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Dropbox (DBX)

Participants
Darren Yip IR
Drew Houston Co-Founder and CEO
Dennis Woodside COO
Ajay Vashee CFO
Zachary Lountzis Jefferies
Ted Lin Goldman Sachs
Mark Murphy JPMorgan
Alex Zukin Piper Jaffray
Richard Davis Canaccord
Ryan Goodman Bank of America Merrill Lynch
Karl Keirstead Deutsche Bank
Sarah Hindlian Macquarie
Greg McDowell JMP Securities
Mark Mahaney RBC Capital Markets
Rishi Jaluria D.A. Davidson
Call transcript
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Operator

Good afternoon, ladies and gentlemen. Thank you for joining Dropbox's Second Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions.

As a reminder this conference call is being recorded and will be available for replay from the Investor Relations section of Dropbox’s website following this call. the team. to hand Dropbox's Yip now Relations Investor will call Darren over from I ahead. go Please

Darren Yip

subject Thank These uncertainties you. risks the financial in the business, to for and those this relating XX-Q included unknown factors call. and risk that Form call. implied cause Good differ to afternoon growth factors distributed results, materially that call be Form and Today, statements XXXX second were future the to performance statements, for XX-Q particular, and could overall Dropbox during the strategy, earnings June that will actual include quarter quarter the forward known long-term will from quarter described including In Statements expected and our future discuss or earlier. risk quarterly are ended looking results our welcome results in financial ended prospects. our those on to included XX, March statements projected in Dropbox’s XXXX, our this XXXX. of XX,

should beliefs we to forward them are as on events. except and required of future law. this today, of statements looking forward obligation make based rely our looking You predictions All call that applicable by assumptions statements undertake we on no and as not on as update

Executive supplemental website like call Drew turn investors.dropbox.com. Houston. also filed GAAP release isolation our addition and X-K in our considered Our I found would not on discussion Chief from furnished Dropbox's today Investor non-GAAP which will conference A as or Drew? Officer, today Relations SEC Form include at results was may These with posted be GAAP the non-GAAP to to and in to and in be substitute non-GAAP should the be found in reconciliation measures. earnings materials the Co-Founder measures may investor financial over a now to of for our with results.

Drew Houston

earnings our welcome afternoon, Darren. Good and call. Thanks, to everyone

On Officer; Dennis our Woodside, our are Operating Officer. the call Chief Vashee, Ajay Financial and with me Chief

to Dennis the moment results, of discuss thank a take his I to Before all we want contributions to Dropbox. for

that And will stay know down role day he end had Xth we is Dennis and be last as time and on an you over of It's earlier the critical into as his impact has we've and million revenue through in size. September milestone the company a revenue of our evolution and and of When reach a COO us the As advisor his through we with his Dropbox. dozen annual hard will today operation $X maturity, billion here, helped offices in he company company's overstate of during he in our been grown year. on fraction helped the publicly to around important was part has started, a $XXX the a traded Dennis's and shared stepping IPO. has us a Dennis world.

promoting two including more your all functions, communications. of become experience the to I know in share perspective an He's venture. leadership we're VP experience we'll joined from current their years Lin to partner Rangan, he has years hands are and excited build. XX his like and to take in leaders of Yamini brings best from years wish few Communications. miss benefit Customer incredible and next go. While in and see and us and of you helped SAP team from Chief sales leaving of Yamini that And Lin-Hua on marketing the Workday, and ago XX and focused and our the we'll to brings in business responsibilities senior you him than customer business Dennis Square great companies and oversee Wu, over while shape our a who Officer of I'm the we development. will starting

Dennis Woodside

It's Drew. an the Dropbox time journey of be honor the here, to is this with positioned Drew's truly the the and and you, I'm for I'm the business well I believer part four company. incredible entire know future. a an of Thanks, my in team. huge years vision grateful for team been Arash and in

Drew Houston

Dennis. Thanks,

provide Let's will continue you QX on and guidance highlights. and touch was and fiscal review of XXXX. and I'll growth results with growth will user QX the paying our XX% ecosystem continued by another business go-to-market great year-over-year ARPU driven meaningful call. on QX give and of with Ajay Dennis our update product strategy financial our an and quarter, revenue for expansion.

non-GAAP We also demonstrate Overall, deliver our which global to go-to-market our strategy our our us and the of strength results free margin, generated flow. continue discipline. platform, operating operational helped strong solid collaboration a cash efficient

Last let's new quarter dozen a that So QX enhance we the the than our in move more product Dropbox admin We paper, some update. better. made even announced to showcase features users, functionality. admins mobile experience on achieved milestones important teams and our app, to Dropbox for and

mobile easily Dropbox. make while the team’s work introduced quick content their these, for go. Users the to on previewing to people a updates their On across all help their new now on moving can flow. These with activity file all updates, devices. while features like a app feedback intelligent Let's file an comments, without see getting great users teams our with app. start and disrupting add how is mobile we in access of pulse workspace users of help Dropbox collaborate collaborate Features our for on along are more

template. them our moving teams new quickly. the ability launched consumer to business Paper, helps continued templates direct start adoption our docks drive paper having higher projects that so have of as to was like well have format users without Turning can from sharable in get Features templates to Paper, from any users. helped impact. about I as dock into Paper turn feedback a sponsor of The been excited product features, most one scratch

retain those without than rates at convert previously, Paper mentioned have we Paper usage. As teams higher using both and

