Earnings call transcript: Dropbox beats Q3 2025 EPS forecast by 15.63%

Dropbox Inc. (NASDAQ:DBX) reported a stronger-than-expected financial performance for the third quarter of 2025, with earnings per share (EPS) of $0.74, significantly surpassing the forecast of $0.64. This earnings beat, alongside higher-than-anticipated revenue of $634 million, led to a positive market reaction, with shares rising 0.38% in aftermarket trading.

Key Takeaways

• Dropbox’s EPS beat expectations by 15.63%.
• Revenue reached $634 million, exceeding forecasts.
• Non-GAAP net income increased by 3% year-over-year.
• Unlevered free cash flow rose by 39% year-over-year.
• Strategic acquisition of Mobius Labs to enhance AI capabilities.

Company Performance

Dropbox demonstrated robust company performance in Q3 2025, buoyed by strategic initiatives and product innovation. Despite a 70 basis points decline in total revenue year-over-year, the company achieved a 23% increase in diluted EPS and a 3% rise in non-GAAP net income. This performance reflects Dropbox’s ability to navigate challenges and leverage new opportunities in the market.

Financial Highlights

• Revenue: $634 million (70 basis points decline YoY)
• Earnings per share: $0.74 (23% increase YoY)
• Non-GAAP net income: $197 million (3% increase YoY)
• Unlevered free cash flow: $314 million (39% increase YoY)

Earnings vs. Forecast

Dropbox’s Q3 2025 results surpassed market expectations, with EPS of $0.74 beating the forecasted $0.64 by 15.63%. Revenue also exceeded projections, coming in at $634 million against the forecast of $620.11 million, marking a revenue surprise of 2.3%.

Market Reaction

Following the earnings announcement, Dropbox’s stock experienced a modest increase of 0.38% in aftermarket trading, reaching $29.24. This positive movement reflects investor confidence in the company’s ability to deliver strong financial results and execute strategic initiatives effectively.

Outlook & Guidance

Looking ahead, Dropbox raised its full-year 2025 revenue guidance to between $2.511 billion and $2.514 billion, signaling confidence in its growth trajectory. The company expects unlevered free cash flow to reach or exceed $1 billion. Key focus areas for 2026 include scaling the Dash product and strengthening the self-serve Teams business.

Executive Commentary

CEO Drew Houston highlighted the company’s commitment to innovation, stating, "We believe and we see there’s a lot of important technical and design work that we’re doing with Dash to take AI the last mile at work." Houston also emphasized the strategic value of integrating AI into Dropbox’s productivity ecosystem.

Risks and Challenges

• Declining total revenue and ARR present ongoing challenges.
• Scaling new products like Dash may encounter market resistance.
• Competitive pressures in the AI and cloud storage sectors.
• Economic uncertainties impacting SMB adoption rates.
• Integration complexities with newly acquired technologies.

Q&A

During the earnings call, analysts focused on Dropbox’s strategy for Dash adoption and monetization. The company reported positive early feedback, emphasizing a focus on adoption rather than immediate revenue generation. Analysts also inquired about the ongoing share repurchase program and its impact on shareholder value.

Full transcript - Dropbox Inc (DBX) Q3 2025:

Conference Operator: Today, and thank you for standing by. Welcome to Dropbox’s third quarter 2025 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please note that today’s conference is being recorded. I will now hand the conference over to your speaker host, Peter Stabler. Please go ahead.

Peter Stabler, Investor Relations, Dropbox: Good afternoon, and welcome to Dropbox’s third quarter 2025 earnings call. As a reminder, we will disclose 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 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 2025, as well as our expectations regarding our business, assets, strategies, and the macroeconomic environment. 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 and forthcoming reports 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 CEO and co-founder, Drew Houston.

