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's 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 FormSwift 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 reduced 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 and 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…

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 from 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 and margin. 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…

[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, goal and pipeline building. Can you give us any quantitative framework around Dash seats, 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 with just like the conceptual framework. I mean we start by focusing on product quality and building the capabilities, 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 engagement 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 Dash 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 -- 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 for the Dash integrations and then rolling out the Dash stand-alone products more broadly in the first half. And then the second half will start to phase in more around monetization. So probably second half will be a better time to share more of the specifics around attach rates and ARR contribution and things like that.

Jaiden, this is Ross. Thanks for the question. 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 and influence on how we think about our guidance for the year.

And our next question comes from the line of Rishi Jaluria from RBC.

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 metrics you can give us around like engagement and adoption and feedback around Dash would be helpful. And 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 FSS 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 the 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 a thing you've been focused on for a very long time and Dash totally fits in with that. Maybe what's 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 your 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 talk 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 indexes 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 of 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 Dash too. 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 mind. So if they want to find a photo of a red sunset, it doesn't have to be called red sunset.GPG anymore. If someone says red sunset in 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…

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

I'm on for Steve Enders. It was good to see paid users return to sequential growth. 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 a more fundamental way is bringing in a new generation of skilled leadership and who have in turn really elevated each of their functions and leadership teams as well. And I think that 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 you -- but the bigger picture of what you see there in addition to the specific gains of different 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 Teams 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 downsell directly by redesign and cancellation flows and better communicating the value we're providing, sort of no regrets, things like that, improvements to conversion. So a lot of 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 staffs and friction and getting your team up and running, that's been paying dividends. But as you'd imagine, one of the things we're most excited about is just building a better product experience and taking the FSS product, 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 it's been good to see some of those proof points become stronger in Q4.

Great. That's helpful color. I also wanted to ask about ARR. The last few quarters, we've seen revenue show good signs of stabilization. It 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 an 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, those things -- the ARR should move in the same direction. I think in any given quarter, there's 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 the paying user growth assumptions embedded into 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 sunsetting 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 the 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 result in Q4. 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 that 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 in Q1 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 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 Nira that I mentioned earlier and scaling them up to bringing in established businesses like HelloSign or DocSend. 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 Nira 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 of 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 and your company's context. We've been building that missing context layer for AI. We built a whole 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 Gmail and your Salesforce 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 and 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.