Dropbox, Inc.

Good day, ladies and gentlemen. Thank you for joining Dropbox's second quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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. I will now hand the call over to Lev Finkelstein, Dropbox's VP of Corporate Finance and Strategy. Please go ahead.

Thank you. Good afternoon and welcome to Dropbox's second quarter 2020 earnings call. Today, Dropbox will discuss the quarterly financial results that were distributed earlier. Statements on this call include forward-looking statements, including The potential impact of the COVID-19 pandemic and related public health responses on our business, financial results, and the economy. Statements relating to the expected performance of our business. Future financial results, including expectations regarding future profitability and our ability to generate and sustain positive free cash flow. Our ability to extend our platform by developing and offering and many more. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in our Form 10-K for the year end of December 31, 2019, and the risk factors that will be included in our Form 10Q for the quarter end of June 30, 2020. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release which was furnished with our Form 8-K filed today with the SEC and may also be found in a supplemental investor materials posted on our investor relations website, which can be found at investors.dropbox.com. I would now like to turn the call over to Dropbox's co-founder and chief executive officer, Drew Houston.

Thanks, Liv. And good afternoon, everyone. Welcome to our Q2 earnings call. On the call with me is Ajay Vashi, our chief financial officer. and Olivia Nadebaum, our Chief Operating Officer, will also join us during Q&A. Similar to last quarter, the three of us are dialing in remotely from our homes, so please forgive us for any sound quality issues or background noise over the next hour. I'd like to start by thanking Ajay for all he's contributed to Dropbox over the last eight years. As you've likely seen, we've announced that he'll be leaving us this fall to spend more time with his family and then transition to a career in venture capital. When Ajay started at Dropbox, the cloud collaboration market was still nascent. and we were just getting started, only had 100 employees. During his tenure, he's helped us scale into a public company with a resilient, profitable business model and nearly 3,000 employees all over the world. We're grateful for the strong foundation and incredible team he's established and we couldn't have gotten here without him. Ajay's leadership and investment in his team makes this a relatively seamless transition. On that note, I'm excited to welcome Tim Regan, our Chief Accounting Officer, as our new CFO. In his last three years at the company, Tim has demonstrated exceptional leadership with the operational skill and discipline needed for his new role. Tim brings over two decades of experience at Dropbox. He was previously the controller at Pandora and held senior positions at Dolby and Ernst & Young. We couldn't be happier to have Tim as our new CFO and are confident that Dropbox will be successful in its capable hands. He'll officially step into the role on September 15th. and Ajay will remain an advisor to the company until mid-October to ensure a smooth transition. With that, let's turn to the remainder of our call. Today, I'll talk about our business and product highlights and the continued expansion of our ecosystem. Ajay will review our Q2 financial results, touch on our go-to-market strategy, and provide guidance for Q3 and fiscal 2020. Before we move to our quarterly results, I want to provide some updates around how we're managing operations in a distributed work environment. The health and safety of our employees remains our number one priority, and we've officially extended our work from home policy to the end of the year. I also want to commend the entire team at Dropbox for doing an incredible job navigating these unprecedented circumstances. Over the past few months, they've been hard at work launching new features and products aimed at helping our users manage their most important workflows during these unique times. We've also been focused on providing extra support to our customers most impacted by COVID-19. In certain cases, we've provided relief by extending the payment terms and changing invoice frequency to ensure they have the tools they need to get their best work done. And over the past quarter, we also expanded several of our larger-scale educational deployments and onboarded new customers like the University of Michigan. Our deployment with the University of Michigan represents one of our largest educational deals to date as institutions around the world look to accelerate their digital transformation efforts and shift to a remote learning environment. Companies are also increasing their reliance on Dropbox as they make the transition to distributed work. Just a few weeks ago, a major European luxury retail company significantly expanded their deployment with Dropbox to over 20,000 seats. As part of this seven-figure deal, the company plans to accelerate their shift to the cloud and cited our new desktop application as a critical tool for their employees to securely collaborate with one another wherever they are. We're fortunate and proud that our product lends itself well to the facilitation of remote work and collaboration. I'm excited to announce that we now have more than 500,000 Dropbox business teams on our platform. And over the past quarter, more than 450,000 of those teams are now using our new desktop application, which gives knowledge workers a unified home for their content and connects them to popular tools like Slack, Zoom, and Atlassian. Across Q2, trial