Drew Houston, CEO and Co-Founder, Dropbox: Thanks, Peter, and good afternoon, everyone. Welcome to our Q3 2025 earnings call, and I’m here with Tim Regan, our CFO. I’ll walk through our business and product highlights, and then Tim will cover our Q3 results and our outlook for the rest of the year. Our teams executed well this quarter. Constant currency revenue came in comfortably ahead of guidance, driven primarily by better-than-expected retention across our individual and self-serve teams’ plans. Non-GAAP operating margin was up meaningfully year over year, reflecting our focus on operational efficiency, along with some timing-related spending shifts that Tim will cover. Now let’s dive into our two strategic priorities, which are scaling Dash and simplifying and strengthening our core FSS business. We’ll start with Dash. Our industry is spending trillions of dollars on AI models that can explain quantum physics but can’t find your Q2 board deck.

This is the problem that we’re solving with Dash. Specifically, the issue with today’s tools is that they don’t understand your context at work. Consumer AI tools don’t know about your company. Copilot can’t see your Slack. Gemini can’t see your Salesforce. You’re always starting from zero, cutting and pasting, and uploading documents one at a time. Meanwhile, SMBs are either overlooked by enterprise search tools or are stuck using consumer tools that weren’t built for business and create real security risks around data leakage. Dash solves this by connecting to all your work apps from Microsoft, Google, Slack, Notion, everything you use. You get one search box instead of ten. You get AI that actually sees your full picture, not just one ecosystem slice. Unlike consumer AI, Dash is built for business from the ground up with the security and admin controls that IT teams actually need.

In Q3, we made the Dash product significantly better. Search latency dropped by 75%, while quality actually improved. For creative professionals, a core segment for us, Dash now transcribes videos, lets you chat with them, and can search text within images and scans. We also brought on the Mobius Labs team to push our multimodal capabilities even further. They are building AI models that are optimized for large-scale multimedia processing, opening up entirely new workflows for teams working with video. We upgraded Stacks, our intelligent content collections, with ranked answers and simpler sharing. Dash is the only AI tool for SMBs that goes beyond search and chat to actually help organize and share content across your entire company.

We’re seeing strong early engagement, so 60% of our managed Dash weekly active users are now using Dash at least two days a week, which tells us that the product is becoming part of their daily workflow, and security remains critical. IT admins need to protect their company’s content, so this quarter, we shipped automated protection for high-risk sharing. Admins can now enforce policies that automatically detect and fix issues like public links or inappropriate external access. Finally, we made two important announcements during our fall launch a couple of weeks ago. First, we launched the self-serve version of Dash in the US, so you can now go to dropbox.com/dash and get your team up and running. No multi-month deployments, no $50,000 setup fees, just sign in with your work email, connect your apps, and go. This lets us reach the many SMB customers that enterprise-focused companies can’t.

We’re starting by pricing it at $19 per user per month, and current and advanced file sync and share plan customers are eligible for a 50% first-year discount. Second, for our Dropbox business customers, we started rolling out native Dash integration inside of the Dropbox app. This brings Dash’s search, chat, and Stacks directly into the FSS experience our customers already know. You can ask questions of your files in natural language, get summaries, and find related content. Trial users also get the standalone version of Dash for deeper capabilities and the ability to connect all of the rest of your work apps beyond your files. Dash within Dropbox is starting to roll out to Dropbox FSS teams on the web, with mobile and desktop coming in the next few months.

To ensure a great experience, we’re rolling it out in stages over the coming quarters, starting with a waitlist for US-based FSS customers. This launch represents a significant milestone. It broadens access and introduces Dash to our massive FSS user base and to new SMB customers. Early cohorts are showing good engagement, particularly with search, and we’re gathering feedback, improving the product daily, and laying the groundwork to convert trials to paid licenses. Turning to core FSS, our focus remains on simplifying and strengthening the user experience while driving efficiency. We continue to make progress on retention and downsell, driven by better value communication and better optimizing our cancellation flows. With improved sharing, sync, and storage management tools, our individuals’ business just posted our highest-ever CSAT scores. We’re also focused on trial conversion.

This quarter, we started testing better localization with region-specific value messaging and landing pages, expecting conversion gains over time. We are also testing a low-friction import tool for Google Drive and OneDrive users, making it easier to switch providers right in the sign-up flow. Our new unified checkout brings FSS, Dash, and add-ons into a single streamlined purchase flow for team trials, including an Apple Pay option coming later this quarter. Early results show conversion gains and will extend this to individual trials later this quarter. For IT admins, we launched a storage management dashboard showing team data usage and trends, which addresses a top customer request and helps drive our highest-ever IT admin CSAT score. DocSend had another solid quarter with double-digit revenue growth, driven by a 17% increase in total account creations and strong engagement.

