Dropbox (DBX) Q3 2026 Earnings Call Transcript

DATE

Thu, Nov. 5, 2026

CALL PARTICIPANTS

• Chief Accounting Officer and Head of Investor Relations - Sarah Schubach
• Co-Chief Executive Officer - Ashraf Alkarmi

TAKEAWAYS

• Total Revenue -- $637.3 million, an increase of 0.5% driven by growth in self-serve teams and managed sales.
• Non-GAAP Operating Margin -- 42.2%, exceeding guidance of 38.5% due to lower headcount costs and the timing of marketing expenditures.
• Net New Paying Users -- 20,000 users added, representing the fourth consecutive quarter of growth led by the Simple plan and North American managed sales.
• Total ARR -- $2.555 billion, up 0.8% reflecting the completion of the FormSwift sunset.
• Ex-FormSwift Revenue Growth -- 1.0%, marking five straight quarters of year-over-year growth for the core business.
• Average Revenue Per Paying User (ARPU) -- $138.76, compared to $139.77 a year ago as growth in lower-priced plans was partially offset by mix shifts to monthly plans.
• Non-GAAP Gross Margin -- 81.8%, an increase of 40 basis points due to infrastructure efficiencies and moving more storage to internal data centers.
• Non-GAAP Diluted EPS -- $0.88, compared to $0.74 in the prior year, reflecting a reduced share count from buybacks.
• Net Cash from Operations -- $259.2 million, down from $302.1 million last year because of higher interest payments on the term loan facility.
• Unlevered Free Cash Flow -- $303.9 million, representing $1.35 per share and a 14% year-over-year increase.
• Share Repurchases -- $150 million used to buy back 4.7 million shares, with $1.235 billion remaining under authorization.
• Tigris Data Acquisition -- $350 million cash purchase price, intended to accelerate the company's expansion into object storage for AI workloads.
• Workforce Reduction -- 9% of total headcount, as part of a resource reallocation toward the company's AI-focused strategy.
• Q4 Revenue Guidance -- $630 million to $633 million, including zero contribution from FormSwift following its discontinuation.
• Full-Year 2026 Revenue Guidance -- $2.528 billion to $2.531 billion, a $12 million increase at the midpoint from the previous outlook.
• Full-Year 2026 Operating Margin Guidance -- 40.5%, reflecting the Q3 outperformance and savings from workforce changes.
• 2027 Revenue Outlook -- Roughly flat performance expected, excluding Tigris, as $13 million in FormSwift revenue is removed and currency tailwinds moderate.
• 2027 Operating Margin Outlook -- 150 basis points of expansion projected, driven by the full-year benefit of efficiency measures.
• AI Integration Growth -- 1.4 million users connected to AI tools like ChatGPT and Claude, up from 150,000 in the previous quarter.
• Weekly AI Tool Uploads -- 2 million uploads into Dropbox from AI tools, representing more than a threefold increase since September.
• Severance Expenses -- $30 million in total costs expected, with approximately $20 million to be paid during 2026.

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RISKS

• Tennenbaum indicated that "FX tailwinds moderate and expect this to continue" into 2027, which will act as a headwind for revenue growth.
• Alkarmi stated that for the new Dropbox experience and workflow products, "monetization will build gradually," suggesting that immediate top-line impacts from these initiatives may be limited.

SUMMARY

Dropbox, Inc. (NASDAQ:DBX) reported third-quarter results that surpassed guidance for revenue and operating margins while unveiling a strategic expansion into AI-focused infrastructure. The company introduced DBX Agent Cloud and announced a $350 million agreement to acquire Tigris Data to provide object storage for developers building AI applications. Management initiated a 9% workforce reduction to concentrate resources on its three-pillar strategy, which includes improving the core foundation, building intelligent workflows, and expanding the platform into the broader AI ecosystem. For 2027, the company anticipates roughly flat revenue growth, excluding the impact of the pending Tigris acquisition, as it navigates the discontinuation of the FormSwift product and faces decreasing currency tailwinds.

• The company launched a new AI-powered Dropbox experience that allows users to organize, summarize, and edit content directly within the platform using AI credits included in team plans.
• Alkarmi noted that over 20% of teams receiving the new experience have already begun using their AI credits, signaling early adoption of the automated features.
• Tennenbaum reported that the fourth-quarter operating margin is expected to be slightly lower than the third quarter as marketing spend delayed from Q3 is deployed for the new product launch.
• The Tigris acquisition is intended to leverage existing excess storage capacity at Dropbox to support high-growth AI native platforms with exabyte-scale infrastructure.
• Management stated that the new DBX Agent Cloud will eventually expand beyond object storage to include file system and content processing capabilities for AI agents.
• The company indicated that the workforce reduction will lower stock-based compensation as it seeks to reduce equity use as a percentage of revenue over time.

