Business Wire | Nov 4, 2021 04:04PM EDT

Dropbox Announces Third Quarter Fiscal 2021 Results

Nov. 04, 2021

SAN FRANCISCO, Calif.--(BUSINESS WIRE)--Nov. 04, 2021--Dropbox, Inc. (NASDAQ: DBX), today announced financial results for its third quarter ended September 30, 2021.

"Q3 was another solid quarter with record free cash flow, strong revenue growth, and great progress against our strategic objectives as we focus on delivering more value to our customers and shareholders," said Dropbox Co-Founder and Chief Executive Officer Drew Houston. "We shipped several new product experiences to help our customers with today's challenges of distributed and remote work, and I'm confident in our future as we work toward our vision of building one organized place for content and all the workflows around it."

Third Quarter Fiscal 2021 Results

* Total revenue was $550.2 million, an increase of 12.9% from the same period last year. On a constant currency basis, year-over-year growth would have been 10.7%.(1)

* Total ARR ended at $2.218 billion, an increase of $52.1 million quarter-over-quarter and an increase of 12.0% year-over-year. On a constant currency basis, year-over-year growth would have been 10.4%.(2)

* Paying users ended at 16.49 million, as compared to 15.25 million for the same period last year. Average revenue per paying user was $133.79, as compared to $128.03 for the same period last year.

* GAAP gross margin was 79.6%, as compared to 78.8% in the same period last year. Non-GAAP gross margin was 81.0%, as compared to 80.0% in the same period last year.

* GAAP operating margin was 14.0%, as compared to 6.2% in the same period last year. Non-GAAP operating margin was 29.3%, as compared to 23.0% in the same period last year.

* GAAP net income was $75.6 million, as compared to $32.7 million in the same period last year. Non-GAAP net income was $147.1 million, as compared to $110.2 million in the same period last year.

* Net cash provided by operating activities was $231.5 million, as compared to $200.9 million in the same period last year. Free cash flow was $221.5 million, as compared to $187.0 million in the same period last year.

* GAAP diluted net income per share attributable to common stockholders was $0.19, as compared to $0.08 in the same period last year. Non-GAAP diluted net income per share attributable to common stockholders was $0.37, as compared to $0.26 in the same period last year.(3)

* Cash, cash equivalents and short-term investments ended at $1.929 billion.

^(1) We calculate constant currency revenue growth rates by applying the priorperiod weighted average exchange rates to current period results.



^(2) We calculate total annual recurring revenue ("Total ARR") as the number ofusers who have active paid licenses for access to our platform as of the end ofthe period, multiplied by their annualized subscription price to our platform.We adjust our exchange rates used to calculate Total ARR on an annual basis, atthe beginning of each fiscal year. We calculate constant currency Total ARRgrowth rates by applying the current period rate to prior period results.

^

^(3) Non-GAAP diluted net income per share attributable to common stockholdersis calculated based upon 398.1 million and 419.9 million dilutedweighted-average shares of common stock for the three months ended September30, 2021 and 2020, respectively.

Financial Outlook

Dropbox will provide forward-looking guidance in connection with this quarterly earnings announcement on its conference call, webcast, and on its investor relations website at http://investors.dropbox.com.

Conference Call Information

Dropbox plans to host a conference call today to review its third quarter financial results and to discuss its financial outlook. This call is scheduled to begin at 2:00 p.m. PT / 5:00 p.m. ET and can be accessed by dialing (877) 300-7844 from the United States or (786) 815-8440 internationally with reference to the company name and conference title, and a live webcast and replay of the conference call can be accessed from the Dropbox investor relations website at http://investors.dropbox.com. Following the completion of the call, a telephonic replay will be available through 7:00 PM ET on November 11, 2021 at (855) 859-2056 from the United States or (404) 537-3406 internationally with recording access code 2628759.

Other Upcoming Events

* Timothy Young, President, will be presenting at the RBC Capital Markets Global Technology, Internet, Media and Telecom Virtual Conference on Tuesday, November 16th. * Tim Regan, Chief Financial Officer, will be hosting meetings at the Wells Fargo 5th Annual TMT Summit on Tuesday, November 30th. * Tim Regan, Chief Financial Officer, will be presenting at the 45th Nasdaq Investor Conference on Thursday, December 2nd.

During these events, a live webcast will be accessible from the Dropbox investor relations website at http://investors.dropbox.com. Following the event, a replay will be made available at the same location.

About Dropbox

Dropbox is the one place to keep life organized and keep work moving. With more than 700 million registered users across 180 countries, we're on a mission to design a more enlightened way of working. Dropbox is headquartered in San Francisco, CA, and has offices around the world. For more information on our mission and products, visit http://dropbox.com.

Use of Non-GAAP Financial Measures

Reconciliations of non-GAAP financial measures to the most directly comparable financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled "About Non-GAAP Financial Measures."