The DocSend team is applying learnings from core FSS to drive retention gains and sign-in forms with modestly exceeded expectations. It has been an eventful quarter. Just like we took the cloud the last mile in 2007 by giving you a folder that synced everywhere, with Dash, we are taking AI the last mile by connecting it to your actual work. With Dash self-serve live and Dash and Dropbox rolling out, we are building awareness, driving trials, and turning early users into advocates. Our core team is making real progress, strengthening and simplifying FSS while operating more efficiently. The momentum is energizing, and we look forward to updating you on our progress in the coming months. I want to thank everyone on the Dropbox team for all their hard work this quarter. I will now turn it over to Tim to cover our Q3 financial performance and Q4 outlook.

Tim Regan, CFO, Dropbox: Thank you, Drew. I’ll cover our financial highlights from Q3. I will then provide guidance for the fourth quarter and the full year 2025. We executed well against our objectives this quarter, with results coming in ahead of our expectations. Our core team is making progress, stabilizing our self-serve file sync and share business areas while concurrently driving meaningful operating leverage. This is giving us the opportunity to invest in new growth bets such as Dash, which are also making progress as we now have several go-to-market motions up and running to help take advantage of the large market opportunity in front of us. We’re also reducing our share count substantially, thus putting ourselves in a position to drive a meaningful increase in free cash flow per share this year. With this in mind, I’ll now turn to our Q3 financial performance.

In Q3, total revenue declined 70 basis points year over year to $634 million. Constant currency revenue declined 120 basis points year over year to $631 million. Excluding the impact of FormSwift, which acted as a 150 basis point headwind to revenue, our year-over-year constant currency revenue was slightly positive, driven by relative strength in our individual SKUs. Total ARR was $2.536 billion, down 1.7% year over year and 1.5% on a constant currency basis. FormSwift acted as a 160 basis point headwind to ARR in the quarter. We exited the quarter with 18.07 million paying users, a sequential decline of approximately 64,000 paying users. The quarter’s decline was primarily driven by downsell within our managed account base, as well as our reduced level of investment in FormSwift. Counteracting this, we’re seeing positive traction from our Simple SKU, our lower-priced, lower storage plan targeted to mobile-first users.

Average revenue per paying user was $139.07, as compared to $138.32 in the prior quarter. ARPU increased sequentially, primarily due to FX rate tailwinds, as well as shifts to both higher-priced and monthly plans. 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, workforce reduction expenses, and net gains on equity investments. Our non-GAAP net income also includes the income tax effect of the aforementioned adjustments. Gross margin was 81.4% for the quarter, down 260 basis points from the year-ago period, reflecting higher depreciation stemming from our data center refresh cycle, as well as investments we are making in our infrastructure for Dash. Operating margin was 41.1%, ahead of our guidance of 37%.

Up roughly 490 basis points from the year-ago period. Operating margin increased year-over-year largely due to headcount reductions from our RIF, the elimination of marketing spend for FormSwift, and targeted reductions in core performance marketing. Compared to our guidance, operating margin benefited primarily from delayed hiring, lower outside services and marketing spend, as well as some one-time benefits. Net income for the third quarter was $197 million, up 3% year-over-year. Diluted EPS for the third quarter was $0.74, based on 265 million diluted weighted average shares outstanding, compared to $0.60 in the year-ago quarter, representing a 23% year-over-year increase. Moving on to our cash flow and balance sheet. Cash flow from operations was $302 million, an increase of 10% versus the year-ago period. Q3 included $21 million of interest payments, net of the associated tax benefit related to amounts drawn under our term loan facility.

