflows[291] - Net cash used in financing activities was $241.3 million in Q1 2023, including $175.4 million for share repurchases and $34.1 million for tax withholding on stock awards[293] - Cash and cash equivalents of $332.7 million and short-term investments of $920.4 million as of March 31, 2023[297] - A hypothetical 100 basis points increase in interest rates would reduce the market value of the investment portfolio by $13.0 million[299] Acquisitions and Strategic Moves - Dropbox acquired FormSwift in Q4 2022, contributing to ARR growth[224] - The company repackaged and increased prices for Dropbox Standard and Advanced plans, leading to higher ARR[224] - Dropbox acquired key assets from Boxcryptor in Q4 2022 to enhance data protection for paid customers and acquired FormSwift, a cloud-based service for business forms[381] - Dropbox's acquisitions may require significant management attention, incur debt, or dilute stockholder value, with potential integration challenges[382][386] Workforce and Operational Changes - Dropbox announced a 16% reduction in its global workforce on April 27, 2023, to streamline operations[220] - The company shifted to a Virtual First work model, resulting in cost savings in facilities and depreciation expenses[219] - The company operates under a Virtual First work model, which may impact productivity, employee retention, and operational efficiency[361][362] - The company recorded impairment charges related to unused office space due to the shift to a Virtual First model, impacting GAAP profitability[363] - The company's shift to a Virtual First work model may result in additional impairment charges or unanticipated expenses related to subleasing facilities[401] Market Competition and Risks - Pricing strategies are sensitive to competition, with some competitors offering lower-priced or free alternatives, potentially forcing the company to engage in price-cutting initiatives[335] - The company operates in a highly competitive market, facing competition from major players like Microsoft, Google, and Adobe, as well as smaller private companies offering point solutions[333] - The company faces risks from rapid technological changes and competition, requiring significant investments in AI-driven products and new features[349][351] - The content collaboration market is subject to rapidly changing user preferences, which could negatively impact demand for the platform[348] - The company may face challenges in scaling its business due to a limited outbound sales force, with over 90% of revenue generated from self-serve channels[365] - Sales to large organizations could lengthen sales cycles and increase deployment challenges, potentially impacting revenue growth[366] Cybersecurity and Data Protection - Unauthorized access to data or user content could result in significant liabilities, regulatory investigations, and reputational damage, potentially reducing revenue and increasing user acquisition costs[323] - The company faces ongoing and evolving cybersecurity threats, including malware, ransomware, and phishing attacks, which could compromise user data and harm its market position[325] - The company relies on third-party vendors and contractors for infrastructure, increasing exposure to security risks outside its direct control[327] - The company faces risks from third-party developers and partners who may fail to adopt adequate data security practices, potentially leading to unauthorized access to user data[328] International Operations and Compliance - Dropbox faces risks in international expansion, including compliance with laws, data protection, cybersecurity, and geopolitical conflicts[371][372] - Dropbox's international operations are subject to higher costs, including accounting, travel, infrastructure, and legal compliance[371] - 27% of sales were denominated in currencies other than U.S. dollars for the three months ended March 31, 2023[302] - Net foreign currency transaction gains of $0.8 million for the three months ended March 31, 2023[303] Legal and Regulatory Risks - A jury trial for a patent infringement case is scheduled for May 2023[312] - Dropbox's use of open source software may expose it to legal risks, including potential litigation and compliance with unfavorable licensing conditions[379] - The company's platform depends on interoperability with third-party devices, operating systems, and applications, which it does not control, posing risks to compatibility and functionality[339] - Service disruptions or loss of content on the platform could harm the company's brand, reputation, and ability to retain users[342] - Infrastructure capacity planning is critical, with overestimation leading to excess costs and underestimation risking service failures, compounded by global supply chain challenges[344] Debt and Financial Obligations - The company had an aggregate of $1,157.6 million in commitments to settle contractual obligations as of December 31, 2022[394] - The company may face challenges in servicing its 2026 Notes and 2028 Notes, which could require significant cash flow or alternative financing strategies[402] - The company's ability to refinance its indebtedness depends on capital market conditions and its financial condition at the time[402] - The company's leasing and credit obligations, if defaulted, could lead to operational interruptions and adverse effects on its financial condition[394][398] - The company's financial covenants include maintaining a consolidated leverage ratio incurrence covenant and a minimum liquidity balance[392] Product Development and Innovation - Dropbox launched new products in 2022, including Dropbox Replay for video workflows and Dropbox Capture for screen recordings and visual presentations[352] - Dropbox receives over 75 billion API calls per month and has nearly 1,000,000 developers registered on its platform as of December 31, 2022[377] - Dropbox's platform complexity may lead to defects or errors, potentially harming its reputation and financial condition[380] Economic and Geopolitical Risks - Economic downturns, inflation, and geopolitical issues could reduce discretionary spending by users, impacting the company's revenue and growth[330] - Dropbox relies on third-party datacenters, including Amazon Web Services, and any disruptions could harm user experience and increase costs[373][374]

Dropbox, Inc. (NASDAQ:DBX) Q1 2023 Earnings Conference Call May 4, 2023 5:00 PM ET Company Participants Karan Kapoor - Head of IR Drew Houston - Co Founder and CEO Tim Regan - CFO Conference Call Participants Richard Poland - RBC Capital Markets Mark Murphy - JPMorgan Steve Enders - Citi Matt Bullock - Bank of America Operator Good afternoon, ladies and gentlemen, and thank you for joining Drug Box's First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is ...

Dropbox, Inc. (NASDAQ:DBX) The JMP Securities Technology Conference 2023 March 6, 2023 5:00 PM ET Company Representatives Tim Regan - Chief Financial Officer Conference Call Participants Joey Marincek - JMP Securities Joey Marincek …Software here at JMP. Really excited to have Dropbox present today. With me is CFO, Tim Regan, and we're really excited. How are you doing today, Tim? Tim Regan I'm doing all right, Joey. Thanks for having us. Question-and-Answer Session Q - Joey Marincek So we have a number of ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________to________ Dropbox, Inc. 1800 Owens Street San Francisco, California 94158 (Address of principal executive offices, including zip code) (4 ...

Dropbox, Inc. (NASDAQ:DBX) Q4 2022 Earnings Conference Call February 16, 2023 5:00 PM ET Company Participants Karan Kapoor - Head of Investor Relations Drew Houston - Co Founder and Chief Executive Officer Tim Regan - Chief Financial Officer Conference Call Participants Rishi Jaluria - RBC Capital Markets Michael Funk - Bank of America Steve Enders - Citigroup Joey Marincek - JMP Securities Luv Sodha - Jefferies Operator Good afternoon, ladies and gentlemen. Thank you for joining Dropbox' Fourth Quarter 20 ...

