Good afternoon, ladies and gentlemen. Thank you for joining Dropbox's Second Quarter 2021 Earnings Conference Call. All participants are in a listen-only mode. 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 turn the call over to Kern Kapoor, Dropbox's Head of Investor Relations. Mr. Kapoor, please go ahead.

Good afternoon, and welcome to Dropbox's second quarter 2021 earnings call. Today, Dropbox will discuss the quarterly financial results that were distributed earlier. Statements on this call include forward-looking statements, including future financial results, including our goals and expectations regarding future revenue growth, profitability, and our ability to generate and sustain positive free cash flow, our expectations regarding remote work trends, related market opportunities and our ability to capitalize on those opportunities, our expectations regarding anticipated impact to our financial results, including estimated impairment charges and subleasing income as a result of our shift to a virtual-first work model, expected performance of our business, our capital allocation plans, including expected timing and volume of share repurchases, future M&A opportunities and other investments; our ability to drive user growth, upgrades and retention by enhancing our products, developing and offering new products or features and through acquisitions, our strategy and the effectiveness of our strategy in achieving our business goals and overall future prospects, and ability to generate shareholder value. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in our Form 10-Q for the quarter ended March 31, 2021, and the risk factors that will be included in our Form 10-Q for the quarter ended June 30, 2021. 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 will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to, and not as a substitute for, or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC and may also be found in the supplemental investor materials posted on our Investor Relations website at www.investors.dropbox.com. Additional information regarding the exchange rate assumptions used in our guidance may also be found in our supplemental investor materials.

