Earnings call transcript Q4 2022

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Operator

Good afternoon, ladies and gentlemen. Thank you for joining Dropbox' Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Dropbox' website following this call.

I will now turn it over to Karan Kapoor, head of Investor Relations for Dropbox. Mr. ahead. go please Kapoor,

Karan Kapoor

afternoon to Good XXXX Fourth Earnings Call. and you. Dropbox' welcome Quarter Thank

our expectations started, well to year strategies, statements to profitability, and subject as free I'd our future result get first a that revenue long-term we Before like regarding products, also growth, the assumptions of macroeconomic to information for forecast our to as will events. new and uncertainties based of including demand flow our forward-looking cash assets, expectations employees, users, objectives guidance our and are as remarks results and remind today, and include business, technology, statements and and materially. them financial actual environment. are operating could or obligation and such fiscal our update as They margin on our quarter expectations, no as our XXXX today differ we These that you regarding cause risks undertake

that and these release forward-looking the Factors and set filed from differ report Form earnings are today's XX-Q could to results risks on in with forth our statements materially quarterly in SEC. actual our cause

accepted are of provided We'll measures, discuss financial website investors.dropbox.com. with A our earnings at release prepared our GAAP in principles. which non-GAAP accordance in generally and also non-GAAP is accounting reconciliation not results and on

turn Houston. like call to and over to now the Drew? Drew I Executive would Officer, Dropbox' Co-Founder Chief

Drew Houston

good and Welcome Thanks, Karan, earnings our afternoon, everyone. XXXX to QX call.

Tim full strategy fiscal give our and then will and an targets. financials on for start year a XXXX our with an update Tim XXXX XXXX, provide over and long-term is QX I'll guidance QX our Regan, our recap of today Chief and provide XXXX, Financial go me And year Officer. for Joining overview of for

get So let's started.

for business increased once flow, saw $XXX pleased with billion in our macroeconomic ended the in how free detail, our the of year saw a ARR. headwinds I'm more more backdrop, over of and with will again QX, stock. We elevated profitability XXXX Tim year. nearly challenging performed We we million and some and repurchased which $X.X discuss While in cash

out made data revenue closed rolled which FormSwift shortly. improving plans and Teams retention security capabilities, acquisitions protection also new I'll customers for touch and progress such expanded and with We as our Boxcryptor, on

Timothy also execution wish in, dive senior enjoy and stepping leveling leaders we down know, Dropbox pursue past Before President. our have up you years his opportunities Tim for all done us. the I continue month, Young that role from we few him ahead that digging the And I'd last of really in appreciate shared best. over we as And to everything as has with our all and to the is

us objectives help realize the three been long-term last focused on we've over strategic to And our vision. year,

to objective efforts better has core and our of our product, conversion gains Our through been driving through users and first packaging. FSS retention pricing evolve and monetization free

particularly this And year, content expand which has second to beyond advancements to capabilities. critical workflows drive cloud and a operational search I'll this and for play for time, universal step core role our a more opportunity And and shortly. improve building objective, a our and been strategic in in product and have has around videos. some in huge excellence accelerating in to third we've all organize is been learning to other been and documents objective Our our objective FSS efficiency. files in has our This added detail fourth beyond vision move recent machine plans, out customers. AI discuss our

immune offer more that some how and observations I'll of and on XXXX on that, that's we first, in me urgency. I'm with to do plan of execution a objectives details showed QX speed where XXXX. already but discuss improve executing not on we're focused why our efficiency. from are a economy, We strategic to sense us against slowing areas can these let we strong

Starting FSS with objective evolving our business. around our strategic core first

the user freelancers over is focused has experience, sign Dropbox. years few mobile. We've last number also And for base a basic this serve on on improving been represent passionate businesses better small particularly growing for of capabilities more up Dropbox. focus where Our adding on user users been a and to who

witnessed in we behavior, mobile consumer workflow operating pressures the can the the largely observed uptick higher we due improving QX individuals impacting we're to subscriptions. on changes, in Plus To basic that onboarding we focused experience. churn drive mitigate system to which continued Regarding make where in and mobile, from some transparency of activity, reliable. around that the recent QX we've And identified mobile areas macro seamless more user increased

and we're quarter, help and small which uploading customers, drive freelancers, other better store Dropbox mobile to and on we've satisfaction reduced for flow Many churn. and Google web the experience our videos files, and This the serve customer sign-up rolling One particularly improvements teams such as Tap, out the of rich in time To media. rely will share large reducing which sharing of in streamline files, to of business do we users. made large them, improvements expect to

by active progress video-related Dropbox, we've seeing preview made and to we're stored And this particularly in and valuable editing video in lightweight adding per size see limits content on the users time our growth among functionality. with continue capabilities user. increases and increasing creative improving of By video and functionality, as spent professionals, shared we

standard plans on in protection. with and a data rolling we focus quarter's new for quarter, customers Last discussed security our full Teams first our and advanced progress out

