Good afternoon, ladies and gentlemen, thank you for joining Dropbox's Fourth Quarter 2023 Earnings Conference Call. 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 Ishaan Gupta with Dropbox's Investor Relations Team.

Thank you. Good afternoon, and welcome to Dropbox's fourth quarter 2023 earnings call. Before we get started, I would like to remind you that our remarks today will include forward-looking statements, such as our financial guidance and expectations, including our long-term objectives and forecast for first quarter and fiscal year 2024, and our expectations regarding revenue growth, profitability, operating margin, and free cash flow, as well as our expectations regarding our business, assets, products, strategies, technology, employees, users, demand and the macroeconomic environment. These statements are subject to risks and uncertainties that could cause actual results to differ materially. They are also based on assumptions as of today, and we undertake no obligation to update them as a result of new information or future events. Factors and risks that could cause our actual results to differ materially from those forward-looking statements are set forth in today's earnings release and in our quarterly report on Form 10-Q filed with the SEC. We will also discuss non-GAAP financial measures, which are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of GAAP and non-GAAP results is provided in our earnings release and on our website.

Thank you, Ishaan, and good afternoon, everyone. Welcome to our Q4 2023 earnings call. Joining me today is Tim Regan, our Chief Financial Officer. I'll first provide a recap of 2023, share a perspective on our fourth quarter, and then close with an overview of our strategy for 2024. Tim will then go over our financial results for Q4 and fiscal year 2023, as well as provide guidance for Q1 and fiscal 2024. In 2023, we had two main business objectives. The first was to build AI-powered product experiences centered around organizing all your cloud content. The second was to continue evolving our core FSS offering to provide a seamless product experience for our customers' workflows. I'm proud of the work our team accomplished on both of these fronts. Starting with building AI-powered product experiences. In 2023, we introduced the first iteration of Dropbox Dash, a standalone universal search product, leveraging AI and machine learning. With more of our work spread across hundreds of tabs in a browser, knowledge workers are spending far too much time just finding what they need to do their work, particularly in this new world of distributed work. Dash connects all of your apps, tools, and content in a single search bar, so it's easy to find everything you need in one place, regardless of where it lives. And because Dash is powered by machine learning, it learns about you and your priorities the more you use it. In 2023, Dash moved from closed-beta to open-beta and represents our first major AI-powered product experience. While still very early, we are gaining valuable insights into the types of customers that are engaging with this product and the features that are generating the most interest. For example, we're seeing that more engaged existing users on our Dropbox FSS paid plans tend to adopt Dash and retain at a higher rate. We made significant progress against our second objective of evolving our core FSS offering to create a better product experience for our customers' workflows. There were several highlights on this front in 2023, including the continued optimizations we made across the platform to reduce churn on a year-over-year basis, improve top-of-the-funnel and ultimately ensure we're delivering the best product experience to our users. Specifically, we made a number of operational enhancements including improving the sharing experience across our mobile and web services, optimizing our payment processing to reduce churn, and leveraging Google One Tap to streamline and improve the user onboarding experience. Given the size of our registered base, these changes impact millions of users, and we believe the progress we made in 2023 will strengthen our foundation heading into 2024. Additionally, many of our customers lack awareness of our capabilities beyond storage, often asking us for features that we already have such as e-signature or document tracking and analytics. We took several steps in the fourth quarter to address this awareness gap and to provide more value to our customers. We introduced our new web redesign that makes it easier for our users to get the most out of the Dropbox platform, including the ability to sign and send documents and use our video products. We also introduced the first generation of our fully integrated bundled offerings for our Teams customers, which included updated pricing and packaging to reflect the added value of all of our product capabilities. I will share more on the early results of this initiative in a moment. Along the way, we continued to grow our topline, exceeding the guidance we shared while also achieving record non-GAAP operating margins of over 32%, generating more than $750 million of free cash flow, and returning $540 million back to shareholders in the form of