Thanks, Kern, and good afternoon, everyone. Welcome to our Q2 2021 earnings call. And on the call with me is Tim Regan, our Chief Financial Officer. Today, I'll share our business and product highlights from the quarter. Tim will then review our Q2 financial results, provide guidance for the third quarter and update our outlook for the remainder of the year. Before we begin, I'd like to extend a warm welcome to our newest Board member, Sara Mathew, who was appointed last week. Sara brings decades of experience as a skilled operator and strategist to our Board and has led transformative growth at global brands, such as P&G and Dun & Bradstreet. I'm looking forward to working with Sara as we execute on our strategy. I'd also like to thank Bob Mylod, who is transitioning off our Board for his outstanding service over these last seven years. We are incredibly grateful for his mentorship, and he will continue to be a friend and advisor to our team. To kick-off, I'm excited to share that we had another strong quarter across the board, including record operating margins and free cash flow driven by the ongoing value we are providing to our customers. And as companies continue to think through their return-to-work policies, it's clear that distributed work is here to stay long after the pandemic ends, and we believe we are in a unique position to help our customers adjust to the new world. As we've shared before in the last year and a half, we've witnessed an acceleration of several macro trends that were already in play, including the rapid growth of the creator and freelancer economy. These audiences have long been passionate Dropbox customers, and as they become a larger force in the economy, we are in a strong position to support their growth and offer differentiated solutions to meet their expanding needs. And now, turning to our second quarter results. In Q2, we saw a 14% revenue growth driven by strength in our professional SKU and improvements in retention, particularly on our mobile platform. We generated record free cash flow of $216 million and achieved our highest ever non-GAAP operating margin of 32% for the quarter. I'd like to thank our employees, customers, and partners for their support and contributions that led Dropbox to another excellent quarter. And we continued to be focused on our three strategic priorities for 2021: evolving the core business, investing in new products, and driving operational excellence. And I'm proud of the team's execution and the progress we have made against each of these in the second quarter. I'll start with an update on evolving our core business. As a reminder, this strategy is focused on building on the strength of the simple and intuitive core Dropbox experience to improve functionality, make collaboration more seamless and help organize users' content, tools and workflows. I'd like to highlight a few areas under the strategy that contributed to our core business outperformance in the second quarter and help drive our topline growth. The first area is sharing content, which is one of our customer's most important and frequent workflows on Dropbox. Sharing drives retention of our existing customers, spreads Dropbox virally to new customers, and generates powerful network effects. We've made improvements to the sharing experience overall, especially on mobile, where our user base continues to grow. Nearly half of our new basic users come from our mobile channel. And in Q2, we saw a greater than 15% increase in link sharing due to some of our most recent updates to improve usability and reliability, including increased visibility for the blue share link button and faster upload speeds overall. We are also focused on improving the recipient user experience, which is another key driver of our product by enhancing sharing functionalities and monetization. We found that users who both send and receive content within a week and those who share content each week upgrade at higher rates. As a result of the sharing user experience improvements we made this quarter, we are starting to see an incremental uptick in weekly sharing activity on both mobile and web experiences, and we will continue to closely monitor that trend. As another example of evolving our core offering, a few weeks ago, we announced the rollout of camera uploads to all basic users. Now they can automatically backup photos and videos continuously from their mobile devices to their Dropbox account. We believe the camera uploads feature will drive further engagement among our basic users and in turn drive both retention and conversion. So these kinds of investments in our core offering are having a direct impact on the value customers are seeing in our products. We have seen improvements in both our iOS and Android app store ratings, and in fact, our Android app store rating reached its highest level since 2013. Moving to our second strategy, which is investing in the future where we are focused on cultivating and scaling additional capabilities to provide a more comprehensive suite of workflow products to our millions of users and over 550,000 Dropbox business teams. And I'll start with our newest acquisition, DocSend. As a reminder, we purchased DocSend earlier this year to extend our capabilities in document workflow and analytics. With DocSend, we are able to give customers particularly in financial and professional services more visibility and control over closing transactions and other important business outcomes. Our goal is to essentially