Q1 2024 Dropbox Inc Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the Q1 2024 Dropbox Earning Conference Call.

Good day and thank you for standing by welcome to the Q1 2024 Dropback earnings Dropbox, earning conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Peter Stabler, Head of Investor Relations. Please go ahead.

Operator: Didn't hear an automated message if I assume that's your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Peter Stabler head of Investor Relations. Please go ahead.

Peter Stabler: Thank you. Good afternoon, and welcome to Dropbox's first quarter 2024 earnings call. Before we get started, I'd like to remind you that our remarks today will include forward-looking statements, such as our financial guidance and expectations, including our long-term objectives and forecasts for our second quarter and fiscal year 2024, and our expectations regarding revenue growth, profitability, operating margin, and free cash flow, as well as our expectations regarding our business, assets, products, strategies, technology, employees, users, demand, and the macroeconomic environment.

Peter Stabler: Thank you good afternoon, and welcome to Dropbox as first quarter 2024 earnings call.

Peter Stabler: Before we get started I'd like to remind you that our remarks today will include forward looking statements.

Peter Stabler: Such as our financial guidance and expectations.

Peter Stabler: Including our long term objectives and forecast for our second quarter and fiscal year 2024.

Peter Stabler: And our expectations regarding our revenue growth profitability.

Peter Stabler: Operating margin and free cash flow.

Peter Stabler: As well as our expectations regarding our business assets product strategies technology employees users' demand.

Peter Stabler: The macroeconomic environment.

Peter Stabler: These statements are subject to risks and uncertainties that could cause actual results to differ materially. They're also based on assumptions as of today, and we undertake no obligation to update them as a result of new information or future events. Factors and risks that could cause our actual results to differ materially from these forward-looking statements are set forth in today's earnings release and in our quarterly report on Form 10-Q filed with the SEC.

Peter Stabler: These statements are subject to risks and uncertainties that could cause actual results to differ materially.

Peter Stabler: They are also based on assumptions as of today and we undertake no obligation to update them as a result of new information or future events.

Peter Stabler: Factors and risks that could cause our actual results to differ materially from these forward looking statements are.

Peter Stabler: Are set forth in todays earnings release and in our quarterly report on Form 10-Q filed with the SEC.

Peter Stabler: We'll also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of GAAP and non-GAAP results is provided in our earnings release and on our website at investors.dropbox.com. I'll now turn the call over to Dropbox's co-founder and CEO, Drew Houston.

Peter Stabler: We will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.

Andrew W. Houston: A reconciliation of GAAP and non-GAAP results is provided in our earnings release and on our website at investors got Dropbox Dot com.

Peter Stabler: I'll now turn the call over to Dropbox as co founder and CEO drew Houston.

Peter Stabler: Group.

Andrew W. Houston: Thanks, Peter. And good afternoon, everyone.

Andrew W. Houston: Thanks, Peter and good afternoon, everyone.

Andrew W. Houston: Welcome to our Q1 2024 earnings conference call.

Andrew W. Houston: Joining me today is Tim Regan, our Chief Financial Officer.

Andrew W. Houston: Welcome to our Q1 2024 earnings conference call. Joining me today is Tim Regan, our Chief Financial Officer. I'll first provide an overview of recent business and product highlights, and then Tim will review the details of our Q1 financial results and update our outlook for the remainder of the year. Revenue for the quarter was in line with our expectations. However, we still have work to do to return our core business to a growth rate that's more representative of the opportunity.

Andrew W. Houston: I'll first provide an overview of recent business and product highlights and then Tim will review the details of our Q1 financial results and update our outlook for the remainder of the year.

Andrew W. Houston: Revenue for the quarter was in line with our expectations. However, we still have work to do to return our core FSS business to a growth rate that's more representative of the opportunity we see.

Andrew W. Houston: As our teams work on initiatives to achieve that, and I'll share more about those efforts in a moment, we continue to manage our expenses carefully, and we're pleased to have delivered better than anticipated profitability during the course. On another positive note, after a challenging fourth quarter, paying users returned to sequential growth with $35,000 net new additions in the quarter.

Timothy J. Regan: As our teams work on initiatives to achieve that and I'll share more about those efforts in a moment we.

Andrew W. Houston: We continue to manage our expenses carefully and we're pleased to have delivered better than anticipated profitability in the quarter.

Andrew W. Houston: On another positive note after a challenging fourth quarter paying users returned to sequential growth with 35000 net new additions in the quarter.

Andrew W. Houston: We're encouraged by this return to pay-per-user growth, but we're still facing macroeconomic challenges and an uncertain demand environment. Within our core FSS business, we continue to see pressure across our self-serve individual and teams offerings, while in the quarter we saw better than anticipated performance across our document workflow group, comprised of FormSwift, Sign, and DocSign. I'll now share more specifics on our core FSF business, starting with Teams. Improving our team's offering is a focal point for us.

Andrew W. Houston: We're encouraged by this return to paying user growth, but we are still facing macroeconomic challenges and an uncertain demand environment.

Andrew W. Houston: Within our core FSS business, we continue to see pressure across our self serve individuals and teams offerings.

Andrew W. Houston: During the quarter, we saw better than anticipated performance across our document workflow group comprised of farms with sign in <unk>.

Andrew W. Houston: I will now share more specifics on our core FSS business starting with teams.

Andrew W. Houston: Improving our teams offering as a focal point for us this year.

Andrew W. Houston: Our team's plans feature higher net revenue retention rates and an opportunity for license expansion. In Q1, we focused on reducing friction in the onboarding process, improving the team admin workflow, and streamlining the sharing experience. We're pleased that the changes we made led to solid top-of-funnel improvement during Q1, with trial starts, team invitations, and weekly active usage all posting year-over-year increases. These are positive indicators that customers are trying and using our products. And the next step is for us to convert and retain these potential new patients.

Andrew W. Houston: Our teams plan feature higher net revenue retention rates and an opportunity for license expansion.

Andrew W. Houston: In Q1, we focused on reducing friction in the onboarding process, improving the team admin workflow and streamlining the sharing experience.

Andrew W. Houston: We're pleased that the changes we made led to solid top of funnel improvement during Q1 with trials start team invitations and weekly active usage, all posting year over year increases.

Andrew W. Houston: These are positive indicators that customers are trying and using our products and the next step is for us to convert and retain these potential new paying users.

Andrew W. Houston: And as we mentioned on our last call, late in Q4, we implemented tests and experiments for individual plans that didn't produce the expected results. In particular, our emphasis on higher-priced SKUs in our mobile channel ended up negatively impacting our top of funnel metrics, including trial starts for new individual plan users. Over the course of Q1, we continued our work on our go-to-market motion for our individual, and while our mobile channel hasn't yet fully recovered, we've seen some recent improvement on top of the funnel, and we're confident we can further improve the efficiency of the mobile acquisition channel going forward.

Andrew W. Houston: And as we mentioned on our last call late in Q4, we implemented tests and experiments for individual plans that didn't produce the expected results.

Andrew W. Houston: In particular, our emphasis on higher priced skus in our mobile channel ended up negatively impacting our top of funnel metrics, including trial starts for <unk> for new individual plan users.

Andrew W. Houston: Over the course of Q1, we continued our work on our go to market motion for our individual plans.

Andrew W. Houston: While our mobile channel has not yet fully recovered we have seen some recent improvement in top of funnel and we're confident we can further improve the efficiency of the mobile acquisition channel going forward.

Andrew W. Houston: Moving on to a quick update on Bundle. As a reminder, we created bundled SKUs to offer multiproduct capabilities to new customers at a higher price point, reflecting the additional value we were adding to them. These SKUs include FSS, as well as limited or introductory functionality across products such as Dropbox Sign, DocSend, and Replay. On our last earnings call, we noted that while we saw improved ARPU and higher multiproduct adoption rates with the introduction of these plans, we're also seeing reduced top of funnel demand and conversion.

Andrew W. Houston: Moving on to a quick update on bundles.

Andrew W. Houston: As a reminder, we created bundled skus to offer multi product capabilities to new customers at higher price point, reflecting the additional value we were adding to the plants.

Andrew W. Houston: These skus include FSS as well as limited or introductory functionality across products, such as Dropbox sign docs and in replay.

Andrew W. Houston: On our last earnings call. We noted that while we saw improved <unk> and higher multi product adoption rates with the introduction of these plans. We are also seeing reduced top of funnel demand and conversion challenges.

Andrew W. Houston: Based on our learnings, in late Q1, we elected to roll back the pricing of our bundled SKUs to pre-launch levels to counteract the potential price sensitivity that these plans introduce. We're currently accepting the customer response to these reduced prices while we also work to optimize the features included with these bundles, as well as the underlying product experience.

Andrew W. Houston: Based on our learnings in late Q1, we elected to roll back the pricing of our bundled skus to prelaunch levels to counteract the potential price sensitivity that these plans introduced.

Andrew W. Houston: We're currently assessing the customer response to these reduced prices. While we also work to optimize the features included with these bundles as well as the underlying product experience.

Andrew W. Houston: We'll continue to iterate and drive towards an intuitive lineup of offerings for our customers, and we'll have more to share on our progress here in the coming weeks. Customer feedback is a critical input into our product. Our April 24th release is a great example of our team acting on this feedback as we release a collection of product updates designed to make it even easier for Dropbox users to secure, organize, and share their work across different devices, locations, and platforms.

Andrew W. Houston: We'll continue to iterate and drive towards an intuitive lineup of offerings for our customers.

Andrew W. Houston: We'll have more to share on our progress here in the coming quarters.

Andrew W. Houston: Customer feedback is a critical input into our product development.

Andrew W. Houston: Our April 24th release is a great example of our team's acting on the feedback as we released the collection of product updates designed to make it even easier for dropbox users to secure organize and share their work across different devices locations and platforms.

