Dropbox, Inc.

Good afternoon, ladies and gentlemen. Thank you for joining Dropbox's first quarter 2021 earnings conference call. All participants will be in the 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 Paige Portis, Investor Relations at Dropbox. Ms. Portis, please go ahead.

Paige Portis Today, Dropbox will discuss 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 impacts to our financial results, including estimated impairment charges and subleasing income as a result of our shift to a virtual-first work model, expected performance of our business, 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 future user growth, upgrades, and retention by enhancing our products, developing and offering new products or features through our acquisitions, our strategy and the effectiveness of strategy in achieving our business goals, and overall future prospects and ability to generate shareholder value. These statements are subject to known and unknown risk, 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, including in our Form 10-K for the year ended December 31, 2020, and the risk factors that will be included in our Form 10-Q for the quarter ended March 31, 2021. 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 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 filed today with the SEC and may also be found in the supplemental investor materials posted on our investor relations website at www.investors.dropbox.com. Additional information regarding the exchange rate assumptions used in our guidance may also be found in our supplemental investor materials. I would now like to turn the call over to Dropbox's co-founder and chief executive officer, Drew Halston.

Good afternoon, everyone, and welcome to our Q1 2021 earnings call. On the call with me is Tim Regan, our Chief Financial Officer. Today, I'll share our business and product highlights from the quarter. Tim will then review our Q1 financial results, provide guidance for the second quarter, and update our outlook for the remainder of the year. And before we get to our results, I'd like to thank our employees, customers, and partners for their support and their contribution to a successful quarter. Around this time last year, we, along with many of our customers, We're managing through an unprecedented global pandemic and a sudden shift to distributed work. It was certainly a challenging time, and I'm proud of the way our team showed up and supported our customers. While many companies are still adjusting to this shift and grappling with decisions about hybrid, flexible, or remote work, one thing is clear. The traditional way of working has changed forever. We've made decisions about our own workforce, adopting what we're calling a virtual-first way of working, combining the best of both fully remote and in-person collaboration, And as we've shared previously, we reoriented our entire product roadmap to address the challenges our customers face in this new environment. At the same time, we also reorganized and streamlined our teams against our new strategies. And now we're focused on execution. This new era of distributed work has given rise to new opportunities for us and sped up several trends that were already in play. We've seen spikes in rich media and video content. We've seen the rise of freelance economy and an accelerated shift of businesses to the cloud. And we're seeing these trends reflected in our own business, with the increased growth in our professional SKU, expansion within SMBs, and heightened demand for new capabilities that connect our customers' content to their workflows. As our progress this quarter demonstrates, there's never been a better time in history to be building collaboration software, and I'm excited about our road ahead. Turning to the quarter, we saw positive momentum in the business as we continue to execute against our strategy. Revenue growth was strong and our non-GAAP operating margin expanded meaningfully as we drove operational efficiencies and stayed on course with our long-term targets. We also completed several financial transactions that improved our ability to execute against our investment thesis, which Tim will speak to in more detail. As I shared last quarter, we have three strategic priorities for 2021, evolving the core business, investing in new products, and driving operational excellence. I'm proud of the team's execution and the progress we've made against each of these, in Q1. Let's start with an update on our first priority, evolving the core business. As a reminder, this strategy is focused on building on the strength of the simple and intuitive core Dropbox experience to improve our functionality, make collaboration around content more seamless, and help organize our users' content, tools, and workflows. As we make these investments, we believe they'll drive higher levels of engagement, better retention, and ultimately stronger revenue from our core business. One way we improved the user experience this quarter was streamlining our in-product promotions to ensure people can focus on their content and their work. We were successful in maintaining our overall conversion volumes while reducing the total number of Dropbox promotions the average user sees. As a result, we're now able to more purposefully surface in-product prompts at optimal moments to encourage upsell and cross-sell of our products. This simplified experience gives our users a more seamless way to engage with Dropbox while still retaining the flexibility strategically leveraged in product prompts to drive adoption of our newer products. Evolving the core is also about delivering more value to our basic users to promote conversion to our paid SKUs. For example, last year we launched Dropbox Passwords to all our paid users to help them stay organized and better connect their tools. And we recently launched a freemium version of Passwords to our basic users to deliver more value beyond FSS, and introduce them to some of the premium capabilities that we offer as part of our core product. As more BASIC users are exposed to and find value in these premium features, we believe this will help drive activation, retention, and migration into paying plans. I'm also excited to share the progress we've made with transfer, which we introduced as a standalone SKU late in the first quarter. Now it's easier for BASIC users to discover and upgrade to the transfer plan, which we expect will drive additional uplift in our paid user conversions and retention rates. We see this as the first step in making the transfer product more broadly available to our