Q2 2026 Dropbox Inc Earnings Call

August 6, 2026

Speaker #1: Thank you for standing by, and welcome to DROPBOX's second quarter, 2026 earnings conference call. Currently all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.

Operator: Thank you for standing by, and welcome to Dropbox's Q2 2026 Earnings Conference Call. Currently, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. I would now like to hand the call over to Sarah Schubach, Chief Accounting Officer and Head of Investor Relations. Please go ahead.

Speaker #1: To ask a question during the session, you will need to press *11 on your telephone. To remove yourself from the queue, you may press *11 again.

Speaker #1: I would now like to hand the call over to Sarah Shuva, Chief Accounting Officer, and Head of Investor Relations. Please go ahead.

Speaker #2: Good afternoon, and welcome to DROPBOX's second quarter, 2026 earnings call. As a 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.

Sarah Elizabeth Schubach: Good afternoon, and welcome to Dropbox's Q2 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'll also make forward-looking statements on this call, including statements about our future outlook for our Q3 and fiscal year 2026, as well as our expectations regarding our business, assets, strategies, and the macroeconomic environment. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our most recent 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.

Sarah Schubach: Good afternoon, and welcome to Dropbox's Q2 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'll also make forward-looking statements on this call, including statements about our future outlook for our Q3 and fiscal year 2026, as well as our expectations regarding our business, assets, strategies, and the macroeconomic environment. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our most recent 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.

Speaker #2: We will also make forward-looking statements on this call, including statements about our future outlook for our third quarter and fiscal year 2026, as well as our expectations regarding our business, assets, strategies, and the macroeconomic environment.

Speaker #2: 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.

Speaker #2: 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.

Sarah Elizabeth Schubach: We disclaim any obligation to update any forward-looking statements except as required by law. I'll now turn the call over to Dropbox's Co-Founder and Co-CEO, Drew Houston.

Sarah Schubach: We disclaim any obligation to update any forward-looking statements except as required by law. I'll now turn the call over to Dropbox's Co-Founder and Co-CEO, Drew Houston.

Speaker #2: I will now turn the call over to DROPBOX's co-founder and co-CEO, Drew Houston.

Speaker #3: Thank you, Sarah, and good afternoon, everyone. Before I turn it over to Ashraf, I want to briefly address the CEO transition we announced in May.

Drew Houston: Thank you, Sarah, and good afternoon, everyone. Before I turn it over to Ashraf, I want to briefly address the CEO transition we announced in May. Ashraf and I are currently serving as Co-CEOs, and after this transition period, I'll become Executive Chairman and Ashraf will become sole CEO. We're taking a deliberate approach to the handoff, and I'll remain deeply engaged as Executive Chairman. I want to say a word about why I have so much confidence in Ashraf. When he took over our core business, there were real questions about whether we could change our trajectory. He made a series of difficult calls, and the business has gotten stronger every quarter since. He's built a strong leadership team and brought a level of operating rigor that has made this company better. You'll hear the results directly from him in a moment.

Speaker #3: Ashraf and I are currently serving as co-CEOs, and after this transition period, I'll become executive chairman and Ashraf will become sole CEO. We're taking a deliberate approach to the handoff, and I'll remain deeply engaged as executive chairman.

Speaker #3: I want to say a word about why I have so much confidence in Ashraf. When he took over our core business, there were real questions about whether we could change our trajectory.

Speaker #3: He made a series of difficult calls, and the business has gotten stronger every quarter since. He's built a strong leadership team and brought a level of operating rigor that has made this company better.

Speaker #3: You'll hear the results directly from him in a moment. The next phase for DROPBOX is about execution and turning the progress we've made into consistent, durable growth.

Drew Houston: The next phase for Dropbox is about execution and turning the progress we've made into consistent, durable growth. Ashraf's the right leader for our next chapter, and I'm looking forward to supporting him and the team. With that, I'll turn it over to Ashraf.

Speaker #3: Ashraf’s the rate leader for our next chapter, and I’m looking forward to supporting him and the team. With that, I’ll turn it over to Ashraf.

Speaker #4: Thanks, Drew, and good afternoon, everyone. Before I turn to the quarter, I want to start by thanking Drew. DROPBOX exists because of his vision and leadership over the past two decades.

Ashraf Alkarmi: Thanks, Drew, and good afternoon, everyone. Before I turn to the quarter, I want to start by thanking Drew. Dropbox exists because of his vision and leadership over the past two decades. He built one of the most recognized technology brands in the world, and I'm grateful not only for the opportunity to help lead this company, but for the trust he has placed in me to help write its next chapter. I joined Dropbox because I believed it had significantly more potential than the market and customers appreciated. Dropbox has over 18 million paying users, one of the most trusted consumer and business brands on the internet, strong cash generation, and a global infrastructure built over nearly two decades. At the same time, I saw a real opportunity to improve execution, modernize the product experience, and return Core to durable, sustainable growth. Today, my conviction is even stronger.

Speaker #4: He built one of the most recognized technology brands in the world, and I am grateful not only for the opportunity to help lead this company, but also for the trust he has placed in me to help write its next chapter.

Speaker #4: I joined DROPBOX because I believed it had significantly more potential than the market and customers appreciated. DROPBOX has over 18 million paying users. One of the most trusted consumer and business brands on the internet.

Speaker #4: Strong cash generation, and a global infrastructure built over nearly two decades. At the same time, I saw a real opportunity to improve execution, modernize the product experience, and return core to durable, sustainable growth.

Speaker #4: Today, my conviction is even stronger. Over the last 18 months, we've strengthened the leadership team, sharpened our execution, and focused relentlessly on the fundamentals.

Ashraf Alkarmi: Over the last 18 months, we've strengthened the leadership team, sharpened our execution, and focused relentlessly on the fundamentals. Improving conversion, onboarding, activation, retention, pricing and packaging, and delivering a better customer experience. While we're still early in the journey, the results are encouraging. We've turned Core from a business that had been slowing for years into one that is once again demonstrating sustainable growth. There's still a great deal of work ahead, and a few quarters don't define success, but we're putting points on the board and reinforcing the belief that had brought me here in the first place. The second thing that has strengthened my conviction is something I did not fully appreciate when I joined, and that's how valuable Dropbox's foundation would become in an AI-first world. Over the last two decades, we have built far more than a storage application.

Speaker #4: We're improving conversion, onboarding, activation, retention, pricing, and packaging, and delivering a better customer experience. While we're still early in the journey, the results are encouraging.

Speaker #4: We've turned core from a business that had been slowing for years into one that is once again demonstrating sustainable growth. There's still a great deal of work ahead, and a few quarters don't define success, but we're putting points on the board and reinforcing the belief that has brought me here in the first place.

Speaker #4: The second thing that has strengthened my conviction is something I did not fully appreciate when I joined. And that's how valuable DROPBOX's foundation would become in an AI-first world.

Speaker #4: Over the last two decades, we have built far more than a storage application. We have built one of the world's largest and most optimized content platforms.

Ashraf Alkarmi: We have built one of the world's largest and most optimized content platforms, one responsible for storing, synchronizing, securing, searching, processing, and governing hundreds of billions of pieces of content across multiple exabytes of data. As AI makes intelligence more abundant, trusted content becomes more valuable, not less. Every AI application ultimately needs content to reason over, permissions to respect, governance to reinforce, version history to rely on, and infrastructure that scales globally and securely. Those capabilities we have been building for nearly two decades, and they're what allow us to turn AI into durable value for customers rather than a feature that is easy to copy. That realization has shaped how we think about Dropbox's future. Our priority remains exactly what it has been since I joined: continue strengthening and growing Core and build on it. I think about that opportunity in three connected parts.

Speaker #4: One responsible for storing, synchronizing, securing, searching, processing, and governing hundreds of billions of pieces of content across multiple exabytes of data. As AI makes intelligence more abundant, trusted content becomes more valuable, not less.

Speaker #4: Every AI application ultimately needs content to reason over, permissions to respect, governance to reinforce, version history to rely on, and infrastructure that scales globally and securely.

Speaker #4: Those capabilities we have been building for nearly two decades, and they're what allow us to return AI into durable value for customers rather than a feature that is easy to copy.

Speaker #4: That realization has shaped how we think about DROPBOX's future. Our priority remains exactly what it has been since I joined: continued strengthening and growing core, and build on it.

Speaker #4: I think about that opportunity in three connected parts. First, we're bringing DROPBOX services onto a common platform built around shared content, identity, permissions, search, and AI.

Ashraf Alkarmi: First, we're bringing Dropbox services onto a common platform built around shared content, identity, permission, search, and AI. Smaller teams, increasingly powered by AI, can build richer workloads faster because they're building on capabilities that already exist instead of recreating them. That also means showing up where our customers already work. We've launched integrations with tools like Claude and ChatGPT, and even without much dedicated investment behind them, we've already seen over 150,000 users connect to the integrations, an early signal of how embedded Dropbox already is in the way people work. Second, we're embedding Dash intelligence directly into Dropbox itself.

Speaker #4: Smaller teams, increasingly powered by AI, can build richer workflows faster because they're building on capabilities that already exist instead of recreating them. That also means showing up where our customers already work.

Speaker #4: We've launched integrations with tools like Claude and ChatGPT, and even them, we've already seen over 150,000 users connect to the integrations. And early signal of how embedded DROPBOX already is in the way people work.

Speaker #4: Second, we're embedding dash intelligence directly into DROPBOX itself. Rather than treating AI as a separate destination that customers need to learn or adopt independently, customers expect intelligence to be a native part of how they interact with their content.

Ashraf Alkarmi: Rather than treating AI as a separate destination that customers need to learn or adopt independently, customers expect intelligence to be a native part of how they interact with their content, helping them find it faster, understand it more deeply, organize it more effectively, and ultimately do more of the work around it, all grounded in the trust, permissions, and context already built on Dropbox. One of our biggest learnings throughout building Dash is that customers respond most to AI that is grounded in their own context and helps them get their work done. That's informed how we think about Dash going forward. We've come to see the bigger opportunity as Dash and Core together, bringing that same in-context intelligence natively into Dropbox for all our customers, not a standalone product for a subset of them.

