Dropbox (DBX) 9 May 242024 Q1 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Q1 2024 Dropbox Earnings Conference Call. [Operator Instructions]. 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. ahead. go Please

afternoon, Earnings Good to First Dropbox's Thank and XXXX Call. Quarter you. welcome

get to year demand as Before our I'd second long-term started, we like for forecast will and including our forward-looking objectives guidance and remarks and remind include statements, financial such fiscal our quarter expectations, our today our that you free as well as XXXX and revenue the our employees, flow regarding in products, growth, profitability, technology, expectations cash regarding business, environment. our expectations operating assets, strategies, margin and macroeconomic our users,

today's of report could to statements actual are also filed and Factors events. accordance release to These differ as undertake as results set release subject in GAAP earnings risks that accounting new are forth risks are on and with non-GAAP generally forward-looking financial result quarterly our to is based to and of cause materially They information uncertainties materially. or obligation our that discuss on and the at these actual we them in no cause with future website not measures, results differ reconciliation in which provided accepted our prepared today, statements and of from A are and could our XX-Q assumptions in earnings results SEC. update also Form principles. investors.dropbox.com. on non-GAAP We'll a

CEO, Drew I'll now Drew? turn over the Houston. call and Co-Founder Dropboxs' to

good and Peter, Welcome our call. Thanks, everyone. conference to XXXX QX afternoon, earnings

then review details financial update remainder Officer. expectations. recent year. for and an our of of QX is line our today business will results for I'll Chief quarter Tim the and first highlights, outlook with me the Regan, was provide our Revenue and the Financial in Joining our the of product overview Tim

work representative have return our still to see. the to rate more opportunity of FSS that's business a to do growth we we core However,

efforts and about delivered profitability in to continue better-than-anticipated achieve and share manage work in a As carefully I'll our have to those we quarter. our on to initiatives expenses more the that, teams moment, pleased we're

challenging returned with note, On in a additions XX,XXX another the after quarter, sequential positive to quarter. paying net growth fourth new users

encouraged are while of our we're our facing growth, continue we FSS in and to business, quarter an Form still environment. challenges macroeconomic Workflow paid better to demand performance but return user Swift, uncertain across the by and core DocSend. our individual across anticipated than group see We offerings Teams this and Within comprised saw a we self-serve Document Sign pressure

core Teams. this share now offering FSS our with specifics point Team's business, Improving focal more starting on us I'll our a is year. for

and that starts top channel users. to experience. plan workflow rates the including expected higher-priced Team's the are made trying mobile these produce team plans using We're we feature active QX, to with and changes the late net admin weekly paying These for QX, QX process, indicators products, are pleased tests and our solid and didn't license negatively focused convert increases. trial to our improving of usage, on trial onboarding as experiments that implemented users.And step us up in starts, metrics, particular next led an the expansion. for higher and ended of mentioned plans call, in invitations results. posting individual our retain year-over-year potential funnel Team top new and on emphasis our In for the we all customers during funnel that positive last improvement on SKUs our for individual is impacting we and new reducing revenue friction retention In the in Our opportunity sharing we streamlining

recovered, Mobile we've our of the we channel Over go-to-market can on motion the of plans. while yet recent our improve in confident for some And mobile our work our efficiency seen individual fully continued further acquisition improvement we're of the forward. course funnel, going channel QX, top we and hasn't

Moving on to a quick update on Bundles.

reduced as customers As the to we we of at adding higher additional a Sign, multiproduct saw new a the noted or challenges. as multiproduct call, created These limited functionality offer On to across and we include these value and such price and introductory while top-of-funnel for plans, Dropbox Replay. higher reminder, earnings as DocSend our conversion also capabilities point, reflecting introduction to rates were bundled we SKUs the ARPU are SKUs plans. well that products adoption we last FSS seeing demand improved

