Earnings Call: Q4 2019

Feb 20, 2020

Good afternoon, ladies and gentlemen, and thank you for joining Dropbox's 4th Quarter 2019 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask a question. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of the Dropbox website following this call. I would now hand the call over to Darren Yip, Dropbox's Head of Investor Relations. Thank you. Good afternoon, and welcome to Dropbox's 4th Quarter 2019 Earnings Call. Today, Dropbox will discuss the quarterly financial results that were distributed earlier. Statements on this call include forward looking statements, including statements relating to the expected performance of our business future financial results, including expectations regarding future profitability and our ability to generate and sustain positive free cash flow our ability to extend our platform by developing new products or features our strategy as well as the ability of our key employees to execute our strategy, long term growth and overall future prospects. 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, 2019, and the risk factors that will be included in our Form 10 ks for the year ended December 31, 2019. You should not rely on our forward looking statements as predictions of future events. 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? Good afternoon, everyone, and welcome to our earnings call. On the call with me is Ajay Vashee, our Chief Financial Officer. Today, I'll recap our achievements and performance in 2019 and provide an update on how we plan to scale our business over the next few years. Ajay will review our financial results and provide guidance for Q1 and fiscal 2020. 2019 was an important year for Dropbox, during which we invested to build a strong foundation for profitable growth. We generated over $1,600,000,000 in revenue and ended the year with over 450,000 business teams. We also delivered a number of products and features to further position Dropbox at the center of our users' workflows. Most importantly, we unveiled the new Dropbox, a smart workspace to organize users' content, connect them with their tools and bring everyone together. This included an all new desktop app that moves beyond files and organizes all your cloud content, including support for Google Docs and integrations with best of breed tools like Slack and Zoom. The new Dropbox uses machine intelligence to surface the work that's important to you when you need it and also includes Dropbox Spaces, which transforms the traditional shared folder experience into a connected workspace for all your cloud content. We're operating in a world that's fragmented, not just across applications, but across content and teams. We saw an opportunity to bring everything together and with the new Dropbox, that's what we've done. We're making the new desktop app available to more and more of our users and we're seeing some great early traction. Millions of users are now active in our new desktop experience on a weekly basis. And we're finding that this cohort of active users is engaging with Dropbox more frequently and using differentiated features like suggested folders that intelligently highlight your most relevant content and people tabs that show you the content you're collaborating on with your teammates. And we're seeing the new desktop experience help drive customer wins. In Q4, we closed a wall to wall deployment with Xposure, the UK's largest independent marketing agency. When evaluating solutions, Xposure highlighted our smart workspace as a key differentiator over Microsoft and Google. On the partnership front, we continue to build new integrations over the past year to ensure the apps our customers use at work are an integral part of the Dropbox experience. Building on our existing integrations with tools from companies like Adobe, Microsoft and Google, we introduced new deep integrations with strategic partners like Atlassian, Slack and Zoom to help bring users content into context. All these partnerships expand our robust ecosystem and make Dropbox an integral part of our users' workflows. And we're already starting to see positive results. Early signals from users who have adopted these deep integrations suggest they are more likely to convert to our paid plans and tend to be more collaborative and engaged. Finally, we announced a new partnership with BetterCloud, which gives admins the tools they need to manage and secure a best of breed SaaS environment. With BetterCloud, we enable businesses to enforce custom security policies, scan content for sensitive data and automate critical processes. And in 2019, we also expanded our platform by welcoming HelloSign to the Dropbox family. Millions of people already use Dropbox as a place to collaborate on their most important content and together with HelloSign, we're delivering an even better experience to simplify their document workflows while expanding the markets we serve. We continue to see strong demand for HelloSign's e signature and document workflow products. HelloSign is now fully integrated into Dropbox as well as our go to market efforts as one of our fastest growing businesses. Dropbox users can seamlessly send HelloSign signature requests through new product