Good day, ladies and gentlemen. Thank you for joining Dropbox's Second Quarter 2020 Earnings Conference Call. After today's presentation, there will be an opportunity to ask questions. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Dropbox's website following this call. I will now hand the call over to Lev Finkelstein, Dropbox's VP of Corporate Finance and Strategy. Please go ahead.

Thank you. Good afternoon and welcome to Dropbox's second quarter 2020 earnings call. Today Dropbox will discuss the quarterly financial results that were distributed earlier. Statements on this call include forward-looking statements, including the potential impact of the COVID-19 pandemic and related public health responses on our business, financial results, and the economy; statements relating to the expected performance of our business, future financial results, including expectations regarding future profitability and our ability to generate and sustain positive free cash flow; our ability to extend our platform by developing and offering new products and features; our strategy as well as the ability of our key employees to execute our strategy; long-term growth and overall future prospects. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call, in particular, those described in our risk factors included in our Form 10-K for the year ended December 31, 2019, and the risk factors that will be included in our Form 10-Q for the quarter ended June 30, 2020. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC and may also be found in the supplemental investor materials posted on our Investor Relations website, which can be found at investors.dropbox.com. I would now like to turn the call over to Dropbox's Co-Founder and Chief Executive Officer, Drew Houston.

Thanks, Lev, and good afternoon, everyone. Welcome to our Q2 earnings call. On the call with me is Ajay Vashee, our Chief Financial Officer; and Olivia Nottebhom, our Chief Operating Officer, who will also join us during Q&A. Similar to last quarter, the three of us are dialing in remotely from our homes, so please forgive us for any sound quality issues or background noise over the next hour. I'd like to start by thanking Ajay for all he has contributed to Dropbox over the last eight years. As you've likely seen, we've announced that he'll be leaving us this fall to spend more time with the family and then transition to a career in venture capital. When Ajay started at Dropbox, the cloud collaboration market was still nascent, and we were just getting started with 100 employees. During his tenure, he has helped scale a new public company with a resilient profitable business model and nearly 3,000 employees all over the world. We're grateful for the strong foundation and incredible team he has established, and we couldn't have gotten here without him. Ajay's leadership and investment in this team makes this a relatively seamless transition. On that note, I'm excited to welcome Tim Regan, our Chief Accounting Officer, as our new CFO. In his last three years at the company, Tim has demonstrated exceptional leadership with the operational skill and discipline needed for his new role. Tim brings over two decades of experience at Dropbox. He was previously the Controller at Pandora and held senior positions at Dolby and Ernst & Young. We couldn't be happier to have Tim as our new CFO, and we are confident that Dropbox will be successful in his capable hands. He will officially step into the role on September 15th, and Ajay will remain an advisor to the company until mid-October to ensure a smooth transition. With that, let's turn to the remainder of our call. Today, I'll talk about our business and product highlights and the continued expansion of our ecosystem. Ajay will review our Q2 financial results, touch on our go-to-market strategy, and provide guidance for Q3 and fiscal 2020. Before we move to our quarterly results, I want to provide some updates around how we're managing operations in a distributed work environment. The health and safety of our employees remains our number one priority and we've officially extended our work from home policy through the end of the year. I also want to commend the entire team at Dropbox for doing an incredible job navigating these unprecedented circumstances. Over the past few months, we've been hard at work launching new features and products aimed at helping our users manage their most important workflows during these unique times. We've also been focused on providing extra support to our customers most impacted by COVID-19. In certain cases, we provided relief by extending the payment terms and changing invoice frequency to ensure they have the tools they need to get their best work done. Over the past quarter, we also extended several of our larger-scale educational deployments and on-boarded new customers like the University of Michigan. Our deployment with the University of Michigan represents one of our largest educational deals to date as institutions around the world look to accelerate their digital transformation efforts and shift to a remote learning environment. Companies are also increasing their reliance on Dropbox as they make the transition to distributed work. Just a few weeks ago, a major European luxury retail company significantly expanded their deployment with Dropbox to over 20,000 seats. As part of the seven-figure deal, the company plans to accelerate the shift to the cloud and cited our new desktop application as a critical tool for their employees to securely collaborate with one another wherever they are. We're fortunate and proud that our product lends itself well to the facilitation of remote work and collaboration. I'm excited to announce that we now have more than 500,000 Dropbox business teams on our platform. And over the past quarter, more than 450,000 of those teams are now using our new desktop application, which gives knowledge workers a