Based our pricing elected SKUs introduced. to counteract back product on the well in plans sensitivity We'll to drive included product the of for our with iterate these as underlying experience. We're on coming that to our currently towards prelaunch to Customer levels a the bundled development. customer customers, features we to the prices, in share we price have these we'll late our input to progress the feedback roll response assessing reduced lineup and critical bundles as more offerings continue quarters. QX, while an intuitive these here work into the optimize also to learnings, and of our potential is

secure this devices, Protection secure users our even feedback 'XXs work complete Our full offering locations is platforms. Key different and across release To to and designed encryption over released Advanced their users collection help easier updates we control our it Management for content, of make features, new data a how including FSS end-to-end to Data April and their Advanced users Dropbox their we secured. share our acting great is organize as example release product teams of the on

XXXX. stems of this we purchase our The And as our of seeing Dropbox. from customers acquisition capability were BoxCryptor encryption separately end-to-end in functionality from this kernel late

protection users are and distributed take want content [ that capability within who end for our from can administrators, users teams. more efficiently our purchasing additional ] help Now sharing across influencers both advantage decisions. and this also our We consistently they their natively hear users group Dropbox, their key providing and of organizing

users integrations Dropbox XXX. example, sought files to copies. simultaneously without our Teams we're announce the now be Microsoft conflicting off the confident they within editing, users across working With real-time they're save ways can applications. Office Microsoft improve why collaboration version. That's Dropbox with on have real-time edit can desktop and Microsoft excited to For natively Co-Authoring latest

We also launched to within Integration, from the users giving ability query a Microsoft Dropbox Copilot directly files Microsoft their Teams.

release, can within over each the users Since tool. XX% large DocSend permissions, video verification platform videos type review securely with and is And video-based our as Data link middle April average rich control also positioned multiple teams our and content NDAs. solution opportunity. with Replay's featured active Tools who full-featured To new while the to easy-to-use to files Users built-in are attractively and able an their integration, important X.X group viewing on With single launch review across complete Avid been files, for users the growing now Our better Replay, of Pro visitor Advanced easily billion with share files a with an to maintaining uploaded on Dropbox release Rooms. the projects, Dropbox approval directly Avid media replay now which support in solution, address we've virtual have data continued now priced application. general quarter-over-quarter. especially deal DocSend flow year. is market work even fastest-growing quickly projects with invest is room Sharing of further, in

we on I'll in and that cloud gears product quarter, organize utility our update shared progress now AI input were we our Last shift virality beta an the and all and the maximizing help search been product and your making Dash, focusing stand-alone learning of and significant Dash QX. that we've from collecting on content. share universal users to leverages machine of prioritizing

the seen daily success and for in we've and average We're search For increases conducting example, XX%. double-digit sessions existing latency new user search feedback has near we've valuable. percent users, been by over reduced and recently

we key also hurdles. and market with market address growing universal user our and features distribution We're eager opportunity fit, achieve we're for As to search. align base, this working leverage Dashs' on onboarding stronger reducing platform's product user cloud-based to better needs

development now we seen this allowed And and rates to app Safari success as and prioritized in connections. for improvements early we've while result, Chrome, a For example, faster, move for eliminated unnecessary on, friction onboarding gap. and We've Dash users. we create us this Firefox

trends engagement right the in moving are as Early direction XX%. well, over up

enables file most more closing, integrations had get to Our to and and newly shortcuts smart, also Page are to each workplace users tools a we're widely XXXX. of we collections recent In work cloud good quarter, projects Start view start for any the shareable Dash adding content. In with redesigned apps. their stacks which used kind or

AI-enabled for enhancing product our delivered against our we business challenges, in product our investing next-generation without users not the FSS while experience core objectives While experiences. of key

operations, the remaining Given map capital macro working XXXX Dropboxers remainder like on of in enlightened landscape, to to our committed for uncertainty and road their a delivering our seeking of way stay and for our more in of ongoing disciplined I'm continued I'd efficiencies allocation. we'll judicious all the the thank excited focus about our for customers.

of the turn expectations over the to Tim as financial Tim? the I'll share of recap that, our a well remainder our quarter call with And for as performance to first year.