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q) This section provides the official filing details for Dropbox, Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 2022 [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides the official filing details for Dropbox, Inc.'s Quarterly Report on Form 10-Q for the period ended September 30, 2022, including its incorporation state, principal executive offices, and stock exchange listing - Dropbox, Inc. is a Delaware corporation, headquartered in San Francisco, California, and its Class A Common Stock is registered on **The NASDAQ Stock Market LLC (Nasdaq Global Select Market)**[2](index=2&type=chunk) Registrant Information Table | Indicator | Value | | :--- | :--- | | Filing Type | Quarterly Report (10-Q) | | Period Ended | September 30, 2022 | | Commission File Number | 001-38434 | | Registrant | Dropbox, Inc. | | State of Incorporation | Delaware | | Principal Executive Offices | 1800 Owens Street, San Francisco, California 94158 | | Trading Symbol | DBX | | Exchange | The NASDAQ Stock Market LLC | | Large Accelerated Filer | Yes | | Shell Company | No | [Outstanding Shares](index=1&type=section&id=Outstanding%20Shares) As of October 31, 2022, Dropbox, Inc. had 280.4 million shares of Class A common stock and 82.3 million shares of Class B common stock outstanding, with no Class C common stock Outstanding Shares Summary | Stock Class | Shares Outstanding (as of Oct 31, 2022) | | :--- | :--- | | Class A Common Stock | 280,411,760 | | Class B Common Stock | 82,324,618 | | Class C Common Stock | 0 | - Class A common stock outstanding includes shares subject to restricted stock awards granted to co-founders and other executives, vesting upon service conditions and stock price goals[3](index=3&type=chunk) [Forward-Looking Statements](index=2&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines the nature and key areas of forward-looking statements, emphasizing inherent risks and uncertainties [Nature of Forward-Looking Statements](index=2&type=section&id=Nature%20of%20Forward-Looking%20Statements) This section clarifies that the report contains forward-looking statements regarding future events and financial performance, which are subject to substantial risks and uncertainties. Investors are cautioned not to rely on these statements as predictions of future events - Forward-looking statements relate to future events or financial/operating performance and are identifiable by words like 'may,' 'will,' 'expects,' 'plans,' 'anticipates,' 'believes,' 'estimates,' 'predicts,' or 'potential'[5](index=5&type=chunk) - The outcome of these statements is subject to risks, uncertainties, and other factors detailed in the 'Risk Factors' section, and actual results could differ materially[8](index=8&type=chunk) [Key Areas of Forward-Looking Statements](index=2&type=section&id=Key%20Areas%20of%20Forward-Looking%20Statements) Key areas covered by forward-looking statements include user retention and upgrades, attracting new users, future financial performance (revenue, costs, profit, ARPU, FCF), impacts of the Virtual First work model, competitive ability, COVID-19 effects, demand for the platform, technological changes, profitability, growth, new product introductions, personnel management, security, capital allocation, regulatory changes, intellectual property, liquidity, and acquisitions - Ability to retain and upgrade paying users[5](index=5&type=chunk) - Future financial performance, including trends in revenue, costs, gross profit, operating expenses, paying users, annual recurring revenue, average revenue per user, and free cash flow[5](index=5&type=chunk) - Challenges and anticipated benefits of the Virtual First work model and its impact on financial results and business operations[5](index=5&type=chunk) - Ability to compete successfully in competitive markets and respond to rapid technological changes[5](index=5&type=chunk) - Expectations regarding the potential ongoing impacts of the COVID-19 pandemic and related public health measures[5](index=5&type=chunk) - Capital allocation plans, including share repurchases and other investments[5](index=5&type=chunk) [Summary of Risk Factors](index=4&type=section&id=SUMMARY%20OF%20RISK%20FACTORS) This section summarizes the principal business, operational, financial, and growth-related risks facing the company [Principal Business and Operational Risks](index=4&type=section&id=Principal%20Business%20and%20Operational%20Risks) This section summarizes key risks that could materially harm Dropbox's business, including dependence on user retention and upgrades, challenges in attracting new users, data security breaches, uncertainties of the Virtual First work model, intense market competition, and reliance on platform interoperability - Dependence on retaining and upgrading paying users; decline in renewals or upgrades could adversely affect future results[13](index=13&type=chunk) - Future growth could be harmed by failure to attract new users or convert registered users to paying users[13](index=13&type=chunk) - Risk of business damage and liability from unauthorized access to data or user content, including privacy and data security breaches[14](index=14&type=chunk) - Uncertain long-term impact of the Virtual First workforce model on financial results and business operations[15](index=15&type=chunk) - Operating in competitive markets requires continuous effective competition[16](index=16&type=chunk) - Business relies on interoperability of its platform across devices, operating systems, and third-party applications not controlled by the company[17](index=17&type=chunk) [Financial and Growth-Related Risks](index=4&type=section&id=Financial%20and%20Growth-Related%20Risks) Key financial risks include potential service disruptions, declining demand for the platform, inability to adapt to technological changes, unknown impacts of the COVID-19 pandemic, challenges in managing growth, dependence on key personnel, limited outbound sales force, declining revenue growth rates, and historical net losses - Significant disruption of service or loss of content could harm the business[17](index=17&type=chunk) - Decline in demand for the platform or content collaboration solutions generally could negatively impact the business[18](index=18&type=chunk) - Failure to respond to rapid technological changes or develop new features may harm competitive ability[19](index=19&type=chunk) - Full extent of COVID-19 pandemic impacts on financial results and business operations is unknown[20](index=20&type=chunk) - Challenges in managing growth or planning for future growth[21](index=21&type=chunk) - Dependence on key personnel and highly qualified personnel; failure to attract, integrate, and retain them could harm the business[22](index=22&type=chunk) - Lack of a significant outbound sales force may limit potential business growth[22](index=22&type=chunk) - Revenue growth rate has declined and may continue to slow[22](index=22&type=chunk) - History of net losses and potential inability to achieve or maintain profitability[22](index=22&type=chunk) - Servicing convertible senior notes may require significant cash, which may not be sufficient[22](index=22&type=chunk) [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents Dropbox, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' deficit, and