Company Quick10K Filing
Quick10K
Dropbox
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
8-K 2019-11-07 Earnings, Regulation FD, Exhibits
8-K 2019-10-02 Officers
8-K 2019-08-23 Officers, Exhibits
8-K 2019-08-08 Earnings, Regulation FD, Exhibits
8-K 2019-05-23 Shareholder Vote
8-K 2019-05-09 Earnings, Regulation FD, Exhibits
8-K 2019-02-21 Earnings, Regulation FD, Exhibits
8-K 2018-12-19 Shareholder Rights, Other Events
8-K 2018-11-08 Earnings, Regulation FD, Exhibits
8-K 2018-08-09 Earnings, Officers, Regulation FD, Other Events, Exhibits
8-K 2018-05-10 Earnings, Regulation FD, Exhibits
DATA Tableau Software 14,484
MANH Manhattan Associates 5,516
SMAR Smartsheet 5,230
ELLI Ellie Mae 3,718
ACIW ACI Worldwide 3,205
RPD Rapid7 2,619
BOX Box 2,035
AMSWA American Software 439
EGAN Egain 200
MTBC Medical Transcription Billing 53
DBX 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Note 1. Description of The Business and Summary of Significant Accounting Policies
Note 2. Cash, Cash Equivalents and Short-Term Investments
Note 3. Fair Value Measurements
Note 4. Property and Equipment, Net
Note 5. Business Combinations
Note 6. Intangible Assets
Note 7. Goodwill
Note 8. Revolving Credit Facility
Note 9. Leases
Note 10. Commitments and Contingencies
Note 11. Accrued and Other Current Liabilities
Note 12. Stockholders' Equity
Note 13. Net Loss per Share
Note 14. Income Taxes
Note 15. Related Party Transactions
Note 16. Geographic Areas
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 exhibit311-q219.htm
EX-31.2 exhibit312-q219.htm
EX-32.1 exhibit321-q219.htm

Dropbox Earnings 2019-06-30

DBX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 dbx-063019x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019

or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to________

Commission File Number 001-38434

 

Dropbox, Inc.
(Exact name of Registrant as specified in its charter)
 
Delaware
 
26-0138832
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
Dropbox, Inc.
333 Brannan Street
San Francisco, California 94107
(415) 857-6800
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
 

Securities registered pursuant to Section 12(b) of the Act:

 
 
 
 
 
 
Title of each class
Class A Common Stock, par value $0.00001 per share
Trading Symbol(s)
DBX
Name of exchange on which registered
The NASDAQ Stock Market LLC
(Nasdaq Global Select Market)
 
 
 
 
 
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
  
Accelerated filer
¨
 
 
 
Non-accelerated filer
x
  
Smaller reporting company
¨
 
 
 
 
 
 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.    ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of August 5, 2019, there were 251,707,067 shares of the registrants’ Class A common stock outstanding (which excludes 14,733,333 shares of Class A common stock subject to restricted stock awards that were granted pursuant to the Co-Founder Grants, and vest upon the satisfaction of a service condition and achievement of certain stock price goals), 161,678,287 shares of the registrant’s Class B common stock outstanding, and no shares of the registrant’s Class C common stock outstanding.




TABLE OF CONTENTS

 
 
Page
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 1.
Item 1A.
Item 6.
 
 

2


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risk and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

our ability to retain and upgrade paying users;

our ability to attract new users or convert registered users to paying users;

our future financial performance, including trends in revenue, costs of revenue, gross profit or gross margin, operating expenses, paying users, and free cash flow;

our ability to achieve or maintain profitability;

the demand for our platform or for content collaboration solutions in general;

possible harm caused by significant disruption of service or loss or unauthorized access to users’ content;

our ability to effectively integrate our platform with others;

our ability to compete successfully in competitive markets;

our ability to respond to rapid technological changes;

our expectations and management of future growth;

our ability to grow due to our lack of a significant outbound sales force;

our ability to attract large organizations as users;

our ability to offer high-quality customer support;

our ability to manage our international expansion;

our ability to attract and retain key personnel and highly qualified personnel;

our ability to protect our brand;

our ability to prevent serious errors or defects in our platform;

our ability to maintain, protect, and enhance our intellectual property; and

our ability to successfully identify, acquire, and integrate companies and assets.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a

3


very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

4


PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS

DROPBOX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)

As of

June 30, 2019

December 31, 2018
 
 
 
 
Assets



Current assets:



Cash and cash equivalents
$
343.6


$
519.3

Short-term investments
629.2


570.0

Trade and other receivables, net
37.6


28.6

Prepaid expenses and other current assets
57.3


92.3

Total current assets
1,067.7


1,210.2

Property and equipment, net
369.3


310.6

Operating lease right-of-use asset
575.7

 

Intangible assets, net
53.7


14.7

Goodwill
230.9


96.5

Other assets
67.6


62.1

Total assets
$
2,364.9


$
1,694.1

Liabilities and stockholders’ equity



Current liabilities:



Accounts payable
$
31.8


$
33.3

Accrued and other current liabilities
149.4


164.5

Accrued compensation and benefits
57.4


80.9

Operating lease liability
78.3

 

Finance lease obligation
68.9


73.8

Deferred revenue
517.3


485.0

Total current liabilities
903.1


837.5

Operating lease liability, non-current
601.4

 

Finance lease obligation, non-current
119.6


89.9

Other non-current liabilities(1)
10.6


89.9

Total liabilities
1,634.7


1,017.3

Commitments and contingencies (Note 10)



Stockholders’ equity:



Additional paid-in capital
2,428.4


2,337.5

Accumulated deficit
(1,700.1
)

(1,659.5
)
Accumulated other comprehensive income (loss)
1.9


(1.2
)
Total stockholders’ equity
730.2


676.8

Total liabilities and stockholders’ equity
$
2,364.9


$
1,694.1


(1) As of December 31, 2018 the Company had non-current deferred rent of $81.0 million. As of June 30, 2019, deferred rent is now included in the determination of the Company's operating lease right-of-use asset due to the adoption of ASC 842.

See accompanying Notes to Condensed Consolidated Financial Statements.

5


DROPBOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)

Three months ended
June 30,
 
Six months ended
June 30,

2019

2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Revenue
$
401.5


$
339.2

 
$
787.1

 
$
655.5

Cost of revenue(1)(2)
102.9


89.5

 
201.3

 
210.1

Gross profit
298.6


249.7

 
585.8

 
445.4

Operating expenses(1)(2):



 
 
 
 
Research and development
162.4


119.7

 
312.4

 
498.2

Sales and marketing
107.3


87.4

 
208.8

 
244.4

General and administrative
62.9


49.8

 
119.9

 
175.9

Total operating expenses
332.6


256.9

 
641.1

 
918.5

Loss from operations
(34.0
)

(7.2
)
 
(55.3
)
 
(473.1
)
Interest income, net
3.2


2.0

 
6.9

 
0.8

Other income, net
10.0


2.2

 
14.2

 
5.6

Loss before income taxes
(20.8
)

(3.0
)
 
(34.2
)
 
(466.7
)
Benefit from (provision for) income taxes
(0.6
)

(1.1
)
 
5.1

 
(2.9
)
Net loss
$
(21.4
)

$
(4.1
)
 
$
(29.1
)
 
$
(469.6
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.05
)

$
(0.01
)
 
$
(0.07
)
 
$
(1.51
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
412.4


401.3

 
411.5

 
310.5

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

 
Three months ended
June 30,
 
Six months ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Cost of revenue
$
4.7

 
$
2.9

 
$
7.7

 
$
40.7

Research and development
37.7

 
27.9

 
68.2

 
310.8

Sales and marketing
8.8

 
7.9

 
15.9

 
80.3

General and administrative
16.9

 
16.4

 
31.9

 
109.8


(2) 
During the six months ended June 30, 2018, the Company recognized the cumulative unrecognized stock-based compensation of $418.7 million related to two-tier restricted stock units upon the effectiveness of the registration statement for the Company's IPO. See Note 1, "Description of the Business and Summary of Significant Accounting Policies" for further information.