close the loop on deal workflows that start with content that originates in Dropbox and end in a transaction getting finalized. In the second quarter, DocSend exceeded our internal goals and milestones, and we made great progress integrating the product into the broader portfolio. Our outbound sales team is already working with potential customers to educate them on DocSend's offerings, and we are beginning to successfully cross-sell DocSend to Dropbox users. In addition, we are working to integrate DocSend into our self-serve go-to-market motion. For example, we started to introduce DocSend's control and analytics capabilities to existing Dropbox users when they share a file on the Dropbox platform. This is a great reflection of the product's natural adjacency to the core Dropbox functionality. I'm really impressed with the team's performance and I'm looking forward to the journey ahead. Turning to HelloSign, we continue to see strength across the e-signature market, especially with our business customers and user signature requests grew over 75% year-over-year, which is particularly impressive as we anniversaried the COVID lockdown field surge in e-signature adoption. We continue to believe that we are in the early innings of this market opportunity. HelloSign also continues to expand its product offerings and capabilities to cater to the international market. During the quarter, we launched support for qualified electronic signatures, the most trusted and secure form of e-signature that also meets the European Union's highest level of regulatory approval. We also continue to grow and expand the HelloSign API business. In fact, we have found that HelloSign API users have higher than average retention, expansion, and customer satisfaction scores as they prioritize building clear, clean and unified workflows for their users. HelloSign continues to be one of the fastest growing areas of our company, and we plan to continue making investments to further our capabilities to drive synergies and increase brand awareness and user adoption. Another way that we are investing in our future is through partnerships. Expanding the breadth and depth of our partner ecosystem to cultivate and scale seamless workflow products is a big opportunity for us. I'm excited to highlight that Dropbox was featured in the new Zoom app marketplace versus our Spaces app for Zoom. While in the early stages, the app is a new surface that links Zoom and Dropbox, and we expect that it will provide an exciting new entry point for our joint users over time. Beyond this specific example, we believe that we can work effectively across many different ecosystems to create a comprehensive experience that captures a wide range of workflows beyond just files. And finally, I'd like to touch on Transfer, one of our more successful organic products. We continue to see hundreds of thousands of Transfer sent every week across our user base. And while it's certainly early innings, we are excited for its potential. Transfer is a good example of our ongoing efforts to cultivate and scale new products and also experiment with various pricing and packaging options to fit specific user needs at different price points. Our investments in DocSend and HelloSign, new products and our ecosystem partnerships show how we are building on our core platform to deliver even more value to our users. By expanding into adjacent categories and markets, we are investing in the future of Dropbox and positioning ourselves as a go-to solution for distributed workflow products. And finally, we remain focused on our third strategy of driving operational excellence by improving the efficiency, reliability and security of our overall technical infrastructure while being thoughtful and disciplined in all of our investment decisions. For example, our infrastructure team continues to be innovative in helping us drive gross margin improvements. Dropbox continues to be at the forefront of leading-edge infrastructure technology. Our team has made significant progress in adopting SMR or Shingled Magnetic Recording, which allows us to increase our storage density and overall storage capacity without impacting our footprint. SMR drives now account for over 80% of our storage server capacity, and we are also increasing our efficiency by moving our data centers to lower cost locations. We were also proud to share this week that all of our data centers' storage server power is now covered by 100% renewable electricity. As a reminder, last year, we announced our commitment to fight global warming and reduce our carbon footprint as part of our sustainability goals for 2030, and we've been making good progress. In the last year and a half, we've reduced our data center carbon footprint by 15%, and we are maintaining a power usage effectiveness that is nearly 20% better than the industry average. Overall, our team is innovating on a highly complex tech stack and their hard work is resulting in lower energy consumption and tangible cost savings as demonstrated by our strong gross margins in Q2. As you can see by our record profitability metrics in the second quarter, we are firmly committed to executing against our long-term financial goals. And as we look to the second half of this year, we will remain disciplined in ensuring that we are thoughtfully reinvesting back into the business to fund our most strategic priorities to set us up for long-term success. And with that, I'll now turn it over to Tim to walk through our financial results.