Speaker #4: Helping them find it faster, understand it more deeply, organize it more effectively, and ultimately do more of the work around it—all grounded in the trust, permissions, and context already built on Dropbox.

Speaker #4: One of our biggest learnings throughout building dash is that customers respond most to AI that is grounded in their own context and helps them get their work done.

Speaker #4: That's informed how we think about dash going forward. We've come to see the bigger opportunity as dash and core together, bringing that same in-context intelligence natively into DROPBOX for all our customers, not a standalone product for a subset of them.

Speaker #4: The third is using those capabilities to build deeper workflows in the markets where we are best positioned to win. The goal is not to become a broad software suite.

Ashraf Alkarmi: The third is using those capabilities to build deeper workloads in the markets where we are best positioned to win. The goal is not to become a broad software suite. It is to go deeper in a focused set of areas where content sits at the center of customers' work and where our existing assets give us a genuine advantage. Replay, our video and media review and approval tool, is a good example, and we're validating adjacent opportunities such as digital asset management and other AI-powered workflows that extend naturally from our platform. Let me make that a little bit more tangible with an example. Take Westchester Publishing. What started as a place to securely store and sync files has grown over time into the foundation for much of their business operations.

Speaker #4: It is to go deeper in a focused set of areas where content sits at the center of customers' work and where our existing assets give us a genuine advantage.

Speaker #4: Replay our video and media review and approval tool is a good example. And we're validating adjacent opportunities such as digital asset management and other AI-powered workflows that extend naturally from our platform.

Speaker #4: Let me make that a little bit more tangible with an example. Take Westchester Publishing, what started as a place to securely store and sync files has grown over time into the foundation for much of their business operations.

Speaker #4: The core DROPBOX platform they've relied on for years also powers a custom portal they use to collaborate with internal teams and external partners. On top of that foundation, they've adopted dash to find and organize content, helping teams quickly synthesize information and draft materials, while piloting agentic capabilities that automate previously manual and time-intensive workflows.

Ashraf Alkarmi: The Core Dropbox platform they've relied on for years also powers a custom portal they use to collaborate with internal teams and external partners. On top of that foundation, they've adopted Dash to find and organize content, helping teams quickly synthesize information and draft materials while piloting agentic capabilities that automate previously manual and time-intensive workloads. We're also seeing that the infrastructure behind Dropbox has become increasingly relevant in an AI-first world. AI models need trusted content, source permissions, audit trails, governance, multiplayer functionality, and workflow continuity to deliver real value. Those are capabilities we've been building for nearly two decades. As AI companies build new products, many want to leverage that existing foundation rather than recreate it themselves. We're seeing this demand already with our ChatGPT and Claude integrations.

Speaker #4: We're also seeing that the infrastructure behind DROPBOX has become increasingly relevant in an AI-first world. AI models need trusted content source permissions, audit trails, governance, multiplayer functionality, and workflow continuity to deliver real value.

Speaker #4: And those are capabilities we've been building for nearly two decades. As AI companies build new products, many want to leverage that existing foundation rather than recreate it themselves.

Speaker #4: And we're seeing this demand already with our ChatGPT and Claude integrations. It's still early, but we believe DROPBOX can play an increasingly important role as the layer that connects AI to trusted customer knowledge and infrastructure across a broader ecosystem.

Ashraf Alkarmi: It's still early, but we believe Dropbox can play an increasingly important role as the layer that connects AI to trusted customer knowledge and infrastructure across the broader ecosystem. That, in short, is our strategy. Continue executing to restore durable growth in Core through foundational improvements that increase our baseline. Use that stronger foundation to build increasingly intelligent workflows for our customers and grow the flywheel that made Dropbox successful in the first place. Over time, put the platform we've built to work more broadly across the AI ecosystem wherever that creates real value. Turning to the quarter, our Q2 performance was largely the product of the foundational work that we believe is so critical to returning to sustainable growth in the long term.

Speaker #4: That in short is our strategy: continue executing to restore durable growth and core through a foundational improvement that increase our baseline. Use that stronger foundation to build increasingly intelligent workflows for our customers and grow the flywheel that made DROPBOX successful in the first place.

Speaker #4: And over time, put the platform we've built to work more broadly across the AI ecosystem wherever that creates real value. Turning to the quarter, our key two performance was largely the product of the foundational work that we believe is so critical to returning to sustainable growth in the long term.

Speaker #4: The platform intelligence and workflow strategy I just walked through is what we believe compounds on top of that foundation and unlocks a higher level of sustainable growth over time.

Ashraf Alkarmi: The platform intelligence and workflow strategy I just walked through is what we believe compounds on top of that foundation and unlocks a higher level of sustainable growth over time. We continue to see positive year-over-year revenue growth in Q2, excluding FormSwift, and we added 96,000 paying users, our third consecutive quarter of paying user growth. We also exceeded our guidance on non-GAAP operating margin, achieving over 39%, and generated $283.5 million of unlevered free cash flow. Within teams, our continued investment in pricing, packaging, onboarding, checkout, and activation translated into stronger conversion, and teams net new ARR grew sequentially. Within individuals, targeted retention initiatives, along with Apple Pay, Simple, and a clearer upgrade experience for customers approaching their storage limits all contributed to a stronger monetization. These are not isolated wins. They are the kind of steady execution that compounds over time and is returning Core to sustainable growth.

Speaker #4: We continue to see positive year-over-year revenue growth in Q2, excluding FormSwift, and we added 96,000 paying users, our third consecutive quarter of paying user growth.

Speaker #4: We also exceeded our guidance on non-GAAP operating margin achieving over 39% and generated 283.5 million of unleveraged free cash flow. Within teams, our continued investment in pricing, packaging, onboarding, checkout, and activation translated into stronger conversion, and teams' net new ARR grew sequentially.

Speaker #4: Within individuals, targeted retention initiatives along with Apple Pay, Simple, and a clearer upgrade experience for customers approaching their storage limits all contributed to a stronger monetization.

Speaker #4: These are not isolated wins. They are the kind of steady execution that compounds over time and is returning core to sustainable growth. At the same time, we continue to build toward a smarter DROPBOX with AI natively embedded in the experience.

Ashraf Alkarmi: At the same time, we continue to build toward a smarter Dropbox with AI natively embedded in the experience. As the product has evolved, we are transitioning the rollout of what we previously called Dash in Dropbox to the next generation smart FSS experience, which we are currently testing with a select group of customers. This evolution does not change our rollout timeline, and we remain on track to significantly expand access to our base throughout the remainder of 2025. We will scale thoughtfully, validating customer value, engagement, and business impact along the way. As we enter the second half of the year, our priorities remain clear. Keep building on the momentum we have established in Core. We see that stronger foundation to innovate faster, adding AI as a native in-context capability across our product portfolio.

Speaker #4: As our product has evolved, we are transitioning the rollout of what we previously called Dash and Dropbox to the next-generation Smart FSS experience.

Speaker #4: Which we are currently testing with a select group of customers. This evolution does not change our rollout timeline, and we remain on track to significantly expand access to our base throughout the remainder of 2026.

Speaker #4: We will scale thoughtfully, validating customer value, engagement, and business impact along the way. As we enter the second half of the year, our priorities remain clear.

Speaker #4: Keep building on the momentum we have established in core, receive that stronger foundation to innovate faster, adding AI as a native, in-context capability across our product portfolio that's the platform intelligence and workflows we believe will define DROPBOX's next phase of growth, reaching more of the over 18 million paying users already on DROPBOX and leveraging the same flywheel that made us successful in the first place.

Ashraf Alkarmi: That's the platform intelligence and workflows we believe will define Dropbox's next phase of growth, reaching more of the over 18 million paying users already on Dropbox and leveraging the same flywheel that made us successful in the first place. With that, I'll turn the call over to Ross.

Speaker #4: With that, I'll turn the call over to Ross.

Speaker #1: Thank you, Ashraf. When I joined DROPBOX, investors were asking whether our core business could grow again. Today, I think they're asking a different question.

[Analyst] (Dropbox): Thank you, Ashraf. When I joined Dropbox, investors were asking whether our core business could grow again. Today, I think they're asking a different question, not whether we can grow, but whether that growth is durable and ultimately how much we can sustainably grow over time. Q2 doesn't answer those questions completely, but it does provide another meaningful proof point. Ashraf laid out three connected parts to our platform and AI strategy. I think about how those translate financially in three phases. Phase 1 was simply returning our FSS product to growth. Over the past several years, we had increasingly shifted our attention away from our FSS product because we no longer believed it represented our greatest opportunity. What changed was refocusing on the fundamentals, things like pricing and packaging, onboarding, retention, checkout, and that work has returned us back to positive growth.

Ross Tennenbaum: Thank you, Ashraf. When I joined Dropbox, investors were asking whether our core business could grow again. Today, I think they're asking a different question, not whether we can grow, but whether that growth is durable and ultimately how much we can sustainably grow over time. Q2 doesn't answer those questions completely, but it does provide another meaningful proof point. Ashraf laid out three connected parts to our platform and AI strategy. I think about how those translate financially in three phases. Phase 1 was simply returning our FSS product to growth. Over the past several years, we had increasingly shifted our attention away from our FSS product because we no longer believed it represented our greatest opportunity. What changed was refocusing on the fundamentals, things like pricing and packaging, onboarding, retention, checkout, and that work has returned us back to positive growth.

Speaker #1: Not whether we can grow, but whether that growth is durable and ultimately how much we can sustainably grow over time. Q2 doesn't answer those questions completely.

Speaker #1: But it does provide another meaningful proof point. Ashraf laid out three connected parts to our platform and AI strategy. I think about how those translate financially in three phases.

Speaker #1: Phase one was simply returning our FSS product to growth. Over the past several years, we had increasingly shifted our attention away from our FSS product because we no longer believed it represented our greatest opportunity.