Showcase. to Next

the export admin been two, experience, to These a teams removing our in QX. can improving like existing teams. investing business to duplicate experience Dropbox controls share simplify and Showcase business accounts drag new admin We accounts have for Dropbox the have for security data quickly build Dropbox ability by personal more recipient users, while we give to auditing business we’re have easily admin uploads, also teams to into efficiently, drop and reports convert they always things feedback been now products and to team. member previous. finally One, copying can individuals also and and presentations Showcase from from with features and able in simplifying we that them gathering been security collaborate our the And

ability download of directory to to and the help We also gave restrictions shared protect identities of team implement disable links team admins members.

helps In of synched admins including Selective addition, drive Thing. Thing by number will expensive and specify to space. tools, saving to allowing out time Selective users’ employment advance Team what team we Team rolled be computers hard speed deployments a folders shared

on from which Using disk in of people share technology drives, we to are collaborate move let’s our technology, will as platform. that build the custom like reliability. our implement is cost advancement. at continued I disk Recording drive surface, on first instead help data. excited Now ones on and to with SMR, and will In continue flexibly tracks tracks cloud you to are Shingled reduces density which more to the infrastructure. am and store on to efficiently test infrastructure. information first SMR XX without X on or cloud amount unique needed the of SMR top magnetically terabytes major a infrastructure sacrificing layers another data paths technology grow Dropbox conventional Dropbox, is provide Today, familiar increase the industry which SMR terabytes company parallel announced on QX, powers performance Many an scale. hard more us drive stored Magnetic to storage recorded. new hard of technology Pocket, overall Magic circular physical space drives disk per our that and of And old equivalent in savings, technology

Adam CEO we also of Platforms X, Gartner’s Yesterday of Magic Dropbox work this and and And VP tools eBay published completeness leadership Dropbox report around also the announced are Collaboration users and individuals our external of vision the Design. XXXX. new will teams. scaling of on our leader recognition can XXXX Engineering, reporting our Clark Nash strengthening our transformative to named that a report. In Adam working global To major constantly improved received, is done. is companies Product, get proud these kind who up, former of is was functionality has help best Apple, recognition investments he collaborate which strengthened July access we as the is work roles and we we’re to We’re testament Quadrant LinkedIn, product sum SVP the Content world’s our building innovative to we the position several relative share and add and held and team. management in like asset of Product believe key on We to Dropbox and the world. some to to their Quentin the companies most platform. doing that our products of And as join team one we’re managing of the at QX, Wealthfront, create, so

Naman has joined us led And the for most Salesforce, Product Marketing was he product commercial where VP Khan Marketing. sales marketing in cloud. VP excited as also recently and Product of We’re of Naman the enterprise

in more to continue execute value to of traction innovating users and to roles marketing the as a ecosystem. team call go-to-market turn our strategic our held our enlighten of mission on Autodesk deliver With he that and talk we’ll our and we to place, way to I’d designing about working. like this Microsoft. over Before improve at Dennis now more platform

Dennis Woodside

we platform that kind go-to-market increases plan Advanced. the The and our saw of Drew. adoption of team helps Thanks, premium momentum. attractiveness strong of QX drive Dropbox materialize our subscription our Drew In with innovation this highlighted

recall, new security their sophisticated all price at and launch like Advanced into At products standard a launch, little time Dropbox along it plan a Advanced we device legacy As teams and we you the point. ago, the the over existing Showcase. of with may functionality, grandfathered offers management year administrative

A to meaningful to the QX teams XX% ARPU of of to for we $XXX.XX. XXXX, As price on the portion approximately these grandfathered process at life plan elected quarter an of teams. completed our premium remain nearly of in Advanced renewal XX% the helping end

demonstrates value premium results real these our early driving still users team While features. are that from our

more forward, Going spread premium grandfathered the focused teams few quarters. individual of will on adoption We're driving across from also our evenly higher be plan. renewals next subscription

half first at of launched we end on the Based price Dropbox Professional of and drive further between we of to product storage user determine year, premium capacity a Dropbox differentiate individual this experimentation our XXXX, segmenting feedback adoption to Professional. help further that Towards plans and plan. plus XXX% our our range the across would

increased the growth terabytes. a to also engine. we serve X and ARPU storage As been cap a We change our professional improve We've net result, for X in to recently this data believe be future tailwind to that to science plan periods. models terabyte will self-served our from margins working positive and

large Our access messaging hundreds and and retention gives our of to services base user finetune to efforts. data of us conversion points millions

with science have to our Our explores the built protect grow analyzed for to data accounts compared teams, more model distinguish sample scores more tool, a outbound top are indicators to highest in deployment. likely base. deal times of [ph] efficiently Utilizing data user customers of propensity than decile accounts up XXX targeting velocity helping our expansion. expand outbound recently to to teams sell the XX,XXX paying that this model average likelihood more their sales their improve which found reps we team. up team potential we're sell over to science We of X by Using the an the

Turning ecosystem. to our

Adobe and and London, cloud. in We our continue product cloud Google and at launched creative with Next events strengthen Salesforce, to In partnerships New Adobe. worked at World announced make our document within ad-on and QX, Gmail integrations against Salesforce to with Tour progress our York participated Google we've

Dropbox efforts entertainment use on to recall the also engineering architecture, media industries. and expanding effort formats. QX, You'll that a we of Media partnerships that an In integrations quarter our entertainment vertical. noted and as to new were the teams teams help we Canva, for across have these a construction number a past than integration and of last vertical with in of partner range we across and announced as unified in like of and team more advance opportunity part year, and in Last file wide to collaborate announced created this we files better Shift.io, X Marvel Final content and streamline support industries Getty these quarter Dropbox. workflows saved this home billion Images, Draft, serve companies Frame.io, key tremendous collaboration. number teams, To end-to-end integrations a scale, a Widen. At we

to a ecosystem teams app Dropbox users' our workflows. tangible for is and strategy Dropbox faster position our our a As retain business expands platform at third-party reminder, center link that This rates. the as value at has of higher to

customer to Turning wins.

