DBX - Earnings call transcript Q1 2019

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Operator

Good afternoon, ladies and gentlemen. Thank you for joining Dropbox’s First Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions.

As a reminder, this conference call is being recorded, and will be available for replay from the Investor Relations section of Dropbox’s website following this call. the Relations. to hand Head Yip, now Investor of will call Darren over Dropbox’s I ahead. go Please

Darren Yip

Thank you. the results, future and this to call. overall that Good the afternoon, and distributed strategy, call Today, XXXX first were of including Dropbox long-term earnings include quarter expected forward-looking growth will statements Statements performance financial discuss earlier. quarterly statements, results welcome financial on that could prospects. implied unknown ended to uncertainties our relating Dropbox’s future year particular, business, December the statements risks materially our differ in to are during in XX-K Factors Risk In or actual and known cause XX, from These subject call. those projected XXXX. to described for Form included results and our those this

rely of as based You undertake and All on on future event. we statements as statements are no this required to call them our beliefs of today, forward-looking forward-looking and except predictions that as make update by we law. obligation assumptions should on not

today GAAP X-K turn to Co-Founder Houston. be Drew? discussion on earnings Investor like Drew our be measures. not Relations which our over Form These and SEC and investors.dropbox.com. the posted materials would Chief may to for non-GAAP will call results with non-GAAP now and our filed reconciliation a with the Officer, to in website today financial investor our should also substitute addition in be A of results. Executive in supplemental found the I Dropbox’s as isolation considered GAAP or found non-GAAP from furnished on to may measures include release, Our was at

Drew Houston

to call. Darren. afternoon, earnings Thanks, our everyone, welcome Good and

talk of and our our expansion with business Chief product I’ll Financial call and Customer and will us highlights fiscal and go-to-market our and continued Today, during driven expansion. Yamini Vashee, ecosystem. saw we by XXXX. our business. our Officer, strong the continued me QX paying Ajay join also guidance such the In our On on year-over-year, about Rangan, results Q&A. Chief is Officer; ARPU offer financial growth for results will XX% our across QX, user QX strategy review grew Revenue and Ajay

our also our this a team public non-GAAP our delivering global Dropbox operating a platform, family. HelloSign accomplished the to adding strategy acquisition we operational company, that closed And discipline. collaboration We the while continue demonstrate results our and margin. as of strength first all efficient go-to-market robust to These

with begin our let’s So product update.

building bringing the and workspace a and by content together all it. around communication collaborative We’re coordination

Docs, months, for that we experience number a make teams recently multiple new even capabilities innovations of difficult, at unveiled To within and start, consuming. Dropbox Over allowed Google a the delivered is and Slides work work from with platforms Sheets of that we Managing users time few to Cloud scattered number the Next across better Google last and distracting our Dropbox. right users, admins.

changing that. We’re

our users natively Now within their edit, and users Suite and and it These control access easier will right content, and to traditional viewing Docs, within their and organize Dropbox files. capabilities G Google the for them their organizing UI, be full from able Slides create, Sheets text share Dropbox. alongside the make files of store search manage to

process directly on and maintain their In and up-to-date as Docs, and important teams content applications. from addition, will enables a stay most in without platform to single toggle to Sheets Slides feedback between our comments made appear context quickly notification. within users multiple the Dropbox having This work,

collaboration. this to allows to us workspace Google content our for down deep digital users, bring partnership with unique creating and breaking and silos Our functionality a creation

and specific and management on without need. our be web, machine When work, based our GIF we machine see and an we straight able organize. users machine search metadata more focal for information included better, by Users spend images, get suggestions creative provided get recognition the they tools find on we allowing image time files search camera new access of the our we list another technical need DBXi all that the intelligence sharing overtime, to initiative will commonly DBXi, suggestions, and and access technology digital data to take now what audiences. April, better digging to on of length, dropbox.com, files management. announced across announced and because and to engage retrieval, a file a of content help And easier continue its will engine as last variety to account and an on platform feature Dropbox. enabled having around make expand of with where previews, called ensures make let’s powered improves the through algorithms find year, initiatives. which their are tag content folders have shutter such and searchability, might previews, to character version With cases help area log to advancements. In optical folders to critical use they asset content our suite on activity. they’ll speed, which IP suggestions Next, also content model at image by for artist, formats. that users intelligence, users the look features predict predictions And, file control us to users Last to week, These that intelligence

electronic roadmap, to signers we focused to HelloSign. had signatures on document leading features that to integrity. the to its extending QX, functionality e-signing is which continue individual capabilities proofing We each on signed document to Moving strategic HelloSign’s launched deliver and API website. on ensure on in tamper and validate accuracy that market text improve and to data In embed seal application enter in any its customers

to built more features addition, a experience make Dropbox. seamless In we Hellosign inside new API

logic information managing in some complex functionality. static form to a real-time, which based to allowing or facilitates in logic HelloSign’s We on users when intuitive even is change an life launched of forms of with form filling dynamically Conditional also those brings version complete a product, inputs. This presented by automation experience, conditional workflows. new HelloWorks, workflow questions

