[Forward-Looking Statements](index=2&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines forward-looking statements regarding future events and financial performance, subject to substantial risks and uncertainties [Overview of Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements%20Overview) This section outlines statements about future events or financial/operating performance that involve substantial risk and uncertainties - Forward-looking statements relate to future events or financial/operating performance and involve substantial risk and uncertainties[5](index=5&type=chunk) - Key areas covered include ability to retain/upgrade paying users, attract new users, prevent security breaches, future financial performance (revenue, costs, profit, ARPU, FCF), economic/market trends, competition, technological changes (including AI), profitability, capital allocation, and impacts of the Virtual First model[5](index=5&type=chunk) - Investors are cautioned not to rely on these statements as predictions, as actual results may differ materially due to risks described in the 'Risk Factors' section[7](index=7&type=chunk) [Summary of Risk Factors](index=4&type=section&id=SUMMARY%20OF%20RISK%20FACTORS) This section summarizes principal risks that could materially harm the business, including user retention, security, competition, and debt servicing [Key Risk Factors Summary](index=4&type=section&id=Key%20Risk%20Factors%20Summary) This section provides a concise overview of the principal factors that could materially harm the company's business, operating results, financial condition, future prospects, or stock price - Business depends on retaining and upgrading paying users; any decline in renewals or upgrades could adversely affect future results of operations[12](index=12&type=chunk) - Future growth could be harmed if the company fails to attract new users or convert registered users to paying users[12](index=12&type=chunk) - The company has experienced and may continue to experience privacy and data security breaches or incidents[12](index=12&type=chunk) - The company operates in competitive markets and must continue to compete effectively, including responding to rapid technological changes[12](index=12&type=chunk) - The Virtual First workforce model's long-term impact on financial results and business operations remains uncertain[12](index=12&type=chunk) - Servicing indebtedness under the term loan facility, 2026 Notes, and 2028 Notes may require a significant amount of cash, and the company may not have sufficient cash flow[12](index=12&type=chunk) [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents unaudited condensed consolidated financial statements and management's discussion of financial condition [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents unaudited condensed consolidated financial statements, highlighting asset decreases, revenue decline, and improved net income [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a decrease in cash and total assets, alongside an increase in total liabilities and stockholders' deficit Condensed Consolidated Balance Sheets (Unaudited) - Key Figures (in millions) | Metric | Dec 31, 2024 | Jun 30, 2025 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Cash and cash equivalents | $1,328.3 | $736.3 | $(592.0) | | Total current assets | $1,738.4 | $1,113.5 | $(624.9) | | Total assets | $3,325.2 | $2,779.4 | $(545.8) | | Total current liabilities | $1,210.8 | $1,855.2 | $644.4 | | Total liabilities | $4,077.6 | $4,084.9 | $7.3 | | Total stockholders' deficit | $(752.4) | $(1,305.5) | $(553.1) | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements of operations show a slight revenue decline but improved net income due to reduced operating expenses Condensed Consolidated Statements of Operations (Unaudited) - Key Figures (in millions, except per share data) | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | YoY Change ($) | YoY Change (%) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | YoY Change ($) | YoY Change (%) | | :---------------------- | :-------------------------- | :-------------------------- | :------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Revenue | $625.7 | $634.5 | $(8.8) | (1.4)% | $1,250.4 | $1,265.8 | $(15.4) | (1.2)% | | Cost of revenue | $123.7 | $107.0 | $16.7 | 15.6% | $240.4 | $212.8 | $27.6 | 13.0% | | Gross profit | $502.0 | $527.5 | $(25.5) | (4.8)% | $1,010.0 | $1,053.0 | $(43.0) | (4.1)% | | Total operating expenses | $333.6 | $400.5 | $(66.9) | (16.7)% | $657.8 | $782.5 | $(124.7) | (15.9)% | | Income from operations | $168.4 | $127.0 | $41.4 | 32.6% | $352.2 | $270.5 | $81.7 | 30.2% | | Net income | $125.6 | $110.5 | $15.1 | 13.7% | $275.9 | $242.8 | $33.1 | 13.6% | | Basic net income per share | $0.46 | $0.34 | $0.12 | 35.3% | $0.98 | $0.74 | $0.24 | 32.4% | | Diluted net income per share | $0.45 | $0.34 | $0.11 | 32.4% | $0.96 | $0.73 | $0.23 | 31.5% | Stock-Based Compensation (in millions) | Expense Category | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :--------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of revenue | $5.6 | $6.0 | $10.5 | $11.2 | | Research and development | $53.8 | $64.2 | $100.5 | $119.6 | | Sales and marketing | $5.7 | $6.2 | $10.7 | $11.3 | | General and administrative | $12.6 | $14.1 | $23.1 | $26.4 | | Total stock-based compensation | $77.7 | $90.5 | $144.8 | $168.5 | - Net loss on real estate assets was **$2.6 million** for both the three and six months ended June 30, 2025, compared to zero in the prior year periods[18](index=18&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income increased due to higher net income and positive foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Key Figures (in millions) | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | YoY Change ($) | YoY Change (%) | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | YoY Change ($) | YoY Change (%) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Net income | $125.6 | $110.5 | $15.1 | 13.7% | $275.9 | $242.8 | $33.1 | 13.6% | | Change in foreign currency translation adjustments | $6.5 | $(1.0) | $7.5 | N/A | $7.5 | $(2.1) | $9.6 | N/A | | Change in net unrealized gains and losses on short-term investments | $1.6 | $2.8 | $(1.2) | (42.9)% | $3.7 | $5.0 | $(1.3) | (26.0)% | | Total other comprehensive income | $8.1 | $1.8 | $6.3 | 350.0% | $11.2 | $2.9 | $8.3 | 286.2% | | Comprehensive income | $133.7 | $112.3 | $21.4 | 19.1% | $287.1 | $245.7 | $41.4 | 16.8% | [Condensed Consolidated Statements of Stockholders' Deficit](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Deficit) Stockholders' deficit increased significantly due to common stock repurchases and accumulated deficit Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) - Key Figures (in millions) | Metric | Dec 31, 2024 (Balance at beginning of period for 6 months) | Jun 30, 2025 (Balance at end of period for 6 months) | Change | | :-------------------------------------- | :------------------------------------------------------- | :--------------------------------------------------- | :----- | | Additional paid-in-capital | $2,404.2 | $2,181.0 | $(223.2) | | Accumulated deficit | $(3,146.5) | $(3,487.6) | $(341.1) | | Accumulated other comprehensive income (loss) | $(10.1) | $1.1 | $11.2 | | Total stockholders' deficit | $(752.4) | $(1,305.5) | $(553.1) | - Common stock repurchases for the six months ended June 30, 2025, amounted to **$907.0 million**, compared to **$543.8 million** in the same period of 2024[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows show increased operating cash, decreased investing cash, and significant cash usage in financing activities Condensed Consolidated Statements of Cash Flows (Unaudited) - Key Figures (in millions) | Metric | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | YoY Change ($) | YoY Change (%) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Net cash provided by operating activities | $414.3 | $406.1 | $8.2 | 2.0% | | Net cash provided by investing activities | $48.2 | $176.9 | $(128.7) | (72.8)% | | Net cash used in financing activities | $(1,066.3) | $(679.4) | $(386.9) | 56.9% | | Change in cash, cash equivalents, and restricted cash | $(591.3) | $(99.8) | $(491.5) | 492.5% | | Cash, cash equivalents, and restricted cash - end of period | $769.2 | $515.1 | $254.1 | 49.3% | - Common stock repurchases were **$909.1 million** for the six months ended June 30, 2025, up from **$539.6 million** in the prior year[25](index=25&type=chunk) - Capital expenditures decreased to **$2.1 million** for the six months ended June 30, 2025, from **$15.1 million** in the prior year[25](index=25&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes on accounting policies, financial instruments, assets, debt, leases, and other financial disclosures [Note 1. Description of the Business and Summary of Significant Accounting Policies](index=11&type=section&id=Note%201.