flows, including our newly redesigned user interface. We've been pleased with HelloSign's progress and are excited about the opportunity we have together. And on the people front, we've continued to strengthen our leadership team. In the fall, Timothy Young joined Dropbox as SVP and GM of core Dropbox and Bart Mederata joined as our CTO and SVP of Platform. Together, they've been reshaping our engineering, product and design organizations to drive growth and scale in a more focused way. More recently, we announced Olivia Nadebaum as our new Chief Operating Officer. Olivia joins us from Google Cloud, where she helped build and scale their SMB business, directing go to market efforts for a multibillion dollar portfolio of products that included G Suite and Google Drive. Olivia is a great strategic thinker and hands on leader, and I'm thrilled to have her on our team as we enter our next phase of growth. We also welcome Tiffin Dano Kwan as our new CMO in January. Tiffin is an accomplished executive with more than 15 years of experience in SaaS, most recently as CMO of SAP Ariba. She's a data driven and operational leader with a long track record of success in integrated channel and partner marketing. I'm thrilled about what each of these leaders bring to Dropbox and we have the right team in place for our next chapter in our company's evolution. Overall, it's been an exciting year for Dropbox. And while we've made some great new additions to our team and I'm proud of everything we've accomplished, we clearly still have work to do. Looking ahead, Ajay and I want to ensure we continue to strengthen the investment thesis we bring to market and deliver shareholder value. As we drive adoption of our new products and continue to invest in growth, we'll be driving higher productivity and free cash flow in 2020. And by the end of this year, our goal is to become a profitable business on a GAAP basis. This orientation also extends beyond 2020. Longer term, we plan to drive accelerated margin expansion as we continue to innovate and methodically extend our platform into new markets. With that in mind, by 2024, we now expect to generate non GAAP operating margins of 28% to 30% and annual free cash flow of over $1,000,000,000 This is a meaningful increase over the targets we announced at our Analyst Day last year. In addition, as announced earlier today, our Board of Directors has authorized a $600,000,000 share repurchase plan. We think this approach will deliver compelling returns to shareholders while also enabling us to make disciplined and focused investments in long term growth. With that said, let's turn to our product strategy for 2020 and highlight where we plan to focus our investment and resources. Our primary focus this year will be on driving adoption of the new Dropbox. Today, millions of users are active in our new desktop experience and with the rollout to just a portion of our user base, we've seen early adoption over 200,000 of our 450,000 business teams. This is an important milestone because our new desktop app provides us with a foreground experience to help drive team expansion in a way that wasn't previously possible. Now that we've begun to land the new desktop app within Teams, we have the tools to further optimize our onboarding flows and in product experiences to drive higher conversion efficiency. We plan to do this by simplifying the process of setting up a Dropbox business team and streamlining the invitation process to reduce the friction of finding and adding new team members. For example, instead of requiring an admin to add and improve new team members, we'll make it possible for the product to be spread virally from user to user. We also plan to highlight new add on products such as extended version history and legal hold to further drive upsells. And we'll be able to better promote products like HelloSign as well as our partner SKUs like the one we have with BetterCloud to our user base. Most Dropbox users in the workplace are still using one of our individual or basic plans. As a result, there remains a large embedded opportunity within our existing user base to drive both conversion and upsell into a business team plan. Driving adoption of our team plans not only unlocks value for our users, but provides a mechanism for us to grow our deployments within businesses over time. And while our primary focus in 2020 will continue to be on our business teams, we'll also introduce new products to address high value personal workflows. 