We’re that meaningfully ahead completion key faster opportunity phone see and on higher adopted for to and a turnaround really rates times excited customers have workflows. Xx HelloWorks the up the about product

and QX, Sports project to Illustrated knowledge, as is that times meeting new document Dropbox silos for process drive is continues number notes, Paper ramp seeing magazine to also a members. we improving of in Better & manufacturing verticals like education, within reach Paper’s and wiki research. helping Paper being Turning expanded Meredith Paper. our team conversion used compliance, and team monetization healthcare, brands Gardens, the between higher Paper shared PEOPLE and creative benefits. is employees. services product a of like company workflow the to adding through for decreasing HIPAA already used being and for process Homes are market a team reduce to by which including we Customers subscribers. visibility retention media In and Corporation, which and way usage more drive to information and share increase owns expect

to educational but proxy many usage content for opens collaborate the to counterparts. security Healthcare collaborate institutions already these allows to medical addition, compliant customers plans more organizations, customers compliance and tool legislation, seamlessly scientific HIPAA on the In subject and business HIPAA Dropbox Bringing to compliance our datasets. with it a research nonprofits Paper leverage to their leverage use not to like Dropbox up as up standards. HIPAA

single file tool, Member number users Next To QX, and more further workflow, teams. Google Imports members potential quickly that grant provision a to Dropbox provisioning containing business and onboard the the capability is With automatically to sign-on the and In admins by streamline Bulk to and large we can CSV for efficiently Imports the also exist helps experience. admin to names of improve folder our in invite expand. level rights. as This to G Bulk members users now group reduces and Member now announced the admins manage launched directory. groups we team identity onboarding for errors teams Suite access a e-mails, management importing memberships can

world. to that of our our announced on as deliver their and and both listening presence for in a secure local points Switching to support Dropbox countries country will capacity locally the connect the in environment needs. ecosystem. platform. that move collaboration QX, in let’s of Establishing with Asia option hosting our Australia to files In will how infrastructure our and partners to help Japan. and their to around to high our customers business customers to the infrastructure and access and Now, that performance responding in will collaboration growth Working have an our powers we strong store we’re example

our Dropbox at to continue that We position the users of workflows. build center partnerships

help interoperable in in proliferating different address all tools, of content leading Cloudpipes. and To with one and pain integration this point, uniquely firm Trade.io, tools our and to of the partner together manage important user our believers switching that been their results A stitch in types operating workflow workplace, our in we’ve of application. help We waste content including integrations we’re KX between the across lost work Ocado, open productivity. time differentiators power and SaaS We’re automation application Zapier, strengthening of Nintex, systems most platform. devices, and

common be across will actions customers a applications. to automate range to integrations these manual Our enterprise leverage able of

the Salesforce, status HubSpot multiple and person a of lead In sales an a workflow automatically across changing Copper instance, subsequently and RFP For can in and a in like new by complex their signed more manage Dropbox. Workday. generate and Dropbox in simply users opportunities with higher greenhouse streamline merge contract new by record onboarding hiring can the in that content even to connecting resume workflows, employees apps

step progress ecosystem about over our and challenges strengthened added strengthen proud made features collaboration platform. and and quarter. I’m of clear work address product Our experiences work. We expanded of last a partner towards new reducing wide In really our variety the summary, another the are we’ve to integrations

with more for mission it launched retrieval to of improve our our and on now Dropbox workspace designing working. content. collaborate to By continue of enlightened delivering finally, digital of our way I’ll we’re CFO, Ajay, to HelloWorks walk added our to turn value to file our users and and results. over search true and ultimately a through create our executing to financial making across all enables HelloSign the functionality HIPAA users, partnership our types new capabilities, a types, more for compliance strategic Paper. of And, Google range We

Ajay Vashee

Thank you, Drew.

demonstrate paying users. paying strong top-line $XXX.XX results balance the to primarily was for professional driven with $XXX QX Total and delivering expansion users ARPU an We a ARPU in by execution X% up increase million ended year-over-year XX% advanced profitability. was in from adoption growth plans total by revenue was quarter by our and and on a year-over-year and healthy expansion. of new our up driven focus Our year XX.X QX, ARPU strong The premium, users. paying $XXX.XX QX of million, ago.