Our industry focused off. are paying partnerships

media entertainment share We have the of Dropbox. from Macmillan with traction examples in and to to Media, X team two past see Publishing, are continue the the Fortune and and Meredith, we Hurst. great entertainment Aller paid quarter why choosing in within XXX companies media deployments and organizations top-XX want QX companies I of like

global XXX a media team over X,XXX for licenses is enterprise its committed that deployment company to Dropbox international employees. of first of The

the of external relying sales and showed Dropbox than and customer this cross-section creative its important Dropbox large company's for time users real sharing. users media cycle, files large of the solution. rather that strength part These prefer on collaboration functions and we a As were existing

and it the we’ve Ajay, expanded strategy, as and industries manufacturer and a Bank noted types, of licenses CFO, In Central XXX clothier with serve. our of Deutsche great across of MM.LaFleur, FMC; a owner ability major vertical its this collaborate walk by its our Enterprise QX Dropbox on to now chemical the operator results. conglomerate included variety adoption more while to primary we see X,XXX deployments financial with wins turn at to customer also momentum all over with others. And to The continue solid networks entertainment news easily among through Bundesbank, Germany; for partners Another television to seats. we external the our of driver women's also content seen Dropbox. cable deployment I'll an

Ajay Vashee

Thank you, Dennis.

demonstrate to users, ended $XXX on growth million strong and Total driven continue XX.X growth of generation. to was Our users strong the cash primarily ARPU with our and an with in We focus paying paying execution through driven and QX quarter year-over-year our self-serve QX increase total expansion. the flow channels. for results free XX% delivering top-line revenue million, up by majority

expiration a up for earlier. uptake tailwind X% of a We subscribers, healthy Advanced $XXX.XX strong Premium, plans, as also team saw was from grandfathering our of a from with mentioned ARPU Professional, and QX, year $XXX.XX period the certain in Dennis ago.

compared non-GAAP to on, our was be statement A Before follow found with all of to I income move I indicated, donation want website. our cost in margin hardware, the percentage compensation, of of are an XXXX. note that unless by investor filed the that non-GAAP points share to primarily Foundation supplemental the of margin Dropbox with increase posted our GAAP gross efficiency relations as reconciliation X XX%, with an as SEC, QX was in revenue. otherwise Gross quarter lower furnished our Form increase exclude to in X-K driven today the The charitable the earnings in stock-based as and which XXXX. and unit investor well gains for measures release, a infrastructure including quarter may depreciation results was on equity-based of materials second

global higher by a as to XXXX, decline as in footprint. grow second depreciation continue the we half spend expect offset of We expansion network percentage of to revenue on our

XXXX. to across continue be We approximately expect to of XX% remainder the margins gross fiscal

expense headcount in product on other expense S&M to S&M as and with in primarily of continue costs value revenue spend by QX revenue, our second was expense more Moving quarter as campaign ago. compared year new revenue and year, The or quarter, as by was percentage to broaden headcounts. consistent prior XX% increase a ago, revenue to higher revenue of $XX to million invest and of XX% leverage incremental percentage in XX% or consistent in expense second operating QX percentage the G&A offset G&A as revenue. of a million million, experiences as with or our grew a XX% headcount, driven in the revenue was we with on platform. line $XX expenses, was R&D of as a $XX year of brand expense in the of was a

Diluted as million outstanding second we XXX the average $XX quarter translates X profit EPS together, $X.XX million the was a XXXX, QX. This a important margin, per Taken for in $XX operating of of earned from on in weighted per operating based up XX% ago. $XX a shares year income million, QX diluted is XXXX. $X.XX quarter. million Net in from share to was percentage point QX share, up which from

Moving the and $XXX million This April. cash greenshoe of QX ended We in spend in balance short-term includes of proceeds through million $XXX expenditures of cash investments exercise quarter. $X operations on Cash cash net QX to yielding their the allowances or free and with of million, million. on flow. million were $XXX underwriters' in improvement CapEx received. net XX $XXX from headquarters, of included was the flow revenue. XX% flow new of cash $XX Capital of our option million

out related we of approximately QX, the into for CapEx total result some million Francisco QX, will next will These XXXX build-out end offsetting datacenter had a headquarters, OCF of from of improvement therefore flow. headquarters, to tenant impact in reminder, changes not modified over lines $XX build and to be We roughly capital to do our our a improvement approximately to we completed million net new new cash This at related the XXXX. be lease approximately XXXX. million to offset additions expect we $XX new and equipment. San of which CapEx the and in shift schedule the which lease to now building. allowances of our spend $XX to XXXX, deferred CapEx As $XX to CapEx, of our to allowances tenant headquarters two entered move years. In received the In for free

lease be We continue high to lines this as percentage to capital a year. expect to additions revenue digits of single

outstanding range our in non-GAAP the to the Turnings million million in X.X% $XXX be expect X.X%, margin XX-day the revenue to based to quarter to XXX XXXX, $XXX third million, our trailing range of to diluted share the million, be average to weighted average in to of on shares operating be for XXX price. guidance, we of range and of

