Earnings Call Transcript - DBX Q1 2022

Operator, Operator

Good afternoon, ladies and gentlemen. Thank you for joining Dropbox's First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. 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 the program over to Karan Kapoor, Head of Investor Relations for Dropbox. Mr. Kapoor, please go ahead.

Karan Kapoor, Head of Investor Relations

Good afternoon, and welcome to Dropbox's first quarter 2022 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; our expectations regarding the future performance of our business; 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 repurchases; our ability to drive user growth and retention through marketing and by enhancing our products, developing and offering new products or features and strategic partnerships; our strategy, as well as the ability of our key employees to execute our strategy and our 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 the risk factors included in our Form 10-Q for the quarter ended March 31, 2022, and the risk factors that will be included in our Form 10-K for the year ended December 31, 2022. 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-K 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?

Drew Houston, CEO

Thanks Karan. And good afternoon, everyone. Welcome to our Q1 2022 earnings call. Joining me today is Tim Regan, our Chief Financial Officer. And I'll first share our business and product highlights from the quarter. Then Tim will review our Q1 financial results, provide guidance for the second quarter and update our outlook for the remainder of the year. Before we begin, I'd like to extend a warm welcome to our newest board member, Abhay Parasnis, who was appointed in March. Abhay serves as Chief Technology Officer at Adobe for seven years. During his tenure, he held other leadership roles including Chief Product Officer and Chief Strategy Officer. I first met Abhay many years ago, and I'm thrilled to have him join our board. His familiarity with our customers and his experience leading technology operations and engineering during times of transformation will be really helpful as we work towards our long-term vision of building one organized place for all your cloud content and the workflows around it. As we and the rest of the world navigate this period of geopolitical and economic uncertainty, our strong performance and execution this quarter reflect the resilience of our business and our team's ability to stay focused on our strategy. We saw solid growth in our teams and professional plans, along with continued strength from DocSend and our family plan while driving stronger than expected profitability. Before I walk through some of the product highlights from Q1 in more detail, I want to quickly remind you of our 2022 initiatives that we outlined in February. First, we're continuing to evolve our core FSF business to improve retention and drive monetization. Second, we're expanding into workflows beyond FSF around documents with HelloSign and DocSend, along with rich media content to better serve creators and freelancers. Finally, we remain focused on operational excellence as we continue to balance growth and profitability as Tim will discuss further. So we'll start with our efforts around retention. I'm pleased with our progress here as we continue to see our churn rate come down as a result of improvements we've made to the user experience. Last quarter, we further improved the sharing experience by giving users the ability to send Shared Links with edit permissions. In the past, recipients of Shared Links could only view content and weren't able to edit or collaborate on it directly. Now, with edit permissions, recipients can easily collaborate with folders in the same way as a single piece of content. We also drove meaningful improvement in loading performance with previews, which is one of our most trafficked surfaces. After a number of technical improvements, users are seeing these pages load 30% faster compared to the beginning of the year. We believe that performance enhancements like these should drive further retention gains. We also made progress in our basic user monetization efforts around conversion, particularly through our mobile channel. We leveraged targeted prompts to a larger cohort of mobile basic users where we saw an opportunity to drive conversion rates higher, and early results are encouraging. We continue to see opportunity to drive more personalized and effective mobile prompts so we can serve as the right plan to individual users at the right time, whether it's the Plus, Pro, or Family Plan. And we continue to see expansion with teams as we've made it easier for external collaborators to request to join a Dropbox paid team, which drives incremental users to these plans. As I touched on last quarter, we're committed to iterating on pricing and packaging as we bring new products and features to market in response to customer demand. This quarter, we launched our newest version of Dropbox Backup, with upgraded restoration flow and management settings. Backup allows users to keep their computer hard drive or external hard drive secure with an easy to use automated cloud backup solution. It gives our customers extra peace of mind beyond FSS. With just a few clicks, users can easily set up automatic backups and complete full restorations. Over the last year, we saw millions of paid users activate the original backup feature. This gave us insight into how to enhance it and repackage it as a standalone product for both our basic users and new potential users who don't have an