%20Description%20of%20the%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) Dropbox, Inc. reincorporated in Nevada in March 2025 and operates as a single segment, deriving revenue from subscription fees - Dropbox reincorporated in Nevada in March 2025[26](index=26&type=chunk) - The company manages its operations as a single operating segment[32](index=32&type=chunk) - Revenue is derived from subscription fees and recognized ratably over the contractual term, typically monthly or annually[35](index=35&type=chunk) - In October 2024, the company announced a global workforce reduction of approximately **20%**, incurring **$1.2 million** and **$3.5 million** in related expenses for the three and six months ended June 30, 2025, respectively[46](index=46&type=chunk)[47](index=47&type=chunk) - Total impairment charges of **$2.6 million** were recorded during the three and six months ended June 30, 2025, related to real estate assets due to the Virtual First work model[68](index=68&type=chunk) [Note 2. Cash, Cash Equivalents and Short-Term Investments](index=19&type=section&id=Note%202.%20Cash%2C%20Cash%20Equivalents%20and%20Short-Term%20Investments) Cash and cash equivalents decreased to **$736.3 million** as of June 30, 2025, with short-term investments also declining, primarily due to interest rate changes Cash, Cash Equivalents and Short-Term Investments (in millions) | Category | Jun 30, 2025 (Fair Value) | Dec 31, 2024 (Fair Value) | Change | | :------------------------ | :------------------------ | :------------------------ | :----- | | Cash | $110.6 | $98.3 | $12.3 | | Money market funds | $625.7 | $1,230.0 | $(604.3) | | Total cash & cash equivalents | $736.3 | $1,328.3 | $(592.0) | | Corporate notes and obligations | $99.9 | $130.0 | $(30.1) | | U.S. Treasury securities | $83.8 | $82.4 | $1.4 | | Municipal securities | $20.8 | $29.3 | $(8.5) | | Asset backed securities | $8.4 | $18.9 | $(10.5) | | U.S. agency obligations | $3.7 | $3.6 | $0.1 | | Supranational securities | $1.8 | $1.7 | $0.1 | | Total short-term investments | $218.4 | $265.9 | $(47.5) | | Total | $954.7 | $1,594.2 | $(639.5) | - Short-term investments had unrealized losses of approximately **$3.5 million** as of June 30, 2025, primarily due to changes in interest rates[94](index=94&type=chunk) - Interest income from cash, cash equivalents, and short-term investments was **$8.7 million** for the three months and **$21.4 million** for the six months ended June 30, 2025[95](index=95&type=chunk) [Note 3. Fair Value Measurements](index=21&type=section&id=Note%203.%20Fair%20Value%20Measurements) The company measures financial instruments at fair value using a three-level hierarchy, with most investments and debt categorized as Level 1 or Level 2 Fair Value Measurements (in millions) as of June 30, 2025 | Category | Level 1 | Level 2 | Level 3 | Total | | :------------------------ | :------ | :------ | :------ | :---- | | Money market funds | $625.7 | — | — | $625.7 | | Corporate notes and obligations | — | $99.9 | — | $99.9 | | U.S. Treasury securities | — | $83.8 | — | $83.8 | | Municipal securities | — | $20.8 | — | $20.8 | | Asset backed securities | — | $8.4 | — | $8.4 | | U.S. agency obligations | — | $3.7 | — | $3.7 | | Supranational securities | — | $1.8 | — | $1.8 | | Total | $625.7 | $218.4 | — | $844.1 | - The estimated fair value of the 2026 Notes was **$681.9 million** and the 2028 Notes was **$699.2 million** as of June 30, 2025, both categorized as Level 2[101](index=101&type=chunk) - The fair value of the term loan approximated its carrying value of **$970.6 million** as of June 30, 2025, categorized as Level 2[102](index=102&type=chunk) [Note 4. Property and Equipment, Net](index=22&type=section&id=Note%204.%20Property%20and%20Equipment%2C%20Net) Property and equipment, net, increased slightly to **$362.2 million** due to datacenter equipment additions, partially offset by depreciation Property and Equipment, Net (in millions) | Category | Jun 30, 2025 | Dec 31, 2024 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Datacenter and other computer equipment | $852.3 | $830.2 | $22.1 | | Total property and equipment | $966.9 | $943.0 | $23.9 | | Accumulated depreciation | $(604.7) | $(584.2) | $(20.5) | | Property and equipment, net | $362.2 | $358.8 | $3.4 | - Infrastructure assets acquired under finance lease agreements totaled **$501.4 million** as of June 30, 2025[103](index=103&type=chunk) - Depreciation expense related to property and equipment was **$32.6 million** for the three months and **$64.3 million** for the six months ended June 30, 2025[104](index=104&type=chunk) [Note 5. Intangible Assets](index=23&type=section&id=Note%205.%20Intangible%20Assets) Intangible assets, net, decreased to **$42.5 million** due to amortization, with developed technology remaining the largest component Intangible Assets, Net (in millions) | Category | Jun 30, 2025 | Dec 31, 2024 | Remaining Useful Life (years) | | :------------------------ | :----------- | :----------- | :---------------------------- | | Developed technology | $93.6 | $93.7 | 2.6 | | Customer relationships | $48.5 | $48.5 | 1.7 | | Patents | $16.6 | $16.6 | 2.1 | | Total intangibles | $179.0 | $178.6 | | | Accumulated amortization | $(136.5) | $(123.7) | | | Intangible assets, net | $42.5 | $54.9 | | - Amortization expense was **$6.3 million** for the three months and **$12.8 million** for the six months ended June 30, 2025[105](index=105&type=chunk) Expected Future Amortization Expense for Intangible Assets (in millions) as of June 30, 2025 | Year | Intangible assets | | :---------------- | :---------------- | | Remainder of 2025 | $12.8 | | 2026 | $15.9 | | 2027 | $7.3 | | 2028 | $4.2 | | 2029 | $1.8 | | Thereafter | $0.5 | | Total | $42.5 | [Note 6. Goodwill](index=23&type=section&id=Note%206.%20Goodwill) Goodwill increased to **$452.3 million** due to an acquisition and foreign currency translation effects, with no impairment recorded Changes in Carrying Amounts of Goodwill (in millions) | Metric | Amount | | :-------------------------- | :----- | | Balance at December 31, 2024 | $442.8 | | Acquisition | $7.0 | | Effect of foreign currency translation | $2.5 | | Balance at June 30, 2025 | $452.3 | - No impairment of goodwill was recorded during the periods ended June 30, 2025 and December 31, 2024[107](index=107&type=chunk) [Note 7. Debt](index=24&type=section&id=Note%207.%20Debt) The company holds a **$1.0 billion** term loan and **$1.389.1 billion** in convertible senior notes, with associated hedges and warrants to manage dilution Term Loan Facility (in millions) | Metric | Jun 30, 2025 | Dec 31, 2024 | | :---------------------- | :----------- | :----------- | | Principal balance | $995.0 | $1,000.0 | | Unamortized issuance costs | $(24.4) | $(27.1) | | Carrying value, net | $970.6 | $972.9 | - Interest expense for the term loan facility was **$21.8 million** for the three months and **$43.3 million** for the six months ended June 30, 2025[114](index=114&type=chunk) Convertible Senior Notes (in millions) as of June 30, 2025 | Metric | 2026 Notes | 2028 Notes | Total | | :---------------------- | :--------- | :--------- | :------ | | Principal balance | $695.8 | $693.3 | $1,389.1 | | Unamortized issuance costs | $(1.5) | $(4.2) | $(5.7) | | Carrying value, net | $694.3 | $689.1 | $1,383.4 | - The company entered into convertible note hedge transactions for approximately **18.2 million** shares (2026) and **19.6 million** shares (2028) at strike prices of **$38.25** and **$35.35**, respectively, costing **$265.3 million**[136](index=136&type=chunk) - The company sold warrants for approximately **18.1 million** shares (2026) and **20.1 million** shares (2028) at an initial strike price of **$46.36** per share, receiving **$202.9 million**[139](index=139&type=chunk) - The Note Hedges and Warrants are intended to reduce potential dilution and effectively increase the overall conversion price to **$46.36** per share for both series[141](index=141&type=chunk) [Note 8. Leases](index=28&type=section&id=Note%208.%20Leases) Dropbox leases office space and datacenters, with its Virtual First strategy leading to subleasing and **$2.6 million** in real estate impairment charges Future Minimum Lease Payments (in millions) as of June 30, 2025 | Year | Operating leases | Finance leases | | :---------------- | :--------------- | :------------- | | Remainder of 2025 | $31.9 | $74.1 | | 2026 | $58.5 | $130.4 | | 2027 | $58.8 | $92.7 | | 2028 | $57.6 | $50.5 | | 2029 | $57.2 | $5.8 | | 2030 | $54.1 | — | | Thereafter | $118.3 | — | | Total liability | $362.5 | $326.7 | - Sublease income was **$2.5 million** for the three months and **$5.5 million** for the six months ended June 30, 2025[145](index=145&type=chunk) - Total impairment charges of **$2.6 million** were recorded during the three and six months ended June 30, 2025, related to real estate assets due to the Virtual First work model[148](index=148&type=chunk) [Note 9. Commitments and Contingencies](index=30&type=section&id=Note%209.