cash flows for the periods ended September 30, 2022, and December 31, 2021, along with detailed notes on significant accounting policies and specific financial line items [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and stockholders' deficit at specific reporting dates Condensed Consolidated Balance Sheets (Unaudited) | Asset/Liability | September 30, 2022 (in millions) | December 31, 2021 (in millions) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $372.0 | $533.0 | | Short-term investments | $1,081.4 | $1,185.1 | | Total current assets | $1,579.7 | $1,849.8 | | Total assets | $2,702.8 | $3,091.3 | | **Liabilities** | | | | Deferred revenue | $698.6 | $671.5 | | Total current liabilities | $1,156.4 | $1,175.8 | | Convertible senior notes, net, non-current | $1,373.1 | $1,370.3 | | Total liabilities | $3,294.1 | $3,385.2 | | **Stockholders' Deficit** | | | | Total stockholders' deficit | $(591.3) | $(293.9) | | Total liabilities and stockholders' deficit | $2,702.8 | $3,091.3 | - **Total assets decreased from $3,091.3 million to $2,702.8 million** at September 30, 2022, primarily driven by a reduction in cash and cash equivalents and short-term investments[29](index=29&type=chunk) - **Total stockholders' deficit significantly increased from $(293.9) million to $(591.3) million**, indicating a worsening equity position[29](index=29&type=chunk) [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's revenues, expenses, and net income over specific reporting periods Condensed Consolidated Statements of Operations (Unaudited) | Metric (in millions) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $591.0 | $550.2 | $1,726.1 | $1,592.4 | | Cost of revenue | $109.7 | $112.0 | $328.4 | $328.4 | | Gross profit | $481.3 | $438.2 | $1,397.7 | $1,264.0 | | Income from operations | $89.3 | $77.3 | $261.7 | $204.2 | | Net income | $83.2 | $75.6 | $224.9 | $211.2 | | Basic net income per share | $0.23 | $0.20 | $0.62 | $0.54 | | Diluted net income per share | $0.23 | $0.19 | $0.61 | $0.53 | - **Revenue increased by 7.4% YoY** for the three months ended September 30, 2022, and by **8.4% YoY** for the nine months ended September 30, 2022[31](index=31&type=chunk) - **Net income grew by 10.1% YoY** for the three months and **6.5% YoY** for the nine months ended September 30, 2022[31](index=31&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section details the components of comprehensive income, including net income and other comprehensive income/loss items Condensed Consolidated Statements of Comprehensive Income (Unaudited) | Metric (in millions) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income | $83.2 | $75.6 | $224.9 | $211.2 | | Change in foreign currency translation adjustments | $(4.7) | $0.2 | $(10.2) | $(0.5) | | Change in net unrealized gains and losses on short-term investments | $(12.5) | $(1.2) | $(45.3) | $(5.6) | | Total other comprehensive loss | $(17.2) | $(1.0) | $(55.5) | $(6.1) | | Comprehensive income | $66.0 | $74.6 | $169.4 | $205.1 | - **Total other comprehensive loss significantly increased** for both the three and nine months ended September 30, 2022, primarily due to changes in net unrealized losses on short-term investments and foreign currency translation adjustments[35](index=35&type=chunk) [Condensed Consolidated Statements of Stockholders' Deficit](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Deficit) This section tracks changes in the company's equity position, including net income, stock repurchases, and stock-based compensation Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) | Metric (in millions) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Balances at beginning of period | $(542.9) | $(94.8) | $(293.9) | $333.8 | | Repurchases of common stock | $(171.4) | $(181.0) | $(621.1) | $(763.7) | | Stock-based compensation | $86.1 | $72.8 | $243.4 | $214.6 | | Net income | $83.2 | $75.6 | $224.9 | $211.2 | | Balances at end of period | $(591.3) | $(162.6) | $(591.3) | $(162.6) | - **Stockholders' deficit worsened significantly**, primarily due to substantial common stock repurchases and accumulated other comprehensive loss, despite positive net income and stock-based compensation[38](index=38&type=chunk)[39](index=39&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited) | Activity (in millions) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $602.7 | $567.1 | | Net cash provided by (used in) investing activities | $56.6 | $(560.1) | | Net cash (used in) provided by financing activities | $(807.7) | $368.5 | | Change in cash and cash equivalents | $(161.0) | $374.0 | | Cash and cash equivalents - end of period | $372.0 | $688.9 | - **Net cash provided by operating activities increased to $602.7 million** in 2022 from $567.1 million in 2021[43](index=43&type=chunk) - **Investing activities shifted from a significant outflow of $(560.1) million in 2021 to an inflow of $56.6 million in 2022**, largely due to changes in short-term investment purchases and maturities[43](index=43&type=chunk) - **Financing activities resulted in a substantial cash outflow of $(807.7) million in 2022**, primarily due to common stock repurchases, compared to an inflow of $368.5 million in 2021[43](index=43&type=chunk) [Note 1. Description of the Business and Summary of Significant Accounting Policies](index=12&type=section&id=Note%201.%20Description%20of%20the%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note provides an overview of Dropbox's business and its key accounting principles and estimates - **Dropbox, Inc.** (founded 2007) provides a platform to organize life and keep work moving, managing operations as a **single segment**[45](index=45&type=chunk)[51](index=51&type=chunk) - Revenue is primarily derived from **subscription fees**, recognized ratably over the contractual term, with most contracts being **non-cancelable and billed in advance**[55](index=55&type=chunk) - The company's significant estimates and judgments involve **valuation of acquired intangible assets, goodwill, and lease-related assets**[50](index=50&type=chunk) [Note 2. Cash, Cash Equivalents and Short-Term Investments](index=19&type=section&id=Note%202.%20Cash,%20Cash%20Equivalents%20and%20Short-Term%20Investments) This note details the composition and fair value of the company's cash, cash equivalents, and short-term investment portfolio Cash, Cash Equivalents and Short-Term Investments (in millions) | Category | Sep 30, 2022 (Fair Value) | Dec 31, 2021 (Fair Value) | | :--- | :--- | :--- | | Cash & Cash Equivalents | $372.0 | $533.0 | | Short-term investments | $1,081.4 | $1,185.1 | | Total | $1,453.4 | $1,718.1 | - As of September 30, 2022, short-term investments had **$53.9 million in unrealized losses**, primarily due to changes in interest rates, but management does not intend to sell these securities prior to anticipated recovery[110](index=110&type=chunk)[113](index=113&type=chunk) - **Interest income** from cash, cash equivalents, and short-term investments **increased significantly to $4.7 million** (3 months) and **$9.1 million** (9 months) in 2022, up from $1.7 million and $5.5 million in 2021, respectively[114](index=114&type=chunk) [Note 3. Fair Value Measurements](index=21&type=section&id=Note%203.