existing FSS account. This differentiated pricing and packaging approach expands our distribution to a wider audience of customers searching exclusively for cloud backup solutions. We plan to leverage our existing go-to-market motion to drive backup as a new product along with strategic partnerships. We also included this enhanced version of backup in our paid FSS plans and continue to see strong activation rates from existing customers, which we believe will drive retention gains. Moving to our second initiative of expanding document and creative workflows beyond FSS. Over the past few months, we released several updates to strengthen our multi-product portfolio, building momentum from HelloSign and DocSend, and developing deeper integrations into the Dropbox platform. Last month, we introduced HelloSign Templates, where Dropbox users can streamline the signature request by turning the most frequently used documents into templates. High-volume documents like NDAs or offer letters or purchase orders can now easily be created, edited and tracked for the entire signing lifecycle all from within Dropbox. We also released a highly requested PDF editing feature, which allows users to rearrange, insert, rotate, and delete PDF pages natively from within the Dropbox experience. These integrations are great examples of how streamlining the document workflow process can drive user satisfaction and engagement, which ultimately leads to higher retention. We also saw continued adoption of our Esign and pro bundles, as well as the DocSend bundle with advanced teams, which launched last quarter. By surfacing the Esign and pro bundle to basic users in a similar targeted approach as we do with our existing paid individual plans, we saw a halo effect of greater conversion to Plus and Pro. DocSend, which completed its first full year as part of Dropbox, continues to exceed our expectations. We're also starting to drive revenue synergies through deeper integration of DocSend into the core Dropbox platform. Now when users click to share their content, they can choose Send and track, which leverages DocSend’s capabilities to track how long recipients spend reviewing the content. This extension to the core Dropbox experience has already driven self-serve DocSend revenue by users coming from the core Dropbox platform. Last month, we launched DocSend Dashboard Analytics, which gives customers insights into their most engaged contacts and visitor data. We are pleased with the strong organic growth from DocSend and see more opportunities to drive its adoption to more teams by investing in marketing and partnerships. As we expand document workflows within Dropbox, we will be strategic in marketing to specific audiences where we believe our more integrated platform will resonate, allowing us to reach a wider set of customers. Sales, HR, and project management teams are some examples of customers who rely on document workflows like NDAs, proposals, and other contracts. We are focused on driving more awareness of our capabilities beyond core FSF to these groups in addition to creative customers, which remains a core demographic for us. In Q1, we continue to iterate on our creative product experiences with Capture, Replay, and Shop. For Capture, we launched several new features like better markup, video streaming, viewer insights, and closed captions. With Replay, we're seeing high customer satisfaction scores among our beta users so far, and we see more opportunity to invest in capabilities to make this a competitive video collaboration tool. Last month, we launched Shop in public beta. Users can now customize storefronts and URLs, embed HTML codes, and add tipping capabilities. We're building more tools for sellers this quarter. While these are still early product bets, we're excited to get these differentiated and yet simple, lightweight tools in the hands of more creators. We're helping our customers do more with their content. I'm pleased with our progress in building solutions that allow them to seamlessly and efficiently move their work forward in the new remote and hybrid world. I believe the rise of remote work will be the best thing to happen to knowledge working generations, but it requires a complete rethinking of the office, the work week, and the technology that we use to get our work done. Dropbox is taking the lead here with our Virtual First strategy. In Q1, we reopened our US studios allowing us to finally experience virtual first as it was originally intended, where employees can benefit from the flexibility that remote work offers and the in-person collaboration that comes with our studio model. We're seeing positive early feedback from employees. In a recent survey, nearly 70% of our employees reported that virtual first helped them be more productive by providing more time for focused work. However, during the last couple of years of COVID and lockdowns, employees also reported a decline in the ability to build relationships with colleagues, especially those outside of their immediate teams. So we all know how critical it is to bring that in-person experience back safely to boost creativity and make progress on our mission in service of our customers. We're also navigating this transition to flexible and remote work. As I've shared before, we're on a mission to design a more enlightened way of working, where technology helps you do your best work. I'm confident we're on the right path to helping our customers with many of these universal challenges and building towards our vision. And with that, I'll hand it over to Tim to walk through our financial results.