We also their to tailwinds during renewal advanced the continue the choosing on the though we grandfathered to following teams grandfathering period, remain of from completed see teams for some all process quarter. substantially plan expiration our

user is paying growth expansion. As a through a drive conversion strategy of reminder, and combination ARPU our revenue to

Our to continued value reflects our converting highest retention. sustainable and our growth drive on in focus monetization users ARPU

we’re me few ways on strategy. highlight a the executing Let

unified science expansion opportunities. First, who created identify another, data called one sales to to learning of Dropbox utilizing not we are are we and Dropbox machine but a our an who strengthening methods, team to outbound groups using users for new Using share better part our one collaborate company, create team. yet with plan. within tools of growth team by detects Communities are advanced engine algorithm Communities models

learning Our to Communities the team identify with propensity highest a models plan. to enabled then upsell to help machine the

users. is working advantage users paid account. upgrade implemented recently prompts operating of a real found we breadth of where to for revision we’re devices well linked including are value, both platform estate, rollout of but more authentication collective HelloSign’s and our technology initiatives our more ahead. limit our drive and devices verticals to HelloSign we we’re users. days, early efforts as as Dropbox sales our into work. with that they’ve integrate force into enablement who three range for is Go-to-market and enabling for we’ll and still a opportunity already to talked SKU around QX, same and generate construction, finally, to used multiple It’s a for in to, QX process, begun major systems we subscribers us we’ve the Dropbox device to go-to-market account expansion credentials. support that their to addition, product policy opportunity excited than these, to provide seamless and the to that experience innovation Basic value In team And, devices help a if about to delivering log the Drew a users accounts their The that and link a HelloSign customer like frictionless across to to to This an often products wins our in Dropbox their manufacturing. management We’ve device

example, on Dropbox XXXX, sales experienced quarter, Dropbox team content. project estate operations. Young, has like For offices design, across rapid centralized graphic subscribers to Avison beginning Avison a Dropbox of organize in a After critical our use Young’s currently deployment grown with last has at teams has been over commercial we as five has XXX in all collaborate to the X,XXX Since XX investment services workspace today. our just deployment subscribers management company helping and Internal the grew and Young firm. XXXX, its and countries. Avison founding growth to scale real

to expanded company, deploy Trustpower of is solution We’re a collaboration. earlier that The customer. Zealand-based evolving to also several locally Dropbox a Drew enhancing market New data goals, result on employees our that host Dropbox company will accomplish strengthening also growing a to infrastructure the Dropbox excited focused APJ utility initiative tools, including providing digital advantage strategy. use Trustpower, decision cloud the easy was for consolidating an and governance, the internal data take in to announce will organization’s help alluded external capacity its now digital in Trustpower’s that region. is and of

the want rest HelloSign. furnished in purchased our to and of on to certain of materials supplemental highlight related of to ASC Investor of found non-GAAP that standard compensation, January unless lease that filed that earnings the the investor excludes in and I X, I Before recognition the the XXX on on resulted are the SEC Form I million A amortization assets which of of balance today of new right-of-use sheet. was indicated and results statement P&L, on measures with posted we our website. X-K million otherwise and note our Relations in $XXX.X to release, adopted may income all reconciliation follow to with move stock-based operating want also the GAAP be which non-GAAP XXXX, liabilities expenses acquisition leasing intangibles the $XXX.X

gross partially percentage primarily cost The XXXX. was point to Moving share XX%, an to of efficiency gains of the our quarter margin the P&L. by revenue, the including was for compute higher driven unit infrastructure increase with Gross first quarter costs. margin compared of one which lower by increase offset a was in hardware, depreciation as

growth. expect We online we XXXX continue to support a bring continued margin fiscal be data as consistent center with to XXXX to new gross

Moving to expenses. operating

new by a ago. of R&D revenue in quarter QX XX% or $XXX investments as XX% and primarily product development First revenue compared expense year a was to in The increase percentage million, of testing. headcount driven and was higher

G&A due of spend million and one XXXX. higher expense as services and headcount, year. higher to existing outside a was was allocated for our largest As the prior compared in G&A percentage quarter headcount of first of the our of proportion than was ago. both XX% to R&D decrease our XX% our QX highest headquarters. are the $XX it result facilities year temporarily XX% increase of a or a percentage we QX carries was of of point overlapping expense incurring a new brand overhead. to expense in spend. lower and The million campaign because percentage S&M global in revenue expenses carries a related revenue the reminder, revenue of on $XX The revenue relative as or And

operating accounting first Diluted share and of per a This million of the QX of as percentage outstanding. million, $X.XX was facilities average write-down as HelloSign lower in up for from ago. million of XXX related XXXX. Net share, $XX the which per $XX profit to included QX diluted overlapping of operating quarter $X.XX translates its in in associated EPS XXXX $XX in XXXX. revenue. was shares margin first purchased a Operating up million weighted are we based impact from on quarter XX% is together, well one from XXXX deferred margin, Taken the the integration the point quarter our income of the expenses in year in

