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Good day, and thank you for standing by. Welcome to the Q1 2026 Dropbox Earnings Conference Call. [Operator Instructions]

Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Sarah Schubach, Chief Accounting Officer and Head of Investor Relations.

Good afternoon, and welcome to Dropbox's First Quarter 2026 Earnings Call. As a reminder, we will discuss non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors.dropbox.com.

We will also make forward-looking statements on this call, including statements about our future outlook for our second quarter and fiscal year 2026 as well as our expectations regarding our business, assets, strategies and the macroeconomic environment.

Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our most recent report on Form 10-K and forthcoming report on Form 10-Q.

Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements, except as required by law.

I will now turn the call over to Dropbox's CEO and Co-Founder, Drew Houston.

Thanks, Sarah, and good afternoon, everyone. Welcome to our Q1 2026 earnings call. Joining me today is Ross Tennenbaum, our Chief Financial Officer. I'll start with our business and product highlights from the quarter, and then Ross will review our Q1 financial results and our outlook.

Let's get started. We delivered a strong start to the year, exceeding the high end of our guidance across revenue and operating margin with year-over-year revenue growth of 2%, excluding FormSwift, and unlevered free cash flow margin of 38%. On our Q4 call, I said that our goal in the core business is not just to maintain it, but to bend the curve back towards sustainable growth.

I continue to be very impressed by Ashraf Alkarmi, who we hired in 2024 to lead our entire core business. Ashraf is an outstanding leader who's built a strong and talented bench. And together, they've been rapidly improving the core business to drive sustainable growth.

Last quarter, we saw steady growth across our individuals business as a result of the core team's consistent execution and their focused strategy alongside funnel and product quality improvements to stabilize the Teams business with the ultimate goal of positive net license growth.

Now we're encouraged by our Q1 performance as we continue to build on that momentum. With that, I'll turn to the key drivers within the core business. Within individuals, retention remains an important near-term revenue lever.

And in Q1, we continue to focus on targeted retention interventions, including improvements to prompts for mobile users, loss aversion messaging and targeted price promotions for recently canceled customers. And given the growth of mobile as a purchasing channel, we were encouraged to see that these efforts drove our mobile churn rate down mid-single-digit percentage points.

We also made progress monetizing basic users through targeted promotions for additional storage, driving a 50% improvement in conversion among those targeted users nearing or exceeding their storage limits. For Teams, one of the clear signals we're seeing is that practical funnel improvements can drive meaningful results.

In Q1, that included continued progress on pricing and packaging simplification, a more unified checkout experience, credit card trials and onboarding and activation improvements. We also continue to make foundational improvements to the core FSS experience. We strengthened the reliability, performance and scalability of sync and uploads.

We made the experience simpler and more intuitive across desktop, web and mobile, and we're testing new media collaboration tools with streamlined review workflows, leveraging our AI-powered tools.

Taken together, these results reinforce our view that there are still meaningful levers inside the core business to steadily improve its long-term trajectory and that the changes we're making are starting to show up more clearly in our results.

Now on to Dash. Dash in Dropbox represents our evolution from file storage to AI-powered content management. We're bringing together customers' content from across Dropbox and other major cloud apps into a single content-forward experience, making it easier to find, organize and share work wherever it lives. With semantic search, AI-powered organization and Stacks for curation and sharing, Dash extends Dropbox from a file system into a system for all your cloud content.

This direction offers a more seamless product experience and upgrade path with Dash for our existing base rather than a separate surface for customers to adjust to or learn about. In Q1, we expanded the rollout of Dash in Dropbox and plan to significantly expand access to our base throughout the remainder of 2026.

And while adoption is still early, we're encouraged by repeat engagement with Dash's AI features with more than 30% of weekly engaged users using those features again the following week and more than 50% of monthly engaged users using them again in the following month. And we're seeing stable retention patterns even as we expand beyond our initial target customers and we onboard new cohorts.

Dash inside Dropbox will increasingly be our primary vehicle for scaling AI across Dropbox. As we've shared previously, we've also been evolving our stand-alone experience for customers who don't use Dropbox today. And that work has helped us refine our onboarding and activation and new features, unlocking future greenfield growth opportunities.

Dash is differentiated by its ability to bring together deep business context across work content and cloud apps paired with core AI capabilities like search and chat. To support this, we've built what we call our context engine, which is our proprietary AI infrastructure that gathers context across all your contents and apps and connects it to leading AI models to enable faster, more accurate and more useful results.

As we've expanded access, we're seeing the strongest momentum when these capabilities are integrated directly into the core Dropbox experience. As a result, we're prioritizing bringing Dash learnings and AI features into existing Dropbox surfaces. This approach improves the customer experience while also increasing focus and efficiency across our teams.

We're also increasingly excited by the signal we're seeing in our emerging data security solution, which we call Dropbox Protect. As AI adoption grows, so does concern around governance, visibility and control, and we're seeing that demand resonate clearly with IT and security buyers. That's why Protect fits naturally into our broader platform story. The same indexing and context engine we're building to improve search and knowledge work can also improve security posture and governance.

In other words, our platform investment supports both productivity and protection. And over time, that has the potential to expand our addressable market and strengthen the return on the broader platform work we're already doing as we seek to position Dropbox as a leading provider that can help customers find, organize, share and protect their content in one place.

To wrap up, Q1 was an encouraging step in our effort to bend the curve and core. The changes we've made are beginning to translate to our financial results. And in Dash and Protect, we're continuing to see healthy customer signal and learnings to reinforce our conviction in the opportunity ahead.

With that, I'll turn it over to Ross.

Thank you, Drew. Q1 was a strong quarter with important proof points for the thesis I laid out on my first earnings call. Last quarter, I told you that what ultimately drew me to Dropbox was the strength of the foundation and my belief in our growth opportunities.

While our North Star is to grow free cash flow per share, restoring revenue growth remains our top priority in the near term. I point to the caliber of our new core leadership team, led by Ashraf Alkarmi and the untapped potential I saw across Core, Dash and our broader capital allocation strategy.

This quarter, we saw tangible evidence that those opportunities are real. Excluding FormSwift, revenue grew 200 basis points year-over-year. We also expanded our paying user base, maintained bottom line discipline and improved cash flow generation.

Now turning to the core business. As we have been discussing, our work in core is centered on driving sustainable growth. Those efforts include a range of initiatives to improve customer life cycle metrics while also evolving the product to deliver more value to both new and existing customers. We saw additional proof points of that work in Q1.

As Drew noted, we saw encouraging strength in both retention and conversion across the business. In individuals, targeted retention interventions and monetization efforts delivered improvement, while in Teams, pricing and packaging, checkout and onboarding changes continue to improve funnel performance. Excluding FormSwift, core trends improved year-over-year and paying users increased sequentially.

Taken together, these results further increase our confidence that we are stabilizing core and moving toward a position of sustainable growth. We also expanded the cohort of customers using Dash in Dropbox and continue to see encouraging engagement from those users, even though overall exposure remains limited today.

We are continuing to bring Dash and Core Dropbox features together into a more AI-forward product experience that we believe will create meaningful additional value for customers over time. We remain focused on a phased rollout of Dash in Dropbox across our Teams customer base throughout 2026.

To recap, the foundation I described last quarter is proving durable and the growth opportunities I identified, while still early, are beginning to materialize. That's exactly the trajectory I came here to help build. With that context, let me turn to our financial results. Unless otherwise indicated, all income statement figures mentioned are non-GAAP and exclude stock-based compensation, amortization of purchased intangibles, certain acquisition-related expenses, workforce reduction expenses and net losses on equity investments.

Our non-GAAP net income also includes the income tax effect of the aforementioned adjustments. In Q1, revenue increased 80 basis points year-over-year to $629 million, but increased 200 basis points year-over-year when excluding FormSwift, which acted as a 120 basis point headwind to revenue growth.

Constant currency revenue declined 80 basis points year-over-year to $620 million, but was up 40 basis points year-over-year, excluding the headwind from FormSwift. Relative to our guidance, revenue outperformance was driven primarily by retention improvements across our self-serve SKUs.

Total ARR was $2.56 billion, up 30 basis points year-over-year. Excluding the impact of FormSwift, which was a 100 basis point headwind, ARR was up 130 basis points year-over-year. Total ARR, excluding FormSwift, was roughly flat on a constant currency basis.

We exited the quarter with 18.09 million paying users, a sequential increase of approximately 14,000 paying users versus our prior commentary to expect a Q1 decline in paying users, we exceeded our expectations, primarily due to retention strength throughout the quarter as well as individuals gross adds outperformance.

Average revenue per paying user was $141.18 as compared to $139.68 in the prior quarter. ARPU increased sequentially primarily due to seasonal promotions on our individuals plan in Q4, which slightly depressed ARPU last quarter as well as a larger mix of monthly plans and FX rate tailwinds.

Gross margin was 81.1% for the quarter, down 180 basis points from the year ago period, reflecting increased infrastructure costs associated with the expansion of Dash in Dropbox as well as higher depreciation as a result of our hardware refresh cycle.

Operating margin was 40.1%, ahead of our guidance of 38% and down roughly 160 basis points from the year ago period. Operating margin decreased year-over-year, largely due to the gross margin dynamics I just described as well as continued investment in R&D to support both Core and Dash initiatives.

Compared to our guidance, operating margin benefited primarily from timing-related savings that we expect to be pushed to subsequent quarters as well as higher revenue and lower services spend. Net income for the first quarter was $180 million.

Diluted EPS for the first quarter was $0.76 based on 237 million diluted weighted average shares outstanding compared to $0.70 in the year ago quarter. Cash flow from operations was $205 million, an increase of 33% versus the year ago period. Unlevered free cash flow was $236 million or $1 per share, up 69% year-over-year.

This quarter also included $33 million of interest payments, net of the associated tax benefit related to amounts drawn under our term loan facility as well as $1 million in capital expenditures. The year-over-year increase in cash flow primarily reflects stronger operating performance and the absence of certain onetime cash outflows, including a $36 million payment for the buyout of our San Francisco lease and $10 million in payments related to our Q4 2024 reduction in force. In the quarter, we added $12 million to our finance leases for data center equipment.

Turning to the balance sheet. We ended the quarter with cash and short-term investments of $1.29 billion. In the first quarter, we repurchased approximately 14.3 million shares, spending approximately $367 million. As of the end of the first quarter, we had approximately $800 million remaining under our existing share repurchase authorization.

In Q1, we also drew down $700 million in the quarter to repay our March 2026 convertible notes. I'll now offer our outlook for Q2 and our updated outlook for the full year 2026. For the second quarter of 2026, we expect total revenue to be in the range of $624 million to $627 million. Excluding FormSwift, this implies 80 basis points of year-over-year growth at the midpoint.

We are expecting a currency tailwind of approximately $9 million. On a constant currency revenue basis, we expect total revenue to be in the range of $615 million to $618 million. We expect our non-GAAP operating margin to be approximately 38.5%, and we expect diluted weighted average shares outstanding to be in the range of 226 million to 231 million shares based on our 30-day trailing average share price.

For the full year 2026, we are raising our total revenue guidance by $12 million from a prior range of $2.485 billion to $2.5 billion to a revised range of $2.497 billion to $2.512 billion. Excluding FormSwift, this implies roughly flat growth year-over-year at the midpoint.

We are expecting a currency tailwind of approximately $27 million. On a constant currency revenue basis, we expect revenue to be in the range of $2.47 billion to $2.485 billion. We continue to expect gross margin to be in the range of 81.5% to 82%. We are raising our non-GAAP operating margin by 50 basis points from 39% to 39.5% to be in a new range of 39.5% to 40%.

We are also raising our unlevered free cash flow guidance, which we now expect to be at or above $1.055 billion. We continue to expect CapEx to be in the range of $20 million to $25 million and additions to finance lease lines to be approximately 4% of revenue.

Finally, we expect diluted weighted average shares outstanding to be in the range of 222 million to 227 million shares. I will now provide supplemental information as it relates to guidance. With respect to revenue, we are raising our full year revenue guidance to reflect the progress we saw in Q1. While still early, targeted retention work in individuals, along with funnel, onboarding and pricing and packaging improvements in Teams are beginning to translate into results, which gives us greater confidence in our ability to continue building on that momentum over the balance of the year.

Last quarter, we said we expected modestly negative paying user growth in Q1, followed by roughly flat paying user trends for the remainder of the year. We were pleased to see better-than-expected performance in Q1 with paying users increasing sequentially in the quarter, driven by continued progress across the initiatives I mentioned previously.

