Q4 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby we will begin the conference and approximately four minutes again. Thank you for your patience and continue to standby.
[music].
Good afternoon, ladies and gentlemen, and thank you for joining Dropbox is fourth quarter 2019 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star followed by the zero.
After todays presentation, there will be an opportunity to ask a question. As a reminder, this conference call is being recorded and will be available for replay asked from the Investor Relations section of Dropbox website. Following this call.
I'll now hand, the call over two different yet Dropbox is head of Investor Relations. Please go ahead.
Thank you good afternoon, and welcome to Dropbox is fourth quarter 2019 earnings call.
Today, Dropbox 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 of our business.
Future financial results, including expectations regarding future profitability, and our ability to generate and sustained positive free cash flow.
Our ability to extend or platform by developing new products or features.
Our strategy as well the ability of our key employees to execute our 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, four the quarter ended September Thirtyth 2019 under risk factors that will be included in our form 10-K for the year ended December 31st 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 or based on assumptions and beliefs as of today and we undertake no obligation to update them, except as required by law.
Our discussion today well include non-GAAP financial measures.
These non-GAAP measures should be considered in addition to.
Not as a substitute for or in isolation from.
Our GAAP results.
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 May also be found in the supplemental investor materials posted on our Investor Relations website at investors Dod Dropbox dotcom.
I'd now like to turn the call over to Dropbox is co founder and Chief Executive Officer True Halsted drew.
Good afternoon, everyone and welcome to our earnings call.
On the call with me as I do BACE, our Chief Financial Officer.
Today, I'll recap, our achievements and performance in 2019 and provide an update on how we plan to scale our business over the next few years Ive Jay will review, our financial results and provide guidance for Q1 in fiscal 2020.
2019 was an important year for Dropbox during which we invested to build a strong foundation for profitable growth, we generated over $1.6 billion in revenue and ended the year with over 450000 business teams. We also delivered a number of products and features to further position Dropbox at the center of our users workflows.
Most importantly, we unveiled a new dropbox smart workspace to organizers content connecting their tools and bring everyone together.
This included an all new desktop that must be on files and organize is all your cloud content, including support for Google Docs and integrations with best of breed tools like Slackens him.
The new Dropbox uses machine intelligence to surface. The work that's important to you when you need it and also includes dropbox spaces, which transforms the traditional shared folder experience into a connected workspace for all your cloud content.
We're operating in a world that's fragmented not just across applications, but across content and teams, we saw an opportunity to bring everything together and with the new Dropbox, that's what we've done.
We're making the new desktop available to more and more of our users and we're seeing some great early traction.
Millions of users are now active in our new desktop experience on a weekly basis and we're finding that this cohort of active users isn't engaging with dropbox more frequently and using differentiated features like suggested folders that intelligently highlight your most relevant content and people tabs actually the content your collaborating on what's your teammates.
And we're seeing the new desktop experience helped drive customer wins.
In Q4, we closed a waterfall deployment with exposure you case largest independent marketing agency.
When evaluating solutions exposure highlighted our smart workspace as a key differentiator over Microsoft and Google.
On the partnership front, we continued to build new integrations over the past year to ensure the apps are customers use at work are an integral part of the dropbox experience.
Building on our existing integrations with tools from companies like Adobe, Microsoft and Google, We introduced new deep integrations with strategic partners like it last seen slack and zoom to help you bring users content into context.
All of these partnership to expand our robust ecosystem and make dropbox, an integral part of our uses workflows.
And we're already starting to see positive results.
Early signals from users who have adopted these deep integrations. So just they're more likely to convert to our paid plans and tend to be more collaborative and engaged.
Finally, we announced a new partnership with better cloud, which gives admins the tools they need to managed and secure a best of breed SAS environment.
With better cloud, we enable businesses to enforce custom security policies scan content for sensitive data and automate critical processes.
And in 2019, we also expanded our platform by welcoming Hell assigned to the Dropbox family.
Millions of people already use dropbox is a place to collaborate on their most important content and together with tell assign we're delivering an even better experience to simplify their document workflows, while expanding the markets we serve.
We continue to see strong demand for Hellerstein de signature and document workflow products.
