Q1 2025 Dropbox Inc Earnings Call
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Peter Stabler: I would now like to turn the conference over to Peter Stabler, Sir you may begin.
Peter Stabler: Good afternoon, and welcome to Dropbox as first quarter of 2025 earnings call.
Peter Stabler: As a reminder, we will disclose non-GAAP financial measures on this call.
Drew House: We disclaim any obligation to update any forward-looking statements except as required by law.
Finishing some reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors Dropbox Dot com.
Drew House: I will now turn the call over to Dropbox's CEO and co founder, Drew House. Thanks, Peter. And good afternoon, everyone.
Drew House: Welcome to our Q1 2025 earnings call. And I'm here with Tim Regan, our CFO.
Peter Stabler: We will also make forward looking statements on this call, including statements about our future outlook for our second quarter and fiscal year 2025.
Drew House: I'll start with our business and product highlights, and then Tim will walk through our Q1 results and outlook for the rest of the year. Q1 revenue came in slightly ahead of our forecast. Our focus on operating efficiency along with some timing related expense savings help us achieve our highest ever non-gap operating As expected, we saw some sequential decline in paying users after removing form-swift marketing and pursuing higher efficiencies in our core business, though the decrease was less than we anticipated.
Peter Stabler: As well as our expectations regarding our business assets strategies and the macroeconomic environment.
Peter Stabler: Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described.
Peter Stabler: Many of these risks and uncertainties are described in our SEC filings, including our most recent report on Form 10-K, and our forthcoming report on Form 10-Q.
Drew House: Now I'll share an update on our two strategic priorities for this year, which are scaling DASH and simplifying and strengthening our core FSS.
Peter Stabler: Forward looking statements represent our beliefs and assumptions only as of the date such statements are made.
Drew House: I'll start with Dash. A few weeks ago, we launched our major spring update, and I'm particularly excited about how it transforms the search experience for our customers. The update delivers three main improvements.
Peter Stabler: We disclaim any obligation to update any forward looking statements, except as required by law.
Peter Stabler: I will now turn the call over to Dropbox, as CEO and cofounder drew Houston.
Drew House: First, most search tools today are still limited to text, but as we know, our work lives extend far beyond documents to images, videos, and other rich media. Our spring update breaks this barrier. For the first time, DASH can now search across all these formats, recognizing both metadata and increasingly the actual content within images and video. Imagine being able to find that specific product photo or design mock-up without having to remember what you named the file. That's now possible.
Okay.
Drew Houston: Thanks, Peter and good afternoon, everyone.
Speaker Change: Hello, and welcome to Dropbox first quarter 2025 earnings conference call.
Drew Houston: Welcome to our Q1 2025 earnings call I'm here with Tim <unk> our CFO.
Drew Houston: I'll start with our business and product highlights and then Tim will walk through our Q1 results and outlook for the rest of the year.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Drew Houston: Q1 revenue came in slightly ahead of our forecast.
Speaker Change: To ask a question during the session you will need to press star one on your telephone.
Drew Houston: Our focus on operating efficiency, along with some timing related expense savings help us achieve our highest ever non-GAAP operating margin.
Speaker Change: You will then hear automated message advising your hand is right.
Drew House: This capability is especially valuable for creative professionals who work with visual content all day, which is why we're seeing strong interest in the creative services industry where Dropbox has traditionally failed. We also made significant performance improvements, cutting latency for DASH's summarize and answers capabilities by over 50%, and introducing a redesigned search box that serves as a single entry point for finding, asking, writing, and organizing.
Drew Houston: As expected we saw some sequential decline in paying users after removing form swift marketing and pursuing higher efficiencies in our core business.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: I would now like to turn the conference over to Peter Stabler, Sir you may begin.
Drew Houston: The decrease was less than we anticipated.
Drew Houston: Now I'll share an update on our two strategic priorities for this year, which are scaling dash and simplifying and strengthening our core FSS business.
Peter Stabler: Good afternoon and welcome to Dropbox's first quarter 2025 earnings call.
Peter Stabler: As a reminder, we will disclose non-GAAP financial measures on this call definitions and reconciliations between our gap and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors. Dropbox.com
Drew Houston: I'll start with Dash a few weeks ago, we launched our major spring update and I'm, particularly excited about how it transforms the search experience for our customers.
Drew House: Second, we responded directly to our customers top requests by adding customizable data exclusions that give administrators control over what content gets ingested by We also rolled out full integrations with essential workplace apps, including Slack, Zoom, and Microsoft Teams. And we also added deeper integrations with creative and project management tools like Canva and Jira. Third, we expanded Dash's AI writing Users can now use simple prompts to have Dash find and summarize content across all your connected apps and draft documents in seconds. The system supports creating templates or even having DASH draft full documents for you. Users can adjust the tone and formality of the writing, or even have DASH write in their person.
Drew Houston: The update deliver three main improvements.
Drew Houston: First most search tools today are still limited to text, but as we know our work lives extend far beyond documents to images videos and other rich media.
Peter Stabler: We'll also make forward-looking statements on this call, including statements about our future outlook for our second quarter and fiscal year 2025, as well as our expectations regarding our business, assets, strategies, and the macroeconomic environment.
Our spring update breaks this barrier for the first time dash can now search across all of these formats, recognizing both metadata and increasingly the actual content within images and videos.
Drew Houston: Imagine being able to find that specific product photo or design mockup without having to remember what you named the file that is now possible with dash.
Peter Stabler: Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described.
Drew Houston: Capabilities, especially valuable for creative professionals, who work with visual content all day, which is why we're seeing strong interest from the creative services industry, where dropbox has traditionally been strong.
Peter Stabler: Many of these risks and uncertainties are described in our SEC filing, including our most recent report on form 10K and our forthcoming report on form 10- Q4 ward-looking statements represent our beliefs and assumptions only as of the date such statements are made.
Drew House: We've also been strengthening Dash's compliance. Dash has been GDPR compliant since the beginning of the year, and we've begun addressing sales opportunities and other English speech and code. DASH has also received ISO 27001 compliance and SOC 2 certifications, reinforcing our commitment to content access control, risk management and Customer feedback on these improvements has been encouraging, validating our product direction and rapid response.
We also made significant performance improvements cutting latency for dash is summarized and answers capabilities by over 50% and introducing a redesigned search box that serves as a single entry point for finding asking writing and organizing your content.
Peter Stabler: We disclaim any obligation to update any forward-looking statements except as required by law.
Drew Houston: Second we responded directly to our customers' type requests by adding customizable data exclusions that gives administrators control over what content gets ingested by dash.
Peter Stabler: I will now turn the call over to Dropbox's CEO and co-founder, Drew Houston.
Drew Houston: Thanks, Peter, and good afternoon everyone. Welcome to our Q1 2025 earnings call, and I'm here with Tim Regan, RCSPO.
Drew House: I'll share a quick customer experience. Southbase Construction, a cloud-enabled commercial construction firm, turned to Dash to modernize their operations across their distributed team. With DASH's unified interface search and summarization tools, team members are saving an average of 30 minutes a day that they used to spend having to hunt for documents across different platforms. Accurate summarization is particularly valuable for South Base when their teams are comparing complex security and compliance documents, which they previously did manually.
Drew Houston: We also rolled out full integrations with essential workplace apps, including slack zoom and Microsoft teams and we also had a deeper integrations with creative and project management tools like Canada and Europe.
Peter Stabler: I'll start with our business and product highlights and then Tim will walk through our Q1 results and outlook for the rest of the year.
Q1 revenue came in slightly ahead of our forecast of the forecast.
Drew Houston: Third we expanded dashes AI writing capabilities.
Peter Stabler: Our focus on operating efficiency, along with some timing related expense savings, help us achieve our highest ever non-GAAP operating margin.
Drew Houston: Users can now use simple prompts to have dash find and summarize content across all your connected apps and draft documents in seconds.
Peter Stabler: As expected, we saw some sequential decline in paying users after removing form swift marketing and pursuing higher efficiencies in our core business, though the decrease was less than we anticipated.
Drew Houston: Our system supports creating templates or even having dash stressful documents for you.
Users can adjust the tone and formality of the writing or even have dash right in their personal voice.
Drew House: While a growing number of companies have deployed Dash, we still have work to do to streamline our sales, onboarding, and activation mode. Improving our outbound sales efficiency is a top priority. We're also developing a self-serve motion for launch later this year. In the coming months, we'll also introduce select-dash functionality onto some of our FSS plans, accelerating our introduction of dash to our large install base of FSS customers.
Peter Stabler: Now I'll share an update on our two strategic priorities for this year, which are scaling dash and simplifying and strengthening our core FSS business.
Drew Houston: We've also been strengthening dashes compliance posture.
Drew Houston: That's just been GDP are compliant since the beginning of the year and we've begun addressing sales opportunities in other English speaking countries.
Peter Stabler: I'll start with Dash. A few weeks ago we launched our major spring update and I'm particularly excited about how it transforms the search experience for our customers.
Drew Houston: That was also received ISO 27001 compliance and talk through certification reinforcing our commitment to content access control risk management and incident response.
The update delivered three main improvements.
Drew House: Now let's turn to our Corbett. Last quarter, we outlined our goals of strengthening and simplifying our DFSS user experience while driving higher operating This meant more focused investments, a shift that we also knew would create some growth headwinds. And in Q1, we improved mission-critical features that refine key workflows and reduce friction. As a result, we saw better than expected performance, particularly among self-serve teams, despite reduced investment. For example, we improved prompts for users to install and activate our desktop app during signup and early engagement. This has increased new desktop activations by over 50% year over year.
Peter Stabler: First, most search tools today are still limited to text, but as we know, our work lives extend far beyond documents to images, videos and other rich media.
Drew Houston: Customer feedback on these improvements has been encouraging validating our product direction and rapid response sees the need.
I'll share a quick customer example.
Drew Houston: South based construction a cloud enabled commercial construction firm turned the dash to modernize their operations across their distributed teams.
Peter Stabler: Our spring update breaks a barrier. For the first time, Dash can now search across all these formats, recognizing both metadata and increasingly the actual content within images and videos.
Drew Houston: With that she is unified interface search and summarization tools team members are saving an average of 30 minutes a day that they used to spend having to hunt for documents across different platforms.
Peter Stabler: Imagine being able to find that specific product photo or design mockup without we're having to remember what you named the file, that's now possible with Dash.
Drew Houston: Accurate summarization is particularly valuable for south base. When Theres teams are comparing complex security and compliance documents, which they previously did manually.
Peter Stabler: This capability is especially valuable for creative professionals who work with visual content all day, which is why we're seeing strong interest in the creative services industry where Dropbox has traditionally been strong.
Drew Houston: While a growing number of companies have deployed dash, we still have work to do to streamline our sales onboarding and activation motion.
Drew House: This is an important metric because multi-surface users typically have higher engagement and retention.
Peter Stabler: We also made significant performance improvements, cutting latency for dashes summarized and answers capabilities by over 50% and introducing a redesigned search box that serves as a single entry point for finding, asking, writing and organizing your content.
Drew House: We also enhanced the admin console knowing IT admins are often the purchasing decision We improved billing management, enhanced the admin dashboard, and clarified our content management capabilities, leading to all-time high CSAT scores for AdWords. Our Pricing and Packaging team simplified our product lineup by reducing the number of SKUs and better aligning features with customer needs. This creates less friction in the buying process and clearer value proposition. Strategic discounting, we also accelerated migration from monthly to annual plans, which should improve retention going forward.
Drew Houston: Improving our outbound sales efficiency is a top priority. We're also developing a self serve motion for launch later this year.
Drew Houston: In the coming months, we will also introduce select the ash functionality onto some of our FSS plan accelerating our introduction of dash to our large install base of customers.
Peter Stabler: Second, we responded directly to our customers' top request by adding customizable data exclusions that give administrators control over what content gets ingested by dash.
Drew Houston: Now, let's turn to our core business.
Drew Houston: Last quarter, we outlined our goals of strengthening and simplifying our FSS user experience, while driving higher operating efficiency.
Peter Stabler: We also rolled out full integrations with essential workplace apps including Slack, Zoom, and Microsoft Teams, and we also added deeper integrations with creative and project management tools like Canva and Jira.
Drew Houston: This meant more focused investments the shifts that we also knew would create some growth headwind.
Drew House: and our document workflow businesses, Q1 performance was largely as expected. DocSend delivered solid double-digit growth year over year, while SIGN continued to face challenging competitive And as mentioned, FormSwift saw an expected decline in paying users, but operating income and free cash flow improved significantly year over year.
Drew Houston: And in Q1, we improve mission critical features that refined key workflows and reduce friction.
Third, we expanded dashes, AI writing capabilities. [inaudible]
Peter Stabler: Users can now use simple prompts to have dashed find and summarized content across all your connected apps and draft documents in seconds.
Drew Houston: As a result, we saw better than expected performance, particularly among self serve teams.
Drew Houston: <unk> reduced investment levels.
Drew Houston: For example, we improved prompts for users to install and activate our desktop app during sign up and early engagement.
Peter Stabler: The system supports creating templates or even having dash stressful documents for you. Users can adjust the tone and formality of the writing or even have dashed right in their personal voice.
Drew House: In closing, we've had a productive start to the year in addressing both of our strategic priorities, our teams are moving with urgency, and our April Dash release was a significant step forward in solving real customer problems. We also continue to make progress improving our FSS. As expected, we're still evolving our go-to-market engine and optimizing our Dash sales and onboarding motion. But we know what steps to take, and in the coming months, we'll augment our Dash sales effort with a product-led self-survival. The macro landscape is still fluid, but we believe our subscription business, our strong profitability, and our broad customer diversification position as well to navigate the current market.
