Q3 2019 Earnings Call
Good afternoon, ladies and gentlemen, thank you for joining Dropbox is third quarter 2019 earnings conference call.
All participants will be another listen only mode.
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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.
Investor Relations section of Dropbox is website following this call.
I'll now hand, the call over to Daniel.
Boxes head of Investor Relations. Please go ahead.
Thank you.
Good afternoon, and welcome to draw boxes third quarter 2019 earnings call.
Today.
Box will discuss the quarterly financial results that were distributed earlier.
Statements on this call include forward looking statements, including statements relating to the expected performance where business.
Future financial results.
Strategy.
Long term growth.
And overall future prospects.
These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular those described in our risk factors included in our Form 10-Q for the quarter ended June Thirtyth 2019, and the risk factors that will be included in our Form 10-Q .
For the quarter ended September Thirtyth 2019.
You should not rely on our forward looking statements as predictions of future events.
All forward looking statements that we make on this call are based on assumptions and beliefs as of today.
We undertake no obligation to update them, except as required by law.
Our discussion today will include non-GAAP financial measures.
These non-GAAP measures should be considered in addition to and not as a substitute for or an isolation from our GAAP results.
A reconciliation of GAAP to non-GAAP results, maybe found in our earnings release, which was furnished with our form 8-K filed today with the FCC and May also be found in the supplemental investor materials posted on our Investor Relations website at Investor start Dropbox Dotcom.
I would now like to turn the call over to Dropbox is co founder and Chief Executive Officer Drew Halsted true.
Good afternoon, everyone and welcome to earnings call.
On the call with me is RG BACE, our Chief Financial Officer, and you have any wrongdoing, our chief customer Officer will also join US during Q1 day.
Today, I'll talk about our business and product highlights and the continued expansion of our ecosystem.
Jay will review, our Q3 financial results touch on or go to market strategy and provide guidance for Q4.
In Q3, we delivered strong results across our business.
Revenue grew 19% year over year, driven by increases in both paying users and ARPU.
We also drove robust margin expansion. Despite some nonrecurring expense headwinds as we continue to deliver a balance of growth and profitability.
These results further demonstrate the strength of our global collaboration platform or efficient go to market strategy in our operational discipline.
So let's start with a product update where we continued to make a number of exciting announcements.
As you May recall in June we unveiled the new Dropbox, a unified workspace to organize you just content connect them to their tools and bring everyone together wherever they are.
This included an all new desktop that that offers our users a foregone experience they've never had with Dropbox before.
And that our user conference in September we took things a step further with the introduction of our new product category, the smart workspace and the launch of Dropbox spaces.
Dropbox spaces transforms the traditional shared folder experience into connected workspace for all of your cloud contact.
It also uses machine intelligence to surface. The work that's important to you when you need it because we believe technology should be helping you focus not distracting you.
Well dropbox spaces users have new ways to axes, everything they need and stay organized in one place users can have all their cloud content, including files in one place. So your Google Docs paper Docs can live next year Powerpoints and Photoshop files.
Well there smarter image search users can save time, finding the images they need by searching for what they see any image rather than just the file name and users can see high fidelity previews files natively from within the new Dropbox, even if they don't have the application like office or autocad installed.
In addition, you just can also brings priority projects and the focus without distractions.
Team highlights give users visibility into the most relevant activity from their colleagues and machine intelligence helps either stay a step ahead by suggesting the content there most likely the need.
And our calendar integration helps you to prepare for meetings more effectively by suggesting related content for upcoming meetings and provide a quick access to suggested files and meeting not templates.
Finally, dropbox bases helps seems see the big picture, it's dancing using the tools they prefer.
Spaces folders are no longer just places to store users work the home base for collaborative projects.
He was just cannot context to content my writing overview descriptions to dues and key milestones right on the folder.
You just can close the loop on the progress of shared work by getting notified when updates are made and they can create view and resolve comments right alongside their files on a desktop making it easier to get feedback.