$XXX for the Thank Total provide results QX, ahead slightly million, with for X.X% end outlook. year XXXX of QX high on and you, year-over-year, guidance Drew. our thoughts some offer from for full guidance updated highlights of to financial I'll Starting increased range. quarter. cover our QX revenue the our our first

year-over-year. constant for million new foreign We to exchange a year-over-year basis and ARR point quarter XX,XXX $X.XXX to users, impact billion, year-over-year. sequential Total a basis. with a a rates users approximately sequentially a tailwind total the on we revenue minimal the net of adding up million and On had on growth X.X% XX.XX basis, XX X.X% $XX As added grew constant paying rate. X.X% currency exited currency amounting expected, a quarter,

paying user Average per revenue was $XXX.XX.

with continue I expenses. certain note that are mentioned unless intangibles all P&L, would we and of and compensation, amortization further figures to stock-based indicated, otherwise statement non-GAAP purchased exclude of like acquisition-related our income Before discussion

also the continue first effect the income Our that, non-GAAP includes quarter net With tax the adjustments. of income let's P&L. aforementioned with

Gross the XX.X% for margin quarter. was

change of in is impact years first benefit $XX previously, this the our primary quarters towards ahead margin increase ago the to this year. period. $XXX The approximately basis million approximately in useful year, weighted This guidance of from were year to increase subsequent the we was points XXX the XX.X%, to X change the this X as the across portion be year-over-year. expect half delayed and the full X% spending gross substantial driver quarter. of As roughly mentioned of behind margin January in of Much roughly will Operating effective was margin was of year. year-over-year where this efforts. of of from servers our timing X in we A first gross resulted life up of certain this year of XX% delayed $XX of and better-than-anticipated projects related million. be spend our results marketing Operating expenses million, allocated benefit down

for XXX XXXX. million million, on $XXX for diluted income up per quarter average was first $X.XX diluted compares weighted and outstanding. the Diluted weighted first Net shares This based XXX outstanding to quarter EPS the shares share XX% million QX $X.XX was year-over-year. average for

cash ended cash cash our balance short-term the quarter to and on Moving billion. $X.X with investments We flow. of and

XXXX. million our was ago totaled quarter also cash in expenditures in $XXX resulted period. $XXX finance equipment. flow the XX% the of to cash data million of million an the This million, operations $XXX free of for year $XX quarter million. in added QX from First versus center quarter, increase we quarterly leases compared flow $X In to Capital

While revenue. from approximate lease to this continue X% to we QX, full figure finance additions total down represents a anticipate material year step XXXX of addition in

As $XXX to in over we shares. repurchase related million. share our million repurchased Spending just QX, program, XX

repurchase the As $X.X the billion we current under authorization. our had quarter, of first of approximately remaining end

has not our to form a time, like portion are reducing committed changed. over our to of returning share free share second now structured Our provide remain share in quarter repurchases more of thinking to with cash I the intention to shares shareholders flow grid and at behind of philosophy that We count on the share guidance. significant repurchases points. this guidance, on will updated the year related where XXbX-X our price context to full lower I'd XXXX some buy also

million quarter of expect second the in $XXX the million. be XXXX, $XXX For range of revenue to to we

FX expect from impact a this million $X quarter. We positive roughly

We to be approximately XX%. expect margin operating non-GAAP

range the based we outstanding million weighted to shares of trailing diluted on in Finally, XX-day expect million XXX our be average share average to price. XXX shares

$X.XXX are $X.XXX For to guidance the our for billion. full in range of to the year, we reported maintaining previous revenue be

$X.XXX billings at thus, billion is not Our and constant this $X.XXX guidance also in to FX on currency a billion to QX. immediate revenue rates the have effect than on range FX impact in more revenue worsening is revenue unchanged despite significant. year Changes

gross the margin be with to As we prior XX% in to expect guidance, range XX.X%. of

margin, of XX% For the to million expect land between increase non-GAAP for guidance income to our representing $XX XX.X% and the of operating an operating prior year, midpoint. of up full now we XX% at from XX.X%

our that the expect half remainder by we outperformance year. mentioned in incur was delayed As roughly driven over spend of of previously, to the QX