Speaker #1: What changed was refocusing on the fundamentals. Things like pricing and packaging, onboarding, retention, checkout. And that work has returned us back to positive growth.

Speaker #1: Phase two is where I believe we are today. Proving that growth is durable, not just a couple quarter result. We're encouraged by what we're seeing.

[Analyst] (Dropbox): Phase 2 is where I believe we are today, proving that growth is durable, not just a couple quarter result. We're encouraged by what we're seeing. Three consecutive quarters of paying user growth, teams returning to positive license growth, and improving retention. We're not overstating where we are. What lies ahead is proving to you what we believe, that we can build and enhance products that will provide value to our customers and drive growth higher. Phase 3 is where Ashraf's strategy to bring Dropbox onto a unified platform, embed Dash intelligence natively, and build deeper workflows around our customers' content becomes increasingly important financially. As we do that, the question changes from whether Dropbox can sustain growth to how fast we can grow over time.

Ross Tennenbaum: Phase 2 is where I believe we are today, proving that growth is durable, not just a couple quarter result. We're encouraged by what we're seeing. Three consecutive quarters of paying user growth, teams returning to positive license growth, and improving retention. We're not overstating where we are. What lies ahead is proving to you what we believe, that we can build and enhance products that will provide value to our customers and drive growth higher. Phase 3 is where Ashraf's strategy to bring Dropbox onto a unified platform, embed Dash intelligence natively, and build deeper workflows around our customers' content becomes increasingly important financially. As we do that, the question changes from whether Dropbox can sustain growth to how fast we can grow over time.

Speaker #1: Three consecutive quarters of paying user growth, teams returned to positive license growth, and improving retention. But we're not overstating where we are. What lies ahead is proving to you what we believe.

Speaker #1: That we can build and enhance products that will provide value to our customers and drive growth higher. Phase three is where Ashraf's strategy to bring DROPBOX onto a unified platform, embed dash intelligence natively, and build deeper workflows around our customers' content, becomes increasingly important financially.

Speaker #1: As we do that, the question changes from whether DROPBOX can sustain growth to how fast we can grow over time. One thing that has strengthened my conviction since joining DROPBOX is recognizing that we've spent nearly two decades building and running infrastructure, and intelligence services, such as our content processing platform that becomes more valuable, not less, in an AI-first world.

[Analyst] (Dropbox): One thing that has strengthened my conviction since joining Dropbox is recognizing that we've spent nearly two decades building and running infrastructure and intelligence services, such as our content processing platform, that becomes more valuable, not less, in an AI-first world. Agent or human, we believe there's no future where there's not a lot more content. As Ashraf described, Dropbox is far more than a storage application. It's a trusted content platform with capabilities around storage, synchronization, permissions, governance, search, and content processing that become increasingly important as AI becomes embedded in how work gets done. We believe those assets give us a differentiated foundation to build on, both inside Dropbox and over time, potentially other companies can also build on our content platform. We'll pursue that opportunity the same way we've approached the turnaround of core, with disciplined execution and capital allocation.

Ross Tennenbaum: One thing that has strengthened my conviction since joining Dropbox is recognizing that we've spent nearly two decades building and running infrastructure and intelligence services, such as our content processing platform, that becomes more valuable, not less, in an AI-first world. Agent or human, we believe there's no future where there's not a lot more content. As Ashraf described, Dropbox is far more than a storage application. It's a trusted content platform with capabilities around storage, synchronization, permissions, governance, search, and content processing that become increasingly important as AI becomes embedded in how work gets done. We believe those assets give us a differentiated foundation to build on, both inside Dropbox and over time, potentially other companies can also build on our content platform. We'll pursue that opportunity the same way we've approached the turnaround of core, with disciplined execution and capital allocation.

Speaker #1: Agent or human, we believe there is no future where there is not a lot more content. As Ashraf described, DROPBOX is far more than a storage application.

Speaker #1: It's a trusted content platform with capabilities around storage, synchronization, permissions, governance, search, and content processing that become increasingly important as AI becomes embedded in how work gets done.

Speaker #1: We believe those assets give us a differentiated foundation to build on, both inside DROPBOX and over time potentially other companies can also build on our content platform.

Speaker #1: We'll pursue that opportunity the same way we've approached the turnaround of core. With discipline execution and capital allocation. We won't scale investment because an opportunity is exciting.

[Analyst] (Dropbox): We won't scale investment because an opportunity is exciting. We'll scale it because customers demonstrate they value it and because it generates attractive long-term returns. Ultimately, our objective is to compound free cash flow per share over the long term through sustainable revenue growth and a strong margin profile, investing where we have the strongest right to win and returning capital shareholders when that's the highest return use of capital. Q2 doesn't complete the journey, but it reinforces our conviction that we're on the right path. With that, let me turn to our financial 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 losses on real estate assets. Our non-GAAP net income also includes the income tax effect of the aforementioned adjustments.

Ross Tennenbaum: We won't scale investment because an opportunity is exciting. We'll scale it because customers demonstrate they value it and because it generates attractive long-term returns. Ultimately, our objective is to compound free cash flow per share over the long term through sustainable revenue growth and a strong margin profile, investing where we have the strongest right to win and returning capital shareholders when that's the highest return use of capital. Q2 doesn't complete the journey, but it reinforces our conviction that we're on the right path. With that, let me turn to our financial 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 losses on real estate assets. Our non-GAAP net income also includes the income tax effect of the aforementioned adjustments.

Speaker #1: We'll scale it because customers demonstrate they value it and because it generates attractive long-term return. Ultimately, our objective is to compound free cash flow per share over the long term through sustainable revenue growth and a strong margin profile.

Speaker #1: Investing where we have the strongest right to win and returning capital shareholders when that's the highest return use of capital. Q2 doesn't complete the journey, but it reinforces our conviction that we're on the right path.

Speaker #1: With that, let me turn to our financial results. Unless otherwise indicated, all income statement figures mentioned are non-GAAP and exclude stock-based compensation amortization of purchase intangibles, certain acquisition-related expenses, workforce reduction expenses, and net losses on real estate assets.

Speaker #1: Our non-GAAP net income also includes the income tax effect of the aforementioned adjustments. In Q2, revenue increased 0.9% year over year to $631.5 million.

[Analyst] (Dropbox): In Q2, revenue increased 0.9% year over year to $631.5 million. Excluding FormSwift, revenue grew 1.7% year over year. On a constant currency basis, revenue excluding FormSwift increased 0.1% year over year. Relative to our guidance, the outperformance was driven primarily by improving core FSS trends. Total ARR was $2.566 billion, up 1% year over year. Excluding FormSwift, ARR grew 1.7% year over year or 0.2% on a constant currency basis. We exited the quarter with 18.19 million paying users, a sequential increase of approximately 96,000, ahead of our expectations coming into the quarter. The outperformance was largely driven by outperformance in our Simple SKU. We also saw positive Teams license growth as a result of our ongoing pricing and packaging initiatives. Average revenue per paying user was $139.68, compared to $138.32 in the year ago quarter, driven by FX rate tailwinds and shift to more monthly plans.

Ross Tennenbaum: In Q2, revenue increased 0.9% year over year to $631.5 million. Excluding FormSwift, revenue grew 1.7% year over year. On a constant currency basis, revenue excluding FormSwift increased 0.1% year over year. Relative to our guidance, the outperformance was driven primarily by improving core FSS trends. Total ARR was $2.566 billion, up 1% year over year. Excluding FormSwift, ARR grew 1.7% year over year or 0.2% on a constant currency basis. We exited the quarter with 18.19 million paying users, a sequential increase of approximately 96,000, ahead of our expectations coming into the quarter. The outperformance was largely driven by outperformance in our Simple SKU. We also saw positive Teams license growth as a result of our ongoing pricing and packaging initiatives. Average revenue per paying user was $139.68, compared to $138.32 in the year ago quarter, driven by FX rate tailwinds and shift to more monthly plans.

Speaker #1: Excluding form SWIFT, revenue grew 1.7% year over year. On a constant currency basis, revenue excluding form SWIFT increased 0.1% year over year. Relative to our guidance, the outperformance was driven primarily by improving core FSS trends.

Speaker #1: Total ARR was $2.566 billion. Up 1% year over year. Excluding form SWIFT, , ARR grew 1.7% year over year, or 0.2% on a constant currency basis.

Speaker #1: We exited the quarter with 18.19 million paying users, a sequential increase of approximately 96,000, ahead of our expectations coming into the quarter. The outperformance was largely driven by outperformance in our simple SKU.

Speaker #1: We also saw positive Teams license growth as a result of our ongoing pricing and packaging initiatives. Average revenue per paying user was $139.68, compared to $138.32 in the year-ago quarter.

Speaker #1: Driven by FX rate tailwinds and shift to more monthly plans. Gross margin was 81.6%, down roughly 60 basis points from the year ago period, primarily as a result of compute costs associated with rolling out additional AI capabilities to our teams base.

[Analyst] (Dropbox): Gross margin was 81.6%, down roughly 60 basis points from the year ago period, primarily as a result of compute costs associated with rolling out additional AI capabilities to our Teams base. Operating margin was 39.7%, ahead of our guidance of 38.5% and down roughly 180 basis points from the year ago period, driven by the gross margin dynamics I just described, as well as increased marketing investment within our core business, reflecting a return to more normalized spend following the targeted reductions in performance marketing we made in the year ago period. Relative to our guidance, the outperformance was primarily driven by higher revenue as well as some timing-related saving shifted to the H2 of the year for brand spend and outside services.

Ross Tennenbaum: Gross margin was 81.6%, down roughly 60 basis points from the year ago period, primarily as a result of compute costs associated with rolling out additional AI capabilities to our Teams base. Operating margin was 39.7%, ahead of our guidance of 38.5% and down roughly 180 basis points from the year ago period, driven by the gross margin dynamics I just described, as well as increased marketing investment within our core business, reflecting a return to more normalized spend following the targeted reductions in performance marketing we made in the year ago period. Relative to our guidance, the outperformance was primarily driven by higher revenue as well as some timing-related saving shifted to the H2 of the year for brand spend and outside services.

