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What changed in DROPBOX, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of DROPBOX, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+383 added−334 removedSource: 10-K (2024-02-16) vs 10-K (2023-02-23)

Top changes in DROPBOX, INC.'s 2023 10-K

383 paragraphs added · 334 removed · 289 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeHuman Capital At Dropbox, we believe that the world can work better. But that starts with us: building a team that emphasizes the kindness and collaboration needed to grow. We believe the strength of our workforce is one of the most significant contributors to our success. As of December 31, 2022, we had 3,118 full-time employees.
Biggest changeIn addition, the laws of various foreign countries where our products are distributed may not protect our intellectual property rights to the same extent as laws in the United States. Human Capital At Dropbox, we believe that the world can work better. But that starts with us: building a team that emphasizes the kindness and collaboration needed to grow.
Viral, bottom-up adoption Every year, millions of users sign up for Dropbox at work. Bottom-up adoption within organizations has been critical to our strategy and success as users increasingly choose their own tools at work. We generate over 90% of our revenue from self-serve channels—users who purchase a subscription through our app or website.
Viral, bottom-up adoption Every year, millions of users sign up for Dropbox. Bottom-up adoption within organizations has been critical to our strategy and success as users increasingly choose their own tools at work. We generate over 90% of our revenue from self-serve channels—users who purchase a subscription through our app or website.
The doc scanner in our mobile app lets users create content in Dropbox from hard copies. This includes transforming everything from printed materials to whiteboard brainstorming sessions into digital documents that users can edit and share.
Doc scanner . The doc scanner in our mobile app lets users create content in Dropbox from hard copies. This includes transforming everything from printed materials to whiteboard brainstorming sessions into digital documents that users can edit and share.
Dropbox Business team administrators have many ways to customize security settings in both global and granular ways, including real-time detections of suspicious behavior, risky activity, and potential data leaks. 9 Table of Contents • Sharing permissions : Team administrators can set up and monitor how their members share team folders, and can set sharing permissions on all folders, sub-folders, and links through the sharing tab. • Remote device wipe : Team administrators can delete their organization’s Dropbox content from a member’s linked devices, which is especially useful should someone lose a device or leave the team. • Audit log : Team administrators can monitor which members are sharing files and logging into Dropbox, among other events.
Dropbox Business team administrators have many ways to customize security settings in both global and granular ways, including real-time detections of suspicious behavior, risky activity, and potential data leaks. • Sharing permissions : Team administrators can set up and monitor how their members share team folders, and can set sharing permissions on all folders, sub-folders, and links through the sharing tab. 9 Table of Contents • Remote device wipe : Team administrators can delete their organization’s Dropbox content from a member’s linked devices, which is especially useful should someone lose a device or leave the team. • Audit log : Team administrators can monitor which members are sharing files and logging into Dropbox, among other events.
With the shift to our Virtual First work model, we remain committed to supporting their well-being and development. A component of our comprehensive health and wellness benefits package to all employees includes additional time-off opportunities as well as mental and physical wellness benefits.
With the shift to our Virtual First work model, we remain committed to supporting their wellness and development. A component of our comprehensive health and wellness benefits package to all employees includes additional time-off opportunities as well as mental and physical wellness benefits.
A team folder, which is only available for Dropbox Business teams, is a central, administrator-managed hub where they can store and collaborate on content. Shared links . Users can share files and folders with anyone, including non-Dropbox users, by creating a Dropbox link. Once created, the link can be sent through email, text, Facebook, Twitter, instant message, or other channels.
A team folder, which is only available for Dropbox Business teams, is a central, administrator-managed hub where they can store and collaborate on content. Shared links . Users can share files and folders with anyone, including non-Dropbox users, by creating a Dropbox link. Once created, the link can be sent through email, text, Facebook, X, instant message, or other channels.
We believe that the principal competitive factors in our markets include the following: • user-centric design; • ease of adoption and use; • scale of user network; • features and platform experience; • performance; • brand; • security and privacy; • accessibility across several devices, operating systems, and applications; • third-party integration; • customer support; • continued innovation; • pricing; and • macroeconomic trends.
We believe that the principal competitive factors in our markets include the following: • user-centric design; • ease of adoption and use; • scale of user network; • features and platform experience; • performance; • brand; • security and privacy; • accessibility across several devices, operating systems, and applications; • third-party integration; • customer support; • continued innovation; • pricing • investments in AI; and • macroeconomic trends.
How we support our customers All of our users can access support through the following resources: • Help center : Provides an online repository of helpful information about our platform, responses to frequently asked questions, and best practices for use. • Community support : Facilitates collaboration between users on answers, solutions, and ideas about our platform in an online community. • Social media support : Provides users real-time product and service updates, and offers tips and troubleshooting information. 10 Table of Contents • Guided troubleshooting : Offers step-by-step instructions to resolve common questions and provides a portal to submit help requests for questions that aren’t otherwise addressed.
How we support our customers All of our users can access support through the following resources: • Help center : Provides an online repository of helpful information about our platform, responses to frequently asked questions, and best practices for use. • Community support : Facilitates collaboration between users on answers, solutions, and ideas about our platform in an online community. • Social media support : Provides users real-time product and service updates, and offers tips and troubleshooting information. • Guided troubleshooting : Offers step-by-step instructions to resolve common questions and provides a portal to submit help requests for questions that aren’t otherwise addressed.
As of December 31, 2022, Dropbox was receiving over 75 billion API calls per month and just under 1,000,000 developers had registered and built applications on our platform. In addition, more than 80% of Dropbox Business teams have linked to one or more third-party applications. Rewind.
As of December 31, 2023, Dropbox was receiving over 75 billion API calls per month and just under 1,000,000 developers had registered and built applications on our platform. In addition, more than 80% of Dropbox Business teams have linked to one or more third-party applications. Rewind.
Additionally, we provide our employees with a flexible quarterly allowance that can be used to cover expenses related to health and fitness, family and caregiver support, productivity and ergonomics, financial wellness, and learning and development programs, as well as resources to support Dropboxer effectiveness in their work environments.
Additionally, we provide our employees with a quarterly allowance that can be used to cover expenses related to health and fitness, family and caregiver support, productivity and ergonomics, financial wellness, and learning and development programs, as well as resources to support their effectiveness in their work environments.
Our customer base is highly diversified, and in 2020, 2021, and 2022, no customer accounted for more than 1% of our revenue. Our customers include individuals, families, teams, and organizations of all sizes, from freelancers and small businesses to Fortune 100 companies.
Our customer base is highly diversified, and in 2023, 2022, and 2021, no customer accounted for more than 1% of our revenue. Our customers include individuals, families, teams, and organizations of all sizes, from freelancers and small businesses to Fortune 100 companies.
Open ecosystem Because people use a wide variety of devices, tools and platforms, Dropbox works across the devices, operating systems, and apps users want—from Android to iOS, Windows, Mac, desktop, and mobile. We also integrate seamlessly with other products, integrating with partners including Microsoft, Zoom, Slack, BetterCloud, Atlassian, and Google.
Open ecosystem Because people use a wide variety of devices, tools and platforms, Dropbox works across the devices, operating systems, and apps users want—from Android to iOS, Windows, Mac, desktop, and mobile. We also integrate seamlessly with other products, integrating with partners including Microsoft, Zoom, Slack (now part of Salesforce), BetterCloud, Atlassian, and Google.
We also offer additional levels of support for our paying users depending on the subscription plan they choose. Our Sales and Marketing Approach As users share content and collaborate on our platform, they introduce and invite new users, driving viral growth. We generate over 90% of our revenue from self-serve channels, which limits customer acquisition costs.
We also offer additional levels of support for our paying users depending on the subscription plan they choose. 10 Table of Contents Our Sales and Marketing Approach As users share content and collaborate on our platform, they introduce and invite new users, driving viral growth. We generate over 90% of our revenue from self-serve channels, which limits customer acquisition costs.
Dropbox Rewind is a tool that lets a user take a folder, or their entire account, back to a specific point in time. The tool uses version history to undo changes made to files and folders and can recover any file edits or deletions made within the last 30 to 365 days, depending on the users’ subscription. Computer Backup.
Dropbox Rewind is a tool that lets a user take a folder, or their entire account, back to a specific point in time. The tool uses version history to undo changes made to files and folders, and can recover any file edits or deletions up to the last 365 days, depending on the users’ subscription. Computer Backup.
Users also have the option to drag and drop files to upload from their computer, or add items stored in Dropbox. After creating a transfer, users receive a link that can be pasted anywhere and sent to anyone. Recipients receive copies of the files, so the sender’s originals remain untouched. 8 Table of Contents File requests .
Users also have the option to drag and drop files to upload from their computer, or add items stored in Dropbox. After creating a transfer, users receive a link that can be pasted anywhere and sent to anyone. Recipients receive copies of the files, so the sender’s originals remain untouched. File requests .
As paying users work on files, our servers keep snapshots of all their changes. Users can see a file’s complete version history so they can reference and retrieve older versions, depending on the users’ subscription. Version histories are kept between 30 to 365 days for paying users, depending on the users’ subscription. Third-party ecosystem .
As paying users work on files, our servers keep snapshots of all their changes. Users can see a file’s complete version history so they can reference and retrieve older versions, depending on the users’ subscription. Version histories are kept up to 365 days for paying users, depending on the users’ subscription. Third-party ecosystem .
Certain features of our platform compete in the cloud storage market with products offered by Microsoft, Amazon, Apple, Slack, Google, and Adobe and in the content collaboration market with products offered by Microsoft, Atlassian, and Google.
Certain features of our platform compete in the cloud storage market with products offered by Microsoft, Amazon, Apple, Slack (now part of Salesforce), Google, and Adobe and in the content collaboration market with products offered by Microsoft, Atlassian, and Google.
In a world where using technology at work can be fragmented and distracting, Dropbox makes it easy to focus on the work that matters. The popularity of our platform promotes viral growth, which has allowed us to scale rapidly and efficiently. We’ve built a thriving global business with 17.77 million paying users as of December 31, 2022.
In a world where using technology at work can be fragmented and distracting, Dropbox makes it easy to focus on the work that matters. The popularity of our platform promotes viral growth, which has allowed us to scale rapidly and efficiently. We’ve built a thriving global business with 18.12 million paying users as of December 31, 2023.
In addition, we provide resources and training to employees at all levels to ensure that we are cultivating diverse and inclusive teams, as well as sponsor a number of professional development opportunities that support underrepresented employees at our Company.
In addition, we provide resources and training to employees at all levels to ensure that we are cultivating diverse and inclusive teams, as well as sponsor a number of professional development opportunities.
Our Subscription Plans We offer a range of subscription plans for our users, including a free, Basic plan, paid Personal plans, and Business plans. Our Customers We’ve built a thriving global business with 17.77 million paying users. As of December 31, 2022, we had more than 575,000 paying Dropbox Business teams.
Our Subscription Plans We offer a range of subscription plans for our users, including a free, Basic plan, paid Personal plans, and Business plans. Our Customers We’ve built a thriving global business with 18.12 million paying users. As of December 31, 2023, we had more than 575,000 paying Dropbox Business teams.
With Dropbox Paper, users can co-author content, tag others, create timelines, assign tasks with due dates, embed and comment on files, tables, checklists, code snippets, and rich media—all in real-time. We designed Paper to be simple and beautiful so users can focus on the most important ideas and tasks at hand. Doc scanner .
Our platform capabilities are described below: Create Paper . With Dropbox Paper, users can co-author content, tag others, create timelines, assign tasks with due dates, embed and comment on files, tables, checklists, code snippets, and rich media—all in real-time. We designed Paper to be simple and beautiful so users can focus on the most important ideas and tasks at hand.
As a result, we expect that our workforce will continue to become more distributed over time, although we are continuing to offer our employees opportunities for in-person collaboration in all locations where we currently have offices, either through our existing real-estate, or new on-demand, flexible spaces, which are known as “Dropbox Studios”.
As a result, we expect that our workforce will continue to become more distributed over time, although we are continuing to offer our employees opportunities for in-person collaboration in all locations where we currently have offices either through our existing real-estate that were repurposed into collaborative spaces called “Dropbox Studios” or new, flexible spaces known as “On-Demand Spaces”.
We believe we compete favorably across these factors, however, some of our competitors may have greater name recognition, longer operating histories, more varied services, the ability to bundle a broader range of products and services, larger marketing budgets, established marketing relationships, access to larger user bases, major distribution agreements with hardware manufacturers and resellers, and greater financial, technical, and other resources.
We believe we compete favorably across these factors, however, some of our competitors may have greater name recognition, longer operating histories, more varied services, the ability to bundle a broader range of products and services, larger marketing budgets, established marketing relationships, access to larger user bases, major distribution agreements with hardware manufacturers and resellers, and greater financial, technical, and other resources. 12 Table of Contents Intellectual Property We believe that our intellectual property rights are valuable and important to our business.
In addition to these core benefits, Dropbox also provides enhanced mental health benefits, family formation benefits and our adoption and surrogacy assistance program. Our comprehensive programs also provide various leave benefits - including 24 weeks of leave for new parents. Employee Wellness and Safety We recognize the importance of the well-being of our employees.
In addition to these core benefits, Dropbox also provides enhanced mental health benefits, family formation benefits and our adoption and surrogacy assistance program. Our comprehensive programs also provide various leave benefits - including paid parental leave for all eligible employees. 13 Table of Contents Employee Wellness and Safety We recognize the importance of the well-being of our employees.
Security Our sophisticated infrastructure is designed to protect our users’ content while it is transferred, stored, and processed. We offer multiple layers of protection, including secure file data transfer, encryption, network configuration, and application-level controls. For Dropbox Business teams, our tools also empower administrators with control and visibility features that allow them to customize our platform to their organizations’ needs.
We offer multiple layers of protection, including secure file data transfer, encryption, network configuration, and application-level controls. For Dropbox Business teams, our tools also empower administrators with control and visibility features that allow them to customize our platform to their organizations’ needs.
All submitted files are organized into a Dropbox folder that’s private to the requesting user. Watermarking. Our Dropbox watermarking feature allows users to protect and share digital files quickly and easily. The watermark feature can be used to protect graphic designs, confidential contracts, and personal photographs. Users can create their own custom watermark and watermark any file without leaving Dropbox.
All submitted files are organized into a Dropbox folder that’s private to the requesting user. 8 Table of Contents Watermarking. Our Dropbox watermarking feature allows users to protect and share digital files quickly and easily. The watermark feature can be used to protect graphic designs, confidential contracts, and personal photographs.
We are focused on building an inclusive culture and sustaining a diverse workforce through a variety of company initiatives. As part of that effort we have a number of executive-sponsored Employee Resource Groups, or ERGs, that provide support for diverse members of our workforce by fostering an inclusive environment and providing community-building opportunities.
As part of that effort we have a number of executive-sponsored Employee Resource Groups, or ERGs, that provide support for our workforce by fostering an inclusive environment and providing community-building opportunities.
Access and organize Search . Dropbox has powerful search capabilities that allow users to quickly find the files and folders they need. Our autocomplete technology surfaces and prioritizes content based on users’ previous activity.
Access and organize Search . Dropbox has powerful search capabilities that allow users to quickly find the files and folders they need. Our autocomplete technology surfaces and prioritizes content based on users’ previous activity. For Dropbox Plus, Professional, and Business users, full text search allows users to scan the entire content of their files. Rich previews .
We have a physical security policy applicable to all our employees with a global physical security team that is empowered to protect the safety of our employees in the event of emergencies or disasters.
We have a physical security policy applicable to all our employees with a global physical security team that is empowered to protect the safety of our employees in the event of emergencies or disasters. Learning and Development We want all of our employees to have thriving careers where they grow and develop in meaningful ways.
DocSend. DocSend is a secure document sharing and analytics platform that gives customers visibility into what happens to their documents after they send them.