This has increased new desktop activations by over 50% year over year. This is an important metric because multi surface users typically have higher engagement and retention.
Peter Stabler: We've also been strengthening Dash's compliance posture. Dash has been GDPR compliant since the beginning of the year, and we've begun addressing sales opportunities in other angle-speeching countries.
Drew Houston: We also enhanced the admin console knowing ITN men's are often the purchasing decision makers.
Peter Stabler: Dasch has also received ISO 27001 compliance and SOC due certification, reinforcing our commitment to content access control, risk management and incident response.
Drew Houston: We improved billing management enhance admin dashboard and clarified our content management capabilities, leading to all time high as he sat scores for admins.
Drew Houston: Our pricing and packaging teams simplified our product lineup by reducing the number of Skus and better aligning features with customer needs.
Peter Stabler: Kasthuri feedback on these improvements has been encouraging, validating a product direction in rapid response to user need.
Drew Houston: Creates less friction in the buying process and clear value proposition.
I'll share a quick customer example.
Speaker Change: Self-based construction, a cloud-enabled commercial construction firm turned the dash to modernize their operations across their distributed teams.
Drew Houston: The strategic discounting we also accelerated migration from monthly to annual plans, which should improve retention going forward.
Drew House: We're focused on what we can control and we'll continue refining our execution as we pursue the DASH operation.
Timothy Regan: Now I'll turn it over to Tim to cover our financial results and our updated outlook. Thank you, Drew. I'll cover our financial highlights from Q1.
In our document workflow businesses Q1 performance was largely as expected <unk> delivered solid double digit growth year over year, while signed continued to face the challenging competitive landscape.
Speaker Change: With Stach's unified interface search and summarization tools, team members are saving an average of 30 minutes a day that they used to spend having to hunt for documents across different platforms.
Timothy Regan: and then provide guidance for the second quarter and the full year 2025. As a reminder, our financial objectives this year are aimed at positioning our core file sync and share and document workflow business lines for increased efficiency by driving higher levels of operating margins. Free Cash Flow from these areas. We are then leveraging this profitability and the strength of our balance. To reduce our share count, thereby driving growth in free cash flow per share.
Speaker Change: Accurate Somerization is particularly valuable for South-Based when their teams are comparing complex security and compliance documents which they previously did manually.
Drew Houston: And as mentioned Formula saw an expected decline in paying users, but operating income and free cash flow improved significantly year over year.
Drew Houston: In closing we've had a productive start to the year and addressing both of our strategic priorities. Our teams are moving with urgency and our April dash release was a significant step forward in solving real customer problems.
Speaker Change: While a growing number of companies have deployed Dash, we still have work to do to streamline our sales onboarding and activation motion.
Speaker Change: Improving our outground scale deficiency of the top priority, but we're also developing a self-serve motion for launch later this year.
Drew Houston: We also continue to make progress improving our FSS business ethics.
Drew Houston: As expected, we're still evolving our go to market engine and optimizing our dash sales and Onboarding motion, but we know what steps to take in in the coming months will augment our Def sales effort with a product led self serve option.
Speaker Change: In the coming months, we'll also introduce select-dash functionality onto some of our FSS plans, accelerating our introduction of dash to our large install base of FSS customers.
Timothy Regan: Concurrently, we are investing in areas where we see opportunities to return to positive revenue growth, most notably with debt. The first quarter was a solid step forward in executing against this strategy.
Now let's turn to our core business.
Drew Houston: The macro landscape is still fluid, but we believe our subscription business, our strong profitability and our broad customer diversification position.
Speaker Change: Last quarter we outlined our goals of strengthening and simplifying our DFSF user experience while driving higher operating efficiency.
Drew Houston: And as well to navigate the current market uncertainties.
Speaker Change: This meant more focused investments, a shift that we also knew would create some growth headwinds. And in Q1, we improved mission critical features that refine keyword flows and reduce restriction.
Drew Houston: We're focused on what we can control and we'll continue refining our execution as we pursue the dash opportunity.
Timothy Regan: Starting with our financial highlights from Q1, as a reminder, we recently eliminated our marketing spend behind our form switch. and we reduced the number of outbound sellers supporting our core file circuit share. As expected, these factors pressured our year-over-year revenue. Total revenue for Q1 declined 1% year-over-year to $625 million. Constant currency revenue declined 60 basis points year over year to $628 million. FormSwift acted as a 70 basis point headwind to revenue on a year-over-year basis. Total ARR was $2.552 billion, down 20 basis points year over year, and flat on a constant currency basis. FarmSwift acted as a 120 basis point headwind to ARR in the quarter.
Drew Houston: Now I will turn it over to Tim to cover our financial results and our updated outlook.
Speaker Change: As a result, we saw better than expected performance, particularly among self-serve teams, despite the reduced investment level.
Tim: Thank you drew.
Tim: I'll cover our financial highlights from Q1.
Tim: And then provide guidance for the second quarter and the full year 2025.
Speaker Change: For example, we improve prompts for users to install and activate our desktop apps during sign-ups and early engagement [inaudible]
Tim: As a reminder, our financial objectives. This year are aimed at positioning our core file sync and share.
Speaker Change: This has increased new desktop activations by over 50% year-over-year. This is an important metric because multi-surface users typically have higher engagement and retention.
Tim: And document workflow business lines for increased efficiency by driving higher levels of operating margins and free cash flow from these areas.
Speaker Change: We also enhance the admin console, knowing IT admins are off in the purchasing decision makers. We improve billing management, enhance the admin dashboard, and clarify to content management capabilities, leading to all time high CSAT scores for admins.
Tim: We are then leveraging this profitability and the strength of our balance sheet to reduce our share count.
Tim: Thereby driving growth in free cash flow per share.
Speaker Change: Our pricing and packaging teams simplified our product lineup by reducing the number of skews and better aligning features with cuts for needs.
Tim: Concurrently we are investing in areas, where we see opportunities to return to positive revenue growth.
Speaker Change: This creates less friction in the buying process and clearer value proposition.
Speaker Change: There's strategic discounting. We also accelerate immigration from monthly to annual plans, which should improve retention going forward.
Tim: Most notably with dash.
Tim: The first quarter was a solid step forward in executing against this strategy.
Speaker Change: and our Document of Workflow Businesses, Q1 Performance of Largely is expected, Doc Sen delivered solid double digit growth year-over-year, while signed continued to face the challenging competitive landscape.
Tim: Starting with our financial highlights from Q1 as a reminder, we recently eliminated our marketing spend behind our form Swift business and.
Timothy Regan: We exited the quarter with 18.16 million paying users. down approximately 60,000 paying users on a sequential basis. Average revenue per paying user was $139.26. as compared to $140.06 in the prior quarter.
Speaker Change: As mentioned, forms with saw and expected decline in paying users but operating income and free cash flow improved significantly year-over-year.
Tim: We reduced the number of outbound sellers supporting our core file sync and share business.
Tim: As expected these factors pressured our year over year revenue growth.
Speaker Change: In closing, we've had a productive start to the year in addressing both of our strategic priorities. Our teams are moving with urgency and our April Dash release was a significant step forward in solving real customer problems.
Tim: Total revenue for Q1 declined 1% year over year.
Tim: $625 million.
Timothy Regan: The quarter's sequential decline in paying users was driven largely by a reduced level of investment in forms. Our food declined sequentially due to both FX, as well as a mixed shift away from FormSwift, where these subscriptions carry a higher average selling For more information visit our website at www.fxinitial.com Despite these collective metrics declining year over year, in part due to our strategic decision We outperformed our expectations for the quarter. This outperformance largely stemmed from our self-serve teams and individual skews.
Speaker Change: We also continue to make progress in improving our assess business. As expected, we're still evolving our go-to-market engine and optimizing our dash sales and onboarding motion, but we know what steps to take and in the coming months we'll augment our dash sales effort with a product-led self-serve option.
Tim: Constant currency revenue declined 60 basis points year over year.
Tim: The $628 million.
Pharma Swift acted as a 70 basis point headwind to revenue on a year over year basis.
Speaker Change: The macro landscape is still fluid, but we believe our subscription business, our strong profitability, and our broad customer diversification position as well to navigate the current market uncertainties.
Tim: Total <unk> was $2 $5 $5 2 billion.
Tim: Down 20 basis points year over year and flat on a constant currency basis.
Speaker Change: We're focused on what we can control and we'll continue refining our execution as we pursue the DASH opportunity.
Tim: Farm Swift acted as a 120 basis point headwind to <unk> in the quarter.
Speaker Change: Now I'll turn it over to Tim to cover our financial results and our updated outlook.
Thank you, Drew.
Tim: We exited the quarter with $18, one 6 million paying users down.
Timothy Regan: 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 Excludes Stock-Based Compensation, Amortization of Purchase Intangibles, Certain Acquisition-Related Expenses. Net Gains and Losses on our Real Estate Assets, Workforce Reduction Expenses, and Net Losses on Equity Investments. A non-GAAP net income also includes the income tax effect of the aforementioned adjustments. Gross margin was 82.9% for the quarter, down 170 basis points from the year ago period as we continue to support our data center refresh cycle. I would also note that we saw a smaller depreciation benefit from the change in useful life of our servers versus the year ago period.
Speaker Change: I'll cover our financial highlights from Q1 and then provide guidance for the second quarter and the full year 2025.
Tim: Down approximately 60000 paying users on a sequential basis.
Speaker Change: As a reminder, our financial objectives this year are aimed at positioning our core file sink and share and document workflow business lines for increased efficiency by driving higher levels of operating margins and free cash flow from these areas.
Tim: Average revenue per paying user was $139.26.
Tim: As compared to $140 six in the prior quarter.
Tim: The quarter's sequential decline in paying users was driven largely by a reduced level of investment in Forbes list.
Tim: <unk> declined sequentially due to both FX as well as a mix shift away from former Smith for.
For these subscriptions carry a higher average selling price.
Speaker Change: Concurrently, we are investing in areas where we see opportunities to return to positive revenue growth, most notably with Dash.
Tim: Despite these collective metrics declining year over year in part due to our strategic decisions.
Speaker Change: The first quarter was a solid step forward in executing against this strategy.
Tim: We outperformed our expectations for the quarter.
Tim: This outperformance largely stemmed from our self serve teams and individuals skus.
Speaker Change: Starting with our financial highlights from Q1, as a reminder, we recently eliminated our marketing spend behind our form swift business, and we reduced the number of outbound sellers supporting our core file-soaked share business.
Timothy Regan: Operating margin was 41.7% ahead of our guidance of 38.5%. And up more than 500 basis points from the year-ago period. Operating margin increased year-over-year largely due to our headcount reduction from our RIF last fall and lower marketing spend following the strategic shift away from form . Compared to our guidance, operating margins benefited primarily from delayed outside services and marketing. that we expect to incur later this year, a release of certain international tax reserves. and a disciplined approach to hiring. Net income for the first quarter was $207 million, up 5% year over year. Diluted EPS for the first quarter with 70 cents.
Tim: Before we continue with further discussion of our P&L I would like to note that unless otherwise indicated all income statement figures mentioned our non-GAAP.
Tim: And excludes stock based compensation.
As expected, these factors pressured are year-over-year revenue growth.
Tim: Amortization of purchased intangibles.
Tim: Acquisition related expenses.
Build a revenue for Q1 to client 1% here over here to $625 million.
Tim: Net gains and losses on our real estate assets workforce reduction expenses.
Tim: And net losses on equity investments.
Speaker Change: Conflict currency revenue declined 60 basis points year over year, the $628 million.
Tim: Our non-GAAP net income also includes the income tax effect of the aforementioned adjustments.
Tim: Gross margin was 82, 9% for the quarter down 170 basis points from the year ago period as.
Speaker Change: Bill Arrar was $2.50, $2 billion, down 20 basis points year-of-year, and flat on a
Tim: As we continue to support our datacenter refresh cycle.
Tim: I would also note that we saw a smaller depreciation benefit from the change in useful life of our servers versus the year ago period.
Timothy Regan: based on 296 million diluted weighted average shares outstanding compared to 58 cents in the year-ago quarter, representing a 21% year-over-year increase. Moving on to our cash balance and balance Cash flow from operations was $154 million, a decrease of 12% versus the year ago period.
Speaker Change: Farm Swift acted as a 120 basis point headwind to ARR in the quarter
Tim: Operating margin was 41, 7% ahead of our guidance of 38, 5%.
Speaker Change: We exited the quarter with 18.16 million paying users, down approximately 60,000 paying users on a sequential basis.
Tim: And up more than 500 basis points from the year ago period.
Tim: Operating margin increased year over year, largely due to our head count reduction from a riff last fall.
Speaker Change: Average revenue per paying user was $139.26 as compared to $140.6 in the prior quarter.
Timothy Regan: As a reminder, this quarter included a $36 million payment for the third and final Toronto of our San Francisco lease buyout that we executed in 2023. as well as $10 million of severance and benefits payments. related to our reduction in force. Q1 also included $21 million of interest. related to our December 2024 term loan transaction. We had immaterial capital expenditures in the quarter due to a shift in timing for certain facility restoration costs. and Delivery Timelines for Datacenter Buildout. Q1 unlevered precast flow was therefore $174 million or $0.59 per share.
