Dropbox, Inc.

Good day and thank you for standing by. Welcome to the Q1 2024 Dropbox Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Peter Stabler, head of investor relations. Please go ahead.

Thank you. Good afternoon and welcome to Dropbox's first quarter 2024 earnings call. Before we get started, I'd like to remind you that our remarks today will include forward-looking statements such as our financial guidance and expectations. including our long-term objectives and forecast for our second quarter and fiscal year 2024, and our expectations regarding our revenue growth, profitability, operating margin, and free cash flow, as well as our expectations regarding our business, assets, products, strategies, technology, employees, users, demand, and the macroeconomic environment. These statements are subject to risks and uncertainties that could cause actual results to differ materially. They're also based on assumptions as of today, and we undertake no obligation to update them as a result of new information or future events. Factors and risks that could cause our actual results to differ materially from these forward-looking statements are set forth in today's earnings release and in our quarterly report on Form 10-Q filed with the SEC. We'll also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of GAAP and non-GAAP results is provided in our earnings release and on our website at investors.dropbox.com. I'll now turn the call over to Dropbox's co-founder and CEO, Drew Houston. Drew?

Thanks, Peter, and good afternoon, everyone. Welcome to our Q1 2024 earnings conference call. Joining me today is Tim Regan, our chief financial officer. I'll first provide an overview of recent business and product highlights, and then Tim will review the details of our Q1 financial results and update our outlook for the remainder of the year. Revenue for the quarter was in line with our expectations. However, we still have work to do to return our core SSS business to a growth rate that's more representative of the opportunity we see. As our teams work on initiatives to achieve that, and I'll share more about those efforts in a moment, we continue to manage our expenses carefully, and we're pleased to have delivered better than anticipated profitability in the quarter. On another positive note, after a challenging fourth quarter, paying users returned to sequential growth with 35,000 net new additions in the quarter. We're encouraged by this return to paid user growth, but we're still facing macroeconomic challenges and an uncertain demand environment. Within our core FSS business, we continue to see pressure across our self-serve individual and teams offerings, while in the quarter we saw better than anticipated performance across our document workflow group comprised of FormSwift, Sign, and DocSend. I'll now share more specifics on our core FSS business, starting with teams. Improving our teams offering is a focal point for us this year. Our teams plans feature higher net revenue retention rates and an opportunity for license expansion. In Q1, we focused on reducing friction in the onboarding process, improving the team admin workflow, and streamlining the sharing experience. We're pleased that the changes we made led to solid top-of-funnel improvement during Q1, with trial starts, team invitations, and weekly active usage all posting year-over-year increases. These are positive indicators that customers are trying and using our products, and the next step is for us to convert and retain these potential new paying users. And as we mentioned on our last call, late in Q4, we implemented tests and experiments for individual plans that didn't produce the expected results. In particular, our emphasis on higher price skews in our mobile channel ended up negatively impacting our top of funnel metrics, including trial starts for new individual plan users. Over the course of Q1, we continued our work on our go-to-market motion for our individual plans. And while our mobile channel hasn't yet fully recovered, we've seen some recent improvement in top of funnel, and we're confident we can further improve the efficiency of the mobile acquisition channel going forward. Moving on to a quick update on bundles. As a reminder, we created bundled SKUs to offer multi-product capabilities to new customers at a higher price point, reflecting the additional value we were adding to the plans. These SKUs include FSS, as well as limited or introductory functionality across products such as Dropbox Sign, Docsend, and Replay. On our last earnings call, we noted that while we saw improved ARPU and higher multi-product adoption rates with the introduction of these plans, we're also seeing reduced top of funnel demand and conversion challenges. Based on our learnings, in late Q1, we elected to roll back the pricing of our bundled SKUs to pre-launch levels to counteract the potential price sensitivity that these plans introduced. We're currently accepting the customer response to these reduced prices while we also work to optimize the features included with these bundles as well as the underlying product experience. We'll continue to iterate and drive towards an intuitive lineup of offerings for our customers. And we'll have more to share on our progress here in the coming quarters. Customer feedback is a critical input into our product development. Our April 24th release is a great example of our teams acting on this feedback as we release a collection of product updates designed to make it even easier for Dropbox users to secure, organize, and share their work across different devices, locations, and platforms. To help our users secure their content, we released new advanced data protection features, including advanced key management and full end-to-end encryption, offering our FSS users complete control over how their data is secured. The kernel of this end-to-end encryption capability stems from our acquisition of Boxcryptor in late 2022, as we were seeing our customers purchase this functionality separately from Dropbox. Now our users can take advantage of this capability natively within Dropbox, providing additional protection for both our end users and their administrators who are key influencers in purchasing group decisions. We also consistently hear from our users that they want more help organizing and sharing their content efficiently across distributed teams. For example, our users have sought ways to improve collaboration across Microsoft applications. That's why we were excited to announce real-time co-authoring integrations with Microsoft 365. Dropbox Teams users can now edit Microsoft Office files on the desktop simultaneously and save natively within Dropbox without conflicting copies. With real-time editing, they can be confident they're working off the latest version. We also launched a Microsoft Copilot integration, giving users the ability to query their Dropbox files directly from within Microsoft Teams. Our April release also featured the launch of DocSend Advanced Data Rooms. Users are now able to securely share multiple files with a single link while maintaining complete control of viewing with group permissions, visitor verification, and built-in NDAs. With an easy-to-use virtual data room solution, DocSend is now even better positioned as an attractively priced, full-featured solution to address the middle market deal flow opportunities. Sharing quickly and easily across teams is especially important for projects with large video files, which is the fastest growing content type on the Dropbox platform, with over 1.5 billion videos uploaded each year. To support video-based projects, we've continued to invest in Dropbox Replay, our rich media review and approval tool. Since Replay's general release, active users have been growing on average 15% quarter over quarter, And further, with our new integration, replay users who work in Avid Pro Tools can now review files directly within their Avid application. I'll now shift gears and share an update on Dash, our standalone universal search product that leverages AI and machine learning to help organize all of your cloud content. Last quarter, we shared that we were prioritizing collecting input from our beta users and focusing on maximizing the utility and virality of the Dash product, and we've been making significant progress in Q1. For example, we've recently seen double-digit percent increases in search success for existing and new users, and we've reduced average search latency by over 50%. We're conducting near daily user sessions, and the feedback has been valuable. As we've better aligned Dash's key features with user needs and achieved stronger product market fit, we're eager to leverage our platform's user base and distribution to address this growing market opportunity for cloud-based universal search. We're also working on reducing onboarding hurdles. For example, early on, we prioritized Dash development for Chrome. And while this allowed us to move faster, we created unnecessary friction for Safari and Firefox users. We've now eliminated this gap. And as a result, we've seen improvements in onboarding success rates and app connections. Early engagement trends are moving in the right direction as well, up over 70%. Our newly redesigned Dash Start page also enables users to get shortcuts to their recent work projects and view stacks. which are smart, shareable collections for any kind of cloud or file content. And each quarter, we're adding more integrations with the most widely used workplace tools and apps. In closing, we had a good start to 2024. While not without challenges, we delivered against our key business objectives of enhancing the product experience for our core FSS users while investing in our next generation AI-enabled product experiences. Given the ongoing uncertainty in the macro landscape, we'll stay disciplined in our operations, seeking efficiencies, and remaining committed to judicious capital allocation. I'm excited about our roadmap for the remainder of 2024, and I'd like to thank all of our Dropboxers for their continued focus on delivering a more enlightened way of working for our customers. And with that, I'll turn the call over to Tim to share a recap of our first quarter financial performance, as well as our expectations for the remainder of the year.