Tim Regan, CFO

Thank you, Drew. Before turning to our quarterly results, I'd like to start with a reminder of our financial strategy. We continue to focus on balancing growth and profitability in a thoughtful, disciplined way. We remain committed to our long-term objectives, including delivering operating margins of 30% to 32% and generating annual free cash flow of $1 billion by 2024. We also remain focused on allocating capital to growth initiatives, both organic as well as through acquisitions, while also returning a significant portion of our free cash flow to shareholders in the form of share repurchases. We believe that execution against these objectives will generate long-term value for our shareholders. Today, I'll talk through our performance for the quarter and our updated guidance for the year that demonstrate we continue to operate the business in line with these principles. Let's begin with our first quarter results. Total revenue for the quarter increased 9.9% year-over-year to $562 million, beating our guidance range of $557 million to $560 million. Foreign exchange rates provided an approximate $1 million tailwind to growth in line with our guidance. Total ARR for the quarter grew 8.4% year-over-year for a total of $2.290 billion. On a constant currency basis, ARR grew by $40 million sequentially, and 8.9% year-over-year. I know that we update the FX rates used to calculate ARR at the start of each year. We continue to drive growth in ARR through strength in our teams, the adoption of our family plan, and momentum in our document workflow businesses HelloSign and DocSend. We exited the first quarter with 17.09 million paying users and added approximately 300,000 net new paying users sequentially driven in part by our family plan. Average revenue per paying user was $134.63 in Q1. ARPU decreased by $0.15 sequentially, as the mix shift to higher price plans was more than offset by an FX headwind and the strengthened family plan, which, as a reminder, is comprised of six seats and therefore carries a lower ARPU profile. Before we continue with further discussion of 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, impairments of our real estate assets, and expenses related to our reduction in force. Our non-GAAP net income also includes the income tax effect of the aforementioned adjustments. I'll now provide a brief update on our real estate strategy, where we're taking steps to reduce the cost of our real estate portfolio as part of our transition to a virtual first model. We continue to make progress against our goals, executing subleases in San Francisco for a portion of our headquarters, as well as Seattle and Ireland since our last earnings call. We did not incur any impairment charges in the quarter, with our cumulative impairment incurred to date remaining at $430 million. We continue to estimate that our total impairment charges will be up to $450 million. With that, let's continue with the P&L. First-quarter R&D expense was $157 million, or 28% of revenue, which increased compared to 26% of revenue in the first quarter of 2021. The increase in R&D was driven by our continued momentum in hiring to drive future revenue growth, where we are investing in DocSend and HelloSign, developing adjacent products and features to our core file sync and share category, and strengthening our retention and conversion capabilities. We also continue to invest in ensuring a seamless experience for our customers, as we adapt our desktop clients to operating system updates, as well as investing in our own security by bolstering our data protection while improving detection, response, and compliance practices so our users can continue to trust our platform. First-quarter sales and marketing expense was $88 million, or 16% of revenue, which decreased compared to 17% of revenue in the first quarter of 2021. First-quarter G&A expense was $42 million, or 7% of revenue, which also decreased compared to 8% of revenue in the first quarter of 2021. In total, we earned an operating profit of $170 million in the first quarter, which represents an operating margin of 30%, or a one percentage point improvement compared to the first quarter of 2021. Our Q1 operating margin exceeded guidance by over two points and was primarily driven by our stronger than expected revenue performance, efficiency stemming from hiring in lower-cost locations, as well as delayed costs that we now expect to incur later this year. Net income for the quarter was $141 million approximately flat compared to the first quarter of 2021, as our income tax expense increased significantly due to the impact of R&D tax legislation newly effective in 2022. Given that we have now fully utilized our NOLs for non-GAAP tax purposes, diluted EPS was $0.38 per share, based on $373 million diluted weighted average shares outstanding, up from $0.35 per share based on $405 million diluted weighted average shares outstanding