And lower marketing spend following the strategic shift away from form slip.
Tim: Compared to our guidance operating margin benefited primarily from delayed outside services and marketing spend that.
Speaker Change: The quarter sequence of decline in paying users was driven largely by a reduced level of investment and form slip.
Tim: That we expect to incur later this year.
Speaker Change: R-Poo declined sequentially due to both FX, as well as a mixed shift away from forms with where these subscriptions carry a higher average selling price.
Tim: A release of certain international tax reserves.
Tim: And a disciplined approach to hiring.
Tim: Net income for the first quarter was $207 million up 5% year over year.
Tim: Diluted EPS for the first quarter was 70.
Based on 296 million.
Speaker Change: This outperformance largely stemmed from our self-serve teams and individual SKUs.
Tim: Diluted weighted average shares outstanding.
Tim: Compared to 58 in the year ago quarter.
Tim: Representing a 21% year over year increase.
Speaker Change: Before we continue with further discussion of our P&L, I would like to note that unless otherwise we have indicated all income statements figures mentioned are non-GAAP .
Timothy Regan: As a reminder, we define unlevered free cash flow as free cash flow, excluding the impact of interest payments associated with our term loan, net of their associated tax __________________________________________________ ____________________________________________________________________________________________________________________________________________________________________________________________________________________ In the quarter, we also added $44 million to our finance leases for data center equipment as we continue to invest in refreshing our data. We ended the quarter with cash and short-term investments of $1.2 billion.
Tim: Moving on to our cash balance and balance sheet.
Tim: Cash flow from operations was $154 million.
Speaker Change: and excludes stock-based compensation, amortization of purchase and tangibles, certain acquisition-related expenses, and that gains in losses on our real estate assets, workforce reduction expenses, and net losses on equity investments.
Tim: A decrease of 12% versus the year ago period.
Tim: As a reminder, this quarter included a $36 million payment for the third and final tranche.
Of our San Francisco lease buyout that we executed in 2023.
Speaker Change: A non-GAAP net income also includes the income tax effect of the aforementioned adjustment.
Tim: As well as $10 million of severance and benefits payments.
Tim: Related to our reduction in force.
Speaker Change: Rose Margin, 82.9% for the quarter, down 170 basis points from the year ago period, as we continue to support our data center refresh cycle.
Timothy Regan: In the first quarter, we repurchased approximately 18 million shares. spending approximately $500 million. As of the end of the first quarter, we had approximately $870 million. remaining under our existing share repurchase authorization.
Tim: Q1 also included $21 million of interest payments related.
Related to our December 2024 term loan transaction.
Speaker Change: I would also note that we saw a smaller depreciation benefit from the change in useful life of our servers versus the year ago periods.
Tim: We had immaterial capital expenditures in the quarter due to a shift in timing for certain facility restoration costs and.
Tim: And delivery timelines for data center build outs.
Timothy Regan: I'll now offer our updated outlook for Q2 and the full year 2025. For the second quarter of 2025, we expect revenue to be in the range of $616,000. to $619 million. We are expecting a currency headwind of approximately $1 million. On a constant currency revenue basis, we expect revenue to be in the range of $617-$620 million. We expect FormSwift to serve as a roughly 150 basis point headwind to revenue in the second quarter. We expect our non-GAAP operating margin to be approximately 37.5%. Finally, we expect diluted weighted average shares outstanding to be in the range of 279 to 284 million shares, based on our 30-day trailing average share For the full year 2025, based on current foreign exchange rates, we are raising Our previous guidance range for reported revenue by $10 million.
Speaker Change: Operating margin was 41.7% ahead of our guidance of 38.5% and up more than 500 basis points from the year ago period
Tim: Q1, Unlevered free cash flow was therefore $174 million or.
Tim: Or 59 cents per share.
As a reminder, we define unlevered free cash flow is free cash flow, excluding the impact of interest payments associated with our term loan net of their associated tax benefit.
Speaker Change: Operating margin increase year-of-year largely due to our head count reduction from our RIF last fall, and lower marketing spend from the strategic shift away from form swift.
Tim: In the quarter, we also added $44 million to our finance leases for data center equipment as we continue to invest in refreshing our data centers.
Speaker Change: Compared to our guidance, operating margin benefited primarily from delayed outside services and marketing spend that we expect to incur later this year, a release of certain international tax reserves, and a discipline to approach the hiring.
Tim: We ended the quarter with cash and short term investments of $1 2 billion.
Tim: In the first quarter, we repurchased approximately 18 million shares.
Speaker Change: Getting him for the first quarter was $207 million up 5% year-of-a-year [inaudible]
Tim: Spending approximately $500 million.
Deluted EPS for the first quarter with 70 cents.
Tim: As of the end of the first quarter, we had approximately $870 million.
Speaker Change: based on 296 million blooded weighted average shares outstanding compared to $0.58 in the year go quarter representing a 21% year-over-year increase.
Tim: Remaining under our existing share repurchase authorization.
Tim: I will now offer our updated outlook for Q2 and the full year 2025.
Moving on to our cash balance and balance sheet
Tim: For the second quarter of 2025, we expect revenue to be in the range of 616.
Speaker Change: Casthulo from Operations was $154 million, a decrease of 12% versus the Hugo period.
Timothy Regan: to $2.475 billion. $2.490 billion. Our full year cost and currency revenue guidance is unchanged. at 2.483 the $2.498 billion. We continue to expect Forum Swift to serve as a 150 basis point headwind to revenue this year. Our gross margin outlook is unchanged. We are raising our outlook for non-GAP operating margin by 50 bases. to be in the range of 38. to 38.5. We are raising unlevered free cash flow by $10 million. to be at or above $950 million. We are also maintaining our CapEx guidance to be in the range of $25 to $30 million for the full year, in addition to finance lease lines to be approximately 6% of revenue.
Tim: The $619 million.
Tim: We are expecting a currency headwind of approximately $1 million.
Tim: On a constant currency revenue basis.
Tim: We expect revenue to be in the range of 617 six $620 million.
As well as $10 million of severance and benefits payments
Tim: We expect form Swift to serve as a roughly 150 basis point headwind to revenue in the second quarter.
related to our reduction in force.
Q1 also included $21 million of interest payments.
We expect our non-GAAP operating margin to be approximately 37, 5%.
Related to our December 2024 Term Loan Transaction
Tim: Finally, we expect diluted weighted average shares outstanding to be in the range of 279 to 284 million shares based on our 30 day trailing average share price.
Speaker Change: We had immaterial capital expenditures in the quarter due to a shift in timing for certain facility restoration costs and delivery timelines for data center build ups.
Speaker Change: Q1 Unleivered Precastlow was therefore $174 million or $59 cents per share.
Tim: For the full year of 2025 based on current foreign exchange rates, we are raising.
Speaker Change: As a reminder, we define unlevered free cash flow as free cash flow, excluding the impact of interest payments associated with our term loan, net of their associated tax benefits.
Tim: Our previous guidance range for reported revenue by $10 million.
Tim: 2.4 dollars 75 billion.
Tim: The 2.490 billion.
Timothy Regan: Finally, as a result of our recent repurchase activity. We are now expecting diluted weighted average shares outstanding to be in the range of 276. to 281 million shares. down 7 million shares from our original guidance.
Speaker Change: In the quarter, we also added $44 million to our finance leases for data center equipment as we continue to invest in refreshing our data centers.
Tim: Our full year constant currency revenue guidance is unchanged.
Tim: At 2.483.
Tim: The $2 $4 98 billion.
Speaker Change: We ended the quarter with cash and torture and investment of $1.2 billion.
Tim: We continue to expect form swift to serve as a 150 basis point headwind to revenue this year.
In the first quarter, we repurchased approximately 18 million shares.
Timothy Regan: I'll now share some additional perspectives on this guidance for 2025. We had a solid start to the year, in particular executing against our objective of driving higher levels of efficiency across our core files that can share and document workflow business. Despite this, we are facing an uncertain macroeconomic environment that could introduce some volatility to our results. While we have not yet seen any meaningful impact to our customer demand, and are optimistic that our diversified customer base will help insulate us from near-term volatility, it is too early to estimate the impact of the evolving geopolitical dynamic.
Tim: Our gross margin outlook is unchanged.
Spending approximately $500 million dollars.
We are raising our outlook for non-GAAP operating margin by 50 basis points.
Speaker Change: As of the end of the first quarter, we had approximately $870 million for $870 million.
Tim: To be in the range of 38.
Remaining Under Our Existing, Share Repurchase Authorization
Tim: To 38, 5%.
Tim: We are raising unlevered free cash flow by $10 million.
Speaker Change: I'll now offer our updated outlook for Q2 and the full year 2025.
Tim: To be at or above $950 million.
Speaker Change: For the second quarter of 2025, we expect revenue to be in the range of 616.
Tim: We are also maintaining our capex guidance to be in the range of 25 to.
Tim: To $30 million for the full year.
to $619 million.
Tim: In addition to finance lease lines to be approximately 6% of revenue.
We are expecting a currency headwind of approximately $1 million dollars.
Tim: Finally, as a result of our recent repurchase activity we.
Speaker Change: On a constant currency revenue basis, we expect revenue to be in the range of 617 to 620 million dollars.
Timothy Regan: We also continue to navigate the uncertain pacing of revenue stemming from the elimination of our marketing investment in FormSwift. as well as the nation's state of death. We are therefore maintaining our constant currency revenue guidance for the year. However, we are flowing through the benefit from the improvement in FX rates to our as-reported revenue guidance. Regarding paying users and in light of the aforementioned perspective, we are maintaining our initial commentary and expecting paying users to decline by roughly 1.5% or 300,000 users, with these declines to be roughly evenly spread throughout the year. We continue to expect that ForumSwift will represent roughly half of the paying user decline this year, where these plans also carry a higher average selling price.
We are now expecting diluted weighted average shares outstanding to be in the range of 276.
Speaker Change: We expect form swift to serve as a roughly 150 basis point headwind to revenue in the second quarter.
Speaker Change: Two 281 million shares.
Tim: Down 7 million shares from our original guidance.
We expect our non-GAAP operating margin to be approximately 37.5%
Tim: Yeah.
Tim: I'll now share some additional perspective on this guidance for 2025.
Tim: We had a solid start to the year in particular executing against our objective of driving higher levels of efficiency across our core file sync and share.
Tim: And document workflow businesses.
Tim: Despite this.
Speaker Change: For the full year 2025, based on current foreign exchange rates, we are raising...
Tim: We are facing an uncertain macroeconomic environment that could introduce some volatility to our results.
Our previous guidance range for reported revenue by $10 million for $10 million.
While we have not yet seen any meaningful impact to our customer demand and are optimistic that our diversified customer base will help insulate us from near term volatility it.
to $2.475 billion.
with $2.490 billion.
Timothy Regan: Thus, this decline will also introduce some pressure to our ARPU Moving on to operating margins, we are raising our full year guidance by 50. which largely reflects our latest outlook on FX. While we outperformed on operating margins in Q1, some of this outperformance was due to delayed spend that we expect to incur later this year as we plan to invest in headcount and marketing behind dash. We are also maintaining our full-year CAPEX and finance lease guidance. While we are monitoring the macroeconomic conditions closely and assessing mitigation plans to the extent tariffs are applied to equipment needed for data centers, we are currently assuming no material impact to cash capex or to our finances.
Our full-year constant currency Remnigadence is unchanged.
Tim: It is too early to estimate the impact of the evolving geopolitical dynamics.
at 2.483.
Tim: We also continued to navigate the uncertain pacing of revenues stemming from the elimination of our marketing investment informs Swift.
The $2.498 billion.
Speaker Change: We continue to expect forms list to serve as a 150 patients point headwind to revenue this year.
Tim: As well as the nascent state of Dash.
Tim: We are therefore, maintaining our constant currency revenue guidance for the year.
Our Gross Margin Outlook is Unchanged
Tim: However, we are flowing through the benefit from the improvement in FX rates to our as reported revenue guidance.
Speaker Change: We are raising our outlook for non-GAAP operating margin by 50 basis points.
to be in the range of 38.
to 38.5%.
Tim: Regarding paying users and in light of the aforementioned perspective, we are maintaining our initial commentary and expecting paying users to decline.
Speaker Change: We are raising unlevered free cash flow by $10 million to be at or above $950 million.
Tim: By roughly one 5% or 300000 users.
Tim: With these declines to be roughly evenly spread throughout the year.
Tim: We continue to expect that forms with will represent roughly half of the paying user decline this year.
Timothy Regan: We are also raising unlevered free cash flow in line with our Raise to Operate.
Tim: Were these plans also carry a higher average selling price and.
Finally, as a result of our recent Repurchase Activity.
Tim: And thus this decline will also introduce some pressure to our ARPA trends.
Timothy Regan: In conclusion, we're off to a good start to the year. We are executing well against our strategy of generating higher levels of efficiency across our core file thicket share and document workflow businesses as we outperformed against our expectations for the first quarter. We also reduced our share count via our share repurchase program, thus putting ourselves in a position to drive a meaningful increase in free cash flow per share this year. Well, we are pleased with the start. progress we are making on Dash. We are also keeping a close watch on the evolving macro environment for any potential impact to our business.
Speaker Change: We are now expecting diluted weighted average shares outstanding to be in the range of 276.
Tim: Moving on to operating margins, we are raising our full year guidance by 50 basis points.
to 281 million shares.
Down 7 million shares from our original guidance.
