Dropbox, Inc.

Good afternoon, ladies and gentlemen. Thank you for joining Dropbox's second quarter 2021 earnings conference call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start 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 from Dropbox's website following this call. I will now turn the call over to Karan Kapoor, Dropbox's Head of Investor Relations. Mr. Kapoor, please go ahead.

Good afternoon and welcome to Dropbox's second quarter 2021 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 remote work trends, related market opportunities, and our ability to capitalize on those opportunities. 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 capital allocation plans, including expected timing and volume of share repurchases, future M&A opportunities, and other investments, our ability to drive user growth, upgrades, and retention by enhancing our products, developing and offering new products or features, and through acquisitions, our strategy and the effectiveness of our strategy in achieving our business goals, 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 ended March 31, 2021, and the risk factors that will be included in our Form 10-Q for the quarter ended June 30th, 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 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 8K 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 Houston. Drew?

Thanks, Karen, and good afternoon, everyone. Welcome to our Q2 2021 earnings call, and 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 Q2 financial results, provide guidance for the third quarter, and and update our outlook for the remainder of the year. Before we begin, I'd like to extend a warm welcome to our newest board member, Sarah Matthew, who was appointed last week. Sarah brings decades of experience as a skilled operator and strategist to our board and has led transformative growth at global brands such as P&G and Dun & Bradstreet. I'm looking forward to working with Sarah as we execute on our strategy. I'd also like to thank Bob Mylod, who's transitioning off our board, for his outstanding service over these last seven years. We're incredibly grateful for his mentorship, and he will continue to be a friend and advisor to our team. To kick off, I'm excited to share that we had another strong quarter across the board, including record operating margins and free cash flow driven by the ongoing value we're providing to our customers. And as companies continue to think through their return to work policies, it's clear that distributed work is here to stay long after the pandemic ends. and we believe we're in a unique position to help our customers adjust to the new world. As we've shared before, in the last year and a half, we've witnessed an acceleration of several macro trends that were already in play, including the rapid growth of the creator and freelancer economy. These audiences have long been passionate Dropbox customers, and as they become a larger force in the economy, we're in a strong position to support their growth and offer differentiated solutions to meet their expanding needs. And now turning to our second quarter results. In Q2, we saw 14% revenue growth driven by strength in our professional SKU and improvements in retention, particularly on our mobile platform. We generated record free cash flow of $216 million and achieved our highest ever non-GAAP operating margin of 32% for the quarter. I'd like to thank our employees, customers, and partners for their support and contributions that led Dropbox to another excellent quarter. And we continue to be focused on our three strategic priorities for 2021, evolving the core business, investing in new products, and driving operational excellence. And I'm proud of the team's execution and the progress we've made against each of these in the second quarter. I'll start with an update on evolving our core business. As a reminder, this strategy is focused on building on the strengths of the simple and intuitive core Dropbox experience to improve functionality, make collaboration more seamless, and help organize users' content, tools, and workflows. I'd like to highlight a few areas under the strategy that contributed to our core business outperformance in the second quarter and helped drive our top-line growth. The first area is sharing content, which is one of our customers' most important and frequent workflows on Dropbox. Sharing drives the attention of our existing customers, spreads Dropbox virally to new customers, and generates powerful network effects. We've made improvements to the sharing experience overall, especially on mobile, where our user base continues to grow. Nearly half of all our new basic users come from our mobile channel. And in Q2, we saw a greater than 15% increase in link sharing due to some of our most recent updates to improve usability and reliability, including increased visibility to the blue share link button and faster upload speeds overall. We're also focused on improving the recipient user experience. which is another key driver of our product virality and monetization. We found that users who both send and receive content within a week and those who share content each week upgrade at higher rates. As a result of the sharing user experience improvements we made this quarter, we're starting to see an incremental uptick in weekly sharing activity on both the mobile and the web experiences, and we'll continue to closely monitor that trend. As another example of evolving our core offering, a few weeks ago we announced a rollout of camera uploads to all basic users. Now they can automatically backup photos and videos continuously from their mobile devices to their Dropbox account. We believe the camera uploads feature will drive further engagement among our basic users and in turn drive both retention and conversion. So these kinds of investments in our core offering are having a direct impact on the value customers are seeing in our products. We've seen improvements in both our iOS and Android app store ratings, and in fact, our Android app store rating reached its highest level since 