Our expectation is million. $XXX for $XXX to cash free at unchanged flow million

expenditures, We to X% finance our million full the lease unchanged outlook of continue additions revenue million to for for is $XX at year. and expect in capital $XX approximately

represents on This to our be a of Finally, guidance of in of the XX-day we previous million the each to XXX million range end XX XXX share based shares million million to reduction average when outstanding expect of shares our our price. range million compared shares trailing for shares. XXX XXX diluted weighted to average

I'll context have our the today. degree visibility a now thinking share high behind what into of Consistent reflects historical some our with guidance. we guidance on approach, additional our

state our are for of the Share the a guidance status of the given core the within SMB macroeconomic initiatives challenging environment, maintaining space, as number particularly a for the revenue as progress & our Dash. of As we well result, and FileSync business and our work year

to the revenue. this a Sign represents our churn. recent low we with monitoring impact could which incremental business not single-digit also while revenue, incident are We lead customer anticipate security of our our material do to percentage total And a

quarter still Regarding paying quarter the last macroeconomic remind security any our well. our in churn That recent we said, should key for performance still second incremental users, comments experienced due everyone product. our environment, as we user growth year, and want large that our event We Team the or expect adding quarterly project could apply. offered churn, in Dropbox paying we experience Sign full users to changes to with the vary

as to our related points are our margin, on basis As we outlook non-GAAP operating remain raising with disciplined focused we spend. by XX being

maintaining are for guidance flow the our We free year. cash

rates where increasing maintaining and income FX guidance, are driving have guidance improvement also roughly While operating on saw we margin worsen we our immediate by deterioration we quarter, on this movements billings cash. are revenue a operating being is our FX during the impact and FX. more past Therefore, offset in

count we on to In with expansion related revenue range reducing seek reflect business as conclusion, count we of share we and Finally, are operating expected Signature increased to pace focus to growth, share our in drive our count, our our core repurchases accordance to File reduction. efficiently grid. our margin share continue as XXbX-X

a to have continue we new new experiences in large customers. invest to opportunity that Concurrently, AI-enabled and existing serve

please value believe making will dimensions, and that, are culminate With line these across shareholders. We progress operator, creating these that long-term in efforts open questions. our for for the

Enders will [Operator of Citi. our Steve come question And from first Instructions]

feedback on, products there out start that guess, now seeing feedback the to you're the how of the just so guess, what is in -- of I out monetization early it's Dash those of guess you're from some is how kind maybe AI I live. maybe -- I was products? the what guess and And opportunity I maybe this changing viewing far? the potential

Thanks Sure. question. the for

feedback, early I'd the say themes. a few So

in through is for and we is and I with them I I leadership to do is them. and -- thing users mean the thing -- yes, talk virtually the stuff look week Virtually think the scattered and prospects universal walk interview is feel and are I all Dash So customers leadership a we everywhere. like, the tabs product. them the And this team my content my I'm first every first -- first problem. Walk this that validated sit drowning -- the quite

good that's So good, validation.

overlap with important. Second is which validation as far the as is FSS,

be we then your encouraging. just we it's your and we that from cloud feedback a this that the fit higher natural to And of Signature to Dash adopt organizing is was finish that rates. improve organizing the So users files product case. the as experience. and File continuing find is And to evolution hypothesis on believe our in all to Dropbox would the see the numbers paying retain go really But mean I at the stuff. of think part

and last the in the So [ success, indicators performance quarter, rate, retention beta kind success, from these some cut onboarding that that are half. characteristics the we different of to of We've watching improving. success, ] In connector on And GA. engagement we been QX, points latency improving look in percentage success for March tens thing is front. of onboarding search search

it's -- work we're of signal. lot to some by do, pretty we're There's So early a still encouraged the early. still but of

but context like that on The Okay. Great. side. a funnel, versus potential on top on you've give are you've packaging helpful maybe I improvement what and guess, last a maybe so to tweaks shoots little little more I bit seen where maybe the you've far? guess the exactly And made green of that can historically of what bit And quarter, sounds changed? it tweaked coming it's from you detail

Yes.