Hello Science now fully integrated into Dropbox as walls or go to market efforts as one of our fastest growing businesses.
Dropbox users can seamlessly send hellerstein signature requests through new product flows, including our newly redesigned user interface.
We've been pleased to Hell assigns progress and are excited about the opportunity we have together.
And on the people front, we've continued to strengthen our leadership team.
In the fall Timothy Young joined Dropbox has actually PNG M. core Dropbox and Bartman Urata joined as our CTO and Sep a platform together they have been reshaping or engineering product in design organizations to drive growth and scale in a more focused way.
More recently, we announced the Olivia not a bomb as our new Chief operating officer, Olivia joins us from Google Cloud, where she helped build and scale their SMB business directing go to market efforts for a multi billion dollar portfolio of products included G D suite and Gould right.
Well, if he has a great strategic thinker and hands on leader and I'm thrilled to have her on her team as we enter our next phase of growth.
We also welcome tip in dental quantum as our new CMO in January.
Defend isn't accomplish executive with more than 15 years of experience and SAS. Most recently as CMO of S&P everybody.
She the data driven an operational leader with a long track record of success and integrated channel and partner marketing.
I'm thrilled about what each of these leaders from the Dropbox and we have the right team in place for our next chapter in our company's evolution.
Overall, it's been an exciting year for Dropbox and while we've made some great new additions to our team and I'm proud of everything we've accomplished was clearly still work to do.
Looking ahead, our Jay and I want to ensure we continue to strengthen the investment thesis, we bring to market and deliver shareholder value.
As we drive adoption of our new products and continue to invest in growth will be driving higher productivity and free cash flow and 2020.
And by the end of this year, our goal is to become a profitable business on a GAAP basis.
This orientation also extends beyond 2020.
Longer term, we plan to drive accelerated margin expansion as we continue to innovate and methodically extend our platform into new markets.
With that in mind.
By 2024, we now expect to generate non-GAAP operating margins of 20% to 30% and annual free cash flow of over $1 billion.
This is a meaningful increase over the targets, we announced that our analyst day last year.
In addition, as announced earlier today, our board of directors has authorized a $600 million share repurchase plan.
We think this approach will deliver compelling returns to shareholders, while also enabling us to make disciplined and focused investments in long term growth.
With that said, let's turn to our product strategy for 2020, and highlight where we plan to focus our investment in resources.
Our primary focus this year will be on driving adoption of the new Dropbox today millions of users are active in R&D desktop experience and with roll out to just a portion of our user base. We've seen early adoption over 200000.
Over 450000 business teams.
This is an important milestone because I knew desktop that provides us with the forgone experience to help drive team expansion in a way that wasn't previously possible.
Now that we've begun to land the new desktop within teams we have the tool to further optimize our onboarding flows and in product experiences to drive higher conversion efficiency.
We plan to do this by simplifying the process of setting up a dropbox business team and streamlining the invitation process to reduce the friction of finding and adding new team members. For example, instead of requiring an admin to add an improvement in team members will make it possible for the product to be spread viral Lee from user to user.
We also plan to highlight you add on products such as extended version history and legal hold to further drive upsells.
And we'll be able to better promote products like hell assigned as well as our partner skews like the one we have with better cloud to our user base.
Most dropbox using the workplace are still using one of our individual or basic plans as a result, there remains a large embedded opportunity within our existing user base to drive both conversion and upsell into a business team plan.
Driving adoption of our team plans not only unlocks value for our users, but provide the mechanism for us to grow deployments within businesses over time.
And while our primary focus in 2020 will continue to be on our business teams will also introduce new products to address high value personal workflows.
80% of our subscribers use dropbox for work, but a substantial portion of our over 600 million registered users depend on dropbox to address important personal use cases, as well and we know that over 40% of our business teams include a member who was formerly in individual subscriber highlighting the importance of investing in our personally users is there an integral part of our customer.
A journey and driver of business adoption.
We have a unique view into these problems our users face both while using technology <unk> work and at home and it turns out that these issues have a lot in common.
Our customers deals fragmentation and distraction in their personal lives too. So this year, we'll start to address some of those challenges like accessing and sharing critical information such as your tax returns or digital copies of passports or managing passwords across services.