these to these can customers there's opportunity an to saw awareness strengthen software our businesses high-touch from Teams. working as experienced actively we reduce net ARR increase between channel. in of reducing see evaluate alignment in go-to-market headwinds we QX functionality some we teams changes, as that the units We pressure their benefit the we're incremental for our added opportunities their to added of and through a activity customers improve we pressure the some But see and our customers for While from renewal our Teams customer of self-serve challenges larger budgets, this came recognize spend. business mitigate adding We're to account and through see to licenses. management more traditionally

taking plan And Dropbox to also encryption to devices Dropbox. content We're their our we our natively encrypting knowledge files capabilities continuing to embed users. them strengthen of by their our to users, security to cloud invest in on providing assets QX, encryption for business acquired end-to-end time, storage layer business provider an security for of Boxcryptor, offering we a roadmap locally additional these within zero In prior services. over for from

of top know We consolidating is And security a opportunities value spend, that for we'll identify bundle in to continue for our more the our time to customers. paying priority users.

best value best different evaluate customers. As paid continue the strategy we our that about we'll think additional and serves our into plans, to pricing packaging funding

beyond around I'll see and Moving share on and XXXX. in to our on first an second to and videos. our DocSend Sign update objective, FSS, these businesses which we where expand scale particularly XXXX is opportunity documents workflows to in

fundraising, seen continue. the moderate beyond as DocSend's seen throughout noted growth back has pull both in markets and introducing This has we're professional and year, activity levels, materially is capital its DocSend Sign customer venture which and we've base, respective services extending geographies XXXX price focused back headwinds core their in we've consulting. last on more as venture market, from such new which resulted DocSend year, As sensitive. customers diversifying other being

competition. and increasing overall seen amidst slowdown eSignature Sign in an has market the challenges also

it strength saw our we we and leverage offering, opportunity in drive overall While Sign's to brand there's Sign the growth more small sales-led under stabilize Dropbox growth targeting as API businesses.

core and integration in focus Sign is our both around DocSend, deeper For XXXX Dropbox. with

into progress in for analytics individual within send entry and flow for need unified. integrating capabilities certain Dropbox, there signature due to that an and multiple still core Sign's the the user Dropbox experience, are example, point to made systems PDF for be we've user end experience native sharing challenges While DocSend's

is as terms acquisition overall. For strategy. And working about to try, today, different our the up excited I'm DocSend We're a pillars access Sign in service use required discuss easier platform the to re-log strategy. in new step for of it these remove until and quickly make been different buy checkout customers mostly to and to we've key to talked to experience example, and unlocking important applications, Dropbox the with and to an products, now, have interfaces which our piece user user customers flows in And business our multiple critical friction of document to workflow this FormSwift.

customers lease to small save edit cloud-based complete, With forms businesses library hundreds of is business create, that able vast FormSwift and a critical service access agreements. templates, individuals and helps FormSwift's are and a than rather offering agreement to scratch. simple them makes complete employment resources agreement FormSwift's an customers drafting it's spending cloud-based contract, it workflows. forms or Whether for from their of

workflow. a Dropbox content Sign digital We a over target with this similar customer, agreement with to go-to-market robust combine year, to it's plan Also, their comprehensive complementary a allow and library integrate Dropbox that brand and more providing to engine under and capabilities content. end-to-end do customers the FormSwift time, with its self-serve DocSend our capabilities,

natural with see its and we website, Dropbox more to of millions a activity FormSwift's suite opportunity to visiting drive products. So top-of-funnel

retention and we've focus year, We seen recent launch replay where opportunity the within video on for continue on to a which other as community. in a with teams creative we workflows, public users collaborate replay, availability to launch continued of well for Capture, documents, Capture our to with significant and communication of video on This improve see the This its is around to platform. grow Dropbox. the workflow to edit Dropbox we FSS as as this all similar beyond usage adoption general path Outside Teams our all for October, see allows building an adjacent video our distributed usage videos plan follow in progress continue tool Dropbox significantly.

creatives on iterating to administer build a we're for video continuously platform experiences, these content. their to excited By best-in-class

organize new combined working been one work our environment a Instead boxes our their tools around We've We're XXXX time cloud ever where working there's AI chaotic with to a human never content mentioned more And of work been our light tools working all productivity. across newest box, unlock simplify of centered unprecedented levels apps, than search as organize before. shift have a productivity era a to working augmented for a have of learning. way of I of and dozen years people remote to machine and machine pillar lives. customers strategic of proliferation we better designing knowledge all search cloud as in and more mission intelligence and and and a earlier, all left is towards to entering a of the help

complex more tasks they're And with ever the envision. work language large needed processing recent augment blocks before, developments in Teams and than building language on the to and first now natural us can we models, providing knowledge as take

a time. investing and there's and learning where is content, we opportunities in users universal long we learning suggestions do. we've see content search, AI I'm quarters. biggest better machine fragmentation be lot improve looking for content been We in forward about to machine the and view we'll sharing Where and is what an and search retrieval area coming video more and more can launching help their tackling the to organize but a

our way with product for new what I'm platform customers leverage operating people a entrust technologies design for working from teams store and Dropbox businesses of be us all neutrality our and given to levels unlock to Dropbox closely strength their our use our I these and of content. significant and believe about we're of enlightened more roadmap do already ultimately and very millions position productivity on can the that work millions our most scale working. to a I valuable more and couldn't of excited of

environment. changes another solid despite position the year continue important focus to difficult from our XXXX our better to for we within likely long navigate macro on closing, what challenges In be business was increasing is to as and term year us improving the our for customers. a making We're execution

financial under launched environments We Dropbox operating work. more can that crisis, challenging the for producing our learned best difficult great result be times during in transformative business. and But can I've any

excellence, our emerging we're on our worsening immune to invest healthy to focused on our well financial capitalizing operational profile and brand, identifying of and While trusted areas economy, scale, We opportunities our remain efficiency not a given balance future. growth in our sheet. strong we're positioned