80% of our subscribers use Dropbox for Work, but a substantial portion of our over 600,000,000 registered users depend on Dropbox to address important personal use cases as well. And we know that over 40% of our business teams include a member who is formerly an individual subscriber, highlighting the importance of investing in our personal users as they're an integral part of our customer journey and driver of business adoption. We have a unique view into the problems our users face both while using technology at work and at home and it turns out that these issues have a lot in common. Our customers deal with fragmentation and distraction in their personal lives too. So this year, we'll start to address some of those challenges, like accessing and sharing critical information such as your tax returns or digital copies of passports or managing passwords across services. These pain points open up opportunities for us to extend the secure and collaborative capabilities of Dropbox to our users' most important workflows at home, while expanding our monetization opportunities and the overall value proposition of our platform. To wrap things up, 2019 was a milestone year for Dropbox. We set a clear product vision for the company and launched the smart workspace category to help our users stay focused on their most important work. And as we begin the new year, we're committed to investing in our future while operating with discipline to drive more profitability. Underpinned by a strong core business, we remain confident in our ability to deliver a healthy balance of growth at scale, while accelerating margin expansion and free cash flow generation. I'll now turn it over to Ajay, our CFO, to walk through our financial results. Thank you, Drew. Our Q4 results demonstrate our strong execution and focus on delivering a healthy balance of top line growth and profitability. Total revenue for the quarter was up 19% year over year to $446,000,000 On a constant currency basis relative to the average rates across Q4 2018, year over year growth would have been 20%. As this is our 1st earnings call of the year, I'd like to note that we're formally adding total annual recurring revenue or ARR as a new key metric. We believe that ARR is the best indicator of our business performance and provides the most complete insight into the contribution from all of our revenue streams, including our planned future products, add ons, transaction volume based offerings and certain fees from the referral of users to our partners. Success with these types of initiatives will manifest in total ARR, but may distort or be excluded from metrics like paying users and ARPU. With this in mind, ARR for the quarter was $1,820,000,000 up 19% from the year ago period. We ended Q4 with 14,300,000 paying users and ARPU was $125 in the period. Our continued growth in ARR reflects our strategy to methodically convert our highest value users to drive sustainable monetization and retention. Let's move on to some of our customer highlights. In Q4, we had a number of wins across a range of verticals, including healthcare, government, finance and real estate. In addition to the deployment with Xposure that Drew mentioned, I'm excited to share that one of the largest medical technology companies is now a Dropbox customer. This U. S. Headquartered company recently signed a 3 year commitment to Dropbox and will be deploying our enterprise product to over 10,000 employees. Strong organic adoption of our products among the company's sales, operations, marketing and design teams over the past few years was instrumental to landing a multi 1,000 seat deployment. Employee preference, our best in class sharing tools and HIPAA compliance were all important factors in this customer's decision to subscribe to our enterprise SKU. Before I move on to the rest of the P and L, I want to note that unless otherwise indicated, all income statement measures that follow are non GAAP and exclude stock based compensation, amortization of purchased intangibles and certain expenses related to the acquisition of HelloSign. Our non GAAP net income also excludes net gains and losses on equity investments. 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. Moving to the P and L. Gross margin for the quarter was 78%, an increase of 2 percentage points compared to the Q4 of 2018. The increase in gross margin was driven by unit cost efficiency gains our infrastructure hardware, including lower depreciation as a share of revenue. Moving to operating expenses, 4th quarter R and D expense was $132,000,000 or 30 percent of revenue compared to 29% in Q4 a year ago. The increase as a percentage of revenue was primarily driven by higher headcount and investments in new product development and testing. S and M expense was $97,000,000 in the quarter or 22% of revenue compared to 25% in Q4 a year ago. The decrease was due to lower brand marketing spend relative to Q4 of 2018. G and A expense was $47,000,000 or 11 percent of revenue, which is consistent with our G and A expense as a percentage of revenue in the prior year. Taken together, we earned $70,000,000 in operating profit in the 4th quarter. This translates to a 16% operating margin, which is a 5 percentage point improvement from Q4 of 2018. Net income for the quarter was $67,000,000 up from $42,000,000 a year ago. Diluted EPS was $0.16 per share based on 418,000,000 diluted weighted average shares outstanding, up from $0.10 in Q4 a year ago. Moving on to cash balance and cash flow. We ended Q4 with cash and short term investments of $1,159,000,000 Cash flow from operations was $187,000,000 in the quarter. Capital expenditures were $26,000,000 yielding free cash flow of $161,000,000 or 36 percent of revenue. CapEx in Q4 included $23,000,000 of spend on our new headquarters, of which $10,000,000 was offset by tenant improvement allowances. Excluding the headquarter spend net of TIAs of $13,000,000 free cash flow would have been $175,000,000 