These pain points open up opportunities for us to extend the secure and collaborative capabilities of Dropbox to our users most important workflows at home, while expanding our monetization opportunities and the overall value proposition of our platform.
To wrap things up 29 team was a milestone year for Dropbox.
We said a clear product vision for the company and launch the smart workspace category to help our users say focused on their most important work.
And that's when we begin the new year, we're committed to investing in our future well operating with discipline to drive more profitability.
Underpinned by a strong core business, we remain confident in our ability to deliver a healthy balance of growth at scale, while accelerating margin expansion and free cash flow generation.
I'll now turn it over to Ajay our CFO to walk through our financial results.
Thank you drew our Q4 results demonstrate our strong execution and focus on delivering a healthy balance of topline growth and profitability.
Total revenue for the quarter was up 19% year over year to $446 million.
On a constant currency basis relative to the average rates across Q4 2018 year over year growth would've been 20%.
As this is our first earnings call have a year I'd like to note that were formally adding total annual recurring revenue or a are as a new key metric.
We believe that a our is the best indicator of our business performance and provides the most complete inside into the contribution from all of our revenue streams, including are planned future products add ons.
Transaction volume based offerings and certain fees from the referral of users to our partners.
Success with these types of initiatives will manifest in total error, but may distort or be excluded from metrics like paying users and ARPU.
With this in mind error or for the quarter was $1.820 billion up 19% from the year ago period.
We ended Q4 with 14.3 million paying users and ARPU was $125 in the period.
Our continued growth in air our reflects our strategy to methodically convert our highest value users to drive sustainable monetization and retention.
Let's move onto some of our customer highlights.
In Q4, we had a number of wins across a range of verticals, including healthcare government finance and real estate.
In addition to the deployment with exposure that drew mentioned I'm excited to share that one of the largest medical technology companies is now a dropbox customer.
This U.S. headquartered company recently signed a three year commitment to Dropbox and will be deploying our enterprise product to over 10000 employees.
Strong organic adoption of our products among the companies sales operations marketing and design teams over the past few years was instrumental to landing a multi thousand seat deployment.
Employee preference our best in class sharing tools and hip a compliance we're all important factors in this customer's decision to subscribe to our enterprise skew.
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, maybe 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 78%.
An increase of two percentage points compared to the fourth quarter of 20 a chain.
The increase in gross margin was driven by unit cost efficiency gains with our infrastructure hardware, including lower depreciation as a share revenue.
Moving to operating expenses fourth quarter, R&D expense was $132 million worth 30% of revenue.
Compared to 29% in Q4, a year ago.
The increase as a percentage of revenue was primarily driven by higher headcount and investments in new product development and testing.
As an m. expense was $97 million in the quarter or 22% of revenue compared to 25% in Q4 a year ago.
The decrease was due to lower brand marketing spend.
Relative to Q4 of 20 a team.
Gionee expense was $47 million or 11% of revenue, which is consistent with our gionee expense as a percentage of revenue in the prior year.
Taken together, we earned $70 million in operating profit in the fourth quarter.
This translates to a 16% operating margin, which is a five percentage point improvement from Q4 of 2018.
Net income for the quarter was $67 million up from $42 million a year ago.
Diluted EPS was 16 cents per share based on 418 million diluted weighted average shares outstanding.
Up from 10 cents in Q4 year ago.
Moving onto cash balance in cash flow, we ended Q4 with cash and short term investments of $1.159 billion.
Cash flow from operations was $187 million in the quarter.
Capital expenditures were $26 million, yielding free cash flow of $161 million or 36% of revenue.
Capex in Q4 included $23 million of spend on her new headquarters of which $10 million was offset by tenant improvement allowances.
Excluding the headquarters spend net of T <unk> of $13 million.
Free cash flow would've been $175 million or 39% of revenue.
In Q4, we also added $37 million to our finance lease fines for datacenter equipment.
We expect additions to our finance lease lines to be between seven and 8% of revenue in Twentytwenty.
And to decline modestly as a percentage of revenue on an annual basis thereafter.