%20Fair%20Value%20Measurements) This note describes the fair value hierarchy and measurements applied to financial assets and liabilities Fair Value Measurements (in millions) as of September 30, 2022 | Category | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents | $279.2 | $6.1 | $— | $285.3 | | Short-term investments | $— | $1,081.4 | $— | $1,081.4 | | Total | $279.2 | $1,087.5 | $— | $1,366.7 | - The majority of cash equivalents are **Level 1** (money market funds), while all short-term investments are classified as **Level 2**, indicating observable inputs other than quoted prices in active markets[117](index=117&type=chunk) - The estimated fair value of the **2026 Notes** and **2028 Notes was $610.6 million and $593.0 million**, respectively, categorized as **Level 2 instruments**[122](index=122&type=chunk) [Note 4. Property and Equipment, Net](index=24&type=section&id=Note%204.%20Property%20and%20Equipment,%20Net) This note provides a breakdown of the company's property and equipment, net of accumulated depreciation Property and Equipment, Net (in millions) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Datacenter and other computer equipment | $635.9 | $634.5 | | Furniture and fixtures | $22.6 | $21.7 | | Leasehold improvements | $118.9 | $106.7 | | Construction in progress | $0.6 | $11.7 | | Total property and equipment | $778.0 | $774.6 | | Accumulated depreciation and amortization | $(496.9) | $(452.6) | | Property and equipment, net | $281.1 | $322.0 | - **Property and equipment, net decreased from $322.0 million to $281.1 million** at September 30, 2022, primarily due to accumulated depreciation[124](index=124&type=chunk) - Infrastructure assets acquired under finance lease agreements totaled **$431.7 million** as of September 30, 2022[124](index=124&type=chunk) [Note 5. Business Combinations](index=24&type=section&id=Note%205.%20Business%20Combinations) This note details the acquisition of DocSend, including purchase consideration and recognized intangible assets and goodwill - On March 22, 2021, Dropbox acquired **DocSend** for a total purchase consideration of **$131.8 million**[126](index=126&type=chunk)[127](index=127&type=chunk) - The acquisition resulted in **$110.2 million in goodwill**, primarily attributed to the opportunity to expand Dropbox's user base[130](index=130&type=chunk) DocSend Acquisition - Intangible Assets Acquired (in millions) | Intangible Asset | Estimated Fair Value | | :--- | :--- | | Developed technology | $11.5 | | Customer relationships | $8.1 | | Trade name | $1.0 | | Total | $20.6 | [Note 6. Intangible Assets](index=26&type=section&id=Note%206.%20Intangible%20Assets) This note presents the carrying amounts and amortization schedule for the company's intangible assets Intangible Assets, Net (in millions) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total intangibles | $113.4 | $117.0 | | Accumulated amortization | $(70.8) | $(63.4) | | Intangible assets, net | $42.6 | $53.6 | - **Intangible assets, net decreased from $53.6 million to $42.6 million** at September 30, 2022, due to amortization[133](index=133&type=chunk) Expected Future Amortization Expense for Intangible Assets (in millions) | Year Ending December 31, | Intangible Assets | | :--- | :--- | | 2022 (remaining) | $3.8 | | 2023 | $14.9 | | 2024 | $10.6 | | 2025 | $8.2 | | 2026 | $3.8 | | Thereafter | $1.3 | | Total | $42.6 | [Note 7. Goodwill](index=26&type=section&id=Note%207.%20Goodwill) This note outlines the carrying amount of goodwill and the company's impairment testing policy Goodwill Carrying Amounts (in millions) | Date | Balance | | :--- | :--- | | December 31, 2021 | $356.6 | | Effect of foreign currency translation | $(4.0) | | September 30, 2022 | $352.6 | - **Goodwill decreased slightly to $352.6 million** as of September 30, 2022, primarily due to foreign currency translation effects[135](index=135&type=chunk) - Goodwill is tested for impairment annually, and **no impairment charges were recorded** for the periods presented[135](index=135&type=chunk) [Note 8. Debt](index=27&type=section&id=Note%208.%20Debt) This note details the company's debt obligations, including its revolving credit facility and convertible senior notes - Dropbox has a **$500.0 million revolving credit facility**, with **$40.4 million in letters of credit outstanding** and **$459.6 million available borrowing capacity** as of September 30, 2022[140](index=140&type=chunk) - The company has **$1,389.1 million in aggregate principal amount of 0% convertible senior notes** due in 2026 (**$695.8 million**) and 2028 (**$693.3 million**)[141](index=141&type=chunk)[154](index=154&type=chunk) Convertible Senior Notes Carrying Value, Net (in millions) | Note Series | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | 2026 Notes | $688.3 | $686.7 | | 2028 Notes | $684.8 | $683.6 | | Total | $1,373.1 | $1,370.3 | - The company also entered into **convertible note hedges** and sold **warrants** to reduce potential dilution and effectively increase the overall conversion price[156](index=156&type=chunk)[160](index=160&type=chunk)[162](index=162&type=chunk) [Note 9. Leases](index=30&type=section&id=Note%209.%20Leases) This note describes the company's lease arrangements for office space, datacenters, and equipment, including future payment obligations - Dropbox leases office space and datacenters under **operating leases** and infrastructure/office equipment under **finance leases**, with terms ranging from 1 to 14 years[164](index=164&type=chunk) Future Minimum Lease Payments (in millions) as of September 30, 2022 | Year Ending December 31, | Operating Leases | Finance Leases | | :--- | :--- | :--- | | 2022 (remaining) | $27.3 | $32.6 | | 2023 | $93.4 | $107.3 | | 2024 | $87.5 | $72.5 | | 2025 | $82.1 | $34.5 | | 2026 | $62.5 | $6.9 | | Thereafter | $471.0 | $— | | Total future minimum lease payments | $823.8 | $253.8 | - **Impairment charges of $4.0 million** (three months) and **$12.7 million** (nine months) were recorded in 2022 due to the Virtual First work model, impacting real estate assets[170](index=170&type=chunk) [Note 10. Commitments and Contingencies](index=32&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) This note outlines the company's legal proceedings, indemnification obligations, and other contingent liabilities - Dropbox is involved in ongoing California state court litigation alleging **federal securities law violations related to its IPO**, which was dismissed by the state court and affirmed on appeal[173](index=173&type=chunk)[174](index=174&type=chunk) - The company provides **indemnification to customers** against intellectual property infringement claims, but the maximum potential amount is **not determinable**[175](index=175&type=chunk) [Note 11. Accrued and Other Current Liabilities](index=32&type=section&id=Note%2011.%20Accrued%20and%20Other%20Current%20Liabilities) This note provides a breakdown of various accrued expenses and other current liabilities Accrued and Other Current Liabilities (in millions) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Non-income taxes payable | $72.1 | $77.4 | | Accrued legal and other external fees | $24.9 | $24.0 | | Other accrued and current liabilities | $40.2 | $39.4 | | Total | $137.2 | $140.8 | - **Total accrued and other current liabilities decreased slightly from $140.8 million to $137.2 million** at September 30, 2022[177](index=177&type=chunk) [Note 12. Stockholders' Deficit](index=33&type=section&id=Note%2012.