Earnings Call: Q4 2020

Feb 18, 2021

Ladies and gentlemen, thank you for joining Dropbox's 4th Quarter 2020 Earnings Conference Call. All participants will be in a listen only As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Dropbox's website following this call. I will now turn it over to Mr. Rob Bradley, Head of Investor Relations for Dropbox. Mr. Bradley, please go ahead. Thank you, and good afternoon, and welcome to Dropbox's Q4 2020 earnings call. Today, Dropbox will discuss the quarterly financial results that were distributed earlier. Statements on this call include forward looking statements, including future financial results, including our goals and expectations regarding future revenue growth, profitability and our ability to generate and sustain positive free cash flow. Our expectations regarding anticipated benefits to our business and the impact to our financial results, including estimated impairment charges as a result of our shift to a virtual first work model, expected performance of our business, operational efficiencies we may achieve as a result of changes to our organizational structure our expectations regarding remote work trends, related market opportunities and our ability to capitalize on those opportunities our capital allocation plans, including expected timing and volume of share and through strategic partnerships, our strategy as well as the ability of our key employees to execute our strategy and overall future prospects and ability to generate shareholder value. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call, In particular, those described in our risk factors included in our Form 10 Q for the quarter ended September 30, 2020, and the risk factors that will be included in our Form 10 ks for the year ended December 31, 2020. You should not rely on our forward looking statements as predictions of All forward looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by law. Our discussion today will include non GAAP financial measures. These non GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non GAAP results may be found in our earnings release, which was furnished with our Form 8 ks filed today with the SEC and may also be found in the supplemental investor materials posted on our Investor Relations website at investors. Dropbox .com. I would now like to turn the call over to Dropbox's Co Founder and Chief Executive Officer, Drew Houston. Drew? Thanks, Rob. Good afternoon, everyone, and welcome to our Q4 2020 earnings call. I'm here with Tim Regan, our Chief Financial I'll start our call today by recapping our accomplishments from 2020 and providing an overview of our priorities for 2020 Then I'll hand the call over to Tim, who will review financial results for the Q4 and full year, give guidance for Q1 fiscal year 2021 and share some thoughts on our long term model. 2020 was a transformational year for Dropbox as the world abruptly shifted to working from home due to the We helped many of our customers through this transition. We adapted quickly to the new environment ourselves and we reoriented our product roadmap to address many of the new challenges and opportunities that distributed work presents. Even with the changing landscape, our business performed well. For the full year, We delivered more than $1,900,000,000 in revenue, we crossed $2,000,000,000 in ARR and we meaningfully increased our profitability. We ended 2020 with to help people organize their lives, both at home and at work. To start, we introduced several features in the first half of twenty twenty to help our customers The first feature to highlight is Dropbox passwords. With passwords, Our users can store passwords in one secure place, sync across devices and access passwords from anywhere with 0 knowledge encryption. We also introduced Vault, an additional layer of security for our customers' most valuable content, where that content is accessible with a unique pin code. Users can also grant emergency access to their Vault to trusted friends or family, so they can access the protected content when needed. And finally, We introduced computer backup, which automatically backs up users' local desktop, documents and downloads folders to Dropbox for In addition to these new features, we launched a new SKU called Family Plan, which helps keep families connected and helps keep their content Secure with a central place for shared files like photos, videos and documents. Dropbox Family lets up to 6 family members share as much 2 terabytes of data in one plan with a single bill. After positive signals from our initial launch, we broadly rolled out Family Plan in October and the user adoption has been encouraging. We've also been building out our portfolio of products for distributed work. In 2020, customers relied even more on Dropbox to get their work done, As we saw elevated engagement across our products early in the year and in an effort to better support them, we adapted our product roadmap quickly, making investments Content collaboration capabilities be in file sync and share. For example, as the need for eSignature increased, we introduced a deeper integration with HelloSign, making it easier to sign documents without ever leaving Dropbox. We also launched HelloSign in 21 additional languages to better address the global e signature market and to help cross sell into our Dropbox user base. These steps resulted in strong growth in HelloSign's ARR, end user paid seats and more than a 70 We also evolved Dropbox Spaces into a standalone experience that lives alongside the classic Dropbox file experience. Spaces is designed to solve an important problem. The context and information we all