Tim: Which largely reflects our latest outlook on FX.
While we outperformed on operating margins in Q1. Some of this outperformance was due to delayed spend that we expect to incur later this year as we plan to invest in head count and marketing behind Dash.
Speaker Change: I'll now share some additional perspectives on this guidance for 2025.
Speaker Change: We had a solid start to the year, in particular executing against our objective of driving higher levels of efficiency across our core files that can share and document workflow businesses.
Tim: We are also maintaining our full year capex and finance lease guidance.
Tim: While we are monitoring the macroeconomic conditions closely in assessing mitigation plans to the extent tariffs are applied to equipment needed for data centers. We are currently assuming no material impact to cash capex or to our finance leases.
Timothy Regan: We look forward to sharing further updates on our progress in future.
Speaker Change: While we have not yet seen any meaningful impact to our customer demand, and our optimistic that our diversified customer base will help insulate us from near-term volatility, it is too early to estimate the impact of the evolving geopolitical dynamics.
Unknown Executive: With that, Operator, please open the line for questions. Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 1-1 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 1 again. Please stand by while we compile the Q&A process.
Tim: We are also raising unlevered free cash flow in line with our raised to operating margins.
Tim: In conclusion, we're off to a good start to the year.
Speaker Change: We also continue to navigate the uncertain pacing of revenue stemming from the elimination of our marketing investment in forms with
Tim: We are executing well against our strategy of generating higher levels of efficiency across our core file sync and share.
as well as the nascent state of DASH.
Steve Enders: Our first question comes from the line of Steve Enders with Citi, your line is open. Okay, great. Thanks for thanks for taking the questions here. I guess I just want to ask on or to start asking about some of the I guess, better user levels, it looks like trend was a little bit better than you expected. But just what is it that's maybe supporting that or helping to drive the better outcomes there? And I guess, how do you kind of feel about the incremental levers or, you know, additional things that you can that are in your control to, to manage levels from from here?
Tim: And document workflow businesses as we outperformed against our expectations for the first quarter.
Speaker Change: We are therefore maintaining our constant currency revenue guidance for the year. However, we are flowing through the benefit from the improvement in FX rates to our as reported revenue guidance.
Tim: We also reduced our share count via our share repurchase program, thus putting ourselves in position to drive a meaningful increase in free cash flow per share this year.
Speaker Change: Regarding paying users and in light of the aforementioned perspective we are maintaining our initial commentary in expecting paying users to decline by roughly 1.5% or 300,000 users with these declines to be roughly evenly spread throughout the year.
Tim: While we are pleased with the start.
Tim: And the progress we're making on dash. We are also keeping a close watch on the evolving macro environment for any potential impact to our business.
Tim: We look forward to sharing further updates on our progress in future quarters.
Speaker Change: We continue to expect that form swift will represent roughly half of the paying user decline this year, where these plans also carry a higher average selling price.
Tim: With that operator, please open the line for questions.
Drew House: Sure, I can start and... and Tim Connett on. So we're making progress on a lot of our priorities in the core business. So in particular, we're focused on the team's business, which has higher retention rates, higher ARPU, as it has a good attached potential for Dash. And the improvements really stem from product performance improvements. So we've been focused on making onboarding easier and reducing friction and streamlining that experience. And we've seen some of that pay off with from leading indicators like. The number of desktop activations, so people that successfully install and get up and running on the desktop app, that number has increased 50% year over year.
Tim: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced so to withdraw. Your question. Please press star one again, please stand by while we compile the Q&A roster.
Speaker Change: and thus this decline will also introduce some pressure to our R2 trends.
Speaker Change: Moving on to operating margins, we are raising our full-year guidance by 50 basis points.
which largely reflects our latest outlook on FX.
Speaker Change: Our first question comes from the line of Steve Enders with Citi. Your line is open.
Speaker Change: While we outperformed on operating margins in Q1, some of this outperformance was due to delayed spend that we expected incur later this year as we plan to invest in headcount and marketing
Steve Enders: Okay, great. Thanks for thanks for taking the questions here.
Steve Enders: I guess I just wanted to ask on to start asking about some of the.
Steve Enders: Better user level it looks like churn was a little bit better than you expected, but just what is it that's.
Speaker Change: We are also maintaining our full your capex and finance, please guide us.
Steve Enders: Maybe supporting that are helping driving the better outcomes therein.
Speaker Change: While we are monitoring the macroeconomic conditions closely and assessing mitigation plans to extend tariffs or applied to equipment needed for data centers, we are currently assuming no material impact to cash-cafx or to our finance leases.
Drew House: We've made similar efforts and improvements on team expansion. We continue to iterate on pricing to get the price value equation right. So I think we both made progress on those fronts, and we still have headroom in each of those areas too. And ultimately, one of the best things we can do for core retention is to complement it with Dash so that the value we provide extends from syncing your files to organizing all your cloud content and providing an intelligence layer over everything and doing that safely.
Steve Enders: How do you kind of feel about the incremental levers are additional things that you can that are in your control too.
Steve Enders: To manage levels from here.
Steve Enders: Sure I can start and.
Speaker Change: We are also raising unlever free cashflow in line with our raise to operating margins.
Tim: And Tim can add on.
Speaker Change: So we're making progress on a lot of our priorities in the core business. So.
Speaker Change: In conclusion, we're off to a good start to the year.
Speaker Change: In particular, we're focused on the team's business, which has higher retention rates higher ARPA.
Speaker Change: We're executing well against our strategy of generating higher levels of efficiency across our core file ticket share and docking workflow businesses as we outperformed against our expectations for the first quarter.
Speaker Change: And it has a good attach potential for dash and.
Timothy Regan: Hey, Steve, it's Tim. As Drew talked about, we did see some outperformance on our individual and team SKUs relative to expectations. But as related to the full year, while we did outperform in the first quarter, certainly mindful of the evolving macro environment.
Speaker Change: Any improvements it really stemmed from product performance improvements. So we've been focused on making onboarding easier intermodal route is friction and streamlining that experience and we've seen some of that pay off with.
Speaker Change: We also reduced our share count via our share repurchase program, thus putting ourselves in position to drive a meaningful increase in free cashflow per share this year.
Timothy Regan: And so that's why we're maintaining our initial commentary in expecting paying users to decline. by roughly 300,000 users. Still expect that ForumSwift will represent about half of the paying user decline, and we expect that decline to be roughly evenly spread.
Speaker Change: From leading indicators like the number of desktop Activations will be let successfully install and get up and running on the desktop app without numbers increased 50% year over year.
Well, we are pleased with the start.
Speaker Change: and the progress we are making on Dash. We are also keeping a close watch on the evolving macro environment for any potential impact to our business.
Speaker Change: We've made similar efforts and improvements on team expansion.
Speaker Change: We look forward to sharing further updates on our progress in future quarters.
Speaker Change: Continue iterating iterate on pricing.
Steve Enders: Okay, great. That's, um, that's helpful.
To get the price value equation right.
With that operator, please open the line for questions.
Drew House: And then maybe just on on dash, you know, I guess any kind of change in your view since, I guess, over the past 90 days, since we last talked around, you know, the monetization potential or how you expect the, you know, the rollout and the sales initiatives back into the base to, to play out from here? Um, nothing major. I think the thing that I'm most excited about are, um... Things like our recent product release a couple weeks ago, so our spring release for Dash breaks a lot of new ground in being able to support images and video, for example, whereas a lot of other products are focused on text and documents.
Speaker Change: So I think we both made progress on on those fronts and we still have headroom in each of those areas too.
Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask the question, please press start one one on your telephone, then wait for your name to be announced. To withdraw your question, please press start one one again. Please stand by while we compile the Q&A roster.
Speaker Change: And ultimately one of the best things, we can do for core retention.
Speaker Change: <unk> is to complement it with dash so that the value. We provide extends from thinking your files to organizing all your cloud content and providing an intelligence layer over everything.
Speaker Change: And doing that safely.
Speaker Change: Hey, Steve It's Tim as drew talked about we did see some outperformance on our individual and team skus relative to expectations, but as it related to the full year, while we did outperform in the first quarter certainly mindful of the evolving macro environment and so that's why we're maintaining our.
Speaker Change: Our first question comes from the line of Steve Enders with City, Ilan is open.
Okay, great. Thanks for sticking the questions here.
Speaker Change: I guess I just want to ask on or to start asking about some of the better user levels. It looks like turn was a little bit better than you expected. But just what is it that's?
Initial commentary and expecting paying users to decline by roughly 300000 users still expected forums Swift will represent about half of the paying user decline and we expect that decline to be roughly evenly spread throughout the year.
Drew House: And we've closed a lot of or we've been responsive to a lot of key customer requests, particularly on some of our connector coverage with adding connectors for apps like Slack and Teams and Zoom and Canva, which are some of the most heavily requested. And then more broadly, the basic value prop continues to resonate in our existing customers certainly see this as a natural evolution of what we do. We've got half a million paying businesses on Dropbox, who also need to organize their cloud content and need to roll out AI safely. And it's also been good just the progress we've been seeing in building pipeline and getting our pilot customers up and running.
Speaker Change: maybe supporting that or helping to drive the better outcomes there. And I guess how do you kind of feel about the incremental levers or additional things that you can better in your control to manage levels from here? Thank you, Peter.
Speaker Change: Okay great.
Speaker Change: That's helpful. And then maybe just on on Dash I guess any kind of change in your view since I guess over the past 90 days since we last talked around.
Sure, I can start and...
Speaker Change: The monetization potential or how you expect the.
Speaker Change: The rollout and the sales initiatives back into the base.
Speaker Change: To play out from here.
Speaker Change: And the improvements are really stemmed from product performance, so we've been focused on making onboarding easier and reducing friction and streamlining that experience, and we've seen some of that pay off with.
Nothing major I think the thing that I'm most excited about are.
Drew House: I mean, I think we've had some some expected friction just there's opportunities for us to just compress the cycle times of getting customers up and running and making onboarding easier and and making team setup and education easier. So those are the kinds of things we're iterating on. But overall, No major changes and pretty excited about the opportunity.
Speaker Change:
Speaker Change: Things like our recent product release, a couple weeks ago, So our spring release for Dash.
Speaker Change: <unk> breaks a lot of new ground and being able to support images and video for example, whereas a lot of.
from Leading Indicators, like...
The number of desktop
Speaker Change: Other products are focused on text and documents.
Speaker Change: Activation, so be let successfully install and get up and running on the desktop app with that numbers increased 50% year over year.
Speaker Change: And we've closed a lot of where we've been responsive to a lot of key customer requests, particularly on some of our connector coverage with that and connectors for.
Steve Enders: Okay, awesome.
Steve Enders: Great to great to hear and thanks for taking the question.
Speaker Change: Apps like slack and teams and zoom in Canada.
Speaker Change: to get the Price Value Equation right. So I think we both made progress on those front and we still have headroom in each of those areas too, and ultimately one of the best things we can do for core retention.
Unknown Executive: Thanks.
Unknown Executive: Thank you.
Speaker Change: What are some of them most.
Rishi Jaluria: Our next question comes from the line of Rishi Jaluria with RBC, your line is open. Oh, wonderful. Thanks so much for taking my questions. Maybe I want to continue to follow up on Dash. So, you know, I know it's going to take a while before this turns into monetization, but maybe can you be a little bit more specific in terms of early adopters, kind of what sort of feedback you're getting from them? And maybe, you know, more importantly to that, given the space is competitive and arguably getting more competitive with a number of different players entering it, when you are seeing customers use Dash versus any of the other alternatives, what are typically the reasons you hear from them about why they chose to go with Dash versus using another one of those services?
Speaker Change: Heavily requested.
Speaker Change: And then more broadly the.
Speaker Change: The basic value prop continues to resonate and archives of our existing customers certainly see this as a natural evolution of what we do.
Speaker Change: is to complement it with Dash so that the value we provide extends from syncing your files to organizing all your cloud content and providing an intelligence layer over everything and doing that safely.
Speaker Change: We've got half a million paying businesses on Dropbox, who also need to organize their cloud content in and need to rollout AI safely.
Speaker Change: And it's also been good just the progress we've been seeing in building pipeline and getting our pilot customers up and running.
HD's, it's Tim, as...
Drew Houston: Drew talked about we did see some outperformance on our individual and team skews.
Speaker Change: I mean, I think we've had some unexpected friction just theres opportunities for us to.
Drew Houston: Relative to expectations, but as related to the full year while we did outperform in the first quarter, certainly mindful of the evolving macro environment.
Speaker Change: Just compress the cycle times of getting customers up and running and making onboarding easier and.
Drew Houston: And so that's why we're maintaining our initial commentary in expecting paying users to decline by roughly 300,000 users still expect that form swift will represent about half of the paying user decline and we expect that decline to be roughly evenly spread throughout the year.
Speaker Change: And making team setup and education easier. So those are the kinds of things we're iterating on.
Speaker Change: But overall.
Drew House: And then I've got a quick follow-up. Sure. So one is, as we expected, things like just the basic AI search resonates, but But we've actually also seen that the features around organizing and sharing content, specifically stacks, resonate with a lot of our early users. And so our customers have challenges not just around search, but around organizing and sharing all their content in a cross-platform way, because if you think about it, getting ready for a board meeting or working on a project, and you have a Google Doc and a video file and an air table or something, there's not really a common container until stacks.
Speaker Change: No major changes and pretty excited about the opportunity.
Speaker Change: Okay Awesome Green too great to hear thanks for taking the questions.