Tim to with results. And our that, through hand over it financial I'll to walk

Tim Regan

Thank you, Drew.

results, our strategy. I'd Before turning with to like a our to reminder start quarterly financial of

to thoughtful remaining We our longer-term committed sustained a are growth profitability while financial continuing targets. to and in disciplined pursue and manner

to the capital a organically also of both our drive returning acquisitions, significant allocating shareholders in initiatives remain we through of flow portion also revenue, We to on growth repurchases. share future focused that free cash believe while will form and

are As And which through on today, for impacting the business. me into year we guidance our discuss signs let I'll Drew financial But our highlighted, weakness more full our XXXX. an fourth XXXX XXXX, for of update current provide targets walk macro-related consideration. seeing takes and environment I'll quarter results. our first, also

increased million, Total our revenue to quarter to $XXX range $XXX fourth of year-over-year X.X% million. the for guidance $XXX beating million

Foreign with a revenue constant provide our to exchange X.X% $XX currency headwind an growth, grew approximate line rates basis, previous On million guidance. year-over-year. in

On sequentially year-over-year closed by from billion. by and of December More the a month ARR our additional on in $XX a million XX. XX.X% constant that of plans ARR revenue note our the grew of an million which than for Team XX.X% I'll total was basis, FormSwift driven our we acquisition to contribution acquisition $XX pricing that of packaging revenue year-over-year. this changes and partial announced a $X.XXX ARR QX June. FormSwift, grew was we from Total with currency inclusive for our of quarter of

include in companies related a acquisition. total ARR our acquired As the to we of in the the reminder, ARR period

We quarter, million FormSwift. these XXX,XXX added with exited paying the net fourth new users quarter from of the of paying our users paying XXX,XXX stemming acquisition with users in over and XX.XX approximately

and total As of an with acquisition. of all paying paying we users include users company acquired within the ARR, our period

our two factors. by main additions expectations to fell driven users below FormSwift, paying Excluding

First was where and, have an of these a the very I'd that customers low total ARR to impact hence, large a customer education note ARPU churn immaterial our base.

we Plus see and The our increasing second plans continue Teams around as factor was headwinds, softness macroeconomic mentioned. as to Drew

plans. see began sensitivity mobile. continue our And softness to we price SKU, we in Teams Plus see particularly Specifically, increased to to on our

partially paying of six up headwinds our Teams and continued FX from mix user ARPU QX and Family the compared pricing carries which profile. was offset for revenue comprised Average to a plan, QX, $XXX.XX, initiative, per benefit the is slightly with towards shift seats, lower by therefore,

only we saw acquisition FormSwift count, ARPU also of the from headwind but half paying the user revenue. month an entire recognize We a as of

non-GAAP amortization real impairments expenses, further with on certain note our exclude and all continue purchased and mentioned stock-based of equity P&L, investments. intangibles, to we would assets Before discussion income indicated, gains unless I compensation, that otherwise like statement of figures our estate acquisition-related net are of

the Our allowance of the net benefit excludes the income non-GAAP tax also tax adjustments. income and the deferred on from release tax effect of includes valuation aforementioned assets income a

against San provide on taking where been to and a result to of has goals a as been real outside of model. we de-cost now made in now our I'll have estate estate a transition our majority virtual-first our portfolio strategy vast We brief subleasing update subleased. Francisco real progress our headquarters steps a space our of XXXX,

of resulted recent real downsizing reductions San had buyouts subleases consider market continue than more Francisco in environment and Francisco our subleasing we the challenging corporate estate needs and throughout we in anticipated. seek San originally have actively while However, a to headquarters,

no real we Given market, the we in next in corporate current few additional assuming longer years. Francisco estate enter into subleases that the San are

This As This brings our charge in $XXX quarter. million and next revised fourth an a impairment assumption the few assumptions, of expected to flow related our result, facilities other over resulting also benefit in reduces $XXX revised the have additional years. our we assets cumulative million. of cash our subleasing write-down subleasing

a favorably of necessary. U.S. allowance a assets. in our assets from us GAAP on our the on income net longer benefit to that improved by tax conclude deferred leading valuation valuation onetime million U.S., tax impacted result QX, $XXX This our our profitability release deferred the is was in a Additionally, is of tax these income allowance no

I benefit, income. no excluded is this would from onetime associated note also it cash with there net that and impact non-GAAP our is