We in $XX million balance cash offset revenue. by headquarters, QX of million Moving included from X% cash of were free CapEx $XX $XX of improvement of the or on million to $XX flow investments Capital yielding million was which Cash flow spend of our with flow. cash expenditures allowances. ended and million tenant and on cash $XX QX new short-term $XXX operations million. was in quarter.

spend, been capital In XX% of center TIAs, free lease Excluding $XX of to for million equipment. lines our we revenue. million QX, also have headquarter net $XX would cash the data flow added or

expect We as lines percentage a additions continue revenue an of annual to to forward. lease on to going capital basis our be high-single-digits

Now, turn guidance. to let’s our

For headwind million expect to XX%, XXXX, operating of to includes the from the million spend to shares range to million, point weighted average trailing XX to from XXX of revenue XX-day range average in the be margin of $XXX quarter planned which to QX, to a million diluted share outstanding price. $XXX be XXX basis and which in we our on based in the second range QX of non-GAAP X% be shifted

was raising to to I For $X.XXX this similar are full currency revenue note of $X.XXX previously guidance, billion the headwinds. $X.XXX that to to billion impact we billion continues billion, which quarter, reflect the to last our year XXXX, $X.XXX would range

new includes range non-recurring are revenue. operating XX% XX.X% integration X.X% of expenses of XX%. guidance, XX.X% was related to our and HelloSign non-GAAP margin previously which This our to We headquarters approximately to a raising to

the includes range be This million our of the range free to $XXX million. We to continue $XXX one-time corporate build-out expect cash flow of to spend related in headquarters. new to

free would this $XXX spend, flow be million. Excluding cash to $XXX million

to cash FY first flow one-third half in the two-thirds of year the expect We and XXXX free year. the of of approximately in the generate half second

to range XXX profitability trailing conclusion, on diluted excited average be outstanding XXXX balance the million closing based about Finally, now be turn and healthy of back In focused Drew remarks. the we I’ll of shares average continue we a to XXX price. expect for growth in are our weighted fully share XX-day ahead. and it to delivering to million road on

Drew Houston

Thank you, another great Ajay. closing, we In quarter. had

and as a to partnerships workflow. for build workspace continue collaborative Dropbox product that We add content types position best-of-breed functionality all of

Our gives tools open metadata preferred freedom and the world. provide users we’re users all the a our flexibility our choose at their the ecosystem on to our work and extensive amount for to richer experience harnessing platform across of of

to of invite We’re line Operator? our and we’re we’re join a to committed like Q&A. designing Dropbox moment and future our to me mission of excited I’d building. team. that, With working customers, like and take to about Ajay Yamini, Officer, behalf Customer management the thank Chief On for more our team, I’d entire the partners our I’m in to

Operator

comes Thank question Heather first with you. Sachs. Goldman from Our Bellini [Operator Instructions]

Heather Bellini

the could type worse thinking give it FX XXX out Thank talked the think And know revenue the I wondering, write-down obviously was wondering, could headwind, I’m which other with called deferred – the if the the any gotten of year? but And in what HelloSign, you that’s for share you. if with in I of Great. color can contributed Thank about you you got believe, about question – have for if Ajay, of expectations? us, had about quarter the the revenue if just kind it’s about your you’re headwind being or terms point was versus that you may you’ve then, I headwind then same you’re that quarter, I if year. related for you. us as you that’s expecting? basis last you to staying – share

Ajay Vashee

the your line with going and deal well. And Certainly, it in The first integration on question Sure. is HelloSign. Thanks performing really the there Heather. our to for as the relates there team expectations. question, is

just to HelloSign of continue contribute point this year. to expect revenue a over We growth

to when is net partial revenue that’s are opportunity that the And based year excited very close net of just write-down revenue, that we we just I of deferred part the noted, deal. and we drive you synergies recognition accounting of about reiterate guidelines that on As of a together. also would have of purchase longer-term, revenue ahead

of are question customer for get clear design core FX to HelloSign our the allowed that workflow, And of and principles lot Our same the extension and the consistent on headwinds, as serves to part second document that very to a quarter-over-quarter. view FX relates us is scale it certainly, category there need. shares quickly your natural us

rate constant a for be on guidance our and would our one currency higher. percentage growth So, FY basis, XXXX about point