In addition to introducing spaces. We've also continued to add new products and features to deliver even more value to the new dropbox.
Over the past few months, we've made additional updates to paper and added to our extensions partner ecosystem.
Starting with paper, we've built paperboard natively into the new Dropbox, making it easier for users to create search and organize their paper docs and make it easier for new teams to discover paper.
With respect to partnerships Dropbox has always had the goal of supporting all applications platforms and operating systems and we're constantly building new integrations as users to what gets expand.
We introduce extensions late last year to cut down on an absolute ching by letting you just take actions on files that are stored and dropbox.
In Q3, we added to those capabilities by launching support from Microsoft teams, which is a highly requested feature.
And last month, we also launched 12 other new partner apps, including GE email fresh books, we video docs and notarized to help users take even more actions on Dropbox files.
Support for these new apps users will be able to seamlessly I'd content to email or chats manager seats at it industry in media assets track file interactions and notarized docs.
In addition, we announced a new partnership with better club, which brings an exclusive new offering to dropbox business customers.
Well this integration, we get admins the tools they need to managed to secure a best of breed SAS environment, enabling businesses to enforce custom security policies scant content for sensitive data and automate critical processes.
And while we've only rolled out the new dropbox to a small percentage of users. Thus far early indications are positive.
In the six weeks following G.A. on September 20, Seth millions of people have used our new desktop out.
First by bringing users to our forgone experience, we're seeing an increasing engagement with dropbox a differentiated features like the face bio which are <unk> profile pictures, we used to show interactions. Among users. This is an exciting first step towards establishing people as a core part of the smart workspace.
In addition, we're also seeing that solar users are taking more collaborative actions new dropbox.
This is notable because we found that users who take a collaborative action for instance, leaving a common convert in routine meaningfully higher rates than those adult.
We've also received positive feedback from existing customers that have begun to roll out the new experience.
We're excited to share than Q3, trivago rolled out the new dropbox desktop across its employee base.
Trivagos employees. He is a variety of SAP applications on a daily basis to get their work done.
For example, slack is the company solution for chat well Dropbox paper with over 90% usage among employees serves as a flexible solution for project management coordination internal communication.
They believed that the new Dropbox will improve focus and reduce contact switching for their employees given that slack paper and the number of best of breed SAS applications now can live side by side and our new foreground experience.
Beyond the launch of spaces and the investments we made the new Dropbox. We also not some other notable product updates over the last quarter.
In September we rolled out new Hell assigned integration that allows users to sign docs are just a few clicks with our new foreground experience users will no longer need to follow click down menus. Instead Hellerstein features are intelligently surface based on the file type.
We also launched Dropbox transfer into general availability earlier this month.
Based on our learnings from showcase we found that knowledge workers need a fast elegant way to send large pieces of content to their colleagues and clients, creating a dropbox transfer is like making a copy of users work recipients candidate the original file.
With the ability that a password an expiration date create a custom download page and delete links and any time user stay in control of their content.
Nielsen viewership stats also tell centers, how many times there, let's get viewed and notifications alert than one files or download it.
New capabilities like these are helping or user streamline their workflows and stay in sync with their customers partners and teams.
Dropbox started out as a folder for your teams files and now the new Dropbox and Dropbox spaces represent the biggest changes we've ever made to our products and transform dropbox and do a smart workspace for all your cloud contact.
In a world where using technology work can be fragmented distracting the smart workspace ties together all your different absent ecosystems and helps you focus on the work that matters.
We believe that content that's at the center of the collaborative universe and that's the most important workflows and the company revolved around content.
That positions us better than anyone else to solve this problem.
I'll now turn over to RJ, our CFO to walk through our financial results.
Thank you drew.
Our Q3 results demonstrate our strong execution and focus on delivering healthy balance of topline growth and profitability.
Total revenue for the quarter was up 19% year over year to $428 million.
Driven by an increase in total paying users and ARPU expansion.
On a constant currency basis relative to the average rates across Q3 of 2018 year over year growth would've been 20%.