or 39 percent of revenue. In Q4, we also added $37,000,000 to our finance lease lines for data center equipment. We expect additions to our finance lease lines to be between 7% 8% of revenue in 2020 and to decline modestly as a percentage of revenue on an annual basis thereafter. Let's move on to our full year results. Total revenue for 2019 was $1,661,000,000 representing 19% year over year growth. On a constant currency basis relative to the average rates across 2018, year over year growth would have been 21%. Gross margin was 76%, up 1 percentage point from the prior year and our operating margin was 12%, in line with 2018. As a reminder, our operating margin in 2019 included a 2 point headwind from non recurring facilities and M and A related expenses. Cash flow from operations was $529,000,000 in 20.19. Capital expenditures were $136,000,000 yielding free cash flow of $392,000,000 or 24 percent of revenue. CapEx in 2019 included $120,000,000 of spend on our new headquarters, of which $55,000,000 was offset by tenant improvement allowances. Excluding the headquarter spend net of TIAs of $64,000,000 free cash flow would have been $457,000,000 or 27 percent of revenue. In 2019, we also added $144,000,000 to our finance lease lines for data center equipment. Now let's turn to our guidance. For the Q1 of 2020, we expect revenue to be in the range of $452,000,000 to $454,000,000 or 17% to 18% year over year growth. On a constant currency basis relative to the average rates across Q1 of 2019, we anticipate year over year growth to be approximately 18% to 19%. We expect non GAAP operating margin to be in the range of 13.5% percent to 14% and diluted weighted average shares outstanding to be in the range of 418,000,000 to 423,000,000 based on our trailing 30 day average share price. I would like to remind everyone that in Q1 of each year, there is seasonality to operating margins and free cash flow due to the reset of payroll taxes and the payout of year end bonuses. Turning to the full year 2020, we expect revenue to be in the range of 1.890 to $1,905,000,000 or approximately 14% to 15% year over year growth. On a constant currency basis relative to the average rates across FY 2019, we anticipate revenue to be approximately $8,000,000 higher. As Drew noted, we're focused on driving the adoption of our new desktop app this year as well as bringing some new products to market. These initiatives will be incorporated into our outlook as we develop more signal throughout the year. We expect fiscal 2020 gross margin to be approximately 1.5 points higher than fiscal 2019. Non GAAP operating margin to be in the range of 17.5% to 18% and free cash flow to be in the range of $475,000,000 to $485,000,000 This range includes one time spend related to the build out of our new corporate headquarters as well as a payout of deal consideration holdback related to our acquisition of HelloSign. Excluding these items, free cash flow would be $525,000,000 to $535,000,000 2020 is the last year we expect to incur CapEx related to the build out of our new headquarters. Finally, we expect 2020 diluted weighted average shares outstanding to be in the range of 4.17 $1,000,000 to $422,000,000 based on our trailing 30 day average share price. To echo what Drew mentioned earlier, we're committed to delivering shareholder value as we invest across our business in 2020 beyond. As a result, we're raising our long term operating margin target to 28% to 30%, up from 20% to 22%, which we expect to reach by 2024. To get there, we'll drive more efficiency and higher levels of productivity across each of our operating expense categories. Accordingly, we're revising our long term target for R and D spend to 23% to 25% of revenue, down from 25% to 27% previously. Across R and D, we plan to be prudent with headcount expansion over the coming years as we drive adoption of the new Dropbox, optimize our team oriented conversion flows and invest in new high ROI product launches. We're revising our long term target for S and M spend to 18% to 20% of revenue, down from 22% to 24% previously. Across S and M, we plan to focus our spend to support adoption of the new Dropbox, while prioritizing our most strategic growth and monetization initiatives. Finally, we're maintaining our long term G and A spend target of 8% to 10% of revenue. I also want to note that these efficiencies put us on a trajectory to generate over $1,000,000,000 of free cash flow on an annual basis by 2024. I want to be clear that as we execute against our new targets, we won't be reducing investment in our growth engine and new product development. Rather, we've carefully considered where we can drive material efficiency improvements across the business while preserving investment in our highest potential product and growth bets. Our updated long term operating margin and free cash flow targets not only demonstrate our commitment to delivering profitable growth, but are a testament to the inherent efficiency of our self serve business model. Finally, as indicated in our earnings press release, our Board has authorized a $600,000,000 share repurchase program that we intend to execute on beginning this quarter. This not only underscores the confidence that our