share repurchases. Tim will speak to the financial results in more detail, but I'm proud of our focus on improving the overall profitability profile of our business while still investing in new initiatives and growth opportunities. Although I was proud of last year, Q4 was a challenging quarter; some of these challenges were expected. For instance, we continue to see the broader economic backdrop impact both our Teams and document workflow businesses, as customers are becoming more cautious with their spend and exhibiting higher levels of price sensitivity. This resulted in reduced levels of gross new licenses and upsell activity alongside higher churn and downsell. As an example, certain Teams customers, particularly those in the tech sector, continue to reduce licenses due to spending cuts and headcount reductions of their own. FormSwift and DocSend also saw elevated churn in the quarter. As we've discussed on our call last quarter, we traditionally see seasonally low activity within our File Sync and Share business as well as our FormSwift business in the fourth quarter of each year. We also anticipated headwinds stemming from strategic business decisions we made last year, which we believe will benefit us in the long run at the cost of some negative impact in the near term. For example, like others have done, we sunset unlimited storage in our advanced plan and transitioned to a metered model. We found that some customers weren't using the plan as intended and were taking advantage of the policy to do things like mine crypto or use a business account for personal use cases or even resell storage. While this change will ultimately translate into increased profitability in the long term, I'd like to acknowledge the increased churn for those customers seeking storage solutions that we no longer offer. We also de-emphasized our family plan, as we found that some business users were also using it as a loophole to obtain licenses at a lower cost. As we noted last quarter, this negatively impacted the number of paying users in the quarter. We faced additional challenges in Q4, which we are actively addressing. In Q4, we ran several tests and experiments across our individual plans with new trial flows and other initiatives, but they did not generate the uplift we were looking for. However, we still see opportunity here and we're iterating on these experiments and incorporating the related learnings into our plans for 2024. The early results on our bundled offerings for Teams have been mixed. As a reminder, our approach was to offer multiproduct bundles to new Teams customers at a higher price point to reflect the additional value we were adding to the plans. While our intention was to migrate existing customers to the new SKUs at their current price point, for now, we've held off on migrating all our existing Teams customers. While we're seeing an uptick in multiproduct adoption with new customers as well as an ARPU lift from these plans, we're also seeing a reduction in top-of-funnel activity and conversion rates, so we're revisiting our approach. In Q1, we'll keep iterating on our pricing and packaging and will continue to improve the product experience for these customers. At the same time, we will refine our marketing approach in our self-serve engine to ensure that we're properly identifying and serving customers that are interested in FSS only SKUs versus our multiproduct. Ultimately, we're still aiming to serve those who want multi-product capabilities, as we continue to see that customers who engage with these capabilities convert and retain at notably higher rates than storage-only customers, but will be iterating on the past desktop forward with our bundle strategy and we'll have more to share in the following quarter. All of which brings me to our strategy for 2024. As I have been more hands-on in the business over the last year, I've been refocusing our team and our strategy on the fundamentals of our growth drivers and the quality of our user experience. First, within our File Sync and Share business, we still see an opportunity to improve the collaborative experience to strengthen the funnel and drive growth. FSS is our largest business line, where small improvements can lead to meaningful financial and customer impact. In recent years, we've focused heavily on churn improvements that resulted in better performance for our individual business, and we see a similar opportunity with our Teams customers. For example, many of the actions conducted by our Teams users today are predominantly solo actions such as storing and viewing content as opposed to sharing and commenting on shared content. We've seen that as we streamline and remove friction in our sharing and collaborative workflows, like commenting, this contributes to more viral growth, faster team expansion, and higher retention. We see similar opportunities to improve this experience for teams as we have for individuals. Additionally, we see an opportunity to improve the team admin workflow as well, as the admin approval rate for new licenses on the team account remains low. Team admins often struggle with onboarding new users and by leveraging the admin console for permissions and controls, we're focused on making