See accompanying Notes to Condensed Consolidated Financial Statements.

6


DROPBOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In millions)
(Unaudited)
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net loss
$
(21.4
)
 
$
(4.1
)
 
$
(29.1
)
 
$
(469.6
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in foreign currency translation adjustments
(0.3
)
 
(3.6
)
 
1.6

 
(2.1
)
Change in net unrealized gains (losses) on short-term investments
0.4

 
(0.1
)
 
1.5

 
(0.2
)
Total other comprehensive income (loss), net of tax
$
0.1

 
$
(3.7
)
 
$
3.1

 
$
(2.3
)
Comprehensive loss
$
(21.3
)
 
$
(7.8
)
 
$
(26.0
)
 
$
(471.9
)

See accompanying Notes to Condensed Consolidated Financial Statements.

7


DROPBOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)
(Unaudited)

 
Three months ended June 30, 2019
 
Three months ended June 30, 2018
 
Class A and Class B Common Stock
 
Additional paid in capital
 
Accumulated
deficit
 
Accumulated other comprehensive income (loss)
 
Total stockholders' equity
 
Class A and Class B common stock
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
other
comprehensive
income (loss)
 
Total
stockholders’
equity
 
Shares
 
Amount
 
 
 
 
 
Shares
 
Amount
 
Balances at beginning of period
411.4

 

 
2,377.8

 
(1,674.7
)
 
1.8

 
704.9

 
395.0

 
$

 
$
2,104.9

 
$
(1,600.4
)
 
$
5.6

 
$
510.1

Release of restricted stock units
2.9

 

 

 
 
 

 

 
3.1

 

 

 

 

 

Shares repurchased for tax withholdings on release of restricted stock
(1.0
)
 

 
(18.6
)
 
(4.0
)
 

 
(22.6
)
 
(1.2
)
 

 
(20.2
)
 
(14.9
)
 

 
(35.1
)
Issuance of common stock in connection with initial public offering and private placement, net of underwriters' discounts and commissions and issuance costs

 

 

 

 

 

 
5.4

 

 
108.4

 

 

 
108.4

Exercise of stock options and awards
0.1

 

 
1.1

 

 

 
1.1

 

 

 
0.2

 

 

 
0.2

Stock-based compensation

 

 
68.1

 

 

 
68.1

 

 

 
55.1

 

 

 
55.1

Other comprehensive income (loss)

 

 

 

 
0.1

 
0.1

 

 

 

 

 
(3.7
)
 
(3.7
)
Net loss

 

 

 
(21.4
)
 
 
 
(21.4
)
 

 

 

 
(4.1
)
 


 
(4.1
)
Balances at end of period
413.4

 
$

 
$
2,428.4

 
$
(1,700.1
)
 
$
1.9

 
$
730.2

 
402.3

 
$

 
$
2,248.4

 
$
(1,619.4
)
 
$
1.9

 
$
630.9



8


 
Six Months Ended June 30, 2019
 
Six Months Ended June 30, 2018
 
Class A and Class B Common Stock
 
Additional paid in capital
 
Accumulated
deficit
 
Accumulated other comprehensive income (loss)
 
Total stockholders' equity
 
Convertible preferred stock
 
Class A and Class B common stock
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
other
comprehensive
income (loss)
 
Total
stockholders’
equity
 
Shares
 
Amount
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Balances at beginning of period
409.6

 

 
2,337.5

 
(1,659.5
)
 
(1.2
)
 
676.8

 
147.6

 
615.3

 
196.8

 
$

 
$
533.1

 
$
(1,049.7
)
 
$
4.2

 
$
102.9

Cumulative-effect adjustment from adoption of ASC 842

 

 

 
1.0

 

 
1.0

 

 

 

 

 

 

 

 

Release of restricted stock units
5.5

 

 

 

 
 
 

 

 

 
33.7

 

 

 

 

 

Shares repurchased for tax withholdings on release of restricted stock
(2.0
)
 

 
(35.6
)
 
(12.5
)
 

 
(48.1
)
 

 

 
(13.0
)
 

 
(182.3
)
 
(100.1
)
 

 
(282.4
)
Conversion of preferred stock to common stock in connection with initial public offering

 

 

 

 

 

 
(147.6
)
 
(615.3
)
 
147.6

 

 
615.3

 

 

 

Issuance of common stock in connection with initial public offering and private placement, net of underwriters' discounts and commissions and issuance costs

 

 

 

 

 

 

 

 
37.0

 

 
739.7

 

 

 
739.7

Exercise of stock options and awards
0.3

 

 
2.0

 

 

 
2.0

 

 

 
0.2

 

 
1.0

 

 

 
1.0

Assumed stock options in connection with acquisition

 

 
0.8

 

 

 
0.8

 

 

 

 

 

 

 

 

Stock-based compensation

 

 
123.7

 

 

 
123.7

 

 

 

 

 
541.6

 

 

 
541.6

Other comprehensive income (loss)

 

 

 

 
3.1

 
3.1

 

 

 

 

 

 

 
(2.3
)
 
(2.3
)
Net loss

 

 

 
(29.1
)
 

 
(29.1
)
 

 

 

 

 

 
(469.6
)
 

 
(469.6
)
Balances at end of period
413.4

 
$

 
$
2,428.4

 
$
(1,700.1
)
 
$
1.9

 
$
730.2

 

 
$

 
402.3

 

 
$
2,248.4

 
$
(1,619.4
)
 
$
1.9

 
$
630.9



See accompanying Notes to Condensed Consolidated Financial Statements.


9


DROPBOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Six months ended June 30,
 
2019
 
2018
 
 
 
 
Cash flow from operating activities
 
 
 
Net loss
$
(29.1
)
 
$
(469.6
)
Adjustments to reconcile net loss to net cash provided by operating activities:

 

Depreciation and amortization
91.9

 
75.9

Stock-based compensation
123.7

 
541.6

Net gains on equity investments
(7.4
)
 

Amortization of deferred commissions
8.1

 
5.3

Other
(7.6
)
 
(1.1
)
Changes in operating assets and liabilities:
 
 
 
Trade and other receivables, net
(8.5
)
 
(1.9
)
Prepaid expenses and other current assets
(18.5
)
 
(33.9
)
Other assets
26.2

 
(17.5
)
Accounts payable
(1.8
)
 
(8.5
)
Accrued and other current liabilities
10.5

 
44.5

Accrued compensation and benefits
(24.8
)
 
(10.9
)
Deferred revenue
28.0

 
46.4

Other non-current liabilities
(27.2
)
 
3.4

Tenant improvement allowance reimbursement
28.5

 

Net cash provided by operating activities
192.0

 
173.7

Cash flow from investing activities
 
 
 
Capital expenditures
(63.4
)
 
(19.6
)
Business combinations, net of cash acquired
(171.6
)
 

Purchases of short-term investments
(389.7
)
 
(495.9
)
Proceeds from sales of short-term investments
181.0

 
3.1

Proceeds from maturities of short-term investments
161.6

 
16.4

Other
11.6

 
(1.6
)
Net cash used in investing activities
(270.5
)
 
(497.6
)
Cash flow from financing activities
 
 
 
Proceeds from initial public offering and private placement, net of underwriters' discounts and commissions

 
746.6

Payments of deferred offering costs

 
(3.4
)
Shares repurchased for tax withholdings on release of restricted stock
(48.1
)
 
(282.4
)
Proceeds from issuance of common stock, net of repurchases
2.0

 
1.0

Principal payments on finance lease obligations
(50.6
)
 
(58.3
)
Other
(0.7
)
 
(4.1
)
Net cash (used in) provided by financing activities
(97.4
)
 
399.4

Effect of exchange rate changes on cash and cash equivalents
0.2

 
(1.4
)
Change in cash and cash equivalents
(175.7
)
 
74.1

Cash and cash equivalents—beginning of period
519.3

 
430.0

Cash and cash equivalents—end of period
$
343.6

 
$
504.1

 
 
 
 
Supplemental cash flow data:
 
 
 
Property and equipment acquired under finance leases
$
75.4

 
$
44.2


See accompanying Notes to Condensed Consolidated Financial Statements.