for the first quarter of 2021. Moving on to our cash balance and cash flow, we ended the quarter with cash and short-term investments of approximately $1.5 billion. Cash flow from operations was $141 million in the first quarter. Capital expenditures were $11 million during the quarter. This resulted in free cash flow of $131 million, compared to $109 million in Q1 of 2021. In the first quarter, we added $20 million to our finance leases for data center equipment. Let's turn to our share repurchase activity. In Q1, we repurchased 11 million shares, spending approximately $260 million. At the end of Q1, we had approximately $84 million remaining on our previous $1 billion share repurchase authorization. As a reminder, last quarter, our Board approved a new $1.2 billion authorization which we expect to commence this quarter once we exhaust the previous authorization. I'd now like to share our guidance for the second quarter and provide an update to our full year 2022 guidance. I will also provide some context on the thinking behind this guidance. For the second quarter of 2022, we expect revenue to be in the range of $568 million to $571 million. We are assuming a currency headwind of approximately $3 million in the second quarter. We expect non-GAAP operating margin to be approximately 28.5%. Finally, we expect diluted weighted average shares outstanding to be in the range of 366 million to 371 million shares based on our trailing 30-day average share price. For the full year 2022, we are maintaining our revenue guidance range of $2.320 billion to $2.330 billion. This range is inclusive of two headwinds. The first is an approximately $14 million currency headwind, and the second is a high single-digit $1 million impact from changes to our service and sanctions in Russia, which I will discuss more in a minute. We continue to expect gross margin to be approximately 81%. We are raising non-GAAP operating margin to be between 29% to 29.5%, up from the prior guidance of approximately 29%. We are maintaining free cash flow guidance to be in the range of $760 million to $790 million. This includes $17 million in cash outflows for the 2022 installments of acquisition-related deal consideration holdbacks. Additionally, our free cash flow guidance is inclusive of an estimated $30 million headwind resulting from the impact of R&D tax legislation newly effective in 2022. We continue to expect capital expenditures for 2022 to be in the range of $25 million to $35 million. We continue to expect additions to our finance lease lines to be approximately 5% of revenue in 2022. Finally, we expect 2022 diluted shares outstanding to be in the range of 366 million to 371 million shares, down from our previous guidance range of 368 million to 373 million shares. This reduction in our share count reflects our commitment to an anticipated impact of our share repurchase program. To share some additional context on this guidance, we are maintaining our full year revenue guidance. As mentioned, we expect the impact from discontinuing new sales and financial sanctions in Russia to be in the high single-digit millions of dollars to revenue this year. Despite this, our outperformance in the first quarter and the trends we are seeing within the business give us confidence that we can absorb the impact of Russia while still maintaining our initial revenue guidance. Additionally, and as a reminder, we continue to expect updates to our pricing and packaging approach for a subset of our customer base. These changes will incorporate the value that we've been adding to our plans, in particular capabilities that we have been developing and will soon release related to security. I look forward to sharing more this quarter on these pricing and packaging changes. As related to operating margins, while we continue to expect margin headwinds in 2022 from FX as well as incremental reopening and event expenses as pandemic restrictions soften, we are raising our 2022 operating margin guidance as we are seeing success in our ability to hire top talent outside of traditional high-cost tech hubs such as San Francisco, New York, and Seattle. Regarding free cash flow, we are maintaining our free cash flow guidance. While we are expecting a high single-digit million dollar impact of revenue from Russia, we expect a larger and more immediate impact on billings, given our ratable revenue recognition model. Thus, a larger cash impact will be absorbed this year offsetting the benefits of our increased operating margins. Lastly, we are maintaining and remain committed to our long-term targets, which as a reminder, are expected to be achieved by 2024 and include our goals of delivering operating margins of 30% to 32% and $1 billion in annual free cash flow. In conclusion, we had a solid start to the year delivering strong results and continuing to be focused on balancing growth and profitability in a thoughtful, disciplined way.