Capital expenditures were $8 million in the quarter, resulting in unlevered free cash flow of $314 million, or $1.19 per share, up 39% year-over-year. In the quarter, we also added $45 million to our finance leases for data center equipment as we continue to refresh our data centers, though we are nearing the end of this refresh cycle. As related to capital allocation, in September, we amended our existing credit agreement to add $700 million and delayed draw secured term loans under similar terms as our initial term loan from December 2024, with no interest expense for undrawn amounts in 2025. We expect to draw these funds early next year to retire our March 2026 convertible notes. As a result, we will not incur incremental interest expense this year related to this transaction. As of the end of the quarter, we have $1.15 billion drawn and $1.55 billion.

Available to draw under our term loans. We ended the quarter with cash and short-term investments of $925 million. Concurrent with our September capital raise, our board also authorized a new $1.5 billion share repurchase program. In the third quarter, we repurchased approximately 14 million shares, spending approximately $390 million. As of the end of the third quarter, we had approximately $1.58 billion remaining under our existing share repurchase authorization. I’ll now offer our updated outlook for Q4 and the full year 2025. For the fourth quarter of 2025, we expect revenue to be in the range of $626-$629 million. We are expecting a currency tailwind of approximately $3 million. On a constant currency revenue basis, we expect revenue to be in the range of $623-$626 million. We expect FormSwift to serve as a roughly 170 basis point headwind to revenue in the fourth quarter.

We expect our non-GAAP operating margin to be approximately 37%. Finally, we expect diluted weighted average shares outstanding to be in the range of 256-261 million shares, based on our 30-day trailing average share price. For the full year 2025, we are raising the midpoint of our as-reported revenue guidance range by $18 million, now expecting a range of $2.511-$2.514 billion. We are also raising the midpoint of our constant currency revenue guidance by $17 million, now expecting a range of $2.508-$2.511 billion. We now expect FormSwift to serve as a roughly 130 basis point headwind to revenue this year. Our gross margin outlook is unchanged at approximately 82%. We are raising our outlook for non-GAAP operating margin by 100 basis points to approximately 40%. We expect unlevered free cash flow to be at or above $1 billion.

We continue to expect cash interest expense net of tax benefits of approximately $85 million. We are also lowering our CapEx guidance to be in the range of $20-$25 million for the full year, and we are maintaining our outlook for additions to finance lease lines to be approximately 6% of revenue. Finally, we now expect diluted weighted average shares outstanding to be in the range of 273-278 million shares. I’ll now share some additional perspective on this guidance for 2025 and provide some early thinking on 2026. With respect to revenue, we are raising our full year revenue guidance to reflect our outperformance this past quarter, as well as stronger structural retention trends across our self-serve SKUs that we expect to continue through the remainder of the year.

Turning to paying users, we now expect a full year decline of roughly 250,000, an improvement from our prior outlook of 300,000 paying users. Our better-than-expected results on paying users is driven by strong retention with our self-serve file sync and share SKUs and the early success of our lower-priced Simple plan. We expect this outperformance to be partially offset by softer results within our managed sales motion, where we continue to see near-term downsell activity. Consistent with our prior commentary, FormSwift is expected to account for roughly half of the total decline this year. Moving on to operating margins, we are raising our full year guidance by 100 basis points, primarily driven by more disciplined hiring, efficiencies within performance marketing, lower outside services spend, and some one-time benefits. At the same time, we anticipate some incremental investment in headcount and marketing next quarter to support Dash.

We’re lowering our full year CapEx guidance as we’ve right-sized our data center investments for the rest of the year, consistent with our disciplined approach to managing spend across the business. We’re lowering our full year weighted average shares outstanding outlook, reflecting the additional capacity under our share repurchase program and our commitment to reducing share count over time. Finally, we are raising our unlevered free cash flow guidance roughly in line with the raised operating margins, where we now expect unlevered free cash flow to be at or above $1 billion. Surpassing $1 billion in unlevered free cash flow will mark a milestone for the company, representing both a level we’ve been building towards for many years, as well as a testimony to the strength of our business model. We’re proud of the progress we’ve made on this front and look forward to continuing the momentum.