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, among other things, our expectations regarding distributed work trends, related market opportunities and our ability to capitalize on those opportunities. Words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "plans," and similar expressions are intended to identify forward-looking statements. Dropbox has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that Dropbox believes may affect its business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this press release and are subject to risks, uncertainties, and assumptions including, but not limited to: (i) our ability to realize anticipated benefits to our business from our shift to a Virtual First work model as well as impacts to our financial results and business operations as a result of this shift, (ii) impacts to our financial results, business operations and the business of our customers, suppliers, partners and the economy as a result of the COVID-19 pandemic, and related public health measures, as well as the potential for a more permanent global shift to remote work, (iii) our ability to retain and upgrade paying users, and increase our recurring revenue; (iv) our ability to attract new users or convert registered users to paying users; (v) our future financial performance, including trends in revenue, costs of revenue, gross profit or gross margin, operating expenses, paying users, and free cash flow; (vi) our history of net losses and our ability to achieve or maintain profitability; (vii) our liability for any unauthorized access to our data or our users' content, including through privacy and data security breaches; (viii) significant disruption of service on our platform or loss of content; (ix) any decline in demand for our platform or for content collaboration solutions in general; (x) changes in the interoperability of our platform across devices, operating systems, and third-party applications that we do not control; (xi) competition in our markets; (xii) our ability to respond to rapid technological changes, extend our platform, develop new features or products, or gain market acceptance for such new features or products, particularly in light of potential disruptions to the productivity of our employees that may result from our shift to a Virtual First work model; (xiii) our ability to manage our growth or plan for future growth; (xiv) our acquisition of other businesses and the potential of such acquisitions to require significant management attention, disrupt our business, or dilute stockholder value; (xv) our ability to attract and retain key personnel and highly qualified personnel; (xvi) our capital allocation plans with respect to our stock repurchase program and other investments; and (xvii) the dual class structure of our common stock and its effect of concentrating voting control with certain stockholders who held our capital stock prior to the completion of our initial public offering. Further information on risks that could affect Dropbox's results is included in our filings with the Securities and Exchange Commission ("SEC"), including our Form 10-Q for the quarter ended June 30, 2021. Additional information will be made available in our quarterly report on Form 10-Q for the quarter ended September 30, 2021 and other reports that we may file with the SEC from time to time, which could cause actual results to vary from expectations. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. Dropbox assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release, except as required by applicable law.

Dropbox, Inc.

Condensed Consolidated Statements of Operations

(In millions, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020

Revenue $ 550.2 $ 487.4 $ 1,592.4 $ 1,409.8

Cost of revenue^(1) 112.0 103.2 328.4 308.8

Gross profit 438.2 384.2 1,264.0 1,101.0

Operating expenses^ (1):

Research and 187.3 183.3 554.0 550.9 development

Sales and marketing 115.7 105.8 319.2 312.9

General and 57.9 65.1 169.3 167.6 administrative

Impairment relatedto real estate - - 17.3 - assets

Total operating 360.9 354.2 1,059.8 1,031.4 expenses

Income from 77.3 30.0 204.2 69.6 operations

Interest income (1.7 ) 0.1 (3.8 ) 2.6 (expense), net

Other income, net 0.5 3.5 13.1 23.1

Income before income 76.1 33.6 213.5 95.3 taxes

Provision for income (0.5 ) (0.9 ) (2.3 ) (5.8 ) taxes

Net income $ 75.6 $ 32.7 $ 211.2 $ 89.5

Basic net income per $ 0.20 $ 0.08 $ 0.54 $ 0.22 share

Diluted net income $ 0.19 $ 0.08 $ 0.53 $ 0.21 per share

Weighted-averageshares used incomputing net incomeper share 385.5 414.2 390.6 415.2 attributable to commonstockholders, basic

Weighted-averageshares used incomputing net incomeper share 398.1 419.9 400.3 419.9 attributable to commonstockholders,diluted

^(1) Includes stock-based compensation expense as follows (in millions):

Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020

Cost of revenue $ 6.0 $ 4.6 $ 17.3 $ 12.6

Research and 48.7 46.9 141.7 131.1 development

Sales and marketing 5.9 8.9 19.0 25.1

General and 12.2 15.3 36.6 23.3 administrative^(2)

^(2) On March 19, 2020, one of our co-founders resigned as a member of theboard and as an officer of Dropbox, resulting in the reversal of $23.8 millionin stock-based compensation expense. Of the total amount reversed, $21.5million related to expense recognized prior to December 31, 2019.

Dropbox, Inc.