%20Commitments%20and%20Contingencies) The company is involved in various legal proceedings and claims, including intellectual property infringement suits, but expects no material adverse impact - The company is a party to various legal proceedings, including intellectual property infringement claims[151](index=151&type=chunk) - Resolution of pending legal matters is not expected to have a material adverse impact on consolidated results of operations, cash flows, or financial position[151](index=151&type=chunk) - Indemnification provisions for customers against intellectual property infringement liabilities are in place, but maximum potential amounts are undeterminable[152](index=152&type=chunk) [Note 10. Accrued and Other Current Liabilities](index=30&type=section&id=Note%2010.%20Accrued%20and%20Other%20Current%20Liabilities) Accrued and other current liabilities decreased to **$134.0 million** primarily due to reductions in non-income taxes and accrued legal fees Accrued and Other Current Liabilities (in millions) | Category | Jun 30, 2025 | Dec 31, 2024 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Non-income taxes payable | $55.8 | $59.2 | $(3.4) | | Accrued legal and other external fees | $19.0 | $26.1 | $(7.1) | | Acquisition indemnification holdbacks | $8.5 | $4.0 | $4.5 | | Other accrued and current liabilities | $50.7 | $53.9 | $(3.2) | | Total accrued and other current liabilities | $134.0 | $143.2 | $(9.2) | [Note 11. Stockholders' Deficit](index=30&type=section&id=Note%2011.%20Stockholders'%20Deficit) The company actively repurchases Class A common stock under a **$1.2 billion** program and has a multi-class stock structure with differing voting rights - Class A common stock has one vote per share, Class B has ten votes, and Class C has zero votes[155](index=155&type=chunk) - As of June 30, 2025, **190.8 million** Class A shares and **76.6 million** Class B shares were issued and outstanding[158](index=158&type=chunk) - The Board authorized a **$1.2 billion** share repurchase program in December 2024, under which the company continues to repurchase shares[160](index=160&type=chunk) - During the six months ended June 30, 2025, the company repurchased **32.2 million** shares of Class A common stock for **$907.0 million**[161](index=161&type=chunk) - Unamortized stock-based compensation related to unvested stock options, restricted stock awards, and RSUs was **$682.8 million** as of June 30, 2025, to be recognized over approximately **2.8 years**[166](index=166&type=chunk) - Stock-based compensation expense related to the Co-Founder Grant was fully recognized by the fourth quarter of 2024, with no expense recognized during the three and six months ended June 30, 2025[171](index=171&type=chunk) [Note 12. Net Income Per Share](index=33&type=section&id=Note%2012.%20Net%20Income%20Per%20Share) Basic net income per share was **$0.46** (three months) and **$0.98** (six months), with diluted EPS at **$0.45** and **$0.96**, respectively, using the two-class method Net Income Per Share (Unaudited) - Key Figures | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic net income per share (Class A & B) | $0.46 | $0.34 | $0.98 | $0.74 | | Diluted net income per share (Class A) | $0.45 | $0.34 | $0.96 | $0.73 | | Weighted-average shares used in computing diluted net income per share (Class A) | 276.7 million | 323.7 million | 286.1 million | 332.4 million | - Potentially dilutive securities totaling **85.9 million** shares for the three months and **85.6 million** shares for the six months ended June 30, 2025, were anti-dilutive and excluded from diluted EPS calculations[178](index=178&type=chunk) [Note 13. Income Taxes](index=35&type=section&id=Note%2013.%20Income%20Taxes) The provision for income taxes was **$22.2 million** (three months) and **$41.4 million** (six months), influenced by jurisdictional mix and tax credits - Provision for income taxes was **$22.2 million** for the three months and **$41.4 million** for the six months ended June 30, 2025[179](index=179&type=chunk) - The difference between the U.S. statutory rate and the company's effective tax rate was primarily due to the jurisdictional mix of earnings, tax credits, and state income taxes[181](index=181&type=chunk) - Unrecognized tax benefits increased by **$9.4 million** during the six months ended June 30, 2025[184](index=184&type=chunk) [Note 14. Segment Information and Geographic Areas](index=37&type=section&id=Note%2014.%20Segment%20Information%20and%20Geographic%20Areas) Dropbox operates as a single segment, with the majority of its long-lived assets and revenue concentrated in the United States - The company's chief operating decision-maker manages the business activities as a single operating and reportable segment[186](index=186&type=chunk) Long-Lived Assets by Geographic Area (in millions) | Region | Jun 30, 2025 | Dec 31, 2024 | | :------------ | :----------- | :----------- | | United States | $353.6 | $353.1 | | International | $8.6 | $5.7 | | Total | $362.2 | $358.8 | Revenue by Geographic Area (in millions) | Region | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | United States | $354.1 | $361.7 | $710.5 | $720.0 | | International | $271.6 | $272.8 | $539.9 | $545.8 | | Total revenue | $625.7 | $634.5 | $1,250.4 | $1,265.8 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operations, key metrics, and liquidity, impacted by macroeconomic conditions and strategic decisions [Overview](index=38&type=section&id=Overview) Dropbox serves over **700 million** registered users across approximately **180** countries, with **18.13 million** paying users - Dropbox serves over **700 million** registered users across approximately **180** countries, expanding from file syncing to team synchronization[193](index=193&type=chunk)[194](index=194&type=chunk) - The company has built a global business with **18.13 million** paying users[194](index=194&type=chunk) [Our Subscription Plans](index=38&type=section&id=Our%20Subscription%20Plans) Revenue is generated from diverse subscription plans for individuals, families, and teams, including Dash for Business, FormSwift, DocSend, and Dropbox Sign - Revenue is generated from subscriptions for individuals (Plus, Professional, Essentials), families, and teams (Standard, Advanced, Business, Business Plus, Enterprise)[195](index=195&type=chunk) - Offers Dash for Business (AI-powered search), FormSwift (cloud-based forms), DocSend (secure document sharing), and Dropbox Sign (e-signature solution)[195](index=195&type=chunk)[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) - Pricing is generally based on the number of licenses purchased, with some Dropbox Sign products based on transaction volume[199](index=199&type=chunk) - A strategic decision was made to significantly reduce investments in FormSwift at the beginning of 2025[197](index=197&type=chunk) [Our Customers](index=39&type=section&id=Our%20Customers) The company's highly diversified customer base includes individuals, families, teams, and organizations of all sizes, with no single customer accounting for more than **1%** of revenue - The customer base is highly diversified, including individuals, families, teams, and organizations of all sizes across various industries[200](index=200&type=chunk) - No single customer accounted for more than **1%** of the company's revenue in the periods presented[200](index=200&type=chunk) [Our Business Model](index=39&type=section&id=Our%20Business%20Model) The business model focuses on driving new signups and converting registered users to paid plans, with over **90%** of revenue from self-serve channels - The business model focuses on driving new signups through word-of-mouth and in-product referrals[201](index=201&type=chunk) - Increases conversion of registered users to paid plans via in-product prompts, free trials, and marketing campaigns[202](index=202&type=chunk) - Aims to upgrade and expand existing customers to premium offerings or additional licenses[203](index=203&type=chunk) - Over **90%** of revenue is generated from self-serve channels[202](index=202&type=chunk) [Recent Developments](index=39&type=section&id=Recent%20Developments) Macroeconomic conditions continue to impact business trends, with improved customer retention in Individual and Teams plans, but cautious spending still affects Teams performance - Macroeconomic conditions continue to impact business trends, with improved customer retention and engagement in Individual and Teams plans, though Teams performance is still affected by cautious spending[205](index=205&type=chunk) - DocSend delivered strong year-over-year growth, while Sign and FormSwift performed in line with expectations amid a competitive and cost-conscious