As a result, we now expect paying user trends for the full year to be modestly better than our prior year and to be slightly positive overall. For ARPU, we expect modest sequential declines throughout the rest of the year, driven by the wind down of FormSwift, lower FX tailwinds and the growth of our Simple plan, which carries a lower price. Our gross margin outlook continues to assume modest pressure this year as we scale Dash in Dropbox and expand across more of our Teams base, partially offset by ongoing infrastructure efficiencies.

While we remain confident in the long-term margin profile of these investments, the near-term cost impact will depend in part on the pace of rollout, customer adoption and the timing of optimization work. As a result, we expect some quarter-to-quarter variability in gross margin as we work through those dynamics.

We're increasing our operating margin and unlevered free cash flow guidance relative to our prior guidance as a result of Q1 performance and expected performance in the remainder of the year.

Notably, as we prioritize the Dash in Dropbox experience, we expect that bringing Dash and Dropbox closer together will create additional efficiencies as we progress throughout the year. Lastly, we expect our weighted average shares outstanding to decrease to approximately 222 million to 227 million shares, which continues to assume we exhaust the remaining balance on our share repurchase authorization. With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from Steven Enders with Citi.

This is [ Palak ] for Steven Enders. Congratulations on the great results. I think my first question is about Dash adoption. And just trying to understand how much of Dash adoption is happening within the Core versus is there a meaningful stand-alone Dash-driven customer base at this point?

Sure. Thanks for the question. So we're targeting both existing and new users with Dash, where we're investing a lot is deeply integrating Dash into the core Dropbox experience, and that's also where we're seeing that's certainly where we have our home field advantage and our 18 million subscribers and so on. So -- and there's a lot of integration work to make that seamless.

So we've seen good progress in terms of Dash within Dropbox in terms of engagement and repeat use and a lot of the signals we're looking at there, and we're continuing to roll out these integrations to a larger percentage of our Teams space. And then we're also -- we also see Dash as a way to expand to folks who aren't using Dropbox today. So you don't even need files in Dropbox.

Dash will integrate with your Google Docs and your Slack and your Salesforce, basically all of the different apps that you're using. So we do see it as a growth lever. But in the near term, the most rapid way to drive distribution is going to be with our existing base.

Perfect. That's very helpful. And the next question is on the guide, and there's like a pretty solid raise on the guide and increase in paying users. And I know a lot of it comes from the advancements within core and simplifying the product. But just trying to understand, does this account for any improvement coming specifically from Dash? Or is that not a part of the assumption?

Yes, this is Ross. I think we were pleased, number one, in Q1 that we were able to exceed our expectations on net new paying users. And as you said, we did revise upward our guide to say that we're going to modestly grow net new paying users for the year.

And that's mostly driven by individuals and teams. So individuals, including the simplified plan, Teams has exceeded our performance as well. So that's mostly driven by Core and not a lot of inclusion of Dash right now as we continue to prioritize rolling out Dash in Dropbox and focus on increasing engagement there.

[Operator Instructions] Our next question comes from Matt Bullock with Bank of America.

Jacob Gideon on for Matt Bullock. Could you help us think about the evolution of Dash in terms of like the pricing and packaging? And then like how we should think about Dash as positioned against other ecosystems like, for example, Microsoft Copilot?

Sure. So first, we see Dash as -- for our existing users, it's a natural extension of the value that we're already providing to our customers. And so -- and particularly with when you integrate Dash into the core Dropbox experience, some of the benefits include being able to talk to your Dropbox in natural language and a lot of Dropbox customers, as you'd imagine, they work with a file.

So these are often creative folks or in marketing or media companies or architecture or construction. So Dropbox's support for all those kinds of content is a big advantage versus a lot of the other AI tools, which tend to be more tech-centric against something like Microsoft Copilot or an AI integrations within any one ecosystem.

Dash is platform agnostic, similar to Dropbox itself. So that we -- it's designed to integrate with the whole universe of every ecosystem and every different platform, which is a big advantage because otherwise, you'll tend to see some siloing or your Microsoft will tend to support the Microsoft ecosystem really well, but we'll have relatively less coverage in the Google ecosystem or in other ecosystems, whereas Dash, again, similar to Dropbox supports everything by design.

We do see that our focus on content is an advantage. So -- and that dovetails naturally with our base. And so the ability within Dropbox to have multimodal semantic search is really valuable. So if you do a search for a red sunset with Dash and Dropbox, we'll be able to actually search the content of all the media into Dropbox so that it will -- whereas you used to have like red sunset in the file name to get search results, now we can -- any picture that has or any photo or image that has a red sunset in it, if someone says red sunset in a video, we transcribe the video under the hood, we index the transcripts, things like that.

So we are going deeper on workflows around finding, organizing, sharing, protecting content, which is what people use Dropbox to begin with. And so we see that as a natural advantage for us and source of differentiation in addition to being platform agnostic.

I would now like to turn the call back over to Sarah Schubach for any closing remarks.

Thanks, everyone, for joining us today. We're looking forward to speaking with you next quarter. Have a great rest of your day.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Thank you for standing by, and welcome to the Dropbox Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Peter Stabler, Head of Investor Relations. Please go ahead, sir.

Good afternoon, and welcome to Dropbox' Fourth Quarter 2025 Earnings Call. As a reminder, we will discuss non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors.dropbox.com.

We will also make forward-looking statements on this call. including statements about our future outlook for our first quarter and fiscal year 2026 as well as our expectations regarding our business, assets, strategies and the macroeconomic environment. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings including our most recent and forthcoming reports on Form 10-K. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements, except as required by law.

I will now turn the call over to Dropbox's CEO and Co-Founder, Drew Houston.

Thanks, Peter, and good afternoon, everyone. Welcome to our Q4 2025 earnings call. Joining me today is Ross Tennenbaum, our Chief Financial Officer who joined Dropbox in December. I'll start with a recap of the quarter and how we closed out 2025, and then I'll talk about how we're thinking about the business and our priorities going forward. Ross will then walk through our financial results and outlook.

We closed out 2025 on a strong note. Fourth quarter revenue came in above the high end of our guidance and excluding the impact of our Form so wind down, constant currency revenue was flat for the quarter and the full year, which is a better-than-expected outcome. We also made meaningful progress on efficiency. Margin performance in Q4 exceeded our expectations, and we generated over $1 billion of unlevered free cash flow. At the same time, through our share repurchase program, we produced diluted share count by more than 50 million shares in 2025.

Taken together, Q4 was a good reflection of what we're working to do consistently, which is execute well, deliver against our plans and steadily improve the underlying trajectory of the business. And in 2025, our priorities were focused on strengthening our core business, and scaling Dash in pursuit of returning to revenue growth. We're still executing on these objectives, but now have proof points that these changes are starting to work.

Coming into last year, our Core FSS business had strong fundamentals of scale, but execution velocity, product experience and our go-to-market motion had not kept pace with customer expectations. So in late 2024 and early '25, we did a leadership reset in Core FSS bringing in a new general manager and rebuilding key leadership across product, engineering and go to market. Since then, we've made significant improvements in how decisions get made, how we prioritize customers and how we deliver value. And we're beginning to see positive signals.

The team first focused on improving funnel quality, pricing and packaging, product fundamentals and retention drivers. As a result, the individuals business saw steady growth across 2025. That matters because it demonstrates that the core product can still respond to focused innovation and better retention and growth are achievable with the right execution. And so our objective for 2026 is to maintain our momentum with the individuals business and return teams to positive net license growth. Work already underway includes simplified pricing and packaging, higher intent trials, reduced onboarding and admin friction and a sharper focus on retention.

Some early tests in Q4 showed some promising signs, including improved team's trial conversion rates and higher first week engagement, and we began rolling these changes out more broadly in Q1. But in short, we're not simply maintaining our Core FSS business. Our goal is to be in the curve. In 2025, we delivered proof points and 2026 is about stealing momentum.

Our next focus area is what we call Dash and Dropbox, which represents the most important evolution of the Core FSS experience in years. Dash and Dropbox provides an AI intelligence layer directly inside our customers' everyday workflows with minimal setup and immediate relevance. In Q4, we launched [indiscernible] Dash capabilities inside our teams plans, including semantic search, chat and stacks organization and sharing, and we're rolling it out in phases to eligible Dropbox teams customers. We're seeing solid early engagement among the initial Dash and Dropbox cohorts.

In Q4, over half of these active users returned multiple days per week, which is evidence that Dash is providing value and becoming a part of user workflows. And based on these results, we've begun scaling up our rollout to additional customer cohorts. Dash and Dropbox increases the value of Core FSS, it should further improve retention dynamics and serves as a natural on-ramp to broader gas adoption. This is the most credible and immediate way that AI creates value for Dropbox FSS customers today.

Now turning to our plans to scale the Dash stand-alone opportunity. And while it's true that we've introduced different iterations of Dash experience over the last 2 years, the sequencing of our rollout was intentional to ensure we build and scale the business and products thoughtfully. First, we focused our investment on building a best-in-class Dash product experience, including investments in its underlying infrastructure and performance, then we focused on launching 2 growth motions for Dash, the sales led motion that launched in late '24 and the self-serve version that launched in Q4 of last year.

Now we're focused on engagement and adoption before we focus on monetization. The good news is we're seeing positive early signals of demand. At the same time, we're cleared that onboarding friction, time to value and the experience around connecting your apps need to improve. So in the first half of '26, we're focused on improving the new areas or experience to demonstrate connector value from First touch. We're investing in stacks as a sharing driven growth engine, and we're compressing the time between sign up and first value in your Dash experience.

Next, historically, Dropbox has been primarily a product-led growth company. And we have a sales-led motion today, but it needs a meaningful improvement given our broader product portfolio. In December, we hired Eric Webster as our new Chief Business Officer. His mandate is to evolve and improve our existing sales led motion into 1 capable of selling multiple products with the right funnel, process and enablement. That includes Core FSS, Dash, both stand-alone and bundled protect and control, DocSend and other emerging products. Protect and control is showing particular promise.

As every company works to roll out AI tool safely, admins are controlling critical security challenges with overshared content and improper use of consumer AI tools. We're in a unique position to help these customers. By complementing our Dash offering with Protective Control, we can both index customer data and use the underlying context engine to power capabilities that prevent authorized sharing and access beyond our secure perimeter. Capitalizing on this emerging demand, we closed a 6-figure international deal for Dash's protect and control features in Q4. And we expect ProtectiveControl to play an important role across our portfolio in years to come as AI data security emerges as both a stand-alone opportunity and an AI adoption enabler.

Stepping back, here's how all this comes together. Our core FSS business is stabilizing and showing credible path back to growth. Dash is both a force multiplier for core and a stand-alone AI opportunity, while sales growth and AI data security expand our addressable market. Together, these vectors give us multiple paths to drive modest but meaningful growth and enough to shift the narrative to durability and progress.

So in closing, 2025 laid the foundation. Now 2026 is about execution, scaling of working, improving consistency. We're realistic about the work ahead, but confident in the direction the team and the opportunity in front of us. Lastly, I'd like to acknowledge the many contributions of Tim Regan, our departing CFO, and thank him for making Ross' transition a smooth one.

So with that, I'll turn over the call to Ross to walk through our fourth quarter results and our outlook.

Thanks, Drew, and good afternoon, everyone. As many of you know, this is my first earnings call as CFO of Dropbox. Before I walk through our financial results and outlook, I wanted to share a brief perspective on how I think about the business and the opportunity ahead.

What I'm about to share reflects my observations for my first couple of months in the role. It's not a new operating framework, and it doesn't represent a change in how we guide the business. But I believe it's useful context as you assess Dropbox's long-term value creation potential. What initially attracted me to Dropbox was the strength of the foundation. This is a company with a strong global brand and a large and loyal customer base of roughly 18 million paying users and 575,000 paying business teams and products that are deeply embedded in everyday workflows for both individuals and teams.

That foundation is clearly reflected in the financial profile. A $2.5 billion revenue business with operating margins around 40%, approximately $1 billion of annual unlevered free cash flow and a 21% 3-year CAGR for unlevered free cash flow per share. That combination of scale, profitability and cash generation has proven to be durable and resilient over time. Our North Star is to grow free cash flow per share over time through a judicious capital allocation strategy. As CFO, my goal is to prioritize investments in the business where we see attractive returns, initiatives that drive sustainable revenue growth in March. At this time, restoring revenue growth is our top priority. When our shares trade at compelling valuations, repurchasing stock remains a disciplined and efficient use of capital, reducing share count under those conditions increases free cash flow per share and enhances long-term shareholder returns.