Andrew W. Houston: To help our users secure their content, we released new advanced data protection features, including advanced key management and full end-to-end encryption, offering our FSS users complete control over how their data is secured. The kernel of this end-to-end encryption capability stems from our acquisition of Boxcryptor in late 2022, as we were seeing our customers purchase this functionality separately from Dropbox.

Andrew W. Houston: To help our users secure content, we released new advanced data protection features including advanced key management and full end to end encryption offering our FSS users complete control over how their data is secured.

Andrew W. Houston: The kernel of this end to end encryption capabilities stems from our acquisition of Bock script or in late 2022.

Andrew W. Houston: As we were seeing our customers purchase that functionality separately from Dropbox.

Andrew W. Houston: Now our users can take advantage of this capability natively within Dropbox, providing additional protection for both our end users and their administrators, who are key influencers in purchasing decisions. We also consistently hear from our users that they want more help organizing and sharing their content efficiently across distributed teams. For example, our users have sought ways to improve collaboration across Microsoft applications. That's why we were excited to announce real-time co-authoring integrations with Microsoft 365. Dropbox teams users can now edit Microsoft Office files on the desktop simultaneously and save natively within Dropbox without conflicting copies.

Andrew W. Houston: Now our users can take advantage of this capability natively within Dropbox, providing additional protection for both our end users and their administrators, who are key influencers and purchasing decisions.

Andrew W. Houston: We also consistently hear from our users that they want more help organizing and sharing our content efficiently across distributed teams.

Andrew W. Houston: For example, our users have sought ways to improve collaboration across Microsoft applications.

Andrew W. Houston: That's why we were excited to announce real time co authoring integrations with Microsoft 365.

Andrew W. Houston: Dropbox teams users can now edit Microsoft office files on the desktop simultaneously and save natively within Dropbox without conflicting copies.

Andrew W. Houston: With real-time editing, they can be confident they're working off the latest version. We also launched a Microsoft Copilot integration, giving users the ability to query their Dropbox files directly from within Microsoft Office. Our April release also featured the launch of DocSend Advanced Data. Users are now able to securely share multiple files with a single link while maintaining complete control of viewing with group permissions, visitor verification, and built-in NDA. With an easy-to-use virtual data room solution, DocsEnd is now even better positioned as an attractively-priced, full-featured solution to address the middle-market deal flow operation. Sharing quickly and easily across teams is especially important for projects with large video files, which is the fastest growing content type on the Dropbox platform with over 1.5 billion videos uploaded each year.

Andrew W. Houston: With real time editing they can be confident they are working off the latest version.

Andrew W. Houston: We also launched a Microsoft co pilot integration, giving users the ability to quarry their dropbox files directly from within the Microsoft teams.

Andrew W. Houston: Our April release also featured the launch of Docs and advanced data rooms.

Andrew W. Houston: Users are now able to securely share multiple files with a single link while maintaining complete control of viewing with group permissions visitor verification and built in NDS.

Andrew W. Houston: With an easy to use virtual data room solution docks and is now even better positioned as an attractively priced full featured solution to address the middle market deal flow opportunities.

Andrew W. Houston: Sure can quickly and easily across teams is especially important for projects with large video files, which is the fastest growing content type on the dropbox platform with over $1 5 billion videos uploaded each year.

Andrew W. Houston: To support video-based projects, we've continued to invest in Dropbox Replay, our rich media review and approval tool. Since Replay's general release, active users have been growing on average 15% quarter over quarter. And further, with our new integration, Replay users who work in Avid Pro Tools can now review files directly within their Avid application.

Andrew W. Houston: To support video based projects, we've continued to invest in Dropbox replay, our rich media review and approval tool.

Andrew W. Houston: Since replaced general release active users have been growing on average 15% quarter over quarter.

Andrew W. Houston: Further with our new integration replay users who work in avid pro tools can now review filed directly within their App an application.

Andrew W. Houston: I'll now shift gears and share an update on DASH, our standalone universal search product that leverages AI and machine learning to help organize all of your cloud... Last quarter, we shared that we were prioritizing collecting input from our beta users and focusing on maximizing the utility and virality of the Dash product, and we've been making significant progress in Q1. For example, we've recently seen double-digit percent increases in search success for existing and new users, and we've reduced average search latency by over 50%.

Andrew W. Houston: I'll now shift gears and share an update on dash, our standalone universal search product that Leverages AI and machine learning to help organize all of your cloud content.

Andrew W. Houston: Last quarter, we shared that we are prioritizing collecting input from our beta users and focusing on maximizing the utility and virality of the dash product and we've been making significant progress in Q1.

Andrew W. Houston: For example, we've recently seen double digit percent increases and search success for existing and new users and we've reduced the average search latency by over 50%.

Andrew W. Houston: We're conducting near-daily user sessions, and the feedback has been valuable. As we better align Dash's key features with user needs and achieve stronger product market fit, we're eager to leverage our platform's user base and distribution to address this growing market opportunity for cloud-based units. We're also working on reducing onboarding time. For example, early on, we prioritized Dash development for Chrome. And while this allowed us to move faster, we created unnecessary friction for Safari and Firefox.

Andrew W. Houston: We're conducting near daily user sessions and the feedback has been valuable.

Andrew W. Houston: As we better aligned as the key features of user needs and achieve stronger product market fit we are eager to leverage their platforms user base and distribution to address this growing market opportunity for cloud based universal search.

Andrew W. Houston: We're also working on reducing onboarding hurdles for.

Andrew W. Houston: For example, early on we prioritized dash development for chrome.

Andrew W. Houston: And while this allowed us to move faster, we created unnecessary friction for Safari and Firefox users.

Andrew W. Houston: We've now eliminated this gap, and as a result, we've seen improvements in onboarding success rates and app connection. Early engagement trends are moving in the right direction as well, up over 70%. Our newly redesigned Dash Start page also enables users to get shortcuts to their recent work projects and view stacks, which are smart, shareable collections for any kind of cloud or file content.

Andrew W. Houston: We've now eliminated this gap.

Andrew W. Houston: And as a result, we've seen improvements in onboarding success rates and that connections.

Andrew W. Houston: Early engagement trends are moving in the right direction as well up over 70%.

Andrew W. Houston: Our newly redesigned dash start page also enables users to get shortcut. So their recent work projects and via stacks, which are smart shareable collections for any kind of cloud or file content.

Andrew W. Houston: And each quarter, we're adding more integrations with the most widely used workplace tools. In closing, we had a good start to 2024. While not without challenges, we delivered against our key business objectives of enhancing the product experience for our core FSS users while investing in our next generation AI-enabled product. Given the ongoing uncertainty in the macro landscape, we'll stay disciplined in our operations, seeking efficiencies, and remaining committed to judicious capital allocation.

Andrew W. Houston: And each quarter, we're adding more integrations with the most widely used workplace tools and apps.

Andrew W. Houston: In closing we had a good start to 2020 for while.

Andrew W. Houston: While not without challenges, we delivered against our key business objectives of enhancing the product experience for our core FSS users while investing in our next generation AI enabled product experiences.

Andrew W. Houston: Given the ongoing uncertainty in the macro landscape will stay disciplined in our operations seeking efficiencies and remaining committed to judicious capital allocation.

Andrew W. Houston: I'm excited about our roadmap for the remainder of 2024, and I'd like to thank all of our Dropboxers for their continued focus on delivering a more enlightened way of working for our community. And with that, I'll turn the call over to Tim to share a recap of our first quarter financial performance, as well as our expectations for the remainder of the year.

Andrew W. Houston: I'm excited about our roadmap for the remainder of 2024.

Tim: To thank all of our Dropbox theirs for their continued focus on delivering a more enlightened way of working for our customers.

Andrew W. Houston: And with that I'll turn the call over to Tim to share a recap of our first quarter financial performance as well as our expectations for the remainder of the year Tim.

Andrew W. Houston: Tim.

Timothy J. Regan: Drew, I'll cover our financial highlights from Q1, provide guidance for Q2 and offer some updated thoughts on our full year 2024 outlook, starting with our results for the first quarter.

Tim: Thank you drew.

Tim: I will cover our financial highlights from Q1.

Tim: Provide guidance for Q2 and offer.

Tim: Some updated thoughts on our full year 2020 for outlook.

Timothy J. Regan: Total revenue for Q1 increased 3.3% year over year to $631 million, slightly ahead of the high end of our guidance. As expected, foreign exchange rates had a minimal impact on revenue for the quarter, amounting to a 10 basis point tailwind and a 3.2% year over year constant currency growth.

Tim: Starting with our results for the first quarter.

Timothy J. Regan: Although revenue for Q1 increased three 3% year over year.

Timothy J. Regan: $631 million.

Timothy J. Regan: Slightly ahead of the high end of our guidance range.

Timothy J. Regan: As expected foreign exchange rates had a minimal impact on revenue for the quarter amounting to a 10 basis point tailwind.

Timothy J. Regan: And a three 2% year over year constant currency growth rate.

Timothy J. Regan: Total ARR grew to a total of $2.556 billion, up 3.6% year over year. On a constant currency basis, we added $16 million sequentially and 2.8% year over year. We exited the corridor with 18.16 million users, adding approximately 35,000 net new paying users on a sequential basis.

Timothy J. Regan: Total <unk> grew to a total of two five to $5 $6 billion.

Timothy J. Regan: Up three 6% year over year.

Timothy J. Regan: On a constant currency basis, we added $16 million sequentially and two 8% year over year.

Timothy J. Regan: We exited the quarter with $18 $1 6 million users, adding approximately 35000 net new paying users on a sequential basis.

Timothy J. Regan: Average revenue per paying user was $139.59. Before we continue with further discussion of our P&L, I would like to note that, unless otherwise indicated, all income statement figures mentioned are non-GAAP and exclude stock-based compensation, amortization of purchased intangibles, and certain acquisition-related expenses. Our non-GAAP net income also includes the income tax effect of the aforementioned adjustment.