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)

As of

September 30, 2021

December 31, 2020

Assets

Current assets:

Cash and cash equivalents

$

688.9

$

314.9

Short-term investments

1,239.8

806.4

Trade and other receivables, net

40.9

43.4

Prepaid expenses and other current assets

86.7

62.8

Total current assets

2,056.3

1,227.5

Property and equipment, net

345.8

338.7

Operating lease right-of-use asset

464.8

470.5

Intangible assets, net

49.6

33.5

Goodwill

347.2

236.9

Other assets

75.4

80.1

Total assets

$

3,339.1

$

2,387.2

Liabilities and stockholders' (deficit) equity

Current liabilities:

Accounts payable

$

23.0

$

18.7

Accrued and other current liabilities

170.9

156.7

Accrued compensation and benefits

107.1

113.6

Operating lease liability

85.2

88.7

Finance lease obligation

120.9

99.6

Deferred revenue

668.0

610.5

Total current liabilities

1,175.1

1,087.8

Operating lease liability, non-current

743.6

759.6

Finance lease obligation, non-current

182.2

171.6

Convertible senior notes, net, non-current

1,369.3

-

Other non-current liabilities

31.5

34.4

Total liabilities

3,501.7

2,053.4

Stockholders' (deficit) equity:

Additional paid-in-capital

2,468.1

2,564.3

Accumulated deficit

(2,635.5

)

(2,241.4

)

Accumulated other comprehensive income

4.8

10.9

Total stockholders' (deficit) equity

(162.6

)

333.8

Total liabilities and stockholders' (deficit) equity

$

3,339.1

$

2,387.2

Dropbox, Inc.

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)

As of

September 30, December 31, 2021 2020

Assets

Current assets:

Cash and cash equivalents $ 688.9 $ 314.9

Short-term investments 1,239.8 806.4

Trade and other receivables, net 40.9 43.4

Prepaid expenses and other current assets 86.7 62.8

Total current assets 2,056.3 1,227.5

Property and equipment, net 345.8 338.7

Operating lease right-of-use asset 464.8 470.5

Intangible assets, net 49.6 33.5

Goodwill 347.2 236.9

Other assets 75.4 80.1

Total assets $ 3,339.1 $ 2,387.2

Liabilities and stockholders' (deficit) equity

Current liabilities:

Accounts payable $ 23.0 $ 18.7

Accrued and other current liabilities 170.9 156.7

Accrued compensation and benefits 107.1 113.6

Operating lease liability 85.2 88.7

Finance lease obligation 120.9 99.6

Deferred revenue 668.0 610.5

Total current liabilities 1,175.1 1,087.8

Operating lease liability, non-current 743.6 759.6

Finance lease obligation, non-current 182.2 171.6

Convertible senior notes, net, non-current 1,369.3 -

Other non-current liabilities 31.5 34.4

Total liabilities 3,501.7 2,053.4

Stockholders' (deficit) equity:

Additional paid-in-capital 2,468.1 2,564.3

Accumulated deficit (2,635.5 ) (2,241.4 )

Accumulated other comprehensive income 4.8 10.9

Total stockholders' (deficit) equity (162.6 ) 333.8

Total liabilities and stockholders' $ 3,339.1 $ 2,387.2 (deficit) equity

Dropbox, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2021

2020

2021

2020

Cash flows from operating activities

Net Income

$

75.6

$

32.7

$

211.2

$

89.5

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

38.8

40.9

110.3

120.5

Stock-based compensation

72.8

75.7

214.6

192.1

Impairment related to real estate assets

-

-

17.3

-

Amortization of debt issuance costs

1.1

0.1

2.8

0.4

Net gains on equity investments

-

-

-

(17.5

)

Amortization of deferred commissions

8.2

6.7

23.6

17.5

Other

0.7

(0.8

)

(5.5

)

(0.9

)

Changes in operating assets and liabilities:

Trade and other receivables, net

11.2

(4.1

)

2.6

(12.9

)

Prepaid expenses and other current assets

(24.0

)

(1.6

)

(47.8

)

(24.0

)

Other assets

26.9

22.2

66.0

55.0

Accounts payable

(7.5

)

3.9

4.7

(8.9

)

Accrued and other current liabilities

11.1

2.0

2.8

(22.7

)

Accrued compensation and benefits

30.8

22.2

(6.8

)

(8.1

)

Deferred revenue

12.2

14.7

56.6

43.4

Other non-current liabilities

(27.6

)

(16.4

)

(88.1

)

(42.6

)

Tenant improvement allowance reimbursement

1.2

2.7

2.8

19.3

Net cash provided by operating activities

231.5

200.9

567.1

400.1

Cash flows from investing activities

Capital expenditures

(10.0

)

(13.9

)

(20.8

)

(67.8

)

Business combinations, net of cash acquired

0.1

-

(125.3

)

-

Purchases of short-term investments

(366.9

)

(111.9

)

(1,060.6

)

(541.1

)

Proceeds from sales of short-term investments

99.1

37.7

270.3

183.0

Proceeds from maturities of short-term investments

83.9

83.0

347.9

221.9

Other

10.9

3.1

28.4

12.4

Net cash used in investing activities

(182.9

)

(2.0

)

(560.1

)

(191.6

)