I’ll wrap with some early thoughts on 2026. With respect to revenue, our strategy next year will largely reflect a continuation of our goals for this year, with a significant focus on scaling Dash and strengthening our self-serve Teams business, all with the aim of returning to revenue growth. However, we expect to continue to face near-term revenue headwinds from our strategic decision to exit the FormSwift business, as well as to reduce our investments in our managed sales motion and performance marketing for our core business. With respect to operating margins, we’ll be lapping the reduction in force we made in October of 2024, and thus will not have this margin expansion tailwind heading into next year. Additionally, 2026 will be an important year for Dash, with expanded go-to-market motions and increased marketing investment. We will aim to drive higher trial usage, engagement, and conversion.

As customer traction builds, we’ll retain flexibility to invest further in growth. Consequently, we don’t currently foresee 2026 to be a year of margin expansion. Having only launched our Dash self-serve motions a few weeks ago, we are just now seeing true customer signals on these motions, and thus we’ll be refining our expectations and plans over the coming months as we gain more insight. Therefore, we will have more to share on our expectations for 2026 during our February earnings call. With that, Operator, please open the line for questions. Certainly, ladies and gentlemen, as a reminder to ask the question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press Star 1 again. In the consideration of time, please limit yourself to one question and one follow-up.

Please stand by while we compile the Q&A roster. Our first question coming from the lineup, Paula Echenduk with Citi. Yolanda Snellfin. Hi, this is Paula Christie Venders from Citi. Thank you for taking our questions and congratulations on the great quarter. My first question was, with Dash in self-serve now, just was curious as to what you’re hearing on early feedback on Dash and monetization progress. I know it’s not going to be a big part of your revenue, but is any portion of the raised guide including Dash monetization? I can start with on the Dash front and the self-serve launch. It’s early days. The launch was a couple of weeks ago, but more broadly with Dash, the basic value props are resonating. Customers appreciate the ability to search across all their different apps.

They appreciate having an AI system that actually knows about them, their company. Then some unique features of Dash, things like Stacks, which are smart collections that allow you to organize content across any platform and beyond just files. Lastly, Protect and Control, which helps IT admins identify and remediate any overshared content. Those are the pillars of value that are all resonating. We are focused on driving the adoption of Dash standalone and also driving the integration into the FSS product. We will have a lot more to share on specifics there. I will turn it to Tim as far as guidance. Sure. As far as the raise in guidance, I would attribute it more to our outperformance from our individual SKUs. We also saw some continued improvements in churn and downsell for Teams following changes to the cancellation flow that we implemented last quarter.

Sign and FormSwift also performed slightly ahead of expectations, and DocSend also grew double digits due to the success of our advanced data room plans. Those are more of the factors, though Dash is also a contributor. Perfect. Thank you. My follow-up is, one of the comments was, I think, about delayed hirings. I was just curious as to when it comes to backfilling the RIF and your investments in Dash, which areas are you going to be focusing on hiring for Q4 and for fiscal year 2026? Yeah, sure. We’re always looking to add talent to the company. With respect to Dash, we will be investing in headcount, AI folks in particular. Also, we’ll be investing in marketing to further the engagement and adoption of Dash. We’re always also looking for M&A that can accelerate our product roadmap.

We’ve acquired, promoted AI and Mobius Labs in recent quarters that are accelerating our capabilities when it comes to Dash. We are also backfilling some open roles across the company, but Dash, with those investments in headcount and marketing, those are the primary investments, both in Q4 and in 2026. Thank you. Our next question coming from the lineup, residual audio with RBC Capital Markets. Yolanda Snellfin. Oh, wonderful. Thanks so much for taking my questions. Maybe just two from me here. First, I wanted to maybe double-click a little bit on M&A philosophy from here. I know you, Tim, you just referred to a recent acquisition you’ve made. As you think throughout the history of Dropbox, there’s been some acquisitions that I’m sure you’d say, "Hey, these have been great," including Commandi, which later became or helped you launch Dash.

Some maybe have been a little less successful, like FormSwift, which has been obviously a headwind on growth. As we think about kind of the history of Dropbox’s M&A, can you maybe talk a little bit about what learnings you’ve had from them and how you can use those to kind of inform you as you contemplate future M&A opportunities, especially just given your cash generation, and especially just given the opportunity to use M&A to accelerate what you’re doing on the AI front? Then I’ve got a quick follow-up. Sure. Yeah, great question. We’ve learned a lot. Broadly, we’ve had a lot of success with M&A in terms of being able to accelerate our product roadmap and expand the business. Certainly a lot of our new products have been seeded by acquisitions.