Speaker Change: Okay, great. That's helpful. And then maybe just on Dash, you know, I guess any kind of change in
Speaker Change: Thanks, Thank you.
Speaker Change: Sure.
Speaker Change: Our next question comes from the line of Rishi Jazzy Ria with RBC. Your line is open.
Drew Houston: I guess over the past 90 days since we last talked around
Speaker Change: Wonderful. Thanks, so much for taking my questions, maybe I want to continue to follow up on dash.
Drew Houston: The monetization potential, or how you expect the rollout and the sales initiatives back into the base to play out from here.
Speaker Change: I know, it's going to take a while before this trend into monetization, but maybe can you be a little bit more specific in terms of early adopters kind of Watson.
Drew Houston: Nothing major. I think the thing that I'm most excited about are
Speaker Change: Feedback youre getting from them and maybe more importantly than that given the space is competitive.
Drew House: And so I think customers get really excited about the possibilities, and especially when you combine that with the multimodal support, so being able to organize images and video, and you think about it, especially the Dropbox customers skew, or we have a lot of adoption in the creative community, or people that work with big files and video. Dash is pretty unique in how we support that. And then also on the IT side, protecting control really resonates. So when you think about rolling out AI within a company or search, but really AI of any kind, one challenge is it makes it a lot easier for employees to access content that shouldn't have been shared in the first place.
Drew Houston: Things like our recent product release a couple weeks ago, so our spring release for DASH
Speaker Change: Arguably getting more competitive with a number of different players entering Walsh.
Drew Houston: Briggs a lot of new ground in being able to support images in video, for example, whereas a lot of...
Speaker Change: When you are seeing customers use dash versus any other alternatives. One typically the reasons you hear from them about why they chose to go with cash versus using another one other services and then I've got a quick follow up.
Other Products. [inaudible]
are focused on text and documents.
and we've closed a lot of...
Drew Houston: Or we've been responsive to a lot of key customer requests, particularly on some of our connector coverage with that and connectors for apps like Slack and Teams and Zoom and Canva, which are some of the most...
Speaker Change: Sure.
Speaker Change: So one is as we expected and things like just the basic AI search resonates, but.
Speaker Change: But we are actually also seeing that.
heavily requested.
and then more broadly the...
Speaker Change: The features around organizing and sharing content, specifically stacks resonate with a lot of our.
Drew Houston: The basic value prop continues to resonate, and our existing customers certainly see this as a natural evolution of what we do.
Speaker Change: Early users and so our customers have challenges not just around search but around organizing a sharing all their content in a cross platform way because if you think about it.
Drew Houston: We've got half a million paying businesses on Dropbox who also need to organize our cloud content and need to roll out AI safely and it's also been good just the progress we've been seeing in building pipeline and getting our pilot customers up and running.
Drew House: And protecting control really helps you identify improperly shared or sensitive content across every platform, which is unique, and then actually lets you remediate it at its source. So it allows you to identify overshared content, mass unshare it, and set policies to keep that in line going forward. And that's something that, again, is unique to Dash and a really resonating part of the value prop beyond search.
Speaker Change: Getting ready for a board meeting or working on a project and you have a Google Doc and video file in an air table or something that's not really a common container.
Speaker Change: Until stacks and so.
Speaker Change: I think customers get really excited about the possibilities and especially when you combine that with the multimodal supports being able to organize images and video and you think about especially the sort of the dropbox customers skew.
Drew Houston: and making teams set up in education easier, so those are the kind of things we're iterating on. But overall, no major changes and pretty excited about the opportunity.
Rishi Jaluria: All right, wonderful, helpful.
Drew House: And then maybe just turning to the macro environment, look, appreciate the color out there. I want to think maybe specifically about the consumer side of the business. You know, I know this stuff takes time to flow through, but we've seen kind of reports of weakening consumer confidence. And, you know, I imagine that's kind of a maybe a little bit of a challenged area. Maybe can you walk me through what are you seeing specifically in the consumer kind of stays at this sort of level, how should we see this playing out? Thanks. Yep. So in our world, consumer adoption often, in our context means a mixed personal and work use case.
Speaker Change: Or we have a lot of adoption in like the creative community. There are people that work with big files in video.
Speaker Change: Dash is pretty unique in how we.
Great to hear and thanks for taking the questions.
Speaker Change: We support that and then.
Speaker Change: Also on the it side.
Thanks. Thank you.
Speaker Change: <unk> control really resonates. So when you think about rolling out AI within a company or a search, but really AI or any kind of.
Speaker Change: Our next question comes from the line of Rishi Jaluria with RBC, Yalena Felton.
Speaker Change: One challenge is it makes it a lot easier for employees to access content that shouldn't have been shared in the first place.
Rishi Jaluria: Oh, wonderful. Thanks so much for taking my questions. Maybe I want to continue to follow up on Dash. So, you know, I know it's going to take a while before this turns into monetization, but maybe can you be a little bit more specific in terms of early adopters?
Speaker Change: Protecting control really helps you identify.
Speaker Change: Improperly shared are sensitive content across every platform, which is unique and then actually lets you remediated at a source. So that allows you to identify overshare content mass on share it.
Rishi Jaluria: kind of what sort of feedback you're getting from them and maybe you know more importantly than that given the space is
Drew House: And that's important because a lot of our individual subscribers are often using Dropbox for something like 80% of our users are using Dropbox, or of our subscribers using Dropbox for either a entirely a work use case or a mixed personal and work use case. And then a lot of our that subscriber base has been with us for a long time. And in that context, Dropbox is a pretty mission critical thing. The reason that people stay on Dropbox is because they're more Important information is on there. And they have this whole sharing network set up in both personal and work context.
Speaker Change: Set policies.
Rishi Jaluria: Competitive and arguably getting more competitive with a number of different players entering that. When you are seeing customers use Dash versus any of the other alternatives, what are typically the reasons you hear from them about why they chose to go with Dash versus using another one of those services? And then I've got a quick follow up.
Speaker Change: To keep that in line going forward and that's something that.
Speaker Change: Again is unique to the ash and are really resonating part of the value prop beyond search.
Speaker Change: Wonderful.
Speaker Change: And then maybe just turning to the macro environment look I appreciate the color out there I wanted to think maybe specifically a solid.
Speaker Change: Sure. So one is, as we expected, things like just the basic AI search resonates. But um...
Speaker Change: On the consumer side of the business.
Speaker Change: This stuff takes time to flow through but we've seen kind of reports of weakening consumer confidence and I imagine thats kind of maybe a little bit of a challenged area.
Speaker Change: But we have actually also seen that the features around organizing and sharing content specifically stacks.
Timothy Regan: And so we and we've also just observed that while there are the general trends, I think we're all looking, you know, keeping an eye on the macro environment, and, and... We haven't really seen major changes in these trends. And so some of what we've seen around, we have seen like price sensitivity with SMBs, but both in our like SMB segment and consumer segment or individual segment, we haven't really seen like major new changes to leading indicators that indicate some big impact on the macro environment. I mean, obviously that can change, but it's not something we've seen yet.
Maybe can you walk me through what are you seeing specifically in the consumer business and as we think about your guidance for the rest of the year.
Resonate with a lot of our...
Early Users
And so our customers have challenges not just around.
Speaker Change: Consumer kind of stays at this level policy initiative is playing out thanks.
Speaker Change: Search, but around organizing and sharing all their content in a cross-platform way because if you think about it
Speaker Change: Yep.
Speaker Change: You know, getting ready for a board meeting or working on a project and you have a, you know, Google Doc and a video file and an air table or something, there's not really...
Speaker Change:
Speaker Change: So in our world consumer adoption often in our context means a mixed personal and work use case and that's important because a lot of our individual subscribers.
Speaker Change: <unk> are often using dropbox, where if something like 80% of our users are using dropbox.
Speaker Change: Of our subscribers are using dropbox for either a entirely a work use case or a mixed personal and work use case and then a lot of our subscriber base has been with us for a long time.
SKU
Speaker Change: Or we have a lot of adoption in like the creative community or people that work with big files and video dash is pretty unique
Timothy Regan: And Rishi, this is Tim. And maybe as Drew was alluding to as related to guidance, we've not seen a meaningful change in our trends at this point, but certainly mindful of this incremental macro risk. We're also facing some uncertainty as to the pacing of form Swiss revenue, just given the elimination of our marketing investment in that business. And so I'd say we're being prudent with the guidance. Got it.
Speaker Change: And in that context, Dropbox is a pretty mission critical thing.
Speaker Change: in how we support that. And then also on the IT side, protecting control really resonates.
Speaker Change: The reason.
That people stay on Dropbox is because their most important information is on there and they have this whole sharing network setup.
Speaker Change: In both personal and work contexts.
Speaker Change: And.
Speaker Change: So we and we've also just observe that while there are the general trends.
Rishi Jaluria: Thank you so much, Cassie.
Speaker Change: and protecting control really helps you identify improperly shared or sensitive content across every platform which is unique and then actually lets you remediate it at a source. So it allows you to identify over shared content, mass, unshare it, and set policies.
Unknown Executive: Thank you.
Speaker Change: I think we're all looking at keeping an eye on the macro environment and and.
Matt Bullock: Our next question comes from the line of Matt Bullock with Bank of America. Your line is open. Sure, I'd say it's largely sustainable. If you if you look at our guidance, we're raising our guidance to 38 to 38 and a half percent. Certainly, largely reflects our latest outlook on FDI. And as you noted, while we beat on operating margins in the first quarter, some of that was due to delayed vendor spend and hiring that we. Observer, protected terrorists, come back to do this work. Yeah.
Speaker Change: We haven't really seen major changes in these trends and so some of what we've seen around we have seen like price sensitivity.
Speaker Change: With Smbs.
But both in our like SMB segment and in consumer segment or individuals' segment, we haven't really seen like major new changes to leading indicators.
Speaker Change: to keep that in line going forward, and that's something that, again, is you need to dash in a really resonating part of the value prop beyond search.
Speaker Change: That indicates some big impact on the macro environment I mean, obviously that that can change.
Speaker Change: All right, wonderful. And then maybe just turning to the macro environment, look, appreciate the color out there. I want to think maybe specifically about the consumer side of the business. You know, I know this stuff takes time to flow through, but we've seen kind of reports of weakening consumer confidence and, you know, imagine that's kind of a maybe a little bit of a challenged area. Maybe you walk me through what are you seeing specifically in the consumer business and as we think about your guidance [inaudible]
Speaker Change: But it's not something we've seen yet.
Speaker Change: <unk>. This is Tim and maybe as Jay was alluding to is related to guidance, we have not seen any meaningful change in our trends at this point, but certainly mindful of this incremental macro risks.
Speaker Change: Also facing some uncertainty as to the pacing of Forum Swiss revenue.
Speaker Change: Given the elimination of our marketing investment in that business and so I'd say, we were being prudent with the guidance we shared.
Speaker Change: for the rest of the year. I'm a consumer kind of stays at this sort of level, how Rishi was playing out. Thanks.
Speaker Change: Got it. Thank you so much guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Matt Wallach with Bank of America. Your line is open.
Yep.
Speaker Change: So in our world, consumer adoption often in our context means a mixed personal and work use case and that's important because
Matt: Hi, great. Thanks, This is Matt on for Mike.
Matt: So really strong margin during the quarter. It sounds like there was some timing benefit in sales and marketing, but there is also a pretty substantial downtick in R&D spend I think down about 20% year over year should we expect that run rate to be sustainable under the new operational structure or should we.
Drew House: think covering have to up to on His dash We will continue to invest. Understood. Thank you.
A lot of our individual subscribers.
Speaker Change: or often using Dropbox for something like 80% of our users are using Dropbox. [inaudible]
Speaker Change: or of our subscribers using Dropbox for either an entirely a working case or a mixed personal and working case.
Drew House: And then just one more quick follow up, if I could. Sounds like the integration work on Dash is progressing nicely. Are there any other major integrations coming down the pipeline that are worth noting that you think could be an unlock for demand? So, one area where we're really focused is building a self-serve version of Dash, which is important for unlocking the potential of our self-serve base. So, if you think about the more than half a million business customers on Dropbox, the vast majority of those are self-serve. So, having a version of Dash that you can just kind of get up and download and get up and running on your own is really important.
Speaker Change: And then a lot of our, that subscriber base has been with us for a long time. And in that context Dropbox is a pretty mission critical thing. The reason that people stay on Dropbox is because they're most...
Matt: We expect R&D intensity to come back up as some of these investments into ash container ramp.
Matt: Yeah.
Matt: Sure I'd say, it's largely sustainable if you if you look at our guidance, we're raising our guidance to 38 to 38, 5% certainly largely reflects our latest outlook on FX.
Matt: And as you noted while we beat on operating margins in the first quarter. Some of that was due to delayed vendor spend and hiring that we expect to incur later this year and specifics R&D certainly mindful of our R&D spend we're very focused on optimizing the core business for efficiency, where we're certainly making good progress with that.
Speaker Change: We haven't really seen major changes in these trends in some of what we've seen around. We have seen like price sensitivity
Drew House: And then, we also have a lot of historical strength, which we'll leverage again in the self-serve and viral motion and things like stacks and sharing, really accelerating growth. So, really building that connectivity between FSS and Dash and then making it so it's really easy for folks to both existing customers to get up and running on Dash in a seamless way, and also for new customers, we think that's going to be a big accelerant. And I'd just say another part is, just touching on the competitive comment before, is in our sweet spot, which is largely SMBs and mid-market, we really don't see a lot of competition.