Let's move onto our full year results.
Total revenue for 2019 was $1.661 billion, representing 19% year over year growth.
On a constant currency basis relative to the average rates across 2018.
Year over year growth would've been 21%.
Gross margin was 76%.
One percentage point from the prior year.
And our operating margin was 12% in line with 20 year team.
As a reminder, our operating margin in 2019 included a two point headwind from nonrecurring facilities and M&A related expenses.
Cash flow from operations was $529 million in 2019.
Capital expenditures were $136 million, yielding free cash flow of $392 million or 24% to revenue.
Capex in 2019 included $120 million of spend on our new headquarters.
Of which $55 million was offset by tenant improvement allowances.
Excluding the headquarters spend net of T.I. is of $64 million free cash flow would have been $457 million or 27% of revenue.
In 2019, we also added $144 million to our finance lease lines for datacenter equipment.
Now, let's turn to our guidance.
For the first quarter of 2020.
We expect revenue to be in the range of $452 million to $454 million or 17% to 18% year over year growth.
On a constant currency basis relative to the average rates across Q1 of 2019.
We anticipate year over year growth to be approximately 18% to 19%.
We expect non-GAAP operating margin to be in the range of 13.5% to 14%.
And diluted weighted average shares outstanding to be in the range of 418 to 423 million.
Based on our trailing 30 day average share price.
I would like to remind everyone that in Q1 of each year, there is seasonality to operating margins and free cash flow due to the reset of payroll taxes and the payout of your end bonuses.
Turning to the full year 2020.
We expect.
Revenue to be in the range of $1.890 billion to $1.905 billion or approximately 14% to 15% year over year growth.
On a constant currency basis relative to the average rates across f. wide 29 team.
We anticipate revenue to be approximately $8 million higher.
That's true noted we're focused on driving the adoption of our new desktop App this year as well as bringing some new products to market.
These initiatives will be incorporated into our outlook as we develop more signal throughout the year.
We expect fiscal Twentytwenty gross margin to be approximately one and a half points higher than fiscal 2019.
Non-GAAP operating margin to be in the range of 17.5% to 18%.
And free cash flow to be in the range of $475 million to $485 million.
This range includes onetime spend related to the build out of our new corporate headquarters as well as the payout of deal consideration hold back related to our acquisition of Hello sign.
Excluding these items free cash flow would be $525 million to $535 million.
Twentytwenty as the last year, we expect to incurred capex related to the Buildout of our new headquarters.
Finally, we expect Twentytwenty diluted weighted average shares outstanding to be in the range of 417 to 422 million based on our trailing 30 day average share price.
To Echo what drew mentioned earlier, we're committed to delivering shareholder value as we invest across our business in 2020 and beyond.
As a result, we're raising our long term operating margin target to 28% to 30% up from 20% to 22%, which we expect to reach by 2024.
To get there will drive more efficiency and higher levels of productivity across each of our operating expense categories.
Accordingly.
We're revising our long term target for R&D spend to 23% to 25% of revenue.
Down from 25% to 27% previously.
Across R&D, we plan to be prudent with headcount expansion over the coming years as we drive adoption of the new Dropbox.
Optimize our team oriented conversion flows and invest in new high ROI product launches.
We're revising our long term target for us and then spend to 18% to 20% of revenue.
Down from 20% to 24% previously.
Across the US an m., we plan to focus our spend to support adoption of the new Dropbox, well prioritizing, our most strategic growth and monetization initiatives.
Finally, we're maintaining our long term DNA spend target of 8% to 10% of revenue.
I also want to note that these efficiencies put us on a trajectory to generate over $1 billion or free cash flow on an annual basis by 2024.
I want to be clear that as we execute against our new targets, we won't be reducing investment in our growth engine and new product development.
Rather we've carefully considered where we can drive material efficiency improvements across the business, while preserving investment in our highest potential product and growth pets.
Our updated long term operating margin and free cash flow targets, not only demonstrate our commitment to delivering profitable growth, but are a testament to the inherent efficiency of our self serve business model.
Finally as indicated in our earnings press release, our board has authorized a $600 million share repurchase program that we intend to execute on beginning this quarter.