For previously our was guidance, the full-year billion billion. billion XXXX, we raising to $X.XXX which $X.XXX are revenue to $X.XXX to $X.XXX

We and are $XXX XX.X%, one-time to X% new out of flow raising to free to million. $XXX our This was non-GAAP the million our operating we guidance, expect includes figure to headquarters. related spend XX% in margin which continue the to to to X.X% range previously corporate of cash be build

diluted average to to remarks. Drew fully turn million XX-day Finally, outstanding it back shares for average on in weighted price. XXX million, to we share the now I'll XXXX expect range closing XXX based of trailing be our

Drew Houston

margin. team. a like With up and entire Ajay. QX, Dropbox On a like In growth while were team, by another our I'd for management industry operating to an to moment all that, we questions. to thank improve Gartner open it leader. I'd recognized behalf of quarter. our and achieved added admin new We our take features our Thank In the experiences, strengthen you, and we had closing, and partners, strong customers, this to infrastructure, of user solid as Operator? driving

Operator

comes gentlemen, the first [Operator you. from with we'll a DiFucci question-and-answer John Jefferies. at conducting time, and of Ladies begin Instructions] line question session. Our Thank this

open. is line Your

Zachary Lountzis

for Zach Thanks my question. for John. taking Lountzis

Advanced in plan on dig pricing to the with wanted RPU the the there. Just of

quarter? XX% the back to just grandfathering that? price think end uplift, the on list color of kind any XXX guys from after the I for you it you. discounted Can XX% implying that first Does it Particularly year. of given elaborate Thank here. that? churn on said aside was you the in traditional the discounting Then go

Ajay Vashee

that price from that to team subscribers happy on the but that roughly reach price time, them an it's premium our not monthly expiration Ajay. part well is period for to coming meaningful step their SKU. first a up take That's Advanced this question grandfathered remain subscribers, renewal, the are I'm last this at at our as your of To for for question. subscribers, elected on of as quarter, Dropbox up Sure, a folks for annual for premium. XX% price full legacy Advanced point, plan portion price a list the

I the color churn been on can't long gross quarter, has some initiatives Churn bit part with little pricing-related a comment I attach driven grandfathering Dropbox provide we us, early value expansion that many like for disclose to future churn higher margin a of process. pricing question can did we've Advanced do premium on for the really of that think a regular looking on time. churn. in want expiration for it's driver us of meaningful our don't It's revenue in-period a not that forward, stable it's general and is that But of We RPU and us basis. quarters on impact for to IPO but to any To growth, initiatives. we're clarify a delivering I color rates our period a reflection say your improving the rates of on to SKUs and for a users. on function increase. second as the retention for

nothing there, So, can margin churn. have in-period an impact it but notable the on on

Zachary Lountzis

Great, okay. Thanks a lot, guys.

Operator

Thank you.

Sachs. the of next Goldman Heather question line from Our Bellini with comes

is line open. Your

Ted Lin

actually is taking very Ted for this much on question. Heather. Thank my you Hi, Lin for

the and RPU customers On Advanced is SKUs? grandfathering growth, by more being selecting to the SKUs? are the Professional leading are that What new premium users biggest of driven it strong features versus how effect select a one-time much

Drew Houston

the high then tier Dropbox. it's customers among adoption to toward higher drive of general and Business been to a plans tier our certainly doing version SKUs by work a higher create the getting higher those driven our adopt level, also we've customers of and At

on board, some the the comment of can So, all things. those numbers. Ajay would say I across

Ajay Vashee

was from RPU adoption say commentary, factors. specific as from was more different would increased teams' Professional higher mix adoption and grandfathering licenses. from some expiration, Advanced but For I new subscribers, increased a by higher our driven gross Both as One well a SKUs. of of the few also QX

a renew platform. toward to on grandfathering more and quarter. at the XX% to the price as this say A And a added plan. team just customer about to grandfathering so for -- We comment -- plans to of shift shift licenses licenses But earlier just seeing time. plans a mix that more SKUs subscriber that did are there reiterate premium we're we said individual percentage facilitating teams I net inclusive from elect to last grandfathered higher a and generally process of point us, are journey mix what expansion adoption our primary RPU drivers. would other to of teams Advanced over moment. or Things more complete like Dennis for that was for new of but driver meaningful portion did

Ted Lin

That's thanks. helpful. Great, very

introduction as follow-up, a I of was my the Professional a do the last versus R&D last notice SKU the potential timeframe of we early period. about the new I As kind revenue higher think cadence that year the percentage SKUs? and How think of came your SKU of Advanced later ticked year-ago year.

premium SKUs the of introduction thinking kind be you're about of Thanks. color any So, new, would helpful. how on

Drew Houston

We cases, meaningfully. Sync to the product Well, multiple Smart you'll that think new is Showcase sure only like make we and in the functionality tiers -- we SKUs to did any create highest don't version our want change available or individual some notice Business our of I tier plans. plans and either in want have to

more between right who evolve the deliver SKUs continue to strike So, the plans, value those lot differentiate want our price simple. a we have that of to to we value we of discrimination of want get tier matching also and and some capture higher able being keep but really Dropbox out things level to and balance to of or customers

tier the people more journey to So, driving adoption to be improving then corporate a tier that higher focus I and would individual within the higher our of a will moving plans subscription, maybe experience and plans on from say that. paid the along and paid frees subscription,

Ted Lin

color. for Excellent. Thank you the

Operator

you. Thank

of comes from the Our next line J.P. Morgan. question Murphy Mark with

Your is line open.