Timothy J. Regan: Average revenue per paying user was $139 59.

Timothy J. Regan: Before we continue with further discussion of our P&L I would like to note that unless otherwise indicated.

Timothy J. Regan: All income statement figures mentioned, our non-GAAP and exclude stock based compensation amortization of purchased intangibles and certain acquisition related expenses.

Timothy J. Regan: Our non-GAAP net income also includes the income tax effect of the aforementioned adjustments.

Timothy J. Regan: With that, let's continue with the first quarter P&L. Gross margin was 84.6% for the quarter. As mentioned previously, the primary driver of the year-over-year increase in gross margin was the increase in the useful life of our servers, from four to five years, effective January 1st of this year. This change resulted in approximately $10 million of benefit to gross margin in the first quarter. The impact of this change is weighted towards the first half of this year, where we expect the full-year benefit to be roughly $30 million.

Speaker Change: With that let's continue with the first quarter P&L.

Timothy J. Regan: Gross margin was 84, 6% for the quarter.

Timothy J. Regan: As mentioned previously the primary driver of the year over year increase in gross margin was the increase in useful life of our servers from four to five years effective January one of this year.

Timothy J. Regan: This change resulted in an approximately $10 million of benefit to gross margin in the first quarter.

Timothy J. Regan: The impact of this change is weighted towards the first half of this year or.

Timothy J. Regan: We expect a full year benefit to be roughly $30 million.

Timothy J. Regan: Operating expenses were $303 million, down approximately 8% year over year. Operating margin was 36.5%, ahead of our guidance of 33% and up roughly 800 basis points from the year-ago period. A substantial portion of our better-than-anticipated results was timing results, as we delayed spending behind certain projects and marketing.

Timothy J. Regan: Operating expenses were $303 million down approximately 8% year over year.

Timothy J. Regan: Operating margin was 36, 5% ahead of our guidance of 33% and up roughly 800 basis points from.

Timothy J. Regan: From the year ago period.

Timothy J. Regan: A substantial portion of our better than anticipated result.

Timothy J. Regan: <unk> related.

Timothy J. Regan: As we delayed spending behind certain projects and marketing efforts.

Timothy J. Regan: Much of this delayed spend will be allocated across subsequent quarters. This year.

Timothy J. Regan: Much of this delayed spend will be allocated across subsequent quarters of this year. Net income for the first quarter was $197 million, up 35% year-over-year. Diluted EPS in the first quarter was $0.58 based on 341 million diluted weighted average shares on the standard. This compares to 42 cents per share. $349 million diluted rated average here is outstanding for Q1 2022. Moving on to our cash balance and cash flow. We ended the quarter with cash and short-term investments of $1.2 billion. First quarter cash flow from operations was $176 million, an increase of 25% versus the year-ago period. Capital expenditures for the quarter totaled $9 million.

Timothy J. Regan: Net income for the first quarter was $197 million.

Timothy J. Regan: Up 35% year over year.

Timothy J. Regan: Diluted EPS for the first quarter was 58.

Timothy J. Regan: Based on 341.

Timothy J. Regan: Diluted weighted average shares outstanding.

Timothy J. Regan: This compares to <unk> 42 per share.

Timothy J. Regan: And 349 million diluted weighted average shares outstanding for Q1 2023.

Timothy J. Regan: This resulted in quarterly free cash flow of $166 million compared to $138 million in Q1 of 2022. In the quarter, we also added $27 million to our finance leases for data center equipment. While this figure represents a material step down from finance lease additions in Q4, we continue to anticipate full year 2024 additions to approximate 7% of total revenue. As related to our share repurchase program, in Q1, we repurchased just over 11 million shares. Spending $279 million.

Timothy J. Regan: Moving on to our cash balance and cash flow.

Timothy J. Regan: We ended the quarter with cash and short term investments of $1 2 billion.

Timothy J. Regan: First quarter cash flow from operations was $176 million, an increase of 25% versus the year ago period.

Timothy J. Regan: Capital expenditures in the quarter totaled $9 million.

Timothy J. Regan: This resulted in quarterly free cash flow of $166 million compared to $138 million in Q1 of 2023.

Timothy J. Regan: In the quarter, we also added $27 million to our finance leases for data center equipment.

Timothy J. Regan: While this figure represents a material step down from.

Timothy J. Regan: From finance lease additions in Q4, we continue to anticipate full year 2020 for addition to approximate 7% of total revenue.

Timothy J. Regan: As it related to our share repurchase program in Q1, we repurchased just over 11 million shares.

Timothy J. Regan: Spending $279 million.

Timothy J. Regan: As of the end of the first quarter, we had approximately $1.1 billion remaining under our current repurchase authorization. Our philosophy on share repurchases has not changed. We remain committed to returning a significant portion of our free cash flow to shareholders in the form of share repurchases with the intention of reducing our share count over time. These repurchases are related to the 10b51 grid structured to buy more shares at lower prices. I'd now like to share our 2024 second quarter and updated school year guidance, and I will also provide some context on the thinking behind this guidance.

Timothy J. Regan: As of the end of the first quarter, we had approximately $1 $1 billion remaining under our current repurchase authorization.

Timothy J. Regan: Our philosophy on share repurchases has not changed.

Timothy J. Regan: We remain committed to returning a significant portion of our free cash flow.

Timothy J. Regan: To shareholders in the form of share repurchases with the intention of reducing our share count over time.

Timothy J. Regan: Related to <unk>, one grid structure to buy more shares at lower price points.

Timothy J. Regan: For the second quarter of 2024, we expect revenue to be in the range of $628 to $631 million. We expect a roughly $1 million positive impact from FX this quarter. We expect non-GAAP operating margin to be approximately 33%. Finally, we expect diluted weighted average shares outstanding to be in the range of 327.33 million shares.

Timothy J. Regan: I would now like to share our 2020 for second quarter and updated full year guidance.

Timothy J. Regan: I will also provide some context on the thinking behind this guidance.

Timothy J. Regan: For the second quarter of 2024, we expect revenue to be in the range of $628 million to $631 million.

Timothy J. Regan: We expect a roughly $1 million positive impact from FX this quarter.

Timothy J. Regan: We expect non-GAAP operating margin to be approximately 33%.

Timothy J. Regan: Finally, we expect diluted weighted average shares outstanding to be in the range of 327 to.

Timothy J. Regan: 332 million shares.

Timothy J. Regan: Based on our trailing 30 day average share, for the full year, we are maintaining our previous guidance for reported revenue to be in the range of 2.535 to $2.550 billion. Our constant currency revenue guidance range is also unchanged, at 2.532 to $2.547 billion, despite FX rates worsening in Q1. Changes in exchange rates have a more immediate effect on billings than on revenue, and thus the impact on revenue this year is not significant.

Timothy J. Regan: Based on our trailing 30 day average share price.

Timothy J. Regan: For the full year, we are maintaining our previous guidance for reported revenue to be in the range.

Timothy J. Regan: To $5 35.

Timothy J. Regan: 2550 $1 billion.

Timothy J. Regan: Our constant currency revenue guidance range is also unchanged.

Timothy J. Regan: At two five to three two.

Timothy J. Regan: 2547 1 billion.

Timothy J. Regan: Despite FX rates worsening in Q1.

Timothy J. Regan: Changes in FX have a more immediate effect on billings and on revenue.

Timothy J. Regan: And thus the impact to revenue this year is not significant.

Timothy J. Regan: As with prior guidance, we expect gross margin to be in the range of 83 to 83.5 percent. For non-GAAP operating margin, we now expect it to land between 32.5% and 33% for the full year, up from prior guidance of 32. 32.5, representing an increase of $13 million in operating income at mid-year. As mentioned previously, roughly half of our outperformance in Q1 was driven by delayed spend that we expect to incur over the remainder of the year.

Timothy J. Regan: As with prior guidance, we expect gross margin to be in the range of 83 to 83, 5%.

Timothy J. Regan: For non-GAAP operating margin, we now expect to land between 32, five to <unk>, 33% for the full year.

Timothy J. Regan: Up from our prior guidance of 32.

Timothy J. Regan: To 32, 5%.

Timothy J. Regan: Representing an increase of $13 million of operating income at the midpoint.

Timothy J. Regan: As mentioned previously roughly half of our outperformance in Q1 was driven by delayed spend that we expect to incur over the remainder of the year.

Timothy J. Regan: Our expectation for free cash flow is unchanged at $910 to $950 million. We continue to expect $20 to $30 million in capital expenditures. And our outlet for finance-based additions is unchanged at approximately 7% of revenue for the full year. Finally, we expect our diluted weighted average shares outstanding to be in the range of 326. 331 million shares based on our trailing 30 average share. This represents a reduction of 10 million shares for each end of the range when compared to our previous guidance of 336.

Timothy J. Regan: Our expectation for free cash flow is unchanged at $910 million to $950 million.

Timothy J. Regan: We continue to expect $20 million to $30 million in capital expenditures.

Timothy J. Regan: Our outlook for finance lease additions is unchanged at approximately 7% of revenue for the full year.

Timothy J. Regan: Finally, we expect our diluted weighted average shares outstanding to be in the range of 302006.

Timothy J. Regan: 331 million shares based on our trailing 30 day average share price.

Timothy J. Regan: This represents a reduction of 10 million shares for each end of the range when compared to our previous guidance of 336 to.

Timothy J. Regan: 341 million shares. I'll now share some additional context on the thinking behind our guidance. Consistent with our historical approach, our guidance reflects what we have a high degree of visibility into today. As a result, we are maintaining our revenue guidance for the year, given the challenging state of the macroeconomic environment, particularly within the S&B space, as well as the work-in-progress status of a number of our initiatives for our core File, Sync, and Share business and DAS.

Timothy J. Regan: 341 million shares.

