DBX - Earnings call transcript Q3 2024

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Operator

Good afternoon, ladies and gentlemen. Thank you for joining Dropbox's Third Quarter 2024 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's website following this call. I will now turn it over to Peter Stabler, Head of Investor Relations.

Peter Stabler

Thank you. to Quarter welcome Earnings and afternoon, Dropbox's XXXX Third Call. Good

Co-Founder financial SEC. We'll to A CEO, results get well profitability, forward-looking as discuss that obligation are website Form release users, results margin of our and of our fourth including quarter started, Accounting year on accordance that for we Accepted with and XX-Q non-GAAP and could Principles. them products, growth, as XXXX we and cause and will future now quarterly cash and the and from and investors.dropbox.com. I prepared at as over our assets, filed statements and employees, which today, remind long-term undertake flow our financial Dropbox's Generally forward-looking information our could Drew statements and not cause objectives environment. These call also update are materially non-GAAP risks strategies, earnings our in to events. Factors actual I'd a regarding today's no is report macroeconomic earnings as differ actual or forth in technology, our differ fiscal in these risks result include our in to results based Before provided to with GAAP release revenue new also our will reconciliation set measures, on the and as and turn demand to our statements on like Houston. are you that expectations expectations the operating forecast our of expectations, today our business, subject to such fiscal free year are guidance XXXX They remarks assumptions materially. uncertainties regarding

Andrew Houston

strategy here XX% at outlook. Last afternoon, in to is good necessary and our Tim an Regan, recent chapter. a then I'm folks difficult through I but our and I'll with reduction everyone. announced QX our decision, who Tim for and results and QX to business step walk Peter, our cover it Welcome next a updates This our our and Dropbox will impacted, earnings incredibly week, we the CFO. want and our call, are XXXX to Thanks, all position workforce. acknowledge was

we're As over point an the inflection discussed we've last year, a at company. as

FSS core in drive been matured, and solve with products growth. problems challenging better has investments our Our ahead. But environment to the given business core and our investing we've the new for we opportunities new needed align business, to

headcount down layered We've the is our over our and slowing Beyond execution. which reduction, become structure. also we too org time, complex us simplified and hurting

while more around So we reducing aligning number our designed a teams flatter of the key layers, priorities. better organization, and balanced our

are AI-powered universal organization we've trust been released who October. encouraging, search instantly version content. us stuff has to where from resulting powerful governance been I for around box. on IT our and of business, of is answer which our headed. platforms. And to a new Dropbox. Dash all you bigger content uses teams, you way of about tabs and FSS that and of and gives and tools has dramatically. Content different your Over universal secure, dozens new our Now to is across year, feedback share connects all content questions problems. That's of the browser, and not work existing your evolved to around individuals your focusing search it anything just really access disappear. call The and It's universal we your search and challenges and both The close to now hundreds these no good is hard solve let's controls because their Dropbox organize has content, and helps headaches our among combines for too work collect share work we're AI talk of address trying even in for users tools control. tools AI with our time customers at protect It much Dash work. And helping company's kinds what's cloud and with created We're browser on your the personalized with a XX that proliferation initial across cloud XXX,XXX teams we and cloud Dropbox your IT the years, way things. but that product. just governance finding stay about governance. start distributed common resonating initial find our why folders. across to projects. But the news to prospects shift last docs go of large There's But There's spending leaders business tools Business unique content profitable really single launching you built page After just files Dash, and no beyond their and persistent problem your and days, security for same customers FSS your for Dropbox summarize when core your the a is sales workspace AI-powered capabilities, efforts we Dash's organize version early Dash all with an and gives which first already top files. IT. We're millions over workplace scattered initial today's meetings, searching to universal on tabs, started us struggling