Board and management team have in the future of Dropbox, but also allows us to leverage the strength of our balance sheet to deliver returns back to our shareholders. I'm excited about the large and growing opportunity ahead of us as we continue to strengthen our core business and pioneer the smart workspace category. I'll now turn it back to Drew for closing remarks. Thank you, Ajay. We're focused on driving top line growth at scale, improving margins and efficiently allocating our capital in 2020 as well as longer term. I'm proud of what we had achieved in our 1st 2 years as a public company and with over 600,000,000 registered users, we continue to have a huge opportunity ahead of us. Our new desktop app and the introduction of our new personal products later this year are just a start and I'm excited about our future. With that, I'd like to open up the call for Q and A. Operator? Thank you. Our first question comes from Justin Post with Bank of America. Your line is open. Great. Thank you. A couple of questions. First, just on the long term outlook, dollars 1,000,000,000 of free cash flow and higher margins. Just what's changed and give you confidence in that margins? And I guess philosophically, why not spend more on R and D and try to drive higher growth? How are you thinking about that? And then secondly, when we just think about the billings growth, it's more in line with revenue growth around 20%. Have you seen less shift to monthly or any reason for that? Thank you. This is Drew. I'll take the first part and thanks for the question. I wouldn't say anything has really changed with our philosophy. I mean, we've always been focused on delivering a healthy balance of growth and profitability. And we're going after a huge opportunity in TAM and think we're uniquely positioned to do that. But we did see an opportunity this year to strengthen the investment thesis we wanted to bring to market and put a couple of stakes in the ground in terms of our long term profitability and cash generation that reflect the inherent efficiency of our business. And just to be really clear that we want to expand margins as we scale, drive efficiency, drive productivity, while still leaving us plenty of room to invest. So as Ajay touched on, we still have our dollar investments in these areas will continue to grow at healthy levels. Yes. And to answer the second part of your question there, Justin, on billings. So our recent Plus repricing and repackaging initiative was a tailwind to billings in Q4. We're still working through that exercise. And I would just note, as I've mentioned previously, while billings are related to revenue growth, not consistently predictive of revenue for us, there can be items in a given quarter that move billings growth higher or lower, but don't directly correlate to revenue. But we are seeing strength across monthly and annual subscriptions today. Great. Thank you. Thank you. Our next question comes from Mark Murphy with JPMorgan. Your line is open. Yes. Thank you very much. Drew, as you roll out the new Dropbox app and try to move more into the foreground, are you finding that people spend more time in Dropbox, in other words, more minutes per day or more screen time? Or are you finding that they're taking more actions, maybe they're getting into the app a little more frequently than they had been in the past? Just curious on overall how does it change the engagement that you're seeing? Yes, we're seeing strongly in signal both in terms of the kind of engagement that you're talking about. We certainly look at collaborative engagement, engagement with new features like our people pages and our machine learning driven smart suggestions. So we've been happy with not just so I'd say broadly, with these new cohort, those things are or engagement is increasing and just as importantly, the kind of engagement, higher value engagement is increasing. So that's certainly been an objective of the new Dropbox and something we're going to continue to drive and iterate on. Thank you. And as a quick follow-up for Ajay, I was wondering how you'd characterize the Q4 performance in terms of the outbound activity, in other words, kind of the lumpier enterprise level deals, which can affect the paid user numbers? And just any comment on that outbound pipeline compared to a year ago? Sure. I can say that we continue to close a large volume of deals both through our self serve engine as well as through our outbound efforts. And just as a reminder for those on the call, self serve represents 90% of our total revenue and is our primary go to market channel and we've built an efficient and scalable model that balances strong self serve growth with a disciplined investment in outbound and that's a model we plan continue to scale for both our existing and our newer products. So just a lot of consistency in what we saw with respect to that channel in Q4. Thank you. Thank you. Our next question comes from Heather Bleyn with Goldman Sachs. Your line is open. Great. Thank you so much. I had 2 quick questions. One just from the nice improvement you're going to see next year or I'm sorry, this year in gross margins. Just if you could kind of detail kind of where the leverage is coming from on the