Stockholders’ Deficit

3 Months Ended

Mar. 31, 2022

Stockholders' Equity Note [Abstract]

Common stock

The Company’s amended and restated certificate of incorporation authorizes the issuance of Class A common stock, Class B common stock, and Class C common stock. Holders of Class A common stock, Class B common stock, and Class C common stock are entitled to dividends on a pro rata basis, when, as, and if declared by the Company’s Board of Directors, subject to the rights of the holders of the Company’s preferred stock. Holders of Class A common stock are entitled to one vote per share, holders of Class B common stock are entitled to 10 votes per share, and holders of Class C common stock are entitled to zero votes per share.

As of March 31, 2022, the Company had authorized 2,400.0 million shares of Class A common stock, 475.0 million shares of Class B common stock, and 800.0 million shares of Class C common stock, each at par value of $0.00001. Holders of Class B common stock voluntarily converted 0.2 million and 0.3 million shares into an equivalent number of shares of Class A common stock during the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, 284.4 million shares of Class A common stock, 82.6 million shares of Class B common stock, and no shares of Class C common stock were issued and outstanding. As of December 31, 2021, 292.7 million shares of Class A common stock, 82.8 million shares of Class

B common stock, and no shares of Class C common stock were issued and outstanding. Class A shares issued and outstanding as of March 31, 2022 and December 31, 2021 exclude unvested restricted stock awards granted to certain executives. Class A shares issued and outstanding also excludes 8.2 million unvested restricted stock awards granted to one of the Company's co-founders as of March 31, 2022 and December 31, 2021, respectively. See "Co-Founder Grant" section below for further details.

Preferred stock

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

Stock repurchase program

In February 2020, the Company's Board of Directors approved a stock repurchase program for the repurchase of up to $600 million of the Company’s outstanding shares of Class A common stock. In February 2021, the Board of Directors authorized the Company to repurchase up to an additional $1 billion of the Company's outstanding shares of Class A common stock. The Company completed the February 2020 stock repurchase program of up to $600 million during the three months ended March 31, 2021. In February 2022, the Board of Directors authorized the Company to repurchase up to an additional $1.2 billion of the Company's outstanding shares of Class A common stock. Share repurchases will be made from time to time in private transactions or open market purchases, as permitted by securities laws and other legal requirements and will be subject to a review of the circumstances in place at that time, including prevailing market prices. The program does not obligate the Company to repurchase any specific number of shares and may be discontinued at any time.

During the three months ended March 31, 2022 and 2021, respectively, the Company repurchased and subsequently retired 11.0 million and 18.6 million shares of its Class A common stock, respectively, for an aggregate amount of $259.9 million and $431.9 million, respectively. The amount for the three months ended March 31, 2021 includes $200.0 million in repurchases of 8.6 million shares of our Class A common stock in conjunction with the issuance of the Notes, which was outside of our stock repurchase program.

Equity incentive plans

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

In connection with the acquisition of DocSend, the Company assumed unvested stock options and an immaterial number of unvested RSUs that had been granted under DocSend's 2013 Stock Plan and DocSend's 2015 Stock Option and Grant Plan.

As of March 31, 2022, there were 27.5 million stock-based awards issued and outstanding and 112.8 million shares available for issuance under the Dropbox Equity Incentive Plans, HelloSign's 2011 Equity Incentive Plan, DocSend's 2013 Stock Plan and DocSend's 2015 Stock Option and Grant Plan (collectively, the "Plans").

Stock option and restricted stock activity for the Plans was as follows for the three months ended March 31, 2022:


		Options outstanding						Restricted stock outstanding
	Number of shares available for issuance under the Plans	Number of shares outstanding under the Plans	Weighted- average exercise price per share		Weighted- average remaining contractual term (In years)	Aggregate intrinsic value		Number of Plan shares outstanding	Weighted- average grant date fair value per share
Balance at December 31, 2021	95.2	0.9	$	12.09	5.4	$	10.0	27.8	$	24.17
Additional shares authorized	18.8	—	—		—	—		—	—