This not only underscores the confidence that our board and management team, having the future of Dropbox, but also allows us to leverage the strength of our balance sheet to deliver returns back to our shareholders.
I'm excited about the large and growing opportunity ahead of us as we continue to strengthen our core business and pioneer the smart workspace category.
I'll now turn it back to drew for closing remarks.
Thank you Ajay.
We're focused on driving topline growth at scale, improving margins and efficiently allocating our capital in 2020 as well as longer term.
I'm proud of what we achieved in our first two years as a public company and with over 600 million registered users. We continue to have a huge opportunity ahead of us.
Our new desktop apps and the introduction of our new personal products. Later this year I just to start and I'm excited about our future.
With that I'd like to open up the call for acuity.
Operator.
Thank you as a reminder to ask a question. Please press Star then one key on your Touchtone telephone to withdraw your question press the pound Keith Please limit yourself to one question and one follow up and then re queue.
Our first question comes from Justin Post with Bank of America. Your line is open.
Great. Thank you a couple of questions first just on the long term outlook a billion dollars or free cash flow and higher margins.
What's changed and give you confidence in that margins and I guess, what philosophically why not spend more on R&D and try to drive higher growth, how you're thinking about that and then secondly, when we just think about the billings growth. It's more in line with revenue growth around 20% have you seen less shift to monthly or.
Or any any reason for that thank you.
Well this is true I'll take the first part and thanks for the question.
I wouldn't say anything has really changed with our philosophy I mean, we've always been focused on delivering a healthy balance of growth and profitability.
And we're going after a huge opportunity and Tim and think we're uniquely positioned to do that.
But we did see an opportunity this year to strengthen the investment thesis, we wanted to bring to market and put a couple of stakes incurred in the ground in terms of our long term profitability and cash generation that reflects the inherent efficiency of our business and just be really clear that we want to expand margins as we scale drive efficiency drive productivity.
While still leaving us plenty of room to invest.
So as I said as RJ touched on.
We still have or dollar investments in these areas will continue to grow at healthy levels.
Yep and to answer the second part of your question there Justin on billings. So our recent plus repricing and repackaging initiative was a tailwind to billings in Q4, we're still working through that exercise and I would just note as I've mentioned previously while billings are related to revenue growth not consistently predictive of revenue for us there can be items in a given quarter that moved billings growth higher or lower but don't drew.
Equity correlate to revenue, but we are seeing strength across monthly and annual subscriptions today.
Great. Thank you.
Thank you. Our next question comes from Mark Murphy with JP Morgan.
Line is open.
Yes. Thank you very much drew as you roll out did you Dropbox app in trying to move more into the foreground are you finding that people spend more time in dropbox in other words more minutes per day or more screen time or are you finding that they're taking more actions may be there.
Getting into the Apple little more frequently than they had been in the past just curious on on a overall how does it change the engagement that you're seeing.
Yeah, we're seeing a we're seeing strong early in signal both in terms of the kind of engagement that you're talking about we certainly like a collaborative engagement engagement was new features like our people pages and our machine learning driven smart suggestions that we've been happy with not just is I'd say broadly.
These new cohort those things are or engagement is increasing and.
Just as importantly, the kind of engagement.
Higher value engagement is increasing so that's certainly been an objective.
Of the new Dropbox, and something we're going to continue to drive and right now.
Thank you as a quick follow up for Ajay I was wondering how you'd characterize the Q4 performance in terms of the outbound activity in other words kind of the Lumpier enterprise level deals, which can affect the of the paid a user numbers and a and just any comment on that outbound pipeline.
Sure I can say that we continued to close a large volume of deals both through our self serve engine as well as to where I've done efforts and just as a reminder for those on the call self serve represents 90% of our total revenue and is our primary go to market channel and we've built and efficient and scalable model that balances strong self serve growth with a disciplined investment.
Okay, and outbound and that's a model we plan to continue to scale for both our existing and on your products. So just a lot of consistency and what we saw a with respect to that channel in Q4.
Thank you.
Thank you. Our next question comes from Heather filling with Goldman Sachs. Your line is open.