gross margin line and if that's something we can expect on an ongoing basis? And then secondly, just in regards to paid users, I mean, kind of following up a little bit to Mark's previous question, but you had made a comment, maybe I missed it this time, but made a comment on last quarter's call just saying the first half of this year, you would expect kind of sub growth to be kind of below what we had been seeing. Do you still kind of see that comment and should we be benchmarking that off of the I think it was 300,000 that you just signed, but any comment you could give us on that kind of P times Q equation would be very helpful. Thank you. Sure. So to start with the first part of your question around gross margins, we've continued to drive gross margin expansion over the last few quarters and we have a long term target for gross margins of 78% to 80% of revenue and we are at the lower end of that range today. And those efficiency gains have been driven by our investments in things like SMR and the new cold storage tier that we launched. And so you'll see us continue to drive more and more efficiency across GM in 2020. Right now that long term target continues to be 78% to 80% of revenue. And as it relates to paying users, yes, you're correct. On last quarter's call, we noted that paying user growth would be slightly lower over the next couple of quarters as a result of our Plus repricing and repackaging initiative and that's consistent with our expectations when we launched it. That initiative overall continues to be a tailwind to revenue. And I would just note that profitably growing our total ARR base versus optimizing for a specific net new paying user number is our priority and where you'll see us focus resourcing and commentary going forward. Okay. So just to be clear then, that 300,000 is like that type of level is what you're trying to steer us towards, given that comment still seems to hold with what you said on the Q4 call? Yes, the comment that we made prior still holds. We don't formally guide. Yes, we don't formally guide the metric, but the prior commentary is reflective of reality today. Okay, great. Thank you. Thank you. Thank you. Our next question comes from Karl Keelstaedt with Deutsche Bank. Your line is open. Thank you. I'd love to go back to that initial question around the long term growth margin trade off. So to go from 17%, 18% margins this year to 28% to 30% in 2024, that's obviously about 300 basis points a year, which is fantastic. At the Analyst Day in the fall, you put up a slide suggesting that you could do over 200 bps a year in operating margin improvement only under what you called a moderate growth scenario. So obviously, if getting to 28 to 30 via a fairly material growth deceleration that might dampen the volume of the applause around that margin improvement. So maybe if I could ask a fairly pointed question to Drew and Ajay. In 2024, do you think Dropbox can still be a double digit revenue growth story? Sure. Why don't I start by answering some of the questions and points you were making around how we plan to drive that margin expansion and then I can talk a bit about long term growth and how we're thinking about that today. So to start with profitability, I would just reiterate what Drew said in that we've always been focused on delivering a healthy balance of growth and profitability and we want to ensure that we continue to strengthen the investment thesis that we're bringing to market and our 2020 guidance and the revisions that we made to our long term margin targets are reflective of the inherent operating efficiency of our business and we've aligned under new leadership to drive growth and scale in a more focused way and that's unlocked opportunities to accelerate margin expansion and free cash flow generation. And so this year as well as longer term, we plan to drive more efficiency and higher and we optimize those team oriented conversion flows and invest in new high and we optimize those team oriented conversion flows and invest in new high ROI product launches. And then across S and M, as I mentioned earlier, we'll focus our spend to support adoption of the new Dropbox while prioritizing our most strategic growth and monetization initiatives. And as it relates to growth, as we execute to our expense targets, we won't reduce investment in our growth engine and new product development. Rather, we've really carefully considered where we can drive material efficiency improvements across the business, while preserving investment in our highest potential product and growth bets. And these are bets, Carl, that you will see factored into our top line guidance as we build more signal over the course of the year. And I would say at the highest level we're focused on solving large and unmet customer needs and methodically expanding the markets that we serve. Our acquisition of HelloSign launch of the smart workspace category I think are good examples of this. And longer term, certainly focused on maintaining double digit revenue growth committed to delivering over $1,000,000,000 in annual free cash flow by 2024 and being prudent with the expectations that we're setting today. We are in the business of generating returns on investment