Options exercised and restricted stock units and awards released	—	(0.1)	2.05		—	—		(3.9)	24.65
Options and restricted stock units and awards canceled	2.0	—	4.86		—	—		(1.9)	22.29
Shares withheld related to net share settlement of restricted stock units and awards	1.5	—	—		—	—		—	24.85
Options and restricted stock units and awards granted	(4.7)	—	—		—	—		4.7	24.04
Balance as of March 31, 2022	112.8	0.8	$	13.38	5.0	$	7.1	26.7	$	24.22
Vested at March 31, 2022		0.5	$	17.53	4.0	$	3.2	—	$	—
Unvested at March 31, 2022		0.3	$	3.20		$	3.9	26.7	$	24.22

The following table summarizes information about the pre-tax intrinsic value of options exercised during the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
	2022		2021
Intrinsic value of options exercised	$	1.4	$	4.7

As of March 31, 2022, unamortized stock-based compensation related to unvested stock options, restricted stock awards (excluding the Co-Founder Grant), and RSUs was $603.6 million. The weighted-average period over which such compensation expense will be recognized if the requisite service is provided is approximately 2.7 years as of March 31, 2022.

Assumed stock options

In connection with the acquisition of DocSend the Company assumed 0.4 million unvested stock options which were valued using the Black-Scholes option-pricing model. The fair value of stock options assumed were estimated using the following assumptions:


Expected volatility	47	%
Expected term (in years)	2.0 - 6.8
Risk-free interest rate	0.15% - 1.29%
Dividend yield	—	%

Expected volatility. The expected volatility is based on the Company's historical volatility. Management believes this is the best estimate of the expected volatility over the expected life of its stock options.

Expected term. The Company determines the expected term based on the average period the stock options are expected to remain outstanding, generally calculated as the midpoint of the stock options’ remaining vesting term and contractual expiration period, as the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury security in effect at the time the options were assumed for maturities corresponding with the expected term of the option.

Expected dividend yield. The Company has not paid and does not expect to pay dividends. Consequently, the Company uses an expected dividend yield of zero.

In connection with the acquisition of DocSend, the estimated weighted-average grant date fair value for stock options assumed was $25.28 per share and a total fair value of $9.3 million, of which, $8.1 million will be recognized as post-combination stock-based compensation expense.

Co-Founder Grant

In December 2017, the Board of Directors approved the Company's Co-Founder Grant, consisting of 10.3 million shares of Class A common stock in the form of RSAs which were granted to Drew Houston, the Company’s co-founder and Chief Executive Officer. This Co-Founder Grant has service-based, market-based, and performance-based vesting conditions. The Co-Founder Grant is excluded from Class A common stock issued and outstanding until the satisfaction of these vesting conditions. The Co-Founder Grant also provides the holder with certain stockholder rights, such as the right to vote the shares with the other holders of Class A common stock and a right to cumulative declared dividends.

The Co-Founder Grant is eligible to vest over the ten-year period following 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. 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.

During the first four years of the Performance Period, no more than 20% of the shares subject to the Co-Founder Grant would be eligible to vest in any calendar year. After the first four years, all shares are eligible to vest based on the achievement of the Stock Price Targets.

The first tranche of Mr. Houston's Co-Founder Grant, or 2.1 million shares of Class A common stock, vested in the fourth quarter of 2021. The stock-based compensation expense for Mr. Houston's 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. From time to time, directors, officers, and employees of the Company enter into 10b5-1 plans. Mr. Houston adopted a 10b5-1 plan in June 2021, pursuant to which a portion of the shares issued upon achievement of the performance targets under his Co-Founder Award (the "vested shares") were sold to satisfy income taxes related to the vesting of the Co-Founder Award and, as the Company’s share price was below the share price established in Mr. Houston's 10b5-1 plan, the remainder of the vested shares were not sold. If the Company’s share price reaches or exceeds the share price established in Mr. Houston's 10b5-1 plan prior to the date on which the term of such 10b5-1 plan expires, the remainder of the vested shares will be sold.

The Company recognized stock-based compensation expense related to the Co-Founder Grant of $3.6 million and $3.6 million during the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, unamortized stock-based compensation expense related to the Co-Founder Grant was $17.5 million.