Dropbox(DBX) - 2025 Q2 - Quarterly Results

Q2 2025 Earnings Highlights Headline Results 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 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] - Early signs of stability are observed in the Core FSS business, even with more efficient investment levels[3] - AI-powered Dash continues to build momentum with stronger customer engagement, reflecting increased adoption of intelligent tools for work[3] Detailed Q2 2025 Financial Highlights 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] GAAP Financial Statements Condensed Consolidated Statements of Operations 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 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] Condensed Consolidated Statements of Cash Flows 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] - Investing activities saw a decrease in proceeds from maturities of short-term investments compared to the prior year[17] Non-GAAP Reconciliations and Explanations Reconciliation of GAAP to Non-GAAP Operating Results 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 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 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 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 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 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 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][30] About Non-GAAP Financial Measures 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] - 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] - 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] Additional Information Financial Outlook and Conference Call 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] About Dropbox 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] - The company's mission is to design a more enlightened way of working[10] - Dropbox is headquartered in San Francisco, CA[10] Forward-Looking Statements 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] - Key risks include the ability to retain and upgrade paying users, attract new users, general economic trends, pricing changes, and competition[11] - Dropbox assumes no obligation to update forward-looking statements, except as required by law, and advises reviewing SEC filings for further risks[11] Contacts Contact information for investor relations and media inquiries is provided - Investors can contact Peter Stabler at ir@dropbox.com[35] - Media inquiries can be directed to Alissa Stewart at press@dropbox.com[35]