What ultimately drew me to Dropbox was the opportunity to grow free cash flow itself, not just optimize the denominator by growing revenue and improving margins. Let me start with our current investment priorities, growth. Naturally, since onboarding, I have been most focused on our initiatives to restore growth. While many discussions regard Dash, our opportunities to restore growth in our Core FSS business are also exciting. We recognize FSS operates in a mature and competitive market, and we're realistic about that backdrop.

At the same time, over the past year, we've taken meaningful steps to strengthen the organization and evolve the product. In late 2024, we brought in new leadership to lead the core business for our experienced operators from large-scale tech companies. I've been genuinely impressed by both the caliber of talent we've been able to attract and the pace at which they're working to evolve the business across products, pricing, packaging and go-to-market motions. Last year, we focused on simplifying and strengthening our core business, which drove improvements in monetization of retention. That work continues. At the same time, the team has been integrating Dash AI capabilities into FSS allowing customers to derive more value from the content they already store in Dropbox. From my perspective, this represents the most significant innovation to the Core FSS offering in a long time.

Looking at the top of the funnel. One of the biggest surprises to me earlier on was the magnitude of gross new ARR that Core FSS still generates each year. Today, much of that is offset by churn, but by delivering more value through innovation like Dash and Dropbox, improved pricing and packaging and better end-to-end customer life cycle workflows and I believe there is a real opportunity to improve retention and grow net new ARR over time.

Now turning to Dash. I see Dash is a genuinely valuable product and use it regularly in my day-to-day work. More importantly, nearly all Dropbox employees are weekly active users, and we're seeing strong engagement from active users in our early customer trials. We have an impressive engineering team rapidly innovating on an ambitious road map. At a minimum, I see Dash is a highly impactful evolution of our Core FSS offering and believe in addition to all our other efforts, it will help attract new customers, drive upsell and reduce churn. More optimistically, we will also drive adoption and later monetization of Dash as a stand-alone product. Regardless, anywhere along the spectrum, I see meaningful value creation potential for Dash, and our AI product strategy.

The third growth lever I'll touch on briefly is M&A. I don't view M&A as a silver bullet, and I know firsthand that not every transaction delivers as expected. But I also know that disciplined strategic acquisitions can meaningfully expand the product portfolio and contribute incremental ARR over time. Any acquisition we consider must be a high bar for strategic fit and financial return. Over time, I see M&A as a lever that can accelerate product road maps, deepen our relevance with customers and complement the organic growth initiatives already underway. Taken together, Core FSS, Dash and M&A, these were the growth vectors I evaluated when deciding to join Dropbox. And after a couple of months inside the company, I see opportunity for each.

Let me turn now to margins. The second driver of free cash flow growth is margin expansion. Should we someday decide to curtail our growth pursuits, I believe this business has the capacity to operate at margins meaningfully above current levels. That said, given the growth opportunities in front of us, we believe it's prudent to maintain our current investment levels to pursue growth. At the same time, I do believe that over time, we can be more aggressive on cost discipline. We see the potential for additional margin upside driven by scale, continued cost discipline and productivity improvements. AI, in particular, offers great potential to automate many manual people-intensive processes across all functions, not just engineering your customer support.

We believe that when employed these initiatives will drive significant productivity gains. In addition, we continue to look for opportunities to operate more efficiently through better tooling and geographic mix. shifting more work to lower-cost regions. Taken together, we believe these efforts can generate savings, which we can elect to drive margin or reinvest in growth initiatives. To be clear, these are observations for my first couple of months. There's real work ahead to translate them into execution.

So stepping back, this is how I see Dropbox today, a strong brand with a durable financial profile, significant free cash flow generation and multiple avenues for long-term value creation. And as I look at how the business is trending, we're making progress towards returning to growth while optimizing for efficiency. In that context, I see meaningful optionality in the business that I believe is underappreciated by the market, reinforcing share repurchases as an important part of our strategy.

With that, let me turn to our fourth quarter financial results and our outlook going forward. In Q4, revenue declined 110 basis points year-over-year to $636 million, but increased 40 basis points year-over-year when excluding Form Swift, which act as a 150 basis point headwind to revenue. Constant currency revenue declined 160 basis points year-over-year to $633 million, while it was roughly flat year-over-year, excluding the 150 basis point headwind from Form Swift.

Relative to our guidance, revenue outperformance was driven primarily by retention improvements across our self-serve SKUs. Total ARR was $2.526 billion, down 190 basis points year-over-year. And excluding the impact of Form Swift, which was a 160 basis point headwind and ARR was down 30 basis points year-over-year. Total ARR declined 170 basis points on a constant currency basis. We exited the quarter with 18.08 million paying users, a sequential increase of approximately 10,000 paying users. The quarter's paying user growth was primarily driven by momentum in our simple plan. Average revenue per paying user was $139.6 and as compared to $139.07 in the prior quarter. ARPU increased sequentially primarily due to FX tailwinds as well as an overall mix shift from annual to monthly plans.

Before we continue with further discussion of our P&L, I would like to note that unless otherwise indicated, all income statement figures mentioned are non-GAAP and exclude stock-based compensation amortization of purchased intangibles, certain acquisition-related expenses, net gains and losses on real estate assets, workforce reduction expenses and net losses on equity investments. Our non-GAAP income also includes the income tax effect of the aforementioned adjustments.

Gross margin was 80.8% for the quarter, down 230 basis points from the year ago period reflecting higher depreciation associated with our hardware refresh and ongoing data center build-outs as well as increased infrastructure costs associated with the expansion of Dash trials. Operating margin was 38.2%, ahead of our guidance of 37% and up roughly 130 basis points from the year ago period. Operating margin increased year-over-year largely due to lower head count following our RIF in 2024 and elimination of marketing support for Formswift. Compared to our guidance, operating margin benefited primarily from revenue outperformance as well as lower outside services and marketing spend.

Net income for the fourth quarter was $174 million. Diluted EPS for the fourth quarter was $0.68 based on 254 million diluted weighted average shares outstanding compared to $0.73 in the year ago quarter. The decrease was largely due to higher interest expense.

Moving on to our cash flow and balance sheet. Cash flow from operations was $235 million, an increase of 10% versus the year ago period primarily due to payments related to our reduction in force in Q4 '24. Q4 '25 also included $26 million of interest payments net of the associated tax benefit related to amounts drawn under our term loan facility. Unlevered free cash flow was $251 million or $0.99 per share, up 44% year-over-year. Capital expenditures were $11 million in the quarter, primarily related to data center build-outs. In the quarter, we also added $34 million to our finance leases for data center equipment marking the end of elevated spend for our hardware refresh cycle.

And now I'll provide a brief update on our real estate strategy as we continue to actively pursue subleases across our real estate portfolio. Last month, we executed a sublease of all remaining available square footage in our current San Francisco headquarters, including the portion of the space we were occupying over a 3-year term. We also executed an extension and expansion of an existing sublease. As a result of these 2 subleases, we expect to generate approximately $97 million in total future cash payments over the remaining term of our lease through 2033, net of the cost to lease a smaller San Francisco headquarters, given we will vacate our current headquarters.

From a cash perspective, the 2026 impact is immaterial due to lease structure and investments we plan to make later this year in our new San Francisco headquarters. From a P&L standpoint, we expect a modest benefit in 2026. The impact of both of these new agreements have been factored into the guidance we'll provide today. As we move beyond 2026, both the cash flow and earnings benefits become more meaningful as the sublease income builds.

Turning to the balance sheet. We ended the quarter with cash and short-term investments of $1.04 billion. In the fourth quarter, we repurchased approximately 14 million shares, spending approximately $415 million. As of the end of the fourth quarter, we had approximately $1.17 billion remaining under our existing share repurchase authorization and $1.2 billion of additional term loan liquidity was $700 million allocated to retire our March 2026 convertible notes.

I'll now offer our outlook for Q1 and the full year 2026. For the first quarter of 2026, we expect revenue to be in the range of $618 million to $621 million. Excluding Form Swift, this implies a 0.4% growth year-over-year at the midpoint. We are expecting a currency tailwind of approximately $8 million. On a constant currency revenue basis, we expect revenue to be in the range of $610 million to $613 million. We expect our non-GAAP operating margin to be approximately 38%. Finally, we expect diluted weighted average shares outstanding to be in the range of 241 million to 246 million shares based on our 30-day trailing average share price.

For the full year 2026, we expect revenue to be in the range of $2.485 billion to $2.5 billion. Excluding Form Swift, this implies roughly flat growth year-over-year at the midpoint. We are expecting a currency tailwind of approximately $27 million. On a constant currency revenue basis, we expect revenue to be in the range of $2.458 billion to $2.473 billion. Gross margin to be in the range of 81.5% to 82%, and non-GAAP operating margin to a range of 39% to 39.5%. We expect unlevered free cash flow to be at or above $1.040 billion. We expect cash interest expense net of tax benefits of approximately $190 million. We expect CapEx to be in the range of $20 million to $25 million in addition to finance lease lines to be approximately 4% of revenue. Finally, we expect diluted weighted average shares outstanding to be in the range of $227 million to 232 million shares.

I'll now share some additional perspective on this guidance for 2026. Excluding FormSwift, we are guiding to a flat revenue year in 2026, while continuing to invest. That reflects a disciplined approach as we validate execution, refined go-to-market motions and ensure that improvements translate to measurable results. Our guidance reflects that balance. We see long-term opportunity but we are pairing that conviction with near-term prudence.

Regarding revenue, following the elimination of marketing support for FormSwift at the beginning of last year, the business has experienced gradual user decline each quarter and will continue to be a modest headwind this year. Further, we have made the decision to sunset forms it by the end of the year. For paying users, last year, we offered directional commentary because of strategic decisions we made, including the wind down of the FormSwift business. Looking ahead to 2026 we expect modestly negative net new paying users in Q1, largely due to seasonality and FormSwift headwinds with roughly flat paying user growth for the remainder of the year.

On gross margin, we expect modest pressure this year as we scale Dash trials, partially offset by ongoing structural infrastructure improvements. For operating margins, as we mentioned last quarter, we do not expect this to be a year of margin expansion. We remain confident in our ability to execute and believe it is prudent to invest in near-term growth opportunities. Our margin outlook reflects material investment in Dash as we expand trials across both new customers and a larger segment of our FSS user base. We expect these investments to be partially offset by ongoing cost discipline and efficiency initiatives.

Regarding finance leases, this quarter marks the end of elevated spend for our latest hardware refresh cycle and as a result, we expect materially lower infrastructure investment this year with finance lease activity more heavily weighted toward the second half. As a reminder, we typically refresh our infrastructure every 5 years.

Regarding CapEx, we expect a slight increase in CapEx as a result of a onetime incremental investment related to the build-out of our new San Francisco headquarters. Excluding that investment, CapEx will be down year-over-year as we have completed our hardware refresh cycle. Our unlevered free cash flow guidance reflects a benefit this year from lower cash taxes related to the One Big Beautiful Bill Act, along with the absence of onetime cash outflows we had in 2025 related to the San Francisco lease buyout and reduction in force.

Our interest expense outlook assumes we draw the remaining balance on our term loans, 1 strong total outstanding term loan debt will equal $2.7 billion. Lastly, we expect our weighted average shares outstanding to decrease to approximately 227 million to 232 million shares, which assumes we exhaust the remaining balance on our share repurchase authorization.

With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Mark Murphy from JPMorgan.

This is Jaiden Patel on for Mark Murphy. It was great working with you, Tim, and welcome, Ross. You've talked about Dash for a few quarters now with goal and pipeline building. Can you give us any quantitative framework around Dash attach rates or ARR contribution at this point? And then looking forward to the guide, again, we've heard some of these strong proof points and very much understand that the focus is first on adoption, but would love to hear any assumptions you're baking into the guide. .

Sure. I can start. And well, I'll start just like the conceptual framework. I mean we start by focusing on product quality and building the capabilities of the infrastructure. to index the known universe of SaaS apps and build a private search index and all the other things that go into building a product like Dash. But then we focus on engagements and make sure onboarding is good and that there's repeat use, then we scale it up to our user base and focus on driving adoption and then monetization. .

So we'll be able to share more specific metrics and targets and so on as we continue on that progression. I'd say where we are right now, as I shared in my remarks earlier, is that we spent a lot of last year really building that experience and focusing on product quality and building those integrations, the AI integrations natively into the Dropbox experience. and also building the self-serve version of Dash, which we need to reach our self-serve Dropbox FSS customers and beyond. And then now we're focused on -- and we've seen a good early signal there. So good repeat use of the integrations within Dropbox, lots of -- where we're focusing on tuning up the onboarding experience and then now we're turning towards driving adoption in the first half by scaling up the integrations to more of our Dropbox business customers, so the Dash integrations and then rolling out the dashed products more broadly in the first half. And then the second half will start to phase in more around monetization.