Matt: But also rotating investments towards our higher growth opportunities such as dash, where we will continue to invest marketing and head count to support that.
Speaker Change: that indicates some big impact on the macro environment. I mean, obviously that that can change but it's not something we've seen yet.
Speaker Change: Understood. Thank you and then just one more quick follow up if I could.
Speaker Change: It sounds like the integration work on Dash is progressing nicely are there are there any other major integrations coming down the pipeline.
Speaker Change: We've not seen any meaningful change in our trends at this point but certainly mindful of this incremental macro risk.
Speaker Change: That are worth, noting that you think could be an unknown.
Speaker Change: <unk> for demand.
Speaker Change: We're also facing some uncertainty as to the pacing of form Swiss revenue, just given the elimination of our marketing investment in that business and so I'd say we're being prudent with the guidance we've shared.
Speaker Change: Okay.
Speaker Change: So one area, where we're really focused is building self serve version of dash speaking to which is important for unlocking the potential of our self serve base. So if you think about the more than half a million business customers.
Drew House: And when I talk to customers and prospects, most of them have not even heard of some of the enterprise-focused competitors. So, we see this as a lot of white space for Dropbox, which is another reason why we're really focused on building from strength in our home field. Got it. Thanks, Drew. Thank you.
Alright, got it. Thank you so much, Cassie.
Thank you [inaudible]
Speaker Change: Dropbox the vast majority of those are self serve.
Speaker Change: Our next question comes from the line of Matt Bullock with Bank of America. The line is open.
Speaker Change: So having a version of dash that you can just kind of get up and download and get up and running.
Speaker Change: On your own is is really important and then we also have a lot of historical strength, which will leverage again in the self serve and viral motion and things like stacks and sharing.
Matt Bullock: Hi, great. Thanks. This is Matt on for Mike Plunk. So really strong margin during the quarter. It sounds like there was some timing benefit in sales and marketing, but there was also a pretty substantial down tick and R&D spend that think down about 20% year over year.
Alex Nguyen: Our next question comes from a line of Alex Nguyen with Jeffreys, your line is open. Hi, this is Alex for Braintail. I want to ask about the recent addition of Promoted AI to the team. It looks like the senior individual affairs specialize in marketplace app technology. So can you talk now about the strategic implication of this addition, and how are you intending to leverage Promoted AI expertise within the overall business? Yeah, so Promoted AI is a recent acquisition we made. It's a really talented team with a lot of machine learning and AI experience, both within their startup, but then also at a lot of established companies.
Speaker Change: Really accelerating growth.
Speaker Change: So really building that connectivity between FSS and dash and then making it really easy.
Speaker Change: Should we expect that run rate to be sustainable under the new operational structure, or should we expect R&D intensive to come back up as some of these investments in dash and data ramp?
Speaker Change: For folks to both existing customers pick it up on running on dash.
Speaker Change: And in a seamless way and and also for new customers and we think that's going.
Speaker Change: We're gonna be a big accelerant.
Speaker Change: Sure, I'd say it's largely sustainable. If you look at our guidance, we're raising our guidance to 38 to 38.5%, certainly largely reflects our latest outlook on FX.
Speaker Change: And I'd just say another part is just just touching on the competitive comment before us.
Speaker Change: In our sweet spot, which is largely SMB and mid market, we really don't see a lot of competition and when I talk to customers and prospects most of them have not even heard of some of the enterprise focused competitors.
Speaker Change: and as you noted while we beat on operating margins in the first quarter some of that was due to delayed vendor spend and hiring that we expect.
Drew House: And they're coming in to really strengthen our machine learning and search and AI talent on Dash. And they were doing some work on or their company is doing work on on advertising, but we're not gonna be leveraging that here.
Speaker Change: So we see this says.
Speaker Change: A lot of white space for Dropbox, which is another area of another reason why were really focused on.
Speaker Change: to incur later this year. And specific R&D, certainly mindful of our R&D spend, we're very focused.
Speaker Change: Building from strength in our in our home field.
Speaker Change: on optimizing the core business for efficiency, where we're certainly making good progress with that effort but also rotating investments towards our higher growth opportunities, such as Dash, where we will continue to invest marketing and headcount to support that.
Joe: Got it thanks, Joe.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Alex <unk> with Jefferies. Your line Sir Your line is open.
Drew House: Okay, that's helpful.
Drew House: And then I have another follow up. I want to ask about the investment throughout the year for DASH that you were implying in your commentary and guidance. What do those expenditures look like? I imagine some of it, it would be to increase the headcount in sales and then the overall sales channel distribution. So yeah, we'd love to hear more about that. Sure, so we will continue to invest in hiring and marketing investments behind Dash, and that will be some degree of R&D, some as well as sales and marketing. Drew just alluded to Promoted.ai, which is an R&D investment that we're making behind Dash.
Alex: Yes, Hi, this is Alex.
Speaker Change: Thank you I wanted to ask about the recent addition of promo to AI to the team.
Speaker Change: Understood. Thank you. And then just one more quick fall if I could. Sounds like the integration work on Dash is progressing nicely. Are there any other major integrations coming down the pipeline that are worth noting that you think could be an unlock for demand? Yes.
Speaker Change: It looks like the senior <unk> specialize in market.
Speaker Change: Okay.
Speaker Change: So can you talk more about this Jack T. J implication of this edition and how are you intending to leverage promote get AI expertise looking overall business.
Speaker Change: So one area where we're really focused is building a self-serve version of Dash which is important for unlocking the potential of our self-serve base so if you think about the more than half a million business customers.
Speaker Change: Yeah.
Speaker Change: Yes. So promoted a is a recent acquisition we've made it's really talented team with a lot of machine learning and AI experience.
Speaker Change: Both of them in their startup and then also had a lot of our established companies.
Speaker Change: on Dropbox, the vast majority of those are self-serve. So having a version of Dash that you can just kind of get up and download and get up and running on your own is really important. And then we also have a lot of historical strength, which will leverage again in the self-serve and viral motion.
Timothy Regan: And certainly as we're scaling up our sales and marketing function, gaining momentum behind that, we'll continue to add sellers.
Speaker Change: And they're coming in to really strengthen our machine learning in search and AI talent.
On dash and they they were doing some work on or the company is doing work on on advertising, but we're not going to be leveraging that here.
Unknown Executive: Thank you.
and things like stacks and sharing really accelerating growth.
Speaker Change: Yeah. Okay. That's helpful and then I have another follow up.
Unknown Executive: As a reminder, ladies and gentlemen, that's star 11 to ask the question.
Speaker Change: So really building that connectivity between FSS and Dash and then making it so really easy for folks to both existing customers to get up on running on Dash in a seamless way and also for new customers, we think that's going to be a big accelerant.
Speaker Change: I wanted to ask about is the investment to have a year for dash that you own.
Patrick Walravens: Our next question comes from the line of Patrick Walravens with Citizens. Your line is open. Oh, great. Thank you. And congratulations on the on the Better Than Expected results in the quarter. So I actually have sort of a product related question, Drew. So, you know, you're talking about like connectors for Slack and Team and Zoom and Canva. How hard is it to build those connectors? Like what's involved? It's pretty challenging. It sort of sounds easy, but is deceptively difficult and requires a pretty significant R&D investment to do it properly. So in a lot of ways, what we're really talking about is a new form of sync, where we have obviously a lot of experience.
Speaker Change: Tying your commentary and guidance.
Speaker Change: What do you guys extended Josh look like I imagine.
Speaker Change: But it would be to increase the head count savings and then the overall.
Speaker Change: Channel distribution.
Speaker Change: And I just say another part is I'm just just touching on the competitive comment before is
Speaker Change: So yeah, I would love to hear more about that.
Speaker Change: Sure. So we will continue to invest in hiring.
Speaker Change: In our sweet spot, which is largely SMBs in mid-market, we really don't see a lot of competition and when I talk to customers...
Speaker Change: And marketing investments behind Dash and that will be some degree of R&D, some as well as sales and marketing can you just alluded to promoted dot AI, which is an R&D investment that we're making behind dash and certainly as we're scaling up our sales and marketing function.
Speaker Change: and prospects. Most of them have not even heard of some of the Enterprise-focused competitors. So we see this as a lot of white space for Dropbox, which is another reason why we're really focused on building from strength in our home field.
Speaker Change: Gaining momentum behind that we'll continue to add sellers to support desk. So.
Got it. Thanks, Drew.
Speaker Change: I expect that investment to hit both sales and marketing and R&D throughout the year.
Thank you.
Drew House: But this is a pretty mission-critical capability, where it needs to operate at Dropbox's scale. It needs to be totally reliable. It needs to be completely permissions-aware. We have to be good partners in terms of consumption and making sure that we're making an appropriate number of API calls and handling rate limits. And anyway, there's a very long tail of technical considerations. And we just have some color. Early on, we experimented with using some of these third-party integrations-as-a-service type partners, but we found that they had significant scalability and engineering correctness and reliability issues. So just to safeguard our customers' data, we felt the responsible choice was to bring this in-house.
Speaker Change: Our next question comes from the line of Alex Nguyen with Jeffries. Your line is open.
Speaker Change: Okay.
Speaker Change: Thank you.
Thank you.
Speaker Change: As a reminder, ladies and gentlemen that star one to ask the question.
Alex Nguyen: Yes, hi, this is Alex for Brent Hill. I want to ask about the recent ambition of promoted AI to the team. It looks like the senior individual fair specialized in marketplace technology. [inaudible]
Speaker Change: Our next question comes from the line of Patrick Wall Ravens with citizens. Your line is open.
Speaker Change: Oh, great. Thank you and congratulations on the.
Speaker Change: So can you talk more about the strategic implication of this addition and how are you intending to leverage promoted AI expertise within your overall business?
Speaker Change: On the better than expected results in the quarter.
Speaker Change: I can't sort of a product related question drew.
Speaker Change: So you're talking about like connectors for slack and teams and zoom in Canada.
Mm hmm.
Speaker Change: Yeah, so promoted AI's recent acquisition we made, it's a really talented team with a lot of machine learning and AI experience.
Speaker Change: How hard is it to build those connectors like what's involved.
Speaker Change: It's pretty challenging it sort of sounds easy but.
Speaker Change: Both within their startup, but then also at a lot of established companies
Speaker Change: and they're coming in to really strengthen our machine learning and in search and AI talent on Dash. And they were doing some work on, or their company was doing work on advertising but we're not going to be leveraging that here.
Speaker Change: Is deceptively difficult.
Speaker Change: And requires a pretty significant R&D.
Speaker Change: <unk> to do it properly so and a lot of ways.
Speaker Change: What we're really talking about is a new form of zinc where we have.
Drew House: But we also see that as a potential part of our moat and a technical advantage to really make the experience as seamless and performant as possible. And so it's an important investment. Yeah, I agree.
Speaker Change: Obviously, a lot of experience.
Speaker Change: But this is a pretty mission critical.
Yeah.
Speaker Change: Okay, that's helpful. And then I have another follow-up. I want to ask about the investment throughout the year for Dash that you were implying in your commentary and guidance.
Speaker Change: Capability, where it needs to be.
Speaker Change: To operate at Dropbox, a scale it needs to be totally reliable and needs to be completely permissions aware.
Speaker Change: What do those expenditures look like? I imagine some of it would be to increase the head-time sales and then be over our sales channel distribution. So yeah, we'd love to hear more about that.
Speaker Change: We have to be good partners in terms of consumption.
Drew House: And so my follow up is when you when you rolled out the spring 25 release, you you sort of summarize the four areas is, you know, search across video, audio images, kickstart content creation, number three, connect to even more of the tools, we just discussed that number four, more control over what your team can and can't, right? Which of those is the most expensive and time consuming for you? Is it what we just talked about? Well, I think they're all big, big investments with somewhat different shape. I think certainly when you're supporting images and video, that's really, like on the one hand, that is an expensive capability and requires a lot of storage and compute.
Or are you, making sure that we're making and appropriate.
Number of API calls in and.
Speaker Change: Handling rate limits in any way, that's a very long tail of technical considerations.
Speaker Change: And we just have some color.
Speaker Change: Sure, so we will continue to invest in hiring and marketing investments behind Dash, and that will be some degree of R&D, some as well as sales and marketing. Andrew just alluded to promoted.ai which is an R&D investment that we are making behind Dash.
Speaker Change: Early on we experimented with using some of these third party.
Speaker Change: Integrations as a service.
Speaker Change: Type partners, but we found that they had significant scalability and engineering correctness and reliability issues. So we both.
Speaker Change: and certainly as we're scaling up our sales and marketing function, gaining momentum behind that, we'll continue to add sellers to support Dash. So, I expect that investment to hit both sales and marketing and R&D throughout the year.
Speaker Change: Just starting to safeguard our customers data we felt.
Speaker Change:
Speaker Change: As a responsible choice was to bring this in house.
Drew House: That said, you know, certainly for the Dropbox customers, we're already handling the storage at scale and doing it really efficiently. So while on the one hand, it is It's a big technical lift. On the other hand, it's much easier for us to support these use cases efficiently and profitably than a smaller scale competitor. and we're drafting off of a lot of the technical investments we've made over the last 18 years. Awesome. All right. Thank you. Yep, thanks. Thank you.
Speaker Change: But we also see that as also we also see that as a potential part of our moat in a technical advantage truly makes the experience as seamless and performing as possible and.
Thank you.