Thank you, Drew. As I've done before, I want to begin with a reminder of our financial strategy, as this provides the context for how we operate the business and outlines where we are headed. We continue to focus on balancing growth and profitability in a thoughtful, disciplined way while concurrently returning capital to shareholders in the form of share repurchases. By operating in this manner, we aim to deliver operating margins ranging between 28% and 30%, to reduce our share count and ultimately to generate annual free cash flow of $1 billion by 2024. We believe that execution against these objectives will generate long-term value for our shareholders, and we remain committed to making decisions in line with this financial trajectory. Today, I'll talk to our performance for the quarter and our updated guidance for the year that collectively demonstrates that we continue to make progress against these financial objectives. Let's first turn to our quarterly results. Total revenue for the second quarter increased 13.5% year-over-year to $531 million, beating our guidance range of $522 million to $525 million. Foreign exchange rates provided a two-point tailwind to growth. Total ARR for the quarter grew 12.2% year-over-year for a total of $2.166 billion. On a constant currency basis, ARR grew $54 million sequentially and 10.6% year-over-year. Our continued growth in ARR reflects our strategy to attract new paying users, drive users to premium plans, introduce acquired products to our customers and improve retention. We exited the quarter with 16.14 million paying users and added approximately 310,000 net new paying users in the second quarter, driven in part by the continued adoption of our Family plan. Average revenue per paying user was $133.15 in Q2. Before I turn to the P&L, I'd like to highlight some of our go-to-market momentum in the quarter. As a reminder, over 90% of our revenue is derived from our self-serve motion. Any optimizations to our self-serve engine can lead to meaningful results. As Drew mentioned in his prepared remarks, we have been seeing positive trends in the adoption of our professional SKU. Pro is our premium individual SKU designed for small businesses and freelancers who require additional functionality to work with external clients, including advanced sharing capabilities, additional storage, and the ability to transfer files up to 100 gigabytes in order to fuel the momentum we are seeing with the SKU. This quarter, we began offering trials with professional as part of the plus checkout process. This upsell prompt drove a significant uplift in the number of users starting a pro trial. In addition, we extended the professional trial length from 14 days to 30 days to give potential users more time to understand the benefits of the product. Raising the trial period resulted in a 15% increase in the number of users who started a trial with a commensurate lift in the number of conversions. These types of optimizations help to drive year-over-year growth of our pro SKU by more than 30%. Through these enhancements, our engineering teams continue to find ways to improve our ability to match the right products with the right customers at the right times, leading to continued revenue growth in an efficient, scalable way. Before we continue with further discussion of our P&L, I would like to note that unless otherwise indicated, all income statement measures mentioned are non-GAAP and exclude stock-based compensation, amortization of purchased intangibles, certain acquisition-related expenses, impairments of our real estate assets, and expenses related to our reduction in force. Our non-GAAP net income also excludes net gains and losses on equity investments and includes the income tax effect of the aforementioned adjustments. Let me also provide a brief update on our real estate strategy. As we have previously mentioned, our transition to a Virtual-First model includes steps to decost our real estate portfolio by subleasing a significant portion of our existing facilities footprint. Last year, we signed two subleases related to our San Francisco headquarters, and we recently signed additional subleases in Austin, Seattle, and Australia. We are seeing progress on multiple fronts, and we remain confident in our ability to execute on our strategy. As a result, we did not record any additional impairment charges in the second quarter, and we continue to estimate total impairment charges of up to $450 million associated with this transition inclusive of the charges we've already taken, while expecting to ultimately generate an estimated $800 million in subleased cash flows over the course of the associated leases. With that, let's continue with the P&L. I note that all expense categories continue to benefit from strategic changes we've made to the business around personnel and facilities costs. Related to personnel, we restructured our workforce in order to operate more efficiently in the first quarter this year, and our headcount totals remain at these reduced levels. That being said, we do plan to accelerate hiring this year as we invest in growth areas across the business to ensure that we are well positioned for continued success. Related to facilities and our shift to Virtual-First, we continue to benefit from our employees working from home as well as from a reduction in depreciation as a result of the write-down in our real estate assets stemming from the aforementioned impairment. In short, we are operating with greater discipline while still investing in our future, and we are seeing substantial improvements across the P&L as a result of these concerted efforts. Gross margin was 81% for the quarter, representing an increase of 2 percentage points on a year-over-year basis. The improvement in our gross margin is primarily a result of the continued rollout of hardware efficiencies across our internally managed storage and data infrastructure as well as progress we are making in migrating our data centers to lower cost locations. Second quarter R&D expense was $130 million, or 25% of revenue, which decreased compared to 29% of revenue in the second quarter of 2020. Sales and marketing expense was $91 million, or 17% of revenue, which decreased compared to 20% of revenue in the second quarter of 2020. G&A expense was $40 million, or 8% of revenue, which decreased compared to 10% of revenue