INDUSTRY GLOSSARY

• DBX Agent Cloud: A new business unit providing infrastructure and tools for companies and developers to build and host AI applications.
• Tigris Data: A globally distributed object storage platform being acquired by Dropbox to serve AI-native platforms and developers.
• FormSwift: A cloud-based document platform previously acquired by Dropbox that was fully discontinued as of the end of the third quarter of 2026.
• Dropbox Replay: An AI-native video review and approval tool that integrates with the core storage platform for creative workflows.
• Object Storage: A data storage architecture that manages data as objects rather than in a file hierarchy, optimized for massive data sets and AI workloads.
• S3-compatible: Storage that uses a communication protocol established by Amazon Web Services, allowing it to work with a wide range of standard developer tools.
• ARR: Annual Recurring Revenue, a metric that annualizes the value of all active paid subscription licenses at the end of a period.

Full Conference Call Transcript

Operator: Thank you for standing by, and welcome to the Dropbox Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. If your question has been answered and you would like to remove yourself from the queue, simply press *1 again. And now I would like to introduce your host for today's program, Sarah Schubach, chief accounting officer and head of investor relations. Please go ahead.

Sarah Elizabeth Schubach: Good afternoon, and welcome to Dropbox's third quarter 26 earnings call. As a reminder, we will discuss non GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non GAAP results can be found in our earnings release and in our earnings presentation posted on our IR website at investors.dropbox.com. We will also make forward looking statements on this call. Including statements about our future outlook for our fourth quarter and fiscal year 2026, as well as our expectations regarding fiscal year 27, our business, assets, strategies, and the macroeconomic environment, and the planned acquisition of Tigris which remains subject to the satisfaction or waiver of certain customary closing conditions.

Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, Including our most recent report on Form 10 Q and forthcoming report on Form 10 Q. Forward looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward looking statements except as required by law. I will now turn the call over to Dropbox's Co CEO, Ashraf Alkarmi.

Ashraf Alkarmi: Thanks, Sarah, and good afternoon, everyone. I am proud of what this team delivered in Q3. 5 months into this role, I am more convinced than ever that Dropbox is on the right path. And this quarter showed why. Q3 was another beat and raise quarter. We delivered revenue of $637 million and operating margin of over 42%. Both ahead of our guidance. As well as our 5th straight quarter of year over year revenue growth excluding FormSwift. We added approximately 20 thousand net new paying users. Our 4th consecutive quarter of paying user growth. In our upmarket managed sales motion, North America had its strongest quarter in 2 years. Today, we also took 2 major steps forward.

We rolled out AI powered Dropbox which now takes action directly on the content customers already keep with us. And we announced DBX Agent Cloud. Our new infrastructure business for companies and developers building AI applications together with our planned acquisition of Tigris. An already proven player in object storage. Both move us forward towards our vision. Dropbox as the trusted, independent content foundation for the AI era. Last quarter, I laid out a 3-pillar strategy to get there. First, restore durable growth in our core business through foundational improvements. Including bringing AI and context directly into Dropbox. Second, use that stronger foundation to build intelligent workflows that automate critical work for our customers.

And third, put the platform we have built to work across the broader AI ecosystem. This quarter, we made progress on all 3. Let me walk you through each. First, Dropbox now brings AI directly to the content customers already keep with us. And we have continued to expand the rollout. This changes what Dropbox is for our customers. it is no longer just where their work is stored. But it is where their work gets done. And it does that with the controls that make customers comfortable handing AI a shared folder. Dropbox works with existing permissions, shows the plan before anything changes. And customers can roll back anything with 1 click.

With a new desktop experience, we are also bringing these capabilities to the many customers who work primarily in their Dropbox folder. Here's 1 example. A customer had a catch-all folder of more than 1.2 thousand images with filenames that made no sense. And it had simply never gotten organized. Dropbox sorted them into folders in about 10 minutes. And that is just 1 use case. Customers are using Dropbox to find old files and images just by describing them. Pull up projects, drawings, and documents together into a single PDF, transcribe recordings, create and refine video clips, all from the content they already keep with us. that is what we mean by 1 secure home for content and context.

Dropbox does the work, but the customer always stays in control. Early signals are encouraging. Almost 90% of users who have received the experience preferred it. And of the teams that have received the new experience, over 20% have started using the AI credits included in their plan. As an independent neutral platform, Dropbox also lets customers choose how they want to bring AI into their work. They can switch models within Dropbox, or work on their Dropbox content in ChatGPT, Claude, Gemini, Muse, and other tools. Last quarter, 150 thousand users had connected Dropbox to ChatGPT and Claude. Today, more than 1.4 million have connected Dropbox to our AI integrations. And that work comes back to Dropbox.