So did mixed SKU. rev of there some of context, we lessons our QX, first that a we've yes, results, bundled and in for unpacked. had kind so And we first

there, and to is that it So we of also positive seeing that. we that just side, And are was we was negative of sensitivity -- due price lot at the down different created -- the having ARPU extra more other due all these secondly, partly and been price some the did macro the the products But or -- promoting to friction I things that then environment -- all or to expected were in a on helping a trying went up. -- price saw found seeing already multiproduct introduce conversions was them price funnel out sensitivity points, top some go higher some one, or already once, folks so of we've the there higher up mean, attach not what onboarding.

declined the around onboarding success of some indicators So slightly.

of But a lot I at we broadly, changed variables think more once.

And changes a been more we're validating of these one time fashion. thing considered so of in layering or one basically them sort we've kind back and a at on and stepping

are relatively what billion optimizing opportunities going careful is all Dash. I lesson think here Dash, are variables like focused like Dash many our really with with at $X your just another saying big to stuff. organizing to is cloud being scale on not once really I I change the was things forward here, So from that on opportunities similar And that a files, on is lesson. evolution organizing all your there we're Teams too more business mean

but So we over that biggest of we actually want -- the who hear over didn't still among customers, gap customers and it's we File awareness from is a Dropbox, we still Sync more have know share. our more and true do they happy lot again that and than

So finding that or the kind a front we're of close ways on promotional gap. lot doing to

then have with I'd But opportunity. but versus are. say workflow on the and transformative still way focused we're the the other the opportunity and the Dash some between big of in incremental portfolio FSS the more some of relatively returns, which with that longer-term aren't still FSS things And products, some a bundling, document bundling -- bigger

UBS. Hilliker will question next Rich our coming from of And be

overall wanted right the just now. environment demand I on hit to

macro think don't the overall that's new, on You but hinted SMB. hinted than anything more at and I you just called maybe

I can about with wondering some you're the the in your how that I'm relative shared things control impacting SMBs? you health is of SMB guess curious, us the health working And much So if of to the hearing you have on? are from top funnel and of maybe the that SMB perspective, what of I'm

Sure.

of I prior what what So can we're or the SMBs extensions know I there's is all a lot just trends sizes don't in in we're economic a environment. we've seeing world kind of are there I the how is much the think seeing change seeing something. with But cost-sensitive in pretty also real price-sensitive, to we're -- of of after don't mean environment. macro seeing I been state been today in with SMBs -- more folks similar the think trends customers difficult are any that to extrapolate downturn of more I like or a the

funnel, when And -- just where at sign so of through experience, there's the a the as out want you impact sign that look of to onboarding success. metrics on of watch -- when at when we're we but -- look There's also the offsetting of up lot opportunities Dropbox. see does SMB friction we go of our we of When that mechanics how new we to trial up out we that experience. on top taking customers that it, some conversion take -- we watch and a of referred

upside mean So our it your we certain get get easier are we set properly there more that areas people just content represent when from in of benchmarks. in pretty people than sound metrics some experience set through to lose properly versus in just making pretty Because things certain these I peer look up. Dropbox, at necessary. friction up. is big basic, of some are sort but gaps There the getting people --

was our but change of a lot I guidance, all experience. that out, in there still macro reflected the in As And wouldn't that's opportunities see trends. as say we nets far the how improve much to

Yes, just add briefly to on.

really layoffs And tech in their pressure in budget or reflected And following cuts. this verticals. as we or teams as was this Drew are and know, space we're seeing to Teams, as the you do counts the particularly we downsell as Team's environment. manufacturing license pronounced So trim in continue our demand a see to plans SMB challenging our related mentioning, see most of

it. Got

quarter. on I is kind of we things follow-up, all you still leverage awareness does Drew, [ issue. Dropbox the that line an Okay. hit this My ] guess, on [indiscernible] ] sir. of [ the But S&M

of So more marketing from line? is, my efficiency I instead and question R&D sales not guess the why

Yes.