Mark Murphy

you. Dropbox to advertising user is getting views drive and or telemetry thank Are Yes, way? that RPU of or last in helping on launched, campaign year? early additions effectiveness your believe, television retention impressions late you're any the curious I I'm what there measurable the you the

Dennis Woodside

Dennis. Mark. the It's Hi, question. Thanks for

So, the was majority way made channels digital brand campaign feel our prospective of effective that's investments we in because of large customers. highly our and reaching through by a actually

objectives You'll the to collaborative objective, perception a of campaign, recall as people considering primary the of might one was be platform. that the Dropbox shift among slightly who

Dropbox were our who brand have audience, people Dropbox that metrics considerable link investment collaboration We to over saw think don't longer that Dropbox, We forming We which directly unleash important fairly lift We there. it's to brand. both We So, had creative in changes monetization. Dropbox among as people the which that in their focus a be term that's had think in broader helps target continue all a as was wanted likely in were be on more we driving team. the our energy. track that rigorous immediate campaign explaining how investing reason measuring expect a to case considering a metrics collaboration think to or we we time. teams post-campaign, of features in is among that place, pre- and platform, to

Mark Murphy

Dennis. you, Thank Okay.

forward a scale think curious and think balance total for Dropbox as modeling that fair you engine be attrition you to that been more RPU a healthy to which XXX user moving range the perhaps the quarter right a is equation if what forward. Ajay, user built being has is for the and I'm to user you more that overall would try guess XXX growth there's to RPU in adds and for the growth, were per I to As that's think Do well very therefore fairly new going you? adds, is the new net going find consistent we reasonable it naturally between but important adds clearly driver then

Ajay Vashee

that the user RPU on paying point past I outpace specifically, to but paying adds answer and level, been deploying what question. our well last that high combination as lever say user Mark. for one drove may in performance on over lever, a period, and expansion. of quarter few Thanks, a new at initiatives continues engine comment other gross to net the given that and you to depending XXX,XXX made paying things we're the to conversion a we growth would RPU grandfathering paying through Advanced, will very Happy that quarters a the major in users the There plans, churn. revenue years. added add the like has be conversion at expiration growth we can some To outbound there future. your on drive strategy the user specifically like on the paying like drive rate. able Dropbox few initiatives and as That's margin can QX, our quarter, revenue to as our quarterly individual timing impact for any in our well team comment to approximately things be as on on past based say EDU variability paying in which adds, to the question would and users continue user deals, larger revenue I the new of and consistent healthy

Mark Murphy

Okay, thank you very much.

Operator

you. Thank

the Alex from Piper Jaffray. line comes of question Zukin with next Our

line Your is open.

Alex Zukin

quarter. in guess terms I on and question question maybe piggybacking another a my modeling. taking of congrats; bit Mark's little for strong Thanks

been the particularly first growth on look As side, has half on we the performance, RPU. accelerating at RPU

comps, RPU I've of RPU how As about you growth? the half got the follow-up. versus the first back the slightly given a think the quick think we about half year, tougher second growth half should

Ajay Vashee

This growth and Again, would for reiterate just both to is growth I user important us. happy I'm take levers paying Ajay. that. RPU are

Looking forward, conversion continue the will paying growth. user growth be RPU will to also driver. contribute primary expansion to

model. for QX, on see an completed outsize we commentary about in teams. process think building as given did the Some RPU we you about half that your grandfathered move RPU, In of renewal

moderated evenly forward, renewals few expansion more teams spread expect be across going in RPU quarters, the from going So, forward. I'd will grandfathered so more next

Alex Zukin

figure picture one question bigger who when A in significance enterprise you enterprise boil Dennis. on these or Drew for for a pipeline your one just up companies, and maybe Then general, deal to larger of traction. great. Then Okay, kind budget enterprise content are what -- more a player? you and are Thanks, again. area? the as of to out considering I'm in collaboration and usurping? management trying are usually productivity they Or you next-generation you displacing

Dennis Woodside

is CIO Typically, or the a here. selling we're Dennis with enterprises, This IT into senior when we're director. level dealing larger

and in someone is the cases, Sometimes, CIO, storage. displace the solutions. on not a that's if for We dedicated is different collaboration. responsible it it's for who the of lot times, some depends Other who's person responsible, infrastructure responsible who organization,

in are fairly many organizations, So, they still file on distributed relying servers.

which on literally Some was Channel, hard throughout and there. In visibility Each Clear what's year organizations into has server it which has An not think them drives. are this example a States. displacing fragmented central other it, of you cases, real organization small is file SharePoint from deployments. we United when all a there offices is, going secure. no earlier the has under about somewhere, desk particularly The

moving where lot all files cloud in a organization and So, can those in place you to and sense have one of to secure putting that visibility makes it it.

that's solutions organizations. Dropbox solution very return a maintain kind after those of of we're the also driving and is costly for is So, and security, cost-effective that budget both going we but all those enhanced kind the are drive can typically to older