Users can create their own custom watermark and watermark any file without leaving Dropbox. DocSend. DocSend is a secure document sharing and analytics platform that gives customers visibility into what happens to their documents after they send them.
We also offer numerous layers of protection, from secure file data transfer and encryption to network configuration and application-level controls. 6 Table of Contents Our Solution Dropbox allows individuals, teams, and organizations to collaborate more effectively and focus on the work that matters.
We also offer numerous layers of protection, from secure file data transfer and encryption to network configuration and application-level controls. Our Solution Dropbox allows individuals, teams, and organizations to collaborate more effectively and focus on the work that matters. Anyone can sign up for free through our website or app, and upgrade to a paid subscription plan for premium features.
This ongoing innovation broadens the value of our platform and deepens user engagement. These elements reinforce one another to produce a powerful flywheel effect. As users create and share more content with more people, they expand our global sharing network. This network allows us to gather insights and feedback that help us create new product experiences.
We have also made investments in developing products that will incorporate artificial intelligence ("AI") technologies in the future. This ongoing innovation broadens the value of our platform and deepens user engagement. These elements reinforce one another to produce a powerful flywheel effect. As users create and share more content with more people, they expand our global sharing network.
Of our full-time employees, 2,583 were located in the United States and 535 were employees located outside of the United States. None of our employees are represented by a labor union. We have not experienced any work stoppages, and we believe that our employee relations are strong.
None of our employees are represented by a labor union, except to the extent certain employees outside the United States are represented by national trade unions or local works councils. We have not experienced any work stoppages, and we believe that our employee relations are strong.
Learning and Development We want all of our employees to have thriving careers where they grow and develop in meaningful ways. We develop and provide access to internal learning and development resources to assist in professional development in various ways such as skills-building programs, on-demand learning options, mentoring programs, and leadership development courses.
We develop and provide access to internal learning and development resources to assist in professional development in various ways such as skills-building programs, on-demand learning options, mentoring programs, and leadership development courses. We also offer extensive onboarding and training programs to prepare our employees at all levels for career progression and individual development.
We provide a unified home for the world’s content and the relevant context around it. To date, our users have added hundreds of billions of pieces of content to Dropbox, totaling over multiple exabytes of data.
To date, our users have added hundreds of billions of pieces of content to Dropbox, totaling over multiple exabytes of data.
They work across a wide range of industries, including professional services, technology, media, education, industrial, consumer and retail, and financial services. Within companies, our platform is used by all types of teams and functions, including sales, marketing, product, design, engineering, finance, legal, and human resources. Key elements of our platform • Unified home for content.
Within companies, our platform is used by all types of teams and functions, including sales, marketing, product, design, engineering, finance, legal, and human resources. Key elements of our platform • Unified home for content. We provide a unified home for the world’s content and the relevant context around it.
The power of our platform lies in the breadth of our capabilities and the diverse ways our users make Dropbox work for them. We monetize through a range of subscription plans. Our platform capabilities are described below: Create Paper .
Our Capabilities Dropbox is a single organized place where individuals and teams can create content, access it from anywhere, and share it with collaborators. The power of our platform lies in the breadth of our capabilities and the diverse ways our users make Dropbox work for them. We monetize through a range of subscription plans.
With Smart Sync, users can access all of their content natively on their computers without taking up storage space on their local hard drives. We intelligently sync files to a user’s computer as they need them, and users can control which files or folders are always synced locally.
We intelligently sync files to a user’s computer as they need them, and users can control which files or folders are always synced locally.
Intellectual Property We believe that our intellectual property rights are valuable and important to our business. We rely on patents, patent applications, trademarks, copyrights, trade secrets, know-how license agreements, confidentiality procedures, non-disclosure 12 Table of Contents agreements, employee disclosure and invention assignment agreements, and other contractual rights to establish and protect our proprietary rights.
We rely on patents, patent applications, trademarks, copyrights, trade secrets, know-how license agreements, confidentiality procedures, non-disclosure agreements, employee disclosure and invention assignment agreements, and other contractual rights to establish and protect our proprietary rights. In addition, from time to time we’ve purchased patents, inbound licenses, trademarks, domain names, and patent applications from third parties.
We also promote work-life balance by empowering our employees to adopt flexible working arrangements and providing tools for efficient remote collaboration and continuing to provide opportunities for in-person collaboration at our “Dropbox Studios” locations.
A critical feature of the success of Virtual First has been empowering our employees to adopt flexible working arrangements and providing tools for efficient remote collaboration and continuing to provide opportunities for in-person collaboration at our “Dropbox Studios” or “On-Demand Spaces” locations.
We also offer extensive onboarding and training programs to prepare our employees at all levels for career progression and individual development. Diversity and Inclusion We believe that an equitable and inclusive environment comprised of diverse teams produces more creative solutions, results in better and more innovative products, and is crucial to our efforts to attract and retain key talent.
Diversity and Inclusion We believe that an equitable and inclusive environment comprised of diverse teams produces more creative solutions, results in better and more innovative products, and is crucial to our efforts to attract and retain key talent. We are focused on building an inclusive culture and sustaining a diverse workforce through a variety of company initiatives.
In addition, from time to time we’ve purchased patents, inbound licenses, trademarks, domain names, and patent applications from third parties. We have over 1,550 issued patents and more than 300 pending patent applications in the United States and abroad. These patents and patent applications seek to protect our proprietary inventions relevant to our business.
We have over 1,750 issued patents and more than 250 pending patent applications in the United States and abroad. These patents and patent applications seek to protect our proprietary inventions relevant to our business. In addition, we license a number of key third-party patents in the file collaboration, storage, syncing, and sharing markets.
And with our scale, we can instantly put these innovations in the hands of millions. This, in turn, helps attract more users and content, which further propels the flywheel. Our Capabilities Dropbox is a single organized place where individuals and teams can create content, access it from anywhere, and share it with collaborators.
This network allows us to gather insights and feedback that help us create new product experiences. And with our scale, we can instantly put these innovations in the hands of millions. This, in turn, helps attract more users and content, which further propels the flywheel.
In addition, as a default, redundant copies of content are stored independently in at least two separate geographic regions and replicated reliably within each region. Our Commitment to Security, Privacy and Legal Compliance Trust is the foundation of our relationship with our users, and we take significant measures every day to protect their privacy and security.
Our Commitment to Security, Privacy and Legal Compliance Trust is the foundation of our relationship with our users, and we take significant measures every day to protect their privacy and security. Security Our sophisticated infrastructure is designed to protect our users’ content while it is transferred, stored, and processed.
Users can comment on, annotate, review, and present files, and see who viewed and edited them. We support previews of over 300 file types, and Dropbox users currently preview files tens of millions of times every day. Smart Sync .
We support previews of over 300 file types, and Dropbox users currently preview files tens of millions of times every day. 7 Table of Contents Smart Sync . With Smart Sync, users can access all of their content natively on their computers without taking up storage space on their local hard drives.
Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged. In addition, the laws of various foreign countries where our products are distributed may not protect our intellectual property rights to the same extent as laws in the United States.
We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective. Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged.
In addition, we license a number of key third-party patents in the file collaboration, storage, syncing, and sharing markets. We have trademark rights in our name, our logo, and other brand indicia, and have trademark registrations for select marks in the United States and many other jurisdictions around the world.
We have trademark rights in our name, our logo, and other brand indicia, and have trademark registrations for select marks in the United States and many other jurisdictions around the world. We also have registered domain names for websites that we use in our business, such as www.dropbox.com, and similar variations.
For Dropbox Plus, Professional, and Business users, full text search allows users to scan the entire content of their files. 7 Table of Contents Rich previews . Rich previews allow users to easily interact with files across any device without having to open different applications.
Rich previews allow users to easily interact with files across any device without having to open different applications. Users can comment on, annotate, review, and present files, and see who viewed and edited them.
Anyone can sign up for free through our website or app, and upgrade to a paid subscription plan for premium features. Our customers include individuals, families, teams, and organizations of all sizes, from freelancers and small businesses to Fortune 100 companies.
Our 6 Table of Contents customers include individuals, families, teams, and organizations of all sizes, from freelancers and small businesses to Fortune 100 companies. They work across a wide range of industries, including professional services, technology, media, education, industrial, consumer and retail, and financial services.
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We also have registered domain names for websites that we use in our business, such as www.dropbox.com, and similar variations. We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost effective.
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In addition, as a default, redundant copies of content are stored independently in at least two separate geographic regions and replicated reliably within each region. We make investments in technology both to improve our existing products and services and to develop new ones. We have made, and intend to continue making, investments in developing products that will incorporate AI.
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We also established and regularly update Global COVID-19 Workplace Health & Safety Standards, 13 Table of Contents based on guidance from public health authorities, to ensure we minimize risk for employees entering our offices. This is driven through a centralized, cross-functional Crisis Management Team dedicated to Dropbox’s COVID-19 response.
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We believe the strength of our workforce is one of the most significant contributors to our success. As of December 31, 2023, we had 2,693 full-time employees. Of our full-time employees, 2,226 were located in the United States and 467 were employees located outside of the United States.
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On April 27, 2023, we announced a reduction of our global workforce by approximately 16% to streamline our team structure in support of our long-term growth and profitability objectives. We provided employees impacted by this reduction in force with severance packages and job placement support.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe alternative minimum tax is not expected to have a material adverse impact on our business, results of operations, financial conditions, and cash flows; however, if we repurchase stock pursuant to our stock repurchase program or otherwise, the 1% excise tax on stock repurchases generally will increase the costs to us of such repurchases.
Biggest changeAdditionally, the Inflation Reduction Act of 2022 (“IRA”) introduced a new book income-minimum corporate income tax on certain large corporations, and a non-deductible excise tax of 1% on certain share repurchases by corporations. The alternative minimum tax is not expected to have a material adverse impact on our business, results of operations, financial conditions, and cash flows.
For example, many countries and the Organization for Economic Cooperation and Development (“OECD”) have proposed to reallocate some portion of profits of large multinational companies with global revenues exceeding EUR20 billion to markets where sales arise (“Pillar One”), as well as enact a global minimum tax rate of at least 15% for multinationals with global revenue exceeding EUR750 million (“Pillar Two”), and many countries are considering or intend to adopt these proposals.
For example, the Organization for Economic Cooperation and Development (“OECD”) and many countries have proposed to reallocate some portion of profits of large multinational companies with global revenues exceeding EUR20 billion to markets where sales arise (“Pillar One”), as well as enact a global minimum tax rate of at least 15% for multinationals with global revenue exceeding EUR750 million (“Pillar Two”), and many countries are considering or intend to adopt these proposals.
In addition, our restated certificate of incorporation and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following: • any transaction that would result in a change in control of our company requires the approval of a majority of our outstanding Class B common stock voting as a separate class; • our multi-class common stock structure, which provides our holders of Class B common stock with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A common stock, Class B common stock, and Class C common stock; • when the outstanding shares of Class B common stock represent less than a majority of the total combined voting power of our Class A and Class B common stock, or the Voting Threshold Date, our Board of Directors will be classified into three classes of directors with staggered three-year terms, and directors will only be able to be removed from office for cause; • until the Class B common stock, as a class, converts to Class A common stock, any amendments to our restated certificate of incorporation will require the approval of two-thirds of the combined vote of our then-outstanding shares of Class A common stock and Class B common stock; and following the conversion of our Class B common stock, as a class, to Class A common stock, certain amendments to our amended and restated certificate of incorporation will require the approval of two-thirds of our then outstanding voting power; • our amended and restated bylaws will provide that approval of stockholders holding two-thirds of our outstanding voting power voting as a single class is required for stockholders to amend or adopt any provision of our bylaws; • after the Voting Threshold Date our stockholders will only be able to take action at a meeting of stockholders, and will not be able to take action by written consent for any matter; • until the Voting Threshold Date, our stockholders will be able to act by written consent only if the action is first recommended or approved by the Board of Directors; • vacancies on our Board of Directors will be able to be filled only by our Board of Directors and not by stockholders; • only the chairman of our Board of Directors, our chief executive officer, a majority of our Board of Directors, or, until the Class B common stock, as a class, converts to Class A common stock, a stockholder holding 39 Table of Contents thirty percent of the combined voting power of our Class A and Class B common stock are authorized to call a special meeting of stockholders; • certain litigation against us may be required to be brought in Delaware; • our restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued, without the approval of the holders of Class A common stock; and • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
In addition, our restated certificate of incorporation and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following: • any transaction that would result in a change in control of our company requires the approval of a majority of our outstanding Class B common stock voting as a separate class; • our multi-class common stock structure, which provides our holders of Class B common stock with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A common stock, Class B common stock, and Class C common stock; • when the outstanding shares of Class B common stock represent less than a majority of the total combined voting power of our Class A and Class B common stock, or the Voting Threshold Date, our Board of Directors will be classified into three classes of directors with staggered three-year terms, and directors will only be able to be removed from office for cause; 39 Table of Contents • until the Class B common stock, as a class, converts to Class A common stock, any amendments to our restated certificate of incorporation will require the approval of two-thirds of the combined vote of our then-outstanding shares of Class A common stock and Class B common stock; and following the conversion of our Class B common stock, as a class, to Class A common stock, certain amendments to our amended and restated certificate of incorporation will require the approval of two-thirds of our then outstanding voting power; • our amended and restated bylaws will provide that approval of stockholders holding two-thirds of our outstanding voting power voting as a single class is required for stockholders to amend or adopt any provision of our bylaws; • after the Voting Threshold Date our stockholders will only be able to take action at a meeting of stockholders, and will not be able to take action by written consent for any matter; • until the Voting Threshold Date, our stockholders will be able to act by written consent only if the action is first recommended or approved by the Board of Directors; • vacancies on our Board of Directors will be able to be filled only by our Board of Directors and not by stockholders; • only the chairman of our Board of Directors, our chief executive officer, a majority of our Board of Directors, or, until the Class B common stock, as a class, converts to Class A common stock, a stockholder holding thirty percent of the combined voting power of our Class A and Class B common stock are authorized to call a special meeting of stockholders; • certain litigation against us may be required to be brought in Delaware; • our restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued, without the approval of the holders of Class A common stock; and • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve the anticipated benefits from such acquisitions, due to a number of factors, including: • acquisition-related costs, liabilities, or tax impacts, some of which may be unanticipated; • difficulty utilizing or integrating the acquired intellectual property, technology infrastructure, and operations; 26 Table of Contents • difficulty integrating and retaining key employees of acquired businesses and related challenges motivating and retaining our key employees after such acquisition; • ineffective or inadequate, controls, procedures, or policies at an acquired business; • inability to effectively offer, price, and support multiple product lines or services offerings of acquired businesses; • potential unknown liabilities or risks associated with an acquired business, including those arising from existing contractual obligations, security vulnerabilities, cybersecurity incidents, or litigation matters; • inability to maintain relationships with key customers, suppliers, and partners of an acquired business; • failure to accurately forecast the financial impact of an acquisition transaction, including accounting charges; • challenges integrating accounting, finance and forecasting practices of acquired business within our business; • lack of experience in new markets, products or technologies; • inability to effectively integrate brand identity of acquired businesses within those of our business; • diversion of management's attention from other business concerns; and • use of resources that are needed in other parts of our business.