improvements to make it easier for admins to discover and leverage admin workflows so they can more easily expand their team deployments. As I mentioned earlier, we will also invest in our Teams plans by iterating on our bundles experience to ensure that our customers are aware of and leveraging our multi-product capabilities. This includes weaving advanced sharing capabilities such as DocSend and Replay into our product experience, given our proven strengths in solving sharing for our customers as well as the viral network effects that stem from sharing content. As we improve these team experiences, we can grow through license expansion or by introducing customers to our premium functionality. Our second big opportunity is with AI-powered product experiences, most notably Dash. Dash is addressing the challenge with cloud-based content and URLs scattered across hundreds of apps and browser tabs. We have a long history of solving our customers' problems related to organizing, searching, and sharing content, and we believe our platform's strengths, customer trust, and interoperability position us well to solve the same problems. This is a growing market; IDC estimates the search and knowledge discovery software market to be about $7 billion today with the potential to more than triple over the next four years. We'll continue to invest in Dash as our lead AI product, and we're taking a similar approach as we did when we launched Dropbox 1.0. We're using this beta period with Dash to ensure that we're meeting high-quality and scalability standards before driving adoption. Our primary focus in 2024 is on finding product-market fit with our customers. More specifically, we're going to focus on improving the onboarding, activation, and retention of users on Dash to ensure we provide the best experience to customers. For example, we've noticed users encountering friction in adding and connecting Dash to various apps, so we're making the experience of connecting apps during onboarding smoother to improve activation rates. We're also investing in experiences like stacks, improving discoverability and sharing. This is critical to creating the type of virality that was essential to Dropbox's growth in the early years. Once we achieve the desired quality of the product experience in metrics like retention, we will implement the same success strategies we used in the past, including growing the product virally, making big investments in sales and marketing, and promoting Dash to our existing FSS users. As I shared earlier, our customers are often unaware of our capabilities beyond storage. To this end, last week we announced a partnership with McLaren Formula 1 team, where Dropbox is becoming an official technology partner. As part of this partnership, McLaren will rely on Dropbox to securely share files and collaborate on video review and approvals, and our branding will be featured on their cars and team assets. This is an important effort to drive awareness of our latest offerings and educate customers and partners about all the ways that Dropbox can help teams work more effectively together. We have ambitious goals in 2024 and I'm excited to work with our teams to achieve everything we have planned. We've also made several strong additions to both our leadership bench as well as our Board over the past few months. In December, Eric Cox joined us as our Chief Customer Officer, overseeing our go-to-market teams. Eric comes to us from Vimeo, where he was COO, and prior to that, he spent nearly 20 years at Adobe in various roles across sales, marketing, and operations. We also welcome Dr. Andrew Moore to our Board of Directors. Andrew is a leading expert in AI, machine learning, and robotics, and he has had a decade-long career in academic and tactical leadership. He was previously Vice President for the AI division of Google Cloud and served as Dean of Carnegie Mellon University School of Computer Science. Andrew's technical expertise in building AI-powered products will offer invaluable perspective as we invest in AI internally across our product portfolio. Both Eric and Andrew will play an important role in Dropbox's future, and I couldn't be more excited to partner with them to achieve our goals. In closing, 2023 was a year marked by both successes and challenges. Looking ahead, we're confident that we have the right team in place to execute against our strategy for 2024. This year represents a unique point in our Company's evolution. Many of our mature FSS products are experiencing slowing growth, while newer products like Dash are still early in their lifecycle. While we expect that our new products and initiatives will take time before they start to meaningfully contribute to our top-line results, we're excited about the large opportunity we see in front of us. As we embark on the next phase of our company's journey, I'm personally committed to building the best products we can for our customers, delivering strong results for our shareholders, and achieving our mission of designing a more enlightened way of working for all knowledge workers who use Dropbox. With that, I'll turn it over to Tim to share a recap of our 2023 financial performance as well as our expectations for 2024.