need is scattered across a variety of different files and tools and messaging apps, leaving it up to each of us to piece everything together. Moving to distributed work has put a lot more stress on the system as teams have had to adopt new ways of working remotely, In fact, they juggle a variety of tools like Zoom and Slack and many others. The goal of the new Spaces app is to simplify and organize Content and easily track progress. The new Spaces experience is currently in private beta, but we're excited to roll it out more broadly to our users this And finally, in 2020, we expanded our add on offerings with our new creative tools and data migration products. These were developed for some of our most passionate and demanding users to better handle key workflows and further differentiate Dropbox. The creative community relies heavily on Dropbox to get their work done. And today's tools don't solve all the challenges they face when working with large media files. In early 2020, we made investments to help take the headache out of creative, postproduction and social media work The creative tools add on simplifies viewing, facilitates remote collaboration with frame based commenting and allows flexible workflow management, all while making transfers of large files simple and secure. And with the new data migration add on, business customers can Seamlessly migrate files and permissions from local storage or other cloud storage solutions onto Dropbox. They can also automatically map access rights and file structures Dropbox, saving our customers' time by reducing friction. This is especially helpful to customers as they were forced to transition quickly to remote work and needed to We transformed our company and work culture with our shift to virtual first, bringing together the best of both the remote and in person We're preserving the freedom and flexibility that remote work offers and reimagining our offices as places dedicated to meaningful in person collaboration. Most importantly, we believe going virtual first offers us an opportunity to truly live our mission and build even better products for our customers in their transition to distributed work. We also took a number of steps towards the end of 2020 to operate faster and more efficiently. First, we simplified our accountability structure, bringing product development, technology and our go to market functions, together under our President, Timothy Young. Timothy's elevation to President will help us focus on our customers through Closer collaboration and coordination between our engineering, design, product and customer facing teams. And finally, last month, We also announced an 11% reduction in force to streamline our teams against new structure, strengthen our operational discipline and better align to our virtual first strategy. So while this past year meant changes to our product roadmap, leadership and team structure, we believe we're set up for stability and execution in 20 21. We have 3 company priorities for the year, and I'd like to walk you through each one with a little more detail. First is evolving our core Since our founding, millions of customers have trusted Dropbox to store and share their most important content. This has always been Our central product value and has led to our viral growth and global adoption. This year, we're evolving the core Dropbox experience to become the organizational layer across We expect these improvements will help drive activation, retention and migration into paid SKUs. New updates include the automated organization of user content and simplified sharing and access features, which we believe will lead to greater retention and growth for the core business. 2nd, We'll continue to invest in and expand our new product pipeline beyond the core experience. In 2021, we'll build on our early success with HelloSign to serve an increasingly distributed Our planned investments will help position HelloSign as the go to solution for e signature for individuals and teams through targeted awareness campaigns and We also plan to continue scaling newer efforts like Spaces with strategic partnerships that add unique value to our users' workflows. Late last year, we previewed Spaces integrations with Zoom and WebEx to offer users a single place for meeting notes, action items and project management, so they can stay connected long after they leave a meeting. Investing in partnerships and deep integrations like these provides a more seamless product experience for our customers and makes Dropbox an even more indispensable part of their workflows. We'll also plan to complement our new product we add to our team and product portfolio while being disciplined in our approach. And finally, we'll stay focused on operational excellence in 2021 and make progress towards our long term financial targets and be deliberate in the use of our resources. We're really proud of the progress we made in 20, driving 9 points of operating margin improvement combined with a $99,000,000 increase in free cash flow. And looking ahead, we'll continue to build efficiency and agility throughout the organization in a number of ways. We'll drive improvements and efficiencies in our infrastructure and storage As we continue to add users and content, we'll also optimize investments in R and D and sales and marketing, focusing on opportunities with the best ROI. We expect these combined actions to continue improving our profitability and free cash flow. In summary, I'm proud of the I believe we have the right plan in place to set us up for success and now we're focused on executing against our strategy for 2020 We believe our opportunity is growing as alliance between home and work continue to blur and there's increased demand for a more seamless collaboration experience. 