unified home for their content and connects them to popular tools like Slack, Zoom, and Atlassian. Across Q2, trial volumes to our team and individual plans also remained elevated and were 20% higher than pre-COVID levels. I'd note that the conversion rates of these larger cohorts have remained consistent with the average historical figures, which is encouraging and underscores the value that users are driving from our products and platform. Turning to our quarterly results. In Q2, we continued to see strength across our business. Revenue grew 18% year-over-year on a constant currency basis, driven by increases in both paying users and ARPU. We also drove robust margin expansion as we continue to deliver a healthy balance of growth and profitability. These results underscore the strength of our global collaboration platform, our efficient go-to-market strategy, and our operational discipline. Let's move on to some of the product highlights from the quarter. We're focused on providing more value to our users through consistent feature and product introductions. And in Q2 we added a number of high-value features to our Plus SKU to give users the tools they need to better manage both their work and personal lives. First, we launched Dropbox Passwords. Dropbox Passwords enables users to store login credentials for websites and apps and sync them across all of their devices, and with zero-knowledge encryption, users can ensure their data is securely protected and accessible only to them. We also launched Vault, the secure folder with an extra layer of security for all your most important personal files, like insurance cards, passports, and personal financial information. Content stored in Vault is only accessible with a PIN code, and users can enjoy peace of mind knowing that they can designate access to trusted friends and family members in the event of an emergency. Finally, we launched computer backup, a feature that allows users to automatically back up folders on their PC or Mac, including their desktop, downloads, and documents folders directly into their Dropbox. Files and folders are continuously synced between the cloud and the user's hard drive, and changes made to their content are automatically updated in both locations. These three features are now available in data to our Plus subscribers and represent one of the biggest updates we've made to the SKU since its inception. In addition to improving the Plus plan, we also launched a brand new SKU into beta last quarter, Dropbox Family. This new SKU keeps the family's digital lives connected with one organized place to share photos, videos, and important documents. Dropbox Family lets up to six members share two terabytes of storage under one plan with one bill. Members can create shared space to make content easily accessible to the whole family, and each member has their own private space for personal content. We're currently beta testing the Dropbox Family product with select Dropbox users and plan to roll it out more broadly across the second half of the year. In Q2, we also continued to make progress against our product integration strategy with HelloSign. HelloSign is now natively embedded into Dropbox product surfaces, and now when users open a file on Dropbox, they can quickly identify which fields need to be signed and send that file out for e-signature. Once the final document is signed for the recipient, the completed document is automatically saved into the appropriate Dropbox folder. This is a big improvement to the overall user experience. Not only does the entire end-to-end workflow live within Dropbox, but this also makes HelloSign the primary e-signature tool for Dropbox users around the world. To capitalize on the growing international opportunity, we also launched HelloSign in 21 additional languages this past quarter, bringing effortless e-signature functionality and a fully localized experience to businesses globally. We also expanded our customer service to include additional support hours for the EMEA and APJ regions. Investments like these have helped propel the adoption of the HelloSign product suite. Across Q2, usage of both the HelloSign API product as well as the core e-signature solution increased by more than 25% relative to Q1 levels. Trials of HelloSign's digital fax solution, HelloFax, also increased by more than 25% during the same period. It's exciting to see this increased usage of HelloSign products, and we remain committed to leveraging our broad distribution channels to continue driving adoption of HelloSign SKUs. Beyond the improvements we made to the core Dropbox and HelloSign experiences, we've also been focused on expanding our ecosystem of trusted partners to position Dropbox at the center of our users' workflows. In Q2, we launched the new Dropbox App Center, a place where users can discover, learn about, and connect apps to their Dropbox account, helping to create a more engaging, higher value, and retentive experience within our platform. Now customers can easily link commonly used tools from partners like Canva, Smartsheet, and Google to their Dropbox account with just a few clicks. In summary, we delivered another great quarter; demand for our products remains strong as more people have turned to both Dropbox and HelloSign to manage their most important workflows. We're also excited about the opportunity ahead. It's clear to me that the shift to distributed work will ultimately be as significant as the shift to mobile or the shift to cloud, and all knowledge workers need new and better ways to organize their working lives in this new environment. We have completely reoriented our product roadmaps since March and see many opportunities to design new products and experiences for distributed work, and I'm excited to share more of what we've been working on in the second half of the year. I'll now turn it over to Ajay to walk through our financial results.