Cash flows from financing activities

Proceeds from issuance of convertible senior notes

-

-

1,389.1

-

Purchase of convertible note hedge in connection with issuance of convertible senior notes

-

-

(265.3

)

-

Proceeds from sale of warrants in connection with issuance of convertible senior notes

-

-

202.9

-

Payments of debt issuance costs

-

-

(23.7

)

-

Payments for taxes related to net share settlement of restricted stock units and awards

(35.5

)

(22.5

)

(98.2

)

(66.5

)

Proceeds from issuance of common stock, net of taxes withheld

1.1

0.1

6.6

1.6

Principal payments on finance lease obligations

(28.5

)

(21.5

)

(79.2

)

(64.9

)

Common stock repurchases

(181.0

)

(37.5

)

(763.7

)

(177.3

)

Other

-

(0.3

)

-

(0.8

)

Net cash provided by (used in) financing activities

(243.9

)

(81.7

)

368.5

(307.9

)

Effect of exchange rate changes on cash and cash equivalents

(1.1

)

1.4

(1.5

)

0.8

Change in cash and cash equivalents

(196.4

)

118.6

374.0

(98.6

)

Cash and cash equivalents - beginning of period

885.3

334.1

314.9

551.3

Cash and cash equivalents - end of period

$

688.9

$

452.7

$

688.9

$

452.7

Supplemental cash flow data:

Property and equipment acquired under finance leases

$

43.8

$

41.5

$

111.1

$

105.9

Dropbox, Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020

Cash flows from operating activities

Net Income $ 75.6 $ 32.7 $ 211.2 $ 89.5

Adjustments toreconcile net incometo net cash provided by operatingactivities:

Depreciation and 38.8 40.9 110.3 120.5 amortization

Stock-based 72.8 75.7 214.6 192.1 compensation

Impairment related to - - 17.3 - real estate assets

Amortization of debt 1.1 0.1 2.8 0.4 issuance costs

Net gains on equity - - - (17.5 ) investments

Amortization of 8.2 6.7 23.6 17.5 deferred commissions

Other 0.7 (0.8 ) (5.5 ) (0.9 )

Changes in operatingassets and liabilities:

Trade and other 11.2 (4.1 ) 2.6 (12.9 ) receivables, net

Prepaid expenses and (24.0 ) (1.6 ) (47.8 ) (24.0 ) other current assets

Other assets 26.9 22.2 66.0 55.0

Accounts payable (7.5 ) 3.9 4.7 (8.9 )

Accrued and other 11.1 2.0 2.8 (22.7 ) current liabilities

Accrued compensation 30.8 22.2 (6.8 ) (8.1 ) and benefits

Deferred revenue 12.2 14.7 56.6 43.4

Other non-current (27.6 ) (16.4 ) (88.1 ) (42.6 ) liabilities

Tenant improvementallowance 1.2 2.7 2.8 19.3 reimbursement

Net cash provided by 231.5 200.9 567.1 400.1 operating activities

Cash flows from investing activities

Capital expenditures (10.0 ) (13.9 ) (20.8 ) (67.8 )

Business combinations, 0.1 - (125.3 ) - net of cash acquired

Purchases of (366.9 ) (111.9 ) (1,060.6 ) (541.1 ) short-term investments

Proceeds from sales of 99.1 37.7 270.3 183.0 short-term investments

Proceeds frommaturities of 83.9 83.0 347.9 221.9 short-term investments

Other 10.9 3.1 28.4 12.4

Net cash used in (182.9 ) (2.0 ) (560.1 ) (191.6 ) investing activities

Cash flows from financing activities

Proceeds from issuanceof convertible senior - - 1,389.1 - notes

Purchase ofconvertible note hedgein connection with - - (265.3 ) - issuance of convertible seniornotes

Proceeds from sale ofwarrants in connectionwith issuance of - - 202.9 - convertible seniornotes

Payments of debt - - (23.7 ) - issuance costs

Payments for taxesrelated to net sharesettlement of (35.5 ) (22.5 ) (98.2 ) (66.5 ) restricted stock unitsand awards

Proceeds from issuanceof common stock, net 1.1 0.1 6.6 1.6 of taxes withheld

Principal payments onfinance lease (28.5 ) (21.5 ) (79.2 ) (64.9 ) obligations

Common stock (181.0 ) (37.5 ) (763.7 ) (177.3 ) repurchases

Other - (0.3 ) - (0.8 )

Net cash provided by(used in) financing (243.9 ) (81.7 ) 368.5 (307.9 ) activities

Effect of exchangerate changes on cash (1.1 ) 1.4 (1.5 ) 0.8 and cash equivalents

Change in cash and (196.4 ) 118.6 374.0 (98.6 ) cash equivalents

Cash and cashequivalents - 885.3 334.1 314.9 551.3 beginning of period

Cash and cashequivalents - end of $ 688.9 $ 452.7 $ 688.9 $ 452.7 period



Supplemental cash flow data:

Property and equipmentacquired under finance $ 43.8 $ 41.5 $ 111.1 $ 105.9 leases

Dropbox, Inc.