If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve the anticipated benefits from such acquisitions, due to a number of factors, including: • acquisition-related costs, liabilities, or tax impacts, some of which may be unanticipated; • difficulty utilizing or integrating the acquired intellectual property, technology infrastructure, and operations; • difficulty integrating and retaining key employees of acquired businesses and related challenges motivating and retaining our key employees after such acquisition; • ineffective or inadequate, controls, procedures, or policies at an acquired business; • inability to effectively offer, price, and support multiple product lines or services offerings of acquired businesses; • potential unknown liabilities or risks associated with an acquired business, including those arising from existing contractual obligations, security vulnerabilities, cybersecurity incidents, or litigation matters; • inability to maintain relationships with key customers, suppliers, and partners of an acquired business; • failure to accurately forecast the financial impact of an acquisition transaction, including accounting charges; • challenges integrating accounting, finance and forecasting practices of acquired business within our business; • lack of experience in new markets, products or technologies; • inability to effectively integrate brand identity of acquired businesses within those of our business; 27 Table of Contents • diversion of management's attention from other business concerns; and • use of resources that are needed in other parts of our business.
This situation continues to evolve, and additional impacts may arise that we are not currently aware of. Risks Related to Our Business and Our Industry Our business depends on our ability to retain and upgrade paying users, and any decline in renewals or upgrades could adversely affect our future results of operations.
This situation continues to evolve, and additional impacts may arise that we are not currently aware of. Risks Related to Our Business and Operations Our business depends on our ability to retain and upgrade paying users, and any decline in renewals or upgrades could adversely affect our future results of operations.
Any sales in the public market of the Class A common stock issuable upon such conversion could adversely affect prevailing market prices of our Class A common stock. In addition, certain holders of the 2026 Notes or the 2028 Notes may engage in short selling to hedge their position in the convertible notes.
Any sales in the public market of the Class A common stock issuable upon such conversion could adversely affect prevailing market prices of our Class A common stock. In addition, certain holders of the 2026 Notes or the 2028 Notes may engage in short selling to hedge their position in the Notes.
In addition, such current and future indebtedness could: • make it more difficult for us to satisfy our debt obligations, including the 2026 Notes and the 2028 Notes; • increase our vulnerability to general adverse economic and industry conditions; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • restrict our current and future operations, make it more difficult to successfully execute our business strategy, or restrict us from exploiting business opportunities; • place us at a competitive disadvantage compared to our competitors that have less indebtedness or are not subject to restrictive covenants; • restrict or otherwise impact the pace and timing of repurchases under our stock repurchase program; and • limit our availability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy, or other general purposes.
In addition, such current and future indebtedness could: • make it more difficult for us to satisfy our debt obligations, including the 2026 Notes and the 2028 Notes; • increase our vulnerability to general adverse economic and industry conditions; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • restrict our current and future operations, make it more difficult to successfully execute our business strategy, or restrict us from exploiting business opportunities; • place us at a competitive disadvantage compared to our competitors that have less indebtedness or are not subject to restrictive covenants; • restrict or otherwise impact the pace and timing of repurchases under our stock repurchase program; and 28 Table of Contents • limit our availability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy, or other general purposes.
A successful assertion by a state, country, or other jurisdiction that we should have been or should be collecting additional sales, use, or other taxes on our services could, among other things, result in substantial tax liabilities for past sales, create significant administrative burdens for us, discourage users from purchasing our platform, or otherwise harm our business, results of operations, and financial condition.
A successful assertion by a state, country, or other jurisdiction that we should have been or should be collecting additional sales, use, or other taxes on our services could, among other things, result in substantial tax liabilities for past sales, create significant administrative burdens for us, discourage users from purchasing subscriptions to our platform, or otherwise harm our business, results of operations, and financial condition.
Many factors may contribute to declines in our growth rates, including higher market penetration, increased competition, particularly from the availability of less expensive and bundled competitive products, slowing demand for our platform and declines in our rate of growth in paying users, a decrease in the growth of the overall content collaboration market, resource allocation across our business, including investments in new technologies or products that may not drive growth in the short term, a failure by us to continue capitalizing on growth opportunities, the impact of catastrophic events on economic conditions or on our current and prospective paying users, fluctuations in foreign currency exchange rates, and the maturation of our business, among others.
Many factors may contribute to declines in our growth rates, including higher market penetration, increased competition, particularly from the availability of less expensive and bundled competitive products, slowing demand for our platform and declines in our rate of growth in paying users, a decrease in the growth of the overall content collaboration market, resource allocation across our business, including investments in new technologies or products that may not drive growth in the short term, a failure by us to continue capitalizing on growth opportunities, the impact of changing economic conditions, including as a result of catastrophic events, on our current and prospective paying users, fluctuations in foreign currency exchange rates, and the maturation of our business, among others.
In addition, the datacenters that we use are vulnerable to damage or interruption from human error, intentional bad acts, security breaches and incidents, including computer malware, ransomware, cyber viruses, social engineering (phishing attacks), denial of service or other attacks, employee theft or misuse and other network attacks, earthquakes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures, and similar events, any of which could disrupt our service, destroy user content, or prevent us from being able to continuously back up or record changes in our users’ 19 Table of Contents content.
In addition, the datacenters that we use are vulnerable to damage or interruption from human error, intentional bad acts, security breaches and incidents, including computer malware, ransomware, cyber viruses, social engineering (phishing attacks), denial of service or other attacks, employee theft or misuse and other network attacks, earthquakes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures, and similar events, any of which could disrupt our service, destroy user content, or prevent us from being able to continuously back up or record changes in our users’ content.
Any defects in, or unavailability of, our or third-party software, services, or hardware that cause interruptions to the availability of our services, loss of data, or performance issues could, among other things: • cause a reduction in revenue or delay in market acceptance of our platform; • require us to issue refunds to our users or expose us to claims for damages; • cause us to lose existing users and make it more difficult to attract new users; • divert our development resources or require us to make extensive changes to our platform, which would increase our expenses; • increase our technical support costs; and • harm our reputation and brand.
Any defects in, or unavailability of, our third-party software, services, or hardware that cause interruptions to the availability of our services, loss of data, or performance issues could, among other things: • cause a reduction in revenue or delay in market acceptance of our platform; 26 Table of Contents • require us to issue refunds to our users or expose us to claims for damages; • cause us to lose existing users and make it more difficult to attract new users; • divert our development resources or require us to make extensive changes to our platform, which would increase our expenses; • increase our technical support costs; and • harm our reputation and brand.
We are continuing to expand our operations outside the United States, where we may be subject to increased business and economic risks that could impact our results of operations. We have paying users across approximately 180 countries and approximately half of our revenue in the year ended December 31, 2022 was generated from paying users outside the United States.
We are continuing to expand our operations outside the United States, where we may be subject to increased business and economic risks that could impact our results of operations. We have paying users across approximately 180 countries and approximately half of our revenue in the year ended December 31, 2023 was generated from paying users outside the United States.
We may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms, if at all, and even if we are able to identify suitable acquisition candidates, we may not be able to receive approval from the applicable competition authorities, or such target may be acquired by another company, including one of our competitors.
We may not be able to find suitable acquisition or investment candidates and we may not be able to complete acquisitions or investments on favorable terms, if at all, and even if we are able to identify suitable acquisition candidates, we may not be able to receive approval from the applicable competition authorities, or such target may be acquired by another company, including one of our competitors.
Factors that may cause fluctuations in our quarterly results of operations include, without limitation, those listed below: • our ability to retain and upgrade paying users; • our ability to attract new paying users and convert registered to paying users; • the timing of expenses and recognition of revenue; • the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure, as well as entry into operating and finance leases; • the timing of expenses related to acquisitions; • any large indemnification payments to our users or other third parties; • changes in our pricing policies or those of our competitors; • the timing and success of new product feature and service introductions by us or our competitors; • network outages or actual or perceived security breaches; • changes in the competitive dynamics of our industry, including consolidation among competitors; • changes in laws and regulations that impact our business; • general economic and market conditions; • fluctuations in foreign currency exchange rates; • catastrophic events, including earthquakes, fires, floods, tsunamis, or other weather events, power loss, telecommunications failures, software or hardware malfunctions, cyber-attack, war, or terrorist attacks, and pandemics; • changes in reserves or other non-cash credits or charges, such as the impairment charges as a result of adverse changes in the corporate real estate market which has impacted our subleasing strategy in conjunction with our shift to Virtual First, and releases of deferred tax asset valuation allowances; and • any other impacts of shifting our operations to a Virtual First work model.
Factors that may cause fluctuations in our quarterly results of operations include, without limitation, those listed below: • our ability to retain and upgrade paying users; • our ability to attract new paying users and convert registered to paying users; • the timing of expenses and recognition of revenue; • the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure, as well as entry into or exit of operating and finance leases; 30 Table of Contents • the timing of expenses related to acquisitions; • any large indemnification payments to our users or other third parties; • changes in our pricing policies or those of our competitors; • the timing and success of new product feature and service introductions by us or our competitors; • network outages or actual or perceived security breaches; • changes in the competitive dynamics of our industry, including consolidation among competitors; • changes in laws and regulations that impact our business; • general economic and market conditions; • fluctuations in foreign currency exchange rates; • catastrophic events, including earthquakes, fires, floods, tsunamis, or other weather events, power loss, telecommunications failures, software or hardware malfunctions, cyber-attack, war, or terrorist attacks, and pandemics; • changes in reserves or other non-cash credits or charges, such as the impairment charges as a result of changes in the corporate real estate market which impacted our subleasing strategy in conjunction with our Virtual First model, and releases of deferred tax asset valuation allowances; and • any other impacts of shifting our operations to a Virtual First work model.
For example, the terms of our revolving credit and guarantee agreement, as amended, contain a number of covenants that limit our ability and our subsidiaries’ ability to, among other things, incur additional indebtedness, pay dividends, make 27 Table of Contents redemptions and repurchases of stock, make investments, loans and acquisitions, create liens, engage in transactions with affiliates, merge or consolidate with other companies, or sell substantially all of our assets.
For example, the terms of our revolving credit and guarantee agreement, as amended, contain a number of covenants that limit our ability and our subsidiaries’ ability to, among other things, incur additional indebtedness, pay dividends, make redemptions and repurchases of stock, make investments, loans and acquisitions, create liens, engage in transactions with affiliates, merge or consolidate with other companies, or sell substantially all of our assets.
Expanding and operating internationally subjects us to regulatory, economic, geographic, social, and political risks and may increase risks that we currently face, including risks associated with: • compliance with applicable international laws, regulations, and standards including laws and regulations with respect to labor and employment, privacy, data protection, cybersecurity, consumer protection, tax, export control and sanctions, and unsolicited email, and the risk of penalties to our users and individual members of management or employees if our practices are deemed to be out of compliance; • recruiting and retaining talented and capable employees in locations outside the United States, and maintaining our company culture across all of our locations, including in light of our Virtual First work model and an increasingly distributed workforce; • providing our platform and operating our business across a significant distance, in different languages and among different cultures, including the potential need to modify our platform and features to ensure that they are culturally appropriate and relevant in different countries; • management of an employee base in jurisdictions that may not give us the same employment and retention flexibility as does the United States; • operating in jurisdictions that do not protect intellectual property rights in the same manner or to the same extent as does the United States; • compliance by us and our business partners with anti-corruption laws, import and export control laws, tariffs, trade barriers, economic sanctions, and other regulatory limitations on our ability to provide our platform in certain international markets; • foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories and might prevent us from repatriating cash earned outside the United States; • political, social, and economic instability, conflicts, and wars, such as the conflict between Russia and Ukraine and its regional and global ramifications; • changes in diplomatic and trade relationships, including the imposition of new trade restrictions, trade protection measures, import or export requirements, trade embargoes and other trade barriers; • double taxation of our international earnings and potentially adverse tax consequences due to changes in the income and other tax laws of the United States or the international jurisdictions in which we operate; • higher costs of doing business internationally, including increased accounting, travel, infrastructure, and legal compliance costs; and • the impact of natural disasters and public health epidemics on employees, travel and the global economy.
Expanding and operating internationally subjects us to regulatory, economic, geographic, social, and political risks and may increase risks that we currently face, including risks associated with: • compliance with applicable international laws, regulations, and standards including laws and regulations with respect to labor and employment, privacy, data protection, cybersecurity, consumer protection, tax, export control and sanctions, and unsolicited email, and the risk of penalties to our users and individual members of management or employees if our practices are deemed to be out of compliance; • recruiting and retaining talented and capable employees in locations outside the United States, and maintaining our company culture across all of our locations, including in light of our Virtual First work model and an increasingly distributed workforce; • providing our platform and operating our business across a significant distance, in different languages and among different cultures, including the potential need to modify our platform and features to ensure that they are culturally appropriate and relevant in different countries; • management of an employee base in jurisdictions that may not give us the same employment and retention flexibility as the United States; 24 Table of Contents • operating in jurisdictions that do not protect intellectual property rights in the same manner or to the same extent as the United States; • compliance by us and our business partners with anti-corruption laws, import and export control laws, tariffs, trade barriers, economic sanctions, and other regulatory limitations on our ability to provide our platform in certain international markets; • foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories and might prevent us from repatriating cash earned outside the United States; • political, social, and economic instability, conflicts, and wars, and their regional and global ramifications; • changes in diplomatic and trade relationships, including the imposition of new trade restrictions, trade protection measures, import or export requirements, trade embargoes and other trade barriers; • double taxation of our international earnings and potentially adverse tax consequences due to changes in the income and other tax laws of the United States or the international jurisdictions in which we operate; • higher costs of doing business internationally, including increased accounting, travel, infrastructure, and legal compliance costs; and • the impact of natural disasters and public health epidemics on employees, travel and the global economy.
We may need to obtain future licenses and services from third parties to use intellectual property and technology associated with the development of our platform, which might not be available to us on acceptable terms, or at all.
We may need to obtain additional licenses and services from third parties to use intellectual property and technology associated with the development of our platform, which might not be available to us on acceptable terms, or at all.
This exposure is the result of selling in multiple currencies and operating in foreign countries where the functional currency is the local currency. In 2022, 27% of our sales were denominated in currencies other than U.S. dollars. Our expenses, by contrast, are primarily denominated in U.S. dollars.
This exposure is the result of selling in multiple currencies and operating in foreign countries where the functional currency is the local currency. In 2023, 27% of our sales were denominated in currencies other than U.S. dollars. Our expenses, by contrast, are primarily denominated in U.S. dollars.
If an author or other third party that distributes open source software 25 Table of Contents that we use or license were to allege that we had not complied with the conditions of the applicable license, we could be required to incur significant legal expenses defending against those allegations and could be subject to significant damages, enjoined from offering or selling our solutions that contained the open source software, and required to comply with the foregoing conditions.
If an author or other third party that distributes open source software that we use or license were to allege that we had not complied with the conditions of the applicable license, we could be required to incur significant legal expenses defending against those allegations and could be subject to significant damages, enjoined from offering or selling our solutions that contained the open source software, and required to comply with the foregoing conditions.
In this fast-changing threat environment, we are continuously assessing our security posture, including through the use of penetration testing and red team exercises, to 16 Table of Contents identify gaps, threats, and vulnerabilities and, where we believe appropriate, we actively take additional and ongoing steps that are intended to strengthen our cybersecurity capabilities and mitigate the risk of a breach or incident.
In this fast-changing threat environment, we are continuously assessing our security posture, including through the use of penetration testing and red team exercises, to identify gaps, threats, and vulnerabilities and, where we believe appropriate, we actively take additional and ongoing steps that are intended to strengthen our cybersecurity capabilities and mitigate the risk of a breach or incident.
Additionally, several states in the U.S. have enacted new data privacy laws. For example, the California Consumer Privacy Act of 2018 ("CCPA"), which affords consumers expanded privacy protections, went into effect on January 1, 2020.
Additionally, several states in the U.S. have enacted new data privacy laws. For example, the California Consumer Privacy Act of 2018 (“CCPA”), which affords consumers expanded privacy protections, went into effect on January 1, 2020.
If we are unable to increase our paying user growth rates or to offset declines in the number of new paying users with increased revenue per paying user, our revenue growth rate will decline and operating results will be adversely affected.