Since September, weekly uploads from these AI tools into Dropbox have grown from over 600 thousand to more than 2 million. More agents better Dropbox. Second, we are bringing intelligent workflows that automate critical work for our customers. Dropbox replay is a prime example. it is a video review and approval tool for creative teams. Which we rebuilt from the ground up this year as an AI native application. Teams can review, approve, and deliver work to clients in 1 place. Built on the content they already keep in Dropbox. Next week, begin putting the new replay in the hands of select customers. Third, DBX Agent Cloud. Which opens an entirely new growth opportunity for Dropbox.

Every company's need for storage keeps growing. And AI applications and agents are accelerating that demand, The datasets, model artifacts, images, video they depend on need a reliable portable home that works across clouds. Works across models and compute environments, and agents need persistent access to their files across tasks and sessions. Keeping content reliable, protected, and accessible at scale. Is what Dropbox has done for nearly 2 decades. DBX Agent Cloud brings that expertise to companies and developers starting with a standalone S3-compatible object storage they can buy independently, use with the tools they already know. Our planned acquisition of Tigris gets us there faster. Tigris has thousands of customers who depend on it to keep their applications running.

And a developer business that would take us substantially longer to build ourselves. We see 4 clear ways to make the business stronger. First, capability. When the acquisition is complete, Tigris will bring features built for AI workloads and we can add Dropbox's strengths in organizing and governing content. Second, reach. Tigris' rapid growth has come from developers. And we expect our enterprise sales motion and relationships with larger customers will open up use cases it cannot easily reach on its own today. Like backup, disaster recovery, and media archives. Third, scale. Demand for Tigris' storage is growing quickly. And we plan to bring efficient exabyte scale infrastructure to support it. And fourth, the team.

The combination would bring together a proven leadership team with a deep developer focus and experience building for AI workloads. Together, we can support larger workloads while keeping Tigris' focus on reliability, and developer experience. We expect the acquisition to close in Q4 26. And Object Storage is the entry point. Not the destination. Agents need what people need. A place to keep their work, the right permissions, history, and a way to recover when something goes wrong. We plan to add file system and content processing capabilities next. Giving applications and agents a persistent place to manage files and continue their work across sessions.

Over time, we see DBX Agent Cloud becoming a portable content and data foundation for AI applications and agents across models and compute environments. Executing this strategy requires focus. This year, we brought our Dash and Dropbox teams together. We balanced our go-to-market organization and step back from work outside our priorities And, most recently, as we tightened our focus and shifted resources to align with our new strategy, we made the difficult decision to reduce our workforce by approximately 9%. I want to thank the colleagues who are leaving us for everything they have contributed. Together, these changes put our resources behind the 3 pillars where we have the strongest right to win.

And let us invest in our strategy while expanding margins. Everything we are doing points in 1 direction. Dropbox is becoming the trusted independent content foundation for the AI era. For people and teams, that is AI powered Dropbox. For companies and developers, it is DBX Agent Cloud. In both, customers keep control of their content and it stays portable across the AI models, tools, and compute they choose as AI evolves. We are still early, and the measure of this strategy is whether it shows up in growth. that is the standard I am holding us to.

But Q3 gives me confidence Another beat-and-raise quarter, AI powered Dropbox in customers' hands, and an entirely new avenue for growth with DBX Agent Cloud and Tigris. I am excited about what is ahead. With that, I will turn it over to Ross.

Ross Tennenbaum: Thank you, Ashraf. Ashraf laid out our vision for Dropbox to be the trusted independent content foundation for the AI era. We are building on our durable storage foundation with AI powered capabilities that bring intelligence to the content our customers already keep with us. Creating a smarter Dropbox experience. And DBX Agent Cloud accelerated by our planned acquisition of Tigris, builds on our storage heritage, to provide object storage and the content infrastructure, governance, and developer capabilities companies need to build AI applications. Q3 was another beat and raise quarter. We delivered our 5th straight quarter of revenue growth, excluding FormSwift, another quarter of net new paying user growth, and operating margin nearly 4 points ahead of our guidance.

And we are again raising our full year outlook. Our 3-pillar growth strategy is taking shape. With the new Dropbox experience, and Dropbox agent cloud, supported by our planned acquisition of Tigris, we are opening an entirely new avenue of growth in object storage. Built on top of a profitable, cash generative core business. We are also building a more efficient Dropbox to support it. This year, we consolidated our DocSend and core FSS teams as we brought Dash intelligence into Dropbox. We rebalanced our go-to-market organization in Q3. And we have now announced a workforce reduction to further de-duplicate resource investments and concentrate more intensely on our 3-pillar strategy.

Together, these actions allow us to invest behind our strategy while expanding operating margin, and I will quantify that impact when I discuss 2027. These initiatives are exciting. But they are early. And we will scale our investment in step with the results they deliver. That same discipline shapes how we are approaching our acquisition of Tigris. Tigris is small, but growing rapidly. They are already a proven player in object storage, have an established AI developer Flywheel, have landed thousands of customers, including large AI native platforms, and have an experienced team already operating in this market. This acquisition enables us to accelerate our pillar 3 infrastructure strategy and capitalize on this emerging opportunity now.