We ended Q3 with 14 million paying users.
ARPU was $123.15 in Q3 up 4% from $118.60 a year ago.
The year over year ARPU expansion was primarily driven by strong adoption of our premium professional and advanced plans by new paying users as well as the repricing and repackaging of our plus skew.
We remain focused on driving revenue growth by converting our highest value users to drive sustainable monetization and retention.
Let me highlight a few ways we've been executing on this strategy.
Last quarter, we made improvements to our individual plans to help users work more efficiently.
We announced a number of new product features across our plus and professional plans and with the additions we made to our plus plan, we raised the price of that skewed by approximately 20%.
We're happy to announce that those enhancements are being well received by our customers.
Not only have we continued to drive healthy conversion volumes to our plus plan. We've also managed to levels of retention above our expectations.
While we do anticipate some impact to net new paying users over the next couple of quarters from this repricing and repackaging initiatives, we expect it to be a strong tailwind to revenue.
In addition to where pricing and packaging changes. We've also worked to improve the onboarding flow for new users to drive better engagement and retention.
To help users access their favorite apps from within Dropbox, Our data science team created machine learning algorithms that suggest third party applications users maybe interested in connecting to our platform.
Dropbox integrates with a number of leading applications, including zoom slack ended last year and and by leveraging our for ground desktop experience to better highlight these integrations to our global user base, we believe we'll be able to drive higher levels of activity and collaboration.
In Q3, we also had a number of customer wins across a range of verticals, including technology retail government and health care.
We're excited to share that the Massachusetts Department of Transportation is now a dropbox business customer.
Dropbox will improve collaboration and external sharing for the organizations highway construction workers and project engineers, who often work remotely from project sites.
Many of their legacy work flows have been based on email, which has contributed to content fragmentation and inefficient collaboration.
The Department of Transportation is also excited to implement our new legal holds feature as part of its approach to data governance.
In addition, we're pleased to announce that total construction is now a dropbox customer.
This is one of several deals we've won among enterprise construction firms over the past year as our customers look to replace aging job site infrastructure improve access to data on mobile devices and facilitate more seamless external Sharon.
Total construction will deploy several thousand dropbox licenses across Japan on our enterprise skew.
This win comes on the heels of recent deployments at several other Japanese construction firms such as show bond construction until the Shimon construction.
Before I move onto the rest of the piano I want to note that unless otherwise indicated all income statement measures that follow our non-GAAP and excludes stock based compensation amortization of purchased intangibles and certain expenses related to the acquisition of Hello sign.
Our non-GAAP net income also excludes net gains and losses on equity investments.
A reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our form 8-K filed today with the FCC and in the supplemental investor materials posted on our Investor Relations website.
Moving to the piano gross margin for the quarter was 77% an increase of one percentage points compared to the third quarter of 20 a team.
The increase in gross margin was primarily driven by continued unit cost efficiency gains with our infrastructure hardware, which was partially offset by investments we made in our customer support teams.
We expect gross margins in Q4 to be roughly consistent with Q3.
Moving to operating expenses, we continue to recognize overlapping facilities related expenses for both our old and new headquarters across all of our opex categories in the quarter.
Q3 was a final quarter, we incurred these headwinds as we've now completed the move into our new headquarters.
Third quarter, R&D expense was $130 million worth 30% of revenue compared to 29% in Q3 a year ago.
The increase as a percentage of revenue was primarily driven by higher headcount and investments in new product development and testing.
That's an m. expense was $99 million in the third quarter or 23% of revenue compared to 24% in Q3 a year ago.
The decrease was due to lower marketing spend relative to Q3 of 28 team. When we were investing in a global brand campaign.
<unk> expense was $44 million or 10% of revenue, which is consistent with our DNA expense as a percentage of revenue in the prior year.
Taken together, we earned $56 million, an operating profit in Q3.
This translates to a 13% operating margin, which is a modest improvement compared to our operating margin in Q3 of 20 a team.