is in of lot there things making other we're the of of drives percent our across on compared investments revenue in spend portfolio, a into because Dash. mean there we're efficiency. sales that, like in OpEx product sales business efficiency to a both terms companies. product marketing, our like about. but in lot R&D. mean of your scalable, point the mindful as activities, to of really There product-led that automate excited really of what infrastructure, R&D we're go to we're using AI, portfolio our and I as shows kind that certainly that of saying making we're that's of our is motion and and And which a I the up are then then core or investments a lot It whole marketing the investments lot around are of a we're really those in growth So in light line. but

impact, small these across mean improvements returns we some and both. because such large to sales a to even or metrics lot in we -- investments opposed more a we having audience But of I So acquisition we're R&D have paid see more optimize side -- big teams funnel of having a bigger as marketing. to the like just and have

our And of Matt question be America. of will from Bank Bullock next coming

the Mike to Great hear Funk. of better performance Workflow Document the for on about business. I'm

And what if first to it's going there. think we've trends think that? time the the while is onward in positive I trajectory drove Curious you go that through forward a XXXX? heard

positive I as peak business after founders picture to something or fundraising or with DocSend wouldn't good is then back But from back pulling pulling bigger the all areas, was it in much but expectations. line in impacted. Workflow I at of and DocSend a COVID coming in our so -- agree, was their it's mega fundraising in seems more anything. say this challenged and more see Sure. environment. look a in like stability capital Yes. Document then like you huge a is surprise there particular That like broadly venture

So overall, it's more see there. stability good to

see biggest bigger to But the So and business just Teams there's I'd in we Dropbox picture, still say future upside saying the I optimizations incremental as Dash. with like directions earlier, was our opportunity.

FormSwift top Tim. an One out specific quarter, of activity and in we funnel real to tax increase season. and call usage Matt, see did that's first is And due where the maybe FormSwift quick, both this to in in

to So increase an numbers. subscriber that leads in

Bundling then the about the changes, like curious [ And helpful. and there's Family Just I how It one ARPU Really with a moving emphasization modeling lot on of think 'XX? remainder if ] the we more, could. throughout side Plan should seems pieces pricing of

Sure.

So are a ARPU, But the parts, by for you year, we there in of plans. our lot premium as of a largely adoption moving lift mentioned. the driven modest expect full

next coming question JMP. [Operator Instructions] be Our Walravens will Patrick from of Citizens

public Andrew, little can . business I take -- the years help question -- place ago, picture bit. basically We up ask was X a a this in XX. you here? help Which just is you is we really big it take same public at The stock

of votes. XX% the control You

it's the in end, up you. really So to

it radical just value? to more So to shareholder Dropbox changes I'm time And be? consider what in is could those wondering, changes drive

about investing what I'm we're in. think excited I Well, really

Dash. beta. with So that's in product a lot a it's of what I I still shared mean

talked some really about worker done Dropbox experience the we've in X a for or of or turned in yet. and We all company knowledge lot reposition to We it the even the even a think investments room lot the towards AI content. the and R&D improvement of there's haven't even year in And world. on fully I your last cloud in

might that file fundamentally your explorer changed work I stuff today. laptop think think we Macintosh. bunch lot your finder since We're and of be with it introduced what screen, in open about your since and the better, I can stuff, XXXX, -- it get than you XXXX or or all first your when does a in of like like hasn't lot a when was side one it look have do on a experience we window the really your experience

at other of knowledge knowledge we even our like open And front work. of And you. the small on this like show do like information And the without a are most text. with to your screen, yet, Chrome that manage work got too you've to tabs important pretty hard side in is browser how it's window XXX

crazy. find So I -- of am huge like used on with, A lot not to e-mailing in This tabs solving got be later, myself still years of the problem see I things one What dealing drive. ways crazy. a we're files? reason on excited -- is started anyone. without to way have was I'm because a good this "why kind do can't changed. better I'm very browser. of lot I for like where I your unlike This opportunity the that at here there's XXX am this?" from carrying everyone desktop, mayhem beginning, to XXX your thumb I in my same is the And Why the like it. a But is is XX I'm stuff a now I solutions is be files everywhere. is with There's