With that, let me turn to our Q3 results. Unless otherwise indicated, all income statement figures mentioned are non GAAP and exclude stock based compensation, amortization of purchased intangibles, certain acquisition related expenses, workforce reduction expenses, and net gains on equity investments. Our non GAAP net income also includes the income tax effect of the aforementioned adjustments. In Q3, revenue increased 0.5% year over year, $637.3 million excluding FormSwift revenue grew 1% year-over-year, ahead of the roughly flat growth implied by our guidance. On a constant currency basis, revenue excluding FormSwift increased 0.2%. The outperformance was driven primarily by self-serve teams, where simplified pricing and packaging drove stronger offsets.

Total ARR was $2.555 billion up 0.8% year-over-year and no longer includes any FormSwift ARR, following its sunset at the end of the quarter. As a result, ARR declined $10 million sequentially. Excluding FormSwift, ARR grew 1.9% year-over-year, or 0.4% on a constant currency basis. Excluding FormSwift ARR grew $5 million sequentially, led by self-serve teams. We exited the quarter with 18.2 million paying users, a sequential increase of approximately 20 thousand users. Excluding FormSwift, we added approximately 60 thousand paying users. Led by our simple plan and self-serve teams.

Average revenue per paying user was $138.76, compared to $139.77 in the year-ago quarter as growth in our lower priced simple plan was largely offset by FX tailwinds and a mix shift to monthly plans. Gross margin was 81.8%, up roughly 40 basis points year over year. Infrastructure efficiencies and the move of more of our storage onto our own data centers more than offset the added AI compute costs of rolling out the new Dropbox experience. Operating margin was 42.2%. Ahead of our guidance of approximately 38.5%. Driven by higher revenue, lower headcount costs, following our go-to-market changes, and the timing of marketing spend, which will shift to Q4 alongside the new Dropbox Experience launch.

Net income was $197.8 million compared to $196.7 million in the year-ago quarter. Diluted EPS was $0.88 compared to $0.74 in the year-ago quarter, Based on 225.1 million diluted weighted average shares outstanding, compared to 265.1 million in the year-ago period. Cash flow from operations was $259.2 million compared to $302.1 million in the year-ago period, primarily reflecting higher interest payments related to our term loan facility. Capital expenditures were $7.4 million. Unlevered free cash flow was $303.9 million and unlevered free cash flow per share was $1.35, up 14% year-over-year. We ended the quarter with cash and short term investments of $1.142 billion and our $400 million revolving credit facility remains undrawn.

In Q3, we repurchased approximately 4.7 million shares for approximately $150 million and we had approximately $1.235 billion remaining under our authorization. I will now offer our outlook for Q4 and the full-year 2026. Please note that our outlook excludes the announced acquisition of Tigris, because we have not yet closed the transaction. For the fourth quarter of 26, we expect total revenue to be in the range of $630 million to $633 million. As a reminder, we fully discontinued FormSwift at the end of Q3, so it contributes no revenue in Q4. Compared to approximately $3 million in Q3. Excluding FormSwift, our Q4 guidance implies 0.2% year-over-year growth at the midpoint.

We are expecting a currency tailwind of approximately $3 million as we have continued to see FX tailwinds moderate. On a constant currency basis, we expect total revenue to be in the range of $627 million to $630 million We expect our non-GAAP operating margin to be approximately 40%. This includes a partial quarter's benefit from the reduction in force action announced last week and excludes approximately $22.5 million of expenses related to our workforce reduction. As additional context to our expectations for Q4, When we provided our Q3 guidance, we expected operating margin to step up sequentially from Q3 to Q4.

However, as I mentioned, we saw delayed spend in Q3, particularly marketing spend, which we now plan to spend in Q4, as we continue to expand the rollout of our new Dropbox experience. And Q4 reflects only a partial quarter of savings from our workforce reduction. As a result, we expect Q4 operating margin to be slightly lower than Q3. And finally, we expect diluted weighted average shares outstanding to be in the range of 224 million to 229 million shares.

For the full year 2026, we are raising the midpoint of our as reported revenue guidance range by $12 million now expecting a range of $2.528 billion to $2.531 billion Excluding FormSwift, this implies 120 basis points of year-over-year growth at the midpoint. We are expecting a currency tailwind of approximately $28 million. On a constant currency basis, we are raising the midpoint by $15 million now expecting a range of $2.5 billion to $2.503 billion We expect gross margin to be approximately 81.5%, We are raising our non-GAAP operating margin guidance to 40.5%, up 25 basis points from the midpoint of our prior guidance.