So probably second half would be a better time to share more of the specifics around attach rates and ARR contribution and things like that.

I just wanted to add, I agree with everything Drew said. We are excited for what we're doing around the core business and our ability to do things that drive us to a growth posture as well as for what we can do with Dash. And we are focused very much on engagement adoption this year and to your guidance question, we leverage all information we have in front of us. And just given the size of the core business, you can assume that, that has the most weighting on influence on how we think about our guidance for the year.

Our next question comes from the line of Rishi Jaluria from RBC.

Wonderful. Maybe to start with, I want to continue pulling on the thread of Dash. Look, I'm in total agreement that you have to drive utilization and ultimately, customer value before we can really worry about monetization in a big way. And you've given us bits and pieces over the years. But maybe what sort of metrics can you give us around engagement with Dash, whether that's anything like people spending more time in Dash percentage of paying business users using it even like what impact does this have on gross retention. Any sort of mentions you can give us around like engagement and adoption and feedback around Dash would be helpful. And then I've got a quick follow-up. .

Rishi, it's Ross. I'll start here. I just -- I know coming on, I'm looking at how all this has played out, and I know we've been talking about Dash for a while, and we've been very focused on investing in building the product, which I think is a great product that gives me a lot of value. I think that what we're focused on now is like just remember, we launched this in Q4 to the Dash and Dropbox solution into our core. We think that, that is a tremendous evolution of our core product set. It drives a lot of value for our users. We launched it to a small number of users, and we've seen some really good results from that in terms of those core users adopting and using Dash and returning to continue to use Dash week over week. And those results exceeded our expectations and has given us the confidence to go forward and accelerate our rollout of Dash to more of our users in this year.

So I think we're seeing some nice results on that side. And again, I think that Dash is a significant enhancement of our core product line and something that we can use to drive value for our users. And then on the self-serve side, and Drew talked about this in his prepared remarks, we've seen some good results in top of funnel in our Q4 launch. There is work that we need to do to just showcase time to value faster for these customers, and we're working on that. But overall, I think we're pleased with where we are with adoption. It's allowing us to accelerate that rollout to our core business. And as we see more adoption and get into monetization phase, we will talk about it more, and we'll introduce metrics as appropriate to help you track it better.

All right. No, that's really helpful. And then maybe just continuing on Dash, but I want to think about a broader kind of more medium-term strategy. Drew, I know the idea of having kind of this connectivity of knowledge and content has been -- I think you've been focused on for a very long time. and Dash totally fits in with that. Maybe what is the longer-term opportunity for you to not only leverage kind of this idea of universal search and knowledge attainment, but even get that a little bit more workflow integrated and turn Dash into maybe being more of a platform where more power users have the ability to actually build content-specific agents on top of Dropbox that can automate a lot of that workflow and actually get a lot of work done given kind of the content you have system of record. Maybe how are you thinking about your opportunity and investments there?

Sure. I think it's a great question and something we're very focused on. So we talked a lot about building Dash itself, but I think in a lot of ways, what we've really been building and why this investment has been over many years instead of a couple of quarters is because we're building -- or we've built a completely new generation of technical infrastructure that we internally call our context engine. And so what that is, is shifting the value we're providing at the platform level from basically like really scaled and cost-effective storage to building this context layer for AI that index is the known universe of SaaS applications, builds kind of a private search engine and then connects basically formats all of that content in a way that a language model or an agent can work with it. .

And we've -- and to your question, like, well, are we going to shift from sort of informational use cases like search or chat to helping people get the work done you're starting to see us do that across the portfolio beyond Dash. And we'll do it within a 2, but just to give a couple of examples, part of what really resonates with customers with the Dash integrations in the Dropbox is for the first time, they can talk to their Dropbox in natural language and it kind of blows their mine. So if they want to find a photo of a red sunset, it doesn't have to be called Red sunset.jpg anymore. If someone says red Sunset and a video that search can find it. And increasingly, we'll be shifting on all of our surfaces from kind of informational queries like that to actually automating workflows and helping you get stuff done.

Security is another example that I talked about. So every company is trying to figure out how do we roll out AI safely and confront a lot of new issues. The first is overshared content. So to some extent, every company has documents floating around with a broader permission set than it should. And while that's -- and customers have been talking to us about that problem for a few years. And in response, we -- that's 1 of the reasons why we bought a company called Mera last year and have been building on that sense with what we now call Protect & Control. But we find that customers are really struggling and how do we deal with the Sovershare content. And that might have been a theoretical problem a few years ago, but with enterprise search with these AI tools suddenly, employees can literally just ask for sensitive or bad stuff and find all of it making it a lot more dangerous.

Second, as companies have CEOs or companies have encouraged AI adoption and tried to hurry that up. What they're also seeing is that something 30% or 40% of queries -- or that first employees are using consumer AI tools like ChatGPT to answer these questions or at work, and like 30% to 40% of those queries have people pacing PDFs of really sensitive customer or company IP or just sensitive material that they shouldn't be sharing and customers have no way of dealing with that. And then to your point about agents, on the 1 hand, this whole coding revolution, AgentiCoading revolution that we saw last year is really not only itself kicking in overdrive, but when you look at things like Open claw or cowork or others.

Now there's a lot of excitement about -- or can we bring this paradigm to knowledge work in general -- but what you see there is that opens up a whole new -- that kicks the security concerns and to overdrive at an even bigger level. And so these are all big opportunities for us beyond just the basics of AI search and chat. And we're trying to strike the right balance because on the one hand, we're as excited as everybody else about all the transformative things you can do with AI, as you give it more agency -- at the same time, the median -- when I talk to sort of the median Dropbox customer, their biggest pain points are like are still more basic where it's like I have 10 search boxes when I really want 1 -- or like, yes, I'm using AI, but when I use ChatGPT, it doesn't know anything about me or my company or my work.

And so there's still a lot of low-hanging fruit and just providing these kind of more basic levels of value in addition to the more workflow oriented and like workflow automation pieces on top. But this and a bit of a longer answer to sort of address the spirit of some of the prior questions, too, is that like we've really been building a new generation of infrastructure that built on top of 10-plus years of infrastructure before that, which is really tuned to storage. But as a result, when you look at our price points for Dash or other things, we're able to provide a product that really no one else has been able to provide, where it's unlike some enterprise search competitors or similar folks in the space. Typical Dropbox customer wants to adopt 1 of those things. They usually are facing a $50,000 setup fee. They have to provision their own custom cloud infrastructure to run it. It's like a 3-month pilot. It's still a lot of friction.

And so both the opportunity and the challenge we've had today is like how do we box all that up and put it in a package that anyone can just download with an app and be up and running in a few minutes. And it's really exciting that we're really close to the finish line there. And this half is when we'll really start scaling that up. So really building a next generation of technical infrastructure, lots of manifestations at the application level from better FSS to Dash to security. But I think it's an important kind of framework for how to think about these investments.

And our next question comes from the line of George Karasawa from Citi.

I'm on for Sanders. It was good to see a I think you alluded to some improvements in retention. I'd just like to double-click on -- what do you feel like drove some of those improvements and how we should think about kind of sustainability and maybe further improvements you can make going into this year?

Sure. Well, as I said in my prepared remarks, I mean, the first thing that has really driven these improvements in more fundamental ways is bringing in a new generation of scaled leadership and who have in turn really elevated each of their functions and leadership teams as well. And I think the -- what you saw in Q4 is a reflection of a lot of that work starting to pay dividends. So the improvements have been across the funnel. I think last year, you've seen us really continue to drive steady improvements in retention and just improvements across the funnel. The individual business has done well. and you've seen steady growth across 2025. And I think what -- but the bigger picture of what you see there in addition to the specific gains obtained from funnel metrics is really that we -- with the right execution and the right leadership, we can demonstrably drive sustained improvements in retention and growth.

And then turning to '26. A lot of our focus is on the team's business where we faced various downsell pressure over the last couple of years since we launched a price increase a few years ago. But there's a lot of improvements we've been making there, too. So everything from basic stuff like improving churn and down sell directly by redesigning cancellation flows and better communicating the value we're providing sort of no regrets, things like that. improvements to conversion. So the pricing -- we're investing a lot in simplifying our plans and tuning pricing and packaging, improving our trial flow. And so we've seen that paired with improving conversion rates on the way in.

On the onboarding experience of setting up a new team, reducing just a lot of, again, common sense stuff, like just taking -- sanding down all the rough edges and reducing steps and friction and getting your team up and running, that's been paying dividends. But as you imagine, one of the things we're most excited about is just building a better product experience and taking the FSS products, a new generation ahead with the integration of all these capabilities from Dash and being able to talk to your Dropbox and being able to automate a lot of the work that you're already doing there. So we see a lot of room to continue improving across the funnel and across the portfolio and its pended to see some of those proof points. become stronger in Q4.

Great. That's helpful color. I also wanted to ask about ARR in the last few quarters, we've seen revenue show good signs of stabilization seems like ARR seems to be diverting a little bit weaker, a little bit of a divergence there. Can you just talk us through the mechanics of why we might be seeing that? And how we should think about those -- the delta between those 2 metrics this year?

Yes. Sure, George, this is Ross. I'll take it. I think it's a astute observation. -- we had some Q4 positives around paying users and ARPU and revenue and ARR was a little bit lighter. I think that they should be moving in the same direction. But I would just let everybody realize that we're talking about like a slight divergence around a neutral middle line. So it's not very far off in either direction around 0. So I think ultimately, the thing -- the ARR should move in the same direction. I think in any given quarter, there are some discrepancies in particular in Q4, your ARPU and your ARPU metric has FX positives embedded where ARR is on a constant currency basis. And there's also some timing-related differences that impacts those metrics definitely. So ultimately, we're optimistic about the business and return to a growth posture and would expect that those start to move together in the future. .

And our next question comes from the line of Matt Bullock from Bank of America.

I wanted to ask about paying user growth assumptions embedded in the guide this year. It's encouraging to hear that we're targeting teams license growth this year, but -- maybe help us think about what's embedded in terms of the full year paying user guidance, how we should expect that to evolve throughout the year across individuals and teams plans and with the sun setting of FormSwift as well, that would be helpful.

Yes. Thanks, Matt. I mean -- and just to reiterate for everyone, what we said is Q4, we are very pleased with the result of having positive net new paying users. And I think that, that's because it's a net number is driven by both the improvements we put into place around retention, which we hope will continue this year. And also we're also targeting the whole customer journey and improvements for gross adds as well as upsell in addition to retention. So we're very pleased with the vote -- and as we look forward into 2026, I said earlier that we should expect some seasonality in Q1 such that net new paying users will decline in Q1. That's our expectation. .

And then for the full year, we expect it to be flat year-over-year in net new paying users, which I think compared to the last several quarters and years, is a positive result. And I think, again, that is a reflection of what Drew talked about. Really what I'm most excited about is like we've got a great team in core, and they're rapidly iterating on some really cool initiatives are intended to drive better retention and improvements across the customer journey to return the core FSS business into a growth posture, and we're excited about Dash. And so I think that's reflected in the guidance around net new paying users.

In terms of how it goes by quarter, I would just focus on -- we expect to be negative and then make it up for the rest of the year to be flat for the year. I don't want to get too specific on each quarter thereafter.

Understood. And then one quick follow-up, if I could. I wanted to ask about the potential M&A strategy. Which key areas would you potentially be evaluating opportunities to expand the product portfolio. Just trying to think through potential bolt-ons here going forward.

Sure. I can start. So I mean M&A has been a really valuable tool in our kit for scaling the company since the beginning and ranging from bringing in talent to bringing in early-stage products like things like Nera that I mentioned earlier and scaling them up to bring in established businesses like LSI or [indiscernible]. So we've had success across all 3. And we have -- and we continue to be very active in looking for opportunity -- M&A opportunities. And I think Nir is a good recent example. There have been others on the talent front where we've been able to bring in some really great AI talent folks like Mobius Labs who have really deep capabilities in multimodal understanding, so like processing, they're using AI to process large quantities and images and video and audio. I imagine, is very relevant for us.