And significant importance opportunity it. which while quickly we huge automating also and to we today, manually these underscoring For visibility we've this one is overall, powerful that's everything the this pursuing every investment to the content. Most moving talk value so this across first the controls platform in with companies in from into are real-time get the content sensitive company us they've see extending capabilities. been they told and doing time, attracting shared to protect both validate admins of know market attention capture dashboard major

springboard our Dash, to a quality, adoption. as retention company Dash's its So reinflect for on strength that we're evolving Dash. And simple ARPU, to priority FSS user acquired needs means unmet engine and being expand customers And document We'll reassessing value, shifting our product efficiency that and maintain higher core that focus rooms our some investments business sign accelerating XX we're while Dock trying Dash. solution Dash. We're our profile growth our while around require rather now serving significant remain and opportunity data than into our given and reliable the for natural as growth, given Dash. This we love. the retention FormSwift, is strengths, continue capabilities to product down cross-sell a a for lifetime reposition while to to their workflow focusing But the cloud our And FSS platform-agnostic FSS see around and content, teams doubling potential to investments. a believe strong FSS FSS users better our turning on also developing virtual bring organizing features also our have Dash's retention. we also which and we capabilities to spent significant on we finding of base like massive

sale. there, including strategic exploring potential options we're a So

early days ahead, still of work. transforming Looking in AI we're the

AI-powered leverage technical brands more that our massive like work fully to make productive our suite of to and on near a term, capabilities. And adjacent time, our optimization see our focused calendar over we stay brings to But we're opportunity, Dash accelerate AI will and Reclaim, too, user which and broad we're recent opportunities, tools capture time base, exploring potential acquisition we of While also trusted focused and infrastructure this prioritize. have knowledge for adoption.

cover take time Our core taking customer business trajectory, build us gives while our change securing it to over a we for natural content our well growth we're to now powerful conviction is files to cloud hand foundation as to market. I'll continues all Tim solve evolution in Dropbox to to real your win our results a it organizing on. outlook. grow Evolving your from and will problems. And and this new positioned to and

Timothy Regan

QX, third Drew. outlook revenue Nira quarter. on increased some you, with offer acquisitions. of to cover initial year-over-year contribution QX $XXX,XXX and Total approximately Starting our XXXX. and from our Reclaim results for highlights million, QX guidance Thank for from including provide the for $XXX thoughts I'll our for X.X% financial our

did X.X% year-over-year. revenue Total of a the exchange total billion, for ARR to was quarter. expected, year-over-year. not our On up a rates X.X% materially growth impact As constant $X.XXX grew foreign basis, currency

largely was ARR in plans across Plus and by growth our our both SKUs. driven Our individual essential

XX,XXX Reclaim, plus approximately we document prioritize headwinds, of trends. We by also we in sequential closed count SKUs. team we July. Nira, While our we May, continue company. added downsell new just are paying additions count to activation metrics, paying face basis. material the did I'd our million per SKUs, individual we not essential on user we and we for top net approximately pressuring our on users, with XX,XXX that paying engagement, team's and team and XX.XX quarter progress sequential on user paying a quarter to users sensitivity the continue adding funnel includes our of that note seeing the expansion pricing exited users, one businesses, or sell platform our QX either including in strategically FSS quarter QX late our led acquisition are a acquired paying a which license have as and governance workflow for Across for data impact access of and plans, our paying through saw users in we

On shift a our benefited across from to we plans were plans $XXX.XX comparing in per the year However, ago FormSwift user than commentary higher-priced teams ARPU $XXX.XX shift from to monthly the was on consistent year-over-year by pressure from paying and modest quarter's basis, annual downsell a offered and these more last a with benefit mix to call. Average revenue a plans. gains period. offset

March the we with This year. introduced associated primarily last products driven that decline pricing quarter's was in rollback late by increases our bundled sequential

further statement and of mentioned Before indicated, exclude P&L, note our and otherwise we stock-based amortization all unless compensation, would intangibles, to certain workforce income expenses non-GAAP with reduction acquisition-related discussion are that purchased continue like I of expenses. figures

