Dropbox (NASDAQ:DBX) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Dropbox Inc reported Q3 2026 revenue of $637 million, exceeding guidance and marking the fifth consecutive quarter of year-over-year revenue growth.
The company introduced AI-powered Dropbox and announced DBX Agent Cloud to support AI application development, along with a planned acquisition of Tigris Data to enhance object storage capabilities.
Dropbox’s strategy focuses on three pillars: enhancing core business with AI, automating workflows, and expanding infrastructure for AI applications.
Despite a 9% workforce reduction to streamline focus, Dropbox is optimistic about growth, with positive net new paying user growth and increased adoption of AI integrations.
The company raised its full-year 2026 revenue guidance by $12 million, and its non-GAAP operating margin guidance to 40.5%.
Full Transcript
OPERATOR
Thank you for standing by and welcome to the Dropbox third quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question during this session, you’ll need to press star 11 on your telephone. If your question has been answered and you’d like to remove yourself from the queue, simply press star 11 again. And now I’d like to introduce your host for today’s program, Sarah Chouba, Chief Accounting Officer and Head of Investor Relations.
Please go ahead.
Elizabeth Sarah Schubach (Chief Accounting Officer)
Good afternoon and welcome to Dropbox’s third quarter 2026 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 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 2027, our business assets, strategies and the macroeconomic environment, and the planned acquisition of Tigris Data, 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 (General Manager)
Thanks, Sarah, and good afternoon everyone. I’m proud of what this team delivered in Q3. Five months into this role, I’m 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 fifth straight quarter of year-over-year revenue growth. Excluding FormSwift, we added approximately 20,000 net new paying users, our fourth consecutive quarter of paying user growth.
In our upmarket managed sales motion, North America had its strongest quarter in two years. Today we also took two 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 toward our vision: Dropbox as the trusted independent content foundation for the AI era.
Last quarter I laid out a three-pillar strategy to get there. First, restore durable growth in our core business through foundational improvements, including bringing AI in 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 built to work across the broader AI ecosystem. This quarter we made progress on all three. Let me walk you through each.
First, Dropbox now brings AI directly to the content customers already keep with us, and we’ve continued to expand the rollout. This changes what Dropbox is for our customers. It’s no longer just where their work is stored, but it’s where their work gets done. And it does that with the controls that make customers comfortable handing AI a shared folder. Dropbox works within existing permissions, shows its plan before anything changes, and customers can roll back anything with one click.
With a new desktop experience, we’re also bringing these capabilities to the many customers who work primarily in their Dropbox folders. Here’s one example. A customer had a catch-all folder of more than 1,200 images with file names that made no sense, and it had simply never gotten organized. Dropbox sorted them into folders in about 10 minutes, and that’s just one use case. Customers are using Dropbox to find old files and images just by describing them, pull a project’s 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’s what we mean by one 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 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 plans. 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, 150,000 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 600,000 to more than 2 million. More agents. Better Dropbox. Second, we’re bringing intelligent workflows that automate critical work for our customers. Dropbox Replay is a prime example. It’s 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 one place, built on the content they already keep in Dropbox. Next week we’ll 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, and 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 two decades.
DBX Agent Cloud brings that expertise to companies and developers, starting with a standalone S3-compatible object storage they can buy independently and 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 four 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 can’t 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 2026. 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 DAS and Dropbox teams together, rebalanced our go-to-market organization, and stepped 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’ve contributed.
Together, these changes put our resources behind the three pillars where we have the strongest right to win and let us invest in our strategy while expanding margins. Everything we’re doing points in one direction. Dropbox is becoming the trusted independent content foundation for the AI era. For people and teams, that’s AI-powered Dropbox. For companies and developers, it’s 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’re still early and the measure of this strategy is whether it shows up in growth.
That’s the standard I’m holding us to, but Q3 gives me confidence: another beat and raise quarter, AI-powered Dropbox in customers’ hands, and an entirely new avenue of growth with DBX Agent Cloud and Tigris. I’m excited about what’s ahead. With that, I’ll turn it over to Ross.