And then looking ahead, it kind of dovetails with what I said before. We've got this really powerful -- we see the big bottleneck in AI generally as this gap between AI tooling in your company's context. We've been missing -- building that missing context layer for AI. We built on new generation of technical infrastructure to facilitate that. as the world starts turning towards more agentic capabilities or people having their own agents, then there's a lot of new opportunities for that context engine to help make those agents actually able to connect to your work context like to connect to your email and your sales force and your Dropbox and everything else, not just the local files and your computer, which is the current limitation for a lot of these things.

And then security, like securing that building a secure perimeter around your company for rolling out AI safely and agent safely, particularly in areas around content. So across both the infrastructure and the application layer, there's a lot of interesting opportunities, and we'll have more to share as the year progresses.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Peter Stabler for any further remarks.

Thanks, everyone, for joining us today. We look forward to speaking with you next quarter. Have a great afternoon. .

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Good day, and thank you for standing by. Welcome to Dropbox's Third Quarter 2025 Earnings Conference Call.

[Operator Instructions]

Please note that today's conference is being recorded.

I will now hand the conference over to your speaker host, Peter Stabler. Please go ahead.

Good afternoon, and welcome to Dropbox's Third Quarter 2025 Earnings Call. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release in our earnings presentation posted on our IR website at investors.dropbox.com.

We will also make forward-looking statements on this call, including statements about our future outlook for our fourth quarter and fiscal year 2025 as well as our expectations regarding our business, assets, strategies and the macroeconomic environment. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our most recent and forthcoming reports on Form 10-Q. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements, except as required by law.

I will now turn the call over to Dropbox's CEO and Co-Founder, Drew Houston.

Thanks, Peter, and good afternoon, everyone. Welcome to our Q3 2025 earnings call, and I'm here with Tim Regan, our CFO. I'll walk through our business and product highlights, then Tim will cover our Q3 results and our outlook for the rest of the year.

Our teams executed well this quarter. Constant currency revenue came in comfortably ahead of guidance, driven primarily by better-than-expected retention across our individual and self-serve teams plans. Non-GAAP operating margin was up meaningfully year-over-year, reflecting our focus on operational efficiency, along with some timing-related spending shifts that Tim will cover.

Now let's dive into our 2 strategic priorities, which are scaling Dash and simplifying and strengthening our Core FSS business.

We'll start with Dash. Our industry is spending trillions of dollars on AI models that can explain quantum physics but can't find your Q2 board deck. This is the problem that we're solving with Dash. Specifically, the issue with today's tools is that they don't understand your context at work. Consumer AI tools don't know about your company, Copilot can't see your Slack, Gemini can't see your Salesforce. You're always starting from 0, cutting and pasting and uploading documents one at a time. Meanwhile, SMBs are either overlooked by enterprise search tools or are stuck using consumer tools that weren't built for business and create real security risks around data leakage.

Dash solves this by connecting to all your work apps from Microsoft, Google, Slack, Notion, everything you use. You get one search box instead of 10. You get AI that actually sees your full picture, not just one ecosystem slice. And unlike consumer AI, Dash is built for business from the ground up with the security and admin controls that IT teams actually need.

In Q3, we made the Dash product significantly better. Search latency dropped by 75%, while quality actually improved. For creative professionals, a core segment for us, Dash now transcribes videos, lets you chat with them and can search text within images and scans. We also brought on the Mobius Labs team to push our multimodal capabilities even further. They're building AI models that are optimized for large-scale multimedia processing, opening up entirely new workflows for teams working with video. And we upgraded Stacks, our intelligent content collections with ranked answers and simpler sharing. Dash is the only AI tool for SMBs that goes beyond search and chat to actually help organize and share content across your entire company.

We're seeing strong early engagement, so 60% of our managed Dash weekly active users are now using Dash at least 2 days a week, which tells us that the product is becoming part of their daily workflow and security remains critical. IT admins need to protect their company's content. So this quarter, we shipped automated protection for high-risk sharing. Admins can now enforce policies that automatically detect and fix issues like public links or inappropriate external access.

And finally, we made 2 important announcements during our fall launch a couple of weeks ago. First, we launched the self-serve version of Dash in the U.S. so you can now go to dropbox.com/dash and get your team up and running. No multi-month deployments, no $50,000 setup fees, just sign in with your work e-mail, connect your apps and go. This lets us reach the many SMB customers that enterprise-focused companies can't. We're starting by pricing it at $19 per user per month and current and advanced File, Sync and Share plan customers are eligible for a 50% first year discount. Second, for our Dropbox business customers, we started rolling out native Dash integration inside of the Dropbox app. This brings Dash's search, chat and stacks directly into the FSS experience our customers already know. You can ask questions of your files in natural language, get summaries and find related content.

Trial users also get the stand-alone version of Dash for deeper capabilities and the ability to connect all of the rest of your work apps beyond your files. Dash within Dropbox is starting to roll out to Dropbox FSS teams on the web with mobile and desktop coming in the next few months. And to ensure a great experience, we're rolling it out in stages over the coming quarters, starting with a waitlist for U.S.-based FSS customers. This launch represents a significant milestone. It broadens access and introduces Dash to our massive FSS user base and to new SMB customers. Early cohorts are showing good engagement, particularly with search, and we're gathering feedback, improving the product daily and laying the groundwork to convert trials to paid licenses.

Turning to Core FSS, where our focus remains on simplifying and strengthening the user experience while driving efficiency. We continue to make progress on retention and downsell, driven by better value communication and better optimizing our cancellation flows. And with improved Sharing, Sync and Storage management tools, our individuals business just posted our highest ever CSAT scores. We're also focused on trial conversion. This quarter, we started testing better localization with region-specific value messaging and landing pages, expecting conversion gains over time.

We're also testing a low-friction import tool for Google Drive and OneDrive users, making it easier to switch providers right in the sign-up flow. Our new unified checkout brings FSS, Dash and add-ons into a single streamlined purchase flow for team trials, including an Apple Pay option coming later this quarter. Early results show conversion gains, and we'll extend this to individual trials later this quarter.

For IT admins, we launched a storage management dashboard showing team data usage and trends, which addresses a top customer request and helps drive our highest ever IT admin CSAT score. DocSend had another solid quarter with double-digit revenue growth, driven by a 17% increase in total account creations and strong engagement. The DocSend team is applying learnings from Core FSS to drive retention gains and Sign and FormSwift modestly exceeded expectations. It's been an eventful quarter. And just like we took the cloud the last mile in 2007 by giving you a folder that's synced everywhere, with Dash, we're taking AI the last mile by connecting it to your actual work.

With Dash self-serve live and Dash and Dropbox rolling out, we're building awareness, driving trials and turning early users into advocates. Our core team is making real progress strengthening and simplifying FSS while operating more efficiently. The momentum is energizing, and we look forward to updating you on our progress in the coming months. I want to thank everyone on the Dropbox team for all their hard work this quarter.

I'll now turn it over to Tim to cover our Q3 financial performance and Q4 outlook.

Thank you, Drew. I'll cover our financial highlights from Q3 and then provide guidance for the fourth quarter and the full year 2025. We executed well against our objectives this quarter with results coming in ahead of our expectations. Our core team is making progress stabilizing our self-serve File, Sync, and Share business areas while concurrently driving meaningful operating leverage. This is giving us the opportunity to invest in new growth bets such as Dash, which are also making progress as we now have several go-to-market motions up and running to help take advantage of the large market opportunity in front of us. We're also reducing our share count substantially, thus putting ourselves in a position to drive a meaningful increase in free cash flow per share this year.

With this in mind, I'll now turn to our Q3 financial performance. In Q3, total revenue declined 70 basis points year-over-year to $634 million. Constant currency revenue declined 120 basis points year-over-year to $631 million. Excluding the impact of FormSwift, which acted as a 150 basis point headwind to revenue, our year-over-year constant currency revenue was slightly positive, driven by relative strength in our individual SKUs. Total ARR was $2.536 billion, down 1.7% year-over-year and 1.5% on a constant currency basis. FormSwift acted as a 160 basis point headwind to ARR in the quarter.

We exited the quarter with 18.07 million paying users, a sequential decline of approximately 64,000 paying users. The quarter's decline was primarily driven by downsell within our managed account base as well as a reduced level of investment in FormSwift. Counteracting this, we are seeing positive traction from our simple SKU, our lower-priced, lower storage plan targeted to mobile-first users. Average revenue per paying user was $139.07 as compared to $138.32 in the prior quarter. ARPU increased sequentially primarily due to FX rate tailwinds as well as shifts to both higher-priced and monthly plans.

Before we continue with further discussion of our P&L, I would like to note that unless otherwise indicated, all income statement figures mentioned are non-GAAP and excludes stock-based compensation, amortization of purchased intangibles, certain acquisition-related expenses, workforce reduction expenses and net gains on equity investments. Our non-GAAP net income also includes the income tax effect of the aforementioned adjustments. Gross margin was 81.4% for the quarter, down 260 basis points from the year ago period, reflecting higher depreciation stemming from our data center refresh cycle as well as investments we are making in our infrastructure for Dash.

Operating margin was 41.1%, ahead of our guidance of 37% and up roughly 490 basis points from the year ago period. Operating margin increased year-over-year largely due to headcount reductions from our RIF, the elimination of marketing spend for FormSwift and targeted reductions in core performance marketing. Compared to our guidance, operating margin benefited primarily from delayed hiring, lower outside services and marketing spend as well as some onetime benefits. Net income for the third quarter was $197 million, up 3% year-over-year. Diluted EPS for the third quarter was $0.74 based on 265 million diluted weighted average shares outstanding compared to $0.60 in the year ago quarter, representing a 23% year-over-year increase.

Moving on to our cash flow and balance sheet. Cash flow from operations was $302 million, an increase of 10% versus the year ago period. Q3 included $21 million of interest payments, net of the associated tax benefit related to amounts drawn under our term loan facility. Capital expenditures were $8 million in the quarter, resulting in unlevered free cash flow of $314 million or $1.19 per share, up 39% year-over-year. In the quarter, we also added $45 million to our finance leases for data center equipment as we continue to refresh our data centers, though we are nearing the end of this refresh cycle.

As related to capital allocation, in September, we amended our existing credit agreement to add $700 million in delayed draw secured term loans under similar terms as our initial term loan from December of 2024 with no interest expense for undrawn amounts in 2025. We expect to draw these funds early next year to retire our March 2026 convertible notes. As a result, we will not incur incremental interest expense this year related to this transaction. As of the end of the quarter, we have $1.15 billion drawn and $1.55 billion available to draw under our term loans. We ended the quarter with cash and short-term investments of $925 million.

Concurrent with our September capital raise, our Board also authorized a new $1.5 billion share repurchase program. In the third quarter, we repurchased approximately 14 million shares, spending approximately $390 million. As of the end of the third quarter, we had approximately $1.58 billion remaining under our existing share repurchase authorization.

I'll now offer our updated outlook for Q4 and the full year 2025. For the fourth quarter of 2025, we expect revenue to be in the range of $626 million to $629 million. We are expecting a currency tailwind of approximately $3 million. On a constant currency revenue basis, we expect revenue to be in the range of $623 million to $626 million. We expect FormSwift to serve as a roughly 170 basis point headwind to revenue in the fourth quarter. We expect our non-GAAP operating margin to be approximately 37%. Finally, we expect diluted weighted average shares outstanding to be in the range of 256 million to 261 million shares based on our 30-day trailing average share price.

For the full year 2025, we are raising the midpoint of our as-reported revenue guidance range by $18 million, now expecting a range of $2.511 billion to $2.514 billion. We are also raising the midpoint of our constant currency revenue guidance by $17 million, now expecting a range of $2.508 billion to $2.511 billion. We now expect FormSwift to serve as a roughly 130 basis point headwind to revenue this year. Our gross margin outlook is unchanged at approximately 82%. We are raising our outlook for non-GAAP operating margin by 100 basis points to approximately 40%. We expect unlevered free cash flow to be at or above $1 billion.

We continue to expect cash interest expense net of tax benefits of approximately $85 million. We are also lowering our CapEx guidance to be in the range of $20 million to $25 million for the full year, and we are maintaining our outlook for additions to finance lease lines to be approximately 6% of revenue. Finally, we now expect diluted weighted average shares outstanding to be in the range of 273 million to 278 million shares.

I'll now share some additional perspective on this guidance for 2025 and provide some early thinking on 2026. With respect to revenue, we are raising our full year revenue guidance to reflect our outperformance this past quarter as well as stronger structural retention trends across our self-serve SKUs that we expect to continue through the remainder of the year.