Our XX% includes Gross With the non-GAAP income also third net adjustments. let's for quarter. was the P&L. with of the quarter effect tax continue the that, aforementioned income margin

driver half previous primary increase in margin X this resulted the gross effective third servers weighted the our this life to towards to the change of increase in million years X January quarter. $X gross As of of year-over-year first useful of approximately benefit this quarters, in of from of was was profit year. This mentioned This year. the the in in impact X change the

based year, million. Operating benefit ago and margin of was operating ahead profit $XX gross For year of benefited points to we XX% XX marketing reduced the guidance, outside Compared on year-over-year, of quarter expenses. Net services year-over-year period. quarter, third XX.X%, $XXX basis to $X.XX increase. our our Diluted quarter guidance the from lower-than-anticipated down margin and from million, outstanding in taxes. spend, X% approximately a full expect million spend the third up a was year-ago $X.XX, weighted XXX for EPS higher income lower the the to workforce by X% compared diluted was for shares average driven representing

our $XXX balance cash We added with in leases we increase of flow million. million an we our to short-term approximately investments and ago $XX per the cash spending the of QX was operations for Moving million. $X cash XX% In expenditures equipment. versus finance year on year-over-year also Cash to representing cash million, flow quarter This in XX ended $XXX share repurchased flow. period. flow compared X% million totaled million $X.XX, approximately from the data was to increase. resulted shares, Capital the in QX, XXXX. Free $XXX and of free $XXX $XXX million. In quarter the quarterly a center million quarter for cash quarter,

end the and aims to repurchase of capital repurchase reduce of our our current under We to As had shareholders. quarter, program, our million over share $XXX count we approximately time authorization. the remain which third committed to remaining return

sheet. balance our Regarding

two As that a split $X.X XXXX coupon billion instruments maturing and of XXXX. March currently $XXX X% in notes across in three convertible tranches have and terminates million reminder, in credit XXXX revolving place; of we equally facility a February

ability and markets. maturity our to access are mindful, of of our confidence calendar the in have We capital successfully course,

some updated they for investors QX our solidify. full We on on updated share this outlook XXXX. context year. have but thoughts and guidance this I'll at share provide now on some our to plans time, keep the nothing I'll offer then and specific preliminary as we'll

the to million. the $XXX of For of quarter in revenue we fourth be to million expect $XXX XXXX, range

thus, are We and currency a million basis. on $X approximately currency revenue constant a expecting of tailwind

million. $XXX We in of range expect to be revenue to million the $XXX

our partial expect announced be XX%. We workforce margin benefit approximately a to in our non-GAAP to reduction. million $XX of force quarter's from last includes and operating the related excludes reduction week approximately expenses action This

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

to the of we $X.XXX a XXXX, billion $X.XXX $X.XXX full to basis, revenue constant billion. revenue For we the to billion. On year billion currency of range be expect expect in $X.XXX

be We guidance expect up gross range margin of XX% from approximately to prior to our XX.X%. XX%,

non-GAAP operating of expect and note range margin pay excludes our guidance that aforementioned to expect we XX%. from to be approximately I previous QX. We the guidance benefits XX.X% XX%, this in margin up severance to

paid our to paid $XX expect $XXX XXXX. workforce reduction million and $XXX to $XX We we range with related cash accounts benefits million from be remainder and severance in to free flow are $XXX in XXXX where for roughly our approximately reducing pay to to the million million million severance in as expectations to be our $XXX to ultimately expected million. This

million CapEx $XX from prior to the between guidance $XX million. $XX to $XX million to relates to expect be capital year, full it now down million of expenditures, for we As our

We be lease continue finance lines X% of to approximately expect to additions to revenue.

on are diluted updated guidance Finally, average additional I'll share million shares XXXX. XXXX shares. our outstanding perspective for some guidance this now range we weighted XXX X million shares XXX reducing to to million by

while our targeted intention additional higher and collective some was free of levels towards some well of workflow potential sales thus areas the where businesses and spend we identify marketing teams and driving share cash our reductions reductions to aim areas operate growth. The higher First, on R&D intent to category address were largely workforce mature supporting these resourcing in flow. and of reduction, file with of as future to our inefficient thoughts our as document areas sync reallocating as

While degree levels today. with of this to consistent behind we revenue With our that areas. approach, guidance headwind decisions flow we will our operating have and free investment what also a expansion, corresponding visibility reduced we of revenue the these into expect lead high margin modest and growth expect to reflects cash context these historical given a