Drew, thank you for all of your support and partnership over the past eight years. It's been an absolute pleasure working alongside you and the Dropbox team, and I'm going to miss every one of the company as I move on to my next endeavor. I'd also like to convey how excited I am to pass the reins to Tim. Tim was my first hire as CFO and couldn't be more prepared to help lead Dropbox through its next phase. Turning to the numbers, our Q2 results continue to demonstrate our strong execution and focus on delivering a healthy balance of top-line growth and profitability. Total revenue for the quarter was up 16% year-over-year to $467 million. On a constant currency basis, year-over-year growth would have been 18%. ARR for the quarter was $1.931 billion, an increase of $67 million quarter-over-quarter and an increase of 17% year-over-year. On a constant currency basis, year-over-year ARR growth would have been 18%. We ended Q2 with 15 million paying users and ARPU of $126.88 in the period. Our continued growth in ARR reflects our strategy to methodically convert our highest value users to drive sustainable monetization and retention. We've also been focused on supporting our customers as they manage the transition to remote work and learning from small and large businesses to global universities. With that, let's touch on some of the go-to-market strategies we implemented this past quarter. Over the last few months, our data science team has been experimenting with the HelloSign up-sell model that identifies which Dropbox customers are most likely to convert to a paying HelloSign subscriber. Based on file types, shared folder activity, and certain engagement characteristics, the machine learning model aggregates a list of Dropbox users who would benefit from HelloSign's e-signature capabilities. Armed with this context, our growth team surfaced a series of in-app targeting prompts and notifications promoting HelloSign and its feature set. The initial experimentation period has been promising. Users identified by the model signed up for a HelloSign trial at a 50% higher rate relative to a control group. And with the recent HelloSign and Dropbox deep integration that Drew mentioned earlier, we are excited about the opportunity for us to continue cross-selling HelloSign into our install base of over 600 million registered users. Let's move on to some of our customer highlights. In Q2, we had a number of wins across a range of verticals, including media, construction, education, and retail. We're excited to share that Divimove, a new generation media company with nine offices across Europe, is now a Dropbox business customer. Divimove approached Dropbox to find a more efficient way to collaborate across their organization. Dropbox will be a critical part of Divimove's media workflows, and the company plans to leverage key integrations with Adobe, as well as native features like Dropbox Transfer to optimize how they manage the content creation lifecycle from concept ideation to final asset delivery. In addition to facilitating increased productivity, we are also working closely with Divimove to provide seamless data migration services as they move their content to the Dropbox platform. Additionally, we're pleased to announce that Tokyo Reiki Kogyo is now a Dropbox enterprise customer. Tokyo Reiki Kogyo is a Japan-based distributor and services provider for HVAC projects for large-scale building sites. They turned to Dropbox to provide a secure cloud-based storage solution for their on-site and field workers. They were also focused on implementing a solution that would ensure their customers and partners could share and collaborate around large content-rich file types. After evaluating Dropbox against two other competitors, Tokyo Reiki Kogyo selected Dropbox for a multi-year deployment to modernize how their teams work and collaborate. Before I move on to the rest of the P&L, I want to note that unless otherwise indicated, all income statement measures that follow are non-GAAP and exclude stock-based compensation, amortization of purchased intangibles, and certain expenses related to the acquisition of HelloSign. Our non-GAAP net income also excludes net gains and losses on equity investments. A reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC and in the Supplemental Investor Materials posted on our Investor Relations website. Moving to the P&L, gross margin for the quarter was 79%, an increase of 3 percentage points compared to the second quarter of 2019. The increase in gross margin was driven by unit cost efficiency gains with our infrastructure hardware, including lower depreciation as a share of revenue. We now expect fiscal 2020 gross margin to be approximately 2 percentage points higher than 2019. Moving to operating expenses, second quarter R&D expense was $135 million or 29% of revenue, compared to 30% in Q2 a year ago. The decrease as a percentage of revenue was driven by work-from-home related savings, offset by higher headcount and investments in new product development and testing. S&M expense was $92 million in the quarter or 20% of revenue compared to 24% in Q2 a year ago. The decrease was due to greater efficiencies in marketing-related spending relative to Q2 of 2019, as well as lower event-driven spending due to COVID-19. G&A expense was $48 million or 10% of revenue, compared to 11% of revenue in Q2 a year ago. The decrease was due to work-from-home related savings as well as lower non-income based taxes. Taken together, we earned $96 million in operating profit in the second quarter. This translates to a record 21% operating margin, which is an 11 percentage point improvement from Q2 of 2019. Net income for the quarter was $93 million, up from $42 million a year ago. Diluted EPS was $0.22 per share based on 421 million diluted weighted average shares outstanding, up from $0.10 in Q2 a year ago. I'd also note that we were once again GAAP profitable in Q2. Moving on to our cash balance and cash flow, we ended Q2 with cash and short-term investments of $1.118 billion. Cash flow from operations was $146 million in the quarter. Capital expenditures were $26 million, yielding free cash flow of $120 million or 26% of revenue. CapEx in Q2 included $14 million of spend on our corporate headquarters, of which $6 million was offset by tenant improvement allowances. In Q2, we continued to pay a portion of the deal consideration holdback related to our acquisition of HelloSign. These payouts will occur quarterly through Q1 of 2022. Excluding the headquarter spend net of TIAs of $8 million and payout of HelloSign deal consideration holdback of $4 million, free cash flow would have been $132 million or 28% of revenue. In Q2, we also added $30 million to our finance lease lines for data center equipment. We expect additions to our finance lease lines to be approximately 8% of revenue in 2020. Now let's turn to our guidance. While our business has certainly been resilient and we've benefited from some emerging tailwinds, we remain mindful of the broader macroeconomic risks and unpredictability that the second half of the year may bring. Similar to last quarter, we factored this into our guidance as appropriate. With that, let's move on. For the third quarter of 2020, we expect revenue to be in the range of $481 million to $484 million. On a constant currency basis, we estimate that revenue would be approximately $2 million higher. We expect non-GAAP operating margin to be in the range of 17.5% to 18% and diluted weighted average shares outstanding to be in the range of $421 million to $426 million based on our trailing 30-day average share price. For the full-year 2020, we are raising our revenue guidance range, which was previously $1.880 billion to $1.900 billion to $1.891 billion to $1.901 billion. On a constant currency basis, we estimate that revenue would be approximately $13 million higher for a range of $1.904 billion to $1.914 billion. We are raising our non-GAAP operating margin guidance range, which was previously 17.5% to 18%, to 18% to 18.5%, and we are raising our free cash flow guidance range, which was previously $460 million to $470 million to $465 million to $475 million. This range includes one-time spend related to the build-out of our corporate headquarters, as well as the payout of deal consideration holdback related to our acquisition of HelloSign. Excluding these items, free cash flow would be $515 million to $525 million. Finally, we expect 2020 diluted weighted average shares outstanding to be in the range of $420 million to $425 million based on our trailing 30-day average share price. In conclusion, the investments we've made in our business from both a product and go-to-market perspective continue to perform well, especially amidst a rapidly changing global environment. We've continued to innovate and deliver more value to our users, enabling them to do their best work, and I'm excited about our potential going forward. I'll now turn it back to Drew for closing remarks.