Turning to paying users. We now expect a full year decline of roughly 250,000, an improvement from our prior outlook of 300,000 paying users. Our better-than-expected results on paying users is driven by strong retention with our self-serve File, Sync and Share SKUs and the early success of our lower-priced Simple plan. We expect this outperformance to be partially offset by softer results within our managed sales motion, where we continue to see near-term downsell activity. Consistent with our prior commentary, FormSwift is expected to account for roughly half of the total decline this year.

Moving on to operating margins. We are raising our full year guidance by 100 basis points, primarily driven by more disciplined hiring, efficiencies within performance marketing, lower outside services spend and some onetime benefits. At the same time, we anticipate some incremental investment in headcount and marketing next quarter to support Dash. We're lowering our full year CapEx guidance as we've rightsized our data center investments for the rest of the year, consistent with our disciplined approach to managing spend across the business. We're lowering our full year weighted average shares outstanding outlook, reflecting the additional capacity under our share repurchase program and our commitment to reducing share count over time.

And finally, we are raising our unlevered free cash flow guidance roughly in line with the raise to operating margins where we now expect unlevered free cash flow to be at or above $1 billion. Surpassing $1 billion in unlevered free cash flow will mark a milestone for the company, representing both a level we've been building towards for many years as well as a testimony to the strength of our business model. We're proud of the progress we've made on this front and look forward to continuing the momentum.

I'll wrap with some early thoughts on 2026. With respect to revenue, our strategy next year will largely reflect the continuation of our goals for this year with a significant focus on scaling Dash and strengthening our self-serve Teams business, all with the aim of returning to revenue growth. However, we expect to continue to face near-term revenue headwinds from our strategic decisions to exit the FormSwift business as well as to reduce our investments in our managed sales motion and performance marketing for our core business.

With respect to operating margins, we'll be lapping the reduction in force we made in October of 2024 and thus will not have this margin expansion tailwind heading into next year. Additionally, 2026 will be an important year for Dash. With expanded go-to-market motions and increased marketing investment, we will aim to drive higher trial usage, engagement and conversion. As customer traction builds, we'll retain flexibility to invest further in growth. Consequently, we don't currently foresee 2026 to be a year of margin expansion.

Having only launched our Dash self-serve motions a few weeks ago, we are just now seeing true customer signals on these motions, and thus, we'll be refining our expectations and plans over the coming months as we gain more insight. Therefore, we will have more to share on our expectations for 2026 during our February earnings call.

With that, operator, please open the line for questions.

[Operator Instructions]

Our first question coming from the line of Palak Chandak with Citi.

This is Palak for Steve Enders from Citi. Congratulations on the great quarter. So my first question was, so with Dash in self-serve now, just was curious as to what you're hearing on early feedback on Dash. And [indiscernible] progress? I know it's not going to be a big part of your revenue, but is any portion of the raised guide including Dash monetization?

I can start with on the Dash front and the self-serve launch. So it's early days. The launch was a couple of weeks ago, but more broadly with Dash, the basic value props are resonating. Customers appreciate the ability to search across all their different apps. They appreciate having an AI system that actually knows about them, their company and then some unique features of Dash, things like stacks, which are smart collections that allow you to organize content across any platform and beyond just files. And then lastly, protect and control, which helps IT admins identify and remediate any oversured content, like those are the pillars of value that are all resonating.

And then we're focused on driving the adoption of Dash stand-alone and also driving the integration into the FSS product. So we'll have a lot more to share on specifics there.

And I'll turn it to Tim as far as guidance.

Sure. As far as the raise in guidance, I attribute it more to our outperformance from our individual SKUs, and we also saw some continued improvements in churn and downsell for teams following changes to the cancellation flow that we implemented last quarter. Sign and FormSwift also performed slightly ahead of expectations and DocSend also grew double digits due to the success of our advanced data room plans. So those are more of the factors, though Dash is also a contributor.

Perfect. And my follow-up is, so one of the comments is, I think, about delayed hirings. I was just curious as to -- when it comes to backfilling the RIF and your investments in Dash, which areas are you going to be focusing on hiring for Q4 and for FY '26?

Yes, sure. So we're always looking to add talent to the company with respect to Dash. We will be investing in headcount, AI folks in particular. Also, we'll be investing in marketing to further the engagement and adoption of Dash. And we're always also looking for M&A that can accelerate our product road map. We've acquired promoted Dot AI and Mobius Labs in recent quarters that are accelerating our capabilities when it comes to Dash. We are also backfilling some open roles across the company, but Dash with those investments in headcount and marketing, those are the primary investments both in Q4 and in 2026.

Our next question coming from the line of Rishi Jaluria with RBC Capital Markets.

Maybe just 2 for me here. First, I wanted to maybe double-click a little bit on M&A philosophy from here. I know you -- can you just referred to a recent acquisition you've made. As you think throughout the history of Dropbox, right, there's been some acquisitions that I'm sure you'd say, hey, these have been great, including Command E, which later became or helped, you've launched Dash. Some maybe have been a little less successful like FormSwift, which has been obviously a headwind on growth.

As we think about kind of the history of Dropbox's M&A, can you maybe talk a little bit about what learnings you've had from them and how you can use those to kind of inform you as you contemplate future M&A opportunities, especially just given your cash generation and especially just given the opportunity to use M&A to accelerate what you're doing on the AI front? And then I've got a quick follow-up.

Sure. Yes, great question. So we've learned a lot. Broadly, we've had a lot of success with M&A in terms of being able to accelerate our product road map and expand the business. And so certainly, a lot of our new products have been seeded by acquisitions, things like Nira and Command E are good recent examples of opening access to new markets and speeding us up. And DocSend is another -- so I think one of the lessons is the importance of like buying leadership in categories. So DocSend is an example of a category leader that's done well. I think there's probably some acquisitions I wish I did and then others I'm glad I didn't. So I think it's -- we've had -- we've been disciplined on valuation, and that will continue.

And we're open to more transformative acquisitions, but we're going to continue to maintain that disciplined approach. So yes, those are a few of the lessons and M&A continues to be an important lever for growing the company.

That's very helpful. And then maybe just continuing a little bit on Dash. Look, it's good to see some kind of early signs of success, continue to broaden it out. Maybe if we were to fast forward, call it, 2 to 3 years, and we're having this same call, what would, in your mind, be the proof points of, hey, our vision for Dash has been successful. I mean, is that something that shows up in meaningfully accelerated growth? Is that something that shows up more in you've now expanded the aperture of customers you can go after and therefore, your TAM is larger. Maybe can you just walk us through how you're thinking about from a multiyear perspective because I'm willing to be patient, just thinking about benchmarking the success of Dash over time.

Sure. First, we'd be measuring it to the usual KPIs around adoption and revenue growth and such. But I think the bigger picture is there's a big gap between AI's potential at work and what people actually experience. And as I said earlier in my remarks, our industry is spending trillions of dollars to train these models that can teach you quantum physics, but can't find your Q2 board deck. And similar to the cloud, when we started, there was this gap between what was possible with this new infrastructure and these new technical capabilities and people's lived experience.

And there was a lot of important design and technical work to kind of take the cloud the last mile, and we think there's some really -- we believe and we see there's a lot of important technical and design work that we're doing with Dash to take AI the last mile at work because part of why you see these reports of 95% of AI pilots failing and things like that is because the AI assistant or tools you're using aren't connected to your context. And so success looks like closing that context gap. There are not a lot of shortcuts to closing that gap entails integrating to basically the entire known universe of SaaS applications in every productivity ecosystem and building a deep index and understanding of people's context at work. And then from -- so I think from an industry standpoint, that's really Dropbox's unique contribution to AI is being able to gather all the context, assemble it and then provide and assemble it in a format that an AI model can understand.

And then from a business perspective, one of the -- it's an example I've used a few times, but I keep going back to Netflix's transition when they went from DVD mailing to streaming, where it turned out the best thing they could do for their DVD mailing business was layer in streaming and what that did for them was twofold. So one is it took what otherwise was viewed as a business with like limited future growth opportunities. And then it extended the customer lifetime indefinitely because as people -- as they were able to bridge DVD mailing subscribers to streaming, they both kept Netflix on your credit card statement and even more important for the existing users. And so the core business end up being a lot more valuable than you might have otherwise calculated. And then second, it unlocked a TAM that was 10 or more times order or 2 of magnitude larger with streaming than they had with DVD mailing.

So we see that -- we see parallels. It's not the exact same situation, but we see parallels between our File, Sync business and organizing all your cloud content. and connecting AI to your work context, we see both a natural evolution of the value we're already providing to our core users and then we're able to unlock new generations of Dropbox users who, for one reason or another, aren't using files in Dropbox today.

Our next question coming from the line of Matthew Bullock with Bank of America.

Congrats on the solid quarter here. Drew, maybe if you could just help us think about what you're hearing in terms of feedback from the Dash sales reps out there selling into the Teams installed base? What's causing friction and what's working well in the cycle? And then now with the self-serve motion kind of up and running, how should we think about self-serve contribution versus managed sales for Dash over the next couple of years?

Sure. So the feedback we've been getting, I shared a bit of it earlier. So I mean, most importantly, the fundamental value propositions around AI that's connected to your work context, around universal search, around stacks, around protective control, those are all resonating as expected. And then we're seeing healthy signs of frequency and depth of engagement. So 60% of users are using Dash multiple times per week. That's the kind of thing we want to see. And then that said, I think there's structural challenges with the enterprise business in that it's pretty crowded and noisy. If you think about it, there's -- every CIO has got a long line of AI start-ups and big companies pitching them on AI things.

And I think there's been a fair amount of disappointment or customers feeling burned by broken promises or having bad experiences with things like Copilot. So I think that you just have a fatigued audience there. And then the situation is just completely different in SMB, which is exactly where we have our home field advantage. So we see no scaled competitors that do anything similar to Dash. We've got 575,000 paying business already on Dropbox. It's a very natural evolution of the value we already provide by starting with your files and then extending with Dash to everything else. And we can follow a lot of the same playbook as Dropbox 1.0.

And you might ask like, well, okay, if SMB is such a big opportunity, why hasn't -- why isn't there more competition? And the answer is it's because it's a very difficult technical problem and it can be expensive to solve, especially if you're using the public cloud. So other start-up competitors or enterprise-focused competitors, I mean, the customer conversation starts with like a $50,000 setup fee and a multi-month deployment process. That's going to be unachievable or it's going to rule out a lot of SMB adoption. And a lot of our engineering effort has gone into a lot of the same kinds of efficiencies and really getting the design in the UX right to turn Dash into a product that you can just download, be up and running in a few minutes. just wire up your -- connect your apps and go.

So -- and then lastly, the efficiency that we have with our technical infrastructure is a huge enabler here. So we're able to also offer the service at a much lower price point or at least lower cost structure than competitors because we're able to drive the kinds of -- when you look at our gross margins and margin expansion over the years, a lot of that comes from a really efficient infrastructure. And so we're able to take advantage of that and then extend it into new areas to basically provide a product that few others can match when it comes to being able to have a self-serve product to begin with and then also a lot of the innovation that we've done as far as going beyond documents and text to supporting images and video. And so we see these as having compounding advantages. And you have to have a lot of these parts all coming together to be able to launch a product like Dash for our -- into the SMB segment and have a successful self-serve product.

Got it. And then just a quick follow-up, if I could here. Just on managed sales channel downsells, how did that trend in the third quarter relative to expectations? And then how should we think about quantifying any headwinds from those downsells in the fourth quarter?

Sure. So over the past couple of quarters, we have seen some self-serve teams turn and downsell. We've seen that improve actually following continued work around cancellation flows to better demonstrate the value we're providing to our users. On the managed sales side of things, we do still see some elevated downsell levels across our managed sales motion following our decision to reduce our investments in this motion following our RIF last year. So that was part of the numbers of paying users this past quarter. And we still expect some elevated levels of downsells across the managed sales business in the fourth quarter as well.

Our next question coming from the line of Mark Murphy with JPMorgan.

This is Jaiden Patel on for Mark Murphy. We just have one. You've got exposure to both consumer and small business customers that ultimately tie back to the health of the consumer. How would you characterize end user behavior today? And are you seeing any incremental pressure or stabilization in consumer-linked cohorts?

Sure. So from our perspective, trends have been pretty stable. I mean you see ongoing price sensitivity, but that's -- I wouldn't say there's anything particularly new there. And then we also see with our customers, Dropbox tends to be a pretty mission-critical thing for a small business that's using it. I mean all their most important information is there. So it's relatively less cyclical than some other areas, but I wouldn't say there's been major changes to the trends we've been seeing.