Operating margin in the third quarter of 29 team included a two point headwind from our overlapping facilities related expenses as well as the impact from the integration of Hello sign and the associated purchase accounting write down of its deferred revenue.
Net income for the quarter was $56 million up from $45 million a year ago.
Diluted EPS was 13 cents per share based on 419 million diluted weighted average shares outstanding.
Up from 11 cents in Q3, a year ago.
Moving onto cash balance in cash flow, we ended Q3 with cash and short term investments of $1.03 billion.
Cash flow from operations was $150 million in the quarter.
Capital expenditures were $47 million, yielding free cash flow of $103 million or 24% to revenue.
Capex in Q3 included $46 million of spend on our new headquarters.
Which $17 million was offset by tenant improvement allowances.
Excluding the headquarters spend net of T <unk> of $29 million.
Free cash flow would've been $132 million worth 31% of revenue.
In Q3, we also added $32 million toward capital lease lines for datacenter equipment.
We continue to expect additions to our capital lease lines to be high single digits as a percentage of revenue on an annual basis going forward.
Now, let's turn to our guidance.
For the fourth quarter of 29 team.
We expect.
Revenue to be in the range of $442 million to $444 million or 17.5% to 18% year over year growth.
On a constant currency basis relative to the average rate across Q4 of 2018.
Year over year growth would be approximately 19 and a half the 20%.
non-GAAP operating margin to be in the range of 14% to 15%.
Diluted weighted average shares outstanding to be in the range of 418 to 423 million based on our trailing 30 day average share price.
For the full year 2019.
We are raising our revenue guidance, which was previously $1.648 billion to $1.654 billion.
To $1.657 billion to $1.659 billion or 19% year over year growth.
On a constant currency basis relative to the average rates across f. wide 2018.
Year over year growth would be 20%.
We expect non-GAAP operating margin to be approximately 12%.
This figure includes nonrecurring expenses related to our new headquarters and Hell assigned integration of approximately two percentage points or revenue.
We expect free cash flow to trend towards the midpoint of the range, we'd previously provided of $375 million to $385 million.
This range includes one time spend related to the Buildout of our new corporate headquarters, excluding the spend free cash flow would be $440 million to $460 million.
Finally, we expect 2019 diluted weighted average shares outstanding to be in the range of 418 to 423 million based on our trailing 30 day average share price.
In conclusion, we're excited about the investments we've made in our business and remain committed to delivering a healthy balance of growth and profitability.
With the premium features we've added across our paid plans our continued focus on driving high value conversions.
The new products, we recently announced we believe we're well positioned to deliver strong growth in Q4 fiscal 2019 and beyond.
I'll now turn it back to drew for closing remarks, Thank you I Jay.
We're creating work environment. The helps people focus on what matters building the smart work spaces step one and there will be many more.
I'm proud of our team's progress thus far with the launch of the new Dropbox and Dropbox spaces and I'm excited about the early response from both customers and partners.
On behalf of our management team I'd like to take a moment to think or customers partners and the entire dropbox team.
We have a huge opportunity in front of us and I'm really excited about the future.
And with that I'd like to invite Yemeni our chief customer officer to join Adrianne me for queuing it operator.
Thank you ladies and gentlemen at this time will peak in conducting a question and answer session ask a question you May Press Star then one on your Touchtone phone.
Withdraw your question. Please press the pound key piece limit yourself to one question and one follow up.
Our first question comes from Alex Zukin with RBC capital markets. Your line is now open.
Hey, guys. Congrats on a on a really strong quarter and thanks for taking my questions. Maybe just the first one for project can you maybe talk about the air our number for Q3, something you guys mentioned in Q2 at the Analyst day I was hoping to see if you can provide an update that I've got a quick follow up.
Sure. Thanks for the question, Alex So air our as well as net revenue retention our metrics that we are continuing to evaluate for ongoing disclosure, but I can share that air our grew to about $1.77 billion in Q3, that's up from $1.65 billion.
