Dropbox, Inc. (DBX) Earnings Call Transcript & Summary

Hello, everyone, and thanks for joining us this afternoon. Very pleased to have Ajay Vashee, CFO of Dropbox, with us today to do a presentation and Q&A. I'll take most of the questions, and then we'll see if there's a couple of questions at the end from the audience, you can submit via veracast. So Ajay, thanks so much for joining us today. How are you doing?

Justin, thank you for having me and the company on today. We're doing well. We're hanging in there and focused on supporting our users and customers and our employees.

Great. Well, why don't we just kick it off? Obviously, Zoom reported some interesting numbers. Why don't we just start with a real big picture question on the current events, and you can take this any way you want. But how do you see increasing work from home activity as impacting Dropbox? And maybe you could talk about some of the pluses and takes for users and potential spend with Dropbox?

Sure. Sure. It's a great question. And I will say that we're fortunate in that our product is one that lends itself well to the facilitation of remote work and collaboration. And as I mentioned on our Q1 earnings call, our business has been resilient and the accelerated transition to remote work and remote learning that's underway has resulted in higher demand for our products. And so both individual plus and team trials separately has increased by approximately 25% and 40%, respectively, and I would note that because the majority of our subscribers are knowledge workers, we play a really important role in managing business-critical content for them. And we do think our product is well-suited to solve our users' needs in these times.

Got it. It's quite a different sales environment, I'm sure like work from home now. Your sales teams are working from home. What are the different enterprise conversations you're having today with your sales teams having to do with lockdowns and shelter in place? And is that a tailwind or a headwind for you?

Sure. Well, for the business overall, as I noted, we are certainly seeing increased top of funnel demand. Our outbound team, in particular, and just as a bit of a refresher on the Dropbox business model, about 90% of our revenue continues to be driven through our self-serve channels and less than 10% through our outbound and channel teams, those are teams led by our new Chief Operating Officer, Olivia Nottebohm, who joined us from Google Cloud earlier this year. She and that team are hard at work to best support our users and customers in a post-COVID world. I can say that travel restrictions have introduced some friction into outbound deal pipeline generation, but we're fortunate to have this product and platform that helps to facilitate remote and distributed work. And so we've been leveraging telesales to really capitalize on this emergent opportunity. And we've also shifted staffing to shorten response times inbound leads that we generate, and we're prioritizing virtual events in lieu of in-person events to educate users about Dropbox's collaboration capabilities.

Got it. And when you think about increasing work from home activity, how do you see Dropbox fitting in, in a conversation versus competitors like Microsoft Teams or maybe on the partnership side with Slack and Zoom?

Yes, it's a great question. I would say as it relates to us in the broader context of Microsoft and Google and then partners like Slack and Zoom, ultimately, people use Dropbox because we're the home for the world's content, and we're the best way to organize, share and collaborate around that content. And it's that primary focus on content that differentiates us along with our scale and the result and network effects that come along with that. Platform independent, also a very important differentiator for us. And then finally, and most importantly, our superior product experience. And so we're a solution for our customers that live side-by-side with Microsoft, Google, Slack, Zoom, we're part of the collaboration suite for our customers and in fact, I would say all 4 of those companies are deep integration partners for Dropbox for that reason. And virtually, all of our users and customers are also Microsoft or Google customers many of them are also Slack and Zoom customers as well.

Got it. Okay. On the call, you indicated seeing increased adoption of the new desktop app, sorry. I think you said 350,000 of your 450,000 teams are utilizing it on desktop. So it's a product that we were pretty excited about last year. It's now out there. What does the adoption mean for Dropbox? And maybe short-term and long term, if you could frame that for us?

Sure, sure. It's a good question. I would say it indicates that we're well along our way on our journey from evolving as a background service to kind of a higher value higher velocity foreground surface. So that background to foreground evolution. We built a -- it also means that we built a product and an experience that's resonating with our users and our customers. Now all that being said, it's still early for us on that journey. And so that 350,000 to 450,000 business teams now utilizing the new desktop application, that ranges from very early engagements, so you might have a couple of team members that are trying to understand how to really use the product for themselves and their organization to entire organizations and distributed teams and kind of wall-to-wall deployments for folks who are actively living out of the new desktop application. It's a pretty wide range of activity there but it's indicative of the demand and the need for this kind of experience, and our users and customers are looking for a tool that helps to stitch together everything they use to get work done around content and solves the problem of fragmentation. So that's kind of the problem that we're solving and the resonance that it's having with our large installed base. And if you think about where we are today and where we're headed, we're focused on driving adoption of the new Dropbox this year, and that's related to facilitate monetization and business impact as we head into 2021. And so now that we've begun to land the new desktop application within business teams, we're in the process of optimizing our onboarding flows and some of our in-product experiences to facilitate viral team expansion, that's really one of the monetization levers that you'll see us utilized with the new Dropbox. And so what I mean by that is we're simplifying the process of setting up a Dropbox business team, streamlining the invitation process to reduce the friction of finding and adding new team members, we do all this through that foreground desktop application now. And so both getting a team up and running as well as expanding and growing that deployment is much more frictionless with a new Dropbox than it was when we were operating as a background service. And second thing that we're also focused on doing is promoting add-on and partner products to our user base through this program canvas. So these are things like HelloSign. So you're finalizing a sales contract, you generate a PDF, we understand that you're at a certain point in the content workflow, then through this foreground medium, we're able to surface the right tools to you, the right actions to you at the right time. And so HelloSign and eSignature is a great example of that. Our partners here with BetterCloud around administration and security and other examples. So it gives us not only this high inherent utility collaborative canvas, which in and of itself can help to drive seat expansion and monetization that gives us this marketing surface to promote products, additional pay products to our customers.