We continue has into funnel the of and gains, operating top on the for to offsetting upsell particularly are on pressure environment, face where some we product, Teams downsell a and ARR translate made our progress we've challenging to seeing trends. engagement given metrics yet

trends With as continue billion users, latest some are well QX. accounts we Given year anticipated impact as risk as revenue risk, we to the with guidance of paying teams of our be $X.XXX the to result as we some paying $X.XXX quarter, to to as our a our to last adjusting full downsell our mentioned pressure billion. in respect larger count revenue we face headwind FormSwift seasonal as well near-term associated from negatively that expect user range to

modest than We count user yielding in pressure sequential this expect contraction more offset plans, paying growth our individual a QX. for to in

in savings to operating related margin reduction force. XX%. This we As increased our margins, to our XX.X% approximately operating of reflects expectations XX% increase the have expect to from we

This reduction may thinking to our impacts share make expectations does assessment reduction the well at for XXXX, severance call. as that income note and that strategic interest increased the relates will $XXX of million. associated $XXX of February now any flow, result our some official the for known activity. I'll to following to share it repurchase decisions not though guidance this time. we in largely reduced that during As billings additional provide account as given commentary XXXX of is early force on with result reduced earnings FormSwift, expectations free payments to from we not lower the our is Please our our we cash levels million on have given due

businesses. trajectory indicative revenue, of current core and our document 'XX our exiting of are growth across expectations For our workflow QX

improvements through to that better and optimistic make bear made to the product continuing future, we've performance operating will team's are our in the we're measurable efforts when yield predict the it's fruit. will to begin While difficult

investment. we to addition, face marketing risk, these subsequent areas resourcing level in In reduced may and headwinds of a additional our given

if enthusiasm We Dash. sync our time customer relative business, constant for outlook expansion are may the roughly a team these will the and nascent also Dash challenging rate. Therefore, negative dip success we for were will to for for positive show or slightly downsell seeing revenue our is prolonged XXXX. outlook and share we could of growth it if reverse we state trends the file and across impact currency given of preliminary team This our flat Business, revenue early for XXXX, to adoption current view meaningfully continuation of see though our Lastly, Dash SKUs. a before Dash team take trends driving growth able have the

stemming force. a XXXX, be from see to in our however, benefit margins by margins. to partially a will Moving operating factors. to offset few expect In benefit, we This reduction

XXXX will First, of tailwind million through where year. the tailwind center our the benefited $XX we from of hardware see useful this not data extension a next life

Second, risk. Thus, in also our investing as expect be XXXX addition are point, to both precise relative and across operating sales while margin positions we as expansion our to well workforce, our select to backfilling to points subsequent scale this for R&D annual offering not Dash marketing non-GAAP XXXX. merit basis we at and of increases XXX we approximately guidance will

our in we $XXX Business. includes are the the to given last Francisco executed that making future invest expect that given levels for preliminary as revenue continue opportunities million and to file additional summary, launch growth this commentary. I'd their third the note of cash or flow workflow lease be a taxes. In as we also that operating core San on recent and figure we areas where see and are million dimension, We for year Dash related tranche making $XX to designed at cash per margin final cash of progress free efficiency buyout flow aforementioned of share. yield levels well free to document changes largest above headwind sync improve higher our and Concurrently, to businesses we and and share our

take collective sustainable Ultimately, for please we are investments confident will we the flow of believe for our in ability creating our open years translate shareholders. With in free cash long-term in for will it that, time our ahead. our to levels drive While line operator, questions. value to revenue growth, to efforts culminate the that

Operator

[Operator Jefferies. comes from of Instructions]Our Brent Thill question first

Luv Sodha

for to This Dash it's the market? how about differentiated is maybe start Drew, to offerings wanted Luv to it's with a bit the a see on Dash is that Thill. Brent talk you. great noted some the I you announcement. Maybe, Sodha little out just from Could there. for out ask in you other Business I market know competitive of

different. just is a talk little bit how Dash So about

Andrew Houston

Sure.