Thank you, Ajay. At Dropbox, we're committed to helping our users do their best work during these unprecedented times, and with our profitable self-serve business model and continued product innovation, we believe we're well-positioned to tackle the opportunity. On behalf of our management team, I'd like to take a moment to thank our customers, partners, and the entire Dropbox team. With that, I'd like to open up the call for Q&A. Operator?

Our first question comes from Alex Zukin with RBC Capital Markets. Your line is open.

Thanks for taking my questions. And Ajay, it's been a pleasure working with you on these calls; you'll be missed. So maybe just two quick ones for me. Drew, when you think about the combination of headwinds and tailwinds brought from COVID on the business with respect to the SMB market, given that the net add number this quarter was the strongest you've had in some time, is it fair to say that the tailwinds around the increasing need of your business and a strategic value proposition like—is it fair for us to think that you're now starting to see an actual tailwind that could be durable? And I've got a quick follow-up.

Sure. Thanks, Alex. Yeah, as you saw, measures like trial volumes continued to be elevated. I mean, some of the surge has tapered off since Q1, but in SMB certainly we see that our Dropbox users have been turning to Dropbox for distributed work since the beginning of it, and we continue to see elevated demand. More broadly, we see big opportunities to improve the distributed work experience in general; we're addressing a universal need. Every knowledge worker needs an organized place for their content that works with all platforms. Even with the shift to COVID, Dropbox has become an essential part of business operations. So we've seen continued strength and resilience post-COVID, and we see a lot of opportunities to reimagine the distributed work experience going forward.