Our prior guidance already assumed savings from our workforce reduction, so this increase reflects our Q3 outperformance. We are also raising our unlevered free cash flow guidance which we now expect to be at or above $1.075 billion, an increase of $5 million This accounts for our severance expectations, where we ultimately expect to pay approximately $30 million in severance and benefits as related to our workforce reduction with roughly $20 million expected to be achieved in 2026 and the remainder to be paid in 2027. We continue to expect CapEx to be in the range of $20 million to $25 million and additions to finance lease lines to be approximately 4% of revenue.

Finally, we expect diluted weighted average shares outstanding to be in the range of 228 million to 233 million shares which reflects our 30 day trailing average stock price. Now I will provide additional context as it relates to guidance. We continue to expect positive net new paying user growth for 2026. Regarding gross margin, our Q4 outlook reflects rolling out the new Dropbox experience to all eligible self-serve teams by year end, which increases AI compute costs, partially offset by the infrastructure efficiencies we have been delivering. We expect some quarter-to-quarter variability as rollout and adoption progress. And finally, some early thoughts on 2027. We will provide formal guidance, including for Tigris, in February.

Excluding the acquisition of Tigris, we expect 2027 revenue to be roughly flat. First, we have now fully discontinued the sale of FormSwift. Which contributed $13 million to revenue in 2026, and will thus have no contribution in 2027. Second, the new Dropbox experience and workflow products are early in the rollout. And we believe monetization will build gradually. Finally, we have continued to see FX tailwinds moderate and expect this to continue. We will also be more prepared to guide to contribution from our new initiatives when we have more evidence in February. We expect approximately 150 basis points of operating margin expansion in 2027, reflecting the full year benefit of the efficiency measures I described.

Consolidating our DocSend and core FSS teams rebalancing our go-to-market organization, and our recently announced workforce reduction. That expansion is net of reinvesting a portion of those savings behind our 3-pillar growth strategy. As a reminder, Tigris, has not yet closed and is not included in these expectations. If it does close, we may reinvest some of these savings to support it, and will reflect that in our guidance in February. Our workforce reduction will also lower stock compensation. And beyond that, we continue to look for ways to use our equity more efficiently and bring stock based compensation down as a percentage of revenue.

We expect unlevered free cash flow to expand in line with operating margin driven by the same efficiency measures. Turning to Tigris. The transaction has not closed yet, and we will provide a more fulsome update when we report in February. Tigris is a small but fast growing business, that is not material to our total revenue in the trailing 12-month period. They already serve thousands of customers, including several large companies and AI native platform players. Tigris runs at a modest burn, And given how quickly this market is moving, we see it as a time sensitive opportunity to accelerate our time in the market, as we extend our infrastructure to sell object storage and power AI workloads.

As it relates to their capacity needs, we expect our recent and ongoing infrastructure efficiency initiatives will unlock sufficient storage capacity to absorb Tigris' existing customer footprint and support its expected growth in 2027. To bring it together, Q3 was another beat and raise quarter. With the new AI powered Dropbox experience, DBX Agent Cloud and the acquisition of Tigris, we have opened an entirely new avenue of growth as a trusted independent content foundation for the AI era. And we have rebalanced our resources to invest behind that strategy while expanding margins and cash. We still need to demonstrate sustained growth, and that is the standard we are holding ourselves to.

But we believe we are well positioned to pursue the opportunity ahead. With that, operator, please open the line for questions.

Operator: Certainly. And our first question for today comes from the line of Brett Huff from Stephens Inc. Your question please.

Analyst: Awesome. Hey, guys. Nice to finally be covering you all. Appreciate the question, and congrats on a good quarter. So on Tigris and Agent Cloud, you have gone to a few questions already about the rationale for Dropbox entering the development, storage market. Can you kind of walk us through what the customer problem Agent Cloud is built to serve and why existing options kind of fall short of serving those customers today.

Ashraf Alkarmi: Thank you for the question. First of all, we are really excited about this acquisition with Tigris, When we look at the opportunity, we see fundamentally that more agents and more AI means more storage needs. Whether you are building applications and that is requiring images and videos, to training data to really building any application that has needs for large amounts of storage. We see this when we look at our own, infrastructure, And when we looked at this opportunity, we found a really incredible synergy here We have a company with Tigris that has a big developer motion. They have thousands of customers.

These customers range from self-service customers all the way to some of the most known AI companies, that use their product. And we believe that, our combination together with the exabyte scale efficient storage that we have and our capabilities we can actually provide something really differentiated first and foremost for the companies and developers using it. Tigris has done an incredible job of building something from day 1 intended for AI, for object storage. So they have, for example, features like snapshots and forking. What this means is if you build an AI application, your agents will do things faster. With lower latency and better We also believe in the neutrality.