If we are unable to increase our paying user growth rates or to offset declines in the number of new paying users with increased revenue per paying user, our revenue and operating results will be adversely affected.
This tax will generally increase the costs to us of any share repurchases. The stock repurchase program could affect the price of our Class A common stock, increase 40 Table of Contents volatility and diminish our cash reserves. Our repurchase program may be suspended or terminated at any time and, even if fully implemented, may not enhance long-term stockholder value.
This tax will generally increase the costs to us of any share repurchases. The stock repurchase program could affect the price of our Class A common stock, increase volatility and diminish our cash reserves. Our repurchase program may be suspended or terminated at any time and, even if fully implemented, may not enhance long-term stockholder value.
In addition, as we continue our shift to Virtual First, we will need less office space than we are currently contractually committed to leasing and as a result, we have recorded and may in the future record impairment charges related to the office spaces we no longer expect to need, which has impacted and may in the future impact our ability to achieve GAAP profitability.
In addition, as we continue our shift to Virtual First, we will need less office space than we are currently contractually committed to leasing and as a result, we have recorded and may in the future record impairment charges related to the office spaces we no longer expect to need, which impacted and may in the future impact our ability to achieve or maintain GAAP profitability.
Any of the foregoing could disrupt and harm our business, results of operations, and financial condition. Our ability to sell subscriptions to our platform could be harmed by real or perceived material defects or errors in our platform.
Any of the foregoing could disrupt and harm our business, results of operations, and financial condition. Our ability to sell subscriptions to our platform and retain users could be harmed by real or perceived material defects or errors in our platform.
As part of our business strategy, we have acquired, and may in the future acquire, other companies, employee teams, or technologies to complement or expand our products, obtain personnel, or otherwise complement or grow our business.
As part of our business strategy, we have acquired or invested in, and may in the future acquire or invest in, other companies, employee teams, or technologies to complement or expand our products, obtain personnel, or otherwise complement or grow our business.
Furthermore, we have and may continue to see an increase in customers opting for our monthly plans rather than our annual plans, including from users who upgrade to paid plans using mobile devices.
We have and may continue to see an increase in new customers opting for our monthly plans rather than our annual plans, including from users who upgrade to paid plans using mobile devices.
In particular, if 28 Table of Contents the debt under our revolving credit facility were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately materially and adversely affect our business, cash flows, results of operations, and financial condition.
In particular, if the debt under our revolving credit facility were to be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately materially and adversely affect our business, cash flows, results of operations, and financial condition.
As of December 31, 2022, Dropbox was receiving over 75 billion API calls per month, and just under 1,000,000 developers had registered and built applications on our platform.
As of December 31, 2023, Dropbox was receiving over 75 billion API calls per month, and just under 1,000,000 developers had registered and built applications on our platform.
Although we have taken corrective actions in response to past incidents, and have developed systems and processes that are designed to protect the personal data of users and their organizations, protect our systems, prevent data loss, and prevent other security breaches and security incidents, these security measures have not fully protected our systems in the past and cannot guarantee security in the future.
Although we have taken corrective actions in response to past incidents, and have developed systems and processes that are designed to protect the personal data of users and their organizations, protect our systems, prevent data loss, 16 Table of Contents and prevent other security breaches and security incidents, these security measures have not fully protected our systems in the past and cannot guarantee security in the future.
It is difficult to predict the impact of future changes to accounting principles or our accounting policies, any of which could negatively affect our results of operations. We may need additional capital, and we cannot be certain that additional financing will be available on favorable terms, or at all.
It is difficult to 42 Table of Contents predict the impact of future changes to accounting principles or our accounting policies, any of which could negatively affect our results of operations. We may need additional capital, and we cannot be certain that additional financing will be available on favorable terms, or at all.
In addition, each outstanding share of Class B common stock held by a stockholder who is a natural person, or held by the permitted entities or permitted transferees of such stockholder (as described in our amended and restated certificate of incorporation), will convert automatically into one share of Class A common stock upon the death of such natural person.
In addition, each outstanding share of Class B common stock held by a stockholder who is a natural person, or held by the permitted entities or permitted transferees of such stockholder (as described in our amended and restated certificate of incorporation), will convert 38 Table of Contents automatically into one share of Class A common stock upon the death of such natural person.
As a result, there can be no guarantee around the timing of our share repurchases, or that the volume of such repurchases will increase. In addition, as part of the IRA, the United States implemented a 1% excise tax on the value of certain stock repurchase by publicly traded companies.
As a result, there can be no guarantee around the timing of our share repurchases, or that the volume of such repurchases will increase. In addition, as part of the IRA, the United States implemented a 1% non-deductible excise tax on the value of certain stock repurchases by publicly traded companies.
Our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth, and we may not receive our expected return on investments that we make in our business in the time we expect or at all.
Our ability to forecast our future results of operations is subject to a number of risks and uncertainties, including our ability to effectively plan for and model future growth, and we have not always and we may not in the future receive our expected return on investments that we make in our business in the time we expect or at all.
Although we believe our business model can continue to scale without a large outbound sales force, our word-of-mouth and user referral marketing model may not continue to be as successful as we anticipate, and our limited experience selling directly to large organizations through our outbound sales force 22 Table of Contents may impede our future growth.
Although we believe our business model can continue to scale without a large outbound sales force, our word-of-mouth and user referral marketing model may not continue to be as successful as we anticipate, and our limited experience selling directly to large organizations through our outbound sales force may impede our future growth.
Any decreased use of our platform or limitation on our ability to export or sell our products would likely adversely affect our business, results of operations, and financial results. 33 Table of Contents Our actual or perceived failure to comply with privacy, data protection, and information security laws, regulations, and obligations could harm our business.
Any decreased use of our platform or limitation on our ability to export or sell our products would likely adversely affect our business, results of operations, and financial results. Our actual or perceived failure to comply with privacy, data protection, and information security laws, regulations, and obligations could harm our business.
These sales also could cause the trading price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock. 38 Table of Contents Transactions relating to our 2026 Notes and 2028 Notes may dilute the ownership interest of stockholders, or may otherwise depress the price of our common stock.
These sales also could cause the trading price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock. Transactions relating to our 2026 Notes and 2028 Notes may dilute the ownership interest of stockholders, or may otherwise depress the price of our common stock.
Fluctuation in quarterly results may negatively impact the value of our securities. 30 Table of Contents Our results of operations may not immediately reflect downturns or upturns in sales because we recognize revenue from our users over the term of their subscriptions with us. We recognize revenue from subscriptions to our platform over the terms of these subscriptions.
Fluctuation in quarterly results may negatively impact the value of our securities. Our results of operations may not immediately reflect downturns or upturns in sales because we recognize revenue from our users over the term of their subscriptions with us. We recognize revenue from subscriptions to our platform over the terms of these subscriptions.
Any changes in third-party service levels at datacenters or any real or perceived errors, defects, disruptions, or other performance problems with our platform could harm our reputation and may result in damage to, or loss or compromise of, our users’ content.
Any changes in third-party service levels at datacenters or any real or 25 Table of Contents perceived errors, defects, disruptions, or other performance problems with our platform could harm our reputation and may result in damage to, or loss or compromise of, our users’ content.
If the protection of our proprietary rights is inadequate to prevent use or 36 Table of Contents appropriation by third parties, the value of our platform, brand, and other intangible assets may be diminished and competitors may be able to more effectively replicate our platform and its features.
If the protection of our proprietary rights is inadequate to prevent use or appropriation by third parties, the value of our platform, brand, and other intangible assets may be diminished and competitors may be able to more effectively replicate our platform and its features.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (3) any action arising pursuant to any provision of the Delaware General Corporation Law, or the certificate of incorporation or the amended and restated bylaws, or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants.
Our amended and restated bylaws provide that, unless we expressly consent in writing to the selection of an alternative forum, the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (3) any action arising pursuant to any provision of the Delaware General Corporation Law, or the certificate of incorporation or the amended and restated bylaws, or (4) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware, in all cases subject to the court having jurisdiction over indispensable parties named as defendants.
In addition, while we believe our Virtual First strategy will give us the opportunity to align our resources to create a more nimble and streamlined organization, we can provide no assurance 21 Table of Contents that we will be able to successfully execute on these plans, and failure to successfully manage these transitions may cause disruptions to our business.
In addition, while we believe our Virtual First strategy will give us the opportunity to align our resources to create a more nimble and streamlined organization, we can provide no assurance that we will be able to successfully execute on these plans, and failure to successfully manage these transitions may cause disruptions to our business.
We finance a significant portion of our expenditures through leasing arrangements, and we may enter into additional similar arrangements in the future. As of December 31, 2022, we had an aggregate of $1,157.6 million of commitments to settle contractual obligations. In particular, we utilize both finance and operating leases to finance some of our equipment, datacenters and offices.
We finance a significant portion of our expenditures through leasing arrangements, and we may enter into additional similar arrangements in the future. As of December 31, 2023, we had an aggregate of $1,173.6 million of commitments to settle contractual obligations. In particular, we utilize both finance and operating leases to finance some of our equipment, datacenters and offices.
Additions of executive-level management, significant numbers of new and remote employees, and higher employee turnover could significantly and adversely impact our culture, as could our transition to a Virtual First workforce. We have a limited history of operating with a Virtual First workforce and the long-term impact on our financial results and business operations remains uncertain.
Additions of executive-level management, significant numbers of new and remote employees, our workforce reduction, and higher employee turnover could significantly and adversely impact our culture, as could our Virtual First model. We have a limited history of operating with a Virtual First workforce and the long-term impact on our financial results and business operations remains uncertain.
Some of our competitors may make acquisitions or enter into strategic relationships to offer a broader range of products and services than we do. These combinations may make it more difficult for us to compete effectively. We expect these trends to continue as competitors attempt to strengthen or maintain their market positions.
Some of our competitors may make acquisitions or enter into strategic relationships or alliances to offer a broader range of products and services than we do. These combinations make it increasingly difficult for us to compete effectively. We expect these trends to continue as competitors continue to strengthen or maintain their market positions.
We evaluate financing opportunities from time to time, and our ability to obtain financing will depend, among other things, on our development 42 Table of Contents efforts, business plans, operating performance, and condition of the capital markets at the time we seek financing.
We evaluate financing opportunities from time-to-time, and our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance, and condition of the capital markets at the time we seek financing.
Any decrease in user satisfaction with our products or support could harm our brand, word-of-mouth referrals, and ability to grow. 15 Table of Contents Additionally, many of our users initially access our platform free of charge.
Any decrease in user satisfaction with our products or support could harm our brand, word-of-mouth referrals, and ability to grow. Additionally, many of our users initially access our platform free of charge.
We believe the principal competitive factors in our markets include the following: • user-centric design; • ease of adoption and use; • scale of user network; • features and platform experience; • performance; • brand; • security and privacy; • accessibility across several devices, operating systems, and applications; • third-party integration; • customer support; • continued innovation; • pricing; and • macroeconomic trends.
We believe the principal competitive factors in our markets include the following: • user-centric design; • ease of adoption and use; • scale of user network; • features and platform experience; 18 Table of Contents • performance; • brand; • security and privacy; • accessibility across several devices, operating systems, and applications; • third-party integration; • customer support; • continued innovation; • pricing; • investments in AI; and • macroeconomic trends.
We generate revenue from sales of subscriptions to our platform, and any decline in demand for our platform, or for content collaboration solutions in general, could negatively impact our business. We generate, and expect to continue to generate, revenue from the sale of subscriptions to our platform.
We generate revenue from sales of subscriptions to our platform, and declines in demand for our platform, or for content collaboration solutions in general, could negatively impact our business. We generate, and expect to continue to generate, revenue from the sale of subscriptions to our platform.
Further, outbreaks of pandemic diseases, or the fear of such events, have resulted in responses, including government-imposed travel restrictions, grounding of flights, and shutdown of workplaces. As a result, we are conducting business with substantial modifications, including modifications to employee travel and employee work locations.
Further, outbreaks of pandemic diseases, or the fear of such events, have resulted in responses, including government-imposed travel restrictions, grounding of flights, and shutdown of workplaces. As a result, we have in the past conducted business with substantial modifications, including modifications to employee travel and employee work locations.
Factors that could cause fluctuations in the trading price of our Class A common stock include the following: • price and volume fluctuations in the overall stock market from time to time; • volatility in the trading prices and trading volumes of technology stocks; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • sales of shares of our Class A common stock by us or our stockholders; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in those projections, or our failure to meet those projections; • announcements by us or our competitors of new products, features, or services; • the public’s reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • actual or anticipated changes in our key metrics; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • actual or perceived breaches of, or failures related to, privacy, data protection or data security; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • developments or disputes concerning our intellectual property or other proprietary rights; • announced or completed acquisitions of businesses, products, services, or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations, or principles; • any significant change in our management; and • general economic conditions and slow or negative growth of our markets and catastrophic events, including earthquakes, fires, floods, tsunamis, or other weather events, power loss, telecommunications failures, 37 Table of Contents software or hardware malfunctions, cyber-attack, war, such as the conflict between Russia and Ukraine, or terrorist attacks, and pandemics.
Factors that could cause fluctuations in the trading price of our Class A common stock include the following: • price and volume fluctuations in the overall stock market from time-to-time; • volatility in the trading prices and trading volumes of technology stocks; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • sales of shares of our Class A common stock by us or our stockholders; • failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in those projections, or our failure to meet those projections; • announcements by us or our competitors of new products, features, or services; • the public’s reaction to our press releases, other public announcements, and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; 37 Table of Contents • actual or anticipated changes in our results of operations or fluctuations in our results of operations; • actual or anticipated changes in our key metrics; • actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally; • actual or perceived breaches of, or failures related to, privacy, data protection or data security; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • developments or disputes concerning our intellectual property or other proprietary rights; • announced or completed acquisitions of businesses, products, services, or technologies by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations, or principles; • any significant change in our management; • the inclusion, exclusion, or deletion of our stock from any trading indices, including the S&P 400 Index, to which we were recently added; and • general economic conditions and slow or negative growth of our markets and catastrophic events, including earthquakes, fires, floods, tsunamis, or other weather events, power loss, telecommunications failures, software or hardware malfunctions, cyber-attack, war, or other armed conflict, or terrorist attacks, and pandemics.
The availability of less expensive and bundled competitive products also has slowed and may continue to slow our user growth rate and negatively impact our ability to convert registered users to paying users.
The availability of less expensive and bundled competitive products also has negatively impacted and may continue to negatively impact our user growth rate and our ability to convert registered users to paying users.
We have publicly disclosed market opportunity estimates, growth forecasts, and key metrics, including the key metrics included in this Annual Report on Form 10-K which could prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.
We have publicly disclosed market opportunity estimates, growth forecasts, and key metrics, including the key metrics included in this Annual Report on Form 10-K, as well as in our other public statements, which could prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.
The excise tax on share repurchases may apply to any repurchase of stock (including transactions deemed to be repurchases for U.S. income tax purposes) we undertake, which will generally increase the costs to us of any share repurchases. We are subject to review and audit by U.S. federal, state, local, and foreign tax authorities.
The 1% excise tax on share repurchases will generally 41 Table of Contents apply to any repurchase of stock (including transactions deemed to be repurchases for U.S. income tax purposes) we undertake, which will generally increase the costs to us of any share repurchases. We are subject to review and audit by U.S. federal, state, local, and foreign tax authorities.
Some of our users may view a subscription to our platform as a discretionary purchase, and our paying users may reduce their discretionary spending on our platform during an economic downturn, especially in the event of a prolonged recessionary period.
Some of our users may view a paid subscription to our platform as a discretionary purchase, and our paying users have in the past and may in the future reduce their spending on our platform during an economic downturn, especially in the event of a prolonged recessionary period.