10

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)



Note 1.
Description of the Business and Summary of Significant Accounting Policies

Business
Dropbox, Inc. (the “Company” or “Dropbox”) is a global collaboration platform. Dropbox was incorporated in May 2007 as Evenflow, Inc., a Delaware corporation, and changed its name to Dropbox, Inc. in October 2009. The Company is headquartered in San Francisco, California.

Basis of presentation and consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the United States of America generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. The accompanying unaudited condensed consolidated financial statements include the accounts of Dropbox and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the balance sheets, statements of operations, statements of comprehensive loss, statements of stockholders' equity and the statements of cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ended December 31, 2019 or any future period.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the year ended December 31, 2018, included in the Company's Annual Report on Form 10-K on file with the SEC ("Annual Report").

Initial public offering and private placement
On March 27, 2018, the Company closed its initial public offering ("IPO"), in which the Company issued and sold 26,822,409 shares of Class A common stock at $21.00 per share. The Company received aggregate proceeds of $538.2 million, net of underwriters' discounts and commissions, before deducting offering costs of $6.9 million, net of reimbursements.

Immediately prior to the closing of the Company’s IPO, 147,310,563 shares of convertible preferred stock outstanding converted into an equivalent number of shares of Class B common stock. Further, pursuant to transfer agreements with certain of the Company’s stockholders, 258,620 shares of the Company’s convertible preferred stock and 2,609,951 shares of the Company’s Class B common stock automatically converted into an equivalent number of shares of Class A common stock. 

Immediately subsequent to the closing of the Company's IPO, Salesforce Ventures LLC purchased 4,761,905 shares of Class A common stock from the Company at $21.00 per share. The Company received aggregate proceeds of $100.0 million and did not pay any underwriting discounts or commissions with respect to the shares that were sold in the private placement.

On March 28, 2018, the underwriters exercised their option to purchase an additional 5,400,000 shares of the Company's Class A common stock at $21.00 per share. This transaction closed on April 3, 2018, resulting in additional proceeds of $108.4 million, net of underwriters' discounts and commissions.

The Company’s net proceeds from the IPO, the concurrent private placement, and underwriters' option totaled $746.6 million, before deducting offering costs of $6.9 million, net of reimbursements.

Upon the effectiveness of the registration statement for the Company's IPO, which was March 22, 2018, the liquidity event-related performance vesting condition, referred to as the Performance Vesting Condition, associated with the Company's two-tier restricted stock units ("RSUs") was satisfied. As a result, the Company recognized the cumulative unrecognized stock-based compensation related to its two-tier RSUs using the accelerated attribution method of $418.7 million attributable to service prior to such effective date.


11

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


During the first quarter of 2018, the Company's Board of Directors approved the acceleration of the Performance Vesting Condition for which the service condition was satisfied, to occur upon the effectiveness of the registration statement for the Company's IPO, rather than six months following an IPO. As a result, the Company released 26.8 million shares of common stock underlying the two-tier RSUs for which the Performance Vesting Condition was satisfied and recorded $13.9 million in employer related payroll tax expenses associated with these same awards.

Stock split
On March 7, 2018, the Company effected a 1-for-1.5 reverse stock split of its capital stock. All of the share and per share information referenced throughout the condensed consolidated financial statements and notes to the condensed consolidated financial statements have been retroactively adjusted to reflect this reverse stock split.

Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the Company’s condensed consolidated financial statements and accompanying notes. These estimates are based on information available as of the date of the condensed consolidated financial statements. Management evaluates these estimates and assumptions on a regular basis. Actual results may differ materially from these estimates.

The Company’s most significant estimates and judgments involve the estimation of the fair value of market-based awards and the valuation of acquired intangible assets and goodwill from business combinations.

Financial information about segments and geographic areas
The Company manages its operations and allocates resources as a single operating segment. Further, the Company manages, monitors, and reports its financials as a single reporting segment. The Company’s chief operating decision-maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, and allocating resources. See Note 16, "Geographic Areas" for information regarding the Company’s long-lived assets and revenue by geography.

Foreign currency transactions
The assets and liabilities of the Company’s foreign subsidiaries are translated from their respective functional currencies into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenue and expense amounts are translated at the average exchange rate for the period. Foreign currency translation gains and losses are recorded in other comprehensive income (loss).

Gains and losses realized from foreign currency transactions (those transactions denominated in currencies other than the foreign subsidiaries’ functional currency) are included in other income (expense), net. Monetary assets and liabilities are remeasured using foreign currency exchange rates at the end of the period, and non-monetary assets are remeasured based on historical exchange rates. The Company recorded net foreign currency transaction losses of $0.5 million and $0.5 million during the three and six months ended June 30, 2019, respectively, and net foreign currency transaction losses of $1.1 million and $0.4 million during the three and six months ended June 30, 2018, respectively.

Revenue recognition
The Company derives its revenue from subscription fees from customers for access to its platform. The Company’s policy is to exclude sales and other indirect taxes when measuring the transaction price of its subscription agreements. The Company accounts for revenue contracts with customers through the following steps:
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, the Company satisfies a performance obligation


12

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


The Company’s subscription agreements generally have monthly or annual contractual terms and a small percentage have multi-year contractual terms. Revenue is recognized ratably over the related contractual term beginning on the date that the platform is made available to a customer. Access to the platform represents a series of distinct services as the Company continually provides access to, and fulfills its obligation to the end customer over the subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. The Company recognizes revenue ratably because the customer receives and consumes the benefits of the platform throughout the contract period. The Company’s contracts are generally non-cancelable.

The Company bills in advance for monthly contracts and typically bills annually in advance for contracts with terms of one year or longer. The Company also recognizes an immaterial amount of contract assets, or unbilled receivables, primarily relating to consideration for services completed but not billed at the reporting date. Unbilled receivables are classified as receivables when the Company has the right to invoice the customer.

The Company records contract liabilities when cash payments are received or due in advance of performance to deferred revenue. Deferred revenue primarily relates to the advance consideration received from the customer.

The price of subscriptions is generally fixed at contract inception and therefore, the Company’s contracts do not contain a significant amount of variable consideration. As a result, the amount of revenue recognized in the periods presented from performance obligations satisfied (or partially satisfied) in previous periods was not material.

The Company recognized $233.9 million and $365.9 million of revenue during the three and six months ended June 30, 2019, respectively, and recognized $208.7 million and $313.0 million of revenue during the three and six months ended June 30, 2018, respectively, that was included in the deferred revenue balances at the beginning of their respective periods.

