Dropbox : Q3'23 IR Supplement

Dropbox Q4 2023 and Fiscal 2023 Guidance

As of November 2, 2023

(In millions, except percentages)

GAAP Revenue (1)

Constant Currency Revenue (2)

Non-GAAP gross margin (3)

Non-GAAP operating margin (4)

Free cash flow (5)(6)(7)(8)(9)

Key employee holdback payments related to acquisitions (6) R&D capitalization cash tax impact (7)

Payments related to reduction in force (8) Lease buyout (9)

Diluted weighted average shares outstanding

Q4 2023	Fiscal 2023
$629	- $632	$2,496	- $2,499
$631	- $634	$2,536	- $2,539
		82.0%	- 82.5%
~31.5%	~32.5%
		$775 - $785
		$23
		~$50
		~$40
		$28
345	- 350	345	- 350

1. Currency exchange rates assumed in this guidance are based on applying actual exchange rates at the time of booking to current deferred revenue and applying recent average exchange rates to future deferred revenue.
2. Currency exchange rates assumed in this guidance are based on applying prior period weighted average exchange rates to actual results, where applicable, and to estimated future results.
3. A reconciliation of our forward-looking guidance for non-GAAP gross margin with our forward-looking GAAP gross margin is not available without unreasonable efforts as the quantification of stock-based compensation expense, which is excluded from our non-GAAP gross margin and will have a significant impact on our GAAP gross margin, requires additional inputs that are difficult to predict and subject to change.
4. A reconciliation of our forward-looking guidance for non-GAAP operating margin with our forward-looking GAAP operating margin is not available without unreasonable efforts as the quantification of stock-based compensation expense, which is excluded from our non-GAAP operating margin and will have a significant impact on our GAAP operating margin, requires additional inputs that are difficult to predict and subject to change. Our forward-looking guidance for non-GAAP operating margin also excludes one-time severance and benefits expenses of approximately $40 million related to our reduction in force; $31 million of expenses related to the portion of the acquisition purchase price for certain executives that is being earned over three years if they remain employed; and amortization of acquired intangible assets, which are subject to valuation efforts.
5. We define free cash flow as GAAP net cash provided by operating activities less capital expenditures.
6. For the 2023 fiscal year, we expect to make payments in the amount of $23 million for the 2023 installments of deal consideration holdbacks pertaining to our acquisitions of DocSend and Command E.
7. For the 2023 fiscal year, we expect to incur additional tax payments in the amount of approximately $50 million as a result of the law that now requires certain research expenditures to be capitalized for tax purposes. While there is a possibility that the current tax legislation may be amended or repealed, we are including this impact in our guidance until such time that it is repealed.
8. Includes payments related to severance, benefits, and other related items.
9. Includes lease buyout payment related to a portion of our San Francisco office.

Forward-Looking Statements

These supplemental investor materials contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding Dropbox's future financial performance and guidance for Q4 2023 and FY 2023. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date these supplemental investor materials are first posted to Dropbox's investor relations website and are subject to risks, uncertainties, and assumptions, including, but not limited to, our expectations regarding general economic, political, and market trends and their respective impacts on our business, and our future financial performance, including trends in revenue, costs of revenues, gross profit or gross margin, operating expenses, paying users, and free cash flow. Further information on risks that could affect Dropbox's results is included in our filings with the Securities and Exchange Commission (SEC), including our quarterly report on Form 10-Q for the quarter ended June 30, 2023 that we filed with the SEC on August 4, 2023. Additional information will be made available in our quarterly report on Form 10-Q for the quarter ended September 30, 2023 and in 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 these supplemental investor materials are first posted to Dropbox's investor relations website, except as required by applicable law.

Additional information on our non-GAAP measures is included in our earnings release, which was furnished with our Form 8-K filed with the SEC on November 2, 2023.