Speaker #1: Operating margin was 39.7%, ahead of our guidance of 38.5%, and down roughly 180 basis points from the year ago period, driven by the gross margin dynamics I just described, as well as increased marketing investment within our core business, reflecting a return to more normalized spend following the targeted reductions in performance marketing we made in the year ago period.

Speaker #1: Relative to our guidance, the outperformance was primarily driven by higher revenue as well as some timing-related savings shifted to the second half of the year for brand spend and outside services.

Speaker #1: Net income was $170 million, compared to $197.7 million in the year-ago quarter, with the decrease primarily due to higher interest expense related to our term loan facility.

[Analyst] (Dropbox): Net income was $170 million compared to $197.7 million in the year ago quarter, with the decrease primarily due to higher interest expense related to our term loan facility. Diluted EPS was $0.75 compared to $0.71 in the year ago quarter, based on the 226.8 million diluted weighted average shares outstanding compared to 276.7 million shares in the year ago period. Cash flow from operations was $238.5 million compared to $260.5 million in the year ago period. The year over year decline primarily reflects an increase of $30 million of interest payments, net of the associated tax benefit, related to borrowings under our term loan facility. CapEx were $3 million. Unlevered free cash flow was $283.5 million compared to $276.4 million in the year ago period. Unlevered free cash flow per share was $1.25 per share, up 25% year over year.

Ross Tennenbaum: Net income was $170 million compared to $197.7 million in the year ago quarter, with the decrease primarily due to higher interest expense related to our term loan facility. Diluted EPS was $0.75 compared to $0.71 in the year ago quarter, based on the 226.8 million diluted weighted average shares outstanding compared to 276.7 million shares in the year ago period. Cash flow from operations was $238.5 million compared to $260.5 million in the year ago period. The year over year decline primarily reflects an increase of $30 million of interest payments, net of the associated tax benefit, related to borrowings under our term loan facility. CapEx were $3 million. Unlevered free cash flow was $283.5 million compared to $276.4 million in the year ago period. Unlevered free cash flow per share was $1.25 per share, up 25% year over year.

Speaker #1: Diluted EPS was $75, compared to $71 in the year ago quarter, based on the 226.8 million diluted weighted average shares outstanding, compared to 276.7 million shares in the year ago period.

Speaker #1: Cash flow from operations was $238.5 million, compared to $260.5 million in the year ago period. The year-over-year decline primarily reflects an increase of 30 million of interest payments net of the associated tax benefit, related to borrowings under our term loan facility.

Speaker #1: Capital expenditures were $3 million. Unlevered free cash flow was $283.5 million, compared to $276.4 million in the year ago period. Unlevered free cash flow per share was $1.25 per share, up 25% year over year.

Speaker #1: Turning to the balance sheet, we ended the quarter with cash and short-term investments of $1.114 billion. During the quarter, we completed a new $400 million revolving credit facility, further strengthening our liquidity profile.

[Analyst] (Dropbox): Turning to the balance sheet, we ended the quarter with cash and short-term investments of $1.114 billion. During the quarter, we completed a new $400 million revolving credit facility, further strengthening our liquidity profile. The facility remains undrawn at quarter end and provides additional balance sheet flexibility. We also announced a new $900 million share repurchase authorization, reflecting our confidence in the business and reinforcing our commitment to long-term shareholder value creation. In Q2, we repurchased approximately 12.6 million shares, spending approximately $315 million. As of the end of Q2, we had approximately $1.385 billion remaining under our existing share repurchase authorization. I'll now offer our outlook for Q3 and our updated outlook for the full year 2026. For Q3 of 2026, we expect total revenue to be in the range of $627 to $630 million.

Ross Tennenbaum: Turning to the balance sheet, we ended the quarter with cash and short-term investments of $1.114 billion. During the quarter, we completed a new $400 million revolving credit facility, further strengthening our liquidity profile. The facility remains undrawn at quarter end and provides additional balance sheet flexibility. We also announced a new $900 million share repurchase authorization, reflecting our confidence in the business and reinforcing our commitment to long-term shareholder value creation. In Q2, we repurchased approximately 12.6 million shares, spending approximately $315 million. As of the end of Q2, we had approximately $1.385 billion remaining under our existing share repurchase authorization. I'll now offer our outlook for Q3 and our updated outlook for the full year 2026. For Q3 of 2026, we expect total revenue to be in the range of $627 to $630 million.

Speaker #1: The facility remains undrawn at quarter end and provides additional balance sheet flexibility. We also announced a new $900 million share repurchase authorization, reflecting our confidence in the business and reinforcing our commitment to long-term shareholder value creation.

Speaker #1: In the second quarter, we repurchased approximately $12.6 million shares, spending approximately $315 second quarter, with approximately $1.385 billion remaining under our existing share repurchase authorization.

Speaker #1: I'll now offer our outlook for Q3 and our updated outlook for the full year 2026. For the third quarter of 2026, we expect: total revenue to be in the range of $627 to $630 million, excluding form SWIFT, this implies roughly flat year-over-year growth at the midpoint.

[Analyst] (Dropbox): Excluding FormSwift, this implies roughly flat year-over-year growth at the midpoint. We are expecting a currency tailwind of approximately $6 million. On a constant currency revenue basis, we expect total revenue to be in the range of $621 to $624 million. We expect our non-GAAP operating margin to be approximately 38.5%, and we expect diluted weighted average shares outstanding to be in the range of 223 to 228 million shares. For the full year 2026, we expect total revenue to be in the range of $2.513 to $2.523 billion, an increase of $13.5 million at the midpoint of guidance. Excluding FormSwift, this implies 80 basis points of year-over-year growth at the midpoint. We are expecting a currency tailwind of approximately $31 million. On a constant currency revenue basis, we expect total revenue to be in the range of $2.482 to $2.492 billion.

Ross Tennenbaum: Excluding FormSwift, this implies roughly flat year-over-year growth at the midpoint. We are expecting a currency tailwind of approximately $6 million. On a constant currency revenue basis, we expect total revenue to be in the range of $621 to $624 million. We expect our non-GAAP operating margin to be approximately 38.5%, and we expect diluted weighted average shares outstanding to be in the range of 223 to 228 million shares. For the full year 2026, we expect total revenue to be in the range of $2.513 to $2.523 billion, an increase of $13.5 million at the midpoint of guidance. Excluding FormSwift, this implies 80 basis points of year-over-year growth at the midpoint. We are expecting a currency tailwind of approximately $31 million. On a constant currency revenue basis, we expect total revenue to be in the range of $2.482 to $2.492 billion.

Speaker #1: We are expecting a currency tailwind of approximately $6 million. On a constant currency revenue basis, we expect total revenue to be in the range of $621 to $624 million.

Speaker #1: We expect our non-GAAP operating margin to be approximately 38.5%. And we expect diluted weighted average shares outstanding to be in the range of $223 to $228 million shares.

Speaker #1: For the full year 2026, we expect: total revenue to be in the range of $2.513 to $2.523 billion, an increase of 13.5 million at the midpoint of guidance.

Speaker #1: Excluding form SWIFT, this implies 80 basis points of year-over-year growth at the midpoint. We are expecting a currency tailwind of approximately 31 million. On a constant currency revenue basis, we expect total revenue to be in the range of $2.482 to $2.492 billion.

Speaker #1: We expect gross margin to be approximately 81.5%. We are raising our non-GAAP operating margin guidance by 50 basis points to be in the range of 40.0 to 40.5%.

[Analyst] (Dropbox): We expect gross margin to be approximately 81.5%. We are raising our non-GAAP operating margin guidance by 50 basis points to be in the range of 40.0% to 40.5%. This implies an increase of approximately $18 million at the midpoint of guidance. We are also raising our unlevered free cash flow guidance, which we now expect to be at or above $1.070 billion, an increase of $15 million. We continue to expect CapEx to be in the range of $20 to $25 million, in addition to finance lease lines to be approximately 4% of rev. Finally, we expect diluted weighted average shares outstanding to be in the range of 226 to 231 million shares. I will now provide supplemental information as it relates to guidance. In Q2, we were pleased with our performance on paying user growth and continue to expect positive paying user growth for 2026.

Ross Tennenbaum: We expect gross margin to be approximately 81.5%. We are raising our non-GAAP operating margin guidance by 50 basis points to be in the range of 40.0% to 40.5%. This implies an increase of approximately $18 million at the midpoint of guidance. We are also raising our unlevered free cash flow guidance, which we now expect to be at or above $1.070 billion, an increase of $15 million. We continue to expect CapEx to be in the range of $20 to $25 million, in addition to finance lease lines to be approximately 4% of rev. Finally, we expect diluted weighted average shares outstanding to be in the range of 226 to 231 million shares. I will now provide supplemental information as it relates to guidance. In Q2, we were pleased with our performance on paying user growth and continue to expect positive paying user growth for 2026.

Speaker #1: This implies an increase of approximately 18 million at the midpoint of guidance. We are also raising our unlevered free cash flow guidance, which we now expect to be at or above 1.070 billion.

Speaker #1: An increase of 15 million. 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.

Speaker #1: Finally, we expect diluted weighted average shares outstanding to be in the range of $226 to $231 million shares. I will now provide supplemental information as it relates to guidance.

Speaker #1: In Q2, we were pleased with our performance on paying user growth and continue to expect positive paying user growth for 2026. For our pool, we expect modest sequential declines throughout the rest of the year.