As of June 30, 2019, future estimated revenue related to performance obligations that were unsatisfied or partially unsatisfied was $559.4 million. The substantial majority of the unsatisfied performance obligations will be satisfied over the next twelve months.

Stock-based compensation
The Company has granted RSUs to its employees and members of the Board of Directors under the 2008 Equity Incentive Plan (“2008 Plan”), the 2017 Equity Incentive Plan (“2017 Plan”), and the 2018 Equity Incentive Plan ("2018 Plan" and together with the 2008 Plan and 2017 Plan, the "Dropbox Equity Incentive Plans"). The Company has granted the following types of RSUs under the Dropbox Equity Incentives Plans:

One-tier RSUs, which have a service-based vesting condition over a four-year period. These awards typically have a cliff vesting period of one year and continue to vest quarterly thereafter. The Company began granting one-tier RSUs under its 2008 Plan in August 2015 and it continues to grant one-tier RSUs under its 2018 Plan. The Company recognizes compensation expense associated with one-tier RSUs ratably on a straight-line basis over the requisite service period and accounts for forfeitures in the period in which they occur.

Two-tier RSUs, which had both a service-based vesting condition and a Performance Vesting Condition. The Performance Vesting Condition was satisfied on the effectiveness of the registration statement related to the Company's IPO. Prior to August 2015, the Company granted two-tier RSUs under the 2008 Plan. The last grant date for two-tier RSUs was in May 2015. The Company recognized compensation expense associated with two-tier RSUs using the accelerated attribution method over the requisite service period.

As of June 30, 2019 the Company only had one-tier RSUs outstanding under the Dropbox Equity Incentive Plans.

Since August 2015, the Company has granted one-tier RSUs as the only stock-based payment awards to its employees, with the exception of awards granted to its co-founders, and has not granted any stock options to employees since then. The fair values of the common stock underlying the RSUs granted in periods prior to the date of the Company's IPO were determined by the Board of Directors, with input from management and contemporaneous third-party valuations, which were performed at least quarterly. For valuations after the Company's IPO, the Board of Directors determines the fair value of each share of underlying common stock based on the closing price of the Company's Class A common stock as reported on the Nasdaq Global Select Market on the date of the grant.

13

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)



In connection with the acquisition of JN Projects, Inc. (d/b/a HelloSign) ("HelloSign"), the Company assumed unvested stock options that had been granted under the HelloSign's 2011 Equity Incentive Plan. The fair value of options assumed were based upon the Black-Scholes option-pricing model, see Note 12, "Stockholders' Equity" for further information.

In December 2017, the Board of Directors approved a grant to the Company’s co-founders of restricted stock awards (“RSAs”) with respect to 14.7 million shares of Class A Common Stock in the aggregate (collectively, the “Co-Founder Grants”), of which 10.3 million RSAs were granted to Mr. Houston, the Company’s co-founder and Chief Executive Officer, and 4.4 million RSAs were granted to Mr. Ferdowsi, the Company’s co-founder and Director. These Co-Founder Grants have service-based, market-based, and performance-based vesting conditions. The Company estimated the grant date fair value of the Co-Founder Grants using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the Stock Price Targets may not be satisfied. See Note 12, "Stockholders' Equity" for further information.

Cash and cash equivalents
Cash consists primarily of cash on deposit with banks and includes amounts in transit from payment processors for credit and debit card transactions, which typically settle within five business days. Cash equivalents include highly liquid investments purchased with an original maturity date of 90 days or less from the date of purchase.

Short-term investments
The Company’s short-term investments are primarily comprised of corporate notes and obligations, U.S. Treasury securities, certificates of deposits, U.S. agency obligations, and commercial paper. The Company determines the appropriate classification of its short-term investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its short-term investments as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, the Company classifies its short-term investments, including securities with stated maturities beyond twelve months, within current assets in the condensed consolidated balance sheets.

The Company's short-term investments are classified as available-for-sale securities and are recorded at fair value each reporting period. Unrealized gains and losses on these short-term investments are reported as a separate component of accumulated other comprehensive income (loss) in the condensed consolidated balance sheets until realized. Interest income is reported within interest income (expense), net in the condensed consolidated statements of operations. The Company periodically evaluates its short-term investments to assess whether those with unrealized loss positions are other-than-temporarily impaired. The Company considers various factors in determining whether to recognize an impairment charge, including the length of time the investment has been in a loss position, the extent to which the fair value is less than the Company’s cost basis, and the financial condition and near-term prospects of the investee. Realized gains and losses are determined based on the specific identification method and are reported in other income (expense), net in the condensed consolidated statements of operations. If the Company determines that the decline in an investment’s fair value is other-than-temporary, the difference is recognized as an impairment loss in the condensed consolidated statements of operations.

Concentrations of credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, accounts receivable, and short-term investments. The Company places its cash and cash equivalents and short-term investments with well-established financial institutions.

Trade accounts receivables are typically unsecured and are derived from revenue earned from customers located around the world. One customer accounted for 41% of total trade and other receivables, net as of June 30, 2019. Two customers accounted for 14% and 23% of total trade and other receivables, net as of December 31, 2018. No customer accounted for more than 10% of the Company’s revenue in the periods presented.

Non-trade receivables
The Company records non-trade receivables to reflect amounts due for activities outside of its subscription agreements, such as receivables resulting from tenant improvement allowances prior to the adoption of ASC 842. Non-trade receivables totaled $3.4 million and $46.2 million, as of June 30, 2019 and December 31, 2018, respectively, and are classified within

14

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


prepaid expenses and other current assets and other assets in the accompanying condensed consolidated balance sheets. See "—Lease obligations” for further discussion.

Deferred commissions, net
Deferred commissions, net is stated as gross deferred commissions less accumulated amortization. Sales commissions earned by the Company’s sales force and third-party resellers, as well as related payroll taxes, are considered to be incremental and recoverable costs of obtaining a contract with a customer. These amounts have been capitalized as deferred commissions within prepaid and other current assets and other assets on the condensed consolidated balance sheets. The Company deferred incremental costs of obtaining a contract of $6.4 million and $13.7 million during the three and six months ended June 30, 2019, respectively, and $7.7 million and $17.5 million during the three and six months ended June 30, 2018, respectively.

Deferred commissions, net included in prepaid and other current assets were $17.3 million and $14.5 million as of June 30, 2019 and December 31, 2018, respectively. Deferred commissions, net included in other assets were $41.1 million and $38.3 million as of June 30, 2019 and December 31, 2018, respectively.

Deferred commissions are typically amortized over a period of benefit of five years. The period of benefit was estimated by considering factors such as historical customer attrition rates, the useful life of the Company’s technology, and the impact of competition in its industry. Amortized costs were $4.2 million and $8.1 million for the three and six months ended June 30, 2019, respectively, and $2.9 million and $5.3 million for the three and six months ended June 30, 2018, respectively. Amortized costs are included in sales and marketing expense in the accompanying condensed consolidated statements of operations. There was no impairment loss in relation to the deferred costs for any period presented.

Property and equipment, net
Equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the related asset, which is generally three to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the related lease.

The following table presents the estimated useful lives of property and equipment:

Property and equipment
 
Useful life
 
 
 
Datacenter and other computer equipment
 
3 to 5 years
Office equipment and other
 
3 to 7 years
Leasehold improvements
 
Lesser of estimated useful life or remaining lease term

Equity investments
The Company holds an equity investment in a publicly traded company in which the Company does not have a controlling interest or significant influence. The investment is measured using quoted prices in its active market with changes recorded in other income (expense), net, in the condensed consolidated statement of operations. As of June 30, 2019, the Company's equity investment totaled $12.5 million included in other assets. The Company recognized net gains of $7.4 million related to changes in quoted prices in the investment’s active market during the three and six months ended June 30, 2019. The investment is classified as a level 1 investment within the fair value hierarchy.