So really change me we the what gets how really people way in beginning. opportunity work, to is excited the the did

no to And things so about. excited shortage be there's of

I'm been our company, not legs Now want flattish where be we past a X, really But a in X obviously, the over getting investments. sea years, our to about public to be. we've excited obviously, is as place

the the picture in future. -- different I think pretty will we'll look

And will of be coming Murphy from our JPMorgan. Mark next question

of Mark trillion for of This over years, Murphy. think, on immense Kolar is kind content, has repository now. I over the X this Sonak Drew, Dropbox created

resonating pull need of quantities because partnerships high kind centralized train think we And AI of the getting more market? kind the of just you scale many content content pulled how LLMs in and into to them, unpack help to into Gen can or the of opportunity is deals differentiation Dropbox' to maybe as AI how specific about repository? So this you're the

Sure. of couple Well, just mean clarifications. a I

So don't train I foundation model. mean we

at look training you what That's what and of Meta OpenAI something kind it LLaMa with or it. or a does the when basically even that's we like whole taking in really can open get case service is -- models Meta's So does Internet as on not foundation source.

privacy And beneficiaries seriously. we there's of around So sensitivities we're of sort around our take -- responsibilities then that. super also

or -- also people's complete of scale We're be if and you models benefits And so having that transparency any information control lot while super training there's to without a private that. have careful you're kind of on this to data. over of mindful

huge multimodal do models a I from being we because continue repository images build around applying experience, huge that for advantages of transcribing image need or advantage AI when to kind can Those the aspects easily. and sort like we'll the a auto on or world both to engagement big a correct train are to we've and like mean, with you a being document of a been sure like actually and people's like ML all private models, your have that similar don't the as a that other do search things there in able scan research information. content that. scale online handle [ such that we've phone to of and to -- or big or whether use of come And investments do content, with audience capabilities have find translate to and to of see we content. understanding it being fact frontier pre factor, that And automatically that's LLM able really such us better. adding capabilities text -- have lot things we AI-powered these video, it -- with in you there's doing, able a been OCR, things the on There's have your comes good Dropbox But ] as we technical from audio to around the new we big

We you, already images video able for to and of understand products. have to being your the your our that audio and being and Dropbox Dropbox better. in a organize able number

that large have margins of have of language kind our huge problems to -- a well, side, of both to technical and across the scale of inference such in-house So technical -- the base the on kinds of the to us of of bringing time. from led a lot translate our performance then lot over investments investments and And storage model are we advantages in that and that a lot that then user super board, a lot the optimize those have technical there we content.

short presenting kind you're thinking video Dropbox around about form is and where related Dash? there is shared some you Is Got you're through to a perhaps future in it. a video fact component the then maybe replay on just that content I platform. then that surge or innovations the of had of both beyond the any quick and how the And that the to long-term the That's embedding video helpful. fastest-growing opportunity of video super way the type kind AI that capabilities follow-up size

of fact there mean, or That's first, more. the things one alternatives. -- facto where de kinds media. different I that a most files we really in the can it And a audio creative popular big competing is strong has of a so is lot -- mean, photos. Sure. do we supported better mean, customers. popular and than of on create I our Dropbox with also foundation Well, that kinds much example, really that starts become differentiated but different media we're standard And And one of community. collaborate the of we Dropbox because on. can on people video kind build I

of -- able either should been experience. to and coming have Dropbox things "Hey, the just the corner? earlier little it's all all into things just way. yellow open the the video a like, X:XX be in like, observing that a and And having there. collaborative like there's of online Replay just person natural rid saying the folks should little video, to on -- just you text in as Like on have from this what hey, be video edit like, collaborate you able is these can were a come should be but or threat hey, example actually often And that text integrated that like a to review and So also I working view AI like should like balloon like collaborating saying is workflows be Dropbox then like or get you more mentioned the

all going up models to open are And these multimodal kinds of functionality like that.