[Analyst] (Dropbox): For ARPU, we expect modest sequential declines throughout the rest of the year. As I mentioned last quarter, our gross margin guidance assumes modest pressure this year from embedding Dash Intelligence natively into Dropbox and expanding across our teams base, partially offset by infrastructure efficiencies. Going forward, our gross margin profile will continue to depend on rollout pace, customer adoption, and optimization work, so we continue to expect some quarter-to-quarter variability. We're increasing our operating margin and unlevered free cash flow guidance relative to our prior guidance as a result of Q2 performance and expected performance in the remainder of the year. As we touched on last quarter, we will continue to realize efficiencies within our R&D organization as we bring Dash and Dropbox closer together, giving our teams a shared foundation so they can build and ship faster with AI.

Ross Tennenbaum: For ARPU, we expect modest sequential declines throughout the rest of the year. As I mentioned last quarter, our gross margin guidance assumes modest pressure this year from embedding Dash Intelligence natively into Dropbox and expanding across our teams base, partially offset by infrastructure efficiencies. Going forward, our gross margin profile will continue to depend on rollout pace, customer adoption, and optimization work, so we continue to expect some quarter-to-quarter variability. We're increasing our operating margin and unlevered free cash flow guidance relative to our prior guidance as a result of Q2 performance and expected performance in the remainder of the year. As we touched on last quarter, we will continue to realize efficiencies within our R&D organization as we bring Dash and Dropbox closer together, giving our teams a shared foundation so they can build and ship faster with AI.

Speaker #1: As I mentioned last quarter, our gross margin guidance assumes modest pressure this year, from embedding dash intelligence natively into Dropbox, and expanding across our Teams base.

Speaker #1: Partially offset by infrastructure efficiencies. Going forward, our gross margin profile will continue to depend on rollout pace, customer adoption, and optimization work. So we continue to expect some quarter-to-quarter variability.

Speaker #1: We're increasing our operating margin and unlevered free cash flow guidance relative to our prior guidance as a result of Q2 performance and expected performance in the remainder of the year.

Speaker #1: As we touched on last quarter, we will continue to realize efficiencies within our R&D organization as we bring dash and Dropbox closer together, giving our teams a shared foundation so they can build and ship faster with AI.

Speaker #1: Additionally, we see an opportunity to evolve and improve our go-to-market team and execution and we are in the process of rebalancing that organization to focus resources on our priority markets, segments, and routes to market.

[Analyst] (Dropbox): Additionally, we see an opportunity to evolve and improve our go-to-market team and execution, we are in the process of rebalancing that organization to focus resources on our priority markets, segments, and routes to market, which we believe will drive greater efficiency and productivity through the remainder of 2026 and going forward. Lastly, we expect our full-year weighted average shares outstanding to increase to approximately 226 to 231 million shares as a result of an increase in our 30-day trailing average share price. With that, operator, please open the line for questions.

Ross Tennenbaum: Additionally, we see an opportunity to evolve and improve our go-to-market team and execution, we are in the process of rebalancing that organization to focus resources on our priority markets, segments, and routes to market, which we believe will drive greater efficiency and productivity through the remainder of 2026 and going forward. Lastly, we expect our full-year weighted average shares outstanding to increase to approximately 226 to 231 million shares as a result of an increase in our 30-day trailing average share price. With that, operator, please open the line for questions.

Speaker #1: Which we believe will drive greater efficiency and productivity through the remainder of 2026 and going forward. Lastly, we expect our full year weighted average shares outstanding to increase to approximately $226 to $231 million shares, as a result of an increase in our 30-day trailing average share price.

Speaker #1: With that, operator, please open the line for questions.

Speaker #2: As a reminder to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again.

Operator: As a reminder, to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Rishi Jaluria of RBC. Your line is open, Rishi.

Speaker #2: Please stand by while we compile the Q&A roster. Our first question comes from the line of Rishi Jalloriya of RBC. Your line is open, Rishi.

Speaker #3: Oh, wonderful. Thanks so much for taking my question. Nice to see some kind of sustainable potential return to growth here. And Ashraf, welcome—looking forward to working with you.

Rishi Jaluria: Wonderful. Thanks so much for taking my questions. Nice to see some kind of sustainable potential return to growth here. Ashraf, welcome. Looking forward to working with you. Maybe two questions from me. First, if you think about the kind of cadence of paying users being added, third consecutive quarter and kind of expect that to continue for the full year. Can you help me understand, with kind of declining ARPU, when can that start to show up in the top line and drive maybe further acceleration from here? I got a quick follow-up.

Speaker #3: Maybe two questions from me. First, as we think about the kind of cadence of paying users being added, third consecutive quarter, and kind of expect that to continue for the full year, can you help me understand with kind of declining RPU, when can that start to show up in kind of the top line and drive maybe further acceleration from here?

Speaker #3: And then I have a quick follow-up.

Speaker #4: Yeah, I think—hey, Rishi, it's Ross. So, I think, number one, the RPU commentary was a modest decline throughout the year. So, there are two opposing forces.

[Analyst] (Dropbox): Yeah, hey, Rishi, it's Ross. I think number 1, the ARPU commentary was modest decline throughout the year. There's two opposing forces, FX and a little bit more mix of monthly mix to go up, then the rolling off of FormSwift, which will end this year, and incremental simple plan users make it come down. When we kind of weigh that in the balance, we expect a modest decline in ARPU, not a major one. On the users, I think, again, as you pointed out, we've seen several quarters now of improvement there. We're seeing that on the individual side. We're also now seeing that on the team side for the first time since I think 2024, that flipped positive. We called out that we expect to be positive for the year. I would just say there's a lot to do.

Ross Tennenbaum: Yeah, hey, Rishi, it's Ross. I think number 1, the ARPU commentary was modest decline throughout the year. There's two opposing forces, FX and a little bit more mix of monthly mix to go up, then the rolling off of FormSwift, which will end this year, and incremental simple plan users make it come down. When we kind of weigh that in the balance, we expect a modest decline in ARPU, not a major one. On the users, I think, again, as you pointed out, we've seen several quarters now of improvement there. We're seeing that on the individual side. We're also now seeing that on the team side for the first time since I think 2024, that flipped positive. We called out that we expect to be positive for the year. I would just say there's a lot to do.

Speaker #4: FX and a little bit more mix of monthly makes it go up. And then the rolling off of form SWIFT, which will end this year.

Speaker #4: And incremental simple plan users make it come down. So when we kind of weigh that in the balance, we expect a modest decline in RPU, not a major one.

Speaker #4: And on the users, I think, again, as you pointed out, we've seen several quarters now of improvement there. We're seeing that on the individual side.

Speaker #4: We're also now seeing that on the team side, for the first time since, I think, 2024, that flip positive. So, we call out that we expect to be positive for the year.

Speaker #4: We're being I think there's I just say there's a lot to do. Our initiatives are working. We think we can keep driving that forward.

[Analyst] (Dropbox): Our initiatives are working. We think we can keep driving that forward, there's a lot more data points and signal we want to see before we give more specific guidance around the growth there. I think all in all, I think we're going the right way with respect to continued growth in net new paying users, which will drive ARR growth.

Ross Tennenbaum: Our initiatives are working. We think we can keep driving that forward, there's a lot more data points and signal we want to see before we give more specific guidance around the growth there. I think all in all, I think we're going the right way with respect to continued growth in net new paying users, which will drive ARR growth.

Speaker #4: But there's a lot more data points and signal we want to see before we give more specific guidance around the growth there. So I think, all in all, I think we're going in the right way with respect to continued growth in that new

Speaker #1: New paying users , which will drive growth

Speaker #2: Okay . Got it Helpful . And then if I think about some of the stats you've shared on cloud and GPT integrations , you know , can you help us understand , you know , how has that translating into the business , whether that's user ads , whether that's greater stickiness And then it feels like there's an underappreciated opportunity that that partnership , I think any of us that's built on cloud code or Codex recognizes the value of having that connectivity to kind of a source of truth and all your content .

Rishi Jaluria: Okay. Got it. Helpful. If I think about some of the stats you've shared on Claude and GPT integration, can you help us understand how is that translating into the business, whether that's user adds, whether that's greater stickiness? It feels like there's an underappreciated opportunity in that partnership. I think any of us that's built on Claude Code or Codex recognizes the value of having that connectivity to kind of a source of truth in all your content. Can you talk about what that kind of partnership and relationship and integration, how that could evolve over time and maybe become even more incremental to the business? Thanks.

Speaker #2: So can you talk about what , what that kind of partnership and relationship and integrations , how that could evolve over time and be maybe become even more incremental to business ?

Speaker #2: Thanks

Speaker #3: Thank you for the question . This is Ashraf First of all , I think if anything , this reinforces how what we talked about in the call that AI is adding the need for storage and the ability to organize your files and find them and have a structured way for you to work And so that's what we're seeing here .

Ashraf Alkarmi: Thank you for the question. This is Ashraf. First of all, I think if anything, this reinforces what we talked about in the call, that AI is adding the need for storage and the ability to organize your files and find them and have a structured way for you to work. That's what we're seeing here. These are customers that are organically discovering Dropbox, using the app. They're mainly using to find content, repurpose it, and then later on storing it back on Dropbox. Our perspective is we want to meet customers where they are. We have a lot of amazing capabilities we're launching for our customers inside Dropbox, but we also want to meet them where they are.

Speaker #3: These are customers that are organically discovering Dropbox using the app. They're mainly using it to find content, repurpose it, and then later on storing it back on Dropbox.

Speaker #3: Our perspective is we want to meet customers where they are We have a lot of amazing capabilities . We're launching for our customers inside Dropbox , but we also want to meet them where they are .

Speaker #3: So if they want to work in ChatGPT or in cloud, we want to be able to offer them something there. And I think that's a natural extension of what we do. So think about an example where you're bringing content, trying to repurpose it.

Ashraf Alkarmi: If they want to work in ChatGPT or in Claude, we want to be able to offer them something there, and I think that's a natural extension of what we do. Think about an example where you're bringing content, trying to repurpose it, then you want to store it back, and at some point you want to send it to someone and collaborate with the person you're sending it to. This is where we see Dropbox comes fully back into play because we offer deeper workflows at that point. What we're seeing actually is very encouraging. Not only that this is growing organically, but also the engagement level and retention numbers that we're seeing are pretty encouraging. If anything, it's validation that Dropbox has a much bigger role to play in this AI world than people appreciate.