Okay. And then maybe just the quick follow-up is, how would you assess the health of the SMB market, maybe for Drew or Ajay? And then last quarter you talked about seeing early signals in your pipeline that were very positive but you weren't ready to make the call whether that elevated pipeline is actually driving more deals or conversions. So now after a few months in COVID, could you talk to both of those two things?

Sure. Well, I can start and Ajay can chime in. With SMBs, we're mindful of the broader macroeconomic environment and what might happen in the second half. But in general, businesses that employ knowledge workers that can work from home have been less receptive, and again, Dropbox tends to be critical in SMB operations, so it's not really a discretionary purchase. So we feel good on that front.

Yes, this is Ajay. Just to jump in and maybe provide a little bit of commentary around some business metrics and trends, Alex, to help answer your question. The business has been resilient; our churn rate remained relatively stable from Q1 to Q2, and that was the case last quarter as well as we noted on that call. Net revenue retention improved for us quarter-to-quarter, and this is really because the majority of our subscribers are knowledge workers, and we play an important role in managing the business-critical content for them, really more so now than ever. As it relates to some of those tailwinds that we saw in Q2 for ARR and paying users, higher top-of-funnel demand that Drew talked about did result in higher levels of conversions to our paid plans. Additionally, we also closed some large outbound deals and university deployments in the period. All that being said, just one note I would make on providing commentary on paying users—our focus is on profitably growing our total ARR base, certainly versus optimizing for a specific number there quarter-to-quarter, and that will remain our priority going forward.

Our next question comes from Mark Murphy with JPMorgan. Your line is open.

Ajay, it's been great working with you, and I wanted to wish you all the best in your future role. Yeah, absolutely. And congrats on a very nice quarter and strong guidance. I wanted to hone in on the ARR growth of 18% in constant currency. Again, nice to see the health and actually acceleration in the ARR growth. I know you touched on a couple of this, but I was curious if you could help us understand just to what extent—when we see that acceleration, to what extent could we tie it to the conversion of the remote worker-driven trials that Alex asked you about? To what extent were any of those outbound large deals kind of chunky that might have moved that? And then to what extent could we maybe look at it and say that there's adoption of the new desktop app maybe factoring in?

Sure. It's really a combination of all of the above, Mark, is the answer, and I can break it apart for you. Starting with some of those COVID tailwinds and the work-from-home tailwinds. Drew mentioned across Q2 those trial volumes for both our individual and team plans were up on average about 20% relative to pre-COVID levels, and we began to see some of those conversions come through in Q2 and those conversion rates remained consistent with historical levels. And so that was part of the tailwind there. In relation to HelloSign, usage of their e-signature products—both their API product as well as our core e-signature solution—were also up about 25% Q2 to Q1. So that was also part of the tailwind. Those were two of the tailwinds that helped us deliver $67 million of sequential net UARR this past quarter. We also had a number of growth initiatives, and we're always working on cultivating that growth initiative pipeline. A handful of those initiatives were also successful and a tailwind to the business, and our outbound team has reoriented really successfully from a team that was traveling more actively to one that's really been leveraging telesales, and demand for our products has been strong. So it was a combination of all those factors that allowed us to accelerate our net UARR growth on a year-over-year basis quarter-to-quarter.

And Ajay, just since you mentioned some of the new initiatives, I wanted to ask Drew, how are you thinking about sizing the opportunity for Dropbox Passwords? And just how you're thinking about the ability to ring-fence an encrypted data set that is presumably pretty sensitive high-value information and potentially it's something that would be targeted?

Sure. We see Passwords as playing to a lot of our strengths around user trust and security, and we're making huge investments there. It's a natural fit. For things like Dropbox Vault and Dropbox Passwords, these are pretty universal workflows that our customers have, and a lot of what motivated us to build focused solutions around them is that we're seeing many customers requesting Dropbox to do more in these areas. People are already kind of using Dropbox or storing this information in Dropbox, so we identified an opportunity to provide a more focused experience and enhance our higher-tier plans. We believe these areas play to our strengths, and customers also want the ability to manage these functionalities across platforms. A lot of the other alternatives they may be using might be tied to one device or one platform, but many customers want to work across their iPhones and Windows PCs. So that's another significant strength of ours. More broadly, when you look at these use cases post-COVID, where the lines between home and work have blurred even more, we see one of Dropbox's core strengths is supporting both work and personal use cases in a platform-agnostic way. While both of these features were introduced for personal use, securing documents and managing passwords are also highly relevant for work. So we view our personal and work product portfolios and roadmaps as reinforcing one another.