Thank you, Drew. I'll cover our financial highlights from Q4 and share guidance for Q1 and fiscal 2024. Starting with the fourth quarter of 2023, total revenue for the fourth quarter increased 6% year-over-year to $635 million, beating our guidance range of $629 million to $632 million. Foreign exchange rates provided an approximately $1 million headwind to growth. On a constant currency basis, revenue grew 6.2% year-over-year. Total ARR grew to a total of $2.523 billion, up 3.8% year-over-year on a constant currency basis. However, on a constant currency basis, ARR declined by $2 million sequentially. As Drew mentioned, the sequential decline in ARR was driven by a few factors, including business decisions we intentionally made such as eliminating unlimited storage for advanced plan users, which resulted in incremental churn and softness in our top of funnel, a continued challenging macroeconomy, and the typical seasonality we see in our business in Q4. We exited the quarter with 18.12 million paying users, which reflects a sequential decline of roughly 50,000 paying users. Several factors led to this decline, including our decision to reduce the prominence of the family plan on our plans page, macro headwinds facing our Teams SKUs, experiments that underperformed impacting our individual SKUs, and finally, Q4 tends to be a seasonally low quarter for File Sync and Share and FormSwift in particular. Collectively, these factors served as headwinds to paying user growth in Q4, and I'll speak to our paying user expectations for 2024 shortly. Finally, average revenue per paying user for Q4 was $138.83, up slightly compared to Q3. Before we continue with further discussion on our P&L, I would like to note that, unless otherwise indicated, all income statement figures mentioned are non-GAAP and exclude stock-based compensation, amortization of purchased intangibles, certain acquisition-related expenses, net gains and losses on our real estate assets, and our workforce reduction expenses. Our non-GAAP net income also excludes the income tax benefit from the release of a valuation allowance on deferred tax assets and includes the income tax effects of the aforementioned adjustments. Moving to our real estate strategy, we have been actively seeking subleases and buyouts of our vacant real estate space, the majority of which is in San Francisco. As I mentioned during our last earnings call, in Q4 we executed a buyout with our landlord of approximately 40% of our remaining sublease space in San Francisco for $79 million to be paid over three years, beginning with an approximate $28 million payment in the fourth quarter of 2023. The remaining payments resulting from the buyout will occur in Q2 of 2024 and Q1 of 2025. Overall, we expect this buyout to drive significant savings in the long term as we will be avoiding over $220 million in aggregate rent payments and common area maintenance fees over the remaining 10-year lease duration. The result of this buyout was a $159 million gain in Q4 2023. The gain represents the reduction to our future lease payments in excess of the sublease income we previously anticipated collecting for this space. As I previously mentioned, we will continue to actively seek subleases and pursue additional buyouts where we see favorable returns. With that, let's continue with the fourth quarter P&L. Gross margin was 82.3% for the quarter, up 20 basis points on a year-over-year basis. Operating margin was 32.2%, up 200 basis points year-over-year. We beat our Q4 operating margin guidance by nearly a point driven by our continued focus on being efficient with our spend across the business. I note that in Q4 we held both our in-person user conference, and we invested in product and brand awareness marketing campaigns, which resulted in a sequential decrease in operating margin. Net income for the fourth quarter was $171 million, which is a 21% increase versus the fourth quarter of 2022, driven by operating income growth. Diluted EPS was $0.50 per share based on 344 million diluted weighted average shares outstanding, which increased compared to $0.40 per share based on 354 million diluted weighted average shares outstanding for the fourth quarter of 2022. Moving on to our cash balance and cash flow. We ended the quarter with cash and short-term investments of $1.4 billion. Cash flow from operations was $200 million in the fourth quarter. Capital expenditures were $10 million during the quarter, resulting in quarterly free cash flow of $190 million compared to $182 million in Q4 of 2022. I note that free cash flow for 2023 came in lower than our guidance range of $775 million to $785 million due to a reduced level of billings as well as the timing of payments and collections. In the quarter, we also added $51 million to our finance leases for data center equipment. As we mentioned on our last call, we expected this sequential increase in our finance lease lines, given the higher storage costs we are seeing with users on our advanced plan as we wait for grandfathering periods to expire for customers maintaining elevated storage levels. As related to our share repurchase program, in Q4, we repurchased nearly 4 million shares, spending approximately $106 million. As of the end of the fourth quarter, we had approximately $1.4 billion remaining under our current repurchase authorizations. Our philosophy on share repurchases has not changed. We remain committed to returning a significant portion of our free cash flow to shareholders in the form of share repurchases with the intention of reducing our share count. I'd now like to share our 2024 first-quarter and full-year guidance, where I will also provide some context on the thinking behind this guidance. In the first quarter of 2024, we expect revenue to be in the range of $627 million to $630 million. We expect a minimal impact from FX this quarter. I will note that Q1 2024 has one less day versus Q4 2023 and thus, we recognize one less day of subscription revenue in Q1 relative to the prior quarter. We expect non-GAAP operating margin to be approximately 33%. Finally, we expect diluted weighted average shares outstanding to be in the range of 342 million to 347 million shares, based on our trailing 30-day average share price. For the full year 2024, we expect revenue to be in the range of $2.535 billion to $2.550 billion. On a constant currency revenue basis, we expect revenue to be in the range of $2.532 billion to $2.547 billion, equating to a full-year currency tailwind of approximately $3 million. We expect gross margin to be in the range of 83% to 83.5%. We expect non-GAAP operating margin to be in the range of 32% to 32.5%. We expect free cash flow to be in the range of $910 million to $950 million. This free cash flow guidance range includes several one-time items totaling $47 million. The first is an approximate $30 million headwind as a result of R&D tax legislation, slightly lower than the $36 million estimate that we shared last quarter. The second is a $15 million payment for the second tranche of the buyout related to our San Francisco headquarters. The third is $2 million in cash outflows for the 2024 installments of acquisition-related deal consideration holdbacks for Command E. Moving on to capital expenditures, we expect our addition to finance lease lines to be approximately 7% of revenue, and we expect cash CapEx to be in the range of $20 million to $30 million in 2024. Finally, we expect 2024 diluted weighted average shares outstanding to be in the range of 336 million to 341 million shares, based on our trailing 30-day average share price. I'll now share some additional context on the thinking behind our guidance. Starting with revenue, as a reminder, we are lapping the benefits of our Teams price increase and our acquisition of FormSwift, and thus, we expect a slowing revenue growth rate. Also, consistent with our historical approach, our guidance reflects what we have a high degree of visibility into today. This includes our current business trends and trajectory as well as the product and growth-related initiatives we have launched to date. Notably, our guidance does not include any benefit from Dash in 2024. As we mentioned, our primary focus in 2024 is centered on finding product market fit, driving usage of the product, and closely following Dash's adoption, engagement, and retention trends. Once we have increased certainty that Dash is meeting our customers' needs, we will then pursue our monetization strategies; however, this may not be until the latter portion of this year or early next year. Similarly, our guidance does not include any benefit from our bundled SKUs, as our Teams continue to iterate on the optimal product experience and go-to-market motion for these plans. As we gain more clarity on how we are approaching our bundles rollout to new and existing customers, along with signals on the customer response to our approach, we will update our guidance accordingly. Regarding paying users, our guidance contemplates a reduced level of paying user growth relative to 2023, and there may be some quarters where paying user additions trend negative. This is due to the continued headwinds we are facing, as well as the de-emphasis of the family plan and the latest state of our growth initiatives. Ultimately, we do expect to add paying users in 2024; however, at lower levels than prior years. As related to gross margins, we are guiding to 83% to 83.5%, which is above our long-term target. I want to highlight that from the beginning of 2024, we are increasing the useful life of our servers from four to five years, which will apply to asset balances on our balance sheet as of December 31, 2023, as well as future asset purchases. As a result, we expect the benefit to our full-year gross margins of approximately $30 million. For Q1, we expect a benefit of approximately $10 million. Regarding operating margins, we're guiding to 32% to 32.5%. This level of operating margins is above our long-term target and is roughly consistent with our operating margins in 2023. This range includes continued investment in our longer-term AI and growth-related investments such as Dash. Additionally, we are planning for increased levels of marketing investments, including our new partnership with McLaren Formula 1 racing, as we aim to drive market awareness of our platform's capabilities. Lastly, this guidance preserves some optionality to make strategic investments across the business over the duration of the year. We also expect our additions to finance lease lines to increase in 2024 versus prior years, primarily due to two factors. The first is the one-time storage quota grants we are providing to a portion of our customers on the advanced plan, as we deprecate our previous 'as much space as you need' policy. While this requires incremental storage capacity in the near-term, our revised plan around storage usage will enable us to have a more profitable SKU once the one-time extension for these customers has expired. The second factor is an anticipated refresh of some of our data center equipment, consistent with past practices. As related to full-year free cash flow, we are guiding to a range of $910 million to $950 million. This guidance falls short of our long-term free cash flow target, which we adjusted during our previous earnings call to be roughly $970 million after taking into account headwinds from R&D tax legislation-related payments. While our guidance range is below this figure, I'd note that we have more than doubled our annual free cash flow since we initially set the target, where I'm proud of the progress we've made. There are several factors driving the shortfall between our guidance and our target, the most prominent being a reduced level of billings associated with our revenue guidance, the incremental FX headwinds we are facing relative to when we first introduced our target, as well as the investments we're making to fuel our future growth in products such as Dash. While we could scale back our investments in Dash to meet our free cash flow target, we do not believe this would be the right long-term decision for the business. These investments in product initiatives, along with decisions such as our San Francisco lease buyout and the changes we made to our advanced plan, are placing a short-term strain on our financial trajectory; however, they are in line with our primary focus on strengthening the company's long-term position. Although our current level of visibility does fall short of our long-term target, there is still time to draw closer to our free cash flow target through improved product experiences or by identifying additional efficiencies within our operations during the year. In conclusion, we are mindful that we are in a unique period where our core File Sync and Share business is maturing and our new products are in their early stages. However, our core File Sync and Share business is still generating growth in revenue and free cash flow while we also reduce our share count. Concurrently, we are in an exciting new phase in the evolution of our business, as we invest in our future in AI-powered areas such as Dash to drive long-term growth. We will make progress on both dimensions in 2024, and we will continue to maintain a disciplined mindset around how we are operating the company to ensure we're not only providing innovative solutions for our customers but creating value for our shareholders.