environment[205](index=205&type=chunk) - Incurred **$1.2 million** (three months) and **$3.5 million** (six months) in expenses related to the October 2024 workforce reduction[207](index=207&type=chunk) [Key Business Metrics](index=40&type=section&id=Key%20Business%20Metrics) Total Annual Recurring Revenue (ARR) and paying users declined due to strategic decisions and a challenging operating environment, leading to a decrease in Average Revenue Per Paying User (ARPU) Total Annual Recurring Revenue (ARR) (in millions) | Metric | Jun 30, 2025 | Dec 31, 2024 | Jun 30, 2024 | | :-------- | :----------- | :----------- | :----------- | | Total ARR | $2,542 | $2,574 | $2,573 | - Total ARR decreased primarily due to the strategic decision to significantly reduce investment in FormSwift and a challenging operating environment across Teams plans[212](index=212&type=chunk) Paying Users (in millions) | Metric | Jun 30, 2025 | Dec 31, 2024 | Jun 30, 2024 | | :----------- | :----------- | :----------- | :----------- | | Paying users | 18.13 | 18.22 | 18.22 | - The number of paying users declined largely from a decrease due to the strategic decision to significantly reduce investments in FormSwift and a challenging operating environment across Teams plans[217](index=217&type=chunk) Average Revenue Per Paying User (ARPU) | Metric | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | ARPU | $138.32 | $139.93 | $138.74 | $139.71 | - ARPU declined due to the strategic decision to significantly reduce investment in FormSwift, an increased mix of sales towards lower-priced plans, and unfavorable foreign exchange rates[221](index=221&type=chunk) [Non-GAAP Financial Measure (Free Cash Flow)](index=42&type=section&id=Non-GAAP%20Financial%20Measure%20(Free%20Cash%20Flow)) Free Cash Flow (FCF) increased to **$412.2 million** due to higher operating cash and lower capital expenditures, with further increases expected from operating efficiencies Free Cash Flow (FCF) Reconciliation (in millions) | Metric | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | YoY Change ($) | YoY Change (%) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :------------- | :------------- | | Net cash provided by operating activities | $414.3 | $406.1 | $8.2 | 2.0% | | Capital expenditures | $(2.1) | $(15.1) | $13.0 | (86.1)% | | Free cash flow | $412.2 | $391.0 | $21.2 | 5.4% | - FCF increased primarily due to an increase in cash provided by operating activities and a decrease in capital expenditures[226](index=226&type=chunk) - Increased cash outflows from operating assets and liabilities were driven by payments for a lease termination fee and the 2024 workforce reduction[226](index=226&type=chunk) - FCF is expected to generally increase in the near term as the company drives operating efficiencies, partly due to the 2024 workforce reduction[227](index=227&type=chunk) [Components of Our Results of Operations](index=43&type=section&id=Components%20of%20Our%20Results%20of%20Operations) Revenue is primarily from self-serve subscriptions, while operating expenses are expected to decrease due to a workforce reduction, and a new act will reduce cash tax outflows - Revenue is recognized ratably over subscription terms, with over **90%** from self-serve channels[230](index=230&type=chunk)[231](index=231&type=chunk) - Cost of revenue includes infrastructure costs (depreciation, rent, network) and employee-related costs for infrastructure support and user support[233](index=233&type=chunk) - Research and development expenses are expected to decrease in absolute dollars and as a percentage of revenue due to the 2024 workforce reduction[237](index=237&type=chunk) - Sales and marketing expenses are expected to decrease in absolute dollars and as a percentage of revenue due to the 2024 workforce reduction[240](index=240&type=chunk) - The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, is anticipated to reduce domestic cash tax outflows in 2025 by reinstating immediate expensing of research expenditures[247](index=247&type=chunk) [Results of Operations](index=45&type=section&id=Results%20of%20Operations) Revenue experienced a slight decline, while operating expenses decreased significantly, leading to improved income from operations Revenue (in millions) | Period | 2025 | 2024 | $ Change | % Change | | :---------------------- | :------- | :------- | :------- | :------- | | Three Months Ended Jun 30 | $625.7 | $634.5 | $(8.8) | (1.4)% | | Six Months Ended Jun 30 | $1,250.4 | $1,265.8 | $(15.4) | (1.2)% | Cost of Revenue (in millions) | Period | 2025 | 2024 | $ Change | % Change | | :---------------------- | :------- | :------- | :------- | :------- | | Three Months Ended Jun 30 | $123.7 | $107.0 | $16.7 | 15.6% | | Six Months Ended Jun 30 | $240.4 | $212.8 | $27.6 | 13.0% | Operating Expenses (in millions) | Expense Category | 3 Months Ended Jun 30, 2025 | 3 Months Ended Jun 30, 2024 | $ Change | % Change | 6 Months Ended Jun 30, 2025 | 6 Months Ended Jun 30, 2024 | $ Change | % Change | | :---------------------- | :-------------------------- | :-------------------------- | :------- | :------- | :-------------------------- | :-------------------------- | :------- | :------- | | Research and development | $184.4 | $227.1 | $(42.7) | (18.8)% | $362.8 | $446.2 | $(83.4) | (18.7)% | | Sales and marketing | $87.8 | $112.5 | $(24.7) | (22.0)% | $179.8 | $221.3 | $(41.5) | (18.8)% | | General and administrative | $58.8 | $60.9 | $(2.1) | (3.4)% | $112.6 | $115.0 | $(2.4) | (2.1)% | - Net loss on real estate assets was **$2.6 million** for both the three and six months ended June 30, 2025, compared to zero in 2024[256](index=256&type=chunk)[266](index=266&type=chunk) - Interest (expense) income, net, increased by **$23.3 million** (3 months) and **$45.2 million** (6 months) due to interest expense related to the term loan facility[257](index=257&type=chunk)[267](index=267&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains **$736.3 million** in cash and equivalents, with significant debt obligations and substantial cash usage for stock repurchases - As of June 30, 2025, cash and cash equivalents were **$736.3 million** and short-term investments were **$218.4 million**[270](index=270&type=chunk) - The company has **$995.0 million** outstanding on its term loan facility and **$1.389.1 billion** in **0%** convertible senior notes due in 2026 and 2028[273](index=273&type=chunk)[272](index=272&type=chunk) - Principal uses of cash include funding operations, repurchases of Class A common stock (**$907.0 million** in H1 2025), tax withholding obligations, and debt payments[276](index=276&type=chunk)[277](index=277&type=chunk) - Net cash provided by operating activities was **$414.3 million** for the six months ended June 30, 2025, an increase of **$8.2 million** year-over-year[281](index=281&type=chunk)[282](index=282&type=chunk) - Net cash used in financing activities was **$1,066.3 million** for the six months ended June 30, 2025, an increase of **$386.9 million** year-over-year, primarily due to increased stock repurchases[287](index=287&type=chunk)[288](index=288&type=chunk) [Critical Accounting Estimates](index=54&type=section&id=Critical%20Accounting%20Estimates) There have been no material changes to the company's critical accounting policies and estimates since its Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no material changes to the company's critical accounting policies and estimates since its Annual Report on Form 10-K for the year ended December 31, 2024[289](index=289&type=chunk) [Recent Accounting Pronouncements](index=55&type=section&id=Recent%20Accounting%20Pronouncements) Refer to Note 1 for information on recently issued accounting pronouncements not yet adopted - Refer to Note 1 'Description of the Business and Summary of Significant Accounting Policies' for information on recently issued accounting pronouncements not yet adopted[290](index=290&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk on debt and foreign currency risk on international sales, without hedging programs - A hypothetical **100 basis point** increase in interest rates would have an immaterial impact on the market value of the investment portfolio[292](index=292&type=chunk) - A hypothetical **100 basis point** increase or decrease in interest rates would result in a **$2.5 million** (3 months) and **$4.7 million** (6 months) change in interest expense related to the term loan facility[293](index=293&type=chunk) - **26%** of 2024 sales were denominated in currencies other than U.S. dollars, primarily Euros and British pounds sterling[296](index=296&type=chunk) - The company does not currently maintain a program to hedge exposures to non-U.S. dollar currencies[297](index=297&type=chunk) [Item 4. Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[298](index=298&type=chunk) - There was no change in internal control over financial reporting that materially affected, or is reasonably likely to materially affect, internal control over financial reporting during the period[299](index=299&type=chunk) - Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance and are subject to inherent limitations[300](index=300&type=chunk) [PART II. OTHER INFORMATION](index=58&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, detailed risk factors, equity security sales, other information, exhibits, and signatures [Item 1. Legal Proceedings](index=58&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in patent infringement lawsuits, expecting no material adverse impact on financial position - The company is currently involved in legal proceedings, including patent infringement suits by Motion Offense, LLC and Entangled Media, LLC[302](index=302&type=chunk)[303](index=303&type=chunk)[306](index=306&type=chunk) - In the Motion Offense Litigation, a jury found in favor of Dropbox on all counts (non-infringement and invalidity) in May 2023, with judgment entered in August 2024; Motion Offense filed a Motion for Judgment as a Matter of Law and a renewed Motion for a New Trial in September 2024[304](index=304&type=chunk) - The Entangled Media Litigation was transferred to the Northern District of California, with trial currently expected to occur in 2026[306](index=306&type=chunk)[307](index=307&type=chunk) - The company believes any potential loss from these legal matters would not be material to its financial position or results of operations[307](index=307&type=chunk) [Item 1A. Risk Factors](index=59&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include user retention, data security, competition, financial performance, debt, and regulatory compliance - Risks related to business and operations include dependence on retaining and upgrading paying users, failure to attract new users, privacy and data security breaches (e.g., Dropbox Sign incident), declining growth rates, service disruptions, intense competition, failure to respond to technological changes (including AI), reliance on third-party interoperability, macroeconomic impacts, dependence on key personnel, and uncertainties of the Virtual First model[312](index=312&type=chunk)[315](index=315&type=chunk)[320](index=320&type=chunk)[327](index=327&type=chunk)[330](index=330&type=chunk)[335](index=335&type=chunk)[341](index=341&type=chunk)[345](index=345&type=chunk)[348](index=348&type=chunk)[351](index=351&type=chunk)[357](index=357&type=chunk) - Financial performance risks include a declining revenue growth rate, potential for increased expenses impacting profitability (especially AI investments), significant cash requirements for servicing indebtedness, and quarterly results fluctuations[396](index=396&type=chunk)[397](index=397&type=chunk)[398](index=398&type=chunk)[399](index=399&type=chunk) - Legal and regulatory compliance risks involve adherence to various U.S. and international laws (e.g., copyright, consumer protection, privacy, data protection, export control, anti-corruption), potential intellectual property claims, and the impact of changes in tax laws (e.g., OBBBA)[413](index=413&type=chunk)[417](index=417&type=chunk)[418](index=418&type=chunk)[420](index=420&type=chunk)[434](index=434&type=chunk)[408](index=408&type=chunk) - Risks related to ownership of Class A Common Stock include potential price volatility, concentrated voting control due to the multi-class structure, potential dilution from convertible notes, and anti-takeover provisions in corporate documents[441](index=441&type=chunk)[443](index=443&type=chunk)[448](index=448&type=chunk)[450](index=450&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=89&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **14.15 million** Class A common shares for **$403.0 million** under its **$1.2 billion** program Issuer Purchases of Equity Securities (Quarter Ended June 30, 2025) | Period | Total Number of Shares Purchased (in millions) | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Programs (in millions) | | :----------- | :------------------------------------------- | :--------------------------- | :------------------------------------------------------------------------------------------------------- | | April 1 - 30 | 5.77 | $26.96 | $714.34 | | May 1 - 31 | 5.42 | $28.98 | $557.40 | | June 1 - 30 | 2.96 | $29.24 | $470.73 | | Total | 14.15 | $28.21 | | - The repurchases were made under a **$1.2 billion** share repurchase program authorized in December 2024[474](index=474&type=chunk) [Item 5. Other Information](index=89&type=section&id=Item%205.%20Other%20Information) Directors and executive officers adopted Rule 10b5-1 trading plans for Class A common stock sales - Abhay Parasnis (Board Member) adopted a Rule 10b5-1 plan on May 21, 2025, for up to **5,346** shares[475](index=475&type=chunk) - Andrew Moore (Board Member) adopted a Rule 10b5-1 plan on May 29, 2025, for up to **22,548** shares[476](index=476&type=chunk) - Ali Dasdan (Chief Technology Officer) adopted a Rule 10b5-1 plan on May 12, 2025, for up to **128,714** shares[477](index=477&type=chunk) - Tim Regan (Chief Financial Officer) adopted a Rule 10b5-1 plan on June 10, 2025, for up to **66,000** shares[478](index=478&type=chunk) - Will Yoon (Chief Legal Officer) adopted a Rule 10b5-1 plan on June 8, 2025, for up to **33,591** shares[480](index=480&type=chunk) [Item 6. Exhibits](index=90&type=section&id=Item%206.%20Exhibits) This section lists exhibits, including officer certifications and financial statements in Inline XBRL format - Includes certifications of Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1)[484](index=484&type=chunk) - Financial statements for the quarter ended June 30, 2025, are formatted in Inline XBRL (Exhibit 101)[484](index=484&type=chunk) [Signatures](index=92&type=section&id=Signatures) The report was signed by the CEO and CFO on August 8, 2025, as required by the Securities Exchange Act - The report was signed by Andrew W. Houston (Chief Executive Officer) and Timothy J. Regan (Chief Financial Officer) on August 8, 2025[489](index=489&type=chunk)

Core Insights - Dropbox (DBX) reported second-quarter 2025 non-GAAP earnings of 71 cents per share, exceeding the Zacks Consensus Estimate by 12.7% and reflecting an 18.3% year-over-year increase [1][9] Financial Performance - Revenues for the quarter were $625.7 million, a decline of 1.4% year over year, but surpassed the consensus mark by 1.28%. On a constant currency basis, revenues fell 1.3% [2] - Total annual recurring revenues (ARR) were $2.54 billion, down 1.2% year over year, with a constant currency decrease of 1.1%. FormSwift negatively impacted ARR by 160 basis points [3][2] - The company reported a non-GAAP gross margin of 82.2%, down 230 basis points year over year, while the non-GAAP operating margin increased to 41.5%, up 550 basis points year over year due to cost reductions [7][8][9] User Metrics - As of the end of the second quarter, Dropbox had 18.13 million paying users, a sequential decline of approximately 34,000. The average revenue per paying user (ARPU) was $138.32, down from $139.93 in the previous year [4] - The company expects a decline of approximately 1.5% in paying users for 2025, with FormSwift contributing to roughly half of this decline [14] Strategic Initiatives - Dropbox launched new features in April aimed at enhancing user productivity, including intranet features and rich media search, which now accounts for a double-digit percentage of total queries [5][4] - Initiatives to redesign the Teams onboarding experience have led to a 5% improvement in activation rates and a 10% improvement in setup rates [6] Cash Flow and Share Repurchase - As of June 30, 2025, Dropbox had cash, cash equivalents, and short-term investments totaling $954.7 million, down from $1.18 billion as of March 31, 2025. The company generated $260.5 million in cash from operating activities during the quarter [10] - In the second quarter, Dropbox repurchased 14 million shares for $400 million, with $470 million remaining under existing share repurchase authorizations [11] Guidance - For Q3 2025, Dropbox expects revenues between $622 million and $625 million, anticipating a negative impact from FormSwift of 170 basis points [12] - For the full year 2025, the company projects revenues between $2.49 billion and $2.5 billion, with FormSwift expected to negatively impact revenues by 150 basis points [13]

Dropbox (DBX -1.23%), a cloud-based content collaboration company best known for its file storage and sharing tools, released its second-quarter fiscal 2025 earnings on August 7, 2025. The most notable headline was a beat on both revenue and non-GAAP earnings per share, supported by significant margin gains. Revenue (GAAP) was $625.7 million, slightly higher than the $618.3 million analyst estimate (GAAP), though down 1.4% from last year's period (GAAP). Non-GAAP earnings per share landed at $0.71, well ahe ...

