Summary
Dropbox reported second quarter fiscal 2026 revenue of $631.5 million, up 0.9% from the prior-year quarter. Excluding FormSwift, revenue grew 1.7% year over year. On a constant currency basis, total revenue excluding FormSwift increased 0.1%. Total annual recurring revenue was $2.566 billion, up 1.0%, and excluding FormSwift it grew 1.7%. Paying users totaled 18.19 million, compared with 18.13 million a year earlier. The company added 96,000 paying users quarter over quarter, its third consecutive quarter of paying user growth. Management said the return to growth in the core business was not a one-quarter event and noted more than 18 million paying customers already on Dropbox.
Profitability showed a split picture. In the quarter, gross profit was $506.5 million, up 0.9%, and gross margin was 80.2%, flat year over year. Operating income was $164.8 million, down 2.1%, while operating margin was 26.1%, down 0.8 percentage points. Net income was $95.8 million, down 23.7%, and diluted EPS was $0.42, down $0.03 or 6.7%. On a non-GAAP basis, operating margin was 39.7% versus 41.5%, non-GAAP net income was $170.0 million versus $197.7 million, and non-GAAP diluted EPS was $0.75 versus $0.71. For the first half of fiscal 2026, revenue was $1.26 billion, up 0.8%; gross profit was $1.01 billion, flat; operating income was $337.6 million, down 4.1%; net income was $210.3 million, down 23.8%; and diluted EPS was $0.91, down 5.2%. First-half gross margin was 79.9%, down 0.8 percentage points, and first-half operating margin was 26.8%, down 1.4 percentage points. Interest expense, net for the quarter was $50.0 million, driven by a term loan facility that is now fully drawn.
Cash generation and capital allocation remain central to the story. Operating cash flow was $238.5 million in the quarter, down 8.4%, but $443.0 million for the first half, up 6.9%. Capital expenditures were $3.3 million in the quarter, up 65.0%, and $4.5 million for the first half, up 114.3%. Free cash flow, a non-GAAP measure, was $235.2 million in the quarter versus $258.5 million. Unlevered free cash flow, also non-GAAP, was $283.5 million in the quarter versus $276.4 million, and $519.9 million for the first half versus $450.8 million. Current deferred revenue was $748.9 million as of June 30, 2026, up 0.8% from a year earlier. The company repurchased 12.6 million shares for $318.0 million in the quarter and 26.9 million shares for $688.0 million in the first half. In June 2026, the board increased the share repurchase authorization by $900.0 million, leaving $1.4 billion available. Dropbox also entered a new $400.0 million revolving credit facility, with no borrowings outstanding as of June 30, 2026.
Management's outlook leans cautious. The press release said Dropbox will provide forward-looking guidance on its conference call, webcast, and investor relations website. In the MD&A, management noted stronger customer retention and engagement, particularly across individual plans, and early signs of positive growth in Teams from pricing and packaging simplification, a unified checkout experience, credit card trials, and onboarding improvements. For the near term, management still expects revenue and the revenue growth rate to continue decreasing if the company cannot reverse the trend of decreasing average revenue per paying user or otherwise offset slower growth or declines in paying users. The planned wind-down of FormSwift by the end of 2026 continues to pressure annual recurring revenue, revenue, and paying users. Risks include macroeconomic and geopolitical conditions, inflation, interest rate and foreign exchange fluctuations, tariffs, competitive markets, security breaches, service disruption, changes in demand, rapid technological change, acquisition integration, key personnel retention, and the dual class structure of the common stock. Higher interest costs from a fully drawn term loan and variable market rates also weigh on free cash flow expectations.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2026 | Q1 FY2026 | QoQ | Q2 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $631.5M | $629.5M | +0.3% | $625.7M | +0.9% |
| Gross profit | $506.5M | $501.4M | +1.0% | $502.0M | +0.9% |
| Gross margin | 80.2% | 79.7% | +0.6 pp | 80.2% | -0.0 pp |
| Research & development | $188.1M | $184.2M | +2.1% | $184.4M | +2.0% |
| Sales & marketing | $89.8M | $86.9M | +3.3% | $87.8M | +2.3% |
| General & administrative | $63.8M | $57.5M | +11.0% | $58.8M | +8.5% |
| Total operating expenses | $341.7M | $328.6M | +4.0% | $333.6M | +2.4% |
| Operating income (loss) | $164.8M | $172.8M | -4.6% | $168.4M | -2.1% |
| Operating margin | 26.1% | 27.4% | -1.3 pp | 26.9% | -0.8 pp |
| Net income (loss) | $95.8M | $114.5M | -16.3% | $125.6M | -23.7% |
| Net margin | 15.2% | 18.2% | -3.0 pp | 20.1% | -4.9 pp |
| Diluted EPS | $0.42 | $0.48 | -$0.06 | $0.45 | -$0.03 |
Risks
Risk factors state the rate of growth has declined and the company has experienced negative growth in past periods; if new product initiatives, including AI initiatives, do not achieve adoption, growth rate may continue to decline or be negative. MD&A reports revenue up 0.9% in the quarter and up 0.8% year to date and says it expects revenue and revenue growth rate to continue decreasing if slower growth or declines in paying users are not offset.
Risk factors and MD&A emphasize significant investments in AI content search and products, naming competitors Glean, Guru, and Notion, and state there is no guarantee AI offerings will be adopted, achieve product-market fit, or generate the desired return on investment. The filing also warns AI development may adversely affect gross margins.
As of June 30, 2026, Dropbox served over 700 million registered users but only 18.19 million paying users; most registered users may never convert to paid subscriptions. Renewals and upgrades have fluctuated, and the company has experienced periods in which paying users declined; MD&A notes continued softness in Teams plans despite signs of improvement.
Risk factors re-emphasize the April 2024 unauthorized access to the Dropbox Sign production environment, including ongoing consolidated class action litigation and regulatory scrutiny. The filing also warns AI features and AI-enabled threat actors may create additional cybersecurity and privacy risks.
Risk factors state current indebtedness, including the 2028 Notes, term loan facility, and revolving credit facility, restricts operations and may limit flexibility. MD&A attributes increased interest expense to the term loan facility now being fully drawn, and net income declined 23.7% in the quarter and 23.8% year to date while diluted EPS declined 6.7% in the quarter and 5.2% year to date.
Risk factors cite global supply chain challenges, tariffs, limited qualified suppliers, and competition for datacenter equipment, which could disrupt infrastructure capacity and increase costs. MD&A points to infrastructure costs and a data center refresh cycle, and capital expenditures rose 65.0% in the quarter and 114.3% year to date.
MD&A states the strategic decision to significantly reduce investments in FormSwift and wind down operations by the end of 2026 has negatively impacted ARR, revenue, and paying users. Risk factors note the company may need to change its product, marketing, or sales approach, such as the FormSwift announcement.
Risk factors disclose the IRS is examining consolidated U.S. federal income tax returns for periods ending December 31, 2022 through December 31, 2024, and warn tax authorities may challenge positions. MD&A discusses tax impacts from the One Big Beautiful Bill Act and changes to unrecognized tax benefits.
SaaS KPIs
All quarters →Paying users
Free cash flow
Total ARR
Free cash flow margin
Non-GAAP operating margin
Non-GAAP gross margin
Average revenue per paying user (ARPU)
Unlevered free cash flow
Summary, forecast, risks and KPIs are extracted from DROPBOX, INC.'s SEC filings for Q2 FY2026 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.