In Q2, as we disclosed at our analyst day, a and then that growth being driven by similar trends to revenue, namely strengths in paying user growth and ARPU expansion and at our analyst day. In September . We also noted that net revenue retention had improved to the mid nineties.
That's also consistent with what we saw in Q3.
Perfect.
And then you guys I think you mentioned a couple of items, where you're able to raise prices yet you're very happy with the dynamics around both user ads and revenue retention and you made a comment around you know you're you you could see some maybe impact to see user adds over the next few quarters, but also.
Tailwind to revenue I was hoping to see if there was any quantification you can provide around that in terms of just from a modeling perspective, how we should think about it going forward.
Sure. So at a high level from a modeling perspective, I would kind of looked hard revenue guidance for a sense of the growth that we expect to deliver in some of the implications for net new paying users and for ARPU over the next quarter and for the year, but to give a bit more color commentary on the repricing and repackaging initiative, a more generally as a quick crumble.
<unk> as I mentioned during prepared remarks earlier this year, we announced a number of new product features really across our subscription plans with the addition summit plus raise the price of that skewed by about 20% over all of those changes are being received really well and so the features of our plus point or a grid in June existing subs began renewing at the higher price point in July .
And that process will continue for the next few quarters really based on the annual renewal cycle that renewal cycle, sorry of our annual subscribers, but overall as you mentioned Dollops initiative has been a very strong tailwind to revenue and that's reflected in our revised guidance for the year as it relates to paying users we're seeing.
Stable net retention across the business. So our annualized net revenue retention has remained in the mid Ninetys like I mentioned earlier and as we disclosed at our analyst in September a churn continues to trend lower than our expectations. When we launched the initiative as we really had been able to man managed to healthy retention rates.
And then we do expect slightly lower NPU growth over the next couple of quarters as a result of that repricing and repackaging consistent with our expectations. When we launch initiative, but overall I would say strength across the board in terms of how our teams have executed against that opportunity.
Perfect. Thank you guys.
Thank you Sir our next question comes from Black Murphy with JP Morgan. Your line is now open.
Thank you congrats on the upside and acceleration a question for jury, where maybe a yamani. When you look at the user data that you have thus far for the new product Dropbox spaces do you see them engaging in a ways that you want to see in order to increase your confidence that you'd be able to evolve from a background.
Service Q4 ground service and if so just what are you seeing in terms of that engagement.
Yep. Thanks for the question. So we're really happy with how the launch has gone. So far so were about six weeks in a post making the new dropbox and dropbox spaces generally available a and things are broadly in line with our expectations a millions of people have engaged with the new desktop apps.
And we are seeing increases in engagement with a collaborative features so which are a big focus of our product changes.
And so that's that's something we're paying attention to and continuing to drive and then as we've seen with other products or others of our products as we drive engagement in particular collaborative engagement than that helps drive monetization.
It's a it's a couple examples so as people think.
Ecosystem apps or if they use paper, they retain and up sell at higher rates that we expect similar patterns within dropbox.
[noise] it as a quick follow up but it is kind of remarkable that a good chunk of your users are starting to pay 20% more for Dropbox and yet you still added about 400000, they're paying users in the quarter, which is which is very consistent with prior I'm. So it doesn't appear that you saw incremental churn <unk> do you think.
That's telling us that the product is skill.
Actually underpriced or is it is it's showing US said users are seeing value from the new desktop and somebody other functionality that it.
So this is Jay I'm happy to answer that question I think at a high level. It shows that we're delivering a lot of value to our users and its value that's resonating with them and so when we deliver value we're able to generate value.
I will say as her as it relates to churn I made a comment earlier certainly trending lower than our expectations will be launched the initiative as we've been able to manage some really healthy retention rates, we do expect slightly lower paying user growth over the next couple of quarters as we work through that repricing and repackaging initiative, but at a high level I think the value proposition that we brought to the market in brought to our users as resin.
Getting really well.
Thank you.
Thank you Sir our next question comes from Richard Davis of Canaccord. Your line is now open.
