Dropbox Raises Convertible Bond Offering to $1.1 Billion, Prices Notes Due 2031
Key Facts
On November 10, Dropbox priced $1.1 billion in aggregate principal amount of senior unsecured convertible notes due 2031, after increasing the offering from the previously announced $1.0 billion. The company expects net proceeds of about $1.082 billion, or $1.230 billion if the initial purchasers exercise their option to buy the additional notes in full. Settlement is expected to be completed on November 12, subject to customary closing conditions. Investing.com reported that the company’s shares fell 3.3% in premarket trading on November 10 following the pricing announcement. The last reported sale price was $32.58 on November 9, the basis for comparison with the conversion price set by the company.
Dropbox set the initial conversion price at about $40.73 per share, a premium of approximately 25% to the last reported sale price on November 9. This means the stated conversion price is above the reference price before pricing, while conversion remains subject to the notes’ terms before the start of the unrestricted conversion period. The company said the notes hedge is expected generally to offset potential dilution to shareholders upon conversion. It added that the related warrant transactions could cause dilution if the share price exceeds their strike price. The company set the strike price for those transactions at about $57.02 per share, a premium of 75% to the November 9 sale price.
The company plans to allocate about $103.1 million of net proceeds to cover the cost of the hedge transactions, partially offset by proceeds from the warrant transactions. It will also use about $175 million to repurchase Class A shares concurrently with the pricing of the notes. The company plans to use the remaining proceeds, together with available cash, to repay at least $750 million of principal on its term loan facility. The plan thus combines share repurchases with a reduction in outstanding borrowings, while part of the proceeds will go toward the cost of hedging the potential conversion of debt into shares. The disclosure does not specify other uses for the proceeds.
The notes carry annual interest of 1.25%, payable semiannually on June 1 and December 1, with payments beginning on June 1, 2027. They mature on December 1, 2031, unless converted, redeemed or repurchased earlier. Dropbox said the notes are unsecured and that it cannot redeem them at its option before December 5, 2029, except for a make-whole redemption. After that date, it may redeem them if the share price is at least 130% of the conversion price for 20 trading days during a consecutive 30-day period. Noteholders may convert the notes without those conditions being met beginning September 1, 2031, through the two scheduled trading days immediately before maturity.
The financing follows a third quarter in which Dropbox reported revenue of $637.3 million, up 0.5% year over year, or 1.0% excluding FormSwift. Co-CEO Ashraf Al-Karmi said the company recorded its fifth consecutive quarter of year-over-year revenue growth excluding FormSwift, adding that revenue growth and non-GAAP operating margin exceeded the company’s guidance. Paying users totaled 18.20 million, compared with 18.07 million a year earlier, an increase of 20,000 from the prior quarter. The company attributed the increase mainly to growth in its Simple plan and slight growth in its Teams plan, offset by a contraction in FormSwift’s business. The results provide context for the financing, with limited revenue growth and an increase in the paying user base.
The company recorded operating cash flow of $259.2 million in the third quarter and unlevered free cash flow of $303.9 million. Cash, cash equivalents and short-term investments totaled $1.142 billion at quarter-end. Dropbox announced on November 5 an agreement to acquire Tigris Data for about $350 million in cash, with the transaction expected to close in the fourth quarter of 2026, subject to customary closing conditions. The announced deal, together with the use of bond proceeds to repay loans, puts the company’s liquidity and financing obligations in focus in the coming period. The shares were up 17% year to date through the November 9 close, compared with a gain of about 9% for the Nasdaq, according to Reuters via Boursorama.