Great. Thank you so much I had two quick questions. One just from a nice improvement you're going to see next year or I'm sorry. This year in gross margins. Just if you could kind of detail kind of where the leverage is coming from on the gross margin line and and if that's something that we can accept on an ongoing basis and then secondly.
Just difficult paid users I mean kind of following up a little bit to Mark's previous question, but I'll just give you had made a comment maybe.
One last quarter's call just saying you know the first half of this year or.
And would expect kind of sub growth. If the you know kind of below what we have been seeing do you still kind of see that comment and should we be benchmark come off of the I think it was 300000.
Fine, but any comment.
On that kind of peak homes Keyw equation, a would be very helpful. Thank you.
Sure so to start with the first part of your question around gross margins. We've continued to drive gross margin expansion over the last few quarters and we have a long term target for gross margins and 70% to 80% to revenue and we are at the lower end of that range today and those efficiency gains have been driven by our investments and things like SMB.
And the new cold storage tier that we launched and so you'll see us continue to drive more and more efficiency across GM in 2020, right now that long term target continues to be 70, 80, 80% of revenue and as it relates to paying users, yes, you're correct on last quarter's call. We noted that paying user growth would be slightly lower over the next couple of quarters as a result.
All of our plus repricing and repackaging initiative and that's consistent with our expectations. When we launched it that initiative overall continues to be a tailwind to revenue and I would just know that profitably growing our total air our base versus optimizing for a specific net new paying user number is our priority and where you'll see us focus resourcing and comp.
Terry going forward.
Okay. So just to be clear that we that 300000 is like that type of level is what you're trying to steal restored.
Got it might comment still seems to hold with what you said on the Q4 call.
Yeah. The comment that we made prior still hold you don't normally guide.
Yeah, we don't normally guide to the metric, but the prior commentary is reflective of reality today.
Okay, great. Thank you.
Thank you. Our next question comes from Carl Kill Stead with Deutsche Bank. Your line is open.
Oh, Thank you I'd love to go back to that initial question around the the long term growth margin tradeoffs. So to go from 17, 18% margins. This year to 28 to 30 in 2024, that's obviously about 300 basis points, a year, which is fantastic.
At the analyst day in the fall you put up a slide suggesting that you could do over 200, Bips a year and operating margin improvement only under what you call to a moderate growth scenario. So obviously, if getting to 20 to 30 via a fairly material growth deceleration that might you know dampen the volley.
Some of the applause around that margin improvement. So maybe if I could ask a fairly pointed question did drew and RJ. In 2024, do you think dropbox can still be a.
Double digit revenue growth story.
Sure when they start by answering some of the questions and points you were making around how we plan to drive that margin expansion and then I can talk a bit about long term growth in how we're thinking about that today. So to start with profitability I would just reiterate what drew said in that we've always been focused on delivering healthy balance of growth and profitability and we want to ensure that we continue to strength.
In the investment thesis that we're bringing to market and our 2020 guidance and the revisions that we made to our long term margin targets are reflective of the inherent operating efficiency of our business and we've aligned under new leadership to drive growth in scale in a more focused way and that's unlocked opportunities to accelerate margin expansion and free cash flow generation and so this year as well.
As longer term, we plan to drive more efficiency and higher levels of productivity across each of our operating expense categories. So across R&D will be prudent with how we spend as we drive adoption of the new Dropbox and we optimize those team oriented conversion flows invest in new high ROI product launches and then across Esa them as I mentioned earlier, we'll focus our spend to.
To support adoption of the new Dropbox, while prioritizing our most strategic growth and monetization initiatives and as it relates to growth as we execute to our expense targets, we won't reduced investment and our growth engine and new product development, rather were really carefully considered where we can drive material efficiency improvements across the business, while preserving investment in our high.
As potential product in growth that's and these are bats, Carl that you will see you factored into our topline guidance as we build more signal over the course of the year and I would say it at the highest level, we're focused on solving large an unmet customer needs in the thoughtfully expanding the markets that we serve our acquisition Hello sign launch in Smart workspace category I think are good examples of this and longer.
Term certainly focused on maintaining double digit revenue growth committed to delivering over a billion dollars an annual free cash flow by 2024 and being prudent with the expectations that we're setting today. We are in the business of generating returns on investment and aspire to higher and leading levels or productivity going or spend.