100 of millions of people already trust us to store and share their most important files. And we'll rely on that strength as we expand our capabilities to become the one organized place for their content and all the collaboration around it. I'll now turn it over to Tim to walk through our financial results. Thank you, Drew. I want to begin with a reminder of our investment thesis and our financial North Star as this provides the context for what we focus on and where we are headed. Here are the core principles of our investment thesis. Doubling free cash flow to $1,000,000,000 annually by 2024, Investing for continued revenue growth driving annual improvements in operating margins, targeting 28% to 30% Allocating capital to organic initiatives and acquisitions that align with our strategic and financial objectives and returning capital to shareholders by allocating a significant portion of our annual free cash flow to share repurchases with the goal of reducing our share count. We believe that execution against these objectives will generate long term value for our shareholders. With this context, I'd like to talk through our Q4 and full year 2020 results, which demonstrate our continued progress against our long term targets. Total revenue for the 4th quarter increased 13% year over year to $504,000,000 Foreign exchange rates did not have an impact on year over year revenue growth for this period. Total ARR for the Q4 was $2,022,000,000 up 11% year over year. We continue to drive growth in ARR through the release of value enhancing features, the introduction of new SKUs and add on products and continued growth across HelloSign subscription plans. We ended the year with 15,480,000 paying users and added approximately 230,000 new paying users in the 4th quarter. Average revenue per paying user for the quarter $130.17 Before I turn to the P and L, I wanted to highlight some customer wins we had in the 4th quarter, where the team had success driving the adoption of new add on products that we introduced in 2020. First, we're pleased to announce that we signed one of the largest energy providers in the United States as a Dropbox customer. They turned to Dropbox to transform how they provide a secure Cloud based content storage solution for their on-site and field workers. Committed to finding a solution that would ensure their IT security was best in class. The company selected Dropbox along with our data governance add on to modernize how teams such as project managers and field technicians work and collaborate on large and highly sensitive files. Given the length of projects and compliance requirements that the company must adhere to, our data governance add on was Critical part of the solution. Another window highlight is Thousand Heads Group, a global media company based in Europe. Dropbox, along with Paper and the Creative Tools add on, will be a critical part of ThousandHead's creative workflows. By standardizing on one single collaborative space, 1,000 Heads will have the ability to securely manage their content, while making a move away from costly on premise infrastructure. Creative tools was the most exciting piece of the puzzle, Thousand Heads, as 90% of all their creative content is created in house. In addition, the ability to Before we continue with further discussion of our P and L, I would like to note that unless otherwise indicated, All income statement measures mentioned are non GAAP and exclude stock based compensation, amortization of purchased intangibles, Certain expenses related to the acquisition of HelloSign and an impairment of our real estate assets. Our non GAAP net income also excludes net gains and losses on equity investments and includes the income tax effect of the aforementioned adjustments. A reconciliation of GAAP to non GAAP results may be found in our earnings release, which was furnished with our Form 8 ks filed today with the SEC and in the supplemental investor materials posted on our Investor Relations website. Additional information regarding the Work model, we are taking steps to de cost our real estate portfolio by subleasing our existing facilities. We previously shared on our Q3 earnings call that as we do not expect to recover the full value of our lease We anticipated recording an impairment charge in the range of $400,000,000 to $450,000,000 related to our real estate With the vast majority of this impairment charge to be recorded in the Q4 of 2020 and a portion to be incurred in 2021. In the Q4, we incurred an impairment charge related to our real estate assets of $398,000,000 We continue to expect to incur additional charges relating to certain European leases over the next 12 months, which could range between 0 and $50,000,000 depending on the then current market and economic conditions. Now let's continue with the P and L. Gross margin was 80% for the quarter, representing an increase of 2 percentage points on a year over year basis. The improvement in our gross margin is primarily a result of unit cost efficiency gains with our infrastructure hardware. Turning to our operating expenses. I'd like to note that all expense categories benefited from lower facilities related costs, driven by our employees working from home as well as a reduction in depreciation as a result of the write down in our real estate assets stemming from the impairment. 