P&L. in our with in infrastructure. percentage efficiencies of Gross continue by representing improvement year-over-year let's the driven primarily X center was was fourth gross a data for margin quarter basis. point on increase ongoing XX% an the that, With quarter, margin The

Fourth XXXX. expense XX% the fourth compared million XX% quarter was which in R&D of revenue, $XXX of of revenue to or increased quarter

the to while has in also of as investing increased seen universal year and sync we have levels share, been percent as record our has file AI resulted Drew a this revenue our search in core that attrition DocSend rates which key in expense rise roadmap past have R&D of falling our and to We This with XXXX. initiatives and over Dropbox R&D in coincided investing spend relative discussed. businesses across lows,

to total, compared $XXX of operating expense quarter was decreased of expense decreased quarter, XX% million an of marketing $XX of revenue the of quarter of Fourth in In an fourth fourth or revenue XXXX. of and quarter million G&A sales of which XX% in quarter to was fourth in in line revenue, X% margin X% which quarter compared Fourth the the or XXXX. million we representing revenue, earned with $XX the operating XX%, profit fourth of XXXX.

was increase for the net the decrease is driven million, This the is XXXX. quarter by income utilized tax and income legislation $XXX tax in Net our fourth which a we quarter for the effective R&D XXXX decrease fourth XX% due tax of substantial impact NOLs expense versus capitalization given the XXXX non-GAAP in have our purposes. to of that now in fully in

on weighted fourth was weighted outstanding average XXXX. $X.XX Diluted based outstanding, the on share share shares $X.XX with per diluted for line million XXX of diluted based average quarter EPS shares per in XXX million

of operations of investments I'll $X.X note the part paid million to of which in with operations. our QX, $XXX free compared and escrow, a our were quarterly from and billion. cash cash employee million cash to Boxcryptor in in the during This quarter. QX Capital as decreased ended to Cash flow. and we XXXX. acquisitions balance $XXX our cash that We key retention FormSwift total on of $XX resulted quarter. flow expenditures million of in from of short-term holdback of million flow $XXX Moving $XX was cash quarter million flow fourth the

we added equipment. center leases quarter, for the data million our $XX to In also finance

QX on of As leases in build-out the of our had planned data we we XXXX. in significant into for guided going QX had step-up call, as of service part center new this a last

share to against repurchase Let's by million. our in X that approximately continued turn In authorization $XXX approved shares, earlier XXXX was repurchasing $X.X executing billion we the activity. QX, million spending

end As $XXX of the the current remaining authorization. of quarter, the million have approximately fourth we under

Now let's a X.X% rates revenue representing turn X.X%. On of for $X.XXX guidance relative year basis, was to to growth XXXX constant Total year-over-year our the average XXXX, year-over-year across billion, to XXXX our growth, $X.XXX beating currency full $X.XXX billion. results. range billion was

margin Gross XXXX, up a Net the XXXX, our XXXX. from points was XXXX, previously. point X.X margin decrease XX% driven was percentage was million increase for Operating was tax substantial from from XX% income in for as expense year, X% the XXXX. in for which by up which is year, the percentage X $XXX I've mentioned

weighted Diluted the year $X.XX shares weighted up outstanding, EPS share XXX on per average diluted full for on based XXXX based share per $X.XX XXX average million diluted shares outstanding. million was from

million XXXX XX% cash flow from operations free revenue. million, flow in $XXX was expenditures of for resulted for the full or $XXX which year totaled of million. Capital $XX Cash

holdbacks by FormSwift earned be related amounts $XXX to do time flow respective additional due the not QX. These and million million they're cash employees. acquisition-related paid $XX XXXX free for in guidance over holdbacks in key our escrow the $XXX FormSwift we to Boxcryptor. came will payments in and expensed to We million these to below anticipate Our of Boxcryptor for that slightly as

million. added we lease our $XXX for data of XXXX, finance balance finance or In by of equipment million center $XX lines repayments, nearly lease Net our X% also to revenue. decreased

we shares, in $XXX spending million Finally, repurchased approximately XXXX. million XX

where first this guidance. thinking will also provide behind quarter full share I year and guidance like now on some I'd to context XXXX our the

we $XXX For quarter $XXX currency of the range On we million to a revenue the to constant million. million. $XXX expect in first the expect be million $XXX XXXX, revenue be of to of in to basis, revenue range

translates assuming We the a first basis nearly currency XXX quarter, to growth. approximately a are million headwind point in which to of headwind $XX