in the second quarter of 2020. G&A expenses benefited from the one-time release of certain non-income tax reserves in the quarter. In total, we earned a record operating profit of $169 million in the second quarter, which represents an operating margin of 32% or an 11 percentage point improvement compared to the second quarter of 2020. Net income for the second quarter was $160 million, which is a 72% improvement over the second quarter of 2020. Diluted EPS was a record $0.40 per share based on 397 million diluted weighted average shares outstanding, up from $0.22 per share for the second quarter of 2020. Moving on to our cash balance and cash flow. We ended the quarter with cash and short-term investments of $1.944 billion. Cash flow from operations was $220 million in the second quarter. Capital expenditures were $4 million during the quarter. This resulted in a record quarterly free cash flow of $216 million compared to $120 million in Q2 of 2020. In the second quarter, we also added $43 million to our finance leases lines for data center equipment. I'd also like to provide an update on our share repurchase activity. As I previously mentioned, we intend to leverage our share repurchase program to not only return capital to shareholders, but to also reduce our share count. In Q2, we repurchased 5.5 million shares, spending approximately $151 million. Since the start of last year, we have now spent nearly $1 billion under our program, repurchasing 44 million shares. In addition, we still have approximately $820 million remaining under our current share repurchase authorization as we continue to aim to reduce our weighted average diluted share count. We continue to believe that utilizing our capital for share repurchases is efficient, and we will leverage the strength of our balance sheet to deliver returns back to our shareholders. With that, let's turn to guidance for Q3 and for the full year. For the third quarter of 2021, we expect revenue to be in the range of $543 million to $546 million. Currency exchange rates assumed in this guidance account for approximately 2 points of growth at the midpoint of guidance and are based on a combination of recent and historical average rates. We expect non-GAAP operating margin to be in the range of 28% to 28.5%. Finally, we expect diluted weighted average shares outstanding to be in the range of 397 to 402 million shares based on our trailing 30-day average share price. For the full year 2021, we are raising our revenue guidance range, which was previously $2.118 billion to $2.130 billion, to $2.136 billion to $2.142 billion. Currency exchange rates assumed in this guidance account for approximately 2 points of growth at the midpoint of guidance and are based on a combination of recent and historical average rates. We are maintaining our gross margin guide of approximately 80% for the full year. We are raising our non-GAAP operating margin guidance range, which was previously 27% to 28% to be in the range of 28.5% to 29%. We are raising our free cash flow guidance range, which was previously $670 million to $690 million, to be in the range of $710 million to $730 million. This includes $29 million in cash outflows comprised of $16 million with a 2021 installment of our deal consideration holdback related to our acquisition of HelloSign and one-time severance payments of approximately $14 million related to our reduction in force. We continue to expect capital expenditures for 2021 to be in the range of $25 million to $35 million net of tenant improvement allowances. We continue to expect additions to our finance lease lines to be approximately 6% of revenue in 2021. Finally, we are maintaining our expectation for 2021 diluted weighted average shares outstanding to be in the range of 397 million to 402 million shares. To share some additional context on this guidance, we are raising our full-year revenue guidance from 11% to approximately 12% year-over-year growth as we account for the momentum we are seeing across the business. We are raising our operating margin guidance, given the raise in revenue expectations while concurrently operating under an increasingly efficient and disciplined cost structure. I'd note that we continue to plan to hire and to invest in marketing initiatives to drive future growth in the back half of the year. We are raising our free cash flow guidance through the aforementioned business outperformance, cost savings and continued confidence in the favorable impact of FX rates. With regard to paying users and ARPU, and consistent with what I mentioned at the start of the year, we continue to expect some level of variability in these metrics as we simultaneously made the decision to shift away from the pursuit of large paying user deals with low ASPs, while concurrently driving the adoption of our Family plan and other SKUs; therefore, we continue to focus on ARR growth as the best indicator of the long-term health of our business. Lastly, I want to share some thoughts on our long-term targets. We are on track to take a sizeable step forward this year on profitability, outperforming our expectations with operating margins now expected to grow approximately 7 points and free cash flow expected to improve by more than $200 million year-over-year. It's important to consider that we don't expect progress of this magnitude every year, and while our profitability growth this year is outstanding, we are equally focused on driving sustainable revenue growth. Therefore, while we are now within our long-term operating margin target range of 28% to 30%, we plan to hire to support new product development, invest in high ROI growth initiatives and explore inorganic ways to add capabilities to our offerings. In addition, certain tailwinds this year could turn into headwinds in future years as we start traveling again or as FX rates fluctuate. Given these considerations at this time, we are maintaining our long-term operating margin targets of 28% to 30% and our 2024 free cash flow goal of $1 billion. In conclusion, we have made great progress against our goals over the first half of this year. We continue to execute against our financial objectives, and we remain on course to achieve our long-term targets. Looking ahead, we will continue to operate in a disciplined and measured way to ensure that we are positioning the business with continued long-term success.