4th quarter R and D expense was $129,000,000 or 26 percent of revenue, which decreased compared to 30% of revenue in the Q4 of 2019. Sales and marketing expense was $100,000,000 in Q4 or 20 percent of revenue, which decreased compared to 22% of revenue in the Q4 of 2019. G and A expense was $47,000,000 or 9% of revenue, which decreased compared to 11% of revenue in the Q4 2019. In addition to lower overhead, G and A benefited from non recurring releases of certain non income tax reserves. As a result, we earned $128,000,000 in operating profit in the 4th quarter, which represented operating margin of 25%. This compares to 16% operating margin in the Q4 of 2019. Net income for the Q4 was $118,000,000 which is a 75% improvement over the Q4 of 2019. Diluted EPS was $0.29 per share based on $416,000,000 diluted weighted average shares outstanding, up from $0.16 per share for the Q4 of 2019. Moving on to cash balance and cash flow. We ended the quarter with cash and short term investments of $1,116,000,000 Cash flow from operations was $171,000,000 in the 4th quarter. Capital expenditures of $12,000,000 During the quarter resulted in free cash flow of $158,000,000 or 31 percent of revenue. In addition, during our Q3 call, we shared our intention to increase the pace at which we repurchased shares under our existing $600,000,000 share repurchase authorization with the potential to exhaust this authorization by the end of the Q1 of 2021. In line with this intention, we repurchased 11,000,000 shares in the 4th quarter, Spending $220,000,000 Now let's turn to our full year 2020 results. Total revenue for 2020 was $1,914,000,000 representing 15% year over year growth. On a constant currency basis, relative to the average rates Across 2019, year over year growth would have been 16%. Gross margin was 79% for the year, which was up 3 percentage points from 2019. Operating margin was 21% for 2020, which was up 9 percentage points from 2019. This significant year over year improvement demonstrates our commitment and ability to execute against our investment thesis. Cash flow from operations for 2020 was $571,000,000 Capital expenditures for the full year totaled $80,000,000 which yielded free cash flow of $491,000,000 or 26 percent of revenue. Excluding headquarter spend, net of tenant improvement allowances for $26,000,000 And the payout of HelloSign deal consideration holdback of $28,000,000 free cash flow would have been $545,000,000 or 28% of revenue. In 2020, we also added $146,000,000 to our finance lease Net of repayments, our finance lease balance increased by $56,000,000 I'd now like to introduce our 2021 Q1 and full year guidance. For the Q1 of 2021, we expect revenue to be in the range of $504,000,000 to $506,000,000 Currency exchange rates assumed in this guidance account for an approximate 1.3 points of growth at the midpoint of guidance this quarter and are based on a combination of recent and historical average rates. We expect non GAAP operating margin to be in the range of 27.5% to 28%. This margin guidance Excludes approximately $15,000,000 related to the severance and benefits paid to employees impacted by a reduction in force in Q1. Finally, we expect diluted weighted average shares outstanding to be in the range of 409,000,000 to 414,000,000 shares based on our trailing 30 day average share price. For the full year 2021, We expect revenue to be in the range of $2,095,000,000 to $2,115,000,000 Currency exchange rates assumed in this guidance account for an approximate two points of growth at the midpoint of guidance this year and are based on a combination of recent and historical average rates. We expect gross margin to be approximately 1 point higher than fiscal 2020. We expect non GAAP operating margin to be in the range of 27 to 28%. This also excludes the aforementioned severance benefits paid in Q1. We expect free cash flow to be in the range of $645,000,000 to $655,000,000 This includes $31,000,000 in cash outflows comprised of $16,000,000 for the 2021 installments of deal consideration holdback related to our And one time severance payments of approximately $15,000,000 related to our reduction in force. Finally, we expect 2021 diluted weighted average shares outstanding to be in the range of 402,000,000 to 407,000,000 shares. This reduction in our share count reflects our commitment to and the impact of our share repurchase program. In addition to this formal guidance, I wanted to share some further thoughts on our expectations for 2021. While we don't formally guide to paying users, I want to provide some context on our expectations for this metric in 2021. As a reminder, our objective is to drive growth in ARR in profitable and efficient ways without over indexing on specifically growing either paying users or ARPU. As we consider this and as part of the strategy behind our workforce reduction. We are prioritizing our land and expand and self serve go to market motions, which are most efficient across our individual, small business and mid market customers. Accordingly, we intend to minimize the pursuit of opportunities They carry lower average seed prices, higher acquisition costs and greater degrees of customization, which could lead to lower paying user additions in certain quarters. Conversely, we are also seeing early positive signals from the adoption of our family plan, which could lead to higher paying user additions. As a result, we may see more variability and are paying user additions in the future. Overall, we will continue to focus on our strengths that allow us to engage in our most efficient go to market strategies, while investing in our existing and new products. Separately, as related to capital expenditures, We expect our additions to our finance leases to be approximately 6% of revenue and we expect cash CapEx to be in the range of $25,000,000 to $35,000,000 in 