[Operator Instructions]

Our next question coming from the line of Patrick Walravens with Citizens Bank.

Great. This is Kincaid on for Pat. Congratulations on a great quarter and really excited to hear that Dash is going so well. I was curious if you could provide any color on what specific integrations are performing well with Dash customers? And I have a quick follow-up.

Sure. So it's a lot of the ones you'd expect. I mean, certainly, the all the top productivity apps, so the Office Suites, communication tools like Slack and then the rest of the most common apps, so things like Salesforce and Workday and which added HubSpot and we'll add others. So we've long been at a point where we feel like we have good connector coverage and can deliver on the promise of actually connecting AI to your work context.

And then...

Yes, keep going.

No, that is my follow-up. Please continue.

Sorry. So I mean that -- sorry, I just want to make sure I answered your question. Did I miss anything?

No, I think that's what I was looking to hear. The follow-up is related in that we asked last quarter about this API access limitations that Slack had implemented. And I was just really curious your perspective on kind of the competitive landscape there, if you're still seeing conversations around limiting access. And then conversely, if a competitor was launching a product that wanted to access Dropbox data, how do you think about something like that?

Sure. So to date, we've been able to maintain access to the major platforms and Slack is a partner, and we integrate well with them. And I think part of it is having these bilateral relationships with companies, and I think it helps that Dropbox is also an important content repository for a lot of customers. And so we're able to set up business relationships well and have a good balance of trade. I think the biggest -- and then our view is that there's going to be a lot of -- any 2 large tech companies are going to have a lot of surface area and we'll compete on the margins. But ultimately, we want to deliver a good experience for our shared customers.

And so we keep our eyes on the horizon and make sure there's not some fragmentation or restriction of access to customers' data. But I think the biggest force in favor of interoperability is really customers want to get more value out of their data, and they don't appreciate it when you try to lock them out of their data or charge them twice for access to their own data. So I think that kind of gravitational pull is really important. And from our perspective, we tend to be interoperable.

Our next question coming from the line of Kash Rangan with Goldman Sachs.

This is Selina on for Kash. I was wondering if you can talk a little bit about how the pricing and packaging initiatives have resonated with customers so far as well as any learnings you've had from the pricing for Dash and how that might evolve going forward?

Sure. So we continue to optimize pricing and packaging in the core business. We've done -- you've seen things like our Simple SKU, which is performing well in -- for folks who are, for example, mobile customers or price sensitive. So that gives us a more affordable entry point on the way to becoming a full subscriber. So that's worked well. And then with Dash, I mean, we have a starting point that we're excited about. And as I mentioned before, our -- the efficiencies we're able to get with our technical infrastructure allow us to come in at a much more affordable price point than our competitors.

It's early days and it's early days, though. So we'll learn a lot from our customers in the coming quarters. But we think it's a really attractive offer, and we also are able to offer a pretty significant discount to existing Dropbox users to help drive adoption. So our fundamental cost structure and business model, we see as a major strength and something that's hard for -- certainly for start-ups to replicate.

Our next question coming from the line of Seth Gilbert with UBS.

I guess, first, I know it might be a little bit early, but I was wondering if you're expecting -- maybe not looking for a quantifiable answer, but are you expecting any meaningful contribution on the revenue side from Dash next year? Or is that maybe still a little bit too early?

Well, certainly -- our first focus is on driving adoption. So that is where the vast majority of our attention is going. So both attaching Dash to the hundreds of thousands of existing business teams on Dropbox business accounts. And then we're also going to start -- then we're also working on monetization, especially as we start to get the adoption flywheel going. Now there's some trade-offs or decisions to make about how much do we kind of turn the dial more towards gaining share and driving adoption or driving near-term monetization. We think it's in our interest to err on the side of gaining share and attaching users and driving engagement, but we'll be getting a lot more signal on both in the coming year. And as far as materiality or what that signal looks like, we'll share a lot more in the coming quarters and as we guide for '26.

Got it. And then just as a follow-up, you've been pretty active on the buyback front. And I was just curious if, generally speaking, plans to continue at the like -- or sorry, $400 million to $500 million level per quarter.

Sure. So we remain very committed to our share repurchase program, which, of course, aims to reduce share count over time. I'd look to our weighted average share count forecast for our expectations on the pacing of repurchases for this year, and I'd expect that to be relatively similar heading into next year.

And there are no further questions in the queue at this time. I will now turn the call back over to Peter for any closing remarks.

Thanks, everyone, for joining us today. We look forward to speaking with you next quarter. Hope you all have a good evening.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Dropbox Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Peter Stabler, Head of Investor Relations. Please go ahead.

Good afternoon, and welcome to Dropbox's Second Quarter 2025 Earnings Call. As a reminder, we will discuss non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors.dropbox.com.

We will also make forward-looking statements on this call, including statements about our future outlook for the third quarter and fiscal year 2025 as well as our expectations regarding our business, assets, strategies and the macroeconomic environment. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described.

Many of those risks and uncertainties are described in our SEC filings, including our most recent and forthcoming reports on Form 10-Q. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements, except as required by law. I will now turn the call over to Dropbox's CEO and Co-Founder, Drew Houston. .

Thanks, Peter, and good afternoon, everyone. Welcome to our Q2 2025 earnings call. I'm here with Tim Regan, our CFO. I'll start with our business and product highlights and then Tim will walk through our Q2 results and outlook for the rest of the year. .

Let's dive in. Q2 capped off a solid first half of the year. Revenue came in ahead of guidance and our continued focus on operating efficiency delivered another quarter of strong margin performance. Now I'll share an update on our 2 strategic priorities for this year, which are scaling DASH and simplifying and strengthening our core FSS business.

Starting with DASH. I'll walk through what's going well, highlight areas we're focused on improving and share where we're headed. We just finished the second full quarter of our Dash for Business has been in market, and it's clear the value proposition is resonating. We're seeing customers expand their license count, which is a great early signal. Our top priority has been building a great product experience and gathering user feedback to inform future development.

As we noted last quarter, in April, we launched features designed to expand Dash's use cases and improve user productivity. And we're excited by the feedback and engagement gains we're seeing. Since launch, we've continued building new capabilities and most recently launched Internet features like org charts, people pages and top-requested integrations like Workday. We've also made meaningful improvements to support faster activation in a more intuitive first-use experience as we concentrate on streamlining onboarding.

With a strong feature set in place, we're now focused on fine-tuning Dash's performance to build deeper user engagement, and although in early stages, recent results are encouraging. Rich Media search, which was part of our April launch, now accounts for a double-digit percent of total queries, and we're seeing growing adoption of Dash chat for answering questions, summarizing long documents and providing draft writing assistance.

We've also seen strong sequential growth in key cohort metrics like weekly active users and activity rates per week which is evidence that as customers gain familiarity with Dash repeat usage clients. Building on this product and engagement momentum, for the second half of the year, we're ramping our focus on user growth and monetization.

Customer conversations and usage data have helped us to refine our ideal customer profiles across industries and team sizes as we look to better target our outbound sales motion towards marketing, creative and technology teams in the SMB to mid-market space, which are all historically strong verticals for us. Of course, our large base of FSS customers represents a huge opportunity for Dash since virtually all of our FSS users also have cloud content. And by bringing elements of Dash into our FSS product experience, we can accelerate awareness of Dash's functionality and ultimately help bridge our FSS users on to Dash.

And finally, we remain on track to complement our outbound sales effort with a self-serve version of Dash in the coming months to address the underserved SMB space for both our current FSS customers and those using other FSS solutions. Moving on to core FSS. As a reminder, our key focus for FSS this year is strengthening and simplifying our user experience while also improving operating efficiency. This quarter, we made solid progress against both objectives, and we're beginning to see tangible improvement in key operating metrics.

For example, we redesigned the Team's onboarding experience to make it easier than ever to get users up and running. The early signal we're seeing is that faster onboarding has improved activation and set up rates by 5% and 10%, respectively, while at the same time, driving 100% increase in desktop downloads. And this is an important metric since web and desktop cross-platform activity is associated with higher engagement, improved retention.

Our new unified checkout provides frictionless multiproduct purchasing which enables customers to transact multiple purchases, including Dash within a single purchase flow. We've also been making good progress on our retention initiatives. A good example is our redesign cancellation flow that more clearly highlights the value we're providing. So as a result of these and other initiatives, we've seen meaningful retention gains for both Teams and individual customers.

On the infrastructure side, we continue investing in back-end improvements aimed at strengthening the usability and security of our platform. This quarter, improvements to our desktop sync engine reduced start-up times for large accounts, and we continue to drive higher adoption of important security features like multifactor authentication with new prompts and teams admin controls.

Within the individuals business, we continue to see good traction with our Simple plan, which is our low-priced entry-level plan designed for mobile-first customers.

Across our Document Workflow business, we continue to invest in DocSend, and we've improved document upload flows, processing speeds and simplified sharing and permissions. These improvements are resonating with customers as DocSend continues to grow at a double-digit pace year-over-year. As mentioned previously, we remain focused on operating both Sign and FormSwift for maximum profitability and both of these business lines continue to perform well against this objective.

In closing, we're pleased with the progress we've made on our 2 key objectives in the first half of this year. Our Dash offering continues to improve, and we're seeing positive early signals with key engagement metrics. While we continue to optimize our outbound sales motion and improve our onboarding flows, we have a strong road map in place to unlock product-led adoption of Dash that will accelerate the adoption among our customers. I'll now turn the call over to Tim to share a recap of our second quarter financial performance as well as our updated full year outlook. .

Thank you, Drew. I'll cover our financial highlights from Q2. and then provide guidance for the third quarter and the full year 2025. We executed well in the quarter, with results coming in ahead of guidance and operating margin meaningfully exceeding our expectations. This performance reflects our continued commitment to driving efficiency within our core file sync and share and document workflow businesses as well as the stability of the core business which gives us the opportunity to invest in future growth opportunities.

With that context in mind, let's turn to our Q2 financial performance. Starting with revenue, where we are managing through expected year-over-year revenue headwinds related to our strategic decisions to scale back our FormSwift business and to reduce the number of outbound sellers supporting our Core file sync and share business. In Q2, total revenue declined 1.4% year-over-year to $626 million. Constant currency revenue declined 1.3% year-over-year to $626 million. Excluding the impact of Formswift, which acted as a 140 basis point headwind to revenue, our year-over-year revenue growth would have been flat.

Total ARR was $2.542 billion, down 1.2% year-over-year and 1.1% on a constant currency basis. FormSwift acted as a 160 basis point headwind to ARR in the quarter. We exited the quarter with 18.13 million paying users, a sequential decline of approximately 34,000 paying users. This quarter's decline in paying users was primarily driven by our reduced level of investment in FormSwift. Excluding the impact of FormSwift, paying users would have grown nominally in the quarter. The outperformance relative to our paying user expectations was primarily driven by our individual SKUs aided by retention gains stemming from improvements to our cancellation flows.

Our simple plan also contributed modestly. Average revenue per paying user was $138.32 as compared to $139.26 in the prior quarter. ARPU declined sequentially primarily due to the impact of FormSwift as well as the continued rollout of our Simple plan. Before we continue with further discussion of our P&L, I would like to note that unless otherwise indicated, all income statement figures mentioned are non-GAAP and excludes stock-based compensation, amortization of purchased intangibles, certain acquisition-related expenses, net gains and losses on our real estate assets, workforce reduction expenses and net losses on equity investments.

Our non-GAAP net income also includes the income tax effect of the aforementioned adjustments. Gross margin was 82.2% for the quarter, down 230 basis points from the year ago period, as we continue to support our data center refresh cycle. Operating margin was 41.5%, ahead of our guidance of 37.5% and up roughly 560 basis points from the year ago period. Operating margin increased year-over-year, largely due to our headcount reduction from our RIF last fall, and lower marketing spend following the strategic shift away from FormSwift.

Compared to our guidance, operating margin benefited primarily from a disciplined approach to hiring as well as targeted reductions in performance marketing within our core business as we continue to find ways to drive efficiencies within our business. Net income for the second quarter was $198 million, up 2% year-over-year. Diluted EPS for the second quarter was $0.71 based on 277 million diluted weighted average shares outstanding compared to $0.60 in the year ago quarter, representing an 18% year-over-year increase.

Moving on to our cash flow and balance sheet. Cash flow from operations was $261 million, an increase of 13% versus the year ago period. Q2 also included $18 million of interest payments, net of the associated tax benefit related to amounts drawn under our term loan facility. Capital expenditures were $2 million in the quarter, resulting in unlevered free cash flow of $276 million, or $1 per share. In the quarter, we also added $25 million to our finance leases for data center equipment as we continue to invest in refreshing our data centers.