Thank you, Tim, and thank you all for joining us today. I'm incredibly proud of our second quarter results, and I'm excited about the opportunity ahead of us. I believe Dropbox is well positioned as our customers continue to look for technologies that help them adapt to the rapidly evolving work environment. We remain focused on executing against our 2021 strategic priorities, our long-term financial goals, and further solidifying our position as the go-to solution for distributed work. And with that, I'd like to open up the call for Q&A.

Thank you. Our first question comes from Brent Thill with Jefferies. Your line is now open.

Hi. This is Luv Sodha on for Brent Thill. Thank you for taking my questions and congrats on a great quarter. Drew, the first one was for you. As we sort of head into the back half of 2021 and we see some of these variants of COVID still with us – when COVID first began, you guys saw like the uplift in the top of the funnel metrics. So as we head into the back half of the year, and we see some of these variants still with us, how do you envision kind of the future work and what are you seeing out there in terms of top of the funnel right now?

Sure. Thanks for the question. So I mean, at a high level, we are certainly concerned about the Delta variant in terms of reopening our offices and our thinking through that alongside every company. As far as the impact on our business, we think the world moving to distributed work will be a big tailwind in the long run. And it's pretty clear that a large percentage of the planet starting as of last year will spend more time – much more time working out of a screen rather than out of an office. And so we have this new mode of hybrid work and we need a new generation of tools to support it. So I think it's a huge opportunity to rethink the fundamental nature of work. We're all going to be in some kind of hybrid environment, and things like the Delta variant will continue to make that complicated. But we think that there is – it makes our opportunity bigger. And as far as what does it do in terms of inflections in the numbers, we saw a surge in demand last year during the onset of COVID. At the same time, we had a lot of stability because I think Dropbox is something our customers are using before the pandemic, during the pandemic, and will need after the pandemic. So as far as – but in the long run, we think this new way of working needs new tools and it's a big opportunity for us.

And Luv, maybe just briefly add to that. We are seeing stability in our top of funnel. Certainly seeing strength across the business. Pro SKU continues to be up more than 30% year-over-year. HelloSign and DocSend are both growing well, and we're excited about their potential and opportunities. And the Family plan also continues to do well. And then we're seeing traction with retention. So overall, a lot of things going well.

Got it. One quick follow-up on the professional SKU strength that you noted. I guess, could you give some more color as to what's driving this? Is this more creatives kind of upgrading? Any more insight into what drove that strength? Thank you.

Sure. I can start. So, coincident with COVID last year, we also have been seeing the pulling forward or the acceleration of a lot of other macro trends like the rise of creatives in the freelance economy. And that's a tailwind for us because these audiences have always been passionate Dropbox users. We will continue to focus on supporting them as their needs evolve. And they've been a big driver of our professionals SKU, which has grown 30% year-over-year and we're very focused on customer segments like those.

Yes. I'd add to that. This also ties back to some of the changes we've made to our onboarding workflows to better align potential customers with the plan that best suits them. As I mentioned in my remarks, we continue to optimize our self-serve go-to-market motion for pro. Where this quarter, we started offering pro to users in our plus checkout process, and then we extended our pro trial from 14 days to 30 days, which led to a 15% uplift in the number of users starting a trial.

Great. I'll pass it to you. Thank you.

Thank you. And our next question comes from Rishi Jaluria with RBC. Your line is now open.

Hey, guys. Thanks so much for taking my questions. Nice to see a solid quarter. Growth kind of stabilized here. I had two questions. First, I wanted to start on HelloSign. Great to see that volumes continue to remain elevated even after lapping the COVID tailwinds that we saw a year ago. Can you give us a sense for where we are on the monetization curve on HelloSign? Have monetization rates on those transactions been picking up over time? And I'm not asking for a breakout of HelloSign revenue, but just maybe directionally, if you could help us understand the monetization trends for HelloSign? And then I've got a follow-up.

Sure. I can start. I mean, it's been great to see the sustained growth for HelloSign, and I would say HelloSign has been a massive beneficiary as we've pulled forward this shift from a lot of our customers starting with pen and paper workflows and then especially in small businesses. They need a self-serve way, an easy way to do e-signature, and have found HelloSign to be a great fit for that and there was a big surge as lockdown started. I mean, we think we're in the early innings as far as HelloSign being fully distributed to our user base. And so we continue to invest in better attaching HelloSign to the Dropbox products. And so there are a number of things we've been doing there with last quarter. In Q1, we launched our first bundle with Dropbox Professional and HelloSign, the first SKU where you could bring those together. And there are a number of other product integrations that we're envisioning, and we want to make it so that the process of sending out a contract in Dropbox for signature with HelloSign takes as few clicks as possible. So we have a lot of improvements in that regard. And then more broadly, HelloSign's growth, international is a big opportunity. So last year, we introduced HelloSign in 21 new languages. As I said in my remarks earlier, we've been investing to drive compliance with all of the different regulatory environments around the world. The qualified signatures in the EU is a big unlock there. So it's early innings as far as the overall penetration that we see with SMBs and e-signatures globally.