XXXX. there the reminder, compared to quarter a as subscription are as in first the fewer days XXXX quarter two And of fourth of

margin approximately non-GAAP expect We to be XX.X%. operating

points seasonality As operating from at of quarter reset basis some with FX from payroll headwind margins XX points of FormSwift. This there roughly a is includes first each the also basis year. as taxes start reminder, and of headwind XXX

of weighted million based shares the to XXX to on be we XX-day share outstanding expect average diluted in Finally, XXX million range our price. shares average trailing

approximately billion. expect as be year billion points headwind estimate to to range headwinds XXXX, year last we FX in currency currency a headwind $X.XXX revenue basis to of billion XXX headwinds On of We full each revenue we expect approximately lap year. $XX full be the basis, to a $X.XXX of the now $X.XXX billion. moderating range For the XXXX constant the to $X.XXX revenue or with million quarter in growth, the of we

also approximately expect contribute FormSwift growth. to of points X.X We

approximately gross margin to XX%. expect XX% to We be

which full than As a new we margin slightly to went investments quarter, XXXX. related made center, data year resulting in just infrastructure gross this lower live reminder, a

to approximately of FX approximately a from margin XX an as inclusive be non-GAAP basis point XX operating from headwind well FormSwift XX%. acquisition. This is point expect We our as headwind basis

million flow and outflows cash million. We E. $XX in range in free includes XXXX Command the be to for to expect installments This the holdbacks deal of $XXX consideration approximately DocSend million cash for acquisition-related of $XXX

a $XX free is as of on an shortly. result headwind million legislation, our which approximate will cash R&D of the Additionally, guidance flow elaborate tax I inclusive

of our XXXX. finance the in million revenue, to approximately range CapEx in $XX expect million cash to be X% we $XX we expenditures, addition leases and capital of expect As to related to our to be

million be shares. We outstanding average to million in expect weighted to XXXX shares the range diluted XXX of XXX

guidance. share context some additional I'd this on

all headwinds lines environment fourth our in across As quarter. of the from related we revenue, incremental business the deteriorating macro saw to

Teams Plus carefully to continue at levels, saw see users license counts. users mobile our our we their higher and evaluate turn We

and while a changes Teams from impact our In to relative our addition, are pricing seeing still standard QX. advanced did we churn net positive see elevated we plan, and packaging to

higher lower the While come the incremental the renewal from customers Teams change seen quarters not under recent change have up now that price the these we we yet pricing contribution point, majority in for of are pricing next over a of for expecting those have seen the light trends. two

softness to our addition seeing DocSend sync businesses. and share macro file we're incremental within business, see In core the and headwinds that we our also Sign to continue across and

are revenue recent into for all We trends year. the factoring of these our guidance

As related slightly XXXX to operating operating of XX%, margin, our margins. expecting we margins are approximately below

a to We as the trend. FX represent below including and margins combination pressuring factors, year of operating the FormSwift of resetting payroll recent are expect taxes, trough our acquisition of of the QX the

For the of the year, FormSwift expect to full headwind roughly and acquisition basis we margins. point FX a to represent XXX

did XXXX, second of R&D. within the contemplates of guidance half the in annualization we hiring our particularly Additionally, the

trend spend that following We to the are our closely a as of through expect the monitoring are the efficiency to being revenue R&D and we ensure year QX. percentage lower of prudent

full As purposes. tax cash a headwind requires now of to guidance that year cash be a law result million the includes as tax flow, for costs capitalized R&D related to free $XX our

XX%, repealed, brings XX% gross XX% which long-term may legislation impact of targets annual in to possibility guidance $X our are by me including delivering it a that free to is be margins of until operating this billion we margins repealed, our or cash current there flow of such XXXX. time and amended the of to XX% While financial that is

we ago. We introduced since significant flow growing continue progress our cash target operate to made three our years within free margin we and have long-term range,

and rates represent relative million initially FX in XXXX. our However, the target headwind over when issuing flow rates to legislation $XX changes to used R&D deteriorating a combined we of tax cash free currently

other our changes our while and on XXXX, target this have early target. time. targets long-term more the $X achieve these pressure path free Thus, we is to too introduced to this ways it to multiple make our financial billion become to at factors While by achieve challenging, have any cash continue has flow to ability

in acquisitions macro about our efforts, conclusion, cloud content. our the plans of us, front we organize remain strategy the observed and we our In the multiproduct including and to quarter, headwinds optimistic despite opportunities recent fourth our our users' in

will efficiently customers, focused business long-term and shareholders. for driving on remain We our our value the operating

it over to turn now I'll the for Q&A. operator that, With

Operator

question Jaluria Markets. RBC the Our line comes from Instructions] [Operator Capital of first Rishi of

Rishi Jaluria

First, want FormSwift to I the about So sell for maybe that like? other cross-sell to you think And what existing only FormSwift. to customer the base within customer is what not is words, look overlap potential in the the Dropbox then are quick you -- new customer have sell to expand the reach? base and your Dropbox integrate and Dropbox And maybe asset, but there net I've customers got core ability that the into a follow-up.