Speaker #3: Then you want to store it back . And at some point you want to send it to someone and collaborate with the person you're sending it to .

Speaker #3: This is where we see Dropbox comes fully back into play because we offer deeper workflows at that point . And so what we're seeing actually is very encouraging .

Speaker #3: Not only that , this is growing organically , but also the engagement level and retention numbers that we're seeing are pretty encouraging . And anything it's validation that Dropbox has a much bigger role to play in this AI world than people appreciate .

Rishi Jaluria: All right. Very helpful. Thank you so much.

Speaker #2: Very helpful . Thank you so much .

Speaker #4: Thank you Our next question comes from the line of Steve Enders of Citi . Please go ahead , Steve .

Operator: Thank you. Our next question comes from the line of Steve Enders of Citi. Please go ahead, Steve.

Speaker #5: Okay . Great . Thanks for thanks for taking the questions here . And Ashraf , good to good to hear from you on , on the call Maybe just to just to start , maybe dig in a little bit into the product strategy and you know what that looks like moving forward .

Steve Enders: Okay, great. Thanks for taking the questions here. Ashraf, good to hear from you on the call. Maybe just to start, maybe digging a little bit into the product strategy and what that looks like moving forward. I guess it'd be great to kind of understand a little bit more your view on what the future of the Dropbox product looks like, how you think about expanding the TAM into some kind of more specific areas. I think you made a comment about wanting to create a platform that others can build on in the future. So I would love to kind of understand what that looks like and what that entails.

Speaker #5: I guess it'd be great to kind of understand a little bit more kind of your view on , you know , what the future of the Dropbox product looks like , how you think about expanding the Tam into some kind of , you know , more specific areas .

Speaker #5: And , you know , I think you made a comment about , you know , wanting to create a platform that others can , can build on in the future .

Speaker #5: And so, I would love to kind of understand what that looks like and what that entails.

Speaker #3: Yeah . Of course . I mentioned this as something that I didn't fully appreciate until recently . And this is something that we saw as we built our own agenda capabilities inside Dropbox .

Ashraf Alkarmi: Yeah, of course. I mentioned this as something that I didn't fully appreciate until recently. This is something that we saw as we built our own agentic capabilities inside Dropbox. I'm actually going to ground it maybe with an example and then give you how that looks differently than anything you've probably seen in other places. Today, and this is like a real live example, you could imagine you're a project manager trying to get a marketing campaign off and running. You're going to need to find all the files. Our capabilities now enable you to find them semantically. You can even drop in a screenshot from a peer that sends to you something and say, Find me that file, and it'll find it. You put it in a folder, it's still disorganized.

Speaker #3: So I'm actually going to ground it maybe with an example and then give you how that looks differently than anything . You probably see in , in other places .

Speaker #3: So today , and this is like a real live example , you could imagine your project manager trying to get a marketing campaign off and running You're going to need to find all the files .

Speaker #3: So our capability is now to enable you to find them semantically. You can even drop in a screenshot from a peer that sent you something and say, "Find me that file," and it'll find it.

Speaker #3: You put it in a folder , it's still disorganized . You can then ask our capabilities to auto organize it , and then you find that the images , just like most of our customers have , it's called image three four , two , one .

Ashraf Alkarmi: You can ask our agentic capabilities to auto-organize it, you find that the images, just like most of our customers have, it's called Image 3421. You can say, Name it appropriately, and it'll understand context and name it Runner on a Track, or Red Car in a Showroom. At that point, you're doing all this work and you want to actually start to loop in others, and you want to tell them what you've done. You can actually, because we have audit trail, you can actually summarize the changes and send it to your peer, your manager, and say, Here's the structure that I've created. Not only that, because we have connectors, you can just send that email as well. Anything that happens in the product, because we have a file system, you can undo. People can work safely.

Speaker #3: You can say name it appropriately and it understand context and name it runner on a track or red car in a showroom . And so at that point , you're doing all this work and you want to actually start to loop in others and you want to tell them what you've done .

Speaker #3: You can actually , because we have audit trail , you can actually summarize the changes and send it to your peer , your manager and say , here's the structure that I've created , not only that , because we have connectors , you can just send that email as well Anything that happens in the product , because we have a file system , you can undo .

Speaker #3: So people can work safely . They can grant access to the agentic workflows to specific folders . So we have a tremendous history of building something that has Permissioning version control , audit trails , and the ability to share securely and all these things are even more needed in a world where agents are working .

Ashraf Alkarmi: They can grant access to the agentic workforce to specific folders. We have a tremendous history of building something that has permissioning, version control, audit trails, and the ability to share securely. All these things are even more needed in a world where agents are working. I think of it as we've talked a lot about durability of the core business. We have 18 million paid subscribers, a massive distribution network, beyond amazing what Drew has built with this company. I see it as we're going to bring these capabilities to provide deeper workflows in a way that saves customers a lot of time. This example that I mentioned takes hours and hours. You could do this in under 10 minutes. We believe that unlocks value, and this is, by the way, one example out of many.

Speaker #3: So I think of it as we've talked a lot about durability of the core business . We have 18 million paid subscribers , a massive distribution network beyond amazing what drew has built with this company .

Speaker #3: And so I see it as we're going to bring these capabilities to provide deeper workflows in a way that saves customers a lot of time .

Speaker #3: This example that I mentioned takes hours and hours . You could do this in under ten minutes . And so we believe that unlocks value .

Speaker #3: And this is , by the way , one example out of many . So you'll see us focus on engaged . The most engaged customers in marketing , creative architecture , engineering , construction that rely on Dropbox for their work and content .

Ashraf Alkarmi: You'll see us focus on the most engaged customers in marketing, creative, architecture, engineering, and constructions, that rely on Dropbox for their work and content. You're going to see us add very focused capabilities that make their lives a lot better. You're going to see us add deeper workflows, and I think that's a new frontier for growth for us. In addition to this, as we started launching these capabilities, we realized that there might be an opportunity here for us to lean in on enabling other companies to leverage all these capabilities, and this is something we're excited to validate over time. But I think it's also very promising.

Speaker #3: And you're going to see us add very focused capabilities that make their lives a lot better And you're going to see us add deeper workflows .

Speaker #3: And I think that's a new frontier for growth for us . And so in addition to this , as we started launching these capabilities , we realized that there might be an opportunity here for us to lean in on enabling other companies to leverage all these capabilities .

Speaker #3: And this is something we're excited to validate over time . But I think it's also very , very promising

Speaker #5: Okay . Know that that makes sense . And that's a great context maybe on just the organic or the constant currency revenue raise .

Steve Enders: Okay. No, that makes sense, and that's great context. Maybe on just the constant currency revenue raise, I guess we'd like to get a little bit more specificity and what are the areas that maybe got better this quarter that you have line of sight to, that you're flowing through into the rest of the year, and I guess, yeah, how should we think about maybe the puts and takes on some of those components?

Speaker #5: I guess we'd like to get a little bit more , I guess , like specificity and like , what are the areas that maybe , you know , got better this quarter that you have line of sight to that you're , you're flowing through into the rest of the rest of the year .

Speaker #5: And I guess how should we think about maybe the puts and takes on , on some of those components ?

Speaker #1: Yeah . Hey , Stephen , it's Ross . Thanks for the questions . Yeah , I think please . Now , three quarters in a row , we've been able to beat and raise our revenue guidance .

[Analyst] (Dropbox): Yeah. Hey, Steve, it's Ross. Thanks for the question. Yeah, I think please now three quarters in a row, we've been able to beat and raise our revenue guidance. The growth rates are going up. I think all of us, yourself included, we want to keep seeing them go up, and internally, we're very focused on that. Everything that we've been talking about started when I got here in December, was work we were doing around individuals very comprehensively around how we attract new users, how we convert them, how we retain them better. I think that started to pay off first. Then we talked about moving the teams as we enter this year and doing similar work around teams, and now you're seeing that reflected in the positive paying users.

Ross Tennenbaum: Yeah. Hey, Steve, it's Ross. Thanks for the question. Yeah, I think please now three quarters in a row, we've been able to beat and raise our revenue guidance. The growth rates are going up. I think all of us, yourself included, we want to keep seeing them go up, and internally, we're very focused on that. Everything that we've been talking about started when I got here in December, was work we were doing around individuals very comprehensively around how we attract new users, how we convert them, how we retain them better. I think that started to pay off first. Then we talked about moving the teams as we enter this year and doing similar work around teams, and now you're seeing that reflected in the positive paying users.

Speaker #1: The you know , the growth rates are going up . I think all of us , yourself included , we want to keep seeing them go up .

Speaker #1: And , you know , internally , we're very focused on that . So everything that we've been talking about started when I got here in December , was work we were doing around individuals very comprehensively around how we attract new , new users , how we convert them , how we retain them better .

Speaker #1: I think that started to pay off first , and then we talked about moving the teams as we entered this year and doing similar work around teams .

Speaker #1: And now you're seeing that reflected in the positive paying users. I'd say just on that front of the optimization across the customer life, there are things we've already put in market that we still have visibility to paying off.

[Analyst] (Dropbox): I'd say just on that front of the optimization across the customer life cycle, there's things we've already put in market that we still have visibility to paying off, and then there's new things to come. That's not sort of exhausted itself. We are seeing improvements across both individuals and teams, again, across the life cycle, top of funnel conversion and retention. That's reflected. Not yet reflected is some of the things that Ashraf's talking about, which is, how do we ultimately get into that higher level of sustainable growth is about how we build the products, how we weave in the AI, all the Dash intelligence capabilities, and just provide a lot more value for our customers. The cool thing is, the AI example that Ashraf provided is already in Dropbox.