Some of these potential factors include: • awareness of the content collaboration category generally; • availability of products and services that compete with ours; • the impact, scale, and duration, of trends towards or away from remote or distributed work; • ease of adoption and use; • features and platform experience; • performance; • brand; • security and privacy; • customer support; • pricing; and • macroeconomic trends.
Some of these potential factors include: • awareness of the content collaboration category generally; 21 Table of Contents • availability of products and services that compete with ours; • the impact, scale, and duration, of trends towards or away from remote or distributed work; • ease of adoption and use; • features and platform experience; • performance; • brand; • security and privacy; • customer support; • pricing • investments in AI; and • macroeconomic trends.
Many of our actual and potential competitors or alliances among competitors benefit from competitive advantages over us, such as greater name recognition, longer operating histories, more varied products and services, larger marketing budgets, more established marketing relationships, access to larger user bases, major distribution agreements with hardware manufacturers and resellers, and greater financial, technical, and other resources.
Many of our actual and potential competitors have competitive advantages over us, such as greater name recognition, longer operating histories, more varied products and services, larger marketing budgets, more established marketing relationships, access to larger user bases, major distribution agreements with hardware manufacturers and resellers, and greater financial, technical, and other resources.
In addition, while we believe trends towards remote or distributed work will prove to be significant and long lasting, and that these trends will open up increased market opportunities for us, such trends or opportunities may not materialize or, if they do, we may not be able to develop new features or products, or enhance our existing offerings, sufficiently to take advantage of them.
In addition, while we believe trends towards remote or distributed work will prove to be significant and long lasting, and that these trends will open up increased market opportunities for us, such as our work on new AI-driven products, such trends 19 Table of Contents or opportunities may not materialize or, if they do, we may not be able to develop new features or products, or enhance our existing offerings, sufficiently to take advantage of them.
Our continuing shift to a Virtual First work model could make it increasingly difficult to manage our business and adequately oversee our employees and business functions, potentially resulting in harm to our company culture, increased employee attrition, and the loss of key personnel, as well as potentially negatively impacting product research and development and the growth of our business.
Our shift to a Virtual First work model could make it increasingly difficult to oversee our increasingly distributed workforce and manage our business, potentially resulting in harm to our company culture, increased employee attrition, and the loss of key personnel, as well as potentially negatively impacting product research and development and the growth of our business.
The CJEU decision may result in data protection regulators applying differing standards for, and requiring additional measures in connection with, transfers of personal data from the EEA and Switzerland to the United States. The European Commission issued revised SCCs in June 2021 that are required to be implemented.
The CJEU and IDPC decisions may result in data protection regulators applying differing standards for, and requiring additional measures in connection with, transfers of personal data from the EEA and 34 Table of Contents Switzerland to the United States. The European Commission issued revised SCCs in June 2021 that are required to be implemented.
We do not currently maintain a program to hedge exposures to non-U.S. dollar currencies. We are subject to counterparty risk with respect to the convertible note hedge transactions.
We do not currently maintain a program to hedge exposures to non-U.S. dollar currencies. 31 Table of Contents We are subject to counterparty risk with respect to the convertible note hedge transactions.
We strive to demonstrate the value of our platform to our registered users, thereby encouraging them to convert to paying users through in-product prompts and notifications, and time-limited trials of paid subscription plans. As of December 31, 2022, we served over 700 million registered users but only 17.77 million paying users.
We strive to demonstrate the value of our platform to our registered users, thereby encouraging them to convert to paying users through in-product prompts and notifications, and time-limited trials of paid subscription plans. As of December 31, 2023, we served over 700 million registered users but only 18.12 million paying users.
If few securities analysts commence coverage of us, or if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our securities could decrease, which might cause the price and trading volume of our Class A common stock to decline.
If few securities analysts commence coverage of us, or if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our securities could decrease, which might cause the price and trading volume of our Class A common stock to decline. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Our 29 Table of Contents business may not generate cash flow from operations in the future sufficient to service our indebtedness and make necessary capital expenditures.
Our business may not generate cash flow from operations in the future sufficient to service our indebtedness and make necessary capital expenditures.
As we strive to grow our business, expenses may increase, particularly as we continue to make investments to scale our business, reposition our products or respond to new technologies. For example, we will need an increasing amount of technical infrastructure to continue to satisfy the needs of our user base.
As we strive to grow our business, expenses may increase, particularly as we continue to make investments to scale our business, reposition our products or respond to new technologies including significant investments in AI technologies and product development. For example, we will need an increasing amount of technical infrastructure to continue to satisfy the needs of our user base.
International expansion has required, and will continue to require, investment of significant funds and 23 Table of Contents other resources.
International expansion has required, and will continue to require, investment of significant funds and other resources.
Renewals and upgrades of subscriptions to our platform have fluctuated, and may decline in any period or over time, or paying users may downgrade or not renew their subscriptions because of several factors, such as dissatisfaction with our products, support, pricing, or mix of features, a user no longer having a need for our products, the availability of competitive products that are, or are perceived to be, less expensive, shifts in the mix of monthly and annual subscriptions or the impact of macroeconomic trends or catastrophic events on our paying users and their willingness or ability to pay for subscriptions.
Paying users may downgrade or not renew their subscriptions because of several factors, such as dissatisfaction with our products, support, pricing, mix of features, or user experience, a user no longer having a need for our products, the availability of competitive products that are, or are perceived to be, less expensive, shifts in the mix of monthly and annual subscriptions or the impact of macroeconomic trends or catastrophic events on our paying users and their willingness or ability to pay for subscriptions.
If we are unable to develop, license, or acquire new features and capabilities to our platform on a timely and cost-effective basis, or if such enhancements do not achieve market acceptance, our business, results of operations, and financial condition could be adversely affected. We may not successfully manage our growth or successfully execute our plan for future growth.
If we are unable to develop, license, or acquire new features and capabilities to our platform on a timely and cost-effective basis, or if such enhancements do not achieve market acceptance, our business, results of operations, and financial condition could be adversely affected.
Any significant change to applicable laws, regulations, or industry practices regarding the collection, use, retention, security, or disclosure of our users’ content, or regarding the manner in which the express or implied consent of users for the collection, use, retention, or disclosure of such content is obtained, could increase our costs and require us to modify our services and features, possibly in a material manner, which we may be unable to complete, and may limit our ability to store and process user data or develop new services and features.
Any significant change to applicable laws, regulations, or industry practices regarding the collection, use, retention, security, or disclosure of our users’ content, or regarding the manner in which the express or implied consent of users for the collection, use, retention, or disclosure of such content is obtained, could increase our costs and require us to modify our services and features, possibly in a material manner, which we may be unable to complete, and may limit our ability to store and process user data or develop new services and features. 35 Table of Contents Our business could be adversely impacted by changes in internet access for our users or laws specifically governing the internet.
The vast majority of user content is stored at our own custom-built infrastructure in co-location facilities that we directly lease and operate. As we add to our infrastructure, we may move or transfer additional content.
The vast majority of user content is stored at our own custom-built infrastructure in co-location facilities that we directly lease and operate. As we continue to add, enhance and modify our infrastructure to meet our business needs, we may move or transfer additional content accordingly.
Furthermore, events that financially impact our registered users and other prospective paying users, such as macroeconomic factors, layoffs, inflation, increased interest rates, or catastrophic events, may cause these users to delay or reduce technology spending, which may impact our ability to convert registered users or otherwise attract new paying users, restricting our ability to grow our revenue.
Furthermore, events that financially impact our registered users and other prospective paying users, such as macroeconomic factors, layoffs, inflation, increased interest rates, or catastrophic events, have in the past caused and may cause in future periods these users to delay or reduce technology spending, which impacted, and may continue to impact our ability to convert registered users or otherwise attract new paying users, restricting our ability to grow our revenue.
Should any of our competitors modify their products or standards in a manner that degrades the functionality of our platform or gives preferential treatment to competitive products or services, whether to enhance their competitive position or for any other reason, the interoperability of our platform with these products could decrease and our business, results of operations, and financial condition could be harmed.
Should any of our competitors modify their products or standards in a manner that degrades the functionality of our platform or gives preferential treatment to competitive products or services, whether to enhance their competitive position or for any other reason, the interoperability of our platform with these products could decrease and our business, results of operations, and financial condition could be harmed. 20 Table of Contents Our business could be harmed by any significant disruption of service on our platform or loss of content.
In the United States and abroad, we have over 1,550 issued patents and more than 300 pending patent applications.
In the United States and abroad, we have over 1,750 issued patents and more than 250 pending patent applications.
As our user base and the amount and types of information stored, synced, and shared on our platform continue to grow, we will need an increasing amount of technical infrastructure, including network capacity and computing power, to continue to satisfy the needs of our users.
The continued growth of our user base and the amount and types of information stored, synced, and shared on our platform will require an increasing amount of technical infrastructure, including network capacity and computing power, to continue to satisfy the needs of our users.
Emerging and evolving cybersecurity threats such as the attack on SolarWinds and the Log4j vulnerability reported in December 2021 pose unique challenges and involve sophisticated threat actors. Computer malware, ransomware, cyber viruses, social engineering (phishing attacks), denial of service or other attacks, employee theft or misuse and increasingly sophisticated network attacks have become more prevalent, particularly against cloud services.
Emerging and evolving cybersecurity threats pose unique challenges and involve sophisticated threat actors. Computer malware, ransomware, cyber viruses, social engineering (phishing attacks), denial of service or other attacks, employee theft or misuse and increasingly sophisticated network attacks have become more prevalent, particularly against cloud services.
The California Privacy Rights Act ("CPRA"), effective as of January 1, 2023, significantly modified the CCPA, resulting in uncertainty and requiring us to incur additional costs and expenses.
The California Privacy Rights Act ("CPRA"), effective as of January 1, 2023, significantly modified the CCPA, resulting in uncertainty and requiring us to incur additional costs and expenses. The enactment of the CCPA has prompted similar legislative developments in other states.
These modifications may disrupt important business operations, such as our product development and sales and marketing activities, and the productivity of our employees.
Any such modifications we make in the future may disrupt important business operations, such as our product development and sales and marketing activities, and the productivity of our employees.
Accordingly, an enterprise decision not to renew its license may have a large impact on our number of paying users and therefore, our business, results of operations, and financial condition.
Accordingly, an enterprise decision not to renew its license may have a material impact on our number of paying users and could also have a significant impact on our business, results of operations, and financial condition as a result.
The growth and expansion of our business, including the introduction of new features and products, places a continuous significant strain on our management, operational, and financial resources.
Additionally, efforts to grow and expand our business, including the introduction of new features and products, places a continuous significant strain on our management, operational, and financial resources.
As a service provider, we do not regularly monitor our platform to evaluate the legality of content stored on it. While to date we have not been subject to material legal or administrative actions as result of this content, the laws in this area are currently in a state of flux and vary widely between jurisdictions.
While to date we have not been subject to material legal or administrative actions as result of this content, the laws in this area are currently in a state of flux and vary widely between jurisdictions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES Our corporate headquarters are located in San Francisco, California, pursuant to operating leases that expire in 2033. We lease additional offices in San Francisco and around the world, including in Austin, Texas; New York, New York; Mountain View, California; Seattle, Washington; Dublin, Ireland; and Sydney, Australia. We have datacenter co-location facilities in California, Oregon, Texas, and Virginia.
Biggest changeITEM 2. PROPERTIES Our corporate headquarters are located in San Francisco, California, pursuant to operating leases that expire in 2033. We lease additional offices in San Francisco and around the world, including in Seattle, Washington and Dublin, Ireland. We have datacenter co-location facilities in California, Oregon, Texas, and Virginia.
We believe that these facilities are generally suitable to meet our needs.
We believe that these facilities are generally suitable to meet our needs. 44 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeSee Note 10, “Commitments and Contingencies” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information. Future litigation may be necessary, among other things, to defend ourselves or our users by determining the scope, enforceability, and validity of third-party proprietary rights or to establish our proprietary rights.
Biggest changeFuture litigation may be necessary, among other things, to defend ourselves or our users by determining the scope, enforceability, and validity of third-party proprietary rights or to establish our proprietary rights.
ITEM 3. LEGAL PROCEEDINGS Legal Proceedings We are currently involved in, and may in the future be involved in, legal proceedings, claims, and government investigations in the ordinary course of business, including legal proceedings with third parties asserting infringement of their intellectual property rights.
ITEM 3. LEGAL PROCEEDINGS Legal Proceedings We are currently involved in, and may in the future be involved in, legal proceedings, claims, inquiries, and government investigations in the ordinary course of business, including legal proceedings with third parties asserting infringement of their intellectual property rights, regulatory matters and commercial disputes.
Added
On July 12, 2019, Motion Offense, LLC (“Motion Offense”) filed a patent infringement suit in the Western District of Texas (Waco Division) against Dropbox's customer Sprouts Farmers Market (“Sprouts”), based on Sprouts’ use of Dropbox Business. The suit claims that Sprouts’ use of Dropbox Business infringes U.S. Patent Nos. 10,013,158 and 10,021,052.
Added
On August 14, 2019, in the District of Delaware, Dropbox filed a complaint for declaratory judgment of no infringement of the patents asserted against Sprouts by Motion Offense (“Delaware Action”), and subsequently amended the complaint to add claims for declaratory judgment that the asserted patents are invalid.
Added
Motion Offense’s motion to transfer the Delaware Action to the Western District of Texas was granted. The Western District of Texas stayed the Sprouts case pending resolution of the Dropbox case.
Added
On June 15, 2020, Motion Offense filed an amended answer to Dropbox’s declaratory judgment complaint, including counterclaims asserting that Dropbox infringes the 10,013,158 and 10,021,052 patents, as well as U.S. Patent Nos. 10,303,353, 10,613,737, and 10,587,548.
Added
On July 23, 2021, Motion Offense filed a related patent infringement suit against Dropbox in the Western District of Texas asserting that Dropbox also infringes U.S. Patent No. 11,044,215. The two cases were consolidated.
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At the trial in May 2023, the jury found in favor of Dropbox on all counts including non-infringement and invalidity of the patents and awarded no damages to Motion Offense. Dropbox filed a Motion for Entry of Judgment on August 28, 2023 and is currently awaiting entry of judgment by the district court.
Added
The final judgment may be appealed to the Federal Circuit. On September 27, 2023, Motion Offense filed a Motion for a New Trial. At a hearing on January 3, 2024, the Court denied Motion Offense’s Motion for a New Trial. On January 8, 2024, the court ordered supplemental briefing relating to the Motion for Entry of Judgment.
Added
The parties have filed their opening supplemental briefs and responses are due February 20, 2024. Before trial, Motion Offense filed a third patent infringement suit against Dropbox out of the same family of patents as the prior two suits. This suit was not consolidated into the trial. Decisions on the parties' Motions to Dismiss are currently pending.
Added
We believe Motion Offense’s allegations in that suit are similarly without merit and will vigorously defend against them. While we remain confident in the Company’s defenses to the asserted allegations in these cases, it is not possible to determine the ultimate outcome at this time, and thus we cannot reasonably estimate the maximum potential exposure or range of possible loss.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeStock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, or the SEC, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Act. 44 Table of Contents The following graph compares (i) the cumulative total stockholder return on our Class A common stock from March 23, 2018 (the date our Class A common stock commenced trading on the Nasdaq Global Select Market) through December 31, 2022 with (ii) the cumulative total return of the Standard & Poor's 500 Index and the Nasdaq Computer Index over the same period, assuming the investment of $100 in our common stock and in both of the other indices on March 23, 2018 and the reinvestment of dividends.
Biggest changeThe following graph compares (i) the cumulative total stockholder return on our Class A common stock from March 23, 2018 (the date our Class A common stock commenced trading on the Nasdaq Global Select Market) through December 31, 2023 with (ii) the cumulative total return of the Standard & Poor's 500 Index and the Nasdaq Computer Index over the same period, assuming the investment of $100 in our common stock and in both of the other indices on March 23, 2018 and the reinvestment of dividends.