We ended the quarter with cash and short-term investments of $955 million. In the second quarter, we repurchased approximately 14 million shares, spending approximately $400 million. As of the end of the second quarter, we had approximately $470 million remaining under our existing share repurchase authorization. I'll now offer our updated outlook for Q3 and the full year 2025.

For the third quarter of 2025, we expect revenue to be in the range of $622 million to $625 million. We are expecting a currency tailwind of approximately $3 million. On a constant currency revenue basis, we expect revenue to be in the range of $619 million to $622 million. We expect FormSwift to serve as a roughly 170 basis point headwind to revenue in the third quarter.

We expect our non-GAAP operating margin to be approximately 37%. Finally, we expect diluted weighted average shares outstanding to be in the range of 269 million to 274 million shares based on our 30-day trailing average share price. For the full year 2025, we are raising the midpoint of our as reported revenue guidance range by $12.5 million. now expecting a range of $2.490 billion to $2.500 billion. We are also raising the midpoint of our constant currency revenue guidance by $2.5 million, now expecting a range of $2.488 billion to $2.498 billion. We continue to expect FormSwift to serve as a roughly 150 basis point headwind to revenue this year.

Our gross margin outlook is unchanged at approximately 82%. We are raising our outlook for non-GAAP operating margin by 50 basis points from the high end of our previously provided range, where we now expect full year operating margin to be approximately 39%. We are raising unlevered free cash flow to be at or above $970 million. We also now expect cash interest expense, net of tax benefits, of approximately $85 million, down from $90 million.

We are also maintaining our CapEx guidance to be in the range of $25 million to $30 million for the full year in addition to finance lease lines to be approximately 6% of revenue. Finally, we continue to expect diluted weighted average shares outstanding to be in the range of 276 million to 281 million shares. I'll now share some additional perspective on this guidance for 2025.

with respect to revenue, we are raising our guidance range as we flow through the benefit of recent FX tailwinds and as we are seeing some positive momentum across our core business, particularly across our retention efforts. Turning to paying users. We continue to anticipate a decline of approximately 1.5% or about 300,000 users for the full year, with the remaining decline to be fairly balanced between Q3 and Q4.

We continue to expect that FormSwift will represent roughly half of the paying user decline this year, where these plans also carry a higher average selling price and thus this decline will also introduce some pressure to our ARPU trends. The remainder largely represents expected near-term downsells across our managed sales motion.

Moving on to operating margins. We are raising our full year guidance by 50 basis points above the high end of our previously provided range. which largely reflects our outperformance thus far this year as we remain disciplined with our hiring and continue to find ways to optimize our marketing spend. We do, however, expect to invest further behind Dash as well as higher open roles in the second half of the year.

We are also maintaining our full year CapEx and finance lease guidance. We expect cash CapEx to ramp in the back half of the year to support certain facility, restoration costs and data center build-outs. Regarding free cash flow, we are raising our unlevered free cash flow guidance roughly in line with the increased operating margins, largely reflecting our latest outlook on FX and the aforementioned cost savings.

Our updated outlook also includes a modest expected benefit in the second half from lower cash taxes related to the One Big Beautiful Bill. Turning to WASO. Our latest WASO guidance assumes we exhaust our existing share repurchase program by the end of the year.

In conclusion, we are executing well against our plans for the year. We're generating higher levels of efficiency across our core file sync and share business as well as our document workflow businesses and we are seeing stability across our core business despite reductions in headcount and marketing spend. We've also reduced our share count substantially, thus putting ourselves in a position to drive a meaningful increase in free cash flow per share this year. And we are making progress on both our product and go-to-market efforts for Dash. We look forward to sharing further updates on our progress in future quarters. And with that, operator, please open the line for questions.

[Operator Instructions] And our first question comes from the line of Mark Murphy of JPMorgan.

This is Jaden Patel on for Mark Murphy. You talked about Dash having a positive early signals with key engagement metrics. Can you discuss qualitatively some of the retention or even downgrade prevention [ lift ] you've observed among early Dash adopters versus existing cohorts.

[Technical Difficulty]

All right. Sorry about that. I'm not sure what happened, but we're good now. So with Dash, I mean, the first thing we've -- you're talking about momentum we're seeing with customers and just early adoption. I mean our first focus is making -- is building a great product experience and product quality. And so things like our launch in April -- we're really proud of what we launched in April with things like image and media search. We really think that breaks new ground in our category, and we're seeing good engagement, double-digit engagement or double-digit percent of users engaging with image and media search.

And then we look at a number of onboarding metrics, as you imagine, like getting the percentage of licenses provisioned up, making sure that people are having a good first experience of the product, making sure that Week 2, Week 3, Week 4 for retention is healthy, and we've made big progress in each of those areas. And so those are some of the leading indicators we look at just make sure that we're retaining new customers as we turn on the faucet for user growth and attaching to the Dropbox space.

Got it. And then can you talk a bit about the cancellation flow? What sort of uplift or improvement did you see due to this change?

Sure. I think it's an example. We're looking at across the funnel at different sources of regretted and -- or of voluntary and involuntary churn. And we saw that there's a number -- this is sort of a -- we're stacking up a lot of small wins, but an illustrative example might be or is in the cancellation flow as we better articulate the value that we're providing with Dropbox or like all the things that are in [indiscernible] Dropbox often we find that customers might not be fully aware of how deeply they're using the product or the value they're getting and so better messaging around that, we've shown to be accretive. So lots of things like that. And then as you'd imagine, things like billing optimizations and other things on involuntary churn are examples of the kinds of things that we've been tightening up.

And our next question comes from the line of Steven Enders of Citi.

This is [ Palak ] for Stephen Enders. My first question was, I think you had much better churn than expected for the second quarter in a row. Yet you maintained the 300,000 guide. So is FormSwift declining at a slower pace than was expected? Or what is going well, which is contributing to improved churn in the first half?

Sure. With respect to paying users, yes, we do continue to anticipate a decline of about 1.5% or about 300,000 users for the full year, expect that to be fairly balanced between Q3 and Q4 and continue to expect that FormSwift will represent roughly half of that decline. FormSwift performing well so far in the year, but still expect the same roughly half of that $300,000 impact from FormSwift for this year. And then the remainder largely represents expected near-term downsells across our managed sales motion. And then as far as churn, Drew just touched on a lot of factors that the team is focused on seeing some positive momentum on that front, and that's part of why we're able to raise our guidance for the full year is seeing some strong performance as far as the team working on retention. So good signals on churn and pleased to see that flow through the results.

Perfect. And my next question is on Dash. So just curious, like you mentioned this [ upsell ] motion. And what would be the time frame for this [ upsell ] motion this year? And what are the key areas of investments you're looking at in Dash going forward? And what would be the monetization expectations for [ next year ]?

Sure. So for Dash, we are -- we plan to launch a self-serve version of Dash. So basically a version anyone can download and start using similar to what we did with Dropbox 1.0 And we believe that's going to unlock both the large population in general and then also unlock the Dropbox self-serve base because if you look at -- or if you think about it, we've got 0.5 million business accounts self-serve business accounts on Dropbox and to best drive adoption of DASH, we need a self-serve version of the product.

So that's a big area of focus for us for the second half of the year. And then second is integrating Dash into the Dropbox FSS experience. And so you can think of DASH as both stand-alone products that allows us to reach a new audience of people beyond our file sync audience, and it's also the AI layer across Dropbox FSS for our existing customers. And so to that end, we expect that -- or the way we're -- our plan is to have DASH be something that you add on top of FSS to be able to get AI or be able to interact in a natural language with their files.

We have lot to more share on the specifics of that, and specifics of pricing and packaging, but how we monetize cash overall is for non-FSS users. It will be a separate product and separate subscription, and then we'll have different packages for people who are existing FSS customers to also adopt Dash. And as you imagine, we'll be experimenting and iterating on pricing and packaging, specifically in different bundling and discount approaches.

Just to also briefly add on as far as the monetization expectations, I'd say our guidance certainly reflects our expectations and incorporates this self-serve rollout. I do think it will take time before Dash contributes meaningfully to our revenue growth, given the size of our ARR base. And so again, I refer to our guidance for our expectations for this year.

And our next question comes from the line of Patrick Walravens of Citizens.

This is Nick on for Pat. Just 1 for me. We've seen Slack and others tightened API access, really limiting third-party indexing and message history, has Dash been affected by these changes? And how are you navigating this kind of this environment of limitation?

Yes. So yes, for color, as you said, there's Slack [indiscernible] changing some of their APIs or sunsetting certain integrations, creating other ones. And so that has -- that forces all their partners to adapt to the new APIs. And so we've certainly been doing that. And importantly, we still have access to Slack and a good partnership with them, and so we're still able to provide the basic value of the product. I mean some things around the edges might -- could be a little bit more onerous from a technical perspective or results might not be as exhaustive as we'd like.

But I think that 1 world we'd be -- that would be concerning is if partners or in a world where partners were cutting off API access, we don't see that as likely. And mainly because customers, as you imagine, they put their data into these services and a service that locks out these integrations [indiscernible] that's a pretty customer hostile thing to do. So I think it's like a difficult stance for a company to take in the long run. We know different companies are going to play with different knobs and dials with access.

But we feel good, both from a business and partnership standpoint because Dropbox also has a lot of content that -- and integrations with other services. And so we provide value to folks that integrate with us. So there's a good kind of business foundation there. And then there are also technical measures that you can take to improve coverage and ultimately give customers access to their data regardless of what services it's in.

And actually, to that end, our ability to integrate more deeply and leverage some of these technical measures could be a competitive advantage for Dash. So we feel good about the trajectory of supporting Slack, although yes, it's been a winding road. .

[Operator Instructions] And our next question comes from the line of Matt Bullock of Bank of America.

Great I wanted to ask about strategy going forward for attacking the free base of 700 million plus registered users. I know over the years, you've pushed a little bit harder on converting those users, but maybe help us think about the strategy going forward, if there's potential to accelerate or maybe be a little bit harsher on creating some more prepaid conversion and then I have 1 follow-up.

Yes. So we're tackling this in a number of directions. I think the most important is providing -- is continuing to provide more and more value so that people get a lot of value and then they pay for that value. So Dash is a good example of providing a lot of -- providing a lot of new value to our -- to our existing free users beyond files, right? Because all of those free users have cloud content as well and are a good fit for DASH.

And then since the beginning, our free users are sort of the top of the funnel for our eventual paid users, virtually every subscriber started out as a free user in some form. So it's just -- the free users are an important part of the engine. That said, there's tons of optimizations we continue to do. So I mentioned, for example, we launched a Dropbox Simple Plan targeted at our mobile-only customers, where we were able to provide an entry point that's more affordable to folks who are more price sensitive without cannibalizing the rest of our base.

And so that's a way to capture some of the demand that otherwise would be unwilling or unable to subscribe to a higher price plan. And then there's -- to your point, as you're alluding to, we've had success with just getting the balance of the value -- the free value we provide and making sure that's in balance with the premium subscriber value that we provide over the years we've put in different -- phased in different things like device limits for free users, so that extremely engaged users aren't getting too much value for free.

And we continue to iterate on all aspects of pricing and packaging to get to improve the balance of like we want to drive adoption and broad adoption, and it's a big advantage that we have this free top of funnel. But we can -- we obviously don't want to either under-monetize or over monetize at the expense of one lever or the other.

Super helpful, Drew. And then just 1 quick follow-up on DASH. Obviously, in the self-serve launch coming later this year, how should we be thinking about metrics and disclosures around Dash, we know how you're evaluating it internally, but how should we be thinking about modeling or even evaluating key metrics like users, et cetera?

Sure. Yes. As we mature as we get further along the life cycle, we'll obviously have more to share, in principle, I mean, we start with just the quality of the experience, as I said, then we focus on onboarding success then we make sure the experience is retentive that people are expanding, [indiscernible] are working, that monetization is working, that paid retention is working. I mean we don't focus on them completely in serious, but that's sort of a general path. Sometimes it's noisy. So as we like open up to a large new audience and some of those -- the fluctuation in those metrics. And so -- but as soon as -- but we will certainly provide more color on these -- on the different funnel metrics as we get more signal as we scale it up. .

I'm showing no further questions at this time. I would now like to turn it back to Peter for closing remarks.

Thank you, everyone, for joining us today. We look forward to speaking with you next quarter. Have a great afternoon. .

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.