Ross Tennenbaum: I'd say just on that front of the optimization across the customer life cycle, there's things we've already put in market that we still have visibility to paying off, and then there's new things to come. That's not sort of exhausted itself. We are seeing improvements across both individuals and teams, again, across the life cycle, top of funnel conversion and retention. That's reflected. Not yet reflected is some of the things that Ashraf's talking about, which is, how do we ultimately get into that higher level of sustainable growth is about how we build the products, how we weave in the AI, all the Dash intelligence capabilities, and just provide a lot more value for our customers. The cool thing is, the AI example that Ashraf provided is already in Dropbox.

Speaker #1: And then there's new things to come . So that's not sort of exhausted itself . And so we are seeing improvements across both individuals and teams again , across the life cycle .

Speaker #1: Top of funnel conversion and retention . So that's reflected . And then not not yet reflected some of the things that Ashraf's talking about , which is how do we ultimately ultimately getting to that higher level of sustainable growth is about how we build the products , how we weave in the AI , all the dash intelligence capabilities , and just provide a lot more value for our customers .

Speaker #1: The cool thing is the AI example that Ashraf provided is already in Dropbox . Like we're already seeing it , we're using it .

[Analyst] (Dropbox): We're already seeing it, we're using it, we're starting to roll that out. We're going to roll out these capabilities to the majority of our teams base for the rest of this year. We're going to start to get more usage and then, post that, hopefully monetization. That's not baked in yet, but those are more legs of growth to come. It's early. We've got a lot that is working, but we also have a lot of work ahead and a lot to do. We're trying to take a measured approach to how we think about guidance.

Ross Tennenbaum: We're already seeing it, we're using it, we're starting to roll that out. We're going to roll out these capabilities to the majority of our teams base for the rest of this year. We're going to start to get more usage and then, post that, hopefully monetization. That's not baked in yet, but those are more legs of growth to come. It's early. We've got a lot that is working, but we also have a lot of work ahead and a lot to do. We're trying to take a measured approach to how we think about guidance.

Speaker #1: We're starting to roll that out . We're going to roll out these capabilities to the majority of our teams base for the rest of this year .

Speaker #1: So we're going to start to get more usage . And then post that . Hopefully monetization . So that's that's not baked in yet , but those are more legs of growth to come .

Speaker #1: So it's early. We've got a lot that is working, but we also have a lot of work ahead and a lot to do.

Speaker #1: So, we're trying to take a measured approach to how we think about guidance.

Speaker #5: Okay. Very, very helpful. Thanks for taking the questions.

Steve Enders: Okay. Very helpful. Thanks for taking the questions.

Speaker #1: Thanks , Steve .

[Analyst] (Dropbox): Thanks, Steve.

Ross Tennenbaum: Thanks, Steve.

Speaker #4: Thank you . Our next question comes from the line of Matt Bullock of Bank of America . Your line is open , Matt

Operator: Thank you. Our next question comes from the line of Matt Bolan, Bank of America. Your line is open, Matt.

Speaker #6: Awesome . Thanks for the question . And welcome Ashraf I appreciated the caller . You guys provided on . You know , phases one , two , and three of the Dropbox transformation .

Matt Bolan: Awesome. Thanks for the question, welcome, Ashraf. I appreciated the color you guys provided on phases 1, 2, and 3 of the Dropbox transformation. I guess I was hoping you could elaborate on how you think about the timing of moving between phase 2, where we're at today, to phase 3. Assuming you're able to execute against that strategy, how should we think about how that plays out across paying user and ARPU growth? I guess maybe just a follow-up to that would be, what do you think the largest gaps are? Is it in product or go-to market, to execute against that transition? Thanks.

Speaker #6: I guess I was hoping you could elaborate on how you think about the timing of moving between phase two, where we're at today, to phase three. And assuming you're able to execute against that strategy, how should we think about how that plays out across paying users and ARPU growth?

Speaker #6: And I guess maybe just a follow-up to that would be, you know, what do you think the largest gaps are?

Speaker #6: Is it in product or go to market ? To execute against that transition ? Thanks .

Speaker #3: Thank you for that question So the phases Ross outlined was one to prove that we can get to growth . Second one was to make that durable .

Ashraf Alkarmi: Thank you for the question. The phases Ross outlined was, 1, to prove that we can get to growth, 2 was to make that durable, and 3 is to take that to the next level and expand significantly the growth rates that we have. He highlighted that we're in the middle of phase 2. I think that we have a lot of signal that what we're doing is durable, and we're excited about that, there's a lot more that we're still doing around teams formation and expansion, and that becomes foundational. I think the biggest opportunity is to get to phase 3 is this deeper value for customers.

Speaker #3: And the third one is to take that to the next level . And expand significantly the growth rates that we have . And he highlighted that we're in in the middle of phase two .

Speaker #3: I think that we have a lot of signal that what we're doing is durable , and we're excited about that . And there's a lot more that we're still doing around teams formation and expansion .

Speaker #3: And that becomes foundational . I think the biggest opportunity is to get to phase three is this deeper value for customers . I think that the the thing we have to demonstrate that we can create significantly more value within our product for our most engaged customer base .

Ashraf Alkarmi: I think that the thing we have to demonstrate that we can create significantly more value within our product for our most engaged customer base. That translates into higher willingness to pay for additional SKUs and add-ons. Something like an attach rate, you would see it in things like that. We do expect to see it in ARPU. I expect to see it in customers converting to paid more, the ARPU going up as well. That's the thing we're solving for by making Dropbox much smarter, with the AI capabilities that we're rolling out that are focused on our most engaged and largest customer base today. These are the phase 3, I think we're going to be testing that out this year. We're moving fast to make that a reality.

Speaker #3: And that translates into higher pay for additional SKUs and add ons . So something like an attach rate , you would see it in things like that .

Speaker #3: So we do expect to see it in our pool I expect to see it in customers converting to paid more . And then the RPO going up as well .

Speaker #3: And that's the thing we're solving for by making Dropbox much smarter with the AI capabilities that we're rolling out, which are focused on our most engaged and largest customer base today. So these are that phase three.

Speaker #3: And where I think we're going to be testing that out this year. We're moving fast to make that a reality.

Speaker #1: And Matt , just to add , it's Ross . We're not we're not baking that in really for this year . So because you asked about like timing .

[Analyst] (Dropbox): Yeah, Matt, just to add, it's Ross. We're not baking that in really for this year, because you asked about timing. We're not going to comment on the precise timing of phase II or III conceptually, but, I think as you're hearing from Ashraf, we're already putting the AI into the product. We're rolling it out this year. The application level product builds that we're already underway on that. The stuff's happening. We're not taking risks from it this year. As we move forward quarter-to-quarter, we'll talk more about how that's progressing.

Ross Tennenbaum: Yeah, Matt, just to add, it's Ross. We're not baking that in really for this year, because you asked about timing. We're not going to comment on the precise timing of phase II or III conceptually, but, I think as you're hearing from Ashraf, we're already putting the AI into the product. We're rolling it out this year. The application level product builds that we're already underway on that. The stuff's happening. We're not taking risks from it this year. As we move forward quarter-to-quarter, we'll talk more about how that's progressing.

Speaker #1: So it's we're not going to comment on like the precise timing of like phase 2 or 3 conceptually , but I think as you're hearing from Ashraf , like we're already putting the AI into the product .

Speaker #1: We're rolling it out this year . The , the application level product builds that we're already underway on that . So the stuff's happening .

Speaker #1: We're not taking risks from it this year. And as we, you know, as we move forward quarter to quarter, we'll talk more about how that's progressing.

Speaker #6: Really helpful. Thanks. And then just one more. If I could—Dropbox, Inc., it's been a really nice sort of upside for the past couple of quarters.

Matt Bolan: Really helpful, thanks. Then just one more if I could. Dropbox Simple, it's been a really nice source of upside for the past couple quarters. Can you maybe just give us an update on the scale of that SKU, the install base today, and what's been so effective about it, whether it's better top of funnel, preventing outright churn events from higher priced SKU users? Just trying to understand what the source of strength has been there.

Speaker #6: Can you maybe just give us an update on the scale of that SKU within the install base today ? And what's been so effective about it , whether it's , you know , better top of funnel , preventing outright churn events from , from higher priced skew users just trying to understand what the source of strength has been there .

Speaker #3: Yeah , I can start with part of the question . And Ross can chime in . This is Ashraf . So simple . Was created on our end to make sure that we meet customers where they are and offer them the value that they expect .

Ashraf Alkarmi: I can start with part of the question, and Ross can chime in. This is Ashraf. Simple was created on our end to make sure that we meet customers where they are and offer them the value that they expect. What we found with individuals, specifically in our mobile app, is that they wanted lower-tier storage, something that is a little bit more affordable. They can just plug in their files and use that on the go. We met their demand by launching the Simple product, really by listening to customer demand. That's paid off, I think, always listening to customers and staying close to their needs.

Speaker #3: So what we found with individuals specifically in mobile , actually on our mobile app , is that they wanted a lower tier storage , something that they .

Speaker #3: It's a little bit more affordable . They can just plug in their files and use that on the go . And so we met their demand by launching the simple product , really by listening to customer demand .

Speaker #3: And that's paid off . I think always listening to customers and , and staying close to their needs is this is a good example where we launched it and it took off and we're excited about the potential that continuing to grow and how it even can boost the business and having that be a part of a top of the funnel as well as to specific performance data .

Ashraf Alkarmi: This is a good example where we launched it and it took off, and we're excited about the potential of that continuing to grow and how it even can boost the business, and having that be a part of a top of the funnel as well. As to specific performance data, I'll let Ross chime in.

Speaker #3: Let Ross chime .

Speaker #1: In . Yeah . When we think about the net new paying user commentary , remember it's a net number . So it's getting the benefit of both our improvements around top of funnel as well as retention Simple is the largest contributor to the growth in net new paying users , but also as we talked about teams is now positive and is a contributor .