Our next question comes from Rishi Jaluria with DA Davidson. Your line is open.

Ajay, I'll echo my peers and thanks; it's been a pleasure working with you and best wishes for the next year again. I also wanted to extend my congratulations to Tim on the new role. I wanted to start first by talking about the Michigan deal—really impressive land. I wonder if you can give a little bit more color on that deal, especially because you are replacing a cloud competitor—not in on-premise but to cloud motion. Presumably, Michigan chose you over Microsoft and Google, even though they've got long-standing relationships with both vendors. So maybe a little bit more color on that? And broadly, how are you thinking about the higher-end opportunity, especially with so many universities going virtual this coming semester? And then I've got a follow-up.

Hi, Rishi. This is Olivia Nottebohm. I'll actually take this question, and thank you for the question. We were excited to partner with the University of Michigan. It was a cross-campus deployment, meaning that it was both for their students as well as their faculty, and for us, that's something we're very proud of. We're partnering with them closely to build out what they need for remote education. Technology is a key area of focus for us, and I've hosted an education CIO forum this morning with a number of education CIOs who are very much moving forward, thinking about how technology can lead education going forward. It's nice to see that they're bringing us into the conversation and very much thinking of ourselves as partners. Other education wins we've had included Northwestern, the University of Pennsylvania, and Arizona State, just to name a few. The exciting part about this is that as the graduating classes of these educational institutions leave and graduate, they then take that Dropbox love with them, creating an evergreen model where a quarter of the population is graduating and then, of course, being replaced as new students come in. So we're excited about this business opportunity overall.

And then, I guess, Ajay, I wanted to go a little bit more detail on the guidance for next quarter, specifically on the operating margin side. I mean, you're talking about operating margins declining sequentially pretty meaningfully. Just wanted to get a little more color on why it would be declining from Q2 to Q3, and what factors are driving that? Thanks.

Sure. It's a great question. It's really driven by the timing of spend. We made the decision to shift some marketing spend from Q2 to Q3. I'll turn things over to Olivia in just a moment to provide a little bit more context on that and some campaigns that we're going to be launching in the fall. But generally speaking, I will say, Rishi, that we are expecting to generate more efficiency this year, which is driving us to raise our FY '20 operating margin guidance to 18% to 18.5%, up from 17.5% to 18% last quarter. So structurally, we are getting more efficient as a business, and you can see that based on the results we delivered in Q2. We've now executed well within our prior long-term target range before raising those targets earlier this year. I feel good about the profitability trajectory we're on as a business. I'll turn it over to Olivia to give a little more context on some of that marketing spend.

Right. We ended up moving some marketing spend out into the early fall. We're going to be launching an awareness campaign to really drive knowledge about the Dropbox solutions for business, specifically for remote work. We're really excited for that; it will be both a top-of-funnel awareness campaign, as well as driving conversions off that investment.

Our next question comes from Heather Bellini with Goldman Sachs. Your line is open.

And Ajay, best wishes. You will be missed. Thanks for everything over the years. I just wanted to ask a little bit about any trends you're seeing that are noteworthy in terms of quarterly versus annual pay?

Sure. This is Ajay. I can start, and then Drew, feel free to chime in with any context that you have. I think for some of these larger, more elevated cohorts that we've seen post-COVID, there has been higher demand for our monthly plans in those cohorts. That drove some of the variance that you might have seen quarter-to-quarter, including things like billings, absolute dollars of billings, and billings growth rate. So there has been a mix shift to monthly relative to annual. That being said, we have seen a lot of stability with respect to retention, and as I mentioned earlier, churn for us was pretty stable from Q1 to Q2. Net revenue retention improved quarter-to-quarter; again, that’s because the vast majority of our paying users are knowledge workers, and we're playing an important role in managing their content.

Our next question comes from Brent Thill with Jefferies. Your line is open.