Timothy J. Regan: We are also monitoring the recent security incident with our sign biz, which represents a low single-digit percentage of our total revenue. And while we do not anticipate a material impact on our revenue, this could lead to incremental customer churn. Regarding paying users or comments offered, last quarter still applies.

Timothy J. Regan: I'll now share some additional context on the thinking behind our guidance.

Timothy J. Regan: Consistent with our historical approach our guidance reflects what we have a high degree of visibility into today.

Timothy J. Regan: As a result, we are maintaining our revenue guidance for the year given the challenging state of the macroeconomic environment, particularly within the SMB space.

Timothy J. Regan: As well as the work in progress status of a number of our initiatives for our core file sync and share business in dash.

Timothy J. Regan: We are also monitoring the recent security incident with our signed business.

Timothy J. Regan: Which represents a low single digit percentage of our total revenue.

Timothy J. Regan: And while we do not anticipate a material impact to our revenue this could lead to incremental customer churn.

Timothy J. Regan: Regarding paying users our comments offered last quarter still apply.

Timothy J. Regan: We still expect paying user growth for the full year, and we project adding users in the second quarter as well. That said, we want to remind everyone that our quarterly performance could vary should we experience any large team churn, see changes in the macroeconomic environment, or experience incremental churn due to our recent security events with our Dropbox-signed product. As related to non-GAAP operating margin, we are raising our outlook by 50 basis points as we remain focused on being disciplined with our spend.

Timothy J. Regan: We still expect paying user growth for the full year and.

Timothy J. Regan: And we project, adding users in the second quarter as well.

Timothy J. Regan: That said, we want to remind everyone that our quarterly performance could vary.

Timothy J. Regan: Should we experience any large team churn see changes in the macroeconomic environment.

Timothy J. Regan: Our experienced incremental churn due to our recent security event with a dropbox sign product.

Timothy J. Regan: As it related to non-GAAP operating margin, we are raising our outlook by 50 basis points as we remain focused on being disciplined with our spend.

Timothy J. Regan: We are maintaining our free cash flow guidance for the year. While we are maintaining our revenue guidance and increasing our operating margin guidance, we also saw FX rates worsen during this past quarter, where FX movements have a more immediate impact on billings and cash. Therefore, the improvement we are driving on operating income is roughly being offset by deterioration in effect. Finally, as related to our share count, we are reducing our expected share count range to reflect our increased pace of repurchases in accordance with our 10b51 goal.

Timothy J. Regan: We are maintaining our free cash flow guidance for the year.

Timothy J. Regan: While we are maintaining our revenue guidance and increasing our operating margin guidance. We also saw FX rates worsen during this past quarter.

Timothy J. Regan: For FX movements have a more immediate impact on billings and cash.

Timothy J. Regan: Therefore, the improvement we are driving on the operating income is roughly being offset by deterioration in the FX.

Timothy J. Regan: Finally, as it related to our share count we are reducing our expected share count range.

Timothy J. Regan: Our increased pace of repurchases in accordance with our <unk> one grid.

Timothy J. Regan: In conclusion, we continue to focus on efficiently operating our core file signature business, as we seek to drive revenue growth, margin expansion, and share count reduction. Concurrently, we continue to invest in new AI-enabled experiences that have a great opportunity to serve new and existing customers. We are making progress across these dimensions and believe that these efforts will culminate in creating long-term value for our share. With that, Operator, please open the line for questions.

Timothy J. Regan: In conclusion, we continue to focus on efficiently operating our core file sync and share business.

Timothy J. Regan: As we seek to drive revenue growth margin expansion and share count reduction.

Timothy J. Regan: Concurrently we continue to invest in new AI enabled experiences that have a large opportunity to serve new and existing customers.

Timothy J. Regan: We are making progress across these dimensions and believe that these efforts will culminate in creating long term value for our shareholders.

Timothy J. Regan: With that operator, please open the line for questions.

Operator: Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. And our first question will come from Steve Enders of Civi. Your line is open.

Speaker Change: Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please limit yourself to one question and one follow up.

Operator: Please standby, while we compile the Q&A roster.

Steven Lester Enders: And our first question will come from Steve <unk> of Citi. Your line is open.

Operator: Okay.

Steven Lester Enders: Okay, great. Thanks for taking the questions here. I guess maybe just to start out on, I guess, maybe the early feedback you're seeing from some of the AI products and Dash now that it's out there live. I guess, what is the feedback so far? And how is this kind of maybe changing how you're viewing the opportunity and the monetization potential of those products?

Steven Lester Enders: Okay, great. Thanks for thanks for taking the questions here.

Steven Lester Enders: I guess, maybe just just to start out on.

Steven Lester Enders: I guess, maybe the early feedback you're seeing from some of the AI products and Das now that that's.

Steven Lester Enders: Thats out there live I guess, what is the feedback so far.

Steven Lester Enders: What is I guess that was kind of maybe changing how youre viewing the opportunity and the monetization potential of that.

Steven Lester Enders: These products.

Andrew W. Houston: Sure. Thanks for the question. So, the early feedback, I'd say a few themes. First, I mean, the first thing I look for is we do my leadership, the Dash leadership team, and I sit every week with customers virtually and want to talk to them, interview them, walk them through the product. And the first thing is that this, I think we feel quite validated, this is a universal problem. Virtually all the prospects and users are like, yeah, I'm drowning in tabs and content and my stuff is scattered everywhere. So that's good, good validation. Second is validation as far as the overlap with FSS is concerned, which is important. So we find that paying Dropbox File Sync and Share users adopt and retain OnDash at higher rates.

Steven Lester Enders: Sure.

Speaker Change: Thanks for the question so.

Andrew W. Houston: <unk>.

Andrew W. Houston: The early feedback I would say a few themes. So first is.

Andrew W. Houston: I mean, the first thing I look for US we do my leadership.

Andrew W. Houston: Leadership team and I.

Andrew W. Houston: Every week with customers virtually and wanted to talk to the interview them market walk you through the product.

Andrew W. Houston: And the first thing is that this.

Andrew W. Houston: I think we feel quite validated as a universal problem.

Andrew W. Houston: Virtually all of the prospects and users are like yes, I'm drowning in tabs and content and my staff scattered everywhere.

Andrew W. Houston: So thats good good validation second is.

Andrew W. Houston: Validation as far as the overlap with FSS, which is important.

Andrew W. Houston: So we find that paying draw.

Andrew W. Houston: Dropbox files sync and share users adopt and retain on dash at higher rates.

Andrew W. Houston: I mean, our hypothesis was that this would be the case, and we think it's a natural evolution to go from organizing your files to organizing all your cloud stuff, but to see that in the numbers is encouraging. And then the feedback as far as the product is really just continuing to improve the fit and finish of the experience. So, on that front, in Q1, we cut search latency in half.

Andrew W. Houston: Our hypothesis was that this would be the case and we think we believe it's a natural evolution to go from organizing your files to organizing all your cloud stuff.

Andrew W. Houston: But to see that in the numbers is encouraging.

Andrew W. Houston: And then the feedback as far as the product is really just continuing to improve the fit and finish of the experience. So.

Andrew W. Houston: Watching engagement and Onboarding success retention.

Andrew W. Houston: Different performance characteristics, so on that front.

Andrew W. Houston: Q1, we cut search latency in half.

Andrew W. Houston: We've been improving the search success rate by tens of percentage points last quarter. Onboarding success, connector success, that kind of thing, is improving. And these are some of the indicators we look for in the March from Beta to GA. So we're pretty excited, it's still early, there's still a lot of work to do, but we're encouraged by some of the early results.

Andrew W. Houston: We've been improving the search success rate tens of percentage points last quarter Onboarding success connector success that kind of thing is improving.

Andrew W. Houston: And these are some of the indicators we look for in the March from.

Andrew W. Houston: From data to <unk>. So we're pretty it's still early theres still a lot of work to do but we're encouraged by some of the early signal.

Andrew W. Houston: Okay, great. That's helpful context on that side. And I guess maybe the packaging and the tweaks that you've made historically on top of the funnel, it sounds like, you know, maybe it's a little bit of improvement versus last quarter, but can you give a little more detail on what exactly you've changed and maybe where the potential, you know, green shoots are coming from from what you've tweaked so far?

Speaker Change: Okay great.

Speaker Change: That's helpful context.

Andrew W. Houston: Contracts on that side.

Andrew W. Houston: And then I guess moving to the.

Andrew W. Houston: The Pac and Hain and tweaks that we've made historically on on top of funnel it sounds like.

Andrew W. Houston: <unk>.

Andrew W. Houston: Yes, it's been a little bit of improvement versus last quarter, but can.

Andrew W. Houston: Can you give a little more detail on what exactly you've changed and maybe.

Andrew W. Houston: Sure.

Andrew W. Houston: The potential green shoots are coming from from what you've tweaked so far.

Andrew W. Houston: Yep.

Andrew W. Houston: So, yeah, for Contacts in Q4, we did our first kind of first rev of a bundled SKU, and we had mixed results. And so there are some lessons there that we've unpacked. So one is, some of the positive things we expected were that ARPU did go up, and it was a higher price point. Multiproduct attached went up.

Andrew W. Houston:

Andrew W. Houston: So for context in Q4, we did our first kind of <unk>.

Andrew W. Houston: First rather have.

Andrew W. Houston: Our bundled SKU.

Andrew W. Houston: But on the negative side, we also saw that their top of the funnel conversions were down partly due to there being already some price sensitivity, or we've already been seeing, I mean, due to the macro environment and what a lot of other folks are seeing, just price, more price sensitivity out there. So the higher price was not helping that. And secondly, we found that promoting or having all these different products to try to introduce them all at once created some extra friction in onboarding. So some of the indicators around onboarding success.

Andrew W. Houston: And I'd say, we had mixed results in so some some lessons there that we've unpacked. So one is some of the positive things, we expected or that <unk> did go up and it was a higher price point.