Got it I just terrific tenders or yeah go ahead your.
I was just underscore what I just said about the long term aspirations I mean, there's there's no question that the opportunity is there and and frankly, we don't see anyone solving our customers challenges around being able to focus at work and the fragmentation in distraction.
Thats happening as there is per really proliferation of tools.
At work and so we think we're uniquely positioned for that and what we've launched the new Dropbox is just beginning.
Got it Okay terrific answer and then maybe my follow up just on the buyback drew I'll just should we.
Interpret that as the signal that in terms of use of cash 2020 might be a somewhat quieter.
M&A year would that be fair or no.
Well a this is actually I can say that M&A has always been an important part of our growth strategy is a company that will continue to be the case going forward and we really haven't efficient cash flow generative business and we're confident that we can invest in new products in growth, while engaging in a share repurchase to deliver returns back to to our shareholders and in 2021st.
Sample, we do plan to generate hundreds of millions of dollars of free cash flow on top of the nearly $1.2 billion of cash and marketable securities. We currently have on our balance sheet, which gives us plenty of dry powder to do both.
Yeah, and I wouldn't say this is a commentary on our willingness to do M&A.
Got it congrats on the terrific out your guidance.
Thank you.
Thank you. Our next question comes from Fishy chilled L'oreal with D.A. Davidson Your line is open.
Hi, guys.
Thanks.
Hello.
Any quantitative.
<unk>.
Okay.
Sure. So these are important product set of that continue to do well. So paper paper drives a monetization more indirectly or in that people who are customers that.
That are we were trying to lifetime value of dropbox to customers that they use dropbox and dropbox paper convert to a paid paid subscription at twice the rate they retained at a better rate.
And so papers example, something where we today, we monetize the indirectly and then Hello sign is a separate skew and that's in a more focus there on driving adoption of Hell assign among dropbox users and I'd say, we're we're early in that process.
Okay, and I would now just add that the new Dropbox helps drive adoption of both of those things that gives us a new surface.
To both promote them and build a more integrated and differentiated experience for both so for example with Palestine.
After you hit save on a document or a contract being able to send it out for signature with one click. This is there's a lot more surfaces like that where we can.
Help users connect users to to that to all of our new products.
Great.
Sure.
Okay.
Our water.
All right.
Well I think we're continuing to it or eight on the core experience and helping.
Oh, well word word.
The new drop is it's a it's a completely new desktop that built from scratch and so guiding folks to use that new behavior instead of being in the operating system. We're just trying to make that transition as seamless as possible and gently and drop bugs does a lot of different things for people's of figure out how do we introduce new functionality like Hell assigning paper, but also.
Play to our strengths and simplicity and design that's the trade off the those are the kinds of trade offs, we were still iterating on but we're happy with our progress.
Thanks.
Thank you. Our next question comes from Pat Walravens with JMP Securities. Your line is open.
Hi, this marks a pad. Thank you so much for taking my question just on handle fine I'm. Just wondering if you can talk a little bit about what's your go to market strategy there. Thanks.
Hi, I'm, so it's pretty straightforward I mean, there's a bunch of different.
There were certain certainly hell assignees signature.
Hi, there is demand for that across all of our segments I'd say the depart where most focused on is really help us on strength, which is in that and self served and their sweet spot is really SMB and when we look at the E signature market, particularly for SMB. It's very it's Underpenetrated I mean, a lot of our we watch a lot of our customers still using pen and paper.
For base workflows and the one of the things you're most excited about with the combination was being able to introduce hell assigned to our self serve base. We're in the early innings, so that and as I've said before the new Dropbox and other levers.
Or the new Dropbox, and and we have all kinds of opportunities across our whole go to market to introduce hell assigned to our customer. So we're excited about the upside potential there.
Great. Thank you.
Thank you. Our next question comes from Scott Wilson with RBC capital markets.
Your line is open.
Thanks for taking my question day I'm on for Alex I guess first drew you recently hired a COO can you kind of speak to the delegation of responsibilities, where you see Olivia grain complementing yours and maybe areas of the company you expect might receive more or less of your attention as LDX kind of fully ramped into her.