Drew Houston

here. Drew

users to of suites. Just increasing especially help help They're to of lot and find turn adding we end office of all of using end Dropbox. with and level all employees more. that Increasingly the Dropbox We're find the world finding drives tie that securing by that more day-to-day. together. and more how a a that, that's fragmentation organically adoption is that more matching IT from little the different and bit of IT what Dropbox a adoption they're the choose in to and them tools mixing is where governance We eventually use turning drives just so users that to GDPR in the There's especially data, future, on.

use for strengths zero for ecosystem side-by-side our Google to the suites. or of either different using ecosystems. different bottom-up in We sum use live cases, our a of other Office that isn't tools bunch using for point users using We for or that the cases, with a use they're find SaaS are find competition another a variety adoption So, setting, is because necessarily cases. office us. invariably variety people to plays that collaborative of they're work We need a across that

Alex Zukin

Okay. Thank you, guys.

Operator

Thank you.

Our next of Richard question Davis with comes from the line Canaccord.

open. Your line is

Richard Davis

Thanks.

that. workflow roadmap you guys out? to already, You think little engine you that in make BPM traction surround build does getting out kind to about kind little guys early of a a it, had your of build teams. for with product that make but nice does what bit Thanks. product? but to it extent To and You sense of it it bit kind have a Dropbox I sense of or are of

Drew Houston

to we it it's although address certainly do that a from historically. way how done likely So, want differs we'll use case, that been in

workflow than Specifically, a take tool. some to we integrated want rather more separate approach,

really annotations way the So, our bunch the coordination are includes include cloud also that tasks. or of that toggling tools commenting just have example of have content that, assign content preview you evolving a tools. more the and one but to within and tools different your not of features can Paper in and products demand you increasing you can in content, using the a less that's also is content. a you with think kind Dropbox conversations, bring traditional lot team with lot doc, We them, Dropbox can the and shows that's involves than Paper Instead features and is surfaces any between there another integrated have several working embed and workflow when and of that where of streamlined more management or and content. line a comments to project in we back together a collaborative a then up the approach forth around need overhead and increasing

Richard Davis

you. Got Thank helpful. it, that's very

Operator

you. Thank

line Justin Post comes of Our of Bank with the from next question America.

Your line is open.

Ryan Goodman

Thanks Justin. Two for for taking the question. This is me. Ryan for Goodman

the one, think a talked about first lot upsell The I you've strategy.

talk this under non-paying point there funnel? opportunity Is users converting to the initiatives pretty accelerate think around I'll apparent more an current at discussed I let talk looking the specifically and can customer acquisitions. at the more me this you've individual you adoption to are initiatives and efforts that top? still planned way also curious, the answer. I'm of about enterprise you Then, you're and for new should that's you at at for second top question

some there been the On quarter. during has noise landscape, the competitive

competitors be Have Just storage stand-alone enhancing cloud dynamic Thank to you in Are their on been this? go-to-market Others any change larger the that your enterprise solution. announced One of conversations any had would your you at all? the a have around as well. in offerings you. customer adjust color approach seeing helpful. of

Drew Houston

I'll This second part and for the questions. first is take Drew. thanks your

products. for in folks we other evolving these sure, the for will don't said, us. course of changing the see our landscape meaningful changes So, space continue our competitive That

include at a storage Google Business already Importantly, higher Dropbox our when our storage, and pricing space. you talk Advanced SKUs about unlimited stand-alone and tier, for Enterprise our offering

on favorable as that ourselves see we fact, In dimension.

on product competition, customers more So, but core focused for we're we keep our our on focused sure, experience. just an more improving on and eye

more of area generally conversion. as driving huge the investments plans in one what adoption driving make with product-driven far just we business, conversion and where we As call paid

to we've or AI, that a More our the be otherwise technologies So, they and lot our learning, match a using done of science, like functionality for of automate machine XX% sales because from might also to improve with user with paid the end comes managed engage team by to over would experience, revenue self-serve, more only a that team. activities marketing the not data customers plans and them but aware them to product make be get of. to that not sense

have a about For your Dropbox you're might Showcase. Or using space you're your we we bunch computer, in if you rich don't on a show Smart show and you Sync. about of if of lot a sharing might media, example, something lot something

been context investment over the a our RPU make in product-driven So, plans. people lot in these and conversion you've years area that's root is paid the showing to in of the an at we seeing the improvement where of rates and offerings attach big a

years invest to continue will there the to for We come.

Ryan Goodman

thank you. Okay,

Operator

Thank you.

with Our of Deutsche next Bank. comes question from Karl the line Keirstead

open. Your line is

Karl Keirstead

follow-up XXX,XXX Thanks. quarter and impact last if sub-adds, mentioned wondering little to Ajay, I've but of got XQ if XXX,XXX await compared could might that, XXX,XXX a prior I'm it solid, bit in just go us question, two that but can the then back you bunch that was the to you we for understand a for help it quarters. In what I've your to zero was to you just in on Ajay. put light you. on generally the a response could and got variables up

Ajay Vashee

Sure.

variability, adds few of I saw reiterate the drivers few initiatives factors in were churn so has So, One, said quarter, things and expiration be latter QX. those some like what the in quarter. were be in-period the gross Dropbox EDU major the points. the the in and last past can A of deals, we Advanced, impact to for net Those so well consistent been the our as quarterly for that very margin, There would some over on consistent adds some quarter. as larger grandfathering user like timing of of can I before. continued years outbound new engine paying new user and the paying that