Andrew W. Houston: Multi product attach went up.

Andrew W. Houston: But on the negative side, we also saw that the top of funnel conversions.

Andrew W. Houston: Were down partly due to there was already some price sensitivity.

Andrew W. Houston: <unk> been seeing I mean, due to the macro environment and what a lot of other folks are seeing just price more price sensitivity out there. So the higher price was not helping that.

Andrew W. Houston: And then secondly, we've found that promoting or having all of these different products to trying to introduce them. All at once created some extra friction and onboarding. So some of the indicators around on boarding success.

Andrew W. Houston: I think more broadly, we changed a lot of variables at once, and so one thing we've basically been stepping back, and we're layering these changes on and sort of validating them one at a time or in a more Transcribed by https://otter.ai way, things like Dash. And we're relatively more focused going forward on optimizing our teams' business on Dash, on that evolution from organizing all your files, So we think it's still true that awareness is actually still the biggest gap among our customers.

Andrew W. Houston: <unk> declined slightly but I think more broadly.

Andrew W. Houston: We changed a lot of variables at once and so.

Andrew W. Houston: One thing we.

Andrew W. Houston: <unk> been stepping back and we're layering these changes on.

Andrew W. Houston: And sort of validating them, one at a time or in a more kind of considered fashion.

Andrew W. Houston: So I think just being careful.

Andrew W. Houston: To not change too many variables at once as a lesson.

Andrew W. Houston: Another lesson is.

Andrew W. Houston: What I was saying with dash is that they're really big really big opportunities here like $1 billion scale opportunities here are really with it.

Andrew W. Houston: Things like Dash.

Andrew W. Houston: And we are relatively more focused.

Andrew W. Houston: Going forward on optimizing our teams business on dash.

Andrew W. Houston: On that evolution from organizing all your files organizing all your cloud stuff.

Andrew W. Houston: So.

Andrew W. Houston: It's still true that.

Andrew W. Houston: This is actually still the biggest gap among our customers and we have a lot of happy customers, who want more from dropbox, but we hear over and over again that they did they didnt know, we do more than then file sync and share so.

Andrew W. Houston: And we have a lot of happy customers who want more from Dropbox, but we hear over and over again that they didn't know we did more than just FileSync and Share. So we're doing a lot on the kind of promotional front or finding ways to close that gap. And then with bundling, which is still a big opportunity. But I'd say we're relatively more focused on the bigger, the longer-term bundling opportunity between FSS and Dash versus FSS and some of the document workflow products, which still have some incremental returns, but aren't transformative the way some of the other things in the portfolio are.

Andrew W. Houston: We're doing a lot on the promotional front are.

Andrew W. Houston: Finding ways to close that gap and then with bundling still a big opportunity, but I'd say, we're relatively more focused on.

Andrew W. Houston: The bigger pit the longer term bundling opportunity between FSS and dash versus FSS and some of the document workflow.

Andrew W. Houston: Products, which still have some incremental returns but.

Andrew W. Houston: But arent transformative the way that some of the other things in our portfolio are.

Steven Lester Enders: Okay, perfect. Thanks for taking the questions.

Speaker Change: Okay perfect. Thanks for taking the questions.

Operator: And one moment for the next question. And our next question will be coming from Rich Hilliker of UBS. Your line is open.

Speaker Change: And one moment for any next question.

Operator: Yeah.

Operator: And our next question will be coming from rich Hilliker of UBS. Your line is open.

Richard Myron Hilliker: Hi guys, thanks for taking my question. I just wanted to touch on the overall demand environment right now.

Richard Myron Hilliker: Hi, guys. Thanks for taking my question I just wanted to hit on the overall demand environment right now you hinted and maybe more than hinted at the overall macro I don't think thats anything new that you called on SMB. So I'm wondering if maybe from your perspective, what are you hearing in SMB about the health of Smbs and I guess I'm.

Richard Myron Hilliker: How much is the health of the SMB impacting the funnel relative to some of the things that you can control.

Richard Myron Hilliker: Shared with us that Youre working on.

Richard Myron Hilliker: You hinted and maybe more than hinted at just the overall macro. I don't think that's anything new, but you called on SMB. So I'm wondering, maybe from your perspective, what you hear from SMBs about the health of SMBs. And I guess I'm curious, how much is the health of the SMB impacting the type of funnel relative to some of the things that you can control and have, you know, shared with us.

Richard Myron Hilliker: Sure so.

Richard Myron Hilliker: I don't think there is any theres been any real change in the kind of.

Andrew W. Houston: Sure. So, um, I mean, I don't think there was any real change in the kind of All right, I think a lot of the trends we're seeing today are just extensions of prior trends we've been seeing in the macro environment. I also don't know how much I can extrapolate to the state of SMBs, like in the world or something, but what we're seeing with SMBs is pretty similar to what we're seeing with customers of all sizes, that folks are more price sensitive, and cost sensitive after a downturn or in a more difficult economic environment. And so.

Speaker Change: Alright, I think a lot of the trends. We're seeing today are just extensions of prior trends, we've been seeing in the macro environment.

Andrew W. Houston: I also don't know how much I can extrapolate to the state of Smbs like in the world or something but.

Andrew W. Houston: But what we're seeing with Smbs is pretty similar to what we're seeing with customers of all sizes that folks are more.

Andrew W. Houston: Price sensitive cost sensitive after downs.

Andrew W. Houston: Downturn or in a more difficult economic environment.

Andrew W. Houston:

Andrew W. Houston: And so.

Andrew W. Houston: So that does impact our top of funnel, but we also see there are offsetting opportunities when we just look at the mechanics of how you sign up as a new SMB on Dropbox. When we watch that experience, when we watch customers go through it, when we look at some of the metrics on trial conversion and onboarding success, there's a lot of friction we want to take out of that experience. So just making it easier to get content in your Dropbox, and get people properly set up.

Andrew W. Houston: So that does impact our top of funnel, but we also see there is offsetting opportunities where when we just look at the mechanics of the of how you sign up referred to sign up as a new SMB on Dropbox.

Andrew W. Houston: When we watch that experience when we watch customers go through it and when we look at some of the metrics on trial conversion and Onboarding success.

Andrew W. Houston: There's a lot of a lot of friction we wanted to take out of that that we're taking out of that experience.

Andrew W. Houston: So just making it easier to get content in your Dropbox get people properly set up I mean, these things sound pretty basic but when we look at.

Andrew W. Houston: I mean, these things sound pretty basic, but when we look at some of our metrics versus peer benchmarks, there are some pretty big gaps in certain areas that represent upside just from getting people properly set up because we sort of lose more people through friction in the experience than is necessary. As far as how all that nets out, that's reflected in our guidance, but we still see a lot of opportunities to improve the experience, and I wouldn't say there was much change in the macro.

Andrew W. Houston: Some of our metrics versus peer benchmarks.

Andrew W. Houston: There are certain there is some pretty pretty big gaps in certain areas that represent upside just from getting people properly set up.

Andrew W. Houston: Because we sort of lose more people.

Andrew W. Houston: Through friction in the experience than is necessary.

Andrew W. Houston: As far as how all that nets out thats reflected in our guidance, but we still see a lot of opportunities to improve the experience and I wouldn't say there was much change in the macro trends.

Andrew W. Houston: Hey Rich, this is Tim, just a quick tweet. Yeah, just to briefly add on. So as you know, as related to our teams, most of our teams' plans are in the SMB space. As Drew was mentioning, we do continue to see a challenging demand environment. You see this really reflected in down cell pressure as teams trim their license plates. Following layoffs are, This meeting is particularly pronounced in the tech and many...

Speaker Change: Hey, Ray Thanks for that Yeah go ahead.

Timothy J. Regan: Got it. Okay, thanks for the extra color there.

Andrew W. Houston: Yes, just to briefly add on so as you know as it related to our teams most of our teams plans are in the SMB space, whereas <unk> was mentioning we do continue to see a challenging demand environment.

Timothy J. Regan: And we see this really reflected in down sell pressure as teams trim their license counts following layoffs or budget cuts and we're seeing this particularly pronounced in the tech and manufacturing verticals.

Richard Myron Hilliker: My follow-up here, Drew, you hit on that awareness of all the things that Dropbox does is still an issue. But we saw leverage on the S&M line this quarter. So I guess my question is, why not more efficiency from R&D instead of the sales and marketing line? Thanks.

Timothy J. Regan: Got it okay. Thanks for the extra color there.

Richard Myron Hilliker: My follow up here I guess drew you hit kind of awareness of all the things that Dropbox does still an issue, but we are leveraging.

Richard Myron Hilliker: Average.

Richard Myron Hilliker: <unk> line this quarter. So I guess my question is.

Richard Myron Hilliker: Why not more efficiency from R&D instead of.

Richard Myron Hilliker: The sales and marketing line.

Andrew W. Houston: Yeah, so we're certainly mindful of spending on R&D. I mean, there's a lot of investments we're making across the portfolio that go into that both in our core business, our whole product portfolio, our infrastructure, investments in AI, things like that. So there's a lot, there are a lot of investments there that we're making that we're excited about.

Drew: Yeah. So.

Drew: Certainly mindful of the spend in R&D I mean, there's a lot of investments, we're making across the portfolio that go into that both in our core business are.

Andrew W. Houston: Our whole product portfolio, our infrastructure investments in AI things like dash, So theres a lot.

Andrew W. Houston: There are a lot of investments that we're making that we're excited about and then to your point around kind of light on sales and marketing as a percent of revenue compared to other companies I mean, that's really because of our product led growth motion.

Andrew W. Houston: And then to your point about, you know, kind of light on sales and marketing as a percent of revenue compared to other companies. I mean, that's really because of our product-led growth motion and the efficiency. It drives a lot of efficiency in terms of OPEX and sales and marketing. But what we're really saying is that we're using the product to automate a lot of those activities, which is really scalable, but then it shows up in the R&D line.