%20Stockholders'%20Deficit) This note details the company's multi-class stock structure, stock repurchase activities, and stock-based compensation - Dropbox has a **multi-class common stock structure** (Class A: 1 vote, Class B: 10 votes, Class C: 0 votes) and repurchased **$171.4 million** (7.7 million shares) and **$621.1 million** (27.6 million shares) of Class A common stock during the three and nine months ended September 30, 2022, respectively[179](index=179&type=chunk)[183](index=183&type=chunk) Stock-Based Awards Activity (Nine Months Ended Sep 30, 2022) | Category | Shares Available for Issuance (millions) | Shares Outstanding (millions) | | :--- | :--- | :--- | | Balance at Dec 31, 2021 | 95.2 | 28.7 | | Additional shares authorized | 18.8 | — | | Options exercised & RSUs released | — | (10.9) | | Options & RSUs canceled | 5.5 | (5.5) | | Shares withheld for tax settlement | 3.9 | — | | Options & RSUs granted | (23.6) | 23.6 | | Balance as of Sep 30, 2022 | 99.8 | 35.9 | - **Unamortized stock-based compensation** related to unvested awards was **$786.8 million** as of September 30, 2022, with a weighted-average recognition period of approximately 2.9 years[188](index=188&type=chunk)[190](index=190&type=chunk) [Note 13. Net Income Per Share](index=36&type=section&id=Note%2013.%20Net%20Income%20Per%20Share) This note explains the calculation of basic and diluted net income per share, including potentially dilutive securities - Basic and diluted net income per share for Class A and Class B common stock are computed using the **two-class method**, reflecting equal sharing of net income and losses[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk) Net Income Per Share (Unaudited) | Metric | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Basic Net Income Per Share | $0.23 | $0.62 | | Diluted Net Income Per Share | $0.23 | $0.61 | | Weighted-average shares used in computing basic EPS | 358.1 million | 364.2 million | | Weighted-average shares used in computing diluted EPS | 360.1 million | 366.5 million | - Potentially dilutive securities, totaling **106.0 million** (three months) and **104.6 million** (nine months) were **anti-dilutive** and excluded from diluted EPS calculations[206](index=206&type=chunk) [Note 14. Income Taxes](index=38&type=section&id=Note%2014.%20Income%20Taxes) This note details the provision for income taxes, deferred tax assets and liabilities, and valuation allowances Provision for Income Taxes (in millions) | Period | Provision for Income Taxes | | :--- | :--- | | Three Months Ended Sep 30, 2022 | $15.0 | | Three Months Ended Sep 30, 2021 | $0.5 | | Nine Months Ended Sep 30, 2022 | $46.2 | | Nine Months Ended Sep 30, 2021 | $2.3 | - The **provision for income taxes significantly increased in 2022**, primarily due to the capitalization of research expenditures under TCJA and tax expense for the Irish subsidiary, which no longer has a valuation allowance[209](index=209&type=chunk)[210](index=210&type=chunk)[292](index=292&type=chunk)[304](index=304&type=chunk) - Dropbox maintains **valuation allowances on all U.S. deferred tax assets** and a portion of foreign deferred tax assets, but anticipates a **reasonable possibility of reversing a significant portion of the U.S. valuation allowance** within the next twelve months[212](index=212&type=chunk)[213](index=213&type=chunk) [Note 15. Geographic Areas](index=39&type=section&id=Note%2015.%20Geographic%20Areas) This note provides a breakdown of revenue and long-lived assets by geographic region Long-Lived Assets by Geographic Area (in millions) | Region | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | United States | $272.5 | $316.6 | | International | $8.6 | $5.4 | | Total | $281.1 | $322.0 | Revenue by Geographic Area (in millions) | Region | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | United States | $324.5 | $287.7 | $930.9 | $832.3 | | International | $266.5 | $262.5 | $795.2 | $760.1 | | Total revenue | $591.0 | $550.2 | $1,726.1 | $1,592.4 | - **U.S. revenue increased by 12.8%** (three months) and **11.8%** (nine months) YoY, while **international revenue saw a modest increase of 1.5%** (three months) and **4.6%** (nine months) YoY[220](index=220&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Dropbox's financial condition and results of operations, highlighting key business aspects, performance metrics, and a detailed comparison of financial results for the three and nine months ended September 30, 2022 and 2021 [Overview](index=41&type=section&id=Overview) This section provides a high-level description of Dropbox's business, platform, and market opportunity - Dropbox provides a content collaboration platform, serving over **700 million registered users** across approximately 180 countries, with **17.55 million paying users**[223](index=223&type=chunk)[224](index=224&type=chunk) - The company's market opportunity has expanded from file syncing to **team synchronization**, focusing on making technology use less fragmented and distracting[224](index=224&type=chunk) [Our Subscription Plans](index=41&type=section&id=Our%20Subscription%20Plans) This section describes the various subscription plans offered by Dropbox for individuals and teams, including DocSend and HelloSign - Dropbox generates revenue from **subscription fees** for individuals and teams, with most customers opting for **annual plans**[225](index=225&type=chunk) - The company also offers **DocSend** for secure document sharing and analytics, and **HelloSign** (rebranded as Dropbox Sign) for e-signatures, with varying pricing models[227](index=227&type=chunk)[228](index=228&type=chunk) [Our Customers](index=42&type=section&id=Our%20Customers) This section characterizes Dropbox's diverse customer base, ranging from individuals to large organizations - Dropbox's customer base is **highly diversified**, including individuals, families, teams, and organizations of all sizes across various industries, with **no single customer accounting for more than 1% of revenue**[230](index=230&type=chunk) [Our Business Model](index=42&type=section&id=Our%20Business%20Model) This section outlines the company's strategy for user acquisition, conversion to paid plans, and expansion of existing customer relationships - Drive new signups: Efficiently acquires users through word-of-mouth and in-product referrals, leveraging free accounts to attract new users[231](index=231&type=chunk) - Increase conversion of registered users to paid subscription plans: Over 90% of revenue comes from self-serve channels, encouraged by in-product prompts, free trials, and marketing campaigns[232](index=232&type=chunk) - Upgrade and expand existing customers: Offers a range of paid plans and uses targeted campaigns to encourage upgrades and additional licenses, expanding content collaboration capabilities through acquisitions like HelloSign and DocSend[233](index=233&type=chunk) [Update on COVID-19 and Current Economic Conditions](index=42&type=section&id=Update%20on%20COVID-19%20and%20Current%20Economic%20Conditions) This section discusses the impacts of the COVID-19 pandemic and broader macroeconomic factors on the company's financial condition - While **no material impacts to financial condition** were experienced