volumes to our team and individual plans also remained elevated. and were 20% higher than pre-COVID levels. I'd note that the conversion rates of these larger cohorts have remained consistent with average historical figures, which is encouraging and underscores the value that users are deriving from our products and platform. Turning to our quarterly results. In Q2, we continued to see strength across our business. Revenue grew 18% year-over-year on a constant currency basis, driven by increases in both paying users and ARPU. We also drove robust margin expansion as we continue to deliver a healthy balance of growth and profitability. These results underscore the strength of our global collaboration platform, our efficient go-to-market strategy, and our operational discipline. Let's move on to some of the product highlights from the quarter. We're focused on providing more value to our users through consistent feature and product introductions. And in Q2, we added a number of high-value features to our plus queue to give users the tools they need to better manage both their work and personal lives. First, we launched Dropbox Passwords. Dropbox Passwords enables users to store login credentials for websites and apps and sync them across all of their devices. And with zero-knowledge encryption, users can ensure their data is securely protected and accessible only to them. We also launched Vault, a secure folder with an extra layer of security for all your most important personal files, like insurance cards and passports and personal financial information. Content stored in Vault is only accessible with a PIN code, and users can enjoy peace of mind knowing that they can designate access to trusted friends and family members in the event of an emergency. And finally, we launched Computer Backup, a feature that allows users to automatically backup folders on their PC or Mac, including their desktop, downloads, and documents folders directly into their Dropbox. Files and folders are continuously synced between the cloud and the user's hard drive and changes made to their content are automatically updated in both locations. These three features are now available in beta to our Plus subscribers and represent one of the biggest updates we've made to this SKU since its inception. In addition to improving the Plus plan, we also launched a brand new SKU into beta last quarter, Dropbox Family. This new SKU keeps a family's digital lives connected with one organized place to share photos, videos, and important documents. Dropbox Family lets up to six members share two terabytes of storage under one plan with one bill. Members can create shared spaces to make content easily accessible to the whole family, and each member has their own private space for personal content. We're currently beta testing the Dropbox Family product with select Dropbox users and plan to roll it out more broadly across the second half of the year. In Q2, we also continue to make progress against our product integration strategy with HelloSign. HelloSign is now natively embedded into Dropbox product surfaces. And now, when a user opens a file in Dropbox, they can quickly identify which fields need to be signed and send that file out pre-signature. And once a file is signed by the recipient, the completed document is automatically saved into the appropriate Dropbox folder. This is a big improvement to the overall user experience. Not only does the entire end-to-end workflow live within Dropbox, but this also makes HelloSign the primary e-signature tool for Dropbox users around the world. To capitalize on the growing international opportunity, we also launched HelloSign in 21 additional languages this past quarter, bringing effortless e-signature functionality and a fully localized experience to businesses globally. We also expanded our customer service to include additional support hours for the EMEA and APJ regions. Investments like these have helped to propel adoption of the HelloSign product suite. Across Q2, usage of both the HelloSign API product as well as the core e-signature solution increased by more than 25% relative to Q1 levels. And trials to HelloSign's digital fax solution, HelloFax, also increased by more than 25% during the same period. It's exciting to see this increased usage of HelloSign products, and we remain committed to leveraging our broad distribution channels to continue driving adoption of HelloSign SKUs. And beyond the improvements we've made to the core Dropbox and HelloSign experiences, we've also been focused on expanding our ecosystem of trusted partners to position Dropbox at the center of our users' workflows. And in Q2, we launched the new Dropbox App Center, a place where users can discover, learn about, and connect apps to their Dropbox account, helping to create a more engaging, higher value, and retentive experience within our platform. Now, customers can easily link commonly used tools from partners like Canva, Smartsheet, and Google to their Dropbox account with just a few clicks. In summary, we delivered another great quarter. Demand for our products remained strong as more people have turned to both Dropbox and HelloSign to manage their most important workflows. We're also excited about the opportunity ahead. It's clear to me that the shift to distributed work will ultimately be as significant as the shift to mobile or the shift to cloud. and all knowledge workers need new and better ways to organize their working lives in this new environment. We've completely reoriented our product roadmap since March and see many opportunities to design new products and experiences for distributed work. And I'm excited to share more of what we've been working on in the second half of the year. I'll now turn it over to Ajay to walk through our financial results.