Three Months Ended September 30, 2021

Reconciliation of GAAP to Non-GAAP results

(In millions, except for percentages, which may not foot due to rounding)

(Unaudited)

GAAP

Stock-based compensation

Acquisition- related and other expenses

Intangibles amortization

Workforce reduction expense(1)

Non-GAAP

Cost of revenue

$

112.0

$

(6.0)

$

-

$

(1.6)

$

-

$

104.4

Cost of revenue margin

20.4

%

(1.1

%)

-

%

(0.3

%)

-

%

19.0

%

Gross profit

438.2

6.0

-

1.6

-

445.8

Gross margin

79.6

%

1.1

%

-

%

0.3

%

-

%

81.0

%

Research and development

187.3

(48.7)

(5.1)

-

(0.1)

133.4

Research and development margin

34.0

%

(8.9

%)

(0.9

%)

-

%

-

%

24.2

%

Sales and marketing

115.7

(5.9)

(1.7)

(1.9)

(0.4)

105.8

Sales and marketing margin

21.0

%

(1.1

%)

(0.3

%)

(0.3

%)

(0.1

%)

19.2

%

General and administrative

57.9

(12.2)

-

-

(0.1)

45.6

General and administrative margin

10.5

%

(2.2

%)

-

%

-

%

-

%

8.3

%

Income from operations

$

77.3

$

72.8

$

6.8

$

3.5

$

0.6

$

161.0

Operating margin

14.0

%

13.2

%

1.2

%

0.6

%

0.1

%

29.3

%

(1) Includes expenses related to workforce reduction such as severance, benefits and other related items.

Dropbox, Inc.

Three Months Ended September 30, 2021

Reconciliation of GAAP to Non-GAAP results

(In millions, except for percentages, which may not foot due to rounding)

(Unaudited)

Acquisition- Workforce GAAP Stock-based related and Intangibles reduction Non-GAAP compensation other amortization expense^ expenses (1)

Cost of $ 112.0 $ (6.0) $ - $ (1.6) $ - $ 104.4 revenue

Cost of 20.4 % (1.1 %) - % (0.3 %) - % 19.0 %revenue margin

Gross profit 438.2 6.0 - 1.6 - 445.8

Gross margin 79.6 % 1.1 % - % 0.3 % - % 81.0 %

Research and 187.3 (48.7) (5.1) - (0.1) 133.4 development

Research anddevelopment 34.0 % (8.9 %) (0.9 %) - % - % 24.2 %margin

Sales and 115.7 (5.9) (1.7) (1.9) (0.4) 105.8 marketing

Sales andmarketing 21.0 % (1.1 %) (0.3 %) (0.3 %) (0.1 %) 19.2 %margin

General and 57.9 (12.2) - - (0.1) 45.6 administrative

General andadministrative 10.5 % (2.2 %) - % - % - % 8.3 %margin

Income from $ 77.3 $ 72.8 $ 6.8 $ 3.5 $ 0.6 $ 161.0 operations

Operating 14.0 % 13.2 % 1.2 % 0.6 % 0.1 % 29.3 %margin

^(1) Includes expenses related to workforce reduction such as severance,benefits and other related items.

Dropbox, Inc.

Three Months Ended September 30, 2020

Reconciliation of GAAP to Non-GAAP results

(In millions, except for percentages, which may not foot due to rounding)

(Unaudited)

GAAP

Stock-based compensation

Acquisition- related and other expenses

Intangibles amortization

Non-GAAP

Cost of revenue

$

103.2

$

(4.6)

$

-

$

(1.0)

$

97.6

Cost of revenue margin

21.2

%

(0.9

%)

-

%

(0.2

%)

20.0

%

Gross profit

384.2

4.6

-

1.0

389.8

Gross margin

78.8

%

0.9

%

-

%

0.2

%

80.0

%

Research and development

183.3

(46.9)

(4.1)

-

132.3

Research and development margin

37.6

%

(9.6

%)

(0.8

%)

-

%

27.1

%

Sales and marketing

105.8

(8.9)

-

(1.4)

95.5

Sales and marketing margin

21.7

%

(1.8

%)

-

%

(0.3

%)

19.6

%

General and administrative

65.1

(15.3)

-

-

49.8

General and administrative margin

13.4

%

(3.1

%)

-

%

-

%

10.2

%

Income from operations

$

30.0

$

75.7

$

4.1

$

2.4

$

112.2

Operating margin

6.2

%

15.5

%

0.8

%

0.5

%

23.0

%

Dropbox, Inc.