2013. Moving to our second strategy, which is investing in the future, where we're focused on cultivating and scaling additional capabilities to provide a more comprehensive suite of workflow products to our millions of users and over 550,000 Dropbox business teams. And I'll start with our newest acquisition, DocSense. As a reminder, we purchased DocSend earlier this year to extend our capabilities and document workflow and analytics. With DocSend, we're able to give customers, particularly in financial and professional services, more visibility and control over closing transactions and other important business outcomes. Our goal is to essentially close the loop on deal workflows that start with content that originates in Dropbox and end in a transaction getting finalized. And in the second quarter, DocSend exceeded our internal goals and milestones. And we made great progress integrating the product into the broader portfolio. Our outbound sales team is already working with potential customers to educate them on DocSend's offering. And we're beginning to successfully cross-sell DocSend to Dropbox users. In addition, we're working to integrate DocSend into our self-serve go-to-market motion. For example, we started to introduce DocSend's control and analytics capabilities to existing Dropbox users when they share a file on the Dropbox platform. This is a great reflection of the product's natural adjacency to the core Dropbox functionality. I'm really impressed with the team's performance, and I'm looking forward to the journey ahead. Turning to HelloSign, we continue to see strength across the e-signature market, especially with our business customers. End-user signature requests grew over 75% year-over-year, which is particularly impressive as we anniversary the COVID lockdown fueled surge in e-signature adoption. We continue to believe that we're in the early innings of this market opportunity. HelloSign also continues to expand its product offerings and capabilities to cater to the international market. During the quarter, we launched support for qualified electronic signatures, the most trusted and secure form of e-signature that also meets the European Union's highest level of regulatory approval. We also continue to grow and expand the HelloSign API business, In fact, we found that HelloSign API users have higher than average retention, expansion, and customer satisfaction scores as they prioritize building clear, clean, and unified workflows for their users. HelloSign continues to be one of the fastest growing areas of our company, and we plan to continue making investments to further our capabilities, drive synergies, and increase brand awareness and user adoption. Another way that we're investing in our future is through partnerships. Expanding the breadth and depth of our partner ecosystem to cultivate and scale seamless workflow products is a big opportunity for us. I'm excited to highlight that Dropbox was featured in the new Zoom app marketplace with our Spaces app for Zoom. While in the early stages, the app is a new surface that links Zoom and Dropbox, and we expect it will provide an exciting new entry point for our joint users over time. Beyond the specific example, we believe that we can work effectively across many different ecosystems to create a comprehensive experience that captures a wide range of workflows beyond just files. And finally, I'd like to touch on Transfer, one of our more successful organic products. We continue to see hundreds of thousands of transfers sent every week across our user base. And while it's early innings, we're excited for its potential. Transfer is a good example of our ongoing efforts to cultivate and scale new products and also experiment with various pricing and packaging options to fit specific user needs at different price points. Our investments in DocSun and HelloSign, new products, and our ecosystem partnerships show how we're building on our core platform to deliver even more value to our users. By expanding into adjacent categories and markets, we're investing in the future of Dropbox and positioning ourselves as a go-to solution for distributed workflow products. And finally, we remain focused on our third strategy of driving operational excellence, by improving the efficiency, reliability, and security of our overall technical infrastructure while being thoughtful and disciplined in all of our investment decisions. For example, our infrastructure team continues to be innovative in helping us drive gross margin improvements. Dropbox continues to be at the forefront of leading-edge infrastructure technology. Our team has made significant progress in adopting SMR, or Shingled Magnetic Recording, which allows us to increase our storage density and overall storage capacity without impacting our footprint. SMR drives now account for over 80% of our storage server capacity, and we're also increasing our efficiency by moving our data centers to lower cost locations. We are also proud to share this week that all of our data center storage server power is now covered by 100% renewable electricity. As a reminder, last year we announced our commitment to fight global warming and reduce our carbon footprint as part of our sustainability goals for 2030, and we've been making good progress. In the last year and a half, we've reduced our data center carbon footprint by 15%, and we're maintaining a power usage effectiveness that is nearly 20% better than the industry average. Overall, our team is innovating on a highly complex tech stack, and their hard work is resulting in lower energy consumption and tangible cost savings, as demonstrated by our strong gross margins in Q2. As you can see by our record profitability metrics in the second quarter, we're firmly committed to executing against our long-term financial goals. And as we look to the second half of this year, we'll remain disciplined in ensuring that we're thoughtfully reinvesting back into the business to fund our most strategic priorities to set us up for long-term success. And with that, I'll now turn it over to Tim to walk through our financial results.