2021. Lastly, I want to reiterate our plan to return capital to Share repurchase program in the Q1 of 2021. In addition, our Board has authorized an additional $1,000,000,000 Share repurchase program consistent with our strategy to allocate a significant portion of our annual free cash flow share repurchases with the goal of reducing our share count. In conclusion, our progress in 2020 and our plan for 2021 keep us on a trajectory to achieve our long term targets and our investment thesis. While we are approaching our gross margin and operating margin targets We intend to continue to invest for sustainable revenue growth. As a result, we may reinvest Some of the savings that we are generating from our efficiency initiatives into growth opportunities. We therefore remain committed to our target model and our 2024 free cash flow goal of $1,000,000,000 We look forward to sharing our progress along the way. With that, I'll now turn it back to Drew for closing remarks. Thank you, Tim, and thank you all for joining 2020 was an unpredictable year and I'm proud of how our team responded. We delivered 15% growth while making improvements to profitability and made necessary changes to ensure our business is operating with focus and efficiency as we pursue our long term targets. We're excited about the road ahead and believe we're uniquely suited to help our users thrive in the new world of distributed work. And with that, I'd like to open up the call for Q and A. Operator? Thank you. Our first question comes from Mark Murphy with JPMorgan. Your line is now open. Yes. Thank you. Drew, what are you assuming for 2021 in terms of any lingering headwinds or tailwinds from the pandemic? I think you had previously given us some insight into trends with trials and conversion rates. How do you see that playing out? And importantly, how do you think it will net out this year more of a headwind or more of a tailwind? Yes. So thanks Mark for the question. So as we shared last year, we had a surge in demand During the onset of the pandemic, elevated trial starts, things like that, which was mostly isolated to the first half. I mean engagement broadly has been up and then we think in the we think more broadly or in For this year and beyond that the pandemic will be a tailwind given that folks are shifting to distributor work. And Dropbox becomes a lot So we see a lot of opportunities as we've Shared before, we see a lot of opportunity to address new pain points in the virtual work experience. Everybody has a need to keep all their content organized. It's very fragmented and distracting and overwhelming experience now. So we think it's a huge opportunity for us. Okay. Thank you, Drew. And Tim, as a follow-up, when we dissect Q4, You arrive at this level of revenue growth through roughly 8% growth in paying users and 4% growth in ARPU. And I know you're trying to deemphasize too much scrutiny on that, but I'm just wondering at a high level, How do you envision that balance? When we look across the multi year framework, do we think it's going to balance out Eventually sort of mid single digit growth for each or do you think there could be some periods where that ARPU growth is sort of crossing above the Sure. Thanks for the question, Mark. And as you know, we do focus on ARR As our primary metric, we don't optimize for a given lever between paying users and ARPU, As overly focusing on one or the other may not best reflect our strategy. And while we don't formally guide to paying users, I did provide Some additional commentary in my prepared remarks, where this year we may see some variability in our net new paying user additions, stemming from a few things, our strategy to minimize the pursuit of larger deals that may carry lower ASPs, higher acquisition costs and greater degrees of Customization, where conversely, we are seeing some early positive signals on the adoption of our family plan, which we just launched last November. So again, we may see more variability in our net new paying users this year, where overall we continue to focus on our most efficient and profitable Go to market strategies while investing in our existing and new products. And these types of competing dynamics between ARPU and paying users is indicative of why we do focus on ARR as our key metric. Thank you very much. Thank you. Our next question comes from Brent Thill with Jefferies. Your line is now open. Hi. This is Love Souda on for Brent Thill. Thank you again for your remarks. Wanted to ask one on the go to market motion. Wanted to was there any benefit from the branding campaign? I remember you guys initiated it at the end of Q3. So did that have any positive impact, if any? And more specifically on the Go to market motion. Would these changes mean that you're less focused on Teams users in the future? Sure. I can take this. I mean as for context, we did have a brand campaign in Q4 highlighting Dropbox as a solution for Teams at work and for businesses and the campaign went well basically to our expectations And we continue to invest in marketing to drive awareness and to drive all elements of the funnel, and have had success there. Mug. As far as focus on businesses and teams, I mean, as we've shared 80% of our subscribers using Dropbox at work. We're very focused on Teams. I'd say we're proportionally a big strength of ours is that we have this really efficient scalable self serve engine. We have another strength, which is that Dropbox has brought into organizations of all shapes and sizes. But as far as, where our dollars and investment go, we're going to prefer We're going to allocate more. We see higher returns in optimizing our self serve engine, and