In addition, the terms of our revolving credit facility place certain limitations on the amount of cash dividends we can pay, even if no amounts are currently outstanding. Issuer Purchases of Equity Securities The following table presents information with respect to our repurchases of Class A common stock during the quarter ended December 31, 2022.
In addition, the terms of our revolving credit facility place certain limitations on the amount of cash dividends we can pay, even if no amounts are currently outstanding. Issuer Purchases of Equity Securities The following table presents information with respect to our repurchases of Class A common stock during the quarter ended December 31, 2023.
Holders of Record As of February 17, 2023, we had 752 holders of record of our Class A and Class B common stock, respectively, and no holders of our Class C common stock.
Holders of Record As of February 12, 2024, we had 730 holders of record of our Class A and Class B common stock, respectively, and no holders of our Class C common stock.
Period Total Number of Shares Purchased (in millions) (1) Average Price Paid per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Programs (in millions) (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Programs (in millions) (1) October 1 - 31 2.95 $ 21.16 2.95 $ 859.66 November 1 - 30 2.68 (3) $ 22.06 2.60 $ 802.28 December 1 - 31 2.40 $ 22.73 2.40 $ 747.70 Total 8.03 $ 21.93 7.95 (1) On February 17, 2022, we announced that our Board of Directors authorized the repurchase of $1.2 billion of the outstanding shares of our Class A common stock.
Period Total Number of Shares Purchased (in millions) (1) Average Price Paid per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Programs (in millions) (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Programs (in millions) (1) October 1 - 31 1.38 $ 27.17 1.38 $ 1,476.65 November 1 - 30 1.41 (3) $ 26.99 1.36 $ 1,439.80 December 1 - 31 1.10 $ 29.04 1.10 $ 1,407.80 Total 3.89 $ 27.64 3.84 (1) On February 17, 2022, we announced that our Board of Directors authorized the repurchase of $1.2 billion of the outstanding shares of our Class A common stock.
See Note 12 "Stockholders' (Deficit) Equity" of this Annual Report on Form 10-K for additional information related to share repurchases. (2) Average price paid per share includes costs associated with the repurchases. (3) Includes 82,437 shares of restricted common stock delivered by certain employees upon vesting of restricted stock awards to satisfy tax withholding requirements.
See Note 12 "Stockholders' (Deficit) Equity" to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information related to share repurchases. (2) Average price paid per share includes costs associated with the repurchases, excluding the 1% excise tax imposed as part of the Inflation Reduction Act.
Added
On July 26, 2023, we announced that our Board of Directors further authorized the repurchase of an additional $1.2 billion of the outstanding shares of our Class A common stock.
Added
(3) Includes 46,759 shares of restricted common stock withheld by the Company upon vesting of restricted stock awards to satisfy tax withholding requirements. 46 Table of Contents Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, or the SEC, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Act.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

93 edited+44 added−25 removed61 unchanged
Biggest changeResults of Operations for the year-ended 2021 include a one-time benefit from income taxes of $38.1 million from the release of a valuation allowance on the Irish deferred tax assets. 53 Table of Contents The following table sets forth our results of operations for each of the periods presented as a percentage of revenue: Year ended December 31, 2022 2021 As a percentage of revenue* Revenue 100 % 100 % Cost of revenue 19 21 Gross profit 81 79 Operating expenses: Research and development 38 35 Sales and marketing 18 20 General and administrative 10 10 Impairment related to real estate assets 8 1 Total operating expenses 73 67 Income from operations 8 13 Interest income (expense), net — — Other income, net — 1 Income before income taxes 8 14 Benefit from income taxes 16 2 Net income 24 % 16 % * Percentages may not foot due to rounding.
Biggest changeOf the total amount reversed, $4.4 million related to expense recognized prior to January 1, 2023. 56 Table of Contents The following table sets forth our results of operations for each of the periods presented as a percentage of revenue: Year Ended December 31, 2023 2022 (As a % of revenue)* Revenue 100 % 100 % Cost of revenue (1)(2) 19 19 Gross profit 81 81 Operating expenses (1)(2) : Research and development 37 38 Sales and marketing 19 18 General and administrative 9 10 Net (gain) loss on real estate assets (3) (6) 8 Total operating expenses 59 73 Income from operations 22 8 Interest income (expense), net 1 — Other (loss) income, net — — Income before income taxes 22 8 (Provision for) benefit from income taxes (4) (4) 16 Net income 18 % 24 % (1) Includes stock-based compensation as a percentage of revenue as follows: Year Ended December 31, 2023 2022 (As a % of revenue)* Cost of revenue 1 % 1 % Research and development (5) 9 10 Sales and marketing 1 1 General and administrative 2 2 Total stock-based compensation 14 % 14 % (2) Includes expenses related to our reduction in workforce such as severance, benefits and other related items during the year ended December 31, 2023.
We have historically financed our operations primarily through cash generated from our operations, the issuance of the Notes and equity issuances, and finance leases to finance infrastructure-related assets in co-location facilities that we directly lease and operate.
We have historically financed our operations primarily through cash generated from our operations, the issuance of the Notes, equity issuances, and finance leases to finance infrastructure-related assets in co-location facilities that we directly lease and operate.
We prompt individual subscribers who collaborate with others on Dropbox to purchase our Standard or Advanced plans for a better team experience, and we also encourage existing Dropbox Business teams to purchase additional licenses or to upgrade to premium subscription plans.
We prompt individual subscribers who collaborate with others on Dropbox to purchase our Standard, Advanced or Business, and Business Plus plans for a better team experience, and we also encourage existing Dropbox Business teams to purchase additional licenses or to upgrade to premium subscription plans.
Other income, net Other income, net consists of other non-operating gains or losses, including those related to gains or losses on sale of assets, foreign currency transaction gains and losses, lease arrangements, which include sublease income, and realized gains and losses related to our short-term investments.
Other (loss) income, net Other (loss) income, net consists of other non-operating gains or losses, including those related to gains or losses on sale of assets, foreign currency transaction gains and losses, lease arrangements, which include sublease income, and realized gains and losses related to our short-term investments.
In addition to generating sublease income, we expect that as a result of our shift to Virtual First, we will continue to see savings in certain areas, including reductions in facilities related costs and depreciation expense due to these impairment charges.
In addition to generating sublease income, we expect that as a result of our Virtual First model, we will continue to see savings in certain areas, including reductions in facilities related costs and depreciation expense due to these impairment charges.
Subscribers can purchase individual licenses through our Plus and Professional plans, or purchase multiple licenses through our Family plan or our Standard, Advanced, and Enterprise team plans. Each team or family represents a separately billed deployment that is managed through a single administrative dashboard.
Subscribers can purchase individual licenses through our Plus, Professional or Essentials plan, or purchase multiple licenses through our Family plan or our Standard, Advanced, Business, Business Plus and Enterprise team plans. Each team or family represents a separately billed deployment that is managed through a single administrative dashboard.
Similar to Dropbox plans, pricing of DocSend's plans is based on the number of licenses purchased. Customers can choose between an annual or monthly plan, with a small number of large organizations on multi-year plans. We typically bill DocSend customers at the beginning of their respective terms and recognize revenue ratably over the subscription period.
Similar to Dropbox plans, pricing of DocSend's plans is based on the number of licenses purchased. Customers can choose between an annual or monthly plan, with a small number of large organizations on multi-year plans. We typically bill 48 Table of Contents DocSend customers at the beginning of their respective terms and recognize revenue ratably over the subscription period.
The revolving credit facility terminates on February 23, 2026. Interest on borrowings under the revolving credit facility accrues at a variable rate tied to LIBOR or an alternative base rate at our election. Interest is payable quarterly in arrears.
The revolving credit facility terminates on February 23, 2026. Interest on borrowings under the revolving credit facility accrues at a variable rate tied to SOFR or an alternative base rate, at our election. Interest is payable quarterly in arrears.
In addition, the revolving credit facility contains financial covenants, including a consolidated leverage ratio incurrence covenant and a minimum liquidity balance. We were in compliance with all covenants under the revolving credit facility as of as of December 31, 2022.
In addition, the revolving credit facility contains financial covenants, including a consolidated leverage ratio incurrence covenant and a minimum liquidity balance. We were in compliance with all covenants under the revolving credit facility as of December 31, 2023.
As of December 31, 2022, we utilized a significant portion of our U.S. federal, state and foreign net operating losses. Future utilization of remaining net operating loss and research credit carryforwards are subject to statutory limits. Accordingly, we expect our cash tax obligations will increase in the foreseeable future.
As of December 31, 2023, we have utilized a significant portion of our U.S. federal, state and foreign net operating losses. Future utilization of remaining net operating loss and research credit carryforwards are subject to statutory limits. Accordingly, we expect our cash tax obligations will increase in the foreseeable future.
For example, a 50-person Dropbox Business team would count as 50 paying users, and an individual Dropbox Plus user would count as one paying user. If that individual Dropbox Plus user was also part of the 50-person Dropbox Business team, we would count the individual as two paying users.
For example, a 50-person Dropbox Enterprise team would count as 50 paying users, and an individual Dropbox Plus user would count as one paying user. If that individual Dropbox Plus user was also part of the 50-person Dropbox Enterprise team, we would count the individual as two paying users.
For a further discussion of the 47 Table of Contents potential impacts of the macroeconomic environment on our business, see “Risk Factors” included in Part I, Item 1A. of this report.
For a 49 Table of Contents further discussion of the potential impacts of the macroeconomic environment on our business, see “Risk Factors” included in Part I, Item 1A. of this report.
The Notes of each series will not bear regular interest and the principal will not accrete. The Notes of each series may bear special interest as the remedy relating to our failure to comply with certain of our reporting obligations. These Notes can be converted or repurchased prior to maturity if certain conditions are met.
The Notes of each series do not bear regular interest and the principal does not accrete. The Notes of each series may bear special interest as the remedy relating to our failure to comply with certain of our reporting obligations. These Notes can be converted or repurchased prior to maturity if certain conditions are met.
When the projected undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts, the assets are adjusted to their estimated fair value and an impairment loss is recorded as a component of operating income.
When the projected undiscounted 63 Table of Contents cash flows estimated to be generated by those assets are less than their carrying amounts, the assets are adjusted to their estimated fair value and an impairment loss is recorded as a component of operating income.
In addition, we are required to pay a fee in connection with letters of credit issued under the revolving credit facility that accrues at a rate of 1.375% per annum on the amount of such letters of credit outstanding.
In addition, we are required to pay a fee in connection with letters of credit issued under the revolving credit facility that accrues at a rate of 1.375% per annum on the amount of such letters of credit 60 Table of Contents outstanding.
The popularity of our platform allows us to scale efficiently. We’ve built a thriving global business with 17.77 million paying users. Our Subscription Plans We generate revenue from individuals, families, teams, and organizations by selling subscriptions to our platform, which serve the varying needs of our diverse customer base.
The popularity of our platform allows us to scale efficiently. We’ve built a thriving global business with 18.12 million paying users. Our Subscription Plans We generate revenue from individuals, families, teams, and organizations by selling subscriptions to our platform, which serve the varying needs of our diverse customer base.
For a comparison of our results of operations for the fiscal years ended December 31, 2021 and 2020 see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 18, 2022.
For a comparison of our results of operations for the fiscal years ended December 31, 2022 and 2021 see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 22, 2023.
The Co-Founder Grant is comprised of nine tranches that are eligible to vest based on the achievement of stock price goals, each of which are referred to as a Stock Price Target, measured over a consecutive thirty-day trading period during the Performance Period. The Performance Period began on January 1, 2019.
The Co-Founder Grant is comprised of nine tranches that are eligible to vest based on the achievement of stock price goals, each of which are referred to as a Stock Price Target, measured over a consecutive thirty-day trading period during the Performance Period.
We calculate Total ARR as the number of users who have active paid licenses for access to our platform as of the end of the period, multiplied by their annualized subscription price to our platform. We include ARR related to acquired companies in our total ARR in the period of the acquisition.
We calculate Total ARR as the number of users who have active paid licenses for access to our platform as of the end of the period, multiplied by their annualized subscription price. We first include ARR related to acquired companies in our total ARR in the 50 Table of Contents period of the acquisition.
To the extent sufficient positive evidence becomes available, we may release all or a portion of our valuation allowance in one or more future periods. 60 Table of Contents During the years ended December 31, 2022 and 2021, we evaluated the realizability of our deferred tax assets, which resulted in releasing part of our historical valuation allowance.
To the extent sufficient positive evidence becomes available, we may release all or a portion of our valuation allowance in one or more future periods. During the years ended December 31, 2023, and 2022, we evaluated the realizability of our deferred tax assets, which resulted in releasing part of our historical valuation allowance during the year ended December 31, 2022.
Financing activities Net cash (used in) provided by financing activities is primarily impacted by cash used for repurchases of common stock, tax withholding obligations for the release of restricted stock units (“RSUs”) and restricted stock awards (“RSAs”), and principal payments on finance lease obligations for our infrastructure equipment.
Financing activities Net cash used in financing activities is primarily impacted by cash used for repurchases of common stock, tax withholding obligations for the release of restricted stock units ("RSUs") and restricted stock awards ("RSAs"), and principal payments on finance lease obligations for our infrastructure equipment.
Consistent with this strategy, we have retained a portion of our office space while the remainder will be subleased.
Consistent with this strategy, we have retained a portion of our office space while the remainder is being or will be subleased.
Cost of revenue also includes costs, such as salaries, bonuses, employer payroll taxes and benefits, travel-related expenses, and stock-based compensation, which we refer to as employee-related costs, for employees whose primary responsibilities relate to supporting our infrastructure and delivering user support.
Cost of revenue also includes salaries, bonuses, employer payroll taxes and benefits, travel-related expenses, expenses related to our reduction in workforce such as severance, benefits and other related items, and stock-based compensation, which we refer to as employee-related costs, for employees whose primary responsibilities relate to supporting our infrastructure and delivering user support.
In February 2022, our Board of Directors authorized the repurchase of up to $1.2 billion of the outstanding shares of our Class A common stock.
In February 2022, our Board of Directors authorized the repurchase of up to $ 1.2 billion of the outstanding shares of our Class A common stock. In July 2023, our Board of Directors authorized the repurchase of up to an additional $ 1.2 billion of the outstanding shares of our Class A common stock.
Volatile market conditions, directly or indirectly related to the COVID-19 pandemic and other macroeconomic events, have, at times, and may in the future negatively impact our results of operations and cash flows.
Volatile market conditions, directly or indirectly related to macroeconomic or geopolitical events, have, at times, and may in the future negatively impact our results of operations and cash flows.
As of December 31, 2022 2021 (In millions) Total ARR $ 2,514 $ 2,261 As of December 31, Constant Currency 2022 2021 (In millions) Total ARR $ 2,514 $ 2,250 Revaluing our ending Total ARR for fiscal 2022 using exchange rates set at the beginning of fiscal 2023, Total ARR at the end of fiscal 2022 would be $2,430 million.
As of December 31, 2023 2022 (In millions) Total ARR $ 2,523 $ 2,514 As of December 31, Constant Currency 2023 2022 (In millions) Total ARR $ 2,523 $ 2,430 Revaluing our ending Total ARR for fiscal 2023 using exchange rates set at the beginning of fiscal 2024, Total ARR at the end of fiscal 2023 would be $2,540 million.
We sell Dropbox Sign products globally and sell primarily in U.S. dollars. Our Business Model Drive new signups We acquire users efficiently and at relatively low costs through word-of-mouth referrals, direct in-product referrals, and sharing of content. Anyone can create a Dropbox account for free through our website or app and be up and running in minutes.