Three Months Ended September 30, 2020

Reconciliation of GAAP to Non-GAAP results

(In millions, except for percentages, which may not foot due to rounding)

(Unaudited)

Acquisition- GAAP Stock-based related and Intangibles Non-GAAP compensation other amortization expenses

Cost of $ 103.2 $ (4.6) $ - $ (1.0) $ 97.6 revenue

Cost of 21.2 % (0.9 %) - % (0.2 %) 20.0 %revenue margin

Gross profit 384.2 4.6 - 1.0 389.8

Gross margin 78.8 % 0.9 % - % 0.2 % 80.0 %

Research and 183.3 (46.9) (4.1) - 132.3 development

Research anddevelopment 37.6 % (9.6 %) (0.8 %) - % 27.1 %margin

Sales and 105.8 (8.9) - (1.4) 95.5 marketing

Sales andmarketing 21.7 % (1.8 %) - % (0.3 %) 19.6 %margin

General and 65.1 (15.3) - - 49.8 administrative

General andadministrative 13.4 % (3.1 %) - % - % 10.2 %margin

Income from $ 30.0 $ 75.7 $ 4.1 $ 2.4 $ 112.2 operations

Operating 6.2 % 15.5 % 0.8 % 0.5 % 23.0 %margin

Dropbox, Inc.

Nine Months Ended September 30, 2021

Reconciliation of GAAP to Non-GAAP results

(In millions, except for percentages, which may not foot due to rounding)

(Unaudited)

GAAP

Stock-based compensation

Acquisition- related and other expenses

Intangibles amortization

Impairment related to real estate assets

Workforce reduction expense(1)

Non-GAAP

Cost of revenue

$

328.4

$

(17.3)

$

-

$

(4.2)

$

-

$

(1.7)

$

305.2

Cost of revenue margin

20.6

%

(1.1

%)

-

%

(0.3

%)

-

%

(0.1

%)

19.2

%

Gross profit

1,264.0

17.3

-

4.2

-

1.7

1,287.2

Gross margin

79.4

%

1.1

%

-

%

0.3

%

-

%

0.1

%

80.8

%

Research and development

554.0

(141.7)

(14.4)

-

-

(3.2)

394.7

Research and development margin

34.8

%

(8.9

%)

(0.9

%)

-

%

-

%

(0.2

%)

24.8

%

Sales and marketing

319.2

(19.0)

(3.6)

(5.2)

-

(6.9)

284.5

Sales and marketing margin

20.0

%

(1.2

%)

(0.2

%)

(0.3

%)

-

%

(0.4

%)

17.9

%

General and administrative

169.3

(36.6)

(1.2)

-

-

(2.5)

129.0

General and administrative margin

10.6

%

(2.3

%)

(0.1

%)

-

%

-

%

(0.2

%)

8.1

%

Impairment related to real estate assets

17.3

-

-

-

(17.3)

-

-

Impairment related to real estate assets margin

1.1

%

-

%

-

%

-

%

(1.1

%)

-

%

-

%

Income from operations

$

204.2

$

214.6

$

19.2

$

9.4

$

17.3

$

14.3

$

479.0

Operating margin

12.8

%

13.5

%

1.2

%

0.6

%

1.1

%

0.9

%

30.1

%

(1) Includes expenses related to workforce reduction such as severance, benefits and other related items.

Dropbox, Inc.

Nine Months Ended September 30, 2021

Reconciliation of GAAP to Non-GAAP results

(In millions, except for percentages, which may not foot due to rounding)

(Unaudited)

Acquisition- Impairment Workforce Stock-based related and Intangibles related to reduction GAAP compensation other amortization real expense^ Non-GAAP expenses estate (1) assets

Cost of $ 328.4 $ (17.3) $ - $ (4.2) $ - $ (1.7) $ 305.2 revenue

Cost of 20.6 % (1.1 %) - % (0.3 %) - % (0.1 %) 19.2 %revenue margin

Gross profit 1,264.0 17.3 - 4.2 - 1.7 1,287.2

Gross margin 79.4 % 1.1 % - % 0.3 % - % 0.1 % 80.8 %

Research and 554.0 (141.7) (14.4) - - (3.2) 394.7 development

Research anddevelopment 34.8 % (8.9 %) (0.9 %) - % - % (0.2 %) 24.8 %margin

Sales and 319.2 (19.0) (3.6) (5.2) - (6.9) 284.5 marketing

Sales andmarketing 20.0 % (1.2 %) (0.2 %) (0.3 %) - % (0.4 %) 17.9 %margin

General and 169.3 (36.6) (1.2) - - (2.5) 129.0 administrative

General andadministrative 10.6 % (2.3 %) (0.1 %) - % - % (0.2 %) 8.1 %margin

Impairmentrelated to 17.3 - - - (17.3) - - real estate assets

Impairmentrelated to 1.1 % - % - % - % (1.1 %) - % - %real estate assets margin

Income from $ 204.2 $ 214.6 $ 19.2 $ 9.4 $ 17.3 $ 14.3 $ 479.0 operations

Operating 12.8 % 13.5 % 1.2 % 0.6 % 1.1 % 0.9 % 30.1 %margin

^(1) Includes expenses related to workforce reduction such as severance,benefits and other related items.