[Analyst] (Dropbox): Yeah. When we think about the net new paying user commentary, you remember it's a net number, so it's getting the benefit of both our improvements around top of funnel as well as retention. Dropbox Simple is the largest contributor to the growth in net new paying users, also as we talked about, Teams is now positive and is a contributor. The cool thing about net new paying users is it's broad-based. It's individuals now, it's Teams, it's other products that we have on the platform are also contributing, and it's top-of-funnel conversion as well as retention. It's not like we're just relying on one thing to drive that. We've got a more broad-based set of inputs to help push that number.

Ross Tennenbaum: Yeah. When we think about the net new paying user commentary, you remember it's a net number, so it's getting the benefit of both our improvements around top of funnel as well as retention. Dropbox Simple is the largest contributor to the growth in net new paying users, also as we talked about, Teams is now positive and is a contributor. The cool thing about net new paying users is it's broad-based. It's individuals now, it's Teams, it's other products that we have on the platform are also contributing, and it's top-of-funnel conversion as well as retention. It's not like we're just relying on one thing to drive that. We've got a more broad-based set of inputs to help push that number.

Speaker #1: But the cool thing about net new paying users is it's broad based . So it's individuals now it's teams , it's other products that we have on the platform are also contributing .

Speaker #1: And it's top-of-funnel conversion as well as retention. So it's not like we're just relying on one thing to drive that.

Speaker #1: We've got a more broad base set of inputs to help , to help push that number .

Speaker #6: Really helpful . Thank you

Jayden Patel: Really helpful. Thank you.

Speaker #4: Thank you. Once again, to ask a question, press *11 on your telephone. Our next question comes from the line of Jaden Patel of JP Morgan.

Operator: Thank you. Once again, to ask a question, press star one one on your telephone. Our next question comes from the line of Jayden Patel of JP Morgan. Please go ahead, Jayden.

Speaker #4: Please go ahead . Jaden

Speaker #7: Hey , thanks for taking the question . You know , building on the last set of remarks , you know , with this 96,000 paying users being , you know , what looks like the best in about three years ?

Jayden Patel: Hey, thanks for taking the question. Building on the last set of remarks, with this 96,000 paying users being what looks like the best in about three years, can you walk us through what the upgrade path looks like for these new paying users?

Speaker #7: Can you walk us through what the upgrade path looks like for these, you know, new paying users?

Speaker #1: So

Ashraf Alkarmi: Let's start with the 96,000 users and how that's something we're really excited about. This came from very methodical changes we made. To give you an example, we shrank the onboarding steps from 12 to four when you start a team. We enabled a lot of onboarding activation. We changed the product to recommend next best actions. All these things were instrumental to not just get top-of-funnel and absolute numbers go up, but actually the base that's already coming organically, how we activate that a little bit better with the existing product capabilities that we have. This was a big part of what we've done to get to that number.

Speaker #3: Let's start with the 96,000 users, and how that's something we're really excited about. This came from very methodical changes we made.

Speaker #3: So to give you an example , we shrank the onboarding steps from 12 to 4 . When you start a team , we enabled a lot of onboarding activation .

Speaker #3: We changed the product to recommend next best actions . So all these things were instrumental to not just , you know , get top of funnel in absolute numbers go up , but actually the base that's already coming organically , how we activate that a little bit better with the existing product capabilities that we have .

Speaker #3: So this was a big part of what we've done to get to that number . Now , as you look at what we're doing over the next several quarters , we're investing deeply in multi-product discovery , meaning you are able to see additional products and capabilities and features as you land on the main product experience .

Ashraf Alkarmi: Now, as you look at what we're doing over the next several quarters, we're investing deeply in multi-product discovery, meaning, you are able to see additional products and capabilities and features as you land on the main product experience, and we want to see that attach rates go up. Being able to sell you more, being able to, in context, say, By the way, we have a video review capability. You have a video. You'll see us cross-sell and upsell a lot more. In terms of basic upsell paths, we have a lot of optimization that we've done. For example, when you get near your quota in storage, we're doing a lot more work than we've done in the past to tell you, By the way, you're nearing quota.

Speaker #3: And we want to see that that rates go up . So being able to sell you more , being able to in context , say , by the way , we have a video review capability , you have a video .

Speaker #3: So you'll see us cross-sell and upsell a lot more in terms of basic upsell paths . We have a lot of optimization that we've done .

Speaker #3: So for example , when you get near quota and storage , we're doing a lot more work than we've done in the past to tell you , by the way , you're nearing quota .

Speaker #3: Here are some options for you. We're telling people who are individuals, that exhibit team-like behavior, by the way, we have a team plan for you.

Ashraf Alkarmi: Here's options for you. We're telling people who are individuals that exhibit team-like behavior, By the way, we have a team plan for you. Seems like you're inviting people in a business domain. These are specific examples of how we're actually upselling and cross-selling in moment, and I think that's something that I'm continuously excited about because I think when you talk about increasing ARPU, these are actual examples of where you're going to see this.

Speaker #3: Seems like you're inviting people in a business domain . So these are specific examples of how we're actually upselling and cross-selling in moment .

Speaker #3: And I think that's something that I'm continuously excited about because I think this is when you talk about increasing arppu , these are actual examples of where you're going to see this .

Speaker #7: Great . Thank you . And then another one on , on , you know , you mentioned gross margin pressure due to compute costs associated with rolling out AI capabilities .

Jayden Patel: Great. Thank you. Another one on, you mentioned gross margin pressure due to compute costs associated with rolling out AI capabilities. Is there a way to think about the floor for gross margins as you continue to roll out these features?

Speaker #7: Is there a way to think about the floor for gross margins ? As you continue to roll out these features ?

Speaker #1: Hey , Jane . Thanks . It's Ross so for everybody , just keep in mind there's two opposing forces on gross margin . One is the rollout of the AI functionality .

[Analyst] (Dropbox): Hey, Jayden. Thanks. It's Ross. For everybody, just keep in mind there are two opposing forces on gross margin. One is the rollout of the AI functionality. We have been rolling out the H1 of the year, that will increase in the H2, and we expect to roll out to the majority of teams in the H2. It's not a perfect science to gauge timing a rollout and adoption and usage and all that, we are making our best estimates for that. That would obviously increase cost of goods sold and weigh down margin. What you guys also need to know is that there is an opposing force that goes positive, which is efficiency gains. There is not just one, there are multiple.

Ross Tennenbaum: Hey, Jayden. Thanks. It's Ross. For everybody, just keep in mind there are two opposing forces on gross margin. One is the rollout of the AI functionality. We have been rolling out the H1 of the year, that will increase in the H2, and we expect to roll out to the majority of teams in the H2. It's not a perfect science to gauge timing a rollout and adoption and usage and all that, we are making our best estimates for that. That would obviously increase cost of goods sold and weigh down margin. What you guys also need to know is that there is an opposing force that goes positive, which is efficiency gains. There is not just one, there are multiple.

Speaker #1: We've been rolling out in the first half of the year, but that will increase in the back half. And we expect to roll out the majority of teams in the back half.

Speaker #1: So it's not a perfect science to gauge timing , rollout and like adoption and usage and all we're making our best estimates for that .

Speaker #1: But that would obviously increase cost of goods sold . And and weigh down margin . But what you guys also need to know is that there's an opposing force that goes positive , which is efficiency gains .

Speaker #1: And there's not just one . There's multiple . We have a really great infrastructure team . That , number one , has great relations with the supply chain .

[Analyst] (Dropbox): We have a really great infrastructure team, that number one, has great relations with the supply chain, is in front of the purchases and some of the pricing, but also just how we are running and optimizing that infrastructure and the systems we are running on. They continue to deliver results that are improving efficiency, that are a counterbalance to the AI rollout. Remember, in the future, we hope to monetize more things, including the AI product, which would be revenue on top of those costs. I think, kind of implying your question, a floor is how low could it go? Because it has been going down. Right now, I would focus on the guidance for the year of 81.5%.

Ross Tennenbaum: We have a really great infrastructure team, that number one, has great relations with the supply chain, is in front of the purchases and some of the pricing, but also just how we are running and optimizing that infrastructure and the systems we are running on. They continue to deliver results that are improving efficiency, that are a counterbalance to the AI rollout. Remember, in the future, we hope to monetize more things, including the AI product, which would be revenue on top of those costs. I think, kind of implying your question, a floor is how low could it go? Because it has been going down. Right now, I would focus on the guidance for the year of 81.5%.

Speaker #1: It's in front of the purchases, and some of the pricing, but also just how we're running and optimizing that infrastructure and the systems are running on.

Speaker #1: So they continue to deliver results that are improving efficiency , that are counterbalance to the AI rollout . And remember , in the future , like we hope to monetize more things , including the AI product , which would be revenue on top of those costs .

Speaker #1: So I think like kind of implied in your question , a is like , how low could it go ? Because it's been going down right now .

Speaker #1: I would focus on the guidance for the year of 81.5%. As we get into next year, we'll talk more, but I just don't want people to assume that it has to keep going down because of AI costs.

[Analyst] (Dropbox): As we get into next year, we will talk more, but I just don't want people to assume that it has to keep going down because of AI costs when we do have other levers that we are pulling to help offset those costs.

Ross Tennenbaum: As we get into next year, we will talk more, but I just don't want people to assume that it has to keep going down because of AI costs when we do have other levers that we are pulling to help offset those costs.

Speaker #1: When we do have other levers that we're pulling to help , to help offset those costs .

Speaker #7: Great . Very clear . Thank you

Jayden Patel: Great. Very clear. Thank you.

Speaker #4: Thank you . I would now like to turn the conference back to Sara Shiva for closing remarks . Madam .

Operator: Thank you. I would now like to turn the conference back to Sarah Schubach for closing remarks. Madam.

Speaker #8: Thanks, everyone, for joining us today. We're looking forward to speaking with you next quarter.

Ashraf Alkarmi: Thanks, everyone, for joining us today. We're looking forward to speaking with you next quarter.

Sarah Schubach: Thanks, everyone, for joining us today. We're looking forward to speaking with you next quarter.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

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