and aspire to higher and leading levels of productivity on our spend. Got it. Terrific answer. Yes, go ahead, Drew. I would just underscore what I just said about the long term aspirations. I mean, there's no question that the opportunity is there. And frankly, we don't see anyone solving our customers' challenges around being able to focus at work and the fragmentation and distraction that's happening as there's this proliferation of tools at work. And so we think we're uniquely positioned for that and what we've launched with the new Dropbox is just beginning. Got it. Okay, terrific answer. And then maybe my follow-up, just on the buyback, Drew or Ajay, should we interpret that as a signal that in terms of use of cash 2020 might be a somewhat quieter M and A year, would that be fair or no? Well, this is Ajay. I can say that M and A has always been an important part of our growth strategy as a company. That will continue to be the case going forward. And we really have an efficient cash flow generative business and we're confident that we can invest in new products and growth while engaging in a share repurchase to deliver returns back to our shareholders. And in 2020, for example, we do plan to generate 100 of 1,000,000 of dollars of free cash flow on top of the nearly $1,200,000,000 of cash and marketable securities we currently have on our balance sheet, which gives us plenty of dry powder to do both. Yes. And I wouldn't say this is a commentary on our willingness to do M and A. Got it. Congrats on the terrific out your guidance. Thank you. Thank you. Our next question comes from Rishi Jaluria with D. A. Davidson. Your line is open. Hi, guys. This is Hannah on for Rishi. Thanks for taking my question. First off, could you guys just talk about what you're seeing in terms of cost allocate for heli-site? And if there are any quantitative measures you can provide on how the new Dropbox company does that? Sure. So these are important products that continue to do well. So paper drives monetization more indirectly in that people who are customers that drives lifetime value of Dropbox. So customers that use Dropbox and Dropbox Paper convert to a paid subscription at twice the rate, they retain at a better rate. And so paper is an example of something where we today we monetize that indirectly and then HelloSign is a separate SKU and that's and we're focused there on driving adoption of HelloSign among Dropbox users and I'd say we're early in that process. Great, thanks. And I would just add that the new Dropbox helps drive adoption of both of those things. It gives us a new surface to both promote them and build a more integrated and differentiated experience for both. So for example, with HelloSign, after you hit save on a document or a contract being able to send it out for signature with one click. This is there's a lot more surfaces like that where we can help you connect users to that to all of our new products. Great. That makes a lot of sense. And then is there any notable future functionality that's been dropped off black, a lot of customers have a lot of customers or Well, I think we're continuing to iterate on the core experience and helping well, we're the new graphics, it's a completely new desktop app built from scratch. And so guiding folks to use that new behavior instead of being in the operating system, we're just trying to make that transition as seamless as possible and gently I mean Dropbox does a lot of different things for people. So figuring out how do we introduce new functionality like HelloSign and Paper, but also, play to our strengths and simplicity and design, That's the trade off. Those are the kinds of trade offs we're still iterating on, but we're happy with our progress. Great. Thanks, Drew. Thank you. Our next question comes from Pat Walravens with JMP Securities. Your line is open. Hi, this is Mark for Pat. Thank you so much for taking my question. Just on Halozyme, just wondering if you can talk a little bit about what's your go to market strategy there? Thanks. Hi. So it's pretty straightforward. I mean, there's a bunch of different certainly HelloSign eSignature. There's demand for that across all of our segments. I'd say the part we're most focused on is really HelloSign strength, which is in self serve and their sweet spot is really SMB. And when we look at the e signature market, particularly for SMB, it's very it's under penetrated. I mean, a lot of our we watch a lot of our customers still using pen and paper based workflows. And one of the things we're most excited about with the combination was being able to introduce HelloSign to our self serve base. We're in the early innings of that. And as I've said before, the new Dropbox and other levers or the new Dropbox and we have all kinds of opportunities across our whole go to market to introduce HelloSign to our customers. So we're excited about the upside potential there. Great. Thank you. Thank you. Our next question comes from Scott Wilson with RBC Capital Markets. Your line is open. Thanks for taking my question today. I'm on for Alex. I guess first, Drew, you recently hired a COO. Can you kind of speak to the delegation of responsibilities where you see Olivia's strengths complementing