Speaker Change: Thank you. As a reminder, ladies and gentlemen, that star one one to ask the question.
Speaker Change:
Speaker Change: And so it's an important investment.
Speaker Change: Our next question comes from the line of Patrick Walravens with Citizens. Your line is open.
Speaker Change: Yes, I agree and so my follow up is when you when you rolled out the spring 'twenty five release.
Oh, great. Thank you and congratulations on the
Speaker Change: on the better than expected results in the quarter. So I can have sort of a product related question, Drew. So, you know, you're talking about like connectors for Slack and team and Zoom and Canva. How hard is it to build those connectors? Like what's involved?
Speaker Change: You sort of summarize the four areas of search across video audio images kickstart content creation number three connect that you have more of the tools. We just discussed that number for more control over what your team can and can't rate, which.
Speaker Change: Which of those is the most expensive and time consuming for you is it what we just talked about.
Peter Stabler: Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Peter for closing remarks.
Speaker Change: It's pretty challenging. It sort of sounds easy, but is deceptively difficult and requires a pretty significant R&D
Speaker Change: Okay.
Speaker Change: I think they're all big big investments with somewhat different shape, I think certainly when you're supporting images and video.
Peter Stabler: Thanks, Tawanda, and thank you, everyone, for joining us today. We look forward to speaking to you again next quarter. Have a good day.
Speaker Change: and investment to do it properly. So in a lot of ways, what we're really talking about is a new form of sync.
Speaker Change:
Speaker Change: That's really it.
Speaker Change: Like on the one hand that that is an expensive capability and requires a lot of storage and compute that said.
Unknown Executive: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
where we have obviously a lot of experience.
Speaker Change: Certainly for the Dropbox customers, we're already we're already handling the storage at scale and doing it really efficiency efficiently.
Speaker Change: But this is a pretty mission-critical capability where it needs to be...
Speaker Change: to operate at Dropbox's scale. It needs to be totally reliable. It needs to be completely permissions where we have to be good partners in terms of consumption, or you're making sure that we're making an appropriate.
Speaker Change: Efficiently so.
While on the one hand it is.
Speaker Change: Yeah.
Speaker Change: It's a big technical lift.
Speaker Change: On the other hand, it's way, it's much easier for us to support these use cases efficiently.
Speaker Change: Number of API calls and handling rate limits. And anyway, this is a very long tale of technical considerations.
Speaker Change: Efficiently and profitably then.
Dennis Walsh: Dennis Walsh, the smaller scale competitor.
Dennis Walsh: And we're drafting off of a lot of the technical investments we've made over the last 18 years.
Speaker Change: and we just have some color. Early on, we experimented with using some of these third party, you know, integrations of the service.
Dennis Walsh: Yeah.
Dennis Walsh: Awesome alright, thank you.
Dennis Walsh: Yep. Thanks.
Dennis Walsh: Thank you.
Dennis Walsh: Ladies and gentlemen, I am showing no further questions in the queue I would now like to turn the call back over to Peter for closing remarks.
type partners, but we found that they had significant
Speaker Change: Scaleability and Engineering, Correctness and Reliability Issues. So, we both, you know, to safeguard our customer's data we felt.
Thanks, Tom and thank you everyone for joining US today, we look forward to speaking you again next quarter have a good day.
Dennis Walsh: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
and so it's an important investment.
Speaker Change: Yeah, I agree. So my my follow up is when you when you rolled out the spring 25 release.
Speaker Change: You sort of summarize the four areas of, you know, search across video audio images, kickstart content creation, number three, connect it even more of the tools, we just discussed that, number four, more control over what your team can and can, right? Which of those is the most expensive and time consuming for you? Is it what we just talked about?
Thank you.
Speaker Change: I think they're all big investments with somewhat different shape. I think certainly when you're supporting images and video
Speaker Change: That said, you know, certainly for the Dropbox customers, we're already handling the storage at scale and doing a really efficiency, efficiently. So while on the one hand, it is
Speaker Change: It's a big technical lift. On the other hand, it's way much easier for us to support these cases.
efficiently and profitably, then the smaller scale competitor. Peter.
Speaker Change: and we're drafting off of a lot of the technical investors we've made over the last 18 years.
Awesome. Great. Thank you.
Thanks.
Thank you.
Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue. I will now like to turn the call back over to Peter for closing remarks.
Peter Stabler: Thanks, Tauna, and thank you everyone for joining us today. We look forward to speaking to you again next quarter. Have a good day.
Speaker Change: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: Hello, and welcome to Dropbox' first quarter 2025 earnings conference call.
At this time, all participants are in a listen only mode. [inaudible]
Speaker Change: After the speakers presentation, there will be a question and answer session.
Speaker Change: To ask the question during the session, you will need to press star 11 on your telephone.
Speaker Change: You would then hear automatic message advising your hand is raised.
To withdraw your question, please first start 1-1 again. [inaudible]
Speaker Change: I will now like to turn the conference over to Peter Stabler, third you may begin the conference.
Peter Stabler: Good afternoon and welcome to Dropbox's first quarter 2025 earnings call.
Speaker Change: As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our gap and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors.dropbox.com.
Speaker Change: We will also make forward-looking statements on this call, including statements about our future outlook for our second quarter and fiscal year 2025, as well as our expectations regarding our business, assets, strategies, and the macroeconomic environment.
Speaker Change: Many of these risks and uncertainties are described in our FEC filings, including our most recent report on Form 10K and our forthcoming report on Form 10- Q4 ward-looking statements represent our beliefs and assumptions only as of the date such statements are made.
Speaker Change: We disclaim any obligation to update any forward-looking statements except as required by law.
Speaker Change: I will now turn the call over to Dropbox's CEO and co-founder, Drew Houston.
Drew Houston: Thanks, Peter, and good afternoon everyone. Welcome to our Q1 2025 earnings call, and I'm here with Tim Regan, RCS foe
Drew Houston: I'll start with our business and product highlights and then Tim will walk through our Q1 results and outlook for the rest of the year.
Q1 Revenue came in slightly ahead of our forecast .
Drew Houston: As expected, we saw some sequential decline in paying users after removing form-swift marketing and pursuing higher efficiencies in our core business, the decrease was less than we anticipated.
Drew Houston: Now I'll share an update on our two strategic priorities for this year, which are scaling dash and simplifying and strengthening our core FSS business.
Drew Houston: I'll start with Dash. A few weeks ago we launched our major spring update and I'm particularly excited about how it transforms the search experience for our customers.
The update delivers three main improvements.
Drew Houston: First, most search tools today are still limited to text, but as we know, our work lives extend far beyond documents to images, videos and other rich media.
Drew Houston: Our Spring Update breaks a barrier. For the first time, Dash can now search across all these formats, recognizing both metadata and increasingly the actual content within images and videos.
Drew Houston: Imagine being able to find that specific product photo or design mockup without having to remember what you named the file. That's now possible, it's ash.
Drew Houston: This capability is especially valuable for creative professionals who work with visual content all day, which is why we're seeing strong interest in the creative services industry where Dropbox has traditionally been strong.
Drew Houston: We also made significant performance improvements, cutting latency for dashes summarizing answers capabilities by over 50% and introducing a redesigned search box that serves as a single entry point for finding, asking, writing and organizing your content.
Drew Houston: Second, we responded directly to our customers' top requests by adding customizable data exclusions that give administrators control over what content gets ingested by Dash.
Drew Houston: We also rolled out full integrations with essential workplace apps, including Slack, Zoom, and Microsoft Teams, and we also added deeper integrations with creative and project management tools like Canva and Jira.
Third, we expanded dashes, AI writing capabilities.
Drew Houston: Users can now use simple prompts to have dashed fine and summarized content across all your connected apps and draft documents in seconds.
Drew Houston: The system supports creating templates or even having dashed strap full documents for you.
We've also been strengthening dashes compliance posture.
Drew Houston: Dascher's Bank of GDPR compliant since the beginning of the year, and we've begun the dressing sales opportunities in other angle-speeching co-entries.
Drew Houston: Dasch has also received ISO 27001 compliance and SOC due certifications, reinforcing our commitment to content access control, risk management, and incident response.
Drew Houston: customer feedback on these improvements has been encouraging, validating a product direction in rapid response to these needs.
I'll share a quick customer example
Drew Houston: Self-based construction, a cloud-enabled commercial construction firm turned the dash to modernize their operations across their distributed teams.
Drew Houston: With Dash's unified interface search and summarization tools, team members are saving an average of 30 minutes a day that they used to spend having to hunt for documents across different platforms.
Drew Houston: Accurate summarization is particularly valuable for South-Based when their teams are comparing complex security and compliance documents which they previously did manually.
Drew Houston: While a growing number of companies have deployed Dash, we still have work to do to streamline our sales onboarding and activation motion.
Drew Houston: Improving our Outground Sales Efficiency at the top priority, we're also developing a self-serve motion for launch later this year.
Now let's turn to our core business.
Drew Houston: Last quarter we outlined our goals of strengthening and simplifying the FSF user experience while driving higher operating efficiency.
Drew Houston: This meant more focused investments, a shift that we also knew would create some growth headwinds.
Drew Houston: And in Q1, we improve mission critical features that refine keyword flows and reduce restriction.
Drew Houston: As a result, we saw better than expected performance, particularly among self-serve teams, despite a reduced investment level.
Drew Houston: For example, we improve prompts for users to install and activate our desktop apps during sign-ups and early engagement.
Drew Houston: This has increased new desktop activations by over 50% year over year. This is an important metric because multi-surface users typically have higher engagement and retention.
Drew Houston: We also enhance the admin console, knowing IT admins are off in the purchasing decision makers.
Drew Houston: We improve billing management, enhance the admin dashboard, and clarify to content management capabilities, leading to all time high ACSAT scores for Admin.
Drew Houston: Our pricing and packaging teams simplified our product lineup by reducing the number of skew's and better aligning features with Kasthuri needs.
Drew Houston: This creates less friction in the buying process and clearer value propositions.
Drew Houston: Strategic Discounting, we also accelerated migration from monthly to annual plans, which should improve retention going forward.
Drew Houston: and our Document of Workflow Businesses, Q1 Performance of Largerly is expected. Doc Sen delivered solid double digit growth here over a year, while fine continued to face the challenging competitive landscape.
Drew Houston: And as mentioned, forms with saw and expected decline in paying users, but operating income and free cash flow improved significantly year-over-year.
Drew Houston: In closing, we've had a productive start to the year in addressing both of our strategic priorities. Our teams are moving with urgency and our April dash release was a significant step forward in solving real customer problems. [inaudible]
We also continue to make progress in improving our assessment.
Drew Houston: As expected, we're still evolving our go-to-market engine and optimizing our dash sales and onboarding motion, but we know what step to take and in the coming months will augment our dash sales effort with a product led sales or option.
Drew Houston: The macro landscape is still fluid, but we believe our subscription business, our strong profitability, and our broad customer diversification position as well to navigate the current market uncertainties.
Drew Houston: We're focused on what we can control and we'll continue refining our execution as we pursue the DASH opportunity.
Tim Regan: Now I'll turn it over to Tim to cover our financial results and our updated outlooks.
Thank you, Drew.
Tim Regan: I'll cover our financial highlights from Q1 and then provide guidance for the second quarter in the full year 2025.
Tim Regan: As a reminder, our financial objectives this year are aimed at positioning our core, file sink and share and document workflow business lines for increased decency by driving higher levels of operating margins and free cash flow from these areas.
Tim Regan: We are then leveraging this profitability and the strength of our balance sheet to reduce our share count, thereby driving growth in pre-castle per share.
Tim Regan: Concurrently, we are investing in areas where we see opportunities to return to positive revenue growth, most notably with Dash.
Tim Regan: The first quarter was a solid step forward in executing against this strategy.
Tim Regan: Starting with our financial highlights from Q1, as a reminder, we recently eliminated our marketing
Tim Regan: and re-reduced the number of outbound sellers supporting our core file-secret share business.
As expected, these factors pressured are year-over-year revenue growth
Total revenue for Q1 declined 1% year-over-year to $625 million dollars.
Tim Regan: Consecurrency revenue declined 60 basis points year over year, the $628 million.
Tim Regan: Form Swift acted as a 70 basis point headwind to revenue on a year-of-year basis.
Tim Regan: Bill R.R.R. was $2.50, $2 billion down 20 basis points year-of-year and flat on a
Tim Regan: Farm Swift acted as a 120 basis point headwind to ARR in the quarter
Tim Regan: We exited the quarter with 18.16 million paying users down approximately 60,000 paying users on a sequential basis.
Average revenue per paying user was $139.26 $139.00
as compared to $140.06 in the prior quarter.
Tim Regan: The quarter's sequential decline in paying users was driven largely by a reduced level of investment and form slip.
Tim Regan: R-Poo Declined sequentially due to both FX as well as a mixed shift away from forms with where these subscriptions carry a higher average selling price.
Tim Regan: Despite these collective metrics declining year-over-year, in part due to our strategic decisions,
Tim Regan: This outperformance largely stemmed from our self-serve teams and individual skews.
Tim Regan: Before we continue with further discussion of our P&L, I would like to note that unless otherwise indicated all income statements figures mentioned are non-GAAP .
Tim Regan: and exclude stock-based compensation, amortization of purchase and tangibles, certain acquisition-related expenses, and that gains in losses on our real estate assets, workforce reduction expenses, and net losses on equity investments.
Tim Regan: A non-GAAP net income also includes the income tax effect of the aforementioned adjustment.