Our Business Model Drive new signups We acquire users efficiently and at relatively low costs through word-of-mouth referrals, direct in-product referrals, and sharing of content. Anyone can create a Dropbox account for free through our website or app and be up and running in minutes.
Income Taxes 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.
Refer to Note 9, "Leases", for more information. Income Taxes Deferred income tax balances reflect the effects of temporary differences between the financial reporting and tax bases of our 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.
These increases were offset by a $34.9 million unfavorable impact from changes in foreign exchange rates across multiple currencies.
These increases were offset by a $39.0 million unfavorable impact from changes in foreign exchange rates across multiple currencies.
The program does not obligate us to repurchase any specific number of shares and has no specified time limit; it may be discontinued at any time. During the year ended December 31, 2022 , we repurchased and subsequently retired 35.6 million shares of our Class A common stock for an aggregate amount of $795.4 million.
The program does not obligate us to repurchase any specific number of shares and has no specified time limit; it may be discontinued at any time. During the year ended December 31, 2023, we repurchased and subsequently retired 22.7 million shares of our Class A common stock for an aggregate amount of $542.8 million.
The following is a reconciliation of FCF to the most comparable GAAP measure, net cash provided by operating activities: Year ended December 31, 2022 2021 (In millions) Net cash provided by operating activities $ 797.3 $ 729.8 Capital expenditures (33.8) (22.1) Free cash flow $ 763.5 $ 707.7 50 Table of Contents Components of Our Results of Operations Revenue We generate revenue from sales of subscriptions to our platform.
The following is a reconciliation of FCF to the most comparable GAAP measure, net cash provided by operating activities: Year Ended December 31, 2023 2022 (In millions) Net cash provided by operating activities 783.7 797.3 Capital expenditures (24.3) (33.8) Free cash flow $ 759.4 $ 763.5 53 Table of Contents Components of Our Results of Operations Revenue We generate revenue from sales of subscriptions to our platform.
Our cash flow activities were as follows for the periods presented: Year ended December 31, 2022 2021 (In millions) Net cash provided by operating activities $ 797.3 $ 729.8 Net cash used in investing activities (48.5) (524.8) Net cash (used in) provided by financing activities (1,041.8) 16.2 Effect of exchange rate changes on cash and cash equivalents (7.2) (3.1) Net (decrease) increase in cash and cash equivalents $ (300.2) $ 218.1 Operating activities Our largest source of operating cash is cash collections from our paying users for subscriptions to our platform.
Our cash flow activities were as follows for the periods presented: Year Ended December 31, 2023 2022 (In millions) Net cash provided by operating activities $ 783.7 $ 797.3 Net cash provided by (used in) investing activities 395.2 (48.5) Net cash used in financing activities (799.2) (1,041.8) Effect of exchange rate changes on cash and cash equivalents 2.4 (7.2) Net increase (decrease) in cash and cash equivalents $ 382.1 $ (300.2) 61 Table of Contents Operating activities Our largest source of operating cash is cash collections from our paying users for subscriptions to our platform.
The stock-based compensation expense for the Co-Founder Grant is recognized utilizing the accelerated attribution method over the requisite service period identified as the derived service period over which the market conditions are expected to be achieved, and is not reversed if the market conditions are not satisfied. Therefore, no incremental stock-based compensation was recognized upon vesting of these RSAs.
The stock-based compensation expense for the Co-Founder Grant is recognized utilizing the accelerated attribution method over the requisite service period identified as the derived service period over which the market conditions are expected to be achieved, and is not reversed if the market conditions are not satisfied.
Key Business Metrics We review a number of operating and financial metrics, including the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
See Note 9, "Leases" for additional information. Key Business Metrics We review a number of operating and financial metrics, including the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
We expect our FCF to generally increase in future periods as we increase subscription sales and drive operating efficiencies. We expect to continue to purchase infrastructure equipment to support our user base and anticipate that our capital expenditures will remain approximately consistent in future periods as we continue to invest in our internal infrastructure, network and security.
We expect to continue to purchase infrastructure equipment to support our user base and anticipate that our capital expenditures will generally remain consistent in future periods as we continue to invest in our internal infrastructure, network and security.
Interest income (expense), net Interest income (expense), net increased $8.5 million during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to higher interest income as a result of interest rate increases.
Interest income (expense), net Interest income (expense), net increased by $16.1 million during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to higher interest income as a result of interest rate increases.
As a result, we expect that our workforce will continue to become more distributed over time, although we are continuing to offer our employees opportunities for in-person collaboration in all locations we currently have offices, either through our existing real-estate, or new on-demand, flexible spaces, which are known as "Dropbox Studios".
As a result, we expect that our workforce will continue to become more distributed over time, although we are continuing to offer our employees opportunities for in-person collaboration in all locations we currently have offices, either through our existing real-estate that were repurposed into collaborative spaces called “Dropbox Studios” or new, flexible spaces known as “On-Demand Spaces”.
Impairment related to real estate assets In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), we evaluate our long-lived assets for impairment whenever events and circumstances indicate that the assets might be impaired.
Refer to Note 9, "Leases", for more information. In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), we evaluate our long-lived assets for impairment whenever events and circumstances indicate that the assets might be impaired.
In the fourth quarter of 2020, as a result of our Virtual First strategy, we reassessed our asset groupings and evaluated the recoverability of our right-of-use and related lease assets, including leasehold improvements, furniture and fixtures, and computer equipment and determined that the carrying value of the respective assets groups was not fully recoverable.
In the fourth quarter of 2020, as a result of our Virtual First strategy, we reassessed our asset groupings and evaluated the recoverability of our right-of-use and related lease assets, including leasehold improvements, furniture and fixtures, and computer equipment.
In February 2021, we amended our revolving credit facility to decrease our borrowing capacity from $725.0 million to $500.0 million. We may from time to time request increases in the borrowing capacity under the revolving credit facility of up to $250.0 million, provided no event of default has occurred or is continuing or would result from such increase.
We may from time-to-time request increases in the borrowing capacity under the revolving credit facility of up to $250.0 million, provided no event of default has occurred or is continuing or would result from such increase. In March 2023, we amended the revolving credit facility to update our borrowing benchmark from LIBOR to SOFR.
As of December 31, 2022, we had no amounts outstanding under the revolving credit facility and an aggregate of $40.6 million in letters of credit issued under the revolving credit facility. Our total available borrowing capacity under the revolving credit facility was $459.4 million as of December 31, 2022.
As of December 31, 2023, we had no amounts outstanding under the revolving credit facility and an aggregate of $31.7 million in letters of credit issued under the revolving credit facility. Our total available borrowing capacity under the revolving credit facility was $468.3 million as of December 31, 2023.
Refer to Note 14, “Income Taxes” to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information. 61 Table of Contents Recent Accounting Pronouncements See Note 1, “Description of the Business and Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for recently adopted accounting pronouncements as of the date of this Annual Report on Form 10-K.
Recent Accounting Pronouncements See Note 1, “Description of the Business and Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for recently adopted accounting pronouncements as of the date of this Annual Report on Form 10-K. 64 Table of Contents
Our general and administrative expenses consist primarily of employee-related costs for our legal, finance, human resources, and other administrative teams, as well as certain executives. In addition, general and administrative expenses include allocated overhead, outside legal, accounting and other professional fees, and non-income-based taxes. We expect to incur additional general and administrative expenses to support the growth of the Company.
Our general and administrative expenses consist primarily of employee-related costs for our legal, finance, human resources, and other administrative teams, as well as certain executives. In addition, general and administrative expenses include expenses related to our reduction in workforce such as severance, benefits and other related items, allocated overhead, outside legal, accounting and other professional fees, and non income-based taxes.
The below table sets forth our ARPU for the years ended December 31, 2022 and 2021: Year ended December 31, 2022 2021 ARPU $ 134.51 $ 133.73 Non-GAAP Financial Measure In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe that free cash flow, or FCF, a non-GAAP financial measure, is useful in evaluating our liquidity.
Year Ended December 31, 2023 2022 ARPU $ 139.38 $ 134.51 52 Table of Contents Non-GAAP Financial Measure In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe that free cash flow, or FCF, a non-GAAP financial measure, is useful in evaluating our liquidity.
As of December 31, 2022, we are entitled to non-cancelable rent payments from our subtenants of $95.2 million, which will be collected over the next 10 years. (2) Consists of future non-cancelable minimum rental payments under finance leases primarily for our infrastructure with terms of 4 years or less.
As of December 31, 2023, we are entitled to non-cancelable rent payments from our subtenants of $72.5 million, which will be collected over the next 10 years. Our finance lease arrangements primarily consist of leases for our infrastructure with terms of 4 years or less.
Our sales and marketing expenses relate to both self-serve and outbound sales activities, and consist primarily of employee-related costs, brand marketing costs, lead generation costs, sponsorships and allocated overhead.
Our sales and marketing expenses relate to both self-serve and outbound sales activities, and consist primarily of employee-related costs, expenses related to our reduction in workforce such as severance, benefits and other related items, advertising costs, brand marketing costs, lead generation costs, sponsorships and allocated overhead.
We also aim to offer additional products that expand our content collaboration capabilities, such as through our acquisitions of HelloSign (which we subsequently rebranded as Dropbox Sign), DocSend and FormSwift. Update on Current Economic Conditions Our overall performance depends in part on worldwide economic and geopolitical conditions and their impact on customer behavior.
We also aim to offer additional products that expand our content collaboration capabilities, such as through our acquisitions of Dropbox Sign, DocSend and FormSwift. Recent Developments Impact of Macroeconomic Factors on our Business Our overall performance depends in part on worldwide economic and geopolitical conditions and their impact on customer behavior. Worsening economic conditions, including the U.S.
For the year ended December 31, 2022, net cash used in financing activities was $1,041.8 million, which primarily consisted of $795.4 million for the repurchase of our common stock, $127.5 million in principal payments on finance lease obligations, and $119.4 million for the satisfaction of tax withholding obligations for the release of restricted stock units and awards.
For the year ended December 31, 2023, net cash used in financing activities was $799.2 million, which primarily consisted of $539.9 million for the repurchase of our common stock, $135.1 million for the satisfaction of tax withholding obligations for the release of restricted stock units and awards, and $126.6 million in principal payments on finance lease obligations.
Our primary uses of cash from operating activities are for employee-related expenditures, infrastructure-related costs, and marketing expenses. Net cash provided by operating activities is impacted by our net income adjusted for certain non-cash items, including stock-based compensation, depreciation and amortization expenses, and impairment related to real estate assets, as well as the effect of changes in operating assets and liabilities.
Net cash provided by operating activities is impacted by our net income adjusted for certain non-cash items, including stock-based compensation, depreciation and amortization expenses, and net (gain) loss on real estate assets, as well as the effect of changes in operating assets and liabilities.
Together, these enable us to generate increased recurring revenues from our existing user base. Upgrade and expand existing customers We offer a range of paid subscription plans, from Plus, Professional, and Family for individuals to Standard, Advanced, and Enterprise for teams.
We use these tactics in combination with the goal of generating increased recurring revenues from our existing user base. Upgrade and expand existing customers We offer a range of paid subscription plans, from Plus, Professional, Essentials and Family for individuals to Standard, Advanced, Business, Business Plus and Enterprise for teams.
DocSend primarily sells within the United States, and the majority of its sales are in U.S. dollars. We also offer Dropbox Sign, as our e-signature solution.
DocSend primarily sells within the United States, and the majority of sales are in U.S. dollars. We also offer Dropbox Sign, as our e-signature solution. Dropbox Sign has several product lines, and the pricing and revenue generated from each product line varies.
The below table sets forth the number of paying users as of December 31, 2022 and 2021: As of December 31, 2022 2021 (In millions) Paying users 17.77 16.79 49 Table of Contents Average revenue per paying user We define average revenue per paying user, or ARPU, as our revenue for the period presented divided by the average paying users during the same period.
As of December 31, 2023 2022 (In millions) Paying users 18.12 17.77 Average revenue per paying user We define average revenue per paying user, or ARPU, as our revenue for the period presented divided by the average paying users during the same period.
General and administrative expenses include the recognition of stock-based compensation expense related to the grant of restricted stock made to our co-founder. We expect that general and administrative expenses will fluctuate in absolute dollars in future periods and remain relatively constant in both the near term and the long term as a percentage of revenue.
We expect that general and administrative expenses will fluctuate in absolute dollars in future periods and remain relatively constant in both the near term and the long term as a percentage of revenue.
Depending on the product purchased, teams must have a minimum number of licenses, but can also have hundreds of users. Customers can choose between an annual or monthly plan, with a small number of large organizations on multi-year plans. We typically bill Dropbox Sign customers at the beginning of their respective terms and recognize revenue ratably over the subscription period.
Customers can choose between an annual or monthly plan, with a small number of large organizations on multi-year plans. We typically bill Dropbox Sign customers at the beginning of their respective terms and recognize revenue ratably over the subscription period. We sell Dropbox Sign products globally and sell primarily in U.S. dollars.
As a result of the repackaging and repricing of our existing Dropbox Standard and Dropbox Advanced plans, combined with an increased mix of sales towards our higher-priced subscription plans, and offset by the impact of unfavorable foreign exchange rates across multiple currencies, we experienced an increase in our average revenue per paying user during the year ended December 31, 2022, compared to the year ended December 31, 2021.
As a result of an increased mix of sales towards our higher-priced subscription plans, and our acquisition of FormSwift in the fourth quarter of 2022, offset by Family Plan growth as it carries a lower price per user, and the impact of unfavorable foreign exchange rates across multiple currencies, we experienced an increase in our average revenue per paying user for the year ended December 31, 2023, compared to the year ended December 31, 2022, respectively.
We believe our existing cash and cash equivalents, together with our short-term investments, cash provided by operations and amounts available under the revolving credit facility, will be sufficient to meet our needs for the foreseeable future.
We believe our existing cash and cash equivalents, together with our short-term investments, cash provided by operations and amounts available under the revolving credit facility, will be sufficient to meet our needs for the foreseeable future. In addition to the convertible notes discussed above, as of December 31, 2023, we have cash commitments due to additional known contractual obligations.
In fiscal year 2022, we experienced growth in the number of paying users across our products, with the majority of paying users for the periods presented coming from our self-serve channels as well as our acquisition of FormSwift in the fourth quarter of 2022. However, our overall paying user growth rate has declined and may decline in the future.
We experienced growth in the number of paying users for the periods presented largely from our self-serve channels as well as from FormSwift. However, our overall paying user growth rate has declined and may decline in the future. The total number of paying users fluctuates and may decline in some periods as compared to prior periods.
Due to our subscription-based business model, the ongoing effects of the COVID-19 pandemic and the current macroeconomic environment may not be fully reflected in our results of operations until future periods, if at all.
Due to our subscription-based business model, any impact of the current macroeconomic environment on our business, particularly as a result of changes in our customer behavior, may not be fully reflected in our results of operations until future periods, if at all.
Our gross margin may fluctuate from period to period based on the timing of additional capital expenditures and the related depreciation expense, or other increases in our infrastructure costs, as well as revenue fluctuations. We generally expect our gross margin to remain relatively constant in both the near term and the long term. Operating expenses Research and development .
Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period based on the timing of additional capital expenditures and the related depreciation expense, or other increases in our infrastructure costs, as well as revenue fluctuations.
In addition, we acquired FormSwift in the fourth quarter of 2022, resulting in a benefit to Total ARR in the period of the acquisition. 48 Table of Contents The below tables set forth our Total ARR using the exchange rates set at the beginning of each year, as well as on a constant currency basis relative to the exchange rates used in 2022.
The below tables set forth our Total ARR using the exchange rates set at the beginning of the applicable year, as well as on a constant currency basis relative to the exchange rates used in 2023.