just maintaining Cost discipline across all our different channels because we see that, I mean the self serve channel just as one example of Higher ASPs, lower acquisition costs, really scalable and viral. So it's really a refinement more than a major Shift in strategy incremental dollars go into the area of higher churn. Got it. And maybe one quick follow-up, if I may. On the NNPU side, what do you see in terms of like SMB spend? Can we expect some type of normalization in 2021? So will that be kind of a tailwind to net new paid users? Thank you. It's a great question and I think I would have to just point back to the commentary that I gave to Mark on what we expect from an NNPU perspective and then just look to our revenue guidance for how this should all play out as far as SMB. And we saw a lot of stability with SMBs in general. While the macro environment Well, there's a lot happening in the macro environment. We find that a lot of Dropbox customers, SMBs are knowledge workers and have been able to continue So we're relatively less impacted than other sectors for sure. Thank you. Thank you. Our next question comes from D. J. Hynes with Canaccord. Your line is now open. Hey, thanks guys. Drew, I want to ask about Free user conversion and the levers that you have there, right? I mean, look, we obviously saw a slowdown in the number of Net new users added this year, at least relative to the last couple of years, in what I would have thought would be a pretty decent demand environment for Dropbox, right, given the move to distributed work. So I guess the question is that there's still this huge free user base out there. Is it that the triggers have become less effective? Are we just getting deeper into the base and that there's a segment that's just never going to pay for the service? Like what are the levers that you can pull to reaccelerate that free user conversion? Sure. I mean, we still see a lot of headroom with free users and we have continuously been Improving our ability to convert for users and as you pointed out, we have a number of levers to drive conversion. So I mean we start with customer value, just building a great product experience, adding more. So when you look at some of the things we launched last year, We've launched a portfolio of new features around, for example, helping individuals keep their content secure. So computer backup, passwords, Vault, things like that. And we've seen those features and things like them drive Paid trials drive more conversions and so on. And then as teams expand, that's another lever And the list goes on. So there are a number of different levers that we and we optimize basically all of them. And it also often takes time for freezers to convert. So there are time constants involved, like sometimes it can take Some time for you to fill up your Dropbox, so that if your storage is one hurdle, or you might start using it at home and then using at work and then you join the team. So there are some we're basically, there are a number of levers And there and it can take some time for folks to convert and we're optimizing for A balance of driving more engagement and growth of the user base with monetizing them as effectively and quickly as possible, and there's a bit of a trade off there. Yes, yes. Okay. And then a question on Spaces. So what are you seeing users do in Spaces that they weren't doing with the platform mug before it became available in private beta. And I guess as outsiders to the organization, like what should we be paying attention to that says The spaces strategy is working. Sure. Well, the spaces is pretty early in its evolution. Last year we decided to evolve it into a standalone experience. And we'd started experimenting In this area with the new desktop app, so adding more collaborative features and shared folders and things like that. And what we realize is that there's enough room for a dedicated experience and one that Where cloud content is a little bit more in the foreground instead of just files and it's a workspace for a project more than a folder full of content or files. So it's what we're looking for with spaces is, to give teams One place for all their Google Docs and Dropbox files and Airtables and everything else and to be able to organize their work around projects. And so those kinds of Some of that engagement is, these are new problems that we're solving for our customers. So, but that's the kind of engagement we want to see. So All that said, spaces is pretty early. We'll have more to share on it in the coming quarters. We're also excited about, with spaces, some of the new Surface area we'll be working on is deepening partnerships with Zoom and WebEx so that, with spaces you'll be able to bring your content into the video meeting Experience in NuWay. So stay tuned for more on that. Okay, great. Thanks for the color. Thank you. Our next question comes from Rishi Jaluria with D. A. Davidson. Your line is now open. Hey guys, thanks so much for taking my questions. Wanted to start by going to a comment made during prepared remarks Drew, which was about M and A as a potential opportunity. And maybe I know you've made Some smaller acquisitions in the past, mostly technological. But can you give us a sense if you were to consider inorganic, Where would those adjacencies that make the most sense be? Would it be something akin to like what you did with HelloSign? Would it be more product based? Maybe give us some color on how you're thinking about M and A and then I've got a follow-up. Sure. Well, M and A has been an important lever to help us grow the business across the whole spectrum from adding talent to the team, adding