Andrew W. Houston: The efficiency drives a lot of efficiency in terms of.

Andrew W. Houston: Opex in sales and marketing, but what we're really saying is like we are using the product to automate.

Andrew W. Houston: A lot of those activities.

Andrew W. Houston: So, I mean, we optimize across both. But we see a lot of returns on the R&D side, just because we have such a large audience, and even small improvements to some of these funnel metrics have, as opposed to more like paid acquisition investments or having bigger teams and Sales & Marketing.

Andrew W. Houston: Which is really scalable, but then shows up as in the R&D line. So I mean, we're we optimize across both.

Andrew W. Houston: But we see a lot of returns to the R&D side, just because we have such a large audience.

Andrew W. Houston: And even small improvements to some of these funnel metrics had a big impact.

Andrew W. Houston: As opposed to more of like paid acquisition.

Andrew W. Houston: Investments are having more having bigger teams and sales and marketing.

Speaker Change: Got it thanks.

Operator: One moment for our next question, and our next question will be coming from Matt Bullock of Bank of America. Your line is open.

Speaker Change: One moment for our next question.

Matthew John Bullock: And our next question will be coming from Matt <unk> of Bank of America. Your line is open.

Matthew John Bullock: Excellent. Hi, thank you. I'm on behalf of Mike Funk.

Matthew John Bullock: Excellent hi, Thank you I'm on for Mike Funk.

Matthew John Bullock: Great to hear about the better performance of the document workflow business I think it's the first time in a while we've heard.

Matthew John Bullock: Great to hear about the better performance of the document workflow business. I think it's the first time in a while we've heard, you know, positive trends there. Curious what drove that and if you think that the onward trajectory is going to go forward through 2020.

Matthew John Bullock: Positive trends there curious what drove that and if you think that the downward trajectory is going to go forward through 'twenty 'twenty four thanks.

Andrew W. Houston: Sure, yeah, I see it was broadly in line with our expectations. I wouldn't say it was like this, a mega positive surprise or anything.

Speaker Change: Sure Yes.

Matthew John Bullock: Broadly in line with our expectations I wouldn't say it was like this mega.

Andrew W. Houston: But But I agree, it's good to see more stability after, you know, in the bigger picture is a huge COVID peak and then a pulling back in all areas, but then a particular pulling back in document workflow, as you know, you look at something like docs, and so much of their business was coming from the founder's fundraising, and in a more challenged fundraising or venture capital environment, DocSend was impacted. So overall, it's good to see more stability there. So I'd say there's still incremental opportunity, but as I was just saying earlier, in the bigger picture, we see the biggest upside with optimizations to our team's business. Future directions, like Dropbox.

Andrew W. Houston: Mega positive surprise or anything.

Andrew W. Houston: But I agree it is good to see.

Andrew W. Houston: More stability thereafter.

Andrew W. Houston: The bigger picture, there's a huge COVID-19 peak and then pulling back in all areas, but then a particular pulling back and document workflow as you look at something like something like docs and.

Andrew W. Houston: So much of their business is coming from founders fundraising and in a more challenged fund raising your venture capital environment.

Andrew W. Houston: <unk> was impacted so.

Andrew W. Houston: So overall, it's good to see more stability there.

Andrew W. Houston: So I'd say, there is still incremental opportunity, but as I was just saying earlier.

Andrew W. Houston: In the bigger picture, we see that the.

Andrew W. Houston: The biggest upside with optimizations to our teens business and future directions like Dropbox dash.

Timothy J. Regan: And Matt, real quick, this is Tim. One specific to call out may be FormSwift, where we did see an increase in FormSwift in both usage and top-of-funnel activity in the first quarter, and that's due to tax. So that leads to a really helpful question and then one more, if I could.

Andrew W. Houston: And Matt Real quick this Tim one specific to call out maybe form Swift.

Timothy J. Regan: Where we did see an increase in farm Swift in both usage and top of funnel activity in the first quarter and thats due to tax season.

Timothy J. Regan: That leads to an increase in subscriber numbers.

Matthew John Bullock: It seems like there's a lot of moving pieces on the ARPU side with the pricing changes, bundling, and family plan de-emphasis. Just curious how we should think about modeling throughout the remainder of 24. Sure, so there are a lot of moving parts, as you mentioned, but for the full year, we expect a modest lift in ARPU, largely driven by the adoption of newer technologies.

Speaker Change: It's really helpful. And then one more if I could it seems like there's a lot of moving pieces on the RPC side with the pricing changes bundling in family plan. The observation just curious how we should think about modeling throughout the remainder of 'twenty four 'twenty four.

Matthew John Bullock: Sure. So there are a lot of moving parts as you've mentioned.

Matthew John Bullock: But for the full year, we expect a modest lift in <unk> largely driven by the adoption of our premium plans.

Speaker Change: Got it thank you.

Timothy J. Regan: And as a reminder, to ask a question, please press star one one on your telephone to remove yourself from the queue. Please press star one one again in one moment for our next question. Our next question will be coming from Patrick Walravens of Citizens JMP. Your line is open.

Matthew John Bullock: And as a reminder to ask a question. Please press star one on your telephone to remove yourself from the queue. Please press star one again and one moment our next question.

Patrick D. Walravens: Our next question will be coming from Patrick Wall Raymond of citizens JMP. Your line is open.

Operator: Oh, great. Thank you.

Patrick D. Walravens: Oh, great. Thank you Hey, Joe can I ask a really big picture question here.

Patrick D. Walravens: Andrew, can I ask a really big picture question here? Which is just, you know, we help this business public. Yeah, we help you take it public six years ago. The stock is basically in the same place, up a little bit. You control 75% of the vote, so in the end, it's really up to you. So I'm just wondering, is it time to consider more radical changes at Dropbox to drive shareholder value? and and what could those changes be?

Patrick D. Walravens: We helped this business public yes, we hope you take public six years ago. It was at 21.

Patrick D. Walravens: The stock is basically in the same place.

Patrick D. Walravens: Hum.

Patrick D. Walravens: A little bit.

Patrick D. Walravens: You control, 75% of the votes. So in the end, it's really up to you.

Patrick D. Walravens: So I'm just wondering is it time to consider more radical changes at dropbox to drive shareholder value.

Patrick D. Walravens: And what could those changes be.

Andrew W. Houston: Well, I think we're, I'm really excited about what we're investing in. So a lot of what I shared with Dash, I mean, it's still a product that's in beta; we haven't even fully turned it on yet.

Patrick D. Walravens: Well.

Andrew W. Houston: I think I'm really excited about what we're investing in so a lot of what I shared with.

Andrew W. Houston: With the Ash I mean, it's still a product that's in beta we haven't even fully turned it on yet.

Andrew W. Houston: You know, we talked about some of the R&D investments that really, we've done a lot in the last year or two to reposition the company towards AI and all your cloud content. And I think there's a lot of room for improvement in the knowledge worker experience, and even in the Dropbox world. You know, I think a lot about when, you know, what will it look like when you open your laptop in 2030 and get to your work stuff?

Andrew W. Houston: You talked about some of the R&D investments are really we've done a lot in the last year or two to reposition the company towards AI and and all your cloud content.

Andrew W. Houston: And I think Theres, a lot of room for improvement in the knowledge worker experience and even in.

Andrew W. Houston: I think we can do a lot better than the experience we all have today, where, you know, on one side of your screen, there might be a bunch of stuff in your finder window or your file explorer, and that experience hasn't really fundamentally changed since 1984 or since it was first introduced with the Macintosh. And on the other side of your screen, you got like a, you know, Chrome browser window open with 100 tabs that are like too small to even show text. And yet, this is like how we manage our most important information at work. And it's pretty hard to do knowledge work without the knowledge in front of you.

Andrew W. Houston: Even in the Dropbox World I think a lot about when what does it look like when you open your laptop in 2030 and get to your work stuff.

Andrew W. Houston: I think we can do a lot better than the experience. We all have today, where on one side of your screen and it might be a bunch of it.

Andrew W. Houston: Stuff in your finder window, where your file explorer and that experience hasn't really fundamentally changed since like 1984 or since it was first introduced with the Macintosh.

Andrew W. Houston: And on the other side of your screen you got like a.

Andrew W. Houston: Chrome browser window open with 100 tabs that are too small to even show text and yet this is like how we manage our most important information at work.

Andrew W. Houston: And it's pretty hard to do knowledge work without the knowledge in front of you. So I'm very excited but part of the reason I'm still here is because I see a huge opportunity that is not unlike the one I started with where I'm like you know the beginning I was like.

Andrew W. Houston: So I'm very excited because part of the reason I'm still here is because I see a huge opportunity that is not unlike the one I started with, where I was like, you know, in the beginning. I was like, Why am I carrying around a thumb drive? This is crazy. Why am I emailing myself files?

Andrew W. Houston: This is crazy. There's got to be a better way to do this. And, you know, 17 years later, we're always solving the same problem. Like, my stuff is everywhere. I can't find it.

Andrew W. Houston: Why am I carrying around a thumb drive this is crazy.

Andrew W. Houston: Why am I E mailing myself files. This is crazy that's got to be a better way to do this.

Andrew W. Houston: And to 17 years later we're.

Andrew W. Houston: Hello, we are solving the same problem like my stuff is everywhere I can't find it.

Andrew W. Houston: A lot of things have changed. You know, what used to be 100 files on your desktop is now 100 tabs in your browser. But everyone's kind of dealing with this mayhem without good solutions from anyone. So what really gets me excited is the opportunity to really change how people work, the way we did in the beginning. And so there's no shortage of things to be excited about. Now, obviously, as a public company, we've been getting our sea legs over the past five, six years to be in, you know, flattish places, not where we want to be. But I'm really excited about our investments. I think the picture will look pretty different in the future.