Dropbox, Inc.

Nine Months Ended September 30, 2020

Reconciliation of GAAP to Non-GAAP results

(In millions, except for percentages, which may not foot due to rounding)

(Unaudited)

GAAP

Stock-based compensation

Acquisition- related and other expenses

Intangibles amortization

Non-GAAP

Cost of revenue

$

308.8

$

(12.6)

$

-

$

(3.0)

$

293.2

Cost of revenue margin

21.9

%

(0.9

%)

-

%

(0.2

%)

20.8

%

Gross profit

1,101.0

12.6

-

3.0

1,116.6

Gross margin

78.1

%

0.9

%

-

%

0.2

%

79.2

%

Research and development

550.9

(131.1)

(12.6)

-

407.2

Research and development margin

39.1

%

(9.3

%)

(0.9

%)

-

%

28.9

%

Sales and marketing

312.9

(25.1)

-

(4.1)

283.7

Sales and marketing margin

22.2

%

(1.8

%)

-

%

(0.3

%)

20.1

%

General and administrative

167.6

(23.3)

(0.1)

-

144.2

General and administrative margin

11.9

%

(1.7

%)

-

%

-

%

10.2

%

Income from operations

$

69.6

$

192.1

$

12.7

$

7.1

$

281.5

Operating margin

4.9

%

13.6

%

0.9

%

0.5

%

20.0

%

Dropbox, Inc.

Nine Months Ended September 30, 2020

Reconciliation of GAAP to Non-GAAP results

(In millions, except for percentages, which may not foot due to rounding)

(Unaudited)

Acquisition- GAAP Stock-based related and Intangibles Non-GAAP compensation other amortization expenses

Cost of $ 308.8 $ (12.6) $ - $ (3.0) $ 293.2 revenue

Cost of 21.9 % (0.9 %) - % (0.2 %) 20.8 %revenue margin

Gross profit 1,101.0 12.6 - 3.0 1,116.6

Gross margin 78.1 % 0.9 % - % 0.2 % 79.2 %

Research and 550.9 (131.1) (12.6) - 407.2 development

Research anddevelopment 39.1 % (9.3 %) (0.9 %) - % 28.9 %margin

Sales and 312.9 (25.1) - (4.1) 283.7 marketing

Sales andmarketing 22.2 % (1.8 %) - % (0.3 %) 20.1 %margin

General and 167.6 (23.3) (0.1) - 144.2 administrative

General andadministrative 11.9 % (1.7 %) - % - % 10.2 %margin

Income from $ 69.6 $ 192.1 $ 12.7 $ 7.1 $ 281.5 operations

Operating 4.9 % 13.6 % 0.9 % 0.5 % 20.0 %margin

Dropbox, Inc.

Three and Nine Months Ended September 30, 2021 and 2020

Reconciliation of GAAP net income to Non-GAAP net income and Non-GAAP diluted net income per share

(In millions, except per share data)

(Unaudited)

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2021

2020

2021

2020

GAAP net income

$

75.6

$

32.7

$

211.2

$

89.5

Stock-based compensation

72.8

75.7

214.6

192.1

Acquisition-related and other expenses

6.8

4.1

19.2

12.7

Amortization of acquired intangible assets

3.5

2.4

9.4

7.1

Impairment related to real estate assets

-

-

17.3

-

Workforce reduction expense

0.6

-

14.3

-

Net gains on equity investments

-

-

-

(17.5

)

Income tax effects of non-GAAP adjustments

(12.2

)

(4.7

)

(36.6

)

(10.7

)

Non-GAAP net income

$

147.1

$

110.2

$

449.4

$

273.2

Non-GAAP diluted net income per share

$

0.37

$

0.26

$

1.12

$

0.65

Weighted-average shares used to compute Non-GAAP diluted net income per share

398.1

419.9

400.3

419.9

Dropbox, Inc.

Three and Nine Months Ended September 30, 2021 and 2020

Reconciliation of GAAP net income to Non-GAAP net income and Non-GAAP dilutednet income per share

(In millions, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended September 30, September 30,

2021 2020 2021 2020

GAAP net income $ 75.6 $ 32.7 $ 211.2 $ 89.5

Stock-based 72.8 75.7 214.6 192.1 compensation

Acquisition-related and 6.8 4.1 19.2 12.7 other expenses

Amortization ofacquired intangible 3.5 2.4 9.4 7.1 assets

Impairment related to - - 17.3 - real estate assets

Workforce reduction 0.6 - 14.3 - expense

Net gains on equity - - - (17.5 ) investments

Income tax effects of (12.2 ) (4.7 ) (36.6 ) (10.7 ) non-GAAP adjustments

Non-GAAP net income $ 147.1 $ 110.2 $ 449.4 $ 273.2

Non-GAAP diluted net $ 0.37 $ 0.26 $ 1.12 $ 0.65 income per share

Weighted-average sharesused to compute 398.1 419.9 400.3 419.9 Non-GAAP diluted net income per share

Dropbox, Inc.