Okay. Got it. That's helpful. And then going to DocSend, you talked about how you're starting the actual cross-sell to sell it into existing Dropbox customers. Can you give us a sense for what kind of the ideal customer profile is? What sort of Dropbox users are the kind that you think it makes sense to do outbound motion and try to get DocSend into their hands? Thanks.

Sure. We see DocSend as particularly strong in segments like financial services, entrepreneurs raising money, and then really any role where you have folks who need rich sharing features and richer controls and things like data rooms. But then also if you're sending out a sales deck or marketing collateral, and you want to see what your recipients are engaging with and you really want to customize that experience, DocSend is a great fit for that. And then, more broadly, it's a great fit with our overall model. So DocSend and HelloSign and Dropbox all have a self-serve viral model. We think this is really complimentary. And I'd say this dovetails with some of my comments on HelloSign a minute ago, where in addition to each of these markets being individually big opportunities, we think collectively it's even bigger because what our customers really need is a seamless workflow from start to finish where they save a contract in Dropbox, they send it out for revisions or feedback through DocSend, send it out for signature with HelloSign, and save the completed contract back in Dropbox. We're very focused on removing all of the friction from that experience and making it as seamless as possible. And we think this is something where the whole will be more than the sum of the parts.

All right. Wonderful. Thank you.

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

Yes. Thank you. I’ll add my congrats on very solid results. I'm wondering, first, if you could just walk us through the value proposition of the Family plan seems to be resonating, and if you have any comments on just how much tailwind that Family plan is providing for instance to the ARR growth currently?

Sure. Well, I can start and Tim can speak to the numbers. I was following our customers. So folks wanted Dropbox subscriptions to their entire family, but to have a single point of billing and to have a family space. We saw an opportunity to package that kind of offering and make that more seamless. And so it certainly drives incremental revenue and subscriptions to the extent that maybe someone who would have otherwise just been a subscriber for themselves now is bringing in their whole family. So that's pretty straightforward, but a lot of it was just following our customers and building a better experience. And we all have use cases where we want to share things with our families.

Sure. Mark, we don't breakout the contribution of the Family plan to ARR. It certainly was a driving factor in the strength of our paying user expansion this past quarter. And we've made the Family plan more visible to our users as part of the onboarding experience on our landing page to help fuel its momentum. In addition to contributing to our user growth, we are optimistic about the potential retention benefits of the Family plan as our users engaged in practices such as the sharing of vacation photos and other communal activities.

Okay, understood. And then Tim, just a clarification, you were describing the changes to the pro trials, and I guess promoting that, extending the trial period. Are you saying that that already manifested in Q2? I suppose if you started that early in the quarter and globally, it would have manifested or that's something that becomes more tangible in Q3 and Q4 to see more of our conversions at the end of the trial period?

Sure. It started in the second quarter, but to your point, we'll continue to see this manifest in future quarters.

Thank you.

Thank you. Our next question comes from Steve Enders with KeyBanc. Your line is open.

Hey guys. This is Jack on for Steve. Just two quick questions. How are you guys thinking about potential price increases in the environment across, I guess the full product line?

Sure. Yes. Pricing is one of the tools in our toolkit where we've certainly had success with this lever in the past. And for example, we raised prices on our plus SKU in 2019 and 2020. That said, our approach is to only raise prices infrequently, and we have added – when we've added sufficient value to warrant a price increase. So at this point, our engineering efforts are focused on making sure that we are adding great features and capabilities to serve our users. So price increases are not a big factor in our 2021 guidance. But again, we've seen that customers will stay with us despite price increases, or this is an option for us at the appropriate time. And we'll continue to assess various strategies to drive monetization against our user base.

Okay. Thanks. Yes, that's really helpful. Second question is, how are you thinking about investments in the product set and then driving cross-sell going forward?