We are a company that really does not tie you to any specific cloud. You can take your content anywhere. So when we talk about us being a trusted, independent, secure, reliable content foundation layer for the AI era, we believe that is the way to do it. that is super helpful. We appreciate it. And then if I could just sneak a follow-up in there. So we have seen some Of course. from some other software companies that SMB customers are getting a little bit more price sensitive.

Does not seem to be the case for you all, but am kind of curious on what you are seeing in the health of your paying user base and are some of the things getting those paying users over the hump to go on the Dropbox platform? Is it specifically around AI usage? Yeah. Just what are some of the AI ROI proof points that customers are seeing where it is an easy button to click to get on Dropbox. I think I will start by just giving a little context. Fundamentally, we believe in giving customers the choice. We believe that you can use Dropbox without AI.

You could use Dropbox inside a cloud or a chat or you could use AI within Dropbox. So customer choice for us is first and foremost, very important. And we believe that our biggest focus is to deliver value. We see this more as a value equation. The more we provide meaningful time savings, we provide these SMBs with the ability to build their business or unlock more potential or save time from the mundane tasks. We believe that value translates into monetization.

And that is our biggest focus right now, which is how do we actually tangibly take things that are mundane and take time from these SMBs and say, we have automated a lot of it with AI, and as a result, they find value. So our focus is actually, first and foremost, on value creation. Whether they do that within Dropbox or within ChatGPT and Claude, we believe that we are there to support them.

Ross Tennenbaum: Yeah. Brett, hey. it is Ross. Thanks for joining the call. I just wanted to add, we are not able to discern a macro impact on our business right now. And as Ashraf talked about, you know, for us, it is really about execution to our strategy that can drive more value for our customers. that will allow us to really capitalize on our flywheel, 700 million registered users, 18-plus-million paying users. All the sharing, all the monthly actives, And so it is really incumbent on us to deliver more value in our products to drive more conversion, to drive more upsell, to drive more retention, and that is all part of the strategy.

But, you know, seeing some of the macro things that you alluded to, we have not seen that pattern directly impacting our business.

Operator: Thank you. And our next question comes from the line of Rishi Jaluria from RBC. Your question please.

Rishi Jaluria: Wonderful. Hey, Ashraf and Ross. Thanks so much for taking my questions. Maybe I want to think about 2027 and kind of the preliminary outlook there with all the moving pieces. Appreciate you giving a little bit of an early look. Maybe can you talk to us about how we should be thinking about contribution from the new AI tooling to ramp? What does the shape of that look like? Kind of any new pricing methodology alongside that. Just trying to kinda get comfort around, you know, some of the building blocks.

Obviously, you have you have turned the corner on, you know, stopping declines in growth, but obviously looking kind of a building block to get to future growth from here. So maybe walk us through that, and I have got a quick follow-up.

Ashraf Alkarmi: Of course. And thank you for the question. Maybe I will start with a little bit of a recap. Last quarter, we talked about our 3 pillars for growth. The 1st pillar is about continuously working on our foundation driving that funnel improvement while also adding AI within Dropbox to unlock more value for our customers. The 2nd pillar is about actually unlocking more workflows for specific customer segments that present themselves in an additional product that they can buy. And the 3rd 1 is unlocking all the infrastructure we built via APIs for developers and companies.

And today, where we are is with pillar 1, we are on our fifth consecutive quarter of growth, 4th consecutive quarter of customer growth, and we are basically saying we are achieving that consistently. that is part of 1 pillar. So as you look at the 1st pillar, we still need to enable AI for the rest of customers and drive adoption via. And drive value. And we are launching the first application of the 2nd pillar, as I mentioned, select customers next week, and we just announced the acquisition of Tigris to kick off our DBX agent, cloud. Now when we look at it, we see that we have planted all the seeds.

For a lot of amazing, opportunities that we fundamentally believe will drive growth. So as we look at next year, we are not gonna speculate, early, how these will pan out. We do believe in them. We do believe they are gonna drive growth. But do expect as we. As time goes by, we will have more concrete data to share. But I believe we have the right best. it is the best we talk. Best we talked about, and I believe they will drive growth for the company.

Ross Tennenbaum: Yeah. And, Rishi, hi. it is Ross. I can add a little bit there. Because you are probably gonna ask about you know, 2027, we said early color to think about flat revenue growth. And I just want to give you our philosophy. Number 1 is a reminder that FormSwift was sunset in Q3. And therefore, there will be $0 of FormSwift in 2027. So this year, we had 3 quarters of FormSwift. Next year, we will have zero. Also, we are seeing moderating FX tailwinds this year and expect that to moderate further next year. So that will have some headwind And then I will just echo what Ashraf said. We are really excited about strategy, multi-pillared, multi-vectored approach.