Three and Nine Months Ended September 30, 2021 and 2020

Reconciliation of free cash flow and supplemental cash flow disclosure

(In millions, except for percentages)

(Unaudited)

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2021

2020

2021

2020

Free cash flow reconciliation:

Net cash provided by operating activities

$

231.5

$

200.9

$

567.1

$

400.1

Less:

Capital expenditures

(10.0

)

(13.9

)

(20.8

)

(67.8

)

Free cash flow

$

221.5

$

187.0

$

546.3

$

332.3

Free cash flow margin

40.3

%

38.4

%

34.3

%

23.6

%

Supplemental disclosures:

Key employee holdback payments related to the acquisition of HelloSign(1)

$

4.1

$

4.0

$

12.1

$

24.2

Payments related to workforce reduction(2)

$

0.4

$

-

$

14.1

$

-

(1) As part of our acquisition of HelloSign in 2019, we have employee holdback agreements with key HelloSign personnel consisting of $48.5 million in cash payments subject to ongoing employee service. The related expenses are recognized within research and development expenses over the required service period of three years. The payments began in the first quarter of 2020, and will be paid evenly in quarterly installments over the remaining required service period.

(2) Includes payments made related to workforce reduction such as severance, benefits, and other related items.

About Non-GAAP Financial Measures

To provide investors and others with additional information regarding Dropbox's results, we have disclosed the following non-GAAP financial measures: revenue growth and Total ARR growth excluding foreign exchange effect, which we refer to as on a constant currency basis, non-GAAP cost of revenue, non-GAAP gross profit, non-GAAP operating expenses (including research and development, sales and marketing and general and administrative), non-GAAP income from operations, non-GAAP net income, free cash flow ("FCF") and non-GAAP diluted net income per share. Dropbox has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. Non-GAAP cost of revenue, gross profit, operating expenses, income from operations, and net income differ from GAAP in that they exclude stock-based compensation expense, amortization of acquired intangible assets, other acquisition-related expenses, which include third-party diligence costs and expenses related to key employee holdback agreements, impairment charges related to real estate assets, and expenses related to our reduction in force. Non-GAAP net income also excludes net gains and losses on equity investments, and includes the income tax effect of the aforementioned adjustments. FCF differs from GAAP net cash provided by operating activities in that it treats capital expenditures as a reduction to net cash provided by operating activities. Free cash flow margin is calculated as FCF divided by revenue. For periods that we are in a GAAP net income position, the weighted average shares used in the computation are the same as the shares used in our non-GAAP diluted net income per share computation. In order to present revenue on a constant currency basis for the quarter ended September 30, 2021, Dropbox calculates constant currency revenue growth rates by applying the prior period weighted average exchange rates to current period results. Dropbox calculates constant currency Total ARR growth rates by applying the current period rate to prior period results. Dropbox presents constant currency information to provide a framework for assessing how our underlying business performed excluding the effect of foreign currency rate fluctuations.

Dropbox's management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short and long-term operating plans, and to evaluate Dropbox's financial performance and the ability to generate cash from operations. Management believes these non-GAAP financial measures reflect Dropbox's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in Dropbox's business, as they exclude expenses that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful supplemental information to investors and others in understanding and evaluating Dropbox's operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.

We believe that the non-GAAP financial measures, non-GAAP cost of revenue, gross profit, operating expenses, income from operations, net income, and diluted net income per share are meaningful to investors because they help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude.

We believe that FCF is an indicator of our liquidity over the long term, and provides useful information regarding cash provided by operating activities and cash used for investments in property and equipment required to maintain and grow our business. FCF is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. FCF has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operating activities. Some of the limitations of FCF are that FCF does not reflect our future contractual commitments, excludes investments made to acquire assets under finance leases, includes capital expenditures, and may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure.

The use of non-GAAP cost of revenue, gross profit, operating expenses, income from operations, net income, free cash flow, and diluted net income per share measures has certain limitations as they do not reflect all items of income, expense, and cash expenditures, as applicable, that affect Dropbox's operations. Dropbox mitigates these limitations by reconciling the non-GAAP financial measures to the most comparable GAAP financial measures. Additionally, we have provided supplemental disclosures in our reconciliation of net cash provided by operating activities to free cash flow to include expenses related to reduction in workforce and key employee holdback payments related to the acquisition of HelloSign. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Management encourages investors and others to review Dropbox's financial information in its entirety and not rely on a single financial measure.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211104006217/en/

CONTACT: Investors: Kern Kapoor ir@dropbox.com or Media: Alissa Stewart press@dropbox.com