Dropbox, Inc.

Good afternoon, ladies and gentlemen. Thank you for joining Dropbox's fourth quarter 2020 earnings conference call. All participants will be in a 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 turn it over to Mr. Rob Bradley, Head of Investor Relations for Dropbox. Mr. Bradley, please go ahead.

Thank you and good afternoon, and welcome to Dropbox's fourth 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 future financial results, including our goals and expectations regarding future revenue growth, profitability, and our ability to generate and sustain positive free cash flow, our expectations regarding anticipated benefits to our business and the impact to our financial results, including estimated impairment charges as a result of our shift to a virtual-first work model, expected performance of our business, operational efficiencies we may achieve as a result of changes to our organizational structure, Our expectations regarding remote work trends, related market opportunities, and our ability to capitalize on those opportunities. Our capital allocation plans, including expected timing and volume of share repurchases, future M&A opportunities, and other investments. Our ability to drive user growth and retention by enhancing our products, developing and offering new products or features, and through strategic partnerships. Our strategy, as well as the ability of our key employees to execute our strategy. and overall future prospects and ability to generate shareholder value. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in our Form 10-Q for the quarter end of September 30, 2020 and the risk factors that will be included in our Form 10-K for the year ended December 31, 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 measures should be considered in addition to and not as a substitute for or in isolation from and many more. Thank you.