Heather Bellini

you in is then. quarter, that we the over, I is of the should one ARPU that’s a there help One you for And question, you might the it. FX had terms a given the number great. us how more the color – Okay, given follow-up about growth you. just progress Thank had think and And fantastic this quick to growth color. how for shape HelloSign Thank way in year ARPU? of grandfathering

Ajay Vashee

and and quarterly process, in at SKUs is The And process early to as teams continue price paid new that for time, premium a color a at I course factors I has over directly, the would point. can remain rate ahead expansion renewal Advanced our of on Dropbox variation to over we our more process expand Sure. be expansion past quarters, always XXXX. all last all bit their our reminder there’s from subscriber the grandfathering ARPU existing confident be really legacy deal there. would as the adoption mix timing. answer year. And, looking of of note of launched some been teams and for to make we note those the into teams while by quarter, end on of to tailwind a Advanced the we in that driver quick ability plan the to your commentary ARPU provide grandfathered completed And the users. question call like grandfathered only And of that going to few paying in of primary I that strong ARPU continues we our the substantially

Heather Bellini

you. Thank

Operator

Thank you.

Murphy Our next Mark JPMorgan. with question from comes

Mark Murphy

words, congrats opportunity promising results. high level, Drew, you a and more or you, which of ask tangible, or things, Paper and where type the workflow two the opportunities? health you’re is side the in and seeing contracts products, Showcase on I vector, investing of team Thank those content to kinds wanted what words e-signature, those at the currently transactional other of just other of to more heavily are in you in between you and collaboration more forms and

Drew Houston

– quantify the of of a concept opportunities is over life number of quickly I number – that One activities. just, related. because other, about is we to takes see roadmap know dimensions. any I or don’t We document event on both think cycle could the assigning if is or to those our of one what those from

with a content we another of signing angle do of more more user new get on with making excited some very so good of content focused year, quarters attack more partnership so is where of we’re I’d to also can launched and that strike making that’s but a Google our of shown the extensions they recent it started so making about us see Dropbox, say, then is your a useful, that partnership a with on our to we’re so Dropbox it, new of larger partnerships, example the and challenges, example, continue part that we the more good in Suite examples help G lot HelloSign we’ve in in and a And you cycle. to do late last and big life opportunity these roadmap, just

So, related we’re overlapping on there’s think that both and an focused and we opportunity.

Mark Murphy

Thank you.

has quarters As think converting improving of provide of or focused you that retention Ajay, users a highest expect retention the better the you to for value on profile, that future? been I business that tell you’ve the us your as aggregate And now. to and been way I result dollar believe. a should see just a focusing given this Are follow-up, a whether in whether able you’re number

Ajay Vashee

retention question. that answer the high since to I revenue updating quarterly, year in but metric Happy that us, public net steadily ANRR, last say improved Sure. XXXX. annualized isn’t has At that we can level, we’re for a went

Mark Murphy

Thank you.

Operator

Thank you.

question with next Our Lynch. Merrill Justin Post comes from

Justin Post

is good growth annual. indicator you understand your be below going growth you you. revenues might is think why versus any some revenue future people mentioned you And quarter that that I overall and The Deferred Thank last that. helps about which help growth? us that concerned question year-over-year, monthly But ANR or Thank you revenue – was do are than your can XX% see are lower a leading of growth? you. with

Ajay Vashee

your answer Justin. Sure. This to Happy Ajay. is question,

Android-focused really driven effective a proportion subscribers success ARPU. number of initiatives I and we’ve higher think have and end-users mobile with These it, manage for bring attractive iOS ASP higher answered way able retention you had to us, have monthly of have of initiatives, because the it also profile, been in that so to asked that and these and you initiatives. a which been that we some able is been that been a to LTV great have and we’ve

And you’ve over that retention manifest changes. in that ANRR So, then year, and seen the well. billings our also on in an both improved has as year the mix manifest obviously deferred subscriber ARPU rates our as impact over growing past past seen revenue you’ve that

Justin Post

Got it. follow-up. one maybe And

you. that? been paid? you – uptick back? push Thank in customers the your on from have percentage paying how With And has the converting people changes, limit reaction any seen to Any device of people

Yamini Rangan

this. that for Thanks I can Justin. question. take Sure,

we generating see users focus wherever our value Our driving really and value is we initiative. driving – for generating monetization are that

high-value into So, value our – of limit, users users paid is work. are advanced they paid case the and data multiple the when our three-device users in actually like are premium those at so specifically users exposed that us in things right? protection to basic also this have getting more we we device they devices, features, when basic our see and what doing and limit, So, bring look with are users, power this power

us those into helps users actually SKU. bring a So paid work, the what value limit higher for imposing have of in we see that them

of the it develops has we’ll this the been initial see our this in terms So, initiative quarters. particular next of reaction, and expectation consistent in with how couple for

Justin Post

Thank you.