Lease obligations
The Company leases office space, datacenters, and equipment under non-cancelable finance and operating leases with various expiration dates through 2033. The Company determines if an arrangement contains a lease at inception.

Operating lease right-of-use assets and lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest rate implicit in the Company’s operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future payments. The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments. Operating lease right-of-use assets also include any prepaid lease payments and lease incentives.


15

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


Certain of the operating lease agreements contain rent concession, rent escalation, and option to renew provisions. Rent concession and rent escalation provisions are considered in determining the single lease cost to be recorded over the lease term. Single lease cost is recognized on a straight-line basis over the lease term commencing on the date the Company has the right to use the leased property. The lease terms may include options to extend or terminate the lease. The Company generally uses the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that the option will be exercised.

In addition, certain of the Company’s operating lease agreements contain tenant improvement allowances from its landlords. These allowances are accounted for as lease incentives and decrease the Company's right-of-use asset and reduce single lease cost over the lease term.

The Company leases certain equipment from various third parties, through equipment finance leases. These leases either include a bargain purchase option, a full transfer of ownership at the completion of the lease term, or the terms of the leases are at least 75 percent of the useful lives of the assets and are therefore classified as finance leases. These leases are capitalized in property and equipment and the related amortization of assets under finance leases is included in depreciation and amortization expense in the Company’s condensed consolidated statements of operations. Initial asset values and finance lease obligations are based on the present value of future minimum lease payments.

The Company’s finance lease agreements may contain lease and non-lease components. The non-lease components include payments for support on infrastructure equipment obtained via finance leases, which when not significant in relation to the overall agreement, are combined with the lease components and accounted for together as a single lease component.
Business combinations
The Company uses best estimates and assumptions, including but not limited to, future expected cash flows, expected asset lives, and discount rates, to assign a fair value to the tangible and intangible assets acquired and liabilities assumed in business combinations as of the acquisition date. These estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s condensed consolidated statements of operations.
    
Long-lived assets, including goodwill and other acquired intangible assets, net
The Company evaluates the recoverability of its property and equipment and finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review determines that the carrying amount of specific property and equipment or intangible assets is not recoverable, the carrying amount of such assets is reduced to its fair value.

The Company reviews goodwill for impairment at least annually in the fourth quarter, or more frequently if events or changes in circumstances would more likely than not reduce the fair value of its single reporting unit below its carrying value.

The Company has not recorded impairment charges on property and equipment, goodwill, or intangible assets for the periods presented in these condensed consolidated financial statements.

Acquired property and equipment and finite-lived intangible assets are amortized over their useful lives. The Company evaluates the estimated remaining useful life of these assets when events or changes in circumstances warrant a revision to the remaining period of amortization. If the Company revises the estimated useful life assumption for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life on a prospective basis.

Income taxes

16

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


Deferred income tax balances reflect the effects of temporary differences between the financial reporting and tax bases of the Company’s assets and liabilities using enacted tax rates expected to apply when taxes are actually paid or recovered. In addition, deferred tax assets are recorded for net operating loss and credit carryforwards.

A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized based on all available positive and negative evidence. Such evidence includes, but is not limited to, recent cumulative earnings or losses, expectations of future taxable income by taxing jurisdiction, and the carry-forward periods available for the utilization of deferred tax assets.

The Company uses a two-step approach to recognizing and measuring uncertain income tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense.

Although the Company believes that it has adequately reserved for its uncertain tax positions, it can provide no assurance that the final tax outcome of these matters will not be materially different. The Company evaluates its uncertain tax positions on a regular basis and evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, such as the 2017 Tax Cuts and Jobs Act ("2017 Tax Reform Act"), correspondence with tax authorities during the course of an audit, and effective settlement of audit issues.

To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on the Company’s financial condition and results of operations.

Fair value measurement
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which it would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions, and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Recently issued accounting pronouncements not yet adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in more timely recognition of credit losses. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company does not expect the adoption of ASU No. 2016-13 to have a significant impact on its consolidated financial statements.


17

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which amends disclosure requirements for fair value measurements by requiring new disclosures, modifying existing requirements, and eliminating others. The amendments are the result of a broader disclosure project, which aims to improve the effectiveness of disclosures. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company does not expect the adoption of ASU No. 2018-13 to have a significant impact on its disclosures.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Under existing U.S. GAAP, there is diversity in practice in accounting for the costs of implementing cloud computing arrangements that are service contracts. The amendments in ASU No. 2018-15 amend the definition of a hosting arrangement and requires a customer in a hosting arrangement that is a service contract to capitalize certain costs as if the arrangement were an internal-use software project. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU No. 2018-15.

Recently adopted accounting pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Most prominent among the changes in the standard is the recognition of right-of-use assets (“ROU assets”) and lease liabilities by lessees for certain leases classified as operating leases under current GAAP. The Company has made the policy election to not recognize a lease liability or right-of-use asset for short-term operating leases.  

The Company adopted the standard as of January 1, 2019, using the modified retrospective approach and has elected to use the optional transition method which allows the Company to apply the guidance of ASC 840, including disclosure requirements, in the comparative periods presented. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification related to agreements entered prior to adoption.  

The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. The adoption of the new standard resulted in the recording of operating ROU assets and lease liabilities of approximately $431.7 million and $502.4 million, respectively, as of January 1, 2019.

The accounting for finance leases remained unchanged, except for the accounting for certain non-lease components. Lease and non-lease components will be accounted for as a single lease component if the non-lease component is determined to be insignificant to the total agreement.

The cumulative impact of transition to retained earnings, recorded as of the adoption date, was not material. The standard did not materially impact consolidated net earnings and had no impact on cash flows.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU No. 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Reform Act. The amendments in ASU No. 2018-02 also require certain disclosures about stranded tax effects. The Company adopted ASU No. 2018-02 on January 1, 2019. The adoption of the standard did not have a material impact on the Company's condensed consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. Under existing U.S. GAAP, the measurement date for equity awards granted to nonemployees is the earlier of the performance commitment date or the date the performance is complete. The amendments in ASU No. 2018-07 allow for measurement of these awards on the grant date, consistent with equity awards granted to employees. The Company adopted ASU No. 2018-07 on January 1, 2019. The adoption of the standard did not have a material impact on the Company's condensed consolidated financial statements.