Sure. Well, in terms of investments in our core product development, we see a lot of opportunity in the Dropbox product – with the kinds of improvements we've been talking about to just streamlining the experience, the improvements in sharing last quarter are a good example of that, continuing to invest in pricing and packaging and things like that. And more broadly, we're looking at – when we look at our customers and frankly, all of our experiences, we have a lot of challenges in keeping track of all of our stuff across all these different cloud platforms. I think Dropbox does a great job of taking care of your files, but we also have all these different SaaS tools, and most of us have stuff in all these different ecosystems. And so I think there's a big opportunity for Dropbox to evolve from syncing your files to organizing all your cloud content, and so we're making huge investments there and also in turning the core business into a cross-sell engine for all of our new products. And then second is, is that product portfolio and continuing to grow it. So we added DocSend recently, and HelloSign is a great example. These are both some of our fastest growing businesses, and we'll continue to launch new products both organically and through M&A.

Maybe the only thing I'd add to that. And you can see this in our margin guidance. We certainly have plans to hire in the back half of the year and spend on marketing programs in the back half of the year. So both are ways we can continue to invest in our products.

Thank you, guys. Super helpful.

Thank you. And our last question comes from Ben Rose from Battle Road Research. Your line is now open.

Yes. Thank you very much. I have a few questions. Firstly, to start with, when you think about the number of registered users now being around 700 million, I'm just curious to know if you're finding paying users coming from sort of more recent adopters of the free plan versus perhaps registered users that have been around for some time.

So I'll start. We certainly – the path from being a free user to a paid user, cohorts are very predictable. We certainly get the businesses driven by both new users and existing, and that's been pretty stable. And I would just add that certainly, the 700 million registered user install base is a massive asset for us. So in addition to driving the core Dropbox subscription, having a broader portfolio of products and then also experimenting with pricing and packaging through potential unbundling, and things like Transfer, we have a bunch of levers that we're investing in to further drive and accelerate monetization in the free base.

Interesting. And Drew, if I may, with your focus on virtual work and all of the measures that you've taken over the course of this last year, and your plans to begin rehiring or hiring new folks in the coming year. I'm curious to know in terms of your early efforts, how your own virtual work type of environment is resonating with potential new hires?

It's resonating a lot. I mean, I think one of the benefits we've all enjoyed is the flexibility that comes with being able to work from home or work from anywhere. And so that's unlocked new talent pools for us. We've had a lot of success recruiting in areas where we might not have had a physical presence. And I think as you're seeing, every company navigate their flavor of hybrid employees demand flexibility. And so I think the fact that we – our Virtual-First model provides it and provides flexibility beyond sort of the typical – you have to show up in the office for two days a week is a big tailwind to recruiting. And then I think it also resonates with folks that were at the forefront. I’m trying to design this new work experience and build tools for this new world. So overall, it's been – or the model might not be for everyone, but it's been a big tailwind for our recruiting.

Ben, the only thing that I would add to that is it's also accelerating our shift to this lower cost location strategy, where we are having success with this Virtual-First hiring strategy. In the first half of the year, roughly half of our new hires in the U.S. were outside of our main hubs at San Francisco, New York, and Seattle.

Okay. Thank you. And then also, Tim, a question for you on gross margins. It does sound like you've made some real progress over the last year. Drew, you mentioned the deployment of SMR for storage as being part of that and lower cost locations for data centers. Do you think there's room for further improvement as we look out over the next 12 months to improve gross margin?

Sure. Yes. Our infrastructure team is doing an outstanding job. But for now, we are maintaining that long-term target range of 78% to 80%. And our gross margin guidance for 2021 is already, again at that top end of our target model, which does demonstrate the progress that we're making. However, we did have a very low level of CapEx in 2017, and that's being replaced by more consistent refresh cycles going forward. So that will lead to an increase in depreciation this year. So, too early for us to increase our target right now.

Okay. Thank you very much.

Thank you. At this time, I'm showing no further questions. I'd like to hand the call back over to Mr. Drew Houston, CEO and Co-Founder.

All right. Well, thank you, everyone for joining today. We appreciate your continued support and see you again next quarter.

Ladies and gentlemen, thank you for your participation. You may now disconnect. Everyone, have a wonderful day.