Drew Houston

Sure.

mean between content of FormSwift short I complementary and then the other So direction. thanks answer all lot a go-to-market target overlap think, fit to Dropbox life in and self-serve terms above. I of I'd the addressing and in first, for yes similar the similar customer, say question. And the fit cycle there's is a or

send for signature out a the template. to or FormSwift NDA you site an in you that think you about that office find done or of form some if a search a land template lease or with often something, every like on and So where contracts originate a getting Google might -- start

it's directions. in Dropbox its millions potential And of complementary customers. that has of both audience So are visitors year every own FormSwift

directions. in see synergies all a we lot So of

Rishi Jaluria

that, Are the of on to it business, think Microsoft maybe side of or about when And on out you're in happening going the last, maybe give customers? total what's the consolidating which churn their where customers talking seeing elevated or And the they end? you've seen, color kind disclosed of Google? consumer maybe you're spend, down going that what just I with at churn? shutting really alongside of That's then, platforms can they're Wonderful. us the you Tim, of -- larger helpful. be a these low Are terms the bit of little paying XX% you business about

Tim Regan

Sure.

particular, did customers, churn our largely and also our deterioration Team mobile churn amongst the to pricing saw see And we macro from due saw than increase customers greater our subject devices. in past we heightened to sensitivity to quarter. in our continue changes a economy, Plus we So the Teams quarter the in third we packaging of saw we on churn and where, this see price from degree rate particularly customers

couple that said, overall is of Now currently it that's was churn a ago. improvement teens, in and our the an just where from all rate low years

revenue us. all So improving retention for of latest focus our trends. of course, these guidance continues a And factors to be in

And as I been side the the there's referred happening material XX-XX to. split trends as wouldn't as consumer you what's of as deviation the far on any far say in those that business,

Operator

line question from Funk next of comes Bank America. Michael of Our of the

Michael Funk

So I couple, if a could. just

So the one, ARPU has for factors also the us you factor in different and The change, a factors? on there, few change then obviously. mentioned FormSwift. change deconstruct been pricing Can for different those a on family you in based ARPU

Tim Regan

Sure.

down $X.XX year-over-year. at QX ended $XXX.XX, was we with about So which ARPU

factors key a So there. few

So headwind. shift FX a factor And $X.XX mix are headwinds a plan to Family continuing a was there. from also

a because a we then which benefits users, small in by offset pricing a FormSwift recognize June. headwind, And launched $X.XX, from only we FormSwift all revenue. month initiative, our roughly of but was this represented Now Teams of half

will trends don't change, the pricing Again, impact we forward, a are ARPU. But factors our some to be ARPU. again, there that year. looking that tailwind will Now next to Teams formally guide

tailwind plan seat. year current FormSwift its that plan headwind, Family monthly headwind is friends as well is this next assuming roughly a be includes as per XXXX, family. ARPU a then reminder, ARPU as leasehold. and again, FX, as to $XX to expect throughout plan, a for a be we we that to six but that licenses expect FormSwift, moderate to SKU to And

Michael Funk

And also incremental you it. headwinds Got the then call, on into mentioned 'XX guidance. baked the some revenue

down You is Or expecting this to expectations already change the but side? you churn few the count, the things, to -- us about versus churn majority different on of that you are incremental a ARPU, gross experiencing you're fewer relative have set what break well churn part expectations in additions? are there. and just of user for terms XQ, you gross headwind, gave Can also talked the mobile churn us as elevated of

Tim Regan

you new additions. paying our net Sure. some give user I'll context on

new FormSwift. the then paying from to touched did as So again, on. did excluding our below expectations, majority paying we that XXX,XXX quarter, in users the FormSwift, fourth net users fall come of And added addition a I

Now there were a few to factors that.

headwinds. was did the ARR. low had a our across was carry plans Plus churn increasing macro second large which softness of an First And we immaterial on the and as to This continue university, impact Teams then a see ARPU.

expect quarter, new with rate what of new macro Now we was net run paying paying going users while as don't user something paying forward more the be our firmly net pronounced year. that XXXX. guide lower bit to the the expect of the going per expansion we paying perspective, expect current I'd from half and roughly we net I navigate that pricing users, in ARPU next to as it net packaging environment, first a XXX,XXX And the a just being changes far neighborhood in than would users forward new as in new

Michael Funk

really out That's for thinking to in the helpful about growth the model Okay. year. trying of parts piece the

one quarter. one, net more XXX,XXX could. per quick new just if And So I

simply San Just a the I'm on off lease, explore the here you -- real to early with explore options for exit as maybe options of stronger from a expectation that than rather impairment such related the negotiating Or position estate, Did taking Francisco. other all the you probably landlords? assuming subleasing. from simply specifically

Tim Regan

actively options Sure. all here. We've been exploring

subleases We supply our anticipated quick lease. many real companies with to estate reducing subleasing in been relatively deteriorated plans, an there's actually market which market have certainly a increase And Francisco. time for past footprint. the with but We were out their in estate of years to San in pushed our executed has has few sublease, real

And would mid-XXXX. sublease originally so anticipated in San we we Francisco

Now we receive. mid-'XX. the won't subleasing until we we begin rates also lowered expect expect We've to

revised partnering in certainly and this we active, landlord this facing is given active searching for to at be our point with at what moment. we're But in assumption in subleases. we've this time, been So just our and continue

Operator

Our from Steve Citi. the next question of of line Enders comes

Steve Enders

little how portfolio rest and about and pull and more future picking and love see the into of FormSwift you're start, thinking to think detail of levers get and pricing there kind thinking buying on potentially I guess how suite I just monetization to you're to forward? the packaging maybe of kind how bit with would you about pricing future a coming going