Andrew W. Houston: A lot of things have changed what used to be 100 files on your desktop is now 100 tabs in your browser.

Andrew W. Houston: But everyone's kind of dealing with this mayhem without good solutions from anyone so.

Andrew W. Houston: What really gets me excited is the opportunity to really change how people work.

Andrew W. Houston:

Andrew W. Houston: The way, we did in the beginning and so.

Andrew W. Houston: There's no shortage of things to be excited about obviously is <unk>.

Andrew W. Houston: Public company, we've been getting our sea legs over the past six years, obviously to be flattish places not where we want to be.

Andrew W. Houston: But I'm really excited about our investments and I think the picture will look pretty different in the.

Andrew W. Houston: The future.

Patrick D. Walravens: Okay, thanks for sharing that perspective and one other.

Speaker Change: Okay. Thanks for sharing that perspective.

Operator: Thank you. And one moment for our next question, which will be coming from Mark Murphy of J.P. Morgan. Your line's open.

Speaker Change: One moment for our next question.

Operator: And our next question will be coming from Mark Murphy of Jpmorgan. Your line is open.

Sonak Kolar: Great, thank you for taking the question. This is Sonak Kolar on behalf of Mark Murphy. Drew, over the years, Dropbox has kind of created this immense repository of content, I think over 1 trillion now. So as we think about this gen AI opportunity and the need to kind of pull high quantities of content into the LLMs to train them, can you just help unpack how Dropbox's scale differentiation is responding to the market and maybe how many more deals or partnerships you're kind of getting pulled into specific to AI because of the centralized content repository?

Operator: Great. Thank you for taking the question. This is Sean <unk> on for Mark Murphy drew over the years Dropbox has kind of created this mess.

Sonak Kolar: Repository of content I think over one trillion now so as we think about this gen AI opportunity and the need to kind of pull high quantities of content into the <unk> to train them can you just help unpack how dropbox is scale differentiation differentiation is resonating in the market and maybe how many more deals or partnerships, you're kind of getting pulled in.

Sonak Kolar: Specific to AI because of the centralized content repository.

Andrew W. Houston: Sure. Well, I mean, just a couple of clarifications. So we don't train foundation models. So when you, you know, when you look at like what OpenAI does or what Meta does with Llama, you know, basically taking the whole internet and training foundation models on it. That's not really, like, that's something we can kind of get as a service, or in Meta's case, it's even open source. So we were sort of beneficiaries of that.

Speaker Change: Sure well I mean, just a couple of clarifications. So I mean, we don't train Foundation model. So when you when you look at like what opening I does or what meta does with Lama based.

Andrew W. Houston: Basically taking the whole Internet and training foundation models on it.

Andrew W. Houston: But that's not really that's something we can kind of get as a service or in most cases, even open source. So we were sort of beneficiaries of that.

Andrew W. Houston: And then there's also sensitivities around, you know; we take our responsibilities around privacy super seriously. And so while there are a lot of benefits to having this kind of scale of data, we're also mindful that we have to be super careful if you're training any models on people's private information without complete transparency and control over it. And we find that, like... To build a good AI-powered experience, you actually don't need to train models on people's private information.

Andrew W. Houston: And then Theres also sensitivities around.

Andrew W. Houston: We take our responsibilities around privacy super seriously and so.

Andrew W. Houston: While there is.

Andrew W. Houston: A lot of benefits to having this kind of scale of data.

Andrew W. Houston: We're also mindful that you have to be Super careful if youre training any models on peoples.

Andrew W. Houston: Private information without complete transparency and control over that.

Andrew W. Houston: And we find that like.

Andrew W. Houston: To build a good AI powered experience you actually don't need to train models on People's private information.

Andrew W. Houston: But the scale advantage comes from being able to, I mean, there are other aspects of, like, the engagement with Dropbox, or when you use their service; the fact that we have a big, such a big audience, the fact that we have all these technical investments and, like, understanding content, as there are new, like, capabilities that come online from the research frontier around multimodal models, or being able to handle audio and video better, those can translate to And we've been adding ML capabilities, both in the pre-LLM world with things like, you know, being able to automatically scan a document with your phone and sort of auto correct it, or do image, or OCR, see text and images and search on that.

Andrew W. Houston:

Andrew W. Houston: But the scale advantage comes from being able to.

Andrew W. Houston: I mean, there are other aspects of the engagement with dropbox or when your users are is the fact that we have a big such a big audience. The fact that we have all these technical investments in like understanding content.

Andrew W. Houston: There's new like capabilities that come online from the research frontier around multimodal model should be able to handle audio and video better.

Andrew W. Houston: Those can translate to big advantages for us because we have huge we do have such a huge repository of that kind of content.

Andrew W. Houston: There are a lot of similar things that we've been doing, and we will continue to do, around applying AI to your content, whether that's transcribing things really easily, we already have that in a number of our products, being able to organize your Dropbox for you, being able to understand the images, video, and audio in your Dropbox better. So there are huge advantages that we have across the board, both from the scale of our user base and then from the technical investments we have in content.

Andrew W. Houston: And we've been adding ml capabilities, both in the <unk> world with things like being able to automatically scan a document with your phone and sort of auto correct it or.

Andrew W. Houston: Or do imaging or OCR.

Andrew W. Houston: See text and images in search on that there's a lot of some of the things that we've been doing and will continue to do around.

Andrew W. Houston: Applying AI to your content, whether that's transcribing things really easily we already have that in a number of our products being able to organize your dropbox for you being able to understand the images and video and audio in your Dropbox better.

Andrew W. Houston: So there are huge advantages that we have across the board both from the scale of our user base.

Andrew W. Houston: And then a lot of the technical investments we haven't content.

Andrew W. Houston: And then a lot of the kinds of technical investments that led us to have such to optimize our margins and performance on the storage side, a lot of those kinds of technical problems translate super well to large language model inference and bringing a lot of that in house over.

Andrew W. Houston: And then a lot of the kinds of technical investments that led us to have such.

Andrew W. Houston: To optimize our margins and performance on the storage side, a lot of that those kinds of technical problems translate super well two large language model in France, and bringing a lot of that in house over time.

Sonak Kolar: I'm Rishi Jaluria. Got it. That's super helpful. And I just had a quick follow-up related to the video component and the fact that you shared that video is the fastest growing content type on the platform. Is there any way to perhaps size the long-term opportunity that the surge in kind of video or short form video is presenting both to Dropbox and then maybe how you're thinking about the future innovations around replay where you're kind of embedding some of that AI capabilities beyond Dash?

Andrew W. Houston: Our scale.

Sonak Kolar: Got it that's Super helpful. And then I just had a quick follow up related to the video component and the fact that you showed that video is the fastest growing content type on the platform is there any way to perhaps size of the long term opportunity that the surge in kind of video or short form video is presenting good through Dropbox and then.

Sonak Kolar: Maybe how youre thinking about the future innovations around replay, where you're kind of embedding some that AI capabilities beyond dash.

Andrew W. Houston: Sure. Well, I mean, first it starts with our customers.

Speaker Change: Sure well I mean first of all starts with our customers I mean, one of them was popular.

Andrew W. Houston: I mean, one of the most popular things people do on Dropbox is create different kinds of media or collaborate on different kinds of media. I mean, video is one example, but also audio, photos, and a lot more. And we're really differentiated there because of the fact that Dropbox has supported big files so much better than competing alternatives and that we've become kind of a de facto standard in the creative community.

Andrew W. Houston: Hum.

Andrew W. Houston: Popular things people do on Dropbox is create different kinds of media are collaborating on different kinds of media. I mean video is one example, but also audio photos.

Andrew W. Houston: And a lot more and we're really differentiated there because of the fact that Dropbox is supported big files.

Andrew W. Houston: So much better than competing alternatives and that would become kind of a de facto standard in the creative community. That's a really strong foundation, where we can that we can build on.

Andrew W. Houston: That's a really strong foundation on which we can build. So things like replay come from observing just folks, like, actually often collaborating on Dropbox and working on a video, but then also having to have like a text thread open, saying like, hey, you know, it's at 415. That little, can you get rid of that little yellow balloon in the corner?

Andrew W. Houston: So things like replay it come from observing just.

Andrew W. Houston: Like, there's all these collaborative workflows that were like, hey, this should all just be integrated into the Dropbox experience. And as things like AI have been coming online, as an example, I mentioned earlier, it's like, hey, you should just be able to, like, review a video, and the text of what the person is saying should just be there. And you should be able to either view, collaborate on, or edit the video in a more natural way.

Andrew W. Houston: Folks.

Andrew W. Houston: Actually often like collaborating on Dropbox and working on a video, but then also having to have like a tax threat open saying like Hey, it's bill.

Andrew W. Houston: <unk> hundred 15 that little can you get rid of that little yellow balloon in the corner like there's all these collaborative workflows that we're like Hey, this should all just be integrated into the Dropbox experience.

Andrew W. Houston: Things like AI have been coming online as an example, I mentioned earlier.

Andrew W. Houston: Hey, you should just be able to like review of video in the text of what the person is saying should just be there and you should be able to either view or collaborate or edit the video.

Andrew W. Houston: And these multimodal models are going to open up all kinds of functionality like that. So a lot of it just starts with, all right, what are our creative audiences already doing on Dropbox? It's not hard to see all these ways we can make that experience better, and then AI opens up all kinds of new technical doors to connect the dots between what our customers are doing and make it much more streamlined.

Andrew W. Houston: In a more natural way.

Andrew W. Houston: And are.

Andrew W. Houston: These multi these multimodal models are going to open up all kinds of functionality like that so a lot of it just starts with like alright.

Andrew W. Houston: There are.

Andrew W. Houston: Creative audience is already doing on Dropbox.

Andrew W. Houston: It's not hard to see all of these ways, we can make that experience better.