user base as we continue to iterate on our upsell funnels to drive ARR growth. As a final example of how we're evolving our core products, I'll share an update on the progress we're making with our family plan. The family plan keeps your family's digital lives connected with one organized place to share photos, videos, and important documents. It supports two terabytes of shared storage for up to six users, each with their own personal folders, a centralized family room, and access to premium features like vault, transfer, backup, and passwords. Since launching last fall, we've seen exciting traction with tens of thousands of family rooms created. And the feedback's been great. Customers are finding unique value in their ability to easily share important family content, like photos and videos, on an ongoing basis. Collectively, by streamlining the total number of Dropbox promotions our users see, releasing passwords for our basic users, and continuing to invest in solutions like Transfer and Family Plan, we're making great progress in evolving the core Dropbox experience. We're building on our roots in file sync and share and delivering even more value to our users with a differentiated feature set while remaining true to our core product philosophy, a simple and easy-to-use experience that helps people manage both their work and personal lives. We believe this focus will strengthen our relationship with our customers and help us sustain healthy growth within the core business. Let's move to our second priority, which is investing in new products as we cultivate and scale additional capabilities beyond the core Dropbox experience. As one of only a handful of SaaS companies that have ever reached $2 billion in ARR, we believe we have a big opportunity to build on the success of our core business and expand to new and adjacent product areas. We're tapping into that success as we invest in powerful tools like DocSend and HelloSend for the next generation of freelancers and SMBs in the new distributed work environment. In March, we announced our acquisition of DocSend, a secure document sharing and analytics product. This acquisition builds upon a key strength of ours, which is sharing. Today, users share hundreds of millions of documents using Dropbox every year, which leads to viral expansion and increased retention. The acquisition of DocSend expands on our sharing capabilities, offering users added security along with powerful analytics on how viewers are engaging with their content. It's also a great fit within our broader product portfolio. The combination of Dropbox, HelloSign, and Docsend will give our customers a full suite of self-serve products and help them manage critical document workflows end to end and ultimately drive meaningful business results. For example, client services teams and creative professionals who already rely on Dropbox to organize and collaborate on documents, presentations, and projects can use Docsend to deliver proposals and track engagement and use HelloSign to sign contracts. Not only does this acquisition unlock greater value for our customers, but the combination of these three products can help drive adoption and upsell across our product portfolio. DocSend's a great addition to the Dropbox family and allows us to deliver more functionality to meet our customers' needs. I want to extend a warm welcome to the DocSend team, and I look forward to everything we're going to achieve together. Let's turn to HelloSign, which continues to be one of our fastest-growing products. In Q1, the team made great progress towards our goal of becoming a leading e-signature solution in the SMB market and in target international markets. First, we launched our bundle Dropbox Professional and HelloSign Essentials SKU, which we're calling Professional plus eSign. As I mentioned earlier, we're seeing increased engagement from freelancers and SMBs, and this is especially reflected in our Professional SKU, where we've seen a more than 30% increase in paid users year over year. We're capitalizing on this momentum by exposing these users to more of our expanded functionality, like HelloSign, as our customers look for comprehensive ecosystems that serve all of their business needs. In turn, we drive further awareness of our e-signature capabilities and deliver additional value to our customers. We're also seeing traction in international markets. After launching HelloSign in the 21 additional languages last year, we've continued to offer geographic-specific solutions tailored to meet the needs of our international users. In Japan, for example, we now support electronic Conco stamp seals, which are often used in lieu of e-signatures in that region. DocSend and HelloSign are great examples of how we're building on the success of our core experience and expanding into adjacent markets to increase the value that users get from Dropbox. We'll continue to invest here, both through M&A and in our organic innovation pipeline with products like Spaces to drive our next stage of growth. Finally, we'll stay focused on our third priority of operational excellence as we improve the efficiency, reliability, and security of our technical infrastructure while increasing our operational discipline and optimizing our capital structure for high ROI investments. This quarter, we executed on a number of important initiatives, including closing on our convertible debt raise, implementing an additional $1 billion share repurchase authorization, and driving a 13-point improvement in our operating margins. While we're making great progress against our profitability metrics, we remain focused on investing for the future. We've always been focused on balancing growth and profitability, and we believe our recent alignment against these three priorities sets us up to be more nimble, innovative, and to dedicate more resources towards building new products. And looking ahead, we'll continue to be disciplined with our capital while still making thoughtful ROI-based investments. And we believe these efforts enhance our ability to reinvest in growth initiatives, execute against our investment thesis, and continue generating shareholder value. In summary, I'm proud of our first quarter results as we relied on our strengths to address the growing demand for more seamless collaboration software. We continue to execute well against our 2021 priorities, delivering more value to our users with both our core product and new capabilities while strengthening our balance sheet and improving profitability. I'll now turn it over to Tim to walk through our financial results.