Got it. So potential to maybe be a higher-value product for customers? Do you think about ASPs or churn or just the whole ecosystem getting better in addition to the marketing opportunity?

Yes. It's an opportunity for us to both increase conversion volumes over time by facilitating that viral team expansion motion, so making it easier to add and collaborate with team members and then for us to manage the right true-up of billing against that viral team expansion. So that's a conversion volume lever in the medium to long term. And then it's also an ASP level -- an ARPU lever for us as well as we drive higher attach rates of our own paid products as well as partnered products over time to our existing paying users. So it's really going to be about both for us. And then certainly, as we drive higher and higher levels of engagement with this kind of a foreground surface, higher levels of engagement do correlate for us like with almost every SaaS service out there, it's a higher levels of retention. And so in the long term, it's absolutely a retention play for us, too.

Yes. Okay. We'll go to the #1 question we got after your earnings call, which was really, I think you mentioned a 40% increase in team trials and 25% in individuals. So maybe can you tell us anything about the types of new activity or kind of new users that you're seeing? And then I don't know what you can tell us about your historical conversion rates or anything about that. But anything we should be thinking about converting those trials into users, paying users?

Sure. Yes, those are all good questions and the right question. And at a high level, yes, we have seen this increased top of funnel demand, the 40% increase team trials over pre-COVID level of 25% to plus individual trials over pre-COVID levels. We've also seen HelloSign eSignature requests up about 3x from average levels across January and February. So certainly, there's surge in demand for our products. We're monitoring a few different things. So we're monitoring for how elevated that demand will be and for what period of time. So the taper curve there will -- for team trials, for example, will that be something that trends from 40% to 30% to 20% over a period of weeks or quarters or months and then similar model exercises are underway. As you might imagine for the impact we're seeing to our individual plan in HelloSign. And so there'll be some taper curve if people kind of manage that initial shift and push towards a remote work or a remote learning environment. We're going to see the highest increase in demand, and then there'll be some level of sustained demand beyond that. So taper curve is one thing that we're monitoring and modeling. TPCR, which is trial to purchase conversion rates an acronym for trial to purchase conversion rate is something that we're closely monitoring as well. And so as these early cohorts, these early elevated cohorts their trial periods expire, understanding what rate that they'll be converting to our paid products at. And then retention as well is something that we're monitoring. To understand at what rate these cohorts retain. And so certainly, there's a high level of intent with folks that are kind of part of these larger cohorts and part of the surge in demand. They want to get up and running on a platform like Dropbox and charge-out to make sure that they can do that in a seamless way that works for them. And so we're encouraged by the intent that we're seeing. There's a still more data points that we have to build over the coming weeks and months, and we'll have a lot more to share on our August call vis-a-vis the business impact that we're seeing. I will say that we will see some level of uplift and positive business impact here. It's a question of magnitude and how that will trend over time. So that's why we're building more fidelity. And we'll have more to share soon. I think one interesting data point I can share since our earnings call. Like in terms of these elevated cohorts, we are seeing slightly more monthly -- I'm sorry, kind of monthly demand than we are seeing annual and so if you think about our overall installed base, our overall paying user base, the majority of our paying users subscribed to one of our annual plans. But with this surge in demand, we're seeing from that segment -- that increased segment of demand, we're seeing more monthly interest than annual. So that's just -- that's one data point. But again, we'll have a lot more to share in August.

Got it. When we think about monthly, and I don't know if you can have the historical data on the top of your head but does monthly have a different churn rate or, in this case, could it be people who are more in home? And once they get out of the home, the churn rate could change? Have you thought about that at all?

Yes. Absolutely. We do a lot of -- as you can imagine, data science around our existing paying users and trends that we see there. So our annual users tend to retain at slightly higher rates once annualized relative to monthly. And that's based on historical data, I think it's TBD on what we're seeing today from the surge in COVID related demand. TBD on whether these are users that will retain at similar or higher rates, just given their intent and how they're utilizing our service and some of the early engagement data. It's also to be determined if they switch to an annual plan eventually. A lot of these folks are -- they want to get up and running with our kind of service and try it out. And then as they see more utility in the service, we do see folks who shift from monthly to annual over time as well. So we have to wait and see how that trends. And then I think one interesting data point, some of our most loyal subscribers at the highest retention rates are our oldest monthly cohorts. And so there's actually some really interesting kind of subscriber behavioral patterns there as well. So I think it's all to be determined. It's too early to tell. We certainly haven't seen any kind of material movements in that retention rate one way or another. It's just too early like these cohorts really haven't started to hit that renewal cycle yet.

Got it. Okay. Was reading through the transcript, and you did mention some efforts to improve mobile conversion rates to help drive subscribers. Can you talk about maybe what those are? And then are you seeing some early success there?

Yes. Mobile is an area that we're continuing to invest in, and it's been a driver of some of the top of funnel trends that I just spoke to. And so we've enhanced our mobile onboarding flows for users who sign up for a Dropbox plus trial to drive higher levels of engagement and conversion to our platform. And so our data science team identified certain actions that mobile users can take in the first few weeks of their trial, and these are things like sharing links to content in their Dropbox, these are actions