Ross Tennenbaum (Chief Financial Officer)
Thank you, Ashraf. Ashraf laid out our vision for Dropbox to be the trusted independent content foundation for the AI era. We’re 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. Data 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 fifth straight quarter of revenue growth excluding FormSwift, with another quarter of net new paying user growth, and operating margin nearly four points ahead of our guidance, and we’re again raising our full-year outlook. Our three-pillar growth strategy is taking shape with the new Dropbox experience and DBX Agent Cloud, supported by our planned acquisition of Tigris. We’re opening an entirely new avenue of growth in object storage built on top of a profitable, cash-generative core business.
We’re also building a more efficient Dropbox to support it. This year, we consolidated our Dash and core FSS teams as we brought Dash Intelligence into Dropbox. We rebalanced our go-to-market organization in Q3, and we’ve now announced a workforce reduction to further deduplicate resource investments and concentrate more intensely on our three-pillar strategy. Together, these actions allow us to invest behind our strategy while expanding operating margin, and I’ll quantify that impact when I discuss 2027.
These initiatives are exciting, but they’re early, and we’ll scale our investment in step with the results they deliver. That same discipline shaped 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 to $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 upsells. 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 20,000 users. Excluding FormSwift, we added approximately 60,000 paying users, led by our Simple Plan and self-serve teams. Average revenue per paying user was $138.76, compared to $139.07 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’ll 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 2026, we expect total revenue to be in the range of $630 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 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 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 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 $2.500 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 paid in 2026 and the remainder to be paid in 2027.
We continue to expect CapEx to be in the range of $20 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 to 233 million shares, which reflects our 30-day trailing average stock price. Now I’ll 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’ll 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 the 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 Dash 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 three-pillar growth strategy. As a reminder, Tigris has not yet closed and isn’t included in these expectations. If it does close, we may reinvest some of these savings to support it, and we’ll reflect that in our guidance in February. Our workforce reduction will also lower stock-based 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 hasn’t closed yet, and we’ll 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 twelve-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’ve opened an entirely new avenue of growth as a trusted independent content foundation for the AI era, and we’ve rebalanced our resources to invest behind that strategy while expanding margins and cash flow. We still need to demonstrate sustained growth, and that’s the standard we’re 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.
Colby (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’ve gone through 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 (General Manager)
Thank you for the question. First of all, we’re 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’re building applications, and that’s 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-serve 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 their 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 one intended for AI for object storage. So they have 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 neutrality. We’re a company that really doesn’t 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’s the way to do it.
Colby (Analyst)
That’s super helpful, we appreciate it. And then if I could just sneak a follow-up in there. So we’ve seen from some other software companies that SMBs, their customers, are getting a little bit more price sensitive. That doesn’t seem to be the case for you all, but just kind of curious on what you’re seeing in the health of your paying user base and what are some of the things getting those paying users over the hump to get on the Dropbox platform?
Ashraf Alkarmi (General Manager)
Is it specifically around AI usage?
Colby (Analyst)
Yeah. Just what are some of the AI ROI proof points that customers are seeking where it’s an easy button to click to get on Dropbox?
Ashraf Alkarmi (General Manager)
I think I’ll start by just giving a little of 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 ChatGPT, 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, if 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’s 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’ve 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’re there to support them.
Ross Tennenbaum (Chief Financial Officer)
Colby. Hey, it’s Ross. Thanks for joining the call. I just wanted to add, we’re not able to discern a macro impact on our business right now. And as Ashraf talked about, you know, for us, it’s really about execution to our strategy that drives more value for our customers, that 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’s 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’s all part of the strategy. But, you know, seeing some of the macro things that you alluded to, we haven’t seen that pattern directly impacting our business.
Colby (Analyst)
Thanks, guys.
OPERATOR
Thank you. And our next question comes from the line of Rishi Jalaria from RBC. Your question, please.
Rishi Jalaria (Analyst at RBC Capital Markets)
Oh, 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, you know, all the moving pieces. Appreciate you giving us 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—any new pricing methodology alongside that? Just trying to kind of get comfort around, you know, some of the building blocks.