Drew Houston

Sure. end-to-end life Well, whole cycle. and other use been is example. of a good FormSwift we've throughout towards building the It's workflows our document to complementary cases, a supporting lot

that a contract a as for So template. example, originates

iteration, might have send can of and as for covered. then Now And on -- we the Dropbox. and then version top a to signed then it and draft out or the review DocSend you out we archived use you funnel sign have send the signature

for this to together, So from roadmap add as them more in been portfolio that a having of a experience, things we've contribute these value there's zooming products. far core more time, to our building lot packaging, products, and our workflows, -- as to imagine, broader all long and of building these as document towards been general integrated pricing experiences monetization. bundling philosophy on a new out to has add with And features you'd our

last value, prices. of sufficient as new we threshold lot year security increased then a beyond a examples And of include add So features.

us price And so last with customers. this you year saw for XX% increase our do Teams

consolidating budgets -- as to macro and will philosophy company looking at that every So still environment, That will hold. looking -- said, that monitoring all the we're is spend.

are -- to going have mindful through we what they want. You and customers of be to have what

be and price -- Sign buy customers share about just a separate -- to our might at talking eSignature bundling it includes that and some to less so customer they're tool looking using straight increases if and And them FSS more around bundle our instead. around or price

customers say customers have continuing to while monitoring of is and -- ARPU being are I'd want. to balance and we and So of what also churn interested shifting, what our monetization increase be mindful the

Steve Enders

for 'XX mentioned think the that we guess, $XX That's about I guess thinking particularly as you. the and know you the potential million there's you potentially context. outlook how And how potentially some think you there's I pull flow. I there? But maybe there. levers areas I headwind further about, about kind towards outlook Understand about are that could flow I you are here, the -- Got Okay. helpful And are thinking trying outlook on cash cash the as drive general free to that to what guess, biggest pull. environment of hiring you guess target? free

Tim Regan

Sure.

achieve So target. have ways to multiple we continue to our

capabilities cloud organic business, share our initiatives, and organizing content sync several improving that drive our revenue multiproduct expanding file have can including and We growth.

it's can our And We also We're opportunities looking capitalization in in at can business. can factors contribute. course, drive we and ways have can pursue, inorganic exogenous R&D that FX such as efficiency possible turn the which we of also actively favor. more

So path to at more it's challenging, has our long-term this time. to any become targets too the early certainly while changes make

then quarter. And in aware fourth as facing business hiring, many industry restructuring the impact are We economy other hiring to taking companies challenges and related the macro of we elevated now. an see that the in measures our are right on did

we making our the pressures. remain spend those seeing level of We're and thoughtful we're efficiency health to So of for return. business. to disciplined will closely immune the And appropriate in sufficient not decisions that are our long-term a reviewing ensure we of

Operator

question comes the of from line Marincek Securities. Our next JMP of Joey

Joey Marincek

the Drew, in mentioned market. competition increasing you eSignature

do assumptions Sign the overall into curious, guide for on baked relative Sign you think stacks to in I'm So how are up what XXXX? competition? And demand

Drew Houston

Sure.

the seeing where of activities I packaging from are think pricing different So and new different different adding I or folks. kind of environment, certainly in approaches eSignature lots we're products competitive different mean

motion in as we general, a to Sign Dropbox. see very So complementary having

higher-end We self-serve, more enterprise focused. somewhat relatively less is the -- than with customers. think we're segment So in that SMB addressed

millions of tens subscribers. Certainly, FSS Dropbox one of our big advantages is of of our existing audience

experience products Sign better we're to and when it to we're and there. and end-to-end a say our So integrated lot DocSend pricing parts starting end-to-end I again, all just that in have our list, a doing I lot sort and and then we just add of of our FormSwift to to FormSwift of -- packaging from down I'd template together And base. workflow, with out that seamless And said, optimizations whole to and integrate Google the we're the terms I'd eSignature early that stitching a as you attaching way that pretty find the ability Search our and archival. to from, to signature a bundling different provide zoom think

have puzzle, that the are whereas friction to in you point that's lot experience. -- an those advantage There's to out. log of that with lot log all able We a being of a in, like have the of competing is overall solutions, pieces

been base building in relatively big we're end-to-end experience, differentiation we've terms see, our early among beyond. source can you and and of the as driving our So innings of building adoption -- is

Joey Marincek

some very the you around there more be replacing How Timothy's already? look give That's you you about would outside potentially have feel Any helpful. And can company? would thoughts us departure? you bench like Or helpful. you him? details Do thinking are the

Drew Houston

Yes. Sure.

down. a He's So was and he lot. March, still for announced Timothy color, stepping through or last that He'll Timothy just contributed we at month, here -- the be company.

done for appreciate us. So he's really everything I

the me all here. get given structure, it's continuing our opportunities operating everybody But We'll leaders and keep us as have on we in posted. preannounced nothing to for to leadership been As to our execution. far closer focus go-forward to like of great improve front the

Operator

Thill line Our next question Brent the comes Jefferies. of of from

Luv Sodha

Sodha business, potential long-term main drive what inorganically? you Thill. growth, to This guess on view one of we both the have Brent is think growth organically you, Maybe I Drew. the long-term are as you and this how Luv potential? should that for for And as of levers the growth