That gives us confidence that we can execute on growth. And our philosophy is to drive growth and also sustain or improve our margins. And as we talked about, we are giving more margins by talking about adding 150 basis points next year. So we just want to stick to our philosophy of seeds are planted. We really like where we are. But we do not wanna get too excited and get carried away on building that in just yet. We get to February, we will give you a more formal guidance that is influenced by everything we know at that time.

Rishi Jaluria: Alright. Very helpful. And then maybe I just, you know, on that third pillar, can you maybe talk a little bit about you know, I get it is early, obviously, a really exciting opportunity. But how should we be thinking about what those conversations that you have been having look like? Any potential kind of use cases? And I know you just announced the acquisition this morning. You know, is that something that fits more broadly into that strategy? Thank you.

Ashraf Alkarmi: Yeah. I will give you a little bit of color a little bit beyond, this specific acquisition and more about the DBX agent that we have been talking about. We spent 20 years building infrastructure that are. That is enabling humans to interact, collaborate, govern, secure their content, apply permissions, and really do that at scale in a multiplayer way. And what we envision in the future is more agents means they need more of that for them to be able to produce results. And so what we believe is that object storage is the start and what we are really excited about is Tigris' vision and our vision matched.

When we kicked off these conversations, we believe that object storage is a start. And it is a thing that exists. But where we have taken it is a governance layer of content. So your agents do not just store stuff. They are able to know who has permissions to it. who is able to share it. Can they share it, Apply security on top of it. So as you think about the additional layers on top of content, we have a lot of capabilities and APIs that we can add, and it becomes a new flywheel. We think of Tigris to have thousands of developers We have APIs that we can offer to these developers and companies.

And what it means is more value to these developers by hosting your content in 1 place. You can now govern it. You can process it. You can edit it. And we believe that expands, the value for Tigris and for ourselves combined. Very helpful. Thank you, guys.

Operator: Thank you. And our next question comes from the line of Matthew Bullock from Bank of America. Your question, please.

Matthew Bullock: Great. Thanks for the question. Maybe just to start on pricing and packaging, would be great to get an updated strategy for the new Dropbox experience you are rolling out. And the agent cloud, assuming that the Tigris deal closes, Can you just help us think through how, if successful, those initiatives could influence user growth, ARPU, and whether or not, you know, the best metric to evaluate the health of the business change at all post acquisition?

Ross Tennenbaum: Yeah. Hi. Hey, Matthew. it is Ross. So first, new Dropbox DBX experience. The way we are we are looking at. So we have got that rolled out to about 70 thousand teams. We expect to roll that out to the majority teams by the end of Q4. We are seeing. We talked a little bit about, but we are seeing in our early metrics more than 90% are staying in the new experience you give the option to roll back. But more than 90% are staying in the experience. And we talked about more than 20% have begun using AI tokens. 've also sold AI token packs.

So again, it is early it is been a limited time in market, but we are really pleased with executing to where we want to go. And the goal there is I would say, twofold. 1 is as adoption rises and value is proven, we want to sell AI token packs to our customers. And then 2, it is 1 of the biggest upgrades to the Dropbox platform we have had in many years It enriches the platform alongside other things we are doing like our replay solution, the pillar 3 stuff, all the strategy stuff. And we think that helps accrue to retention as well. So better monetization through selling AI tokens, as well as through retention.

So those are the big things. On the Dropbox experience. And then on agent cloud, So this will be a separate flywheel that we are building now. And it will be a sales led motion We already were out in the market for the last couple quarters talking to prospects and customers. We actually were able to build pipeline, get POCs, even signed up a deal That was before we acquired Tigris. And our goal there is to now plug Tigris in, which is a rapidly growing company, thousands of customers. it is got some of the large AI thousands platforms like Railway and Fall. it is doing really well.

And that would be from pricing and packaging is selling object storage, but also we have a vision of adding other services on top to create this file system for agents and that type of offering. Would have software on top that would come at a higher gross margin. So that is that is an overview of what we are looking to do with Agent Cloud and the new Dropbox experience.

Matthew Bullock: Really, really helpful. Thank you for laying that all out. And then maybe just 1 housekeeping question. On the early look at 2027, we are backing out the FormSwift contribution and currency. But could you just help us think through what that implies for kind of an adjusted constant currency growth rate terms of the early look pre Tigris?

Ross Tennenbaum: Yeah. I think I think so. Again, it is an early it is an early signal on 27. And a reminder to everybody, we are not including Tigris acquisition because it has not closed. What we said earlier was expect flat growth, and we are talking about margin expansion. And yeah, you got the point about FormSwift and FX. I would say that right now, what we are trying to convey is we are feeling really good about the strategy We delivered 5 quarters of growth ex Form Swift. We flipped net new paying users to positive. We are growing Teams again.

We feel really good about that, and we feel really good about this multi pillared strategy and where we can take it But just like right now, this morning, we launched Agent Cloud. Morning before we launched the new experience, We talked about rolling out replay to a select base of customers. And so we just want to get a few more months down the road into February when we provide formal guidance to be able to bake that in. So we will provide more detail specific to 2027 when we get there. But for now, you know our philosophies are focused on growth. And we are focused on sustaining or improving margin.