So a advantages. this folks versus bunch other of in space,

lot So we're search, in across experiencing like a have one shared differentiation, we protect across governance Dash AI pain and just customers want universal in visibility is is admins lot just Dash multiple to IT, and the stuff or of what recognize things any most and not major our there's just way out, roll shared particular, given but into there's no improperly with and as have unique of product good way capability that has there's no general, a control company. And prospects to of a to content in platforms platforms. addresses point they that seeing see and that

there company you'll ceded But And first that that identified differentiation other structural number next so a are number -- of year. dimensions of from time, advantages have of acquisition Dash of opportunity. More -- that too. capability admins broadly, Business called Nira more beyond Dash was we a gives and that a for see gives and product for an the

scale big are So and distribution our a advantage. our

Dropbox. in better million have XX So business subscribers we the on part of over accounts XXX,XXX

type every customers up view the extension of of cloud you where within platform-agnostic, their look work designed And of Copilot limited when advantage FSS to Microsoft is so from who files. some field often offerings, have date, organizing natural the your the home like some a or to Google ecosystem, of across or versus own incumbents, a with ecosystem. Dash Dash content other to care of at taking then our the they're some and ground as we your big And folks

our It's really office, support and we really that platform big brand you great hard Dropbox's that up the bolt to training lot apprehension for because to Dash to AI, of agnostic, ground information you to board really think but to you or to and later. And see privacy advantage example, ad hear and I of use the stuff purposes for to foundation have targeting information, design across example, when So your when talk us don't from better slide used a Google we designed customers, see what be a I with of like us going our be for in a for is see on next is happens model. our trust or be none we beginning. trust the brand, about lot for from want data the other company's like apprehension,

then and content enterprise going So strong -- are thing our I'd And the pieces infrastructure assurances technical big self-host that, trillions that's be is entails on all for default us, a focused. can to AI And competitors big data, say we last about the that pretty the of other advantage because Dropbox too. the fact guarantees and of literally advantage. and of that's make we store that the by a your privacy

well so audience too, succeeded see where and FSS in been and where mid-market there, and kind greenfield have a a we and that And big the opportunity. opportunity we of particular we've that to -- a SMB that motion, clearly as do viral with self-serve see we advantage

of advantages next year. lots So after get excited to

Luv Sodha

Got that. I super up helpful. it. to just follow wanted on That's quickly

any a translate be it's if helpful? this think little just but a sensitive, early, be bit into would the much I super talk monetization helpful it could ARPU could customers given And could Dash. you monetization? know seems about bit you team's price frame super little how more opportunity would So the to on indication you be

Andrew Houston

Yes.

market. the maturity. pretty I first different is I Dash couple has a mean, than some market FSS mean things. So dynamics of the I the mean

Dash. And meet price competitive that very competing their and dynamics and maturity and So cost cases, it an of against don't contributes and suite, where with sensitivity free have for many added we're that -- -- category that FSS, some we're bundled fact that's the no with to Office in the the those you and landscape offering the rare size very then security doesn't customer fragmentation you at having these market. are overload we governance a second, trouble have challenges of it's work challenges this and about talked the with IT. stuff about I excited mean potential and information and finding I or around

needs see proud And in X.X we're built even -- scale business, -- We think opportunity that them of FSS so of we have couple the though unmet our or any X.X business solution very with is of million of X than there's workers we've the billion that addresses, of out have revenue, virtually larger more the a to there. even and Dash these knowledge problems. with million kinds billion accounts. -- none None them

for us. Yes. opportunity a greenfield it's so And

I ARPU. we're pricing thing. Sorry, general, we on more it iterating just early be expect -- mean pretty just to signs, early. accretive And I one still in it's mean, to but

Operator

comes Capital Jaluria Rishi RBC of Our next question from Markets.

Rishi Jaluria

ask I one with a Maybe still want to dual-prong Dash. sticking

related, help us maybe part, first first and is a part space. both competitive but the this these is, The understand, are

a of biggest TAM you're and that And that, or future in gives confidence with. you what's then think uniquely that of are entrepreneurship to contingency what Drew, do demand second enterprise is? process You've the the the right? I thought gives And venture-backed don't scale this one, growth to -- arguably will? this. the is understand well-funded making got rife they the is, you Dash What these can in really at kind way plan company big new for what win, Dropbox that mean number achieving this especially materialize you for right the the I opportunity that's drivers feel part companies history level, of guess, just materialize? What and number a if which two, is bet the on that the real where

Andrew Houston

Sure.