18

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


Note 2.
Cash, Cash Equivalents and Short-Term Investments

The amortized cost, unrealized gains and losses and estimated fair value of the Company's cash, cash equivalents and short-term investments as of June 30, 2019 and December 31, 2018 consisted of the following:

As of June 30, 2019

Amortized Cost
 
Unrealized Gain
 
Unrealized Loss
 
Estimated Fair Value
 
 
 
 
 
 
 
 
Cash
$
110.2

 
$

 
$

 
$
110.2

Cash equivalents:


 


 


 


Money market funds
211.1

 

 

 
211.1

Commercial paper
21.2

 

 

 
21.2

Corporate notes and obligations
1.1

 

 

 
1.1

Total cash and cash equivalents
$
343.6

 
$

 
$

 
$
343.6

Investments
 
 
 
 
 
 
 
Corporate notes and obligations
288.6

 
1.4

 

 
290.0

U.S. Treasury securities
195.3

 
0.2

 
(0.1
)
 
195.4

Commercial Paper
50.5

 

 

 
50.5

U.S. agency obligations
47.9

 

 

 
47.9

Certificates of deposit
45.4

 

 

 
45.4

Total short-term investments
627.7

 
1.6

 
(0.1
)
 
629.2

Total
$
971.3

 
$
1.6

 
$
(0.1
)
 
$
972.8



As of December 31, 2018

Amortized cost
 
Unrealized gain
 
Unrealized loss
 
Estimated fair value
 
 
 
 
 
 
 
 
Cash
$
103.0

 
$

 
$

 
$
103.0

Cash equivalents
 
 

 

 

Money market funds
355.5

 

 

 
355.5

U.S. Treasury securities
33.4

 

 

 
$
33.4

Commercial paper
27.4

 

 

 
27.4

Total cash and cash equivalents
$
519.3

 
$

 
$

 
$
519.3

Short-term investments

 

 

 

Corporate notes and obligations
269.6

 
0.1

 
(0.5
)
 
269.2

U.S. Treasury securities
176.0

 

 
(0.1
)
 
175.9

Certificates of deposit
70.6

 

 

 
70.6

U.S. agency obligations
37.1

 

 

 
37.1

Commercial paper
17.2

 

 

 
17.2

Total short-term investments
570.5

 
0.1

 
(0.6
)
 
570.0

Total
$
1,089.8

 
$
0.1

 
$
(0.6
)
 
$
1,089.3


Included in cash and cash equivalents is cash in transit from payment processors for credit and debit card transactions of $17.5 million and $11.9 million as of June 30, 2019 and December 31, 2018, respectively.

All short-term investments were designated as available-for-sale securities as of June 30, 2019 and December 31, 2018.

The following table presents the contractual maturities of the Company’s short-term investments as of June 30, 2019:

19

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


 
As of June 30, 2019
 
Amortized cost
 
Estimated fair value
 
 
 
 
Due within one year
$
348.8

 
$
349.2

Due between one to three years
278.9

 
280.0

Total
$
627.7

 
$
629.2


The Company had 25 short-term investments in unrealized loss positions as of June 30, 2019. There were no material unrealized losses from available-for-sale securities and no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three and six months ended June 30, 2019 and 2018.

For investments in available-for-sale debt securities that have unrealized losses, the Company evaluates whether (i) it has the intention to sell any of these investments and (ii) whether it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. Based on this evaluation, the Company determined that there were no other-than-temporary impairments associated with short-term investments as of June 30, 2019.

The Company recorded interest income from its cash, cash equivalents, and short-term investments of $5.6 million and $11.8 million during the three and six months ended June 30, 2019, respectively, and $4.3 million and $5.8 during the three and six months ended June 30, 2018, respectively.

Note 3.
Fair Value Measurements

The Company measures its financial instruments at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following table presents information about the Company’s financial instruments that are measured at fair value on a recurring basis using the input categories discussed in Note 1:   
 
As of June 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
 
Money market funds
$
211.1

 
$

 
$

 
$
211.1

Commercial paper

 
21.2

 

 
21.2

Corporate notes and obligations

 
1.1

 

 
1.1

Total cash equivalents
$
211.1

 
$
22.3

 
$

 
$
233.4

Short-term investments
 
 
 
 
 
 
 
Corporate notes and obligations

 
290.0

 

 
290

U.S. Treasury securities

 
195.5

 

 
195.5

Commercial paper

 
50.4

 

 
50.4

U.S. agency obligations

 
47.9

 

 
47.9

Certificates of deposit

 
45.4

 

 
45.4

Total short-term investments

 
629.2

 

 
629.2

Equity investments
12.5

 

 

 
12.5

Total
$
223.6

 
$
651.5

 
$

 
$
875.1



20

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


 
As of December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
 
Money market funds
$
355.5

 
$

 
$

 
$
355.5

U.S. Treasury securities

 
33.4

 

 
33.4

Commercial paper

 
27.4

 

 
27.4

Total cash equivalents
$
355.5

 
$
60.8

 

 
$
416.3

Short-term investments
 
 
 
 
 
 
 
Corporate notes and obligations

 
269.2

 

 
269.2

U.S. Treasury securities

 
175.9

 

 
175.9

Certificates of deposit

 
70.6

 

 
70.6

U.S agency obligations

 
37.1

 

 
37.1

Commercial paper

 
17.2

 

 
17.2

Total short-term investments

 
570.0

 

 
570.0

Total
$
355.5

 
$
630.8

 
$

 
$
986.3


The Company had no transfers between levels of the fair value hierarchy.

The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable and accounts payable approximate fair value due to their short-term maturities and are excluded from the fair value table above.

Note 4.
Property and Equipment, Net

Property and equipment, net consisted of the following:

 
As of
 
June 30, 2019
 
December 31, 2018
 
 
 
 
Datacenter and other computer equipment
$
698.8

 
$
667.4

Furniture and fixtures
24.9

 
23.8

Leasehold improvements
154.0

 
150.5

Construction in process
99.5

 
32.8

Total property and equipment
977.2

 
874.5

Accumulated depreciation and amortization
(607.9
)
 
(563.9
)
Property and equipment, net
$
369.3

 
$
310.6


The Company leases certain infrastructure from various third parties, through equipment finance leases. Infrastructure assets as of June 30, 2019 and December 31, 2018, respectively included a total of $312.5 million and $362.8 million acquired under finance lease agreements. These leases are capitalized in property and equipment, and the related amortization of assets under finance leases is included in depreciation and amortization expense. The accumulated depreciation of the infrastructure under finance leases totaled $142.6 million and $211.7 million as of June 30, 2019 and December 31, 2018, respectively.

Construction in process includes costs primarily related to construction of leasehold improvements for office buildings and datacenters.


21

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


Depreciation expense related to property and equipment was $42.3 million and $85.4 million for the three and six months ended June 30, 2019, respectively, and $38.0 million and $72.1 million for the three and six months ended June 30, 2018, respectively.

Note 5.
Business Combinations

On February 8, 2019, the Company acquired all outstanding stock of JN Projects, Inc. (d/b/a HelloSign) ("HelloSign"), which provides an e-signature and document workflow platform. The acquisition of HelloSign expands the Company's content collaboration capabilities to include additional business-critical workflows. The results of HelloSign operations have been included in the Company’s consolidated results of operations since the date of acquisition.

The purchase consideration transferred consisted of the following:
 
Purchase consideration
Cash paid to common and preferred stockholders and vested option holders
$
175.2

Transaction costs paid by Dropbox on behalf of HelloSign
2.4

Fair value of assumed HelloSign options attributable to pre-combination services (1)
0.8

Purchase price adjustments
(0.5
)
Total purchase consideration
$
177.9


(1) The fair value of options assumed were based upon the Black-Scholes option-pricing model.

In addition to the total purchase consideration above, the Company has compensation agreements with key HelloSign personnel consisting of $48.5 million in future cash payments subject to on-going employee service. The related expense will be recognized within research and development expenses over the required service period of three years, and the payments will begin in the first quarter of 2020 if the requisite service is provided.

The purchase consideration was preliminarily allocated to the tangible and intangible assets and liabilities acquired as of the acquisition date, with the excess recorded to goodwill as shown below. The fair value of assets and liabilities acquired may change as additional information is received during the measurement period. The measurement period will end no later than one-year from the acquisition date.
Assets acquired:
 
Cash and cash equivalents
$
5.5

Short-term investments
7.8

Acquisition-related intangible assets
44.6

Accounts receivable, prepaid and other assets
5.0

Total assets acquired
$
62.9

 
 
Liabilities assumed:
 
Accounts payable, accrued and other liabilities
$
6.3

Deferred revenue
4.8

Deferred tax liability
6.9

Total liabilities assumed
18.0

Net assets acquired, excluding goodwill
44.9

Total purchase consideration
177.9

Estimated goodwill (2)
$
133.0


(2) The goodwill recognized was primarily attributable to the opportunity to expand the user base of the Company's platform. The goodwill is not deductible for U.S. federal income tax purposes.