Thank you. Our first question will come from Rishi Jaluria from RBC Capital Markets. Your line is open.

Oh, wonderful. Thanks guys for taking my questions. I wanted to start out, Drew, in the past, you've talked about there being some appetite for M&A, especially transformational M&A. Given this kind of roadmap of wanting to develop new products and capabilities, especially around generative AI, how are you viewing the potential for M&A to just accelerate your roadmap in broadening the platform and going from the EFSS to more of a Gen AI-enabled company? And then I've got a quick follow-up.

Sure. We still see a big opportunity for M&A to accelerate our roadmap, and actually, Dash — Dropbox Dash is a great example of this; it was seeded by an acquisition of a company called Command E we did. Another benefit is that, unlike the first few years after we were public, when valuations were really frothy, as the external environment has moderated, we've certainly seen that moderation reflected in public company SaaS. I think we've been slowly seeing that translate to private company valuations too. We think it's a door that keeps opening. But our philosophy is consistent; we want to be disciplined. Even in the AI realm, there's a little bit of a bubble around AI start-up funding, and you have to be careful. Yes, M&A certainly continues to be a big opportunity for us.

All right. Wonderful. That's really helpful. And then turning to Dash. I know it's still early. This year is going to be kind of the big proof point of the year before we can start talking about monetization. But how are you internally measuring the success of Dash, both from a technology perspective and customer adoption? It sounds like it's solving a real problem that customers have. But a lot of times over the years, we've learned customers may not use it, even if they should be. What — how are you measuring that success? And what can you do to drive user adoption of Dash to begin with? Thanks.

Yes, measuring it qualitatively and quantitatively. The great news is, when we talk to customers, everybody struggles with information overload and fragmentation of using all these different apps. When we explain the value proposition, the most common response is, yes, I totally have this problem. Then the question is more like, can you really solve it for me? So we start with whether there is a real job to be done in market here, and we are seeing really encouraging validation from our customers on that. In terms of leading indicators, we look at how the quality of the Dash experience is. We've spent a lot of time and effort improving search ranking and quality. We look at what the onboarding experience looks like, and whether people understand the concepts. A lot of new elements require a seamless experience to connect Dash to different apps. Thus, we minimize time to value, among other things. Product quality, onboarding success, engagement generally, retention, and then monetization all go hand in hand — we work on them in parallel, but progress is sequential. So we focus on having a great product experience, then refining onboarding, then boosting engagement and retention, leading into monetization and virality. We are still in the early stages of this, so we’re making progress in all areas. This year, we'll continue to open the doors wider to Dash as we scale it.

Thank you. Our next question will come from Steve Enders from Citi. Your line is open.

Hi, great. Thanks for taking the questions here. I guess maybe just to start, I think it'd be getting a little more clarity on the packaging and pricing changes that you have been working on, and trying to convert over the base. What were the learnings coming out of that? Moving forward, what does that look like through calendar 2024?

Sure. Some of the lessons from last year include a significant launch in October where we aimed to address a major gap in our funnel, that the majority of our customers are not aware we do more than storage. We believe this is because, in many cases, we haven't promoted the products to our users or seamlessly integrated these experiences. In October, we launched a redesigned website allowing users to start various document workflows from the new experience. We also launched new bundles that include workflow products along with FSS. We found that while a lot of metrics changed favorably, some changes were negative. For instance, after the default SKUs increased in price, we saw a decrease in new subscriptions on our Teams SKUs. Other optimizations we were performing around onboarding had a negative impact on engagement. We are stepping back and taking a more iterative approach. We are aiming to preserve the good changes and edit out the less promising ones. We will keep building awareness and driving adoption of multiple products, whether document workflows or new products like Dropbox Replay for video collaboration or AI-powered universal search like Dropbox Dash.

All right. Perfect. I appreciate the context around some of those changes. And then maybe just on the macro side of it. It seems like most of the challenges were more related to the business on the team side. I guess, I just want to clarify if there is any impact more on the consumer front as well? And then, for the public funnel activity, it seemed like that slowed down a little bit. How has that trended so far in 2024 in the first half of the quarter here?