Obviously you turned the corner on stopping declines in growth, but obviously looking for kind of the building blocks to get to future growth from here. So maybe walk us through that and I’ve got a quick follow-up.
Ashraf Alkarmi (General Manager)
Of course, and thank you for the question. Maybe I’ll start with a little bit of a recap. Last quarter we talked about our three pillars for growth. The first pillar is about continuously working on our foundation, driving that funnel improvement, while also adding AI capabilities within Dropbox to unlock more value for our customers. The second pillar is about actually unlocking more workflows for specific customer segments that present themselves in an additional product that they can buy.
And the third one is unlocking all the infrastructure we built via APIs for developers and companies. And today where we are is: with Pillar 1, we’re on our fifth consecutive quarter of growth, fourth consecutive quarter of customer growth, and we’re basically saying we’re achieving that consistently. That’s part of one pillar. So as you look at the first pillar, we still need to enable AI for the rest of customers and drive adoption and drive value. And we’re launching the first application of the second pillar, as I mentioned, for 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’ve 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’re not going to speculate early how these bets will pan out. We do believe in them, we do believe they’re going to drive growth, but do expect as time goes by, we’ll have more concrete data to share. But I believe we have the right bets. That’s what we talked about, and I believe they’ll drive growth for the company.
Ross Tennenbaum (Chief Financial Officer)
Yeah, and Rishi, hi, it’s Ross. I can add a little bit there because you’re probably going to ask about 2027. We said early color to think about flat revenue growth. And I just want to give you our philosophy. Number one is a reminder that FormSwift was sunset in Q3 and therefore there’ll be $0 of FormSwift in ’27. So this year we had three quarters of FormSwift, next year we’ll have zero. Also we’re seeing moderating FX tailwinds this year and expect that to moderate further next year.
So that’ll have some headwind. And then I’ll just echo what Ashraf said. We’re really excited about the strategy, multipillared, multivectored 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’re giving more margins by talking about adding 150 basis points next year. So we just want to stick to our philosophy of the seeds are planted. We really like where we are, but we don’t want to get too excited and carried away on building that in just yet. When we get to February, we’ll give you a more formal guidance that’s influenced by everything we know at that time.
Rishi Jalaria (Analyst at RBC Capital Markets)
All right, very helpful. And then maybe as you think about that third pillar, can you maybe talk a little bit about, I get it’s early, obviously a really exciting opportunity, but how should we be thinking about what those conversations that you’ve been having look like? Any potential kind of use cases? And I know you just announced a Tigris acquisition this morning. Is that something that fits more broadly into that strategy? Thank you.
Ashraf Alkarmi (General Manager)
Yeah. I’ll give you a little bit of color, a little bit beyond this specific acquisition and more about the DBX Agent Cloud that we’ve been talking about. We spent 20 years building infrastructure 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’re 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’s a thing that exists. But where we’ve taken it is a governance layer of content. So agents don’t just store stuff. They’re able to know who has permissions to it, who’s 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 one place, you can now govern it, you can process it, you can edit it. And we believe that that expands the value for Tigris and for ourselves combined.
Rishi Jalaria (Analyst at RBC Capital Markets)
All right, very helpful.
OPERATOR
Thank you, guys. Thank you. And our next question comes from the line of Matthew Bullock from Bank of America, your question please.
Matthew Bullock (Analyst at Bank of America)
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’re 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 the best metric to evaluate the health of the business changes at all post acquisition.
Ross Tennenbaum (Chief Financial Officer)
Yeah. Hey Matt, it’s Ross. So, first, the new Dropbox DBX experience, the way we’re looking at it: we’ve got that rolled out to about 70,000 teams. We expect to roll that out to the majority of teams by the end of Q4. We’re seeing—we talked a little bit about this—but we’re seeing in our early metrics that more than 90% are staying in the new experience. We 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.