Group 1 - Dropbox reported quarterly earnings of $0.71 per share, exceeding the Zacks Consensus Estimate of $0.63 per share, and showing an increase from $0.60 per share a year ago, resulting in an earnings surprise of +12.70% [1] - The company achieved revenues of $625.7 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 1.28%, although this represents a decline from $634.5 million in the same quarter last year [2] - Dropbox has consistently surpassed consensus EPS estimates over the last four quarters, indicating strong performance in earnings [2] Group 2 - The stock has underperformed the market, losing about 11.8% since the beginning of the year, while the S&P 500 has gained 7.9% [3] - The future performance of Dropbox's stock will largely depend on management's commentary during the earnings call and the subsequent revisions of earnings estimates [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.64 on revenues of $618.65 million, and for the current fiscal year, it is $2.61 on revenues of $2.48 billion [7] Group 3 - The Zacks Industry Rank places the Internet - Services sector in the bottom 37% of over 250 Zacks industries, suggesting potential challenges for stocks in this category [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked using tools like the Zacks Rank [5][6]

Financial Data and Key Metrics Changes - Total revenue for Q2 2025 was $626 million, a decline of 1.4% year over year, with constant currency revenue also down 1.3% [16] - Total Annual Recurring Revenue (ARR) was $2.542 billion, down 1.2% year over year [16] - Gross margin was 82.2%, down 230 basis points from the previous year, while operating margin was 41.5%, exceeding guidance of 37.5% [19][20] - Net income for Q2 was $198 million, up 2% year over year, with diluted EPS increasing 18% to $0.71 [20] Business Line Data and Key Metrics Changes - The decline in paying users was primarily driven by reduced investment in the FormSwift business, with a total of 18.13 million paying users, a sequential decline of approximately 34,000 [16][17] - Improvements in onboarding processes led to a 510% increase in activation and setup rates, and a 100% increase in desktop downloads [11] - The document workflow business, particularly DocSend, continued to grow at a double-digit pace year over year [13] Market Data and Key Metrics Changes - The company anticipates a decline of approximately 1.5% or about 300,000 paying users for the full year, with FormSwift expected to represent roughly half of that decline [25] - The company is seeing positive momentum in churn rates due to improved retention efforts [44] Company Strategy and Development Direction - The strategic priorities for the year include scaling Dash and simplifying the core FSS business [6] - The company plans to launch a self-serve version of Dash to target the underserved SMB space and enhance user growth and monetization [10][46] - Continued investment in backend improvements and security features is a focus to strengthen platform usability [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the stability of the core business, allowing for investments in future growth opportunities [15] - The company raised its full-year revenue guidance due to positive momentum across the core business and retention efforts [24][28] Other Important Information - The company repurchased approximately 14 million shares, spending about $400 million, with $470 million remaining under the existing share repurchase authorization [21] - The company expects unlevered free cash flow to be at or above $970 million for the full year [24] Q&A Session Summary Question: Can you discuss retention or downgrade prevention lift among early DASH adopters? - Management noted positive early adoption metrics and improvements in onboarding and retention rates for DASH users [35][36] Question: What sort of uplift did you see due to the cancellation flow change? - The cancellation flow improvements highlighted the value provided by Dropbox, leading to better retention and reduced churn [38] Question: Is FormSwift declining at a slower pace than expected? - Management confirmed that while FormSwift is performing well, they still expect it to represent roughly half of the anticipated decline in paying users [43][44] Question: What are the key areas of investment for Dash going forward? - The focus will be on launching a self-serve version of Dash and integrating it into the Dropbox FSS experience [46][47] Question: How is the company navigating changes in API access from partners like Slack? - Management stated that they maintain a good partnership with Slack and are adapting to API changes while ensuring continued value delivery [52] Question: What is the strategy for converting the free user base? - The strategy includes providing more value to free users and optimizing pricing and packaging to balance free and premium offerings [59][60]

Financial Performance - The company's TTM revenue reached $2.533 billion[7] - TTM Free Cash Flow was $893 million[7] - TTM Non-GAAP gross margin was 83.1%[8] - TTM Non-GAAP operating margin was 39.0%[8] - Non-GAAP EPS Growth was 22.3%[8] User Base and ARPU - The company had 18.13 million paying users as of June 30, 2025[8, 9] - ARPU was $138.32[36] Financial Guidance - The company projects GAAP revenue of $622-$625 million for Q3 2025 and $2.490-$2.500 billion for fiscal year 2025[105] - The company anticipates a Non-GAAP operating margin of approximately 37.0% for Q3 2025 and approximately 39.0% for fiscal year 2025[105] - The company expects unlevered free cash flow to be at or above $970 million for fiscal year 2025[105] Capital Allocation - In Q2 2025, the company repurchased approximately 14 million shares for approximately $400 million[103] - As of June 30, 2025, the company had approximately $470 million available under the current Board authorization for share repurchases[104]

Q2 2025 Earnings Highlights [Headline Results](index=1&type=section&id=1.1%20Headline%20Results) Dropbox announced its fiscal Q2 2025 results, reporting a slight revenue decrease year-over-year but strong non-GAAP operating margin and free cash flow, indicating operational efficiency Q2 2025 Key Financial Highlights | Metric | Value | YoY Change | | :-------------------------------- | :---------------- | :--------- | | Revenue | $625.7 million | -1.4% | | Non-GAAP Operating Margin | 41.5% | +5.6 pp | | Net Cash Provided by Operating Activities | $260.5 million | +12.9% | | Free Cash Flow | $258.5 million | +15.0% | [CEO Statement](index=1&type=section&id=1.2%20CEO%20Statement) CEO Drew Houston highlighted a strong quarter, emphasizing the business's durability and progress in product initiatives. He noted early signs of stability in the Core FSS business and growing momentum for AI-powered Dash, expressing confidence in long-term growth across existing and new product lines - Dropbox delivered a **strong Q2**, demonstrating business durability and progress on key product initiatives[3](index=3&type=chunk) - Early signs of **stability** are observed in the Core FSS business, even with more efficient investment levels[3](index=3&type=chunk) - AI-powered Dash continues to build **momentum** with stronger customer engagement, reflecting increased adoption of intelligent tools for work[3](index=3&type=chunk) [Detailed Q2 2025 Financial Highlights](index=1&type=section&id=1.3%20Detailed%20Q2%202025%20Financial%20Highlights) Dropbox's detailed Q2 2025 financial results show a slight decline in revenue and Annual Recurring Revenue (ARR) year-over-year, alongside a decrease in paying users. However, the company achieved significant improvements in GAAP and Non-GAAP operating margins and net income, driven partly by reduced employee-related costs Q2 2025 Detailed Financial Highlights (YoY Comparison) | Metric | Q2 2025 | Q2 2024 | Change | | :------------------------------------ | :---------- | :---------- | :------- | | Total Revenue | $625.7M | $634.5M | -1.4% | | Total ARR | $2.542B | $2.573B | -1.2% | | Paying Users | 18.13M | 18.22M | -0.5% | | Average Revenue Per Paying User | $138.32 | $139.93 | -1.1% | | GAAP Gross Margin | 80.2% | 83.1% | -2.9 pp | | Non-GAAP Gross Margin | 82.2% | 84.5% | -2.3 pp | | GAAP Operating Margin | 26.9% | 20.0% | +6.9 pp | | Non-GAAP Operating Margin | 41.5% | 35.9% | +5.6 pp | | GAAP Net Income | $125.6M | $110.5M | +13.7% | | Non-GAAP Net Income | $197.7M | $194.1M | +1.9% | | Net Cash Provided by Operating Activities | $260.5M | $230.6M | +12.9% | | Free Cash Flow | $258.5M | $224.7M | +15.0% | | GAAP Diluted EPS | $0.45 | $0.34 | +32.4% | | Non-GAAP Diluted EPS | $0.71 | $0.60 | +18.3% | | Cash, Cash Equivalents & Short-Term Investments | $954.7M | N/A | N/A | - The increase in GAAP operating margin was partially due to a decrease in employee-related costs driven by a decrease in headcount[6](index=6&type=chunk) GAAP Financial Statements [Condensed Consolidated Statements of Operations](index=5&type=section&id=2.1%20Condensed%20Consolidated%20Statements%20of%20Operations) For Q2 2025, Dropbox reported a slight revenue decline but a notable increase in GAAP net income and diluted EPS compared to the