Andrew W. Houston: And then AI opens up all kinds of technical new doors.

Andrew W. Houston: To connect the dots between what our customers are doing and making it much more streamlined experience.

Sonak Kolar: Great, thank you very much.

Speaker Change: Great. Thank you very much.

Operator: Thank you. As a friendly reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And our next question will be from Brent Thill of Jeffrey. Your line is open.

Speaker Change: Thank you.

Operator: A friendly reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again and our next question will be coming from Brent Thill of Jefferies. Your line is open.

Luv Bimal Sodha: Hi, this is Love Soda on for Brenthil. Thank you for taking my questions. Maybe first to start with you, Drew, just wanted to ask, you know, maybe at a higher level, if you could talk about the core FSS business. One of the investor concerns, which it sounds like from your bundling experience, there is a fear of commoditization in your end markets. And so, you know, how do you think the core FSS business growth will be, say, two, three years from now? Do you think that this business is still growing? Or is it declining?

Operator: Yeah.

Luv Bimal Sodha: Hi, This is love soda on for Brent Thill.

Speaker Change: Thank you for taking my questions.

Luv Bimal Sodha: Maybe first to start with you drew.

Luv Bimal Sodha: Just wanted to ask maybe at a at a higher level. If you could talk about the core FSS business, one of the investor concerns, which it sounds like from your bundling experience. There is a fear of Commoditization in your end markets.

Andrew W. Houston: Just any color on that would be super helpful.

Luv Bimal Sodha: And so how do you think of that core FSS business grow say two or three years from now do you think that that business is still growing or is it declining just any color on that would be super helpful.

Andrew W. Houston: Sure. So I mean, we still see a lot of room to keep optimizing both in our team's business, and I gave some examples of that earlier. You know, we do hear things about commoditization, and we certainly are operating in a competitive environment. But at the same time, you know, we've been able to keep growing our business at a billion in ARR or more since we went public, and ARPU has been going up.

Drew: Sure. So I mean, we still see a.

Andrew W. Houston: A lot of room to keep optimizing both our teams business and I gave some examples of that earlier.

Andrew W. Houston: <unk>.

Andrew W. Houston: We do we hear things about Commoditization and and we certainly are operated in a competitive.

Andrew W. Houston: Environment, but at the same time.

Andrew W. Houston: Been able to <unk>.

Andrew W. Houston: Keep growing our business.

Andrew W. Houston: At $1 billion or more since we went public in <unk> has been going up so.

Andrew W. Houston: So there's a lot of health in the fundamentals of the business too. We see files as an evergreen need, right? Like Dropbox is mission critical for our customers, and then I just talked about their creative community and folks who work on large files or content. Dropbox is especially mission critical.

Andrew W. Houston: There's a lot of health in the fundamentals of the business too.

Andrew W. Houston: We see like files as an evergreen need right like a dropbox is mission critical for our customers and then I just talked about their creative <unk>.

Andrew W. Houston: Community and folks who work on large files or content.

Andrew W. Houston: <unk>, especially mission critical and when I talk to our customers. They remind me that there is no shortage of new things, we can be doing or doing better.

Andrew W. Houston: And when I talk to our customers, they remind me that there's no shortage of new things we could be doing or doing better. And so I think, but that said, it's still a mature category, right? They're 17 years in.

Andrew W. Houston:

Andrew W. Houston: And then.

Andrew W. Houston: And so I think but that said its still a its a mature category. There are 17 years and so.

Andrew W. Houston: So, But then when you think about the real problem we're solving, it's sort of step back from files and think about more like, how do we organize all your working life or all your work content? How do we help you bring machine intelligence to that? That's very early innings.

Andrew W. Houston: But then when you think about the real problem, we're solving sort of step back from files and thinking about it more as like how do we organize all your working life for all your work content. How do we help you bring machine intelligence to that.

Andrew W. Houston: That's very early innings and Thats these are like universal.

Andrew W. Houston: <unk> that are still unsolved.

Andrew W. Houston: And so it's really I'm really excited about the evolution in front of us from organizing just your files to organizing all your cloud content.

Andrew W. Houston: You know a lot of the road that we're on is reminiscent to me of.

Andrew W. Houston: Netflix 10, 20 years ago right. They started out with a vision of like you should just be able to play.

Andrew W. Houston: So just help me press play on anything I want to watch that value profit stayed the same but the way they deliver the service obviously changed a lot I mean initially they were mailing you Dvds, but then.

Andrew W. Houston: As they went to streaming in the world as broadband penetration and everything else became kind of ready for that.

Andrew W. Houston: All the way they deliver the service changed massively, but the value prop did and that whole DVD emailing base eventually or they helped bootstrap the streaming business.

Andrew W. Houston: And made this seamless transition throughout.

Andrew W. Houston: And that's these are like universal problems that are still unsolved. And so it's a really, I'm really excited about the evolution in front of us from organizing just your files to organizing all your cloud content. And so I think there are a lot of parallels in that for us. I mean, I think one difference is that DVDs kind of did go away; files are not going away.

Andrew W. Houston: And so I think there are a lot of parallels.

Andrew W. Houston: For Us I mean, I think one difference is DVD has kind of did go away files are not going away. So it's more thinking about working back from like what does that kind of idealized.

Andrew W. Houston: So it's more thinking about working back from like, what is that kind of idealized content experience and building towards that in addition to optimizing the FSS business in addition to building Dash, but we think there's an Unknown Speaker... an exciting overlap and convergence there. And you know, that transition wasn't easy for Netflix either. I mean, it's easy to forget now, but their stock went down like 75% during that transition and then increased after that by probably 50x or more from those lows.

Andrew W. Houston: Content experience.

Andrew W. Houston: And building towards that in addition to optimizing your FSS business. In addition to building dash, but we think there is a.

Andrew W. Houston: An exciting overlap in convergence there.

Andrew W. Houston: That transition wasn't easy for Netflix either I mean, it's easy to forget now but that their stock went down like 75% during that transition.

Andrew W. Houston: And then increased after that from probably like 50 X or more from those lows.

Andrew W. Houston: So hopefully, we haven't had that kind of volatility. But I think there's, I think there's a lot of precedent for what we're trying to do. And again, I just work back from like, what do our customers need? And there's, And I'm really excited for a lot of the investments we've been making to make their way out to the world.

Andrew W. Houston: So hopefully we haven't had that kind of volatility.

Andrew W. Houston: But I think there is.

Andrew W. Houston: <unk>.

Andrew W. Houston: I think theres a lot of precedent for what we're trying to do and again I just worked back from a go to our customers need and theirs.

Andrew W. Houston: And I'm really excited for a lot of the investments we've been making to make their way out to the world.

Luv Bimal Sodha: Got it. Thank you for that, crew. And just a quick follow up on the HelloSign security incident. Could you just talk about, like, what steps you've taken to address that? And then, you know, how are you?

Speaker Change: Got it.

Speaker Change: Thank you for that crew.

Luv Bimal Sodha: And just a quick follow up on the Halo Science security incident.

Luv Bimal Sodha: Could you just talk about like what steps you've taken to address that and then.

Luv Bimal Sodha: How are you.

Luv Bimal Sodha: Preventing additional children have you seen customers churn, so far and what steps you're taking to prevent additional charge there.

Speaker Change: Thank you sure.

Andrew W. Houston: How are you preventing additional churn? Have you seen customers churn so far? And what steps are you taking to prevent additional churn there? Thank you.

Speaker Change: Yes. So first we think the impact is relatively isolated.

Andrew W. Houston: Yeah, so first, we think the impact is relatively isolated. We believe the incident was isolated to the Dropbox sign infrastructure didn't impact other Dropbox products. We believe it was isolated to the metadata, not the actual content or documents, things like that.

Andrew W. Houston: We believe the incident was isolated to the Dropbox sign infrastructure didn't impact other dropbox products. We believe is isolated to the meta data.

Andrew W. Houston: Not the actual like customers like content or documents and things like that and then the response from customers has been about in line with what we expected I mean, obviously, it's not an event you want to have.

Andrew W. Houston: And then the response from customers has been about in line with what we expected. I mean, obviously, it's not an event you want to have, but customers have appreciated that we were proactive; we did something for most customers they don't need it to do very much. We rotate keys, passwords, OAuth tokens, that kind of thing for you or make it pretty easy to understand what to do next, and then there's a number of other technical remediations and other things that are ongoing.

Andrew W. Houston: <unk>.

Andrew W. Houston: And but the customers have appreciated that we were proactive we've donald for most customers they don't need to do.

Andrew W. Houston: We do very much we rotate.

Andrew W. Houston: Keith.

Andrew W. Houston: Words.

Andrew W. Houston: A lot to it cause that kind of thing for you or make it pretty easy to understand what to do next.

Andrew W. Houston: And then.

Andrew W. Houston: There's a number of other technical Remy remediation and other things that are ongoing but.

Andrew W. Houston: But so far, we expect the impact to be relatively isolated and a very small percentage of our revenue to begin with, but it's something that we're monitoring closely and taking all the steps we can to prevent in the future.

Andrew W. Houston: So far we expect it to be.

Andrew W. Houston: For the impact to be relatively isolated and sign of a very small percentage of our revenue to begin with.

Andrew W. Houston: But it's something that we're monitoring closely.

Andrew W. Houston: Taking all the steps we can to prevent in the future.

Luv Bimal Sodha: Got it. Perfect. Thank you so much.

Speaker Change: Got it perfect. Thank you so much.

Operator: Thank you. And there are no more questions. Thank you. Turning back to Peter.

Speaker Change: Thank you.

Luv Bimal Sodha: There are no more questions in queue turning back to Peter.

Peter Stabler: Thanks very much, everyone, for joining us today, and we look forward to speaking with you next quarter. Have a great day.

Peter Stabler: Thanks, very much everyone for joining us today, and we look forward to speaking with you next quarter have a great day.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

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