We’ve also sold AI token packs. So again, it’s early—it’s been a limited time in market—but we’re really pleased with executing to where we want to go. And the goal there is, I would say, twofold. One is, as adoption rises and value is proven, we want to sell AI token packs to our customers. And then two, it’s one of the biggest upgrades to the Dropbox platform we’ve had in many years. It enriches the platform alongside other things we’re doing like our Replay solution, the Pillar three stuff, all the strategy stuff. And we think that 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: this will be a separate flywheel that we’re building now and it’ll 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. We 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’s got some of the large AI platforms like Railway and Fal. It’s doing really well. And that would be, from pricing and packaging, 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’s an overview of what we’re looking to do with Agent Cloud and the new Dropbox experience.
Matthew Bullock (Analyst at Bank of America)
Really, really helpful. Thank you for laying that all out. And then maybe just one housekeeping question. On the early look at 2027, we’re 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 in terms of the early look pre Tigris?
Ross Tennenbaum (Chief Financial Officer)
Yeah, I think so. Again, it’s an early signal on 2027, and a reminder to everybody, we’re not including the Tigris acquisition because it hasn’t closed. What we said earlier was expect, you know, flat growth, and we’re talking about margin expansion. And yeah, you got the point about FormSwift and FX. I would say that right now what we’re trying to convey is we’re feeling really good about the strategy. We delivered five quarters of growth ex-FormSwift. We flipped net new paying users to positive. We’re growing teams again. We feel really good about that, and we feel really good about this multipillared strategy and where we can take it. But just like right now—this morning—we launched Agent Cloud. This 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’ll provide more detail specific to 2027 when we get there. But for now, you know our philosophies: we’re focused on growth, and we’re focused on sustaining or improving margin. And right now we’re giving an extra 150 basis points of margin next year.
Matthew Bullock (Analyst at Bank of America)
Excellent. Thanks very much.
OPERATOR
Thank you. And our next question comes from the line of Jayden Patel from JP Morgan. Your question, please.
Jayden Patel (Analyst at JP Morgan)
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 then as you bring it into Dropbox’s infrastructure, how should we think about the margin and potentially capital intensity of Agent Cloud relative to the core?
Ross Tennenbaum (Chief Financial Officer)
Yeah, thanks, Jayden. So I’m just going to be careful about sizing the business just yet, again because we’re limited in what we can say given we haven’t closed it yet. And we will provide more details appropriately when we get to February. And I’ll just reiterate they are rapidly growing ARR. Of course, revenue 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 Fal—other big customers, lots of AI-native customers.
So we’re very impressed with the solution that they put in market, the developer motion that’s targeted AI-native, the differentiated technology, and how it accelerates our Pillar three storage infrastructure strategy. And we’ll 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 by is there’s a 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’ll be a modest burn.
And the good news is all the work that we’ve done on our infrastructure has freed up pretty significant capacity. So we have capacity just kind of sitting there that we want to go out and sell. You know, it’s like gold in there that everybody wants and we want to get out there and sell it. And so what I’m trying to say is we don’t 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.
Jayden Patel (Analyst at JP Morgan)
Great. Thank you so much.
OPERATOR
Thank you. And our next question comes from the line of George Karasawa from Citi. Your question, please.
Ashraf Alkarmi (General Manager)
Thanks for the question. So earlier we talked about how we’re 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 were able to build a pipeline.
We built proof of concepts, we actually got inbound requests from customers, and we got really excited. Obviously there was a lot of really good signal that got us to believe that was 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’s 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’re able to add APIs to the developer motion and unlock more potential out of infrastructure and APIs we already built; (b) they wanted to go more and do more in GTM and upmarket and we have a team that can help with that; and (c) we have capacity, like Ross mentioned, that is sitting there that we freed up from all our efficiency work and we believe we can unlock that and drive growth with that. So when we looked at it, it was a match and a really big kind of synergy from what we’re seeing and what they’re seeing. And we got excited both about the signal we got and looking at the data they have.
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’ll be able to unlock both a self-serve developer motion and an upmarket motion, sell not just one API, but many. And we believe that that’s the signal. We want to see growth come from that pillar.
OPERATOR
Thank you. This does conclude the question and answer session of today’s program. I’d like to hand the program back to Sarah Schubaugh for any further remarks.
Elizabeth Sarah Schubach (Chief Accounting Officer)
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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