thing one think and that's to I is about our Dash opportunity. the So magnitude different core proximity then its of the business

little about So Builds challenges magnitude. lot bit all a your as kind see of overload cloud millions of I I universal. foundation files. being what that strong a companies information we to of people a many these content. of around we mean do see organize first you organizing talked And and on the

existing talk I apprehensive to when of And them, -- reasons AI for about are all they're covered with so they my happens I what and certainly, the data, like our FSS some there's customers, to are as there's happens concern what of hype. lot these of a work of these data, considerations. all of my a And advertised in kinds to lot that or going products which

we we're I And I started Dropbox so the lot does. there's that new all I see, solve. problems all the Dash value And is these extension as for as difference and extending a I natural they to lot looking of already see this is of of I solving -- really we it about AI can trust provide a broadly, of what other customers Dash a same our we to when talk about adopt I the lot enthusiasm enthusiasm tools. And that think I or see more services a a there's as of natural think kind Dropbox as mean then extension.

wasn't we're So I ways, organize the and is in question why I drive. browser came of mean of it problems, in find provide and lot can where same share of a in sort the because I possible versions XXXX started content thumb those secure that world is, in my challenges, stuff. And kept beginning, happens a work you asking there's my your foregoing lot and sharing difficult so along. was really and a company of and I to the of But a the organizing, finding new solving your lots the lot before value GenAI of

existing see validation So both we customers. our from confirmation and

developing the the see market in space. and You folks other

expect that. you'd course, Of

revenue see to starting scale. You

You see space. into heading investment lots the of

of so what a as existing And to work, on see we we builds iterating, arriving continue don't if and on capitalize do right but think And that we're this. strengths. at our generally evolution pretty we things right this linear the we'll time

Operator

Murphy next comes from of Our Mark JPMorgan. question

Unknown Analyst

for This Rugeri is on Murphy. Josephina Mark

announcement recent of the headcount the with Just reduction.

guys And talk are and how going team these could the you remains efficient initiatives? pursuing taking ensure long-term about restructuring? of how forward So and approaching Dropbox kind you a bit to you're more what little agile while steps hiring are you --

Andrew Houston

to Sure. restructuring that's a really did. also Well, -- service would and set having like you that reduce to is of the and getting next for do in to its in to it's to I both again -- make mean kind best difficult position headcount imagine, of of act as decision then not service decision win. this kind or and difficult And Dropbox Dash of a we adjustment

the some hiring. as far or differences specific So approaching of as more are we're how -- changes

kind mentioned and a cost This that a really redesigning it's organization wasn't hire. are layers to effort. These everything we organization is that onetime optimization. as just having or lot to now a and just of not this and be a and within our make that shape a bounds leaner and more way we I flatter the stay headcount reduction So operate and of balanced, permanent controls sure

ML thing. But balance these and engineers Dash indication around also expertise, of we're that considerations. search you'd we think products in future we'll for this of imagine, in cut an cost of need part talent there's And Dash. all kind lot deep of specialized particular, going to that also that reinvest a for our around it's we is the that as some Now I

and or generation. growth we'll disciplined more focused front capitalizing on investing on growth on for opportunity areas us, where the of headwinds category of but are efficiency with we'll more and seeing maturity in business we're be in also cash growth then our focus in spending We and

we'll balancing three always So factors. be all

Timothy Regan

And time, but as perspective. merit That not across precise operating DASH. scale from that guidance as offering just elaborate as compared sales do We're to Drew points includes offsets both XXXX. and be well as marketing this of 'XX R&D both talked margin some investments to a non-GAAP at far of briefly expansion XXX the the about maybe numbers to making we increases expect basis we'll and about annual

then our And subsequent due we year. see relative doing a useful 'XX to quick tailwind next the where positions million reminder, center some again to of to the RIF. from backfilling that select extension hardware, also And be benefited of life tailwind data the won't $XX a we'll

Operator

no questions. closing Stabler Peter [Operator like remarks. it turn back would to to Instructions]I'm showing I for further now

Peter Stabler

joining for speaking to We quarter. you Thank forward look good next Have you, with us a everyone, today. day.

Operator

This concludes you Thank for may today's conference call. disconnect. and participating, now you

Dropbox (DBX) 7 Nov 242024 Q3 Earnings call transcript