This is Billy Fitzsimmons on for Jason Ader. First of all, Ajay, best wishes to you. I had a couple of questions. One was on the HelloSign opportunity. I know you guys mentioned that you're cross-selling more HelloSign deals to Dropbox users. So, I wanted to maybe get some color on what the cross-sell opportunity is? How many Dropbox users currently have HelloSign, and what's the opportunity there? And then I'll have a follow-up as well.

Okay. I can start, and Olivia, please chime in. But yes, as you noted, we continue to see strong demand for HelloSign, and given COVID and the shift to remote work, there's been elevated demand for e-signature. We're really excited that HelloSign is now fully integrated into Dropbox. In Q2, we launched a new and improved experience where HelloSign is now natively embedded into the Dropbox product, allowing our users to easily send, sign, and safely store their most important agreements in one seamless workflow without ever having to leave Dropbox. It's one of our fastest-growing businesses, so we're definitely seeing elevated demand and a significant opportunity there.

On the outbound side, we closed more than 20 deals where we had at least one of HelloSign's products bundled into the customer's Dropbox deployment. More and more, we're seeing a demand for combined solutions on that front. Our model is very much organic, where the self-serve motion begins and kicks us off. I'm really excited that every single Dropbox user right now can have three free e-signatures on HelloSign, allowing them to experience that functionality and then providing them the opportunity to become a paid user. This is great because we don't even have to actively do the cross-sell; it's there for our existing customers to see and use for themselves.

Got it.

Even in Q2, I would say usage of the e-signature solution and HelloSign API products increased by more than 25% versus Q1, so it's encouraging to see that.

And maybe one quick follow-up on—it sounds like you guys are seeing some great tailwinds from work from home. I guess, as you look to 2021 and into the future, do you believe that these growth rates are sustainable going forward? And that's it from me. Thank you.

Sure. For me, the big opportunity is again that we're addressing a universal need: Every knowledge worker needs an organized place for their content that works with all other platforms. Even bigger is the need now that we're working from home post-COVID. So many of us have office documents, Google docs, and other files scattered across platforms, and we don't see any of our competitors solving this problem. Looking forward to 2020 or 2021, that's a significant opportunity for us. We're building Dropbox into an organizing layer for all your content that's platform-agnostic and brings it all together, moving higher in the stack and handling more workflows like Dropbox Passwords and what we've done with HelloSign; these are examples of that. The shift to distributed work is a transformative opportunity, and as I said in my opening remarks, it’s not unlike the shift to mobile or shift to cloud. We're in the first inning of that transformation. None of the tools we're using are purpose-built for this environment. We believe we are designing things differently for the new world, and we've reoriented our product roadmap around this. We'll have a bigger update in the second half about our smart workspace.

And I would just add on that; it's a fantastic answer, Drew. On a related note, we absolutely remain on trajectory to achieve a long-term target that we outlined earlier this year. We continue to be on a trajectory that delivers over $1 billion in annual free cash flow by 2024. We'll have more to share when we issue guidance on our call in February.

And our next question comes from an unidentified analyst with Citi. Your line is open.

Hi, Dropbox team. Thank you for fitting me in. I just wanted to dig into that net dollar retention rate. The expansion quarter-over-quarter is that primarily a function of the mix shift to more business customers with business customers growing faster than those on consumer plans? Or is the mix holding relatively steady and the increase was driven by kind of consistent renewal among your consumer plans with the expansion of your business users? Thanks.

Yes, it's a great question. This is Ajay. Overall, we've seen those churn rates and gross retention rates remain relatively stable across the business, and the expansion we've been able to drive in net revenue retention is really twofold: One is us continuing to drive expansion of existing Dropbox business teams, where teams are adding more licenses to their deployments, and we're also always driving a mix shift towards teams. So every period we're converting more and more gross new licenses as team deployments relative to individual ones, and that mix shift over time is changing.

And when should we expect the net dollar retention rate to cross into the triple digits? It seems like that's really the inflection point where you could stabilize revenue growth and really accelerate the margin expansion.

Yes, we don't provide formal guidance or report formally against net retention, so we'll continue to provide color commentary, but certainly, we've been pleased with the trajectory and trend that that metric has been on since our IPO, and it has been improving steadily. To the extent we have some milestones that we hit that it makes sense for us to share publicly, that's something we'll certainly consider.

Alright. Well, thanks again, everyone, for joining us this afternoon. We hope you are staying safe and healthy, and we look forward to speaking with you again next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.