accelerating our product roadmap and adding new businesses like HelloSign. So I think HelloSign a great example of where that's worked well. So we're always on the lookout for these opportunities and our User base and distribution is a big advantage. As far as where we're looking, there are a lot of different user workflows around content and helping people do more with the content in their Dropbox. And I think Hellasign is a great example of that. So in addition to being able Store and share and access your content being able to handle the e signature workflows and more broadly document workflows It's a natural adjacency for us. So we'll continue to look for opportunities and grow the portfolio through M Okay, great. That's helpful. And then just continuing down the path on HelloSign, mug. Could you give us a sense, you did talk to about how LoSonic ARR growth has been strong this year. Maybe can you talk a little bit more specifically about what you've seen in terms of the demand environment for HelloSign? How you're thinking about that business going forward and how meaningful a contributor you can expect it to be? Mode. And maybe alongside that, you saw one of your competitors buy a small vendor in the digital signature space. Just maybe how you're thinking about any changes in the competitive environment for HelloSign? Thanks. Sure. Well, we're really excited about HelloSign. It's the fastest growing product in the company. We saw strong growth in revenue and paid seats and signature requests last year. And I think The pandemic really accelerated the adoption of e signature as a category. And so we're We've made big investments in accelerating HelloSign's growth that we're excited about, including more seamless integration with Dropbox, Over the core Dropbox experience, internationalizing HelloSign, adding support for 21 languages. So we see it's pretty early innings both Lifecycle in general. As far as the competitive environment, One aspect of Hellasign that's really valuable to us is they have a similar customer base and similar go to market motion. They're driven by self serve. It's a self serve viral go to market motion and which is really efficient and scalable. And we see Dropbox and compared to smaller competitors, we see Dropbox's scale and HelloSign's scale as a big advantage, Now is the time when a lot of folks are going to be making decisions about, which solution they go with. Wonderful. Thank you so much. Thank you. Our next question comes from Jack Nichols with KeyBanc Capital Markets. Your line is now open. Hey, guys. Can you talk about the expectation built in around the mix of personal versus business accounts and the ability to drive up sales? And then I have a follow-up. Sure. I'll give you an update on the teams and individual mix Grew in 2020 as a result of the Plus pricing initiative. Of course, that said, we continue to see progress in our teams' plans as we do now have over 540,000 teams and growing teams is certainly part of our long term strategy and all of this has been factored into our 2020 Okay. Thank you. Yes, super helpful. And what's the best way to think about ARR growth expectations going forward for the net new customers or upselling plans and higher ARPU. I think the best way to think about it is to look again to our revenue guidance, where maybe just specifically on ARR. We of course crossed an important threshold in Q4 passing over $2,000,000,000 in ARR and finishing the year at 2 point $22,000,000,000 And of course, this is a primary metric we look at, but we don't specifically guide to this. Again, I'd look to our revenue guidance for our expectations. Thanks guys. Thank you. Our next question comes from Zane Chrane with Bernstein Research. Your line is now open. Hi. I was hoping to dig in a little bit more on the net revenue retention rate. You guys gave, I believe, a value of 90% around the time of IPO and update of 90 5% at the Analyst Day in 2019, I believe. Can you give us an update on what that is for the overall business as well as for the customers that are on business plan? Sure. So we don't update this metric quarterly. Again, our revenue guidance factors in the latest trends. I can tell you That at a high level, net revenue retention now is in the low 90s, in line with historical levels, where pricing increase do drive some ebbs and flows. And as you know, we've worked through the Plus pricing increase at this point. And as a reminder, a few factors that do contribute to AN and RR include the migration of existing paying users to premium plans, the mix shift to teams and team expansion, where we are focused on driving this metric in a positive direction. That's So it sounds like it's declined a couple of percentage points since your last update of 95%. Is that due to an uptick in churn From one particular segment or is it kind of a deceleration expansion from the business side? It has Much more to do with pricing, where we've worked through that pricing increase and now we're back to our historical levels absent pricing changes. I see. So just the anniversary effect of that pricing change then? That's right. Got it. Okay. And one last thing, I believe last time I looked McKay, you had 90% of revenue was through self-service channels. Has that changed materially over the last year? No, that has stayed consistent. Okay, great. Thanks very much. Thank you. This concludes the question and answer session. I would now like to I'll turn the call back over to Drew Houston for closing remarks. Again, thanks everyone for joining us. Really appreciate your support and stay safe and we'll see you next quarter. Ladies and gentlemen, this concludes today's conference