Karl Keirstead

Good. helpful. Okay. a maybe for follow-up Then you. That's

I you haven't thought think in be impact. a I may revenues non-U.S. I'd kind ask. it's dollars, of decent portion Dropbox small? FX Maybe denominated yet any of But an mention heard I

Ajay Vashee

is given majority our our revenue a heading quarter Quarter-to-quarter, books us, It's vast question. for on recognition already on at Sure. top line rates. FX of given rates good impact into how as have our historical works. revenue revenue smaller model a movements deferred FX in a The

term. impact can have S-X on like long a for an so that in they is of denominated of rates free in in and versus our billings FX are sales cash term the in non-USD. noted So, currencies and things what or Where flow about XX% our impact near movements we was less currencies, pronounced us, foreign have the more

Karl Keirstead

Ajay? in FX XXXX, there let's or say flow on cash there Was it. by Got any would impact

Ajay Vashee

FX guidance the we net we're today. in currency for gave that flow cash movements of seeing revenue that free is say any can I and for Well, and that

Karl Keirstead

good. Thank very Okay, you.

Operator

Thank you.

question with next Sarah of Hindlian comes the line from Our Macquarie.

Your open. is line

Sarah Hindlian

balance is about a question, healthy, you the My you're cash congratulations Thank could terms looking and the you how would on give so it very sheet helpful and us thinking a reminder have proceeds, I then quarter, thought much be if guys. of follow-up. really first in and usage I

Drew Houston

Sarah. Hi,

the positive for Our business years. cash last flow has couple been

on number good business, many Ajay Our healthy just and whatever can invest IPO, ways, pretty a sheet. also a us it's add M&A, a dimensions some in Having We in idea optionality along. core color. of comes balance a healthy gives both sheet much to have balance think our was opportunistic. to

Ajay Vashee

on capital like quarters today pursue we is the have dry initiatives us sheet next few We year. appropriate and cash I important over would we cash it's that the feel just think to and the We our strategic operational position need reiterate the flow feel a what company. balance make positive to there. on sure good about right But we we five amount to powder Drew us said. business. the It's important free have of flexibility having then to also that our

Sarah Hindlian

Thank was helpful. you, investment my about, when areas, about thinking follow-up I'm really, That thinking made a Ajay. to lot updates I'm you Dennis, and of Paper.

for services them of to significant are but in Some add-on investment Advanced How small, of a adoption areas some the drive the of plans? more prioritizing bit pretty little quarter. you them more attach

Drew Houston

part as improvements these a of think of We portfolio.

Showcase Some in individual drive in an Business will directly the the like pretty because more only highest available Showcase of tier Dropbox future. engagement these Others Professional example and ecosystem. in the improvements will SKU. monetization of drive is Dropbox That's

about retain we teams available, and before, and Business ones convert as that, usage higher rates that said have So, Paper, you who we that's at don't. than Paper broadly think Dropbox find more Dropbox

So, though not that lifetime value, separate SKU. drives drives even retention, a it's

monetization. levers to of and number drive a engagement have We

sometimes of be generally. adoption more tier Sometimes higher engagement SKUs and driving driving be they'll then it'll

Sarah Hindlian

you Thank much. right. All very

Operator

you. Thank

Our question next McDowell comes with of the Securities. line JMP Greg from

Your open. line is

Greg McDowell

Magic very and ask much. to first I want Pocket. you thank infrastructure about Great,

the blog greater You company mentioned really The from adopt and to density, me stood SMR. better that major tech to posts you're structure. costs, out first June cost thing the lower were

about would SMR of as And revenue? we technology and then So my one a percentage infrastructure question term, your the think your is, maybe needs CapEx in how longer impacting follow-up. costs this maybe

Drew Houston

one is We a of of great a achievements. example just technical think SMR

a a to and an that the not long example a barriers We of the also the color good our or a SMR vertically bigger more to advantage, of flexibility can things have machine things be an a as of edge option picture. it's are that control effectiveness. providing because from run engineering compute bunch technologies being that add do integrated SMR cloud. example cutting because Ajay at of team you this applications part adopting the moment how adopting like think entire It's our good or cost One become on through standpoint, stack. more customize the able which evolve we but your of and integrated cost like in and workloads change a was especially not public big learning is advantage, to would only

Ajay Vashee

This is Ajay.

undertaking future multi-year on of drivers gross specifics for margin target providing savings from a aren't that of revenue. we of toward be phased, and one will I say it SMR us of expansion XX% today, long-term While XX% to can projections our our the

Drew Houston

lot to curve other it cost example an faster to the evolves can all as for the folks down supply had chain, us. to in Again, technology pass that we we if along than it's wait parts ride of a

Greg McDowell

question Professional Advanced of I professional about quick introduced the 'XX, which Advanced. I Not Thanks. individuals, wanted ask SKU the months which really should full SKU to Dropbox against contrasted so the to November about beat was phenomenon grandfathering, sitting in feeling after 'XX, a think tailwinds the individuals we're actually for a we compared introduced the of was my Advanced, for January of XX SKU? and so hereXX that how One grandfathering lot dead expiration in guess is about Thanks. a expiration grandfathering but talked horse we've this months later. follow-up. with