yours? And maybe areas of the company you expect might receive more or less of your attention as Olivia kind of fully ramps into her role? Sure. So for context, we we just added Olivia Nadebaum as our new COO. She just started a couple of weeks ago and she's hit the ground running and she comes from Google Cloud where she ran their SMB sales and more than that a lot of go to market. And she will be running all of our go to market functions. And so there's a number of functional areas that she'll be responsible for and she'll be a partner for me in running the company more broadly. So making sure that as now we have multiple lines of business and the complexity and scale of the business has increased, really making sure that we're operationally excellent across all those dimensions. Olivia will be helping me do that throughout the company and that frees me up to spend more time proportionately on product development, making sure that our pipeline of new products, things like the new Dropbox, make sure our core business grows. I'm proportionately be able to spend more time on product development. Great. Makes sense. And maybe a quick follow-up for Ajay. Ajay, if I'm not mistaken, I think your net add of ARR, your sequential ARR add in the Q4 was actually less than it was in the Q3. So I guess the question would be, did you see any uptick in churn relative to expectations given the pricing changes? And I guess if not, how should we kind of frame that ARR metric this quarter? Like in general, do you feel that your business kind of has the pronounced seasonality in 4Q typical of most software companies? Are you a little bit atypical there? Yes. Good questions. And I would say as relates to the Plus repricing and repackaging, the answer to your question is no. We've seen a modest impact, but the impact has been well within our expectations. And that's something we noted last quarter as well. I can say that net revenue retention for our Plus subscribers has increased meaningfully as a result of the initiatives. So overall, it's been a tailwind to revenue and we've been able to manage to very healthy retention rates. And last year, I can say that ARR benefited from a few different factors that were non recurring in certain periods. And so early in the year benefited from our acquisition of HelloSign and then from monthly subscriber renewals as part of that Plus repricing and repackaging in Q3. And so adjusted for these one time non recurring benefits, net new ARR in Q4 was consistent with historical quarters in 2019. I'd also note that total ARR grew 19% year over year in Q4. So, we delivered a strong growth rate there. Perfect. Thanks, guys. Thank you. We have a question from Brent Thill with Jefferies. Your line is open. Hi. This is love Souda on for Brent Thill. Thank you for taking my questions and thank you for the long term guidance. I sort of wanted to ask about how you guys are thinking about ARPU versus like net new user growth over the next year. I mean, you have seen some meaningful ARPU expansion get in the plus repackaging and repricing. What should we expect going into next year for ARPU versus your net new user growth? Sure. This is Ajay. Happy to take that question. I can say that in the past I've talked about a material driver of ARPU expansion. One of the primary drivers of ARPU expansion being higher attach rates to our premium SKUs from new paying users. That continues to be the case. It's a very material driver as well as us driving a higher and higher mix of Teams licenses, which have a higher ASP over time. And so we continue to drive that mix shift from individuals towards Teams and we continue to drive higher and higher attach rates to our premium individual plan as well as our premium team plan. So that tailwind to ARPU is going to continue throughout the year. The primary driver of revenue growth for us has always been paying user conversion. So that will continue to be the case just on a volume basis, but you'll see a continued tailwind to ARPU as well over the course of 2020. Got it. And then just one quick follow-up, if I may. In terms of the partnerships, I know you guys mentioned Zoom, Slack. Has it led into some kind of go to market traction going to market together with Zoom or Slack or some kind of cross sell motion there? Any color would be appreciated. Thank you. Sure. I mean, there's certainly that opportunity in growing our ecosystem is something is an area where we're going to continue to make big investments. So the starting point has been building the integrations. And so the integrations between Dropbox and Slack, both the Dropbox integration within Slack and the Slack integration with Dropbox are really popular on both sides. And I could say the same thing about our integrations with Zoom and others that we've announced recently. So we've been focused initially on the product experience and making sure that's good and now we're focused and we'll be turning to focus on driving adoption and other things we can do on go to market. Got it. Thank you. All right. Thank you everyone for joining us today. We appreciate your support and we're looking forward to speaking with you again next quarter. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.