Things like Nira and Commandi are good recent examples of opening access to new markets and speeding us up. And DocSend’s another—so I think one of the lessons is the importance of buying leadership in categories. So DocSend is an example of a category leader that’s done well. I think there’s—I think there’s probably some acquisitions I wish I did, and then others I’m glad I didn’t. I think we’ve been disciplined on valuation, and that will continue. We’re open to more transformative acquisitions, but we’re going to continue to maintain that disciplined approach. Yeah, those are a few of the lessons, and M&A continues to be an important lever for growing the company. All right. No, that’s been very helpful.

And then maybe just continuing a little bit on Dash, it’s good to see some kind of early signs of success, continue to broaden it out. Maybe if we were to fast forward, call it two to three years, and we’re having this same call, what would, in your mind, be the proof points of, "Hey, our vision for Dash has been successful"? I mean, is that something that shows up in meaningfully accelerated growth? Is that something that shows up more in you’ve now expanded the aperture of customers you can go after, and therefore your TAM is larger? Maybe can you just walk us through how you’re thinking about, from a multi-year perspective, because I’m willing to be patient, just thinking about benchmarking the success of Dash over time? Sure. First, we’d be measuring it through the usual KPIs around adoption and revenue growth and such.

I think the bigger picture is there’s a big gap between AI’s potential at work and what people actually experience. As I said earlier in my remarks, our industry is spending trillions of dollars to train these models that can teach you quantum physics but can’t find your Q2 board deck. Similar to the cloud, when we started, there was this gap between what was possible with this new infrastructure and these new technical capabilities and people’s lived experience. There was a lot of important design and technical work to kind of take the cloud the last mile. We believe and we see there’s a lot of important technical and design work that we’re doing with Dash to take AI the last mile at work. Because.

Part of why you see these reports of 95% of AI pilots failing and things like that is because the AI assistants or tools you’re using aren’t connected to your context. Success looks like closing that context gap. There are not a lot of shortcuts to closing that gap. It entails integrating to basically the entire known universe of SaaS applications and every productivity ecosystem, and building a deep index and understanding of people’s context at work. I think from an industry standpoint, that’s really Dropbox’s unique contribution to AI is being able to gather all the context, assemble it, and then format that in a way an AI model can understand. From a business perspective, one of the—it’s an example I’ve used a few times, but I keep going back to Netflix’s transition when they went from.

DVD mailing to streaming, where it turned out the best thing they could do for their DVD mailing business was layer in streaming. What that did for them was twofold. One is it took what otherwise was viewed as a business with limited future growth opportunities. It extended the customer lifetime indefinitely because as they were able to bridge DVD mailing subscribers to streaming, they both kept Netflix on your credit card statement, and even more important for the existing users. The core business ended up being a lot more valuable than you might have otherwise calculated. Second, it unlocked a TAM that was 10 or more times, order or two of magnitude larger with streaming than they had with DVD mailing. We see that. We see parallels.

It’s not the exact same situation, but we see parallels between our file sync business and organizing all your cloud content. Connecting AI to your work context, we see both a natural evolution of the value we’re already providing to our core users. Then we’re able to unlock new generations of Dropbox users who, for one reason or another, aren’t using files in Dropbox today. Thank you. Our next question coming from the lineup, Matthew Bullock with Bank of America. Yolanda Snellfin. Great, thanks for taking the question and congrats on the solid quarter here. Drew, maybe if you could just help us think about what you’re hearing in terms of feedback from the Dash sales reps out there selling into the Teams and Stallbase. What’s causing friction? What’s working well in the cycle? Now it’s a self-serve motion kind of up and running.

How should we think about self-serve contribution versus managed sales for Dash over the next couple of years? Sure. So the feedback we’ve been getting, I shared a bit of it earlier. I mean, most importantly, the fundamental value propositions around AI that’s connected to your work context, around universal search, around Stacks, around protected control, those are all resonating as expected. We’re seeing healthy signs of frequency and depth of engagement. Sixty percent of users are using Dash multiple times per week. That’s the kind of thing we want to see. That said, I think there’s structural challenges with the enterprise business. In that it’s pretty crowded and noisy. If you think about it, every CIO has got a long line of AI startups and big companies pitching them on AI things.