prior year, primarily due to lower operating expenses, particularly in research and development and sales and marketing Condensed Consolidated Statements of Operations (Three Months Ended June 30) | Metric | 2025 (Millions) | 2024 (Millions) | Change (Millions) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :---------------- | :--------- | | Revenue | $625.7 | $634.5 | $(8.8) | -1.4% | | Cost of revenue | $123.7 | $107.0 | $16.7 | +15.6% | | Gross profit | $502.0 | $527.5 | $(25.5) | -4.8% | | Total operating expenses | $333.6 | $400.5 | $(66.9) | -16.7% | | Income from operations | $168.4 | $127.0 | $41.4 | +32.6% | | Net income | $125.6 | $110.5 | $15.1 | +13.7% | | Basic net income per share | $0.46 | $0.34 | $0.12 | +35.3% | | Diluted net income per share | $0.45 | $0.34 | $0.11 | +32.4% | Stock-based Compensation Expense (Three Months Ended June 30) | Category | 2025 (Millions) | 2024 (Millions) | Change (Millions) | Change (%) | | :-------------------------- | :-------------- | :-------------- | :---------------- | :--------- | | Cost of revenue | $5.6 | $6.0 | $(0.4) | -6.7% | | Research and development | $53.8 | $64.2 | $(10.4) | -16.2% | | Sales and marketing | $5.7 | $6.2 | $(0.5) | -8.1% | | General and administrative | $12.6 | $14.1 | $(1.5) | -10.6% | | Total stock-based compensation | $77.7 | $90.5 | $(12.8) | -14.1% | [Condensed Consolidated Balance Sheets](index=6&type=section&id=2.2%20Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, Dropbox's total assets decreased compared to December 31, 2024, primarily due to a significant reduction in cash and cash equivalents. Total liabilities saw a slight increase, while stockholders' deficit widened Condensed Consolidated Balance Sheets (As of) | Metric | June 30, 2025 (Millions) | December 31, 2024 (Millions) | Change (Millions) | | :-------------------------------- | :----------------------- | :--------------------------- | :---------------- | | Cash and cash equivalents | $736.3 | $1,328.3 | $(592.0) | | Total current assets | $1,113.5 | $1,738.4 | $(624.9) | | Total assets | $2,779.4 | $3,325.2 | $(545.8) | | Total current liabilities | $1,855.2 | $1,210.8 | $644.4 | | Total liabilities | $4,084.9 | $4,077.6 | $7.3 | | Total stockholders' deficit | $(1,305.5) | $(752.4) | $(553.1) | - Current liabilities increased significantly, driven by convertible senior notes becoming current, while non-current convertible senior notes decreased[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=2.3%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Dropbox generated strong net cash from operating activities in Q2 2025, an increase year-over-year. However, significant cash outflows from financing activities, primarily common stock repurchases, led to a net decrease in cash and cash equivalents for the quarter Condensed Consolidated Statements of Cash Flows (Three Months Ended June 30) | Activity | 2025 (Millions) | 2024 (Millions) | Change (Millions) | | :------------------------------------ | :-------------- | :-------------- | :---------------- | | Net cash provided by operating activities | $260.5 | $230.6 | $29.9 | | Net cash provided by investing activities | $12.4 | $63.2 | $(50.8) | | Net cash used in financing activities | $(487.8) | $(326.7) | $(161.1) | | Change in cash, cash equivalents, and restricted cash | $(205.7) | $(33.8) | $(171.9) | | Cash, cash equivalents, and restricted cash - end of period | $769.2 | $515.1 | $254.1 | - Common stock repurchases were a major use of cash in financing activities, totaling **$410.0 million** in Q2 2025[17](index=17&type=chunk) - Investing activities saw a decrease in proceeds from maturities of short-term investments compared to the prior year[17](index=17&type=chunk) Non-GAAP Reconciliations and Explanations [Reconciliation of GAAP to Non-GAAP Operating Results](index=8&type=section&id=3.1%20Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Operating%20Results) This section provides a reconciliation of GAAP operating results to Non-GAAP operating results for both the three and six months ended June 30, 2025 and 2024, highlighting adjustments for stock-based compensation, acquisition-related expenses, intangibles amortization, real estate asset losses, and workforce reduction expenses [Three Months Ended June 30, 2025](index=8&type=section&id=3.1.1%20Three%20Months%20Ended%20June%2030%2C%202025) GAAP vs. Non-GAAP Operating Results (Three Months Ended June 30, 2025) | Metric | GAAP (Millions) | Adjustments (Millions) | Non-GAAP (Millions) | | :-------------------------- | :-------------- | :--------------------- | :------------------ | | Cost of revenue | $123.7 | $(12.5) | $111.2 | | Gross profit | $502.0 | $12.5 | $514.5 | | Research and development | $184.4 | $(56.0) | $128.4 | | Sales and marketing | $87.8 | $(6.9) | $80.9 | | General and administrative | $58.8 | $(13.0) | $45.8 | | Net loss on real estate assets | $2.6 | $(2.6) | $0.0 | | Income from operations | $168.4 | $90.9 | $259.4 | | Operating margin | 26.9% | 14.6% | 41.5% | [Three Months Ended June 30, 2024](index=9&type=section&id=3.1.2%20Three%20Months%20Ended%20June%2030%2C%202024) GAAP vs. Non-GAAP Operating Results (Three Months Ended June 30, 2024) | Metric | GAAP (Millions) | Adjustments (Millions) | Non-GAAP (Millions) | | :-------------------------- | :-------------- | :--------------------- | :------------------ | | Cost of revenue | $107.0 | $(8.8) | $98.2 | | Gross profit | $527.5 | $8.8 | $536.3 | | Research and development | $227.1 | $(67.5) | $159.6 | | Sales and marketing | $112.5 | $(9.2) | $103.3 | | General and administrative | $60.9 | $(15.4) | $45.5 | | Income from operations | $127.0 | $100.9 | $227.9 | | Operating margin | 20.0% | 15.9% | 35.9% | [Six Months Ended June 30, 2025](index=10&type=section&id=3.1.3%20Six%20Months%20Ended%20June%2030%2C%202025) GAAP vs. Non-GAAP Operating Results (Six Months Ended June 30, 2025) | Metric | GAAP (Millions) | Adjustments (Millions) | Non-GAAP (Millions) | | :-------------------------- | :-------------- | :--------------------- | :------------------ | | Cost of revenue | $240.4 | $(13.0) | $217.9 | | Gross profit | $1,010.0 | $22.5 | $1,032.5 | | Research and development | $362.8 | $(105.1) | $257.7 | | Sales and marketing | $179.8 | $(13.3) | $166.5 | | General and administrative | $112.6 | $(24.2) | $88.4 | | Net loss on real estate assets | $2.6 | $(2.6) | $0.0 | | Income from operations | $352.2 | $167.7 | $519.9 | | Operating margin | 28.2% | 13.4% | 41.6% | [Six Months Ended June 30, 2024](index=11&type=section&id=3.1.4%20Six%20Months%20Ended%20June%2030%2C%202024) GAAP vs. Non-GAAP Operating Results (Six Months Ended June 30, 2024) | Metric | GAAP (Millions) | Adjustments (Millions) | Non-GAAP (Millions) | | :-------------------------- | :-------------- | :--------------------- | :------------------ | | Cost of revenue | $212.8 | $(17.1) | $195.7 | | Gross profit | $1,053.0 | $17.1 | $1,070.1 | | Research and development | $446.2 | $(125.9) | $320.3 | | Sales and marketing | $221.3 | $(17.4) | $203.9 | | General and administrative | $115.0 | $(27.7) | $87.3 | | Income from operations | $270.5 | $188.1 | $458.6 | | Operating margin | 21.4% | 14.8% | 36.2% | [Reconciliation of GAAP to Non-GAAP Net Income and EPS](index=12&type=section&id=3.2%20Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Net%20Income%20and%20EPS) Dropbox provides a reconciliation of GAAP net income and diluted EPS to their Non-GAAP counterparts, adjusting for various non-cash and non-recurring items such as stock-based compensation, acquisition-related expenses, and workforce reduction costs, to offer a clearer view of underlying operational performance Reconciliation of GAAP to Non-GAAP Net Income and EPS (Three Months Ended June 30) | Metric | 2025 (Millions) | 2024 (Millions) | | :------------------------------------ | :-------------- | :-------------- | | GAAP net income | $125.6 | $110.5 | | Total Non-GAAP adjustments | $72.1 | $83.6 | | Non-GAAP net income | $197.7 | $194.1 | | Non-GAAP diluted net income per share | $0.71 | $0.60 | Reconciliation of GAAP to Non-GAAP Net Income and EPS (Six Months Ended June 30) | Metric | 2025 (Millions) | 2024 (Millions) | | :------------------------------------ | :-------------- | :-------------- | | GAAP net income | $275.9 | $242.8 | | Total Non-GAAP adjustments | $128.9 | $148.0 | | Non-GAAP net income | $404.8 | $390.8 | | Non-GAAP diluted net income per share | $1.41 | $1.18 | [Reconciliation of Free Cash Flow](index=12&type=section&id=3.3%20Reconciliation%20of%20Free%20Cash%20Flow) Dropbox's free cash flow (FCF) and unlevered FCF significantly increased year-over-year for both the three and six months ended June 30, 2025, demonstrating strong cash generation capabilities after accounting for capital expenditures and debt interest Free Cash Flow Reconciliation (Three Months Ended June 30) | Metric | 2025 (Millions) | 2024 (Millions) | | :------------------------------------ | :-------------- | :-------------- | | Net cash provided by operating activities | $260.5 | $230.6 | | Capital expenditures | $(2.0) | $(5.9) | | Free cash flow | $258.5 | $224.7 | | Free cash flow margin | 41.3% | 35.4% | | Unlevered free cash flow | $276.4 | $224.7 | Free Cash Flow Reconciliation (Six Months Ended June 30) | Metric | 2025 (Millions) | 2024 (Millions) | | :------------------------------------ | :-------------- | :-------------- | | Net cash provided by operating activities | $414.3 | $406.1 | | Capital expenditures | $(2.1) | $(15.1) | | Free cash flow | $412.2 | $391.0 | | Free cash flow margin | 33.0% | 30.9% | | Unlevered free cash flow | $450.8 | $391.0 | - Supplemental disclosures include payments for workforce reduction (**$2.3 million** in Q2 2025) and cash paid for lease termination (**$36.0 million** for six months ended June 30, 2025)[29](index=29&type=chunk)[30](index=30&type=chunk) [About Non-GAAP Financial Measures](index=13&type=section&id=3.4%20About%20Non-GAAP%20Financial%20Measures) Dropbox utilizes various non-GAAP financial measures, such as constant currency revenue growth, non-GAAP operating income, and free cash flow, to provide investors with additional insights into its core operating performance by excluding non-recurring or non-cash expenses. Management uses these metrics for internal budgeting, forecasting, and evaluating financial performance, while acknowledging their inherent limitations compared to GAAP measures - Non-GAAP measures exclude stock-based compensation, amortization of acquired intangible assets, acquisition-related expenses, net loss on real estate assets, workforce reduction expenses, net loss on equity investments, and related income tax effects[30](index=30&type=chunk) - Management uses non-GAAP measures to understand and compare operating results, for internal budgeting, and to evaluate financial performance, believing they reflect ongoing business trends[31](index=31&type=chunk) - Free Cash Flow (FCF) is considered an indicator of long-term liquidity, providing information on cash generated from operations and investments in property and equipment, but has limitations such as not reflecting future contractual commitments[33](index=33&type=chunk) Additional Information [Financial Outlook and Conference Call](index=4&type=section&id=4.1%20Financial%20Outlook%20and%20Conference%20Call) Dropbox will provide its forward-looking financial guidance during its quarterly earnings conference call and webcast, with details available on its investor relations website - Forward-looking guidance will be provided on the conference call and webcast, accessible via http://investors.dropbox.com[8](index=8&type=chunk)[9](index=9&type=chunk) [About Dropbox](index=4&type=section&id=4.2%20About%20Dropbox) Dropbox is a cloud-based collaboration platform headquartered in San Francisco, CA, serving over 700 million registered users across approximately 180 countries with a mission to design a more enlightened way of working - Dropbox helps users organize life and keep work moving, with over **700 million registered users** in approximately **180 countries**[10](index=10&type=chunk) - The company's mission is to design a more enlightened way of working[10](index=10&type=chunk) - Dropbox is headquartered in San Francisco, CA[10](index=10&type=chunk) [Forward-Looking Statements](index=4&type=section&id=4.3%20Forward-Looking%20Statements) This section contains forward-looking statements regarding Dropbox's business performance, product initiatives, and financial trends, which are subject to various risks and uncertainties, including user retention, market competition, technological changes, and economic conditions. Investors are cautioned that actual results may differ materially from expectations - Statements regarding Core FSS business performance, new product initiatives (e.g., Dash), and customer adoption are forward-looking[11](index=11&type=chunk) - Key risks include the ability to retain and upgrade paying users, attract new users, general economic trends, pricing changes, and competition[11](index=11&type=chunk) - Dropbox assumes no obligation to update forward-looking statements, except as required by law, and advises reviewing SEC filings for further risks[11](index=11&type=chunk) [Contacts](index=15&type=section&id=4.4%20Contacts) Contact information for investor relations and media inquiries is provided - Investors can contact Peter Stabler at ir@dropbox.com[35](index=35&type=chunk) - Media inquiries can be directed to Alissa Stewart at press@dropbox.com[35](index=35&type=chunk)

Company Overview - Dropbox (DBX) is expected to report a year-over-year increase in earnings of +5% with an EPS of $0.63, despite a revenue decline of -2.6% to $617.77 million for the quarter ended June 2025 [3][11] - The earnings report is scheduled for release on August 7, and the actual results will significantly influence the stock price depending on whether they meet or exceed expectations [2][3] Earnings Expectations - The consensus EPS estimate has remained unchanged over the last 30 days, indicating stability in analyst expectations [4] - The Most Accurate Estimate for Dropbox is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -4.00%, suggesting a bearish outlook from analysts [11] Historical Performance - In the last reported quarter, Dropbox exceeded the consensus EPS estimate of $0.62 by delivering earnings of $0.70, resulting in a surprise of +12.90% [12] - Over the past four quarters, Dropbox has consistently beaten consensus EPS estimates [13] Comparison with Industry Peers - Uber Technologies (UBER), another player in the Zacks Internet - Services industry, is expected to report an EPS of $0.62, reflecting a year-over-year increase of +31.9% and revenue growth of +16.4% to $12.46 billion [17][18] - Uber's Earnings ESP is +0.2%, indicating a likelihood of beating the consensus EPS estimate, supported by a Zacks Rank of 3 [18]

Company Performance - Dropbox's stock increased by 1.19% to $28.10, outperforming the S&P 500's gain of 0.02% on the same day [1] - Prior to this trading session, Dropbox shares had decreased by 1.24%, lagging behind the Computer and Technology sector's gain of 6.31% and the S&P 500's gain of 4.93% [1] Upcoming Earnings Report - Dropbox is set to release its earnings report on August 7, 2025, with an expected EPS of $0.63, reflecting a 5% increase from the same quarter last year [2] - The consensus estimate for revenue is projected at $617.77 million, which is a decrease of 2.64% compared to the prior-year quarter [2] Fiscal Year Projections - For the entire fiscal year, earnings are projected at $2.61 per share and revenue at $2.48 billion, indicating changes of +4.82% and -2.57% respectively from the previous year [3] - Recent analyst estimate revisions suggest a positive outlook on Dropbox's business performance and profit potential [3] Analyst Ratings and Valuation - The Zacks Rank system, which evaluates estimate changes, currently ranks Dropbox at 3 (Hold) [5] - Dropbox's Forward P/E ratio is 10.63, indicating a discount compared to its industry's Forward P/E of 20.42 [6] - The company has a PEG ratio of 7.33, while the Internet - Services industry has an average PEG ratio of 1.61 [6] Industry Context - The Internet - Services industry, part of the Computer and Technology sector, holds a Zacks Industry Rank of 192, placing it in the bottom 23% of over 250 industries [7] - Research indicates that top-rated industries outperform lower-rated ones by a factor of 2 to 1 [7]

Market Overview - The market capitalization of major US stocks shows varied performance, with Oracle at 762.30 billion, Mastercard at 321.36 billion, and Visa at 770.15 billion, reflecting increases of +0.66%, +0.86%, and +0.68% respectively [3] - Exxon Mobil's market cap is 679.53 billion, with a slight decrease of -0.98%, while Johnson & Johnson and Netflix show minor changes of -0.08% and -0.05% respectively [3] - Companies like Wells Fargo and Cisco have market caps of 270.15 billion and 279.59 billion, with respective increases of +0.98% and -0.58% [3] Notable Stock Movements - T-Mobile US Inc experienced a significant increase of +6.20%, reaching a market cap of 272.19 billion [3] - General Electric and Coca-Cola saw market caps of 285.05 billion and 298.76 billion, with increases of +0.37% and +0.91% respectively [3] - Companies like Disney and Goldman Sachs have market caps of 229.06 billion and 221.80 billion, with slight changes of +0.01% and -0.60% [3] Sector Performance - The technology sector shows mixed results, with Intel at 991.05 billion, down -3.28%, while AMD increased by +2.46% to 254.92 billion [5] - The consumer goods sector is represented by companies like Procter & Gamble and Coca-Cola, with market caps of 371.68 billion and 298.76 billion, showing slight increases [3][4] - The energy sector, represented by Exxon Mobil and Chevron, shows varied performance, with Exxon down -0.98% and Chevron up +0.66% [3] Summary of Key Companies - Oracle's market cap stands at 762.30 billion, reflecting a positive trend [3] - Mastercard and Visa show strong performance with market caps of 321.36 billion and 770.15 billion, both increasing [3] - Companies like Pfizer and Comcast have market caps of 1579.81 billion and 1332.00 billion, with Pfizer showing minimal change and Comcast down -3.16% [4][5]