from COVID-19 in the nine months ended September 30, 2022, macroeconomic events like rising inflation, interest rate hikes, supply chain disruptions, and currency fluctuations introduce **economic uncertainty**[234](index=234&type=chunk) - The shift to a **Virtual First work model** has led to **cost savings** in areas like events, travel, and utilities, which may continue beyond the pandemic[236](index=236&type=chunk) [Virtual First](index=43&type=section&id=Virtual%20First) This section details the company's Virtual First work model and its financial implications, particularly for real estate assets - Dropbox adopted a **Virtual First work model** in October 2020, making remote work primary for employees, while retaining some office space for collaboration (Dropbox Studios) and subleasing the remainder[238](index=238&type=chunk) - **Impairment charges of $12.7 million** (nine months ended Sep 30, 2022) and **$17.3 million** (nine months ended Sep 30, 2021) were recorded related to real estate assets due to the Virtual First strategy[238](index=238&type=chunk) [Key Business Metrics](index=43&type=section&id=Key%20Business%20Metrics) This section presents key performance indicators such as annual recurring revenue, paying users, and average revenue per paying user Total Annual Recurring Revenue (Total ARR) (in millions) | Metric | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | | :--- | :--- | :--- | :--- | | Total ARR | $2,431 | $2,261 | $2,218 | | Total ARR (Constant Currency) | $2,431 | $2,250 | $2,207 | Paying Users (in millions) | Metric | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | | :--- | :--- | :--- | :--- | | Paying users | 17.55 | 16.79 | 16.49 | Average Revenue Per Paying User (ARPU) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | ARPU | $134.31 | $133.79 | $134.41 | $133.19 | - **Total ARR increased** due to price increases for Dropbox Standard and Advanced plans, combined with an increase in paying users and a shift towards higher-priced subscription plans, partially offset by unfavorable foreign exchange rates[242](index=242&type=chunk) [Non-GAAP Financial Measure](index=45&type=section&id=Non-GAAP%20Financial%20Measure) This section defines and reconciles Free Cash Flow, a key non-GAAP liquidity measure - **Free Cash Flow (FCF)** is defined as GAAP net cash provided by operating activities less capital expenditures, serving as a **liquidity measure**[256](index=256&type=chunk) Free Cash Flow (FCF) Reconciliation (in millions) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $602.7 | $567.1 | | Capital expenditures | $(20.9) | $(20.8) | | Free cash flow | $581.8 | $546.3 | - **FCF increased** for the nine months ended September 30, 2022, primarily due to increased cash from operating activities driven by subscription sales and operating efficiencies[257](index=257&type=chunk) [Components of Our Results of Operations](index=46&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section explains the primary drivers of revenue, cost of revenue, and operating expenses - Revenue is primarily from **subscription fees**, recognized ratably over the contract term, with **over 90% from self-serve channels**[261](index=261&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk) - Cost of revenue includes **infrastructure costs** (depreciation, rent, network, bandwidth) and **employee-related costs for support**, expected to increase in absolute dollars[264](index=264&type=chunk)[265](index=265&type=chunk) - Operating expenses include **R&D** (employee-related, allocated overhead), **Sales & Marketing** (employee-related, brand marketing, commissions), and **G&A** (employee-related, legal, finance, professional fees) components[267](index=267&type=chunk)[269](index=269&type=chunk)[272](index=272&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) This section provides a detailed comparison and analysis of the company's financial performance for the reported periods Key Financial Results (in millions) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $591.0 | $550.2 | $1,726.1 | $1,592.4 | | Gross Profit | $481.3 | $438.2 | $1,397.7 | $1,264.0 | | Income from Operations | $89.3 | $77.3 | $261.7 | $204.2 | | Net Income | $83.2 | $75.6 | $224.9 | $211.2 | | Total Stock-Based Compensation | $86.1 | $72.8 | $243.4 | $214.6 | | Impairment related to real estate assets | $4.0 | $— | $12.7 | $17.3 | - **Revenue increased by 7.4%** (3 months) and **8.4%** (9 months) YoY, driven by increased paying users, higher-priced plans, and repricing, offset by unfavorable foreign exchange rates[282](index=282&type=chunk)[294](index=294&type=chunk) - **Research and development expenses increased significantly by 21.5%** (3 months) and **17.9%** (9 months) YoY, primarily due to higher employee-related costs and headcount[285](index=285&type=chunk)[296](index=296&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's cash position, investment portfolio, debt, and cash flow activities - As of September 30, 2022, Dropbox had **$372.0 million in cash and cash equivalents** and **$1,081.4 million in short-term investments**, with $165.3 million of cash held by foreign subsidiaries[306](index=306&type=chunk) - The company issued **$1.4 billion in 0% convertible senior notes** (2026 and 2028) and has a **$500.0 million revolving credit facility with $459.6 million available**[306](index=306&type=chunk)[307](index=307&type=chunk)[309](index=309&type=chunk) - Net cash provided by operating activities: **$602.7 million** (9 months ended Sep 30, 2022), up from $567.1 million in 2021[311](index=311&type=chunk) - Net cash provided by investing activities: **$56.6 million** (9 months ended Sep 30, 2022), a significant shift from $(560.1) million used in 2021[312](index=312&type=chunk) - Net cash used in financing activities: **$(807.7) million** (9 months ended Sep 30, 2022), primarily due to $621.1 million in common stock repurchases[314](index=314&type=chunk)[315](index=315&type=chunk) [Critical Accounting Estimates](index=57&type=section&id=Critical%20Accounting%20Estimates) This section highlights the accounting policies that require significant judgment and estimation - There have been **no material changes** to Dropbox's critical accounting policies and estimates since its Annual Report on Form 10-K for the year ended December 31, 2021[317](index=317&type=chunk) [Recent Accounting Pronouncements](index=58&type=section&id=Recent%20Accounting%20Pronouncements) This section discusses the adoption and expected impact of new accounting standards - Dropbox adopted **ASU 2021-04** (Earnings Per Share) and **ASU 2021-05** (Leases) on January 1, 2022, with **no material impact** on consolidated financial statements[102](index=102&type=chunk)[103](index=103&type=chunk) - The company is evaluating **ASU 2021-08** (Business Combinations) and does not expect **ASU 2022-02** (Financial Instruments—Credit Losses) to have a significant impact[101](index=101&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=59&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses Dropbox's exposure to market risks, specifically interest rate risk and foreign currency exchange risk, and how these factors could impact its financial performance [Interest Rate Risk](index=59&type=section&id=Interest%20Rate%20Risk) This section analyzes the potential impact