I think there’s been a fair amount of disappointment or customers feeling burned by broken promises or having bad experiences with things like Copilot. I think that you just have a fatigued audience there. The situation is just completely different in SMB, which is exactly where we have our home field advantage. We see no scaled competitors that do anything similar to Dash. We’ve got 575,000 paying businesses already on Dropbox. It’s a very natural evolution of the value we already provide by starting with your files and then extending with Dash to everything else. We can follow a lot of the same playbook as Dropbox 1.0. You might ask, "Okay, if SMB is such a big opportunity, why isn’t there more competition?" The answer is it’s because it’s a very difficult technical problem.

It can be expensive to solve, especially if you’re using the public cloud. Other startup competitors or enterprise-focused competitors, I mean, the customer conversation starts with a $50,000 setup fee and a multi-month deployment process. That is going to be unachievable, or it is going to rule out a lot of SMB adoption. A lot of our engineering effort has gone into a lot of the same kinds of efficiencies and really getting the design and the UX right to turn Dash into a product that you can just download, be up and running in a few minutes. Just wire up your app, connect your apps, and go. Lastly, the efficiency that we have with our technical infrastructure is a huge enabler here. We are able to also offer the service at a much lower price.

Point, or at least lower cost structure than competitors because we’re able to drive the kinds of—I mean, you look at our gross margins and margin expansion over the years, a lot of that comes from our really efficient infrastructure. We are able to take advantage of that and then extend it into new areas to basically provide a product that few others can match when it comes to being able to have a self-serve product to begin with. Also, a lot of the innovation that we’ve done as far as going beyond documents and text to supporting images and video. We see these as having compounding advantages. You have to have a lot of these parts all coming together to be able to launch a product like Dash into the SMB segment and have a successful self-serve product. Got it. Thanks.

And then just a quick follow-up, if I could here, just on managed sales channel downsells, how did that trend in the third quarter relative to expectations? And then how should we think about quantifying any headwinds from those downsells in the fourth quarter? Sure. Over the past couple of quarters, we have seen some self-serve teams turn and downsell. We’ve seen that improve, actually, following continued work around cancellation flows that better demonstrate the value we’re providing to our users. On the managed sales side of things, we do still see some elevated downsell levels across our managed sales motion following our decision to reduce our investments in this motion following our RIF last year. That was part of the numbers of paying users this past quarter. We still expect some elevated levels of downsells across the managed sales business in the fourth quarter as well.

Thank you. Our next question coming from the lineup, Mark Murphy with JPMorgan. Yolanda Snellfin. Hey, this is Jane Patel. I’m from Mark Murphy. Thank you for taking the question. We just have one. You’ve got exposure to both consumer and small business customers that ultimately tie back to the health of the consumer. How would you characterize end-user behavior today? Are you seeing any incremental pressure or stabilization in consumer-linked cohorts? Thanks. Sure. From my perspective, trends have been pretty stable. I mean, you see ongoing price sensitivity. I wouldn’t say there’s anything particularly new there. We also see with our customers, Dropbox tends to be a pretty mission-critical thing for a small business that’s using it. I mean, all their most important information is there.

It’s relatively less cyclical than some other areas, but I wouldn’t say there’s been major changes to the trends we’ve been seeing. Great. Thank you. Thank you. As a reminder, to ask the question, please press star 11. Our next question coming from the lineup, Patrick Walravens with Citizens Bank. Yolanda Snellfin. Oh, great. This is Kincaid on for Pat. Congratulations on a great quarter, and really excited to hear that Dash is going so well. I was curious if you could provide any color on what specific integrations are performing well with Dash customers and have a quick follow-up. Sure. It’s a lot of the ones you’d expect. I mean, certainly all the top productivity apps, so the Office Suites, communication tools like Slack. Then the rest of the most common apps, so things like Salesforce and Workday, which is added HubSpot, and we’ll add others.