Sure. Overall, it's been pretty stable. The headwinds we saw in Q4 weren't significantly different from those in prior quarters. The majority come from customers being more price-sensitive and tech companies making headcount reductions, resulting in fewer SaaS licenses. Our Document Workflow businesses, including eSignature, experienced a pullback across the sector. Our guidance includes a continuation of these trends. There’s typically seasonality in Q4 for File Sync and Share and some document workflow products, especially FormSwift.

And then Steve, real quick. This is Tim. I believe you asked about top-of-funnel activity in the first part of this year. So far, we have not seen any material changes; everything is in line with our guidance, and it's all been factored in.

We see less of the seasonality effect in Q1.

Yes, thank you for the questions. A couple if I could. On the call, you mentioned seat rationalization as one of the factors you’ve been seeing in the last 12 months, especially among software companies. We did see a notable increase in layoffs across software since the beginning of the year. Can you comment on how much the recent reductions impacted your forecast for the year? Is there a direct correlation between those reductions and customer seat rationalization?

Sure. We factor in what we're seeing across the industry, particularly in the tech vertical, as far as layoffs into our guidance. That's certainly been contemplated. To provide a bit more color, while we don't formally guide to paying users, I do expect that we will still add paying users in 2024. I do expect our total additions this year to be less than last year, largely due to the de-emphasis of our family plan. There may be some quarters where we lose paying users depending on the state of the economy, potential churn of larger customers and the timing of our initiatives. However, we still expect to add paying users this year.

Okay. And then just on the share repurchase plan, and the guidance for the share count for the year — does that roughly imply a similar cadence of share repurchases in 2024 to what we saw in 2023 in absolute dollars?

Yes, I would say there are no changes in our philosophy regarding our share repurchase program. We remain very dedicated to that. We continue to expect to allocate a significant portion of our annual free cash flow to share repurchases, intending to reduce our share count. Our buyback program generally buys more shares at lower price points and fewer shares at higher price points, which is reflected in our full-year guide.

Oh, great, thank you. Drew, on a very big picture, how happy were you with how this business executed in Q4?

I was happy to get things like Dash to open beta and pleased with improvements in customer experience and product quality with our web redesign. Yet, I was unhappy with the overall results and the fact that some of the upside we had been projecting didn’t fully materialize. We must revisit our approach and identify which changes are effective. There were many variables confounded by implementing substantial changes at once. We learned valuable lessons about navigating the difficult macro environment; many of our customers are price-sensitive. I want to ensure we fine-tune our pricing and packaging to support customers looking to consolidate spend and obtain more value from us during these challenging times.

Yes, let me clarify that, Pat. Last quarter, we adjusted our free cash flow target by the estimated impact of R&D tax legislation, which we now estimate to be $30 million. This effectively adjusts our $1 billion target to a revised target of $970 million. Our guidance of $910 million to $950 million falls below that target, driven by slower billings growth, incremental foreign exchange impacts, and investments in Dash. We could withhold investments in long-term initiatives to meet this target, but that would be shortsighted.

Hi guys, thanks for taking my question. My question is on the R&D line. I appreciate the exciting opportunity ahead, particularly with Dash and AI. But I guess what I'm wondering is, can you help me understand why we couldn't potentially see more leverage on this R&D line, while still investing in AI and these other opportunities? I have a follow-up.

Sure. R&D increased slightly to 25% of revenue, primarily due to hiring for our longer-term growth initiatives such as Dash. Engineers with an AI background typically command premium compensation and are located in high-cost areas, such as the Bay Area and Seattle. We want to ensure we're focused on investing in long-term initiatives and funding them at the proper rate. We will drive increased efficiencies within our core file sync and share and document workflow businesses while concurrently investing in long-term growth initiatives such as Dash. We will also be investing in marketing to drive brand awareness, including our partnership with McLaren Formula 1 racing, which Drew referenced. The guidance maintains flexibility for strategic investments to catalyze growth.

It's a balancing act. We care about margins and efficiency but don’t want to miss these once-in-a-decade platform shifts. The emergence of AI stands to create a much larger opportunity that we don't want to overlook. We’ve been reallocating resources from less efficient areas toward promising opportunities like AI and Dash. Hence, while the aggregate R&D line may not reflect that soon, we are investing appropriately to maximize returns.

We are seeing an increase in our finance lease additions this year due to two reasons. First, we are nearing a hardware refresh cycle for equipment reaching the end of its life, akin to the refresh we had in 2019 and 2020. Second, we are supporting one-time quota grants to customers on our advanced plan with storage volume usage that needs to be supported.

Thank you. And this does conclude today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.