of interest rate fluctuations on the company's investment portfolio - Dropbox holds **$372.0 million in cash and cash equivalents** and **$1,081.4 million in short-term investments**, primarily in money market funds, corporate notes, and U.S. Treasury securities[321](index=321&type=chunk) - A hypothetical **100 basis point increase in interest rates** would result in an estimated **$16 million reduction in the market value** of its investment portfolio[321](index=321&type=chunk) [Foreign Currency Exchange Risk](index=59&type=section&id=Foreign%20Currency%20Exchange%20Risk) This section assesses the exposure to foreign currency exchange rate fluctuations and their effect on financial results - Dropbox's results are subject to fluctuations from **foreign currency exchange rates**, particularly USD-Euro and USD-British Pound Sterling, as **28% of sales were non-USD denominated** in the nine months ended September 30, 2022[321](index=321&type=chunk) - The company recorded **net foreign currency transaction gains of $4.0 million** in the nine months ended September 30, 2022, compared to losses of $0.8 million in 2021, and **does not currently engage in hedging activities**[321](index=321&type=chunk) [Item 4. Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of Dropbox's disclosure controls and procedures, confirming their effectiveness, and addresses the inherent limitations of control systems - Management concluded that **disclosure controls and procedures were effective** at a reasonable assurance level as of September 30, 2022[323](index=323&type=chunk) - **No material changes in internal control over financial reporting occurred** during the period covered by this report[324](index=324&type=chunk) - Control systems, by their inherent limitations, can only provide **reasonable assurance** and may not prevent all errors or fraud due to factors like faulty judgment, simple errors, or circumvention by individuals[325](index=325&type=chunk) [PART II. OTHER INFORMATION](index=61&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers legal proceedings, detailed risk factors, equity security sales, and required exhibits and signatures [Item 1. Legal Proceedings](index=61&type=section&id=Item%201.%20Legal%20Proceedings) This section outlines Dropbox's involvement in legal proceedings, including intellectual property claims and other litigation, and emphasizes the unpredictable nature and potential adverse impacts of such matters - Dropbox is a party to various claims, lawsuits, and proceedings in the ordinary course of business, including alleged **infringement of intellectual property rights**[172](index=172&type=chunk)[327](index=327&type=chunk) - Resolution of pending legal matters is **not expected to have a material adverse impact** on condensed consolidated results, cash flows, or financial position, but litigation outcomes are uncertain and can be costly[172](index=172&type=chunk)[328](index=328&type=chunk) [Item 1A. Risk Factors](index=62&type=section&id=Item%201A.%20Risk%20Factors) This comprehensive section details the significant risks that could materially harm Dropbox's business, operating results, and financial condition, categorized into business and operations, financial performance, legal and regulatory compliance, and stock ownership [Risks Related to Our Business and Operations](index=62&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Operations) This section details risks concerning user acquisition and retention, data security, competition, and operational dependencies - Dependence on retaining and upgrading paying users; decline in renewals or upgrades could adversely affect future results[332](index=332&type=chunk) - Failure to attract new users or convert registered users to paying users could harm future growth[335](index=335&type=chunk) - Unauthorized access to data or user content, including security breaches, could damage business and lead to liability[339](index=339&type=chunk) - Uncertain long-term impact of the Virtual First workforce model on financial results and business operations[348](index=348&type=chunk) - Operating in competitive markets requires continuous effective competition[352](index=352&type=chunk) - Reliance on interoperability of platform across devices, operating systems, and third-party applications not controlled by the company[358](index=358&type=chunk) - Significant disruption of service or loss of content could harm the business[362](index=362&type=chunk) - Decline in demand for the platform or content collaboration solutions generally could negatively impact the business[366](index=366&type=chunk) - Failure to respond to rapid technological changes or develop new features may harm competitive ability[370](index=370&type=chunk) - Full extent of COVID-19 pandemic impacts on financial results and business operations is unknown[373](index=373&type=chunk) - Challenges in managing growth or planning for future growth[375](index=375&type=chunk) - Dependence on key personnel and highly qualified personnel; failure to attract, integrate, and retain them could harm the business[378](index=378&type=chunk) - Lack of a significant outbound sales force may limit potential business growth[382](index=382&type=chunk) - Expansion of sales to large organizations could lengthen sales cycles and result in greater deployment challenges[384](index=384&type=chunk) - Failure to offer high-quality customer support may harm relationships with users and financial results[385](index=385&type=chunk) - Dependence on a strong brand; inability to maintain and enhance it will impair user expansion[386](index=386&type=chunk) - Expansion of operations outside the United States subjects the company to increased business and economic risks[388](index=388&type=chunk) - Dependence on infrastructure and third-party datacenters; any disruption or failure to renew services could adversely affect business[393](index=393&type=chunk) - Reliance on third parties to provide, develop, and create applications that integrate with the platform; inability to continue these relationships could harm business[399](index=399&type=chunk) - Use of open source software could negatively affect ability to offer and sell subscriptions and subject to litigation[403](index=403&type=chunk) - Real or perceived material defects or errors in the platform could harm ability to sell subscriptions[405](index=405&type=chunk) - Acquisitions of other businesses, or offers to be acquired, could require significant management attention, disrupt business, or dilute stockholder value[409](index=409&type=chunk) - Business may be significantly impacted by changes in general economic, political, and market conditions[417](index=417&type=chunk) - Current and future indebtedness may limit operating flexibility or otherwise affect business[419](index=419&type=chunk) - Operations may be interrupted and business, results of operations, and financial condition could be adversely affected if default on leasing or credit obligations[424](index=424&type=chunk) [Risks Related to Our Financial Performance or Results](index=75&type=section&id=Risks%20Related%20to%20Our%20Financial%20Performance%20or%20Results) This section outlines risks associated with revenue growth, profitability, debt obligations, and financial reporting volatility - Revenue growth rate has declined