Drew Houston

the on the into and higher moderated SKU. defaulted on it'll case and be plan short, Professional. folks Dropbox In the the side, a tier with were not the a were that Plus with little bit Business because Business more grandfathering That's original

the it users that So, the affect there driving and dynamic. who the It's or a Plus that certainly itself into we'll presence Plus in opportunity case of immediately little be folks subscriptions of is to subscription new will, of and for is bit but users a existing not for everyone SKU available we we're new have different it's Professional up Professional. will higher tier also interested in the opting presents or too, course, sales all an

Ajay Vashee

Ajay. is This

don't the future in Just not to the SKU. we plan into have Plus near to to and grandfather clarify, date Professional existing subscribers

Advanced taking plan. levers to to what said, higher are said, that we're what there approach higher That relative a strategy our different being to and with did we Pro Drew driving and team just different So, reiterate subscribers focused and SKU. attach rates on we through

Drew Houston

higher are of want and Yes, so so saying of didn't we us than multiple to freelancer, continuing more to buy drive Professional subscription a emailing Business tier of SKUs, they improve features licenses like Showcase, found we to a needed available There a space terabyte have lot that of have lot and alternative we are levers our a our general. they customers them. if of were that that a in higher to adoption didn't

Greg McDowell

thanks. it, Got

Operator

Thank you.

Mark comes question from Markets. Mahaney next Capital line of Our RBC with the

open. is line Your

Mark Mahaney

can those just have be something? get color markets? questions on Thanks the two. you're going color but been the start-up on get Dennis, of I may asked why to cryptocurrency already that or Thanks. down, be on performing the all Any lot. challenging? Most a give that maybe for go may down? so details. stepping answered, and all a better, you stepping a international We you more your Then are Those details little Now join

Dennis Woodside

great a Thanks for the idea. question. That's

second the can world-class with me out that one Let I help was me scale start challenges Drew the Dropbox, set one that joined team business. When for first. a of build the

public First We've it a done that. it to into then scale but scale really time. company, over

stepping up in number who Lin, roles to is leaders professional sales Workday. changes, experience. a has very years of leadership companies I think in we Rangan, deep a the have and led team. the been at for are over XX strong has Valley with here two and communications Drew's SAP Yamani years you who like who for see with

in of I to shape, This aside to couple a take of so is and out obviously sense. is it seemed make of I'll Red generation been while. a know and I'm There's have Now, step then no immediate figure business an lot and the next. So, the Service involved through leader one next talking the roles plans. I'm stay the the when a I'll and a good Cross great The the about Drew to so to going Boards remain with advisor for year. already, let company to end of in what's them involved over.

a that growth. of cloud years where self-serve my couple I France, a Germany, the customer talked most U.S. Australia, Japan. a is think markets primary particular behind time our accelerate. opportunity example the we about who question, Bundesbank really expected. think able U.K., seeing We're outside Close markets through think I we about the on see That's some tend of a are the Japan -- so be the we in We're were in to half came huge seeing opportunity lot our us in grow. international Europe, from see remarks. last we outside have Japan, talked is I wouldn't and I of to international revenue growth for Western us. and -- coming areas We in to That's markets adoption. But an to Those U.S. otherwise like

Mark Mahaney

and Dennis Thanks, Okay. congratulations.

Drew Houston

to echo that's opportunity we're an very truly that Lin and can provides into to think and I want for team that to the just transition be I that built. a excited replaced, Yamani Dennis testament has Dennis but roles step never the bigger

Operator

you. Thank

for We have call. one time more

last comes D.A. Rishi the line question of Jaluria Davidson. with Our from

Your line is open.

Rishi Jaluria

guidance Ajay, of me us on parts is year. on year-to-date from are it you margins what half drop little then help some reflecting? year. XX.X% on to Is wanted follow-up a us just of dive to understand back just to Thanks little a far of a give moving in going your I deeper the X% the Drew. here margin of in. Operating so for the the based guidance Can this ramp quick the a squeezing and investments? color for Maybe

Ajay Vashee

QX between in of for in to what Two Two, would operating that in due we are committed quarters we and primary reasons and things efficiency for timing the QX, spend, that but some guided the spend between operating it's we one, up I for variability bumping preserving there annual and of drove say note delivered more year-over-year flexibility like we're spend I QX the hiring operating margin and expansion so to the margin margin marketing basis. in year. would year we QX. what an and the driving we be across QX. certainly to on outlook to to continue our business

Rishi Jaluria

impact Okay. early any European GDPR Thanks, you any front, had theaters. just the from inbound the Thanks. that's the on if insights business adoption commentary since international helpful. of on been and Drew, there's interest or in wondering

Drew Houston

couple out months and a did I Actually, couple customer and leadership ago. I were Dennis a visits. the Europe in team

where and GDPR. there GDPR Dropbox for we something the that. around to think I does handle as to certainly IT get as and in for a really on They see It way Dropbox a want do their they wrap for their administrators to minds higher so arms is puts be our powerful need like it. data create their good customers urgency navigate

Rishi Jaluria

guys. Thanks, Great.

Operator

call Thank our question-and-answer like the to now you. back turn to over I'd concludes session. Houston. That Drew

Drew Houston

All everyone. right,

and joining speaking us thank your look to quarter. for really more again and you today forward you appreciate one with next Just we support

Operator

call. This joining you us. concludes our Thank for

You may disconnect. now