Tim Regan: Rose Margin, 82.9% for the quarter, down 170 basis points from the year ago period, as we continue to support our data center refresh cycle.
Tim Regan: I would also note that we saw a smaller depreciation benefit from the change in useful life of our servers versus the year ago periods.
Tim Regan: and up more than 500 basis points from the year ago period.
Tim Regan: Operating margin increase year-of-year largely due to our head count reduction from our RIF last fall, and lower marketing spend from the strategic shift away from form swift.
Tim Regan: Compared to our guidance, operating margins benefited primarily from delayed outside services and marketing spend that we expect to incur later this year, a release of certain international tax reserves.
and a disciplined approach to hiring.
Tim Regan: Get income for the first quarter with $207 million of 5% euro per year.
Deluted DPS for the first quarter with 70 cents.
Tim Regan: Based on 296 million blooded weighted average shares outstanding compared to $0.58 in the year go quarter representing a 21% year-over-year increase.
Moving on to our cash balance and balance sheet [inaudible]
Tim Regan: Cashflow from Operations was $154 million, a decrease of 12% versus the Hugo period.
Tim Regan: As a reminder, this quarter included a $36 million payment for the third and final tranche of our San Francisco lease buyout that we executed in 2023.
as well as $10 million of severance and benefits payments.
related to our reduction in force.
Q1 also included $21 million of interest payments. [inaudible]
Related to our December , 2024, Term Loan Transaction
Tim Regan: We had immaterial capital expenditures in the quarter due to a shift in timing for certain facility restoration costs and delivery timelines for data center build-ups.
Tim Regan: Q1 Unleavored Precastlow was therefore $174 million or $59 cents per share.
Tim Regan: As a reminder, we define unlevered free cash flow as free cash flow, excluding the impact of interest payments associated with our term loan, net of their associated tax benefit.
Tim Regan: We ended the quarter with cash and torture and investment of $1.2 billion.
In the first quarter, we repurchased approximately 18 million shares, [inaudible]
Spending approximately 500 million dollars. [inaudible]
Tim Regan: As of the end of the first quarter, we had approximately $870 million dollars.
Remaining Under Our Existing, Share Repurchase Authorization
Thank you very much. Thank you.
Tim Regan: I'll now offer our updated outlook for Q2 and the full year 2025.
Tim Regan: For the second quarter of 2025, we expect revenue to be in the range of 616.
We are expecting a currency headwind of approximately $1 million.
Tim Regan: on a constant currency revenue basis. We expect revenue to be in the range of $617, $620 million.
Tim Regan: We expect form swift to serve as a roughly 150 basis point headwind to revenue in the second quarter.
We expect our non-GAAP operating margin to be approximately 37.5%.
Tim Regan: Finally, we expect deluded weighted average shares outstanding to be in the range of 279 to 284 million shares based on our 30-day trailing average share price.
Tim Regan: For the full year 2025, based on current foreign exchange rates, we are raising...
Our previous guidance range for reported revenue by $10 million for $10 million.
to $2.475 billion.
$2.490 Billion
Our Folier Concentrancy Remnigadence is unchanged.
at 2.483.
Tim Regan: We continue to expect form flipped to serve as a 150 patients going headwind to revenue this year.
Our Gross Margin Outlook is Unchanged
Tim Regan: We are raising our outlook for non-GAAP operating margin by 50 basis points.
to be in the range of 38.
to 38.5%.
We are raising unlovered free cashflow by $10 million million dollars.
Tim Regan: to be at or above $950 million dollars.
Tim Regan: We are also maintaining our CapEx guidance to be in the range of $25 to $30 million for the four-year, in addition to finance lease lines to be approximately 6% of revenue.
Finally, as a result of our recent repurchase activity,
Tim Regan: We are now expecting diluted weighted average shares outstanding to be in the range of 276.
to 281 million shares.
Down 7 million shares from our original guidance.
Tim Regan: I'll now share some additional perspectives on this guidance for 2025.
Tim Regan: We had a solid start to the year, in particular executing against our objective of driving higher levels of efficiency across our core files that can share and document workflow businesses. [inaudible]
Tim Regan: Despite this, we are facing an uncertain macroeconomic environment that could introduce some volatility to our results.
Tim Regan: While we have not yet seen any meaningful impact to our customer demand, and our optimistic that our diversified customer base will help insulate us from near-term volatility, it is too early to estimate the impact of the evolving geopolitical dynamics.
Tim Regan: We also continue to navigate the uncertain pacing of revenue stemming from the elimination of our marketing investment in forms with, as well as the nation state of DASH.
Tim Regan: We are therefore maintaining our constant currency revenue guidance for the year. However, we are flowing through the benefit from the improvement in FX rates to our as reported revenue guidance.
Tim Regan: Regarding paying users and in light of the aforementioned perspective, we are maintaining our initial commentary and expecting paying users to decline.
Tim Regan: by roughly 1.5% or 300,000 users with these declines to be roughly evenly spread throughout the year.
Tim Regan: We continue to expect that form swift will represent roughly half of the paying user decline this year, where these plans also carry a higher average selling price.
Tim Regan: and thus this decline will also introduce some pressure to our Arpute trends.
Tim Regan: Moving on to operating margins, we are raising our folio guidance by 50 basis points.
which largely reflects our latest outlook on effects.
Tim Regan: While we outperformed an operating margins in Q1, some of this outperformance was due to delayed spend that we expect to incur later this year as we plan to invest in headcount and marketing behind dash.
Tim Regan: We are also maintaining our full year CAPEX and finance lease guidance.
Tim Regan: While we are monitoring the macroeconomic conditions closely and assessing mitigation plans to the extent tariffs are applied to equipment needed for data centers, we are currently assuming no material impact to cash capex or to our finance leases.
Tim Regan: We are also raising unlever free cash flow in line with our raise to operating margins.
Tim Regan: In conclusion, we're off to a good start to the year.
Tim Regan: We're executing well against our strategy of generating higher levels of efficiency across our core file, ticket share, and docking workflow businesses as we outperformed against our expectations for the first quarter.
Tim Regan: We also reduced our share count via our share repurchase program thus putting ourselves in position to drive a meaningful increase in pre-cashable per share this year.
While we are pleased with the start [inaudible]
Tim Regan: And the progress we are making on Dash, we are also keeping a close watch on the evolving macro environment for any potential impact to our business.
Tim Regan: We look forward to sharing further updates on our progress in future quarters.
With that, operator, please open the line for questions.
Thank you
Speaker Change: Ladies and gentlemen, as a reminder to ask the question, please press start 1-1 on your telephone, then wait for your name to be announced. To withdraw your question, please press start 1-1 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Steve Enders with City. Your line is open.
Okay, great. Thanks for sticking to questions here. Peter, I'm...
Speaker Change: I guess I just want to ask on or to start asking about some of the better user levels, it looks like term is a little bit better than you expected, but just what is it that's...
Speaker Change: maybe supporting that or helping to drive the better outcomes there and I guess how do you kind of feel about the incremental levers or you know additional things that you can better in your control to manage levels from here? Thank you.
Sure. I can start and...
Speaker Change: and the improvements are really stemmed from product performance, so we've been focused on making onboarding easier and reducing friction and streamlining that experience, and we've seen some of that pay off with...
from leading indicators like.
The number of desktop
Speaker Change: Activation, so be successfully installed and get up and running on the desktop app with that numbers increased 50% year-over-year.
Speaker Change: We've made similar efforts and improvements on team expansion. We continue iterating on pricing.
Speaker Change: to get the Price Value Equation right. So I think we both made progress on those fronts and we still have had room in each of those areas too and ultimately
Speaker Change: One of the best things we can do for core attention is to complement it with dash so that the value we provide extends from thinking your files to organizing all your cloud content and providing an intelligence layer over everything and doing that safely.
Hey Steve, it's Tim, as...
Speaker Change: Drew talked about we did see some outperformance on our individual and team skews relative to expectations but as related to the full year while we did outperform in the first quarter certainly mindful of the evolving macro environment.
Speaker Change: And so that's why we're maintaining our initial commentary in expecting paying users to decline by roughly 300,000 users still expect that form swift will represent about half of the paying user decline and we expect that decline to be roughly evenly spread throughout the year.
Okay, great.
Speaker Change: That's helpful and then maybe just on on dash, you know, I guess any kind of change in
Your Views and...
Speaker Change: The past 90 days since we last talked around. [inaudible]
Speaker Change: The monetization of potential, or how you expect the rollout and the sales initiatives back into the base to play out from here.
Speaker Change: Nothing major, I think the thing that I'm most excited about areā¦
Speaker Change: Things like our recent product release a couple weeks ago, so our spring release for Dash, breaks a lot of new ground in being able to support images and video, for example, whereas a lot of other products are focused on text and documents.
And we've closed a lot of...
Speaker Change: We've been responsive to a lot of key customer requests, particularly on some of our connector coverage with that and connectors for apps like Slack and Teams and Zoom and Canva, which are some of the most...
Heavily requested.
and then more broadly the...
Speaker Change: The basic value prop continues to resonate and our existing customers certainly see this as a natural evolution of what we do.
Speaker Change: We've got half a million paying businesses on Dropbox who also need to organize their cloud content and need to roll out AI safely and it's also been good just the progress we've been seeing in building pipeline and getting our pilot customers up and running.
Speaker Change: and making teams set up in education easier, so those are the kind of things we're iterating on, but overall, no major changes and pretty excited about the opportunity.
Great to hear and thanks for taking the questions.
Thanks. Thank you.
Speaker Change: Our next question comes from the line of Rishi Jaluria with RBC, Yalena Felton.
Rishi Jaluria: Oh, wonderful. Thanks so much for taking my questions. Maybe I want to continue to follow up on, on Dash. So, you know, I know it's going to take a while before this turns into monetization, but maybe can you be a little bit more specific in terms of early adopters? Yeah.
Rishi Jaluria: kind of what sort of feedback you're getting from them and maybe more importantly than that, given the space is
Rishi Jaluria: Competitive and arguably getting more competitive with the number of other players entering that.
Rishi Jaluria: When you are seeing customers use dash versus any of the other alternatives, what are typically the reasons you hear from them about why they chose to go with dash versus using another one of the services and then I got a quick follow-up? [inaudible]
Rishi Jaluria: Sure, so one is, as we expected, things like just the basic AI search resonates, but
Rishi Jaluria: But we have actually also seen that the features around organizing and sharing content specifically stacks.
Resonate with a lot of our...
Early Users
and so our customers have challenges not just around.
Rishi Jaluria: Search, but around organizing and sharing all their content in a cross-platform way because if you think about it
Rishi Jaluria: You know, getting ready for a board meeting or working on a project and you have a, you know, Google Doc and a video file and an air table or something, there's not really...
SKU
Rishi Jaluria: Or we have a lot of adoption in like the creative community or people that work with big files and video, that's just pretty unique.
Rishi Jaluria: and how we support that. And then also on the IT side, protected control really resonates. So when you think about rolling out AI within a company or search...
Rishi Jaluria: but really AI of any kind. One challenge is it makes it a lot easier for employees to access content that shouldn't have been shared in the first place.
and protecting control really helps you identify. Bye.
Rishi Jaluria: improperly shared or sensitive content across every platform which is unique and then actually let's you remediate it at its source so that it allows you to identify, overshared content, mass, unshare it, and set policies.
Rishi Jaluria: to keep that in line going forward, and that's something that, again, is you need to dash in a really resonating part of the value prop beyond search.
Rishi Jaluria: and then maybe just turning to the macro environment. I appreciate the color out there. I want to think maybe specifically about the consumer side of the business. I know this stuff takes time to flow through, but we've seen kind of reports of weakening consumer confidence and imagine that's kind of maybe a little bit of a challenged area. Maybe can you walk me through what are you seeing specifically in the consumer business and as we think about your guidance for the rest of the year.
Rishi Jaluria: here. You know consumer kind of stays at this sort of level, how Rishi is playing out. Thanks.
Yep.
Rishi Jaluria: So, in our world, consumer adoption often in our context means a mixed personal and work use case and that's important because
A lot of our individual subscribers.
Rishi Jaluria: We're often using Dropbox, we're something like 80% of our users are using Dropbox [inaudible]
Rishi Jaluria: or of our subscribers using Dropbox for either entirely a working case or a mixed personal and working case.
Rishi Jaluria: and then a lot of our, that subscriber base has been with us. [inaudible]
Rishi Jaluria: for a long time. And in that context Dropbox has a pretty, you know, mission-critical thing. The reason...
that people stay on Dropbox is because they're most...
Rishi Jaluria: We haven't really seen major changes in these trends and some of what we've seen around. We have seen like price sensitivity
Rishi Jaluria: with SMBs, but both in R like SMB segment and consumer segment or individual segment we haven't really seen like major new changes to leading indicators.
Rishi Jaluria: That indicates some big impact on the macro environment. I mean, obviously that that can change, but it's not something we've seen yet.
Tim Regan: and Rishi, this is Tim, and maybe Ezru was alluding to as related to guidance.
Tim Regan: We've not seen a meaningful change in our trends at this point but certainly mindful of this incremental macro risk.
Tim Regan: We're also facing some uncertainty as to the pacing of form Swiss revenue, just given the elimination of our marketing investment in that business, and so I'd say we're being prudent with the guidance we've shared.
All right, got it. Thank you so much, Cassie.
Thank you [inaudible]
Matt Bullock: Hi, great. Thanks, This is Matt on.