and may continue to slow in the future[428](index=428&type=chunk) - History of net losses; may increase expenses and may not achieve or maintain profitability[430](index=430&type=chunk) - Servicing 2026 and 2028 Notes may require significant cash, which may not be sufficient[431](index=431&type=chunk) - Quarterly results may fluctuate significantly and may not fully reflect underlying business performance[433](index=433&type=chunk) - Results of operations may not immediately reflect downturns or upturns in sales due to revenue recognition over subscription terms[436](index=436&type=chunk) - Results of operations, reported in U.S. dollars, could be adversely affected by substantial currency exchange rate fluctuations[438](index=438&type=chunk) - Subject to counterparty risk with respect to convertible note hedge transactions[441](index=441&type=chunk) - Ability to use net operating loss carryforwards and certain other tax attributes may be limited[442](index=442&type=chunk) - Operating results may be harmed if required to collect sales or other related taxes in jurisdictions where not historically done so[443](index=443&type=chunk) - Results of operations and financial condition could be materially affected by legislation implementing changes in U.S. or foreign taxation of international business activities or other tax reform policies[445](index=445&type=chunk) - Publicly disclosed market opportunity estimates, growth forecasts, and key metrics could prove inaccurate, harming reputation and business[449](index=449&type=chunk) [Risks Related to Legal and Regulatory Compliance](index=79&type=section&id=Risks%20Related%20to%20Legal%20and%20Regulatory%20Compliance) This section covers risks arising from various U.S. and international laws, data protection, intellectual property, and litigation - Subject to various U.S. and international laws (copyright, child protection, consumer protection, anti-corruption) that could lead to claims, increased costs, or harm to business[452](index=452&type=chunk) - Subject to export and import control laws and regulations that could impair international competition or subject to liability for violations[458](index=458&type=chunk) - Actual or perceived failure to comply with privacy, data protection, and information security laws, regulations, and obligations could harm business[461](index=461&type=chunk) - Business could be adversely impacted by changes in internet access for users or laws specifically governing the internet[471](index=471&type=chunk) - Currently, and may be in the future, party to intellectual property rights claims and other litigation matters, which if resolved adversely, could significantly impact business[473](index=473&type=chunk) - Failure to protect intellectual property rights and proprietary information could diminish brand and other intangible assets[476](index=476&type=chunk) [Risks Related to Ownership of Our Class A Common Stock](index=83&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) This section addresses risks concerning stock price volatility, voting control, future stock sales, and corporate governance - The trading price of Class A common stock may be volatile, leading to potential loss of investment[478](index=478&type=chunk) - Multi-class common stock structure concentrates voting control with pre-IPO stockholders, potentially depressing Class A common stock trading price[482](index=482&type=chunk) - Substantial future sales could depress the market price of Class A common stock[489](index=489&type=chunk) - Transactions related to 2026 and 2028 Notes may dilute ownership interest or depress common stock price[490](index=490&type=chunk) - Delaware law and provisions in organizational documents could make a merger, tender offer, or proxy contest difficult, depressing Class A common stock market price[492](index=492&type=chunk) - Amended and restated bylaws designate Delaware courts as exclusive forum for disputes, limiting stockholders' choice of judicial forum[497](index=497&type=chunk) - Stock repurchase program may not be fully implemented or enhance long-term stockholder value[503](index=503&type=chunk) - No intention to pay dividends for the foreseeable future; stockholders must rely on stock appreciation for gains[505](index=505&type=chunk) [General Risk Factors](index=87&type=section&id=General%20Risk%20Factors) This section includes broad risks such as catastrophic events, tax liabilities, internal control deficiencies, and capital needs - Business could be disrupted by catastrophic events (e.g., natural disasters, pandemics, cyber-attacks)[506](index=506&type=chunk) - Exposure to greater than anticipated tax liabilities could adversely impact results of operations[510](index=510&type=chunk) - Failure to maintain an effective system of disclosure controls and internal control over financial reporting could impair ability to produce timely and accurate financial statements[512](index=512&type=chunk) - Reported results of operations may be adversely affected by changes in accounting principles generally accepted in the United States[518](index=518&type=chunk) - May need additional capital, and financing may not be available on favorable terms or at all[519](index=519&type=chunk) - Class A common stock market price and trading volume could decline if securities or industry analysts do not publish research or publish inaccurate or unfavorable research[520](index=520&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=90&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides details on Dropbox's repurchases of Class A common stock during the quarter ended September 30, 2022, under its publicly announced repurchase programs Issuer Purchases of Equity Securities (Quarter Ended Sep 30, 2022) | Period | Total Shares Purchased (millions) | Average Price Paid per Share | Total Shares Purchased (Public Programs, millions) | Approximate Dollar Value Remaining (millions) | | :--- | :--- | :--- | :--- | :--- | | July 1 - 31 | 2.36 | $22.31 | 2.36 | $1,041.05 | | August 1 - 31 | 2.59 | $23.34 | 2.51 | $982.58 | | September 1 - 30 | 2.84 | $21.31 | 2.84 | $922.13 | | Total | 7.79 | $22.28 | 7.71 | | - Dropbox repurchased **7.79 million shares of Class A common stock** for an average price of **$22.28 per share** during the quarter, with approximately **$922.13 million remaining** under the repurchase program as of September 30, 2022[524](index=524&type=chunk) [Item 6. Exhibits](index=90&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from executive officers and financial statements formatted in Inline XBRL - Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350[530](index=530&type=chunk) - Financial statements formatted in Inline XBRL, including Condensed Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Cash Flows, and Stockholders' Deficit, along with Notes[530](index=530&type=chunk) - Cover Page Interactive Data File (formatted as inline XBRL)[530](index=530&type=chunk) [Signatures](index=92&type=section&id=Signatures) This section contains the official signatures of Dropbox, Inc.'s Chief Executive Officer and Chief Financial Officer, certifying the filing of the Quarterly Report on Form 10-Q - The report is signed by Andrew W. Houston (Chief Executive Officer) and Timothy J. Regan (Chief Financial Officer) on November 4, 2022[533](index=533&type=chunk)