Hey, Thanks, maybe piggybacking on Mark's question I, just wanted to drill down on this because I'm pushing all my companies on this topic, but when you say yeah driving engagement. How are you building out there I mean do you have a customer success team are you hiring in that area you know as it organic yeah that'll be.
Basically yeah I'm leaning on all my companies to this say like that's a really good way to generate incremental margins because it's super high.
Margins and if you can tell people get most out of your software because you've done a great job on what's your strategy on that side of the equation. Thanks.
Sure well at a high level I mean starts to their customers and the challenges they have and when you think about the motivation for the new Dropbox to begin with <unk> came from seeing that our customers are certainly collaborating around files, but they're also collaborating around Google docs, and Dropbox paper docs and all kinds of different cloud tools.
And knowledge worker spent a lot of their day toggling back and forth between all these different things and that's really fragmented and distracting experience and so when it comes of driving engagement we give.
The purpose of the new Dropbox and Dropbox spaces is to give people one workspace, one smart workspace, where they can pull all these tools together.
And collaborate instead of having to shift across a bunch of different tools, so being being a more useful plays being more organized plays to get worked on me. It creates opportunities for dropbox to have a I'm just more of your share of attention at work and be open all day long and for people to be able to commute.
Okay, and collaborate and coordinate their activities in a way that you just can do when we are limits. The operating system. So I think just the use case we've selected.
Is one that all knowledge workers have and so that's where that's kind of the foundation for the engagement and then the fact that we have this foreground experience.
Means that we can we there's a lot and dropped a lot more useful and so and we're certainly paying attention to making sure that we're doing everything we were really excited about the progress. We've made in terms of driving collaborative engagement and then as I said before many of the other things that we want including driving adoption monetization follow from that.
Got it thank you very much.
Thank you.
Next question comes from Heather Bellini with Goldman Sachs. Your line is open.
Great. Thank you very much I just had a couple of question. When I think you commented a few minutes ago and my apologies if I if I didn't hear it correctly that you expect slightly lower paid user growth over the next few quarters I'm. Just wondering if you can share with us what's driving that said, what's the magnitude that you're thinking.
During about the anniversary of kind of the increase in monthly monthly signings I earned in the March quarter last year, but any any color you can give give us on that the magnitude and why would be helpful. And then the other question would be related.
2020, topline and I know, you're not giving guidance for 2020, but in the past you guys had talked about.
Being able to see the deceleration you know kind of Oh and exiting being confident that you've got 2020 could be roughly in line with where you saw us.
For.
It does Q4 19 I'm just wondering if you don't feel that way. Thank you.
Sure I'm happy to answer those questions Heather It's it's all Jay I would say as it relates to the plus repricing and repackaging I can reiterate a couple of the points that I made earlier. So overall initiative has been a very strong tailwind to revenue reflected in our revised guidance for the year as it relates to retention in churn, we're seeing stable network.
Tension across the business and our annualized net revenue retention rate and our has remained in the mid Ninetys, we give that update at our analyst in September and a lot of consistency against that rate today, a and churn continues to trend lower than our expectations. When we launched the initiative Oh, there's always a modest uptake whenever you want your repricing repackage.
We initially like this like we saw with our grandfathering exercise a couple of years ago, but overall have been able to manage to very healthy retention rates higher than expectations.
And so we do expect slightly lower NPU growth over the next couple of quarters. We don't formally guide to that metric as a result of that plus repricing repackaging, but a strong tailwind from revenue, but overall a lot of consistency with the expectations. We had when we launched the initiative in some upside that we're starting to see now that it's either a live with our customers and as it relate.
To the 2020 revenue you know our thesis there we'd have a very large opportunity ahead of us we're doing a lot to unlock more and more of it through our investments in the new Dropbox and other products our ecosystem and then we continued to make data science investments in our conversion engine as well through M&A like our acquisition of help us on earlier this year longer term what I can say now ahead.