Yes.
Sure.
So for context, we added we just added Olivia not a bomb as our new CLL. She just started a couple of weeks ago and she's hit the ground running and and she comes from Google Cloud.
Where she ran their SMB sales and a lot and.
And more of that allowed to go to market.
And she will be running all of our go to market functions.
And so there's a number of functional areas that she'll be responsible for and and she'll be a partner for me in running the company more broadly so.
Making sure that as now we have multiple lines of business in the complexity and scale. The business has increased really making sure that were operationally excellent across all those dimensions.
Olivia will be helping me do that throughout the company and that frees me up to spend more time proportionately on product development, making sure that are pipeline of new products things like the new Dropbox I make sure core business grosses I'm proportionately would be able to spend more time product development.
Great makes sense and maybe a quick follow up her RJ.
I'm not mistake I think your net add them. There are your sequential air rights and the fourth quarter was actually less than it was in the third quarter. So I guess the question would be did you see any uptick in churn relative to expectation given the pricing changes and I guess, if not how should we kind of frame that air metric this quarter like in general you feel.
Thank you our business kind of has the pronounced seasonality in Fourq you difficult. Most software companies are you little bit atypical there.
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Yep, good questions and I would say as it relates to the plus repricing and repackaging I've answered. Your question is no we've seen a modest impact, but the impact has been well within our expectations and that's something we noted last quarter as well I can say that net revenue retention for our plus subscribers has increased meaningfully as a result of unit.
And if so overall, it's been a tailwind to revenue and we've been able to manage its a very healthy retention rates and last year I can say that era benefited from a few different factors that were nonrecurring and certain periods and so early in the euro benefited from our acquisition of Hello sign and then from monthly subscriber renewals as part of that plus repricing.
And repackaging in Q3, and so adjusted for these onetime nonrecurring benefits net new air on Q4 was consistent with historical quarters. In 2019 I'd also note that total air our grew 19% year over year in Q4, So we delivered a strong growth rate there.
Great. Thanks, guys.
Thank you as a reminder, if you'd like to ask a question Press Star then one key on your Touchtone telephone.
We have a question from Brent fill with Jefferies. Your line is open.
Hi, This is love soda on from Brent. So thanks for taking my questions and thank you for the long term guidance I sort of wanted to ask about how you guys are thinking about ARPU versus like net new user growth over the next year.
I mean, you have seen some meaningful ARPU expansion given the plus you know repatha repackaging and repricing what should we expect going into next year for our pool versus a net new user growth.
Sure. This is RJ happy to take that question I can say that.
The past I've talked about a material driver ARPU expansion one of the primary drivers of ARPU expansion being higher attach rates to our premium skews from new paying users that continues to be the case, it's a very material driver as well as us driving a higher and higher mix of teams licenses, which have a higher SP overtime and so we continue to drive that mix shift from it.
Vigils towards teams and we continue to drive higher and higher attach rates to our premium individual plan as well as our premium team plan. So that taleban to ARPU is going to continue throughout the year.
The primary driver of revenue growth for US has always been paying user conversion. So that'll continue to be the case just on a volume basis, but you'll see a continue tailwind to ARPU is well over the course of 20 to 20.
Got it and then just one quick follow up if I may in terms of the partnerships I know you guys mentioned zoom slack.
Has led into you know some kind of go to market traction.
You know going to market together would soon were slack or you know some kind of cross selling motion there any color would be appreciated. Thank you.
Sure I mean, there's certainly that opportunity in the and <unk> and growing our ecosystem or something.
As an area, where we're going to continue to make big investments. So the starting point has been building the integrations and so the integration between Dropbox and slack.
Most of Dropbox integration within slack in this like enrichment Dropbox are really popular on both sides and I could say the same thing about or integrations resume and others that we've announced recently so.
We've been focused initially on the product experience and making sure. That's good and now we're focused and will be turning to focus on driving adoption and other things. We can do on go to market.
Got it thank you.
All right. Thank you everyone for joining us today, we appreciate your support and we're looking forward to speaking with you again next quarter.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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