We’ve long been at a point where we feel like we have good connector coverage and can deliver on the promise of actually connecting AI to your work context. That’s spectacular. Yeah. Keep going. Oh, that was my follow-up. Please continue. Sorry. I mean, sorry. I just want to make sure I answered your question. Did I miss anything? No, I think that’s what I was looking to hear. The follow-up is related in that we asked last quarter about this API access limitations that Slack had implemented. I was just really curious to get your perspective on kind of the competitive landscape there of if you’re still seeing conversations around limiting access. Conversely, if a competitor was launching a product that wanted to access Dropbox data, how do you think about something like that? Sure.

Today we’ve been able to maintain access to the major platforms, and Slack’s a partner, and we integrate well with them. I think part of it is having these bilateral relationships with companies. I think it helps that Dropbox is also an important content repository for a lot of customers. We’re able to set up business relationships well and have a good balance of trade. I think the biggest, and then our view is that there’s going to be a lot of, any two large tech companies are going to have a lot of surface area and will compete on the margins. Ultimately, we want to deliver a good experience for our shared customers. We keep our eyes on the horizon and make sure there’s not some fragmentation or restriction of access to customers’ data. I think the biggest.

Force in favor of interoperability is really customers want to get more value out of their data. They don’t appreciate it when you try to lock them out of their data or charge them twice for access to their own data. I think that kind of gravitational pull is really important. From our perspective, we tend to be interoperable. Thank you. Our next question coming from the lineup, Cash Ring with Goldman Sachs. Yolanda Snellfin. Hi. Thank you for taking my question. This is Selena on for Cash. I was wondering if you can talk a little bit about how the pricing and packaging initiatives have resonated with customers so far, as well as any learnings you’ve had from the pricing for Dash and how that might evolve going forward. Thanks. Sure. We continue to optimize pricing and packaging in the core business.

You’ve seen things like our Simple SKU, which is performing well for folks who are, for example, mobile customers or price-sensitive. That gives us a more affordable entry point on the way to becoming a full subscriber. That’s worked well. With Dash, I mean, we have a starting point that we’re excited about. As I mentioned before, the efficiencies we’re able to get with our technical infrastructure allow us to come in at a much more affordable price point than our competitors. It’s early days, though, so we’ll learn a lot from our customers in the coming quarters. We think it’s a really attractive offer. We also are able to offer a pretty significant discount to existing Dropbox users to help drive adoption.

Our fundamental cost structure and business model we see as a major strength, and something that’s hard, certainly for startups to replicate. Thank you. Our next question coming from the lineup, Seth Gilbert with UBS. Yolanda Snellfin. Hey, thanks for taking the questions. I guess first, I know it might be a little bit early, but I was wondering if you’re expecting—maybe not looking for a quantifiable answer—but are you expecting any meaningful contribution on the revenue side from Dash next year, or is that maybe still a little bit too early? Certainly. Our first focus is on driving adoption. That is where the vast majority of our attention is going. Both attaching Dash to the hundreds of thousands of existing business teams on Dropbox, business accounts. And then.

We’re also going to start—we’re also working on monetization, especially as we start to get the adoption flywheel going. Now, there’s some trade-offs or decisions to make about how much do we kind of turn the dial more towards gaining share and driving adoption or driving near-term monetization. We think it’s in our interest to err on the side of gaining share and attaching users and driving engagement. We’ll be getting a lot more signal on both in the coming year. As far as materiality or what that signal looks like, we’ll share a lot more in the coming quarters and as we guide for 2026. Got it. Thank you. Just as a follow-up, you’ve been pretty active on the buyback front. I was just curious if, generally speaking, plans to continue at the $400 million-$500 million level per quarter. Thank you.

Sure. So we remain very committed to our share repurchase program, which, of course, aims to reduce share count over time. I’d look to our weighted average share count forecast for our expectations on the pacing of repurchases for this year, and I’d expect that to be relatively similar heading into next year. Thank you. There are no further questions in the queue at this time. I will now turn the call back over to Peter for any closing remarks. Thanks, everyone, for joining us today. We look forward to speaking with you next quarter. Hope you all have a good evening. This concludes today’s conference call. Thank you for your participation, and you may now disconnect.

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