We recorded impairment charges related to real estate assets of $175.2 million during the year ended December 31, 2022 as a result of adverse changes in the corporate real estate market in the San Francisco Bay area which has impacted our subleasing strategy in conjunction with our shift to Virtual First.
We recorded impairment charges to net (gain) loss on real estate assets of $3.6 million and $175.2 million during the years ended December 31, 2023 and 2022, respectively, r elated to real estate assets as a result of changes in the corporate real estate market which impacted the Company's subleasing strategy in conjunction with our Virtual First model.
Total ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items. Total ARR consists of contributions from all of our revenue streams, including subscriptions and add-ons.
Total ARR is a performance metric and should be viewed independently of revenue and deferred revenue, and is not intended to be a substitute for, or combined with, any of these items. Our ARR fluctuates and may decline in some periods as compared to prior periods.
We continue to focus our product development efforts on adding new features and enhancing the functionality and ease of use of our offerings. Additionally, research and development expenses include internal development-related third-party hosting fees. We have expensed almost all of our research and development costs as they were incurred.
These groups are responsible for the design, development, testing, delivery of new technologies and features, and support of our self-serve platform. We continue to focus our product development efforts on adding new features and enhancing the functionality and ease of use of our offerings. Additionally, research and development expenses include internal development-related third-party hosting fees.
We recorded impairment charges of $31.3 million in the year ended December 31, 2021, including impairment related to real estate assets acquired as part of our acquisition of DocSend. See Note 9, "Leases" for additional information. We may incur additional charges depending on the continued recovery of the corporate real estate market or shifts in our virtual first strategy.
See Note 9, "Leases" for additional information. We may incur additional impairment charges depending on the state of the corporate real estate market or shifts in our Virtual First strategy.
Research and development Year ended December 31, 2022 2021 $ Change % Change (In millions) Research and development $ 891.9 $ 755.9 $ 136.0 18 % Research and development expenses increased $136.0 million or 18% during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to increases of $112.0 million in employee-related costs driven by an increase in headcount partially due to high levels of attrition in 2021 and $13.5 million in allocated overhead.
Research and development Year Ended December 31, 2023 2022 $ Change % Change (In millions) Research and development $ 936.5 $ 891.9 $ 44.6 5.0 % Research and development expenses increased $44.6 million or 5.0% during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to an increase of $29.7 million in employee-related costs driven by costs attributable to our reduction in workforce, including severance.
For the year ended December 31, 2022, net cash provided by operating activities was $797.3 million, which primarily consisted of our net income of $553.2 million, adjusted for an income tax benefit from deferred taxes of $396.3 million, stock-based compensation expense of $330.7 million, impairment related to real estate assets of $175.2 million, depreciation and amortization expenses of $157.1 million, and net cash outflow of $124.3 million from operating assets and liabilities.
For the year ended December 31, 2023, net cash provided by operating activities was $783.7 million, which primarily consisted of our net income of $453.6 million, adjusted for stock-based compensation expense of $338.0 million, depreciation and amortization expenses of $170.0 million, net gain on real estate assets of $155.2 million, and net cash outflow of $146.8 million from operating assets and liabilities.
See Note 9 "Leases" for further information. (3) Results of Operations for the year-ended 2022 include a one-time benefit from income taxes of $420.2 million due to the release of a valuation allowance on the U.S. federal and certain state deferred tax assets.
(4) Results of Operations for the year ended December 31, 2022 includes a one-time benefit from income taxes of $420.2 million due to the release of a valuation allowance on the U.S. federal and certain state deferred tax assets. (5) On March 15, 2023, our President resigned, resulting in the reversal of $6.7 million in stock-based compensation expense.
Other income, net Other income, net decreased $22.0 million during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to $13.6 million related to the partial termination of our headquarters head lease in 2021, $6.2 million in losses related to the termination of a datacenter lease, and $8.0 million reduction in sales of retired infrastructure assets.
Other (loss) income, net Other (loss) income, net decreased by $11.8 million during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to a $6.2 million reduction in other income from sales of retired infrastructure assets and a $5.1 million decrease in gains on equity investments.
Sales and marketing Year ended December 31, 2022 2021 $ Change % Change (In millions) Sales and marketing $ 409.4 $ 427.5 $ (18.1) (4) % Sales and marketing expenses decreased $18.1 million or 4% during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to decreases of $7.6 million in employee-related costs due to severance expenses associated with the reduction in force in 2021, $6.4 million related to brand and other marketing campaigns, and $2.9 million in allocated overhead.
General and administrative Year Ended December 31, 2023 2022 $ Change % Change (In millions) General and administrative $ 237.1 $ 222.9 $ 14.2 6.4 % General and administrative expenses increased $14.2 million or 6.4% during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to increases of $18.3 million in employee-related costs, $4.4 million in allocated overhead, and $2.4 million in outside services.
Cost of revenue, gross profit, and gross margin Year ended December 31, 2022 2021 $ Change % Change (In millions) Cost of revenue $ 444.2 $ 444.2 $ — — % Gross profit 1,880.7 1,713.7 167.0 10 % Gross margin 81 % 79 % Cost of revenue stayed flat during the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to decreases of $5.1 million in infrastructure costs and $2.3 million in allocated overhead.
Cost of revenue, gross profit, and gross margin Year Ended December 31, 2023 2022 $ Change % Change (In millions) Cost of revenue $ 478.5 $ 444.2 $ 34.3 7.7 % Gross profit 2,023.1 1,880.7 142.4 7.6 % Gross margin 81 % 81 % Cost of revenue increased $34.3 million or 7.7% during the year ended December 31, 2023, as compared to the year ended December 31, 2022, primarily due to increases of $13.4 million in infrastructure costs, $7.2 million in credit card fees, $6.3 million in amortization of intangible assets, $5.0 million in outside services, and $2.7 million in employee-related costs.
As a result of the price increase, combined with an increase in paying users across our product portfolio and an increased mix of sales from our higher-priced subscription plans, we experienced an increase in Total ARR during the year ended December 31, 2022, compared to the year ended December 31, 2021.
We adjust the exchange rates used to calculate Total ARR on an annual basis at the beginning of each fiscal year. We experienced an increase in Total ARR for the period ended December 31, 2023, compared to the period ended December 31, 2022 as a result of an increased mix of sales from our higher-priced subscription plans.
Our research and development expenses consist primarily of employee-related costs for our engineering, product, and design teams, compensation expenses related to key personnel from acquisitions and allocated overhead. These groups are responsible for the design, development, testing, delivery of new technologies and features, and support of our self-serve platform.
Our research and development expenses consist primarily of employee-related costs for our engineering, product, and design teams, expenses related to our reduction in workforce such as severance, benefits and other related items, compensation expenses related to key personnel from acquisitions and allocated overhead.
After the first four years, all shares are eligible to vest based on the achievement of the Stock Price Targets. The Performance Vesting Condition for the Co-Founder Grant was satisfied on the date the Company’s shares of Class A common stock commenced trading on the Nasdaq Global Select Market in connection with the Company’s IPO, which was March 23, 2018.
Houston $30.00 2,066,667 $37.50 1,033,334 $45.00 1,033,334 $52.50 1,033,333 $60.00 1,033,333 $67.50 1,033,333 $75.00 1,033,333 $82.50 1,033,333 $90.00 1,033,333 The Performance Vesting Condition for the Co-Founder Grant was satisfied on the date the Company’s shares of Class A common stock commenced trading on the Nasdaq Global Select Market in connection with the Company’s IPO, which was March 23, 2018.
Benefit from (provision for) income taxes Benefit from (provision for) income taxes consists primarily of U.S. federal, state and foreign jurisdiction income taxes.
(Provision for) benefit from income taxes (Provision for) benefit from income taxes consists primarily of U.S. federal, state and foreign jurisdiction income taxes. For 2023, the difference between the U.S. statutory rate and our effective tax rate is primarily due to jurisdictional mix of earnings, tax credits and state income taxes.
Pursuant to the terms of the revolving credit facility, we may issue letters of credit under the revolving credit facility, which reduce the total amount available for borrowing under such facility.
In April 2017, we entered into a $600.0 million credit facility with a syndicate of financial institutions, which we subsequently amended in February 2018, February 2021, and March 2023. Pursuant to the terms of the revolving credit facility, we may issue letters of credit under the revolving credit facility, which reduce the total amount available for borrowing under such facility.
(3) Consists of commitments to third-party vendors for services related to our infrastructure, infrastructure warranty contracts, and asset retirement obligations for office modifications with terms of 14 years or less.
Our cash commitments due to known contractual obligations primarily relate to operating and finance lease arrangements. As of December 31, 2023, we additionally had $191.7 million of commitments with third-party vendors for services related to our infrastructure, infrastructure warranty contracts, and asset retirement obligations for office modifications, with terms of 13 years or less.
We maintain a full valuation allowance on net deferred tax assets when we have concluded that it is not more likely than not that the deferred assets will be realized. 52 Table of Contents Results of Operations The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods: Year ended December 31, 2022 2021 (In millions) Revenue $ 2,324.9 $ 2,157.9 Cost of revenue (1) 444.2 444.2 Gross profit 1,880.7 1,713.7 Operating expenses: (1) Research and development 891.9 755.9 Sales and marketing 409.4 427.5 General and administrative 222.9 224.6 Impairment related to real estate assets (2) 175.2 31.3 Total operating expenses 1,699.4 1,439.3 Income from operations 181.3 274.4 Interest income (expense), net 3.3 (5.2) Other income, net 8.1 30.1 Income before income taxes 192.7 299.3 Benefit from income taxes (3) 360.5 36.5 Net income $ 553.2 $ 335.8 (1) Includes stock-based compensation as follows: Year ended December 31, 2022 2021 (In millions) Cost of revenue $ 24.7 $ 23.2 Research and development 232.3 190.1 Sales and marketing 22.4 25.0 General and administrative 51.3 48.8 Total stock-based compensation $ 330.7 $ 287.1 (2) Includes impairment charges related to real estate assets as a result of adverse changes in the corporate real estate market which has impacted our subleasing strategy in conjunction with our shift to Virtual First.
For 2022, the difference between the U.S. statutory rate and our effective tax rate is primarily due to changes to the valuation allowance on deferred tax assets, research credits and the impact of capitalization of research and experimental expenditures. 55 Table of Contents Results of Operations The following tables set forth our results of operations for the periods presented: Year Ended December 31, 2023 2022 (In millions) Revenue $ 2,501.6 $ 2,324.9 Cost of revenue (1)(2) 478.5 444.2 Gross profit 2,023.1 1,880.7 Operating expenses: (1)(2) Research and development 936.5 891.9 Sales and marketing 466.0 409.4 General and administrative 237.1 222.9 Net (gain) loss on real estate assets (3) (155.2) 175.2 Total operating expenses 1,484.4 1,699.4 Income from operations 538.7 181.3 Interest income (expense), net 19.4 3.3 Other (loss) income, net (3.7) 8.1 Income before income taxes 554.4 192.7 (Provision for) benefit from income taxes (4) (100.8) 360.5 Net income $ 453.6 $ 553.2 (1) Includes stock-based compensation as follows: Year Ended December 31, 2023 2022 (In millions) Cost of revenue $ 23.3 $ 24.7 Research and development (5) 237.6 232.3 Sales and marketing 22.0 22.4 General and administrative 55.1 51.3 Total stock-based compensation $ 338.0 $ 330.7 (2) Includes expenses related to our reduction in workforce such as severance, benefits and other related items during the year ended December 31, 2023.
The increase was partially offset by $31.6 million in net investment activity inflows, driven by the sales and maturities of short-term investments, net of purchases.
For the year ended December 31, 2023, net cash provided by investing activities was $395.2 million, which primarily related to $395.9 million in net investment activity inflows, driven by the sales and maturities of short-term investments, net of purchases.
Impairment related to real estate assets Impairment related to real estate assets consists primarily of impairment charges related to certain right-of-use assets and other lease related assets. The impairment changes are described in Note 9 "Leases".
Net (gain) loss on real estate assets Net (gain) loss on real estate assets consists primarily of a gain due to the partial termination of our lease for our San Francisco, California corporate headquarters in 2023 and impairment charges related to certain right-of-use assets and other lease related assets in 2023 and 2022. See Note 9, "Leases" for additional information.
Worsening economic conditions, including changes in the corporate real estate market, rising inflation, the U.S. Federal Reserve raising interest rates, supply chain disruptions, fluctuations in currency exchange rates, and the Russian invasion of Ukraine have impacted our results of operations for the year ended December 31, 2022.
Federal Reserve raising interest rates, volatility and uncertainty in the banking and financial services sector, tightening of credit markets, changes in the corporate real estate market, and fluctuations in currency exchange rates impacted our results of operations during the year ended December 31, 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe recorded $0.2 million gains and $1.8 million losses in net foreign currency transactions in the years ended December 31, 2022 and 2021, respectively. A hypothetical 10% change in foreign currency rates would not have resulted in material gains or losses for the years ended December 31, 2022 and 2021. To date, we have not engaged in any hedging activities.
Biggest changeWe recorded net foreign currency transaction losses of $3.2 million and net foreign currency transaction gains of $0.2 million during the years ended December 31, 2023 and 2022, respectively. A hypothetical 10% change in foreign currency rates would not have resulted in material gains or losses for the years ended December 31, 2023 and 2022.
In the year ended December 31, 2022, 27% of our sales were denominated in currencies other than U.S. dollars. Our expenses, by contrast, are primarily denominated in U.S. dollars. As a result, any increase in the value of the U.S. dollar against these foreign currencies could cause our revenue to decline relative to our costs, thereby decreasing our margins.
During the year ended December 31, 2023, 27% of our sales were denominated in currencies other than U.S. dollars. Our expenses, by contrast, are primarily denominated in U.S. dollars. As a result, any increase in the value of the U.S. dollar against these foreign currencies could cause our revenue to decline relative to our costs, thereby decreasing our margins.
Any borrowings under the revolving credit facility bear interest at a variable rate tied to LIBOR or an alternative base rate. As of December 31, 2022, we had no amounts outstanding under the revolving credit facility. We do not have any other long-term debt or financial liabilities with floating interest rates that would subject us to interest rate fluctuations.
Any borrowings under the revolving credit facility bear interest at a variable rate tied to SOFR or an alternative base rate. As of December 31, 2023, we had no amounts outstanding under the revolving credit facility. We do not have any other long-term debt or financial liabilities with floating interest rates that would subject us to interest rate fluctuations.
As of December 31, 2022, a hypothetical increase in interest rates by 100 basis points would have resulted in a $15 million reduction in the market value of our investment portfolio. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.
As of December 31, 2023, a hypothetical increase in interest rates by 100 basis points would have resulted in a $7.9 million reduction in the market value of our investment portfolio. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk We had cash and cash equivalents of $232.8 million and short-term investments of $1,110.6 million as of December 31, 2022. We hold our cash and cash equivalents and short-term investments for working capital purposes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk We had cash and cash equivalents of $614.9 million and short-term investments of $741.1 million as of December 31, 2023. We hold our cash and cash equivalents and short-term investments for working capital purposes.
As our international operations grow, we will continue to reassess our approach to managing risks relating to fluctuations in currency rates. 62 Table of Contents
To date, we have not engaged in any hedging activities. As our international operations grow, we will continue to reassess our approach to managing risks relating to fluctuations in currency rates. 65 Table of Contents
Volatile market conditions, including those arising from the COVID-19 pandemic and other macroeconomic events have and may in the future result in significant changes in exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar has and may in the future negatively affect our revenue expressed in U.S. dollars.
Volatile market conditions, including those arising from macroeconomic events, such as the volatility and uncertainty in the banking and financial services sector, increased interest rates, tightening of credit markets, as well as geopolitical events have and may in the future result in significant changes in exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar has and may in the future negatively affect our revenue expressed in U.S. dollars.

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