Thanks, Rob. Good afternoon, everyone, and welcome to our Q4 2020 earnings call. I'm here with Tim Regan, our Chief Financial Officer. I'll start our call today by recapping our accomplishments from 2020 and providing an overview of our priorities for 2021. Then I'll hand the call over to Tim, who will review financial results for the fourth quarter and full year, give guidance for Q1 and fiscal year 2021, and share some thoughts on our long-term model. 2020 was a transformational year for Dropbox, as the world abruptly shifted to working from home due to the pandemic. We helped many of our customers through this transition, we adapted quickly to the new environment ourselves, and we reoriented our product roadmap to address many of the new challenges and opportunities that distributed work presents. Even with the changing landscape, our business performed well. For the full year, we delivered more than $1.9 billion in revenue, we crossed $2 billion in ARR, and we meaningfully increased our profitability. We ended 2020 with more than 15 million paying users and 525,000 business teams. And throughout the course of the year, we remain focused on launching new features and products to help people organize their lives, both at home and at work. To start, we introduced several features in the first half of 2020 to help our customers protect and secure their most important content. The first feature to highlight is Dropbox passwords. With passwords, our users can store passwords in one secure place, sync across devices, and access passwords from anywhere with zero-knowledge encryption. We also introduced Vault, an additional layer of security for our customers' most valuable content, where that content is accessible with a unique PIN code. Users can also grant emergency access to their Vault to trusted friends or family so they can access the protected content when needed. And finally, We introduced computer backup, which automatically backs up users' local desktop, documents, and downloads folders to Dropbox for secure access on the go and retrieval in the event of hardware failure. We believe these new features will drive better engagement and retention across our user base. In addition to these new features, we launched a new SKU called Family Plan, which helps keep families connected and helps keep their content secure, with a central place for shared files like photos, videos, and documents. Dropbox Family lets up to six family members share as much as two terabytes of data in one plan with a single bill. After positive signals from our initial launch, we broadly rolled out Family Plan in October, and the user adoption has been encouraging. We've also been building out our portfolio of products for distributed work. In 2020, customers relied even more on Dropbox to get their work done, as we saw elevated engagement across our products early in the year. And in an effort to better support them, we adapted our product roadmap quickly, making investments in content collaboration capabilities between FileSync and Share. For example, as the need for eSignature increased, we introduced a deeper integration with HelloSign, making it easier to sign documents without ever leaving Dropbox. We also launched HelloSign in 21 additional languages to better address the global eSignature market and to help cross-sell into our Dropbox user base. These steps resulted in strong growth in HelloSign's ARR, end-user paid seats, and more than a 70% increase in end-user signature requests. We also evolved Dropbox Spaces into a standalone experience that lives alongside the classic Dropbox file experience. Spaces is designed to solve an important problem. The context and information we all need is scattered across the variety of different files and tools and messaging apps, leaving it up to each of us to piece everything together. Moving to distributed work has put a lot more stress on the system, as teams have had to adopt new ways of working remotely and have had to juggle a variety of tools like Zoom and Slack and many others. The goal of the New Spaces app is to simplify and organize this experience, bringing projects and teams together in a single virtual workspace where they can quickly kick off projects, find and add any kind of content, and easily track progress. The New Spaces experience is currently in private beta, but we're excited to roll it out more broadly to our users this year. And finally, in 2020, we expanded our add-on offerings with our new creative tools and data migration products. These were developed for some of our most passionate and demanding users to better handle key workflows and further differentiate Dropbox. The creative community relies heavily on Dropbox to get their work done. And today's tools don't solve all the challenges they face when working with large media files. In early 2020, we made investments to help take the headache out of creative, post-production, and social media workflows. The creative tools add-on simplifies viewing, facilitates remote collaboration with frame-based commenting, and allows flexible workflow management, all while making transfers of large files simple and secure. And with a new data migration add-on, business customers can seamlessly migrate files and permissions from local storage or other cloud storage solutions onto Dropbox. They can also automatically map access rights and file structures to Dropbox, saving our customers time by reducing friction. This is especially helpful to customers as they were forced to transition quickly to remote work. and needed to securely migrate their traditional file storage solutions to the cloud. In addition to reorienting our product roadmap, we transformed our company and work culture with our shift to virtual first, bringing together the best of both the remote and in-person experience. We're preserving the freedom and flexibility that remote work offers and reimagining our offices as places dedicated to meaningful in-person collaboration. Most importantly, we believe going virtual first offers us an opportunity to truly live our mission and build even better products for our customers in their transition to distributed work. We also took a number of steps towards the end of 2020 to operate faster and more efficiently. First, we simplified our accountability structure, bringing product development, technology, and our go-to-market functions together under our president, Timothy Young. Timothy's elevation to president will help us focus on our customers through closer collaboration and coordination between our engineering, design, product, and customer-facing teams. And finally, last month, we also announced an 11% reduction in force to streamline our teams against new structure, strengthen our operational discipline, and better align to our virtual first strategy. So while this past year meant changes to our product roadmap, leadership, and team structure, We believe we're set up for stability and execution in 2021. We have three company priorities for the year, and I'd like to walk you through each one with a little more detail. First is evolving our core product. Since our founding, millions of customers have trusted Dropbox to store and share their most important content. This has always been our central product value and has led to our viral growth and global adoption. This year, we're evolving the core Dropbox experience to become the organizational layer across all of our users' content. We'll aim to improve functionality to reduce friction and make collaboration and file sharing even more seamless. We expect these improvements will help drive activation, retention, and migration into paid SKUs. New updates include the automated organization of user content and simplified sharing and access features, which we believe will lead to greater retention and growth for the core business. We'll continue to invest in and expand our new product pipeline beyond the core experience. In 2021, we'll build on our early success with HelloSign to serve an increasingly distributed workforce. Our planned investments will help position HelloSign as the go-to solution for e-signature for individuals and teams through targeted awareness campaigns and prompts. We also plan to continue scaling newer efforts like Spaces with strategic partnerships that add unique value to our users' workflows. Late last year, we previewed Spaces integrations with Zoom and WebEx to offer users a single place for meeting notes, action items, and project management so they can stay connected long after they leave a meeting. Investing in partnerships and deep integrations like these provides a more seamless product experience for our customers and makes Dropbox an even more indispensable part of their workflows. We'll also plan to complement our new product pipeline with strategic acquisitions as we broaden our capabilities in the content collaboration and other adjacencies. M&A will continue to be an important lever for us as we add to our team and product portfolio while being disciplined in our approach. And finally, we'll stay focused on operational excellence in 2021 and make progress towards our long-term financial targets and be deliberate in the use of our resources. We're really proud of the progress we made in 2020, driving nine points of operating margin improvement combined with a $99 million increase in free cash flow. And looking ahead, we'll continue to build efficiency and agility throughout the organization in a number of ways. We'll drive improvements and efficiencies in our infrastructure and storage as we continue to add users and content. We'll also optimize investments in R&D and sales and marketing, focusing on opportunities of the best ROI. We expect these combined actions to continue improving our profitability and free cash flow. In summary, I'm proud of the team's work last year to adapt quickly to the changing macro environment and take care of our customers. We demonstrated our ongoing commitment to our long-term financial goals while still investing in growth. I believe we have the right plan in place to set us up for success, and now we're focused on executing against our strategy for 2021. We believe our opportunity is growing as the lines between home and work continue to blur, and there's increased demand for a more seamless collaboration experience. Hundreds of millions of people already trust us to store and share their most important files, and we'll rely on that strength as we expand our capabilities to become the one organized place for their content, and all the collaboration around it. I'll now turn it over to Tim to walk through our financial results.