it And AI much what our between So all more are all the audience making doing right, connect a -- to just up better. ways are technical new Dropbox. already opens kinds customers to then all dots on a streamlined our like experience starts see not of of can doing we experience. creative these lot that It's hard doors, make and what with is

Instructions] Our will next of question Jefferies. be [Operator coming from Brent Thill

you, This the concerns Thill. bundling could on a with in core is higher for fear talk investor Brent to sounds one of it the Maybe level, of FSS to ask, a is about like there business, you Sodha end first maybe at wanted which Drew, experience, commoditization just if Luv start from markets. a your

think do business Or that any it super how you is business years X think Just declining? growing? that growth, that, X, of still helpful. color FSS so now? would you core from Do that on be say, is And

Sure.

see we mean examples I both about I still we of at ARPU since growing been We been operating up. $X are in we and lot So competitive environment. keep or keep do But some has gave billion a to of a business hear optimizing public going we've certainly the and and we our earlier. our time, to Teams -- able more in same business, that room went at commoditization things --

We who just the too. or Dropbox a for And creative files lot about Dropbox content, customers. work business, specially need, there's fundamentals mission evergreen then files community is an the and is in right? Like of our talked see of like folks mission-critical. the So critical large as on health I

-- I new in. years still XX things They're remind then it's shortage talk so they could said, be doing that -- there's think mature to And doing customers, we and that a or -- I category, no of better. it's me but our when And right?

we're sort like working early How solving files all So and we very unsolved. are are organize about of we -- it That's all do -- problems but that content? do for you bring from back life then think is help when step your you these to that's how think machine and more like your and about the still that? real intelligence work innings, universal problem

us of years we're ago, reminiscent road the -- organizing And XX, your all really really so cloud evolution excited of about that organizing it's front in to just on right? from your me of lot is the A I'm content. to files XX Netflix

They initially, to mailing anything vision started changed me out that deliver -- stayed to delivered ready massively. the prop the press then were help they and the same, I base should of the profit lot. they to broadband or didn't way world as you as the of they throughout. they like just play watch, with service the be that, value streaming just value the -- all streaming mean, business play a want able that bootstrap a DVDs, on became obviously they I as you but and the transition eventually But changed penetration everything whole went else and seamless and kind DVD-mailing helped but -- way service made for the

are of not back lot overlap content easy there wasn't XX% that I kind either. away. that going down think that one experience. think what convergence transition for towards and to idealized a did Files kind like in lows. parallels from or And think Dash. that I us. so difference And XXx working the is building business Netflix thinking that to it's addition building is go mean, but away, in I to like mean And forget probably about exciting in an went it's But that of addition FSS in then of those after easy I DVDs more now, more are that from there's so during transition we their increased there. for from stock optimizing

need world. for there's what the to just of had lot But what do. we making work been lot volatility. make And of think back a do I again, we've from I and to the I of I'm to -- investments a and we're like that precedent out kind way excited there's think customers there's So trying our -- haven't hopefully, really their for

steps are about follow-up what Got preventing like you so quick on to that? the it. And incident. just taking how you've you And you then you prevent HelloSign churn? just churn Could steps are security -- taken And -- additional seen customers churn there? to far? how address you're additional Have a what talk

Yes. Sure.

monitoring the So in the like not Meta isolated other like all with. we it the to we first, was taking were closely proactive. very to But small to percentage an of that. We -- Sign relatively impact actual response far, something rotate so Dropbox expect it [ understand begin been then then products. but event done We've things have -- believe to line is the kind obviously, what is the passwords content -- other can are because to have. things not much. think need like and make to it things ] a we And it's relatively for be impact And to of they ongoing. revenue for to we believe or technical with isolated the do didn't the or of customers what But incident for Sign about data, pretty expected. you easy the there's Dropbox customers future. most We don't steps next. isolated. be has other customers, auto the that to customers keys And and impact remediations documents We mean, infrastructure, -- or that appreciated we our a and to number that we're -- want from very that do it's I in the isolated you prevent is

more no in are questions queue. there And

Turning back to Peter.

Have speaking today, much, everyone, look joining for to and great we you with quarter. forward Thanks very next a us day.

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