22

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)



The fair value of the separately identifiable finite-lived intangible assets acquired and estimated weighted average useful lives are as follows:

 
Estimated fair values
 
Estimated weighted average useful lives
 (In years)
Customer relationships
$
20.5

 
4.9
Developed technology
19.6

 
5.0
Trade name
4.5

 
5.0
Total acquisition-related intangible assets
$
44.6

 
 

The fair values of the acquisition-related intangibles were determined using the following methodologies: the multi-period excess earnings method, replacement cost method, and the relief from royalty method, for customer relationships, developed technology, and the trade name, respectively. The valuation model inputs required the application of significant judgment by management. The acquired intangible assets have a total weighted average amortization period of 4.9 years.

One-time acquisition-related diligence costs of $1.0 million were expensed within general and administrative expenses as incurred during the six months ended June 30, 2019.

Note 6.
Intangible Assets
Intangible assets consisted of the following:
 
As of June 30,
 
As of December 31,
 
Weighted-
average
remaining
useful life
(In years)
 
2019
 
2018
 
Developed technology
$
25.0

 
$
47.0

 
4.6
Customer relationships
20.5

 

 
4.5
Software
20.0

 
19.2

 
2.0
Patents
13.0

 
13.0

 
7.8
Assembled workforce in asset acquisitions
12.6

 
12.6

 
1.5
Licenses
4.6

 
4.6

 
2.0
Trademarks and trade names
5.2

 
0.7

 
4.6
Other
3.3

 
3.3

 
5.9
Total intangibles
104.2

 
100.4

 
 
Accumulated amortization
(50.5
)
 
(85.7
)
 
 
Intangible assets, net
$
53.7

 
$
14.7

 

During the first quarter of 2019 the Company retired $41.7 million in fully amortized developed technology assets.
Amortization expense was $3.7 million and $6.5 million for the three and six months ended June 30, 2019, respectively, and $2.0 million and $3.8 million for the three and six months ended June 30, 2018, respectively.


23

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


Expected future amortization expense for intangible assets as of June 30, 2019, is as follows:
 
 
Remaining six months of Fiscal 2019
$
7.1

2020
13.6

2021
11.3

2022
8.0

2023
7.7

Thereafter
6.0

Total
$
53.7


Note 7.
Goodwill

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. The changes in the carrying amounts of goodwill were as follows:
Balance at December 31, 2018
$
96.5

HelloSign acquisition
133.0

Effect of foreign currency translation
1.4

Balance at June 30, 2019
$
230.9


The goodwill acquired from HelloSign is carried in U.S. dollars, while goodwill from previous acquisitions is denominated in other foreign currencies.

Goodwill amounts are not amortized, but tested for impairment on an annual basis. There was no impairment of goodwill as of June 30, 2019 and December 31, 2018.

Note 8.
Revolving Credit Facility

In April 2017, the Company entered into an amended and restated credit and guaranty agreement which provided for a $600.0 million revolving loan facility (the “revolving credit facility”). In conjunction with the revolving credit facility, the Company paid upfront issuance fees of $2.6 million, which are being amortized over the five-year term of the agreement.

In February 2018, the Company amended its revolving credit facility to, among other things, permit the Company to make certain investments, enter into an unsecured standby letter of credit facility and increase its standby letter of credit sublimit to $187.5 million. The Company increased its borrowing capacity under the revolving credit facility from $600.0 million to $725.0 million. The Company may from time to time request increases in its borrowing capacity under the revolving credit facility of up to $275.0 million, provided no event of default has occurred or is continuing or would result from such increase. In conjunction with the amendment, the Company paid upfront issuance fees of $0.4 million, which are being amortized over the remaining term of the agreement.

Pursuant to the terms of the revolving credit facility, the Company may issue letters of credit under the revolving credit facility, which reduce the total amount available for borrowing. Pursuant to the terms of the revolving credit facility, the Company is required to pay an annual commitment fee that accrues at a rate of 0.20% per annum on the unused portion of the borrowing commitments under the revolving credit facility. In addition, the Company is required to pay a fee in connection with letters of credit issued under the revolving credit facility, which accrues at a rate of 1.5% per annum on the amount of such letters of credit outstanding. There is an additional fronting fee of 0.125% per annum multiplied by the average aggregate daily maximum amount available under all letters of credit. Borrowings under the revolving credit facility bear interest, at the Company’s option, at an annual rate based on LIBOR plus a spread of 1.50% or at an alternative base rate plus a spread of 0.50%.


24

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


The revolving credit facility contains customary conditions to borrowing, events of default and covenants, including covenants that restrict the Company’s ability to incur indebtedness, grant liens, make distributions to holders of the Company or its subsidiaries’ equity interests, make investments, or engage in transactions with its affiliates. In addition, the revolving credit facility contains financial covenants, including a consolidated leverage ratio covenant and a minimum liquidity balance of $100.0 million, which includes any available borrowing capacity. The Company was in compliance with the covenants of the revolving credit facility as of June 30, 2019 and December 31, 2018, respectively.

The Company had an aggregate of $67.8 million of letters of credit outstanding under the revolving credit facility as of June 30, 2019, and the Company’s total available borrowing capacity under the revolving credit facility was $657.2 million as of June 30, 2019. The Company’s letters of credit expire between July of 2019 and April of 2022.

Note 9.
Leases

The Company has operating leases for corporate offices and datacenters, and finance leases for infrastructure equipment. The Company’s leases have remaining lease terms of 1 year to 14 years, some of which include options to extend the leases for up to 5 years.

The Company also has subleases of former corporate offices. Subleases have remaining lease terms of 4 years.  Sublease income, which is recorded as a reduction of rental expense, was $1.6 million and $3.5 million three and six months ended June 30, 2019, respectively, and $3.1 million and $6.6 million for the three and six months ended June 30, 2018, respectively.

The components of single lease cost were as follows:

 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
Operating lease cost (1)
$
26.4

 
$
21.1

 
$
48.5

 
$
43.0

Finance lease cost:

 
 
 
 
 
 
     Amortization of assets under finance lease
20.5

 
22.4

 
42.2

 
44.1

     Interest
2.3

 
1.9

 
4.5

 
3.8

Total finance lease cost
$
22.8

 
$
24.3

 
$
46.7

 
$
47.9


(1) Is presented gross of sublease income and includes short-term leases, which are immaterial

Other information related to leases was as follows:
 
 
Six months ended June 30, 2019
Supplemental Cash Flow Information:
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
     Payments for operating leases included in cash from operating activities
 
$
46.6

     Payments for finance leases included in cash from operating activities
 
$
4.5

     Payments for finance leases included in cash from financing activities
 
$
50.6

Assets obtained in exchange for lease obligations:
 
 
     Operating leases(2)
 
$
177.6

     Finance leases
 
$
75.4


(2) Includes the impact of the Company taking initial possession of the second phase of it's new corporate headquarters in April of 2019 of $159.3 million.