Operator, Operator

Our first question comes from Brent Thill from Jefferies.

Luv Sodha, Analyst

Thank you, again, this is Luv Sodha on for Brent Thill. Thank you for taking my questions. Maybe the first one for Drew, could you talk about the overall demand environment that you're seeing out there in light of macro concerns, both from the war and higher interest rates here in the United States? And what impact that is having on your customer base?

Drew Houston, CEO

Sure. I'd say overall, things have been pretty stable. Like most companies, we have been impacted by the situation in Russia and Ukraine. As we shared, there is a high single-digit million dollar revenue hit. But more broadly, we see things as pretty stable. Our churn rates continue to improve, and there is a lot of opportunity around the business. We find that Dropbox is a fundamental product that people need in kind of all environments, and we saw that in the pandemic; people needed Dropbox before, during, and after. So there is lot of stability there.

Luv Sodha, Analyst

Got it. And then maybe one question on the conversion that you've seen, you've cited higher conversion. Could you maybe talk about the initiatives that are in place there? And could we expect the conversion to paid users to improve over the next few quarters? Thank you.

Tim Regan, CFO

Sure, we continue to do a great job with conversion. You can see that flowing through to net new paying users, where we added 300,000 net new paying users in the quarter. You can see that we beat our Q1 guidance range. We're maintaining our full year guidance range despite absorbing the impact of Russia, again that's being in the high single-digit millions. We see success across many different initiatives that we're working on. Drew talked a bit about retention. We're seeing team expansion success and growth in areas such as DocSend HelloSign. Of course, SKUs such as Pro and Family Plan are also contributing to that growth.

Operator, Operator

Our next question comes from the line of Joey Marincek from JMP Securities.

Joey Marincek, Analyst

Thank you so much for the questions. First one. So Drew, just on the core business. I'm just curious to get your thoughts on how penetrated you think that opportunity is? How do you think about the opportunity that lies ahead there, and sort of the runway for growth available to you?

Drew Houston, CEO

Sure. In the core business, or the FSF business, we are still seeing a lot of headroom in the areas that Tim mentioned about improving conversion or improving our retention. We're iterating on pricing and packaging in several ways. For example, Dropbox Backup started out as a feature in paid plans last year with millions of our subscribers adopting it, and now it's a separate SKU and a lower price entry point into Dropbox—which is important given the size of our free user base. So we're giving people stepping stones into paid plans. I think there’s continued headroom there in the FSF business across the funnel. We are investing significantly in other adjacencies, especially our workflow products. The big opportunity for us is evolving from syncing files to organizing all your cloud content. We see that many customers struggle with keeping track of their information across different drives and cloud tools. We believe that addressing these problems at scale, particularly with universal search, is an important part of that. We recently made an acquisition of Command E, a universal search company, and it’s now integrated into Dropbox. We have numerous ways to better organize your cloud content. Overall, there’s significant opportunity to expand the market beyond FSS constraints.

Joey Marincek, Analyst

That's super helpful. Thank you for the color there. And then on the M&A front, given the pullback in valuations, how are you thinking about M&A at this point? And maybe any color you can share on the M&A pipeline would be helpful?

Drew Houston, CEO

Sure, yes. As valuations moderate or as things correct in the broader market, no one wants a challenging environment, but it certainly plays to our strengths. M&A becomes much more affordable or efficient. We've had some good success there. We will continue to be disciplined, but I think the door opens for making bigger bets in M&A. So we're certainly on the lookout.

Joey Marincek, Analyst

Awesome. And then one more if I may, just for Tim, how do you feel about your progress towards the $1 billion free cash flow target? And what work do you feel like you still need to get done to achieve that? Thank you so much, guys. Congrats on the quarter.

Tim Regan, CFO

Sure, we are making strong progress towards the $1 billion free cash flow target, and we're maintaining that target. We are also maintaining our guidance for the year of $760 to $790 million. There is a bit of a tax headwind this year with this new tax legislation. But despite that, we are refocusing on the objective of reaching $1 billion. There are a few factors at play that will continue to navigate. We are executing against our virtual first subleasing strategy effectively, subleasing a portion of our San Francisco facility, as well as Seattle and Ireland. That’s certainly a factor, along with continuing to hire in lower-cost locations, another important part of our virtual first strategy. We feel very confident in our ability to achieve that $1 billion target.

Operator, Operator

Our next question comes from the line of Jason Ader from William Blair.

Billy Fitzsimmons, Analyst

Hey everyone, this is Billy Fitzsimmons on for Jason Ader. One of the new features introduced to Dropbox over the past couple of years have been a lot organically, some inorganically. And Drew, you talked about Capture, Replay, and Shop in the quarter. If you are looking broadly across these features and the ones introduced over the past couple of years, any that are outperforming internal expectations, or maybe ones customers are gravitating more towards over others?