Operator

you. Thank

comes Davis Our Richard Canaccord. from next with question

Richard Davis

Hey, very I’ve got quick two thanks questions. much.

Google change terms from storage competition few in Yes, HelloSign is in of feel price things a – I discussion concerned words guess that months – to ago were and just important therefore pricing trying of which you offer, of then question, question a in go there need and think is, terms to stuff with more that to know feature a modules other people functionality? less way about stressed I’m how more a about I orthogonal, that. that squishy I So, you many like point can like you��re that, tipping something that’s that’s just, I and the kind but that. of I’m and

would way we the So that are of a-third helpful? are there, way Thanks. there, there, are be halfway we all we the

Drew Houston

of of Well, – we at watch I see work. terms of very room we’re think using we how with in value, no early our shortage add we the for experience improvement can because technology innings,

they all use we fundamentally Suite tools of useful together product lot more and workspace more friction just value a roadmap it’s seamlessness you question. great you less Google and a a provides. a years, our partnership in, people Dropbox to – making higher turning everything use a customers a is toward because now Dropbox the manage storage. last the Dropbox it experience of sort mentioned just– and And people several and a trend customers that say, using And if can So, Office, our of are to haven’t that, to G it’s way continuing than of find storage more things and that a lot the space the of our at is to tier turn more Dropbox tools. variety look that content where of like had but experience till or last ties be different they And several over see, than example also as the and quarters, – to more for I been great the are experience the take more good over of

big then the your opportunity and tools content together. people continue tools you use closer content and different of So, all helping a coordination and we tie see together that to bring kinds communication their

So, our Slack, toggle all Zoom partnerships between to of with need lot and folks others, like remove the apps. different Gmail, these a

where they’re our because they’re work And buying because there’s time you sure, that a – can find get saves obviously done, users, places them it’s so of a Dropbox, people of lot lot getting for storage. a because and we place, it work are cheap

Richard Davis

tricky. you that can to like Got said, value it. just also but you question, And more and you really things this you’re proposition. look Are what kind integrations technical external handling important a kind with are your need that, and be be guys ties obviously to that. third-party satisfied security of of because of into careful how integrations

the and sure make ways to reservation are off Thanks. not got your that? You going like stuff into wrong partners

Drew Houston

For the critically thing our sure. us mean, it’s mind. I thing on customers’ it’s first the to minds, important is on first and security our

area, our means, So, our product out of that by thoughtful the security that all for have whole promote, including secure making a important. super is the certainly, integrations and looks we’re about experience we all integrations surface sure and we team

Richard Davis

you. Thank Super.

Operator

you. Thank

RBC Mahaney question from Our comes next Capital Mark Markets. with

Zachary Schwartzman

again Hey, I thank update up have you for thought see you then a expand the margin a you. Ever Yamini. on leverage? all Ajay, that for quick you expect do to change and where follow Just Mark. quick exiting be call helpful. the and And Drew would at operating Zach greatest it on It’s here the you’d Schwartzman mentioned XXXX. last margins

Ajay Vashee

Sure.

We So, end take year-over-year leverage our operating first the certainly to question operating happy there. the year. trajectory plan the expansion resume of to by of course continue driving of XXXX margin will we and the over

are there we thoughts with what So, to very brought consistent last market quarter.

Zachary Schwartzman

aren’t funnel algorithm? Communities acquisition difference Is but a you Thank here sense or you. of Just user strategy this will more the the premium your these can improvement Drew ability that probability to Yamini, be? the trying likely And organization Thanks. from talk get for technical newer that groups a assign within to standpoint? in an a better paying, about

Yamini Rangan

Sure, Zach. question. to I’m happy that answer

What the product, really that strategy, to into a data-driven drive doing data-driven our of kinds profiles right which algorithms. that engage convert Dropbox a also outbound team. the And users XX wall-to-wall of So, the this are propensity to what that teams evolution you’ve talk an deployment. is and about expand of much highest we us are have with found is our towards is identifying heard that, we but teams seats, is very and our are Communities XXX strategy have and they

us to is having go-to-market algorithms that focus prospect model and us so goes back And help and this qualify a and data-driven. very very these help efficient scaled and identify our of

seeing this data-driven we’ll you’re what continue our and that’s evolving of programs. terms in So

Zachary Schwartzman

Great. Thanks.

Operator

Thank you.

next Hindlian with Macquarie Our from comes Sarah question Capital.