25

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


 
 
As of June 30, 2019
 
 
 
Weighted Average Remaining Lease Term (in years)
 
 
     Operating leases
 
10.9

     Finance leases
 
3.0

 
 
 
Weighted Average Discount Rate
 
 
     Operating leases
 
4.4
%
     Finance leases
 
4.9
%
 
 
 

Future minimum lease payments under non-cancellable leases as of June 30, 2019 were as follows:
Year ending December 31,
Operating leases(1)
 
Finance leases
2019 (excluding the six months ended June 30, 2019)
$
52.0

 
$
43.2

2020
103.2

 
65.9

2021
93.4

 
50.7

2022
85.7

 
36.7

2023
69.2

 
6.1

Thereafter
540.3

 

Total future minimum lease payments
943.8

 
202.6

Less imputed interest
(229.7
)
 
(14.1
)
Less tenant improvement receivables
(34.4
)
 

Total liability
$
679.7

 
$
188.5


(1) Consists of future non-cancelable minimum rental payments under operating leases for the Company’s corporate offices and datacenters where the Company has possession, excluding rent payments from the Company’s sub-tenants and variable operating expenses. As of June 30, 2019, the Company is entitled to non-cancelable rent payments from its sub-tenants of $38.1 million, which will be collected over the next 4 years.

In 2017, the Company entered into a lease agreement for office space in San Francisco, California, to serve as its new corporate headquarters. The Company took initial possession of the first phase of its new corporate headquarters in June 2018, and began to recognize single lease cost related to the first phase. In that same period, the Company recorded a lease incentive obligation related to tenant improvement reimbursements associated with the first phase. In April 2019, the Company took possession of the second phase, and began to recognize additional lease costs and recorded an additional lease obligation, net of tenant improvement reimbursements related to the second phase. The Company expects to start making recurring rental payments under the lease in the third quarter of 2019. The Company's total expected minimum obligations for all three phases of the lease are $841.9 million, which exclude expected tenant improvement reimbursements from the landlord of approximately $75.0 million and variable operating expenses. The Company’s obligations under the lease are supported by a $34.2 million letter of credit, which reduced the borrowing capacity under the revolving credit facility.  In the six months ended June 30, 2019, the Company collected tenant improvement reimbursements from the landlord totaling $28.5 million. The Company plans to relocate from its current corporate headquarters to its new corporate headquarters in the third quarter of 2019.

As of June 30, 2019, the Company had commitments of $250.1 million for operating leases that have not yet commenced, and therefore are not included in the right-of-use asset or operating lease liability.  These operating leases will commence between 2019 and 2021 with lease terms of 4 years to 15 years.


26

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


Note 10.
Commitments and Contingencies

Legal matters
From time to time, the Company is a party to a variety of claims, lawsuits, and proceedings which arise in the ordinary course of business, including claims of alleged infringement of intellectual property rights. The Company records a liability when it believes that it is probable that a loss will be incurred and the amount of loss or range of loss can be reasonably estimated. In its opinion, resolution of pending matters is not likely to have a material adverse impact on its condensed consolidated results of operations, cash flows, or its financial position. Given the unpredictable nature of legal proceedings, the Company bases its estimate on the information available at the time of the assessment. As additional information becomes available, the Company reassesses the potential liability and may revise the estimate.

Indemnification
The Company’s arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third party’s intellectual property rights. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims.

Other commitments
Other commitments include payments to third-party vendors for services related to the Company’s infrastructure, infrastructure warranty contracts, and asset retirement obligations for office modifications. There have been no material changes in the Company's other commitments, as disclosed in the Annual Report.

Note 11.
Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
 
As of
 
June 30, 2019
 
December 31, 2018
 
 
 
 
Non-income taxes payable
$
87.9

 
$
75.7

Accrued legal and other external fees
30.9

 
28.1

Deferred rent

 
41.0

Other accrued and current liabilities
30.6

 
19.7

Total accrued and other current liabilities
$
149.4

 
$
164.5


The decrease in deferred rent from December 31, 2018 is due to the Company's adoption of ASC 842 on January 1, 2019 using the modified retrospective approach. As of June 30, 2019, deferred rent reduces the Company's operating right-of-use asset. See Note 9 "Leases" for additional discussion.

Note 12.
Stockholders’ Equity

Common stock
The Company’s amended and restated certificate of incorporation authorizes the issuance of Class A common stock, Class B common stock, and Class C common stock. Holders of Class A common stock, Class B common stock, and Class C common stock are entitled to dividends on a pro rata basis, when, as, and if declared by the Company’s Board of Directors, subject to the rights of the holders of the Company’s preferred stock. Holders of Class A common stock are entitled to one vote per share, holders of Class B common stock are entitled to 10 votes per share, and holders of Class C common stock are entitled to zero votes per share. During the three and six months ended June 30, 2019, holders of 25.9 million and 37.7 million shares of Class B common stock voluntarily converted into an equivalent number of shares of Class A common stock, respectively.


27

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


As of June 30, 2019, the Company had authorized 2,400.0 million shares of Class A common stock, 475.0 million shares of Class B common stock, and 800.0 million shares of Class C common stock, each at par value of $0.00001. As of June 30, 2019, 251.6 million shares of Class A common stock, 161.8 million shares of Class B common stock, and no shares of Class C common stock were issued and outstanding. As of December 31, 2018, 211.0 million shares of Class A common stock, 198.6 million shares of Class B common stock, and no shares of Class C common stock were issued and outstanding. Class A shares issued and outstanding as of June 30, 2019 and December 31, 2018 exclude 14.7 million unvested restricted stock awards granted to the Company’s co-founders. See "Co-Founder Grants" section below for further details.

Convertible preferred stock
Immediately prior to the closing of the Company’s IPO, all of the 147.3 million shares of convertible preferred stock converted into an equivalent number of shares of Class B common stock. Further, pursuant to transfer agreements with certain of the Company’s stockholders, 0.3 million shares of the Company’s convertible preferred stock automatically converted into an equivalent number of shares of Class A common stock. 

Preferred stock

The Company's Board of Directors will have the authority, without further action by the Company's stockholders, to issue up to 240.0 million shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by the Board of Directors.

Equity incentive plans
Under the 2018 Plan, the Company may grant stock-based awards to purchase or directly issue shares of common stock to employees, directors, and consultants. Options are granted at a price per share equal to the fair market value of the Company's common stock at the date of grant. Options granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over a period of four years. RSUs and RSAs are also granted under the 2018 Plan. The 2018 Plan will terminate 10 years after the later of (i) its adoption or (ii) the most recent stockholder-approved increase in the number of shares reserved under the 2018 Plan, unless terminated earlier by the Company's Board of Directors. The 2018 Plan was adopted on March 22, 2018.

In connection with the acquisition of HelloSign, the Company assumed unvested stock options that had been granted under HelloSign's 2011 Equity Incentive Plan.

As of June 30, 2019, there were 32.3 million stock-based awards issued and outstanding and 70.3 million shares available for issuance under the Dropbox Equity Incentive Plans and HelloSign's 2011 Equity Incentive Plan (collectively, the "Plans").


28

DROPBOX, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are in millions except per share data, or as otherwise noted)


Stock option and restricted stock activity for the Plans was as follows for the six months ended June 30, 2019:

 
 
 
Options outstanding
 
Restricted stock
outstanding
 
Number of
shares
available for
issuance
under the
Plans
 
Number of
shares
outstanding
under the
Plans
 
Weighted-
average
exercise
price
per share
 
Weighted-
average
remaining
contractual
term
(In years)
 
Aggregate intrinsic value
 
Number of
shares
outstanding under the Plans
 
Weighted-
average
grant date
fair value
per share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
57.1

 
1.3

 
$
14.68

 
5.0
 
$
9.1

 
25.0