Drew Houston, CEO

Sure. I'm really happy with the state of the portfolio compared to a much broader portfolio with multiple products really scaling compared to a couple of years ago. I think there's a lot of good in there. For instance, Capture, Replay, and Shop are showing positive early signs. For example, DocSend is doing exceptionally well; it continues to exceed our initial expectations and remains a strong component of our portfolio.

Billy Fitzsimmons, Analyst

Got it. And then if I'm not mistaken, you guys did a major price increase a few years ago. And I know you've made some changes to your SKUs and added a ton of new features. Given the inflationary environment we’re in right now, is it possible that a broad-based price increase could be in the cards or make sense?

Drew Houston, CEO

Short answer is yes. We see a lot of SaaS companies saying similar things in this environment. We've had a lot of success iterating on pricing and packaging in the past. We think of it as a flywheel—adding value to our plans, and as we do that, pricing becomes a lever to capture more value.

Tim Regan, CFO

Maybe Billy, this is Tim, and I'll quickly add to that, where specifically this year, we are building new capabilities such as security features to address customer demand in this increasingly complicated environment, where our 2022 guidance does include updates to our pricing and packaging approach. We’ll actually have more to share this quarter on that. Given our ratable revenue recognition model, the revenue impact will flow to both 2022 and 2023 based on the billing cycles of our customers.

Operator, Operator

Our next question comes from the line of Rishi Jaluria from RBC.

Rishi Jaluria, Analyst

Wonderful. Thanks, guys. Thanks so much for taking my question. I guess number one, I wanted to follow up on an earlier question talking about the success that you're seeing in monetization and conversion to paid users. Can you maybe give an illustrative example or two of some initiatives that you've been able to implement to drive that, and maybe how we should be thinking about the sustainability of that going forward? And then I've got a follow-up for Tim.

Drew Houston, CEO

Sure. At a high level, we look across the funnel, from top of the funnel and signups all the way to how we onboard users, and then determine how they convert to paid plans and in terms of virality. A key example is that we've made lots of improvements to simplify the onboarding experience, particularly in mobile. We found that in mobile sharing experiences work well as a key viral loop for us, and simplifying the experience helps drive mobile signups by eliminating friction. Another example is how we've been iterating on our packaging and introducing new SKUs, like Backup, which we tested as part of our paid plans last year and reintroduced as a standalone SKU. This allows us to better monetize our free user base by offering multiple entry points and cheaper alternatives. Overall, we have many parts to our growth engine and we continue to triage by identifying where the highest opportunities exist, which also includes retention improvements and churn reductions from our enhancements to performance and experience.

Rishi Jaluria, Analyst

Yes, got it. That's really helpful. And then Tim, I just wanted to ask a housekeeping question about the FX headwind. You mentioned $14 million for the full year. Just to clarify, is that $14 million total in 2022 revenue, or is that an additional $14 million FX headwinds on top of the $16 million you mentioned in previous guidance?

Tim Regan, CFO

Yes, good question. It's $14 million for the full year. It is an update relative to the $16 million we provided previously, but when I add the two together, it is an updated view. So now it’s $14 million for the full year.

Rishi Jaluria, Analyst

Okay, and just to kind of follow up on that, can you help us understand how that might be the case, when most software companies are seeing stronger FX headwinds than they initially guided three months ago? Maybe can you remind us about your top currency exposures and why you may be experiencing a relative tailwind compared to others?

Tim Regan, CFO

Sure, yes, fair question. Hard for me to comment on how to compare to others, just given that our billings can be denominated in varying currencies. But from a methodology perspective, we did see an improvement in rates from the beginning of the year to the end of Q1, so for example, the lead up into January versus the lead up into April, rates improved according to our billing currency.

Operator, Operator

Thank you. This concludes the question-and-answer session of today's program. I'd like to hand the program back to Drew Houston for any further remarks.

Drew Houston, CEO

Great. Well, everyone, thank you again for joining us today. We appreciate your continued support and look forward to speaking again next quarter.

Operator, Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This concludes the program. You may now disconnect. Good day.