And right now, we are giving an extra 150 basis points of margin next year.

Analyst: Excellent. Thanks very much.

Operator: Thank you. And our next question comes from the line of Jaiden Patel from JPMorgan. Your question please.

Jaiden Patel: Hey, thanks for taking the question. On Tigris, you mentioned thousands of customers and rapid growth from developers. Can you help us size the business? And as you bring it into Dropbox's infrastructure, should we think about the margin and potentially capital intensity of agent Cloud relative to the core?

Ross Tennenbaum: Yeah. Thanks, Jaiden. So I am just gonna be careful about sizing the business just yet again because it. We are limited on what we can say given we have closed it yet, and we will provide more details appropriately when we get to February. And, you know, I will just reiterate, they are rapidly growing ARR. Of course, revenue, you know, is catching up to the rapid growth of ARR. There are thousands of customers. They do include some of the big AI natives, railway and fall, other big customers. Lots of AI native customers.

So we are we are very impressed with the solution that they put in market, the developer motion that is targeted AI native, the differentiated technology, and how it accelerates our pillar 3 storage infrastructure strategy. And we will provide more on how to think about growth in ARR when we get to February. On the second part of the question, which was around capital intensity, the other thing we were very impressed is there is about little bit over 20 employees and very low burn. Very low burn on the business. And, you know, as we look at bringing it in, we do look at investing areas. We think this is a big market opportunity.

We want to capture that market opportunity. So we think about investing more. But even in the aggregate with that additional investment, we still think it will be modest burn. And the good news is all the work that we have done on our infrastructure has freed up pretty significant capacity. So we have capacity just kinda sitting there that we wanna go out and sell. You know, it is like it is like gold in there that everybody wants, and we wanna get out there and sell it. And so what I am trying to say is do not have to go out like next year and go procure a bunch of new capacity like a new startup would.

We have significant scale. We have significant excess capacity. That we can put to work to support Tigris' growth. Great. You so much.

Operator: Thank you. And our next question comes from the line of George Kurosawa from Citi. Your question please.

George Kurosawa: Okay, great. I am on for Steven Enders. Thanks for taking the questions here. I wanna dig in on this pillar 3 strategy. We rewind the clock, you know, earlier in this year. This was very felt very much exploratory at the time. You know, obviously, since then, you know, if this acquisition goes through, I believe this will be the largest acquisition you guys have done. So if you could just talk through the work that you guys have done, the signals you have seen that make. Give you the confidence to make this move?

Ashraf Alkarmi: Thanks for the question. So, we talked about how we are exploring this. What we did was we actually built pipeline We talked to customers. We actually built proof of concepts with some of these customers with the capabilities that we have. And just to be clear, Tigris has a lot more capabilities when it comes to object storage because they built it from scratch for AI native developers. And so despite not having that, we are able to build a pipeline We built proof of concepts. We actually got inbound requests from customers and we got really excited.

Obviously, there is there was a lot of really good signal that got us to, believe that the right move for us. But also as we started exploring further the Tigris Data, what we found is they have built an incredible business with, like we talked about, it is growing. And they have both a developer motion and an upmarket motion where they have large customers as well. So the synergy here is a, we are able to add APIs to the developer emotion. And unlock more potential out of infrastructure and APIs we already built 2, they wanted to go more and do more in GTM and upmarket and we have a team that can help with that.

And 3rd, we have capacity like Ross mentioned that is sitting there that we that we freed up from all our efficiency work. And we believe we can, unlock that and drive growth with that. And so when we looked at it, it was a match in a really big kind of synergy from what we are seeing and what they are seeing, and we got excited both about the signal we got and looking at the data they have.

George Kurosawa: Okay. that is great color. And then as a follow-up, you know, if we think. And this is a little early. We have not closed the deal yet. But if we just think about maybe qualitatively, what signals or milestones would you be looking to see— kind of gates, that you would be passing through that would give you confidence to continue investing behind this opportunity versus maybe you know, where this is not the right bet for the business going forward? Like, what are the gateposts you guys are looking to see as we progress to next year?

Ashraf Alkarmi: I think the answer is pretty simple. We want to see growth from this pillar. We believe in it. We believe growth will come. We believe we will be able to unlock both a self serve developer motion and an upmarket motion, so not just 1 API, but many. And we believe that is the signal. We wanna see growth come from that pillar. Great. Thanks for taking the questions.

Operator: Thank you. This does conclude the question and answer session of the program. I would like to hand the program back to Sarah Schubach for any further remarks.

Sarah Elizabeth Schubach: Thanks, everyone, for joining us today. Looking forward to speaking with you next quarter.

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

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