Sarah Hindlian

much. Hi, you great. Thank so

things storage ago you is to of on few you blog regards One a technology. new about made the the your talk in I could days cold announcement was hoping your

little potential a savings. You on some bit talk cost the blog about

more was us up. hoping a I this follow then about could I tell bit So, and little a have you

Drew Houston

So, for with days a a that up announced, storage ago interesting context, solution. cold come we’ve few pretty we

So, for is Dropbox frequently. lot people – accessed content in less frequent a – of that less

storage referred while and – of maintaining through as Ajay often some to, we were And speak implications. doing cost financial the so And the to that, reliability. can innovations, that cold to that’s reduce technical able

Ajay Vashee

view generate this quarter’s the of I do at from savings call, expect On week Drew to tier. now. refer last something provided that new Sure. those previewed savings high storage just details this we it cost a is new And this our certainly into level. reiterate in expansion we of with expect of again, should consistent gross the second be currently been the to XXXX half gross new driving just relatively our data margin across begin online year first half. margin gross this but FY and, center margin to in bring to after again factored And rollout as to we tier, we to have FY alluded storage certainly that you we more XXXX,

Sarah Hindlian

helpful. then that driving could done months you terms help you number And That’s Great. past you’re significant understand what I partnership right. of guys for higher Yamini. us six a over of paying was hoping follow-up and in have agreements users? the Yamini, All seeing a

Yamini Rangan

Yes. the Thank question. you, for Sarah,

reduce is strategy partnership provide users choice see. our and the fragmentation So, really to that our more

focus number users, aimed well the as Zoom, all as Google’s therefore, of driving lot this announced our as the which And Zoom much with is, of have is our for expansion out, the for as more really platform better both partnership profile. retention engage well well pointed of that’s a over with as as end a users. quarters, and So as at partnerships then we of quarter you with this strategy. we value Dropbox partnership value up seeing past drives have What users and couple of our one

partnerships good as So to that’s seeing latest and the are the way really we look we with traction at of users. announcements engagement well continue the as initiatives our the

Sarah Hindlian

so Thank you Awesome. much.

Operator

Thank you.

Jason with Our next question comes from Ader Blair. William

Jason Ader

Thanks. Yes.

guys focus value mentioned mentioned converting in IPO on a improvement drive then the since highest also You a the steady users your retention. call you on retention to and

upsell wondering, this users? just in does a I’m in the near-term favoring you’re over So, free converting bit mean ARPU

Ajay Vashee

to absolutely, monetization as our to that highest from Happy that converting question. value perspective focus retain users. Ajay. to is users mentioned, This you our higher And take at continues expand tend rates. and on a These be are Sure.

profitability. focus. able cohort balancing don’t monetization the at profile strategy. focused by this So, we’re overall believe high just we we see on I value that with to kind will a continue level, we’re a Though say better to and pursuing and be better sacrificing a growth deliver We of LTV near-term a

higher doing deliver and we can a monetization, sustainable continue in So, and more want on market. the we way to make as conversion and to margin rates to we’re platform, we higher that that as brought we drive convert to we of users that our expansion sure that

Drew Houston

And to users see – conversion continue see big we opportunity area among focus. drive and we we continue to of another that as free can a and that or as

Jason Ader

one in then margins profitability on Okay. And particular. quick follow-up just

type data right sounds two We’re years out of is for going at good long-term, but have some it center, given new to XX% know, the like say, margin? what gross gross we’re margin pressure let’s target don’t now, I a

Drew Houston

Yes.

So The long-term new growth first was second what the then across quarters to resume that we and slightly as to lower to we’ve as gross of year, bring expansion data our this we XXXX gross guidance continued we be two XXXX. XX% past time support guided provided of IPO the the we the through online in roughly is XX% the margin that center margin trajectory exit at XX%. of margin will of half gross that a year at into

dimension, long-term range very still aren’t us there, it we So, continue to margin execute our change But gross XX% time. at we guidance efficiency are close range is to that we’ll for and guidance. updating as to continue reevaluate on not to infrastructure we on initiatives that makes to and sense XX% this innovate but whether that or our

Jason Ader

Very Thanks. good.