February's that we'll continue to be focused on delivering a healthy balance of growth and profitability in line with the framework that we shared at our analyst in September . So we started framework back then it's a kind of set expectations longer term and we'll certainly have more detail to share when we issue formal guidance on our earnings call in a few months.
Thank you.
Thank you Sir our next question comes from <unk> I believe with Nomura Securities. Your line is now open.
Everyone Charlie Rogers here on for Chris in regards to billings, which showed a pretty nice acceleration this quarter along with revenue could you provide a little bit more color on the mix shift of annual versus monthly customers given the price increases this perhaps.
Due to more user shifting to annual subs are just broad strength in the quarter.
Sure. This is a great question I would say more broadly speaking speaking its strength in the quarter and success with our execution against the plus repricing and repackaging initiative. We are seeing some customers elect to move to an annual billing cycle from a monthly billing cycle or the we're actually seeing slightly less.
Of our overall customer and installed base electing that option right now, which is a tailwind to revenue actually and so that's driving a lot of this trends you're seeing in our guidance there.
And you know one thing I would kind of reiterated and something that we said previously is that while billings are related to revenue growth for us are not consistently predictive revenue for us and so there can be various items in a quarter that can drive that billings growth rate higher or lower but don't always correlate to revenue and so things like the mix between monthly in annual as you noted as well as FX. So I just continue to look to our revenue.
And for a sense of the growth that we expect based on current visibility in the last point and quantification I can share on billings is that normalized for FX billings growth in Q3 would've been about one percentage point higher.
Understood. Thanks, again, guys congrats on the quarter.
Thank you next question comes from Vichy jewelry out much D.A. Davidson. Your line is now open.
Hi, guys.
Thank you for taking my question I just first.
If you could talk about noticing any difficulty in presenting the value proposition the new dropbox to customers.
There are central hub for work you mentioned Trivago as a company that had flat.
Yes.
Is there any broad feedback or pushback.
Right.
Oh no not at all in fact these are complimentary use cases and in many ways. The fact that you can slack someone from within the new Dropbox makes a mix l. experience more seamless and importantly, we're solving.
Complimentary problems.
Which is that people are customers need help organizing their working lives and organizing the content across all the different places where it lives and Dropbox is the only place that lets you work across both Microsoft ecosystem and the G suite ecosystem and all of these best of breed tools.
Which is a pretty different pretty different value prop in pretty even problem than socks off.
Great. Thanks.
Question could you talk about what you're saying.
Environment.
Potentially worrisome to you.
There are any region particular strength.
Yeah. Thank you kind of for the question. This is the omni I'll take that yeah in terms of the macro climate. It is pretty consistent we're not seeing any major shifts in the macro environment from an outbound sales as well as channel perspective, we are executing consistently across the multiple quarters as well as.
In North America, EMEA, and a P.J., so pretty consistent and no significant shifts that we are seeing from a macro perspective.
Thank you.
Thank you next question comes from Pat Walravens with JMP Securities. Your line is now open.
Hi, This is Joe on for Pat. Thank you for taking my question.
So first off we are wondering how do you plan to navigate the space. When these other collaboration tools like slack CWIP in Microsoft teams all have a goal being.
The place for work gets done.
Well, we're starting again from a different.
From a different use case and customer need certainly, they're all kinds of different messaging apps and that those will be an important part of the collaborative experience.
And end users had a lot of choices, there and we integrate with most of them.
But what our customers turn to Dropbox, four and they'll turned to us more and more over time is really to help organize you're working life and organize your content or the new Dropbox is one of the biggest changes we've ever made of the products and in until until we launched it dropbox only handled your files, but now we handle all cloud content and we have much more engaging.
And collaborative experience and we bring these communication tools closer to your content and we don't see anyone even when you look our traditional competitors like one driver or Google drive.
A lot of them are still operating off of the older model, where you just have content and it's not as engaging them and experience.
Great. Thank you and then my follow up question is how the transition to selling publicized going.
Thank you yes. It has been I can take this part of the question. So it has been six months since we started <unk> acquisition and integration process. The integration process is going really smoothly in Q3, we have all of our account executives in international locations train.
