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…

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…

[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…

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…

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.