Operator

Thank you.

comes Rishi Our from Jaluria D.A. next Davidson. question with

Rishi Jaluria

Hey, guys. my for questions. taking Thanks

the Let with me acquisition. HelloSign start

working And the look all selling is HelloSign you’re to in Is is replacement customer existing it what opportunities with of just a way? like? understand into does the close, is the team. acquisition look an Dropbox users the that understand bases got of I but Now overlap opportunity? on follow especially in think there cross-sell the us just customers, that we HelloSign sense what Could I’ve And you give the up. existing a to Dropbox want to other weren’t opportunity get Dropbox there then like a before, terms

Yamini Rangan

Thank you, Yes. that for Rishi, question.

well products our both our are channel acquisition, excited one those and on So are progressing much efforts the outbound really opportunity for more quarter channel looking HelloSign getting at into the into distribution about focused as as are well. self-serve we we cross-sell,

looking inbound can value leverage we an opportunity the different have we of well. overall They sure that been to the as are get In see opportunity the way of very to there we continue HelloSign, terms leveraging Dropbox and and hands prospective, on into the from other make at the focused combined motion proposition. to which sales in plans customers terms there’s of

into well are both Dropbox our the opportunities on although as much I say getting hands as self-serve of focused sellers the channel. on sides, So HelloSign more would into we

Rishi Jaluria

now Ajay has been couple then Yamini. two, on Yamini, has landing Drew it. and then of of factors new a the Especially, and and been the board. on staying tiers that it’s one meaningful think number potential driver the – feels can the from When users more ARPU that when And two Thanks. higher other about we the factor should of tiers, paying in ARPU think quarters look, biggest converting ARPU, expansion, do or higher of or back to we users driving get is become paying now converting users. it number terms kind think, Got side, maybe, really grandfathered how two Thank uplift? of at gone, I like to you, existing ARPU we users then nicely, number free expanding users which been

Ajay Vashee

driving Yes. focused Ajay. driving high the as are making take conversion and conversion. user on This is question. more certainly well value paying paid We we’re more as to sure Happy that to plans our

premium seeing individual tiers upgrading adoption SKUs. by driver the adoption plans, premium upgrading – our rates higher and who premium are users So, that folks you are on – ARPU plans paying to paying and to those users, we be new primary past also noted, attach team moving of from from existing or our driving tiers plans higher to tailwind quarters a of expansion today, continues few are of higher rates the as of for

through our focus, see upgrades. conversions, functionality some of those and products us b) plans of existing users exposing our paying promoting continue a) on on to you’ll higher-tiered high-value and encouraging So, to services the

the that uplift ASP. metrics primary manifest continue both paying ARPU going like that gross new from they’re to be see see think users in drivers And the will be to new you’ll forward. going I driver we of

high we system level at metric color IPO the of time shared again, so commentary. And the

is ARPU gross lead new for effectively Our ASP, new which to continues ARPU meaningfully users today. paying

to for headroom to in expansion ARPU quarters. drive future of continue there us So, a fair amount

Drew Houston

either individual conversion that one and example Dropbox and And self-serve there to I or when machine Communities any many we opportunity be a given in data often of a and multiple the that’s but learning of are have, subscription. would figure, in free is tend this company to the then just where addressing users, product is driven science about add always Dropbox we’re talking deployment version using investing engine who more there using an business licenses, Yamini

continue see ASP free interested the of are of a to we that we drive along that increases and always to subscription, team people – individual number from all value to use paid lifetime along ways to journey in So and way.

Rishi Jaluria

you Wonderful. Thank so much.

Operator

Thank with will JMP you. from question Pat And Walravens Securities. final come our

Pat Walravens

and much, congratulations on Oh, you great. very Thank the quarter.

I sort So, balancing I row step of if profitability. comment quarters on I is, hear back, in – bigger. think I wondering Ajay, eight and hear getting the a I’m What the numbers growth growth are and is decelerating,

the is, what where in there’s question if be? can reaccelerate? it So, but think that you is definitely growth And so, that, can there something your would reverse plan guys

Ajay Vashee

level, initiatives. would The at can ramp at latest I question Sure. and I business. that and up a thinking, to the high growth of we’ve we high our have phasing quarterly reflects issued our and respect with level say guidance a a predictable that steady healthy answer

our continue leading in We’re to confident ability growth scale. at delivering

I both of initiatives will is of you we the asking, consistent that some and this of accrue our well initiatives. year for combination structuring As launching half product question go-to-market past, initiatives into this this the beyond. gets of The second growth are I as across we think XXXX are to many and the and the year business of the said in handful closer a as as a ext impact XXXX exciting

Drew Houston

great And front this coming just some we’ve product add really later stuff the on year. got I would that,

still of so in excited core have lot a that roadmap a So, we substantially that’s improving that are very terms and value. about, we lot launching, really in experience the we’re Dropbox the of more providing early reasons

Pat Walravens

you. Thank Awesome.

Drew Houston

you joining and us for Well, next today, with support appreciate right. All thank your you look to all forward quarter. we speaking again and

Operator

concludes participating Ladies you thank and This in conference. the today’s for program. gentlemen,

disconnect, wonderful a day. You and may all have

Dropbox (DBX) 9 May 192019 Q1 Earnings call transcript