Okay, and selling Hello sign so now all of our account executives are qualifying positioning and closing in fact in the quarter. We saw some good wins in EMEA and are beginning to see traction for Hello sign within their dropbox customer base from a self serve perspective, we have continued to drive a more friction.
As buying experience for our common customers. So if you're now a dropbox customer and you use your credentials for building. A then you can use the same thing for purchasing Hello sign. We are also leveraging our data signed seems to be able to identify high propensity users within our customer base.
Yes that will eventually buy Hello sign and that is also going well overall also in the quarter, we made some pretty good product enhancements.
As much better I'd add been console as well as a deeper salesforce integration. So from an outbound execution self serve execution and product that perspective, the integration is really going well and we're pretty excited about this going forward.
Great. Thank you and congrats on the quarter.
Thank you.
Our next question comes from Jason Ader with William Blair. Your line is now open.
Yeah. Thank you.
I just want to make sure I understand you're not paying users guidance.
Churn from the repricing insiders and your expectations.
Second we got worse over the next couple of quarters, given your new guidance and if so why.
Yeah. This is Raj I happened to take that question certainly not we've been able to manage to healthy and stable retention rates as part of our work on the plus repricing and repackaging initiative and we've seen really consistent trends since we went live with the with the initiative. We did close some larger deals this past quarter in Q3.
Which contributed to higher paying user growth and the period.
And we're just getting to what we have current visibility into with respect to that qualitative guidance for Q4 in Q1.
So to be clear, you're not expecting churn too.
Deteriorate over the next couple of questions.
No no we've been very pleasantly surprised and successfully managed to high rates of retention is part of that initiative and that's continued since we went live.
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Thank you.
Thank you.
Hi, My Dad to ask a question you May Press Star then one on your Touchtone phone.
Our next question comes from Sean just in talks with Bank of America Merrill Lynch. Your line is open hi. This is the adjustment with Sean here a couple of questions first deferred revenues was up I think 23 million quarter over quarter was that was that aided by some of the larger deals that you signed in the quarter and second drew just on.
Bigger picture, the new Dropbox and spaces can you just help us understand how that's going to open up new sales opportunities over the next couple of years. Thank you.
Sure I'll take the first part of the question. This is our Jay so the growth in deferred revenue, partially aided by a larger deals that we closed the quarter, which is a contributor to deferred revenue growth for us a period to period, but a big driver there as well a lot of the annual plus subscribers working through their renewal process as part of that plus repricing and repackaging.
And.
Turning to the sales opportunities for the new Dropbox Ah I mean, the first thing is when we see this is a big expansion of our opportunity.
And ultimately are Tam because our whole business to date has been around collaborating route files, but of course, many if not most teams today at use a lot more tools and that rights if theres their content lives and all kinds of cloud tools and the fact that the new Dropbox is the only a solution that supports the office ecost.
Some G suite and all the best of breed tools is a big differentiator and we think <unk> a big long term advantage for us because it's pretty hard to do that and some of our traditional competitors as I said before like one drive they only allow you to interact with files, which should we think over time will be a big limitation. So we see it has a big driver of deferred.
Initiation and we see the fact that way this foreground experience.
And this dedicated desktop that means that we can <unk> with all kinds of opportunities to increase engagement increase collaborative engagement and then drive adopt diebold drive viral adoption and monetization because we have so many more ways to show you all the Dropbox can do for you in context, so I mean, there and all kinds of examples.
This but even just the basics of getting set up and the team flood easier for us to make that as a streamlined and smooth experience. When we're not limited to the operating system or just the list to files or if I could save on a contract now we have a button that says send out for signature with Hello, saying these are promotional opportunities that just weren't available before so.
We think has a lot of potential across all the major drivers of engagement and monetization.
Great. Thank you.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to choose how stand for any further remarks.
Great well. Thank you everyone for joining us today, we really appreciate your support and look forward to speaking with you again next quarter.
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