Drew Houston

Sure.

scale. business, There's to levers, core is so still returns with to So And those. many is lot there. which levers, growth of a mean, continuing at optimization I optimal organic starting just

newer we done like in Sign around and Second, Command we've products And DocSend. we've and universal and past Replay been things building a businesses of also like and M&A the there's growth out then E broader Backup. of stage our Capture search. portfolio pipeline like And have

Search used a of is all from shifted search dozens now box see very era. obvious. and to search what as tools, PC over in content there's one there, because we to ahead, boxes be on of era I one to Dropbox is is to have cloud the has workloads look if and looking And layer file of already lot help the of organizational been cloud a the files opportunity customer a Like a lot in about positioned well I'm E our kind and previous these customer beyond investing points excited then pain kind so, and or like And that calls, and more cloud of there's company but initiative missing working a and address behind is shared decade that last on points. bringing the files Command it really was organize big some us. acquisitions you the of call of pain in customers' for in problems move

ultimately on there's lot bigger So this a than front, -- market and the organic will a is be think I this FSS.

heavily a there. these everybody, experience, And is think dovetails lot AI solving cloud they're one around for advances -- investing There's learning. with machine the whole of content. it that and of challenges I in a no improvement very organizing in recent we're room and lot also

the excited for investing Dropbox or or to very about able these a are natural for been search workflow or doubling And here areas. to language having of be areas long we've further. and other experience time, bring self-organizing we're we're in a even the So down prospect

front. the the -- Boxcryptor. continuing we front, number So there's of we're even with with of last growth the a are FormSwift quarter, happy lot And were a really on some made levers also, and and acquisitions on M&A the there organic just we

we'll be on too. there, continue And so lookout to the

Luv Sodha

it. for may. if Got And quick I a Tim, follow-up

your next macro? year. just Or you macro wanted just for any embedding Are -- expecting you just dig then are the outlook of a at XX% are terms we should of you as revenue guide And think think you margin and mentioned through Tim, your assumptions? of you into How a Just, walk lever, to macro worsening to efficiency. deeper in churn environment. Could you both the look -- medium-term as R&D XX%? that color -- especially

Tim Regan

Luv. Sure. question, Good

landscape. So say, the evolving of level given conservatism we appropriate I'd macro are an baking in,

will we continue assumed as the XXXX. increased sensitivity levels key quarter that that the of throughout fourth We price have saw such trends in

XXXX. so And not in and turnaround our we economy the a assuming signals are guidance factoring for latest the in in

historical year, needed. do revise And when we in guidance on factor will as data over Now performance. we approach, initiatives their see have additional of the our our consistent the as with signal growth we sufficient course we

investment, will And our at closely make we XX%, and getting far then discipline going forward. guide business efficiency margin decisions as our this given be to a just looking R&D we'll as medium-term we're -- that relative that output we R&D as efficiency to certainly of our XX% or as continue lever, with sorry, the XX% reviewing to and manage

Operator

last of Murphy Our JPMorgan. Mark question comes from of the line

Unidentified Analyst

Mark Kaur] on is Murphy. for [Puneet This

First, I through seeing in landscape ask you're just us the any wanted to could you walk Dropbox. changes if that competitive for

weighing kind macro share with smaller runway. Given given of Dropbox' be vendors some there's pressures scale and to reputation, an the less gain opportunity of may curious if on

Drew Houston

-- been macro dynamics pretty and stable. I you on. And been our have say pretty retention I'd broadly have competitive see think stable. I were QX, headwinds so been in has pretty while Sure. a in stable this there Margins can think

Sign the or changes disproportionately core than and major business been comes environment. pretty say by seen little different But that. things haven't by down, or business like I'd have it's business some We are bit a DocSend dynamics -- that the fundraising the DocSend affects stable. overall, maybe I'd in when factors say

learning of especially all learning having think new and as we organizing about our And think well in neutrality. already you a products, investing a AI as things AI lot platform about our a you privacy generation especially and ahead, and and tools brand look we long as smart time. around machine and then given And been we've we're feel cloud trust for machine positioned and like and scale our content,

lot So leave well compared to of our positioned. start-ups, us advantages accumulated a

the environment. we're but obviously stable, pretty monitor So continuing to

Unidentified Analyst

rates indications some there workflow-oriented That's changes I early resonating attach proof around more you've be made of Great. or as your very on with helpful. points some deeply features customers? that are that these products, quick to specific then follow-up, seem and the of enhancements for with document any initial just to the a wanted And ask you've added

Drew Houston

making Sign additional in in progress from but we share, Sign make any have like to been don't and have integration and -- increased And continue our to I we things base broader made right been sync rebrand and product tighter between in have the share and file we're Dropbox cross-selling -- HelloSign core points stats DocSend the to building helpful. our we've Dropbox progress now, to then portfolio.

of in bundling. continued more better upside duration integration lot and then a and see packaging both terms on we and pricing So there,

Operator

a Please Thank lines this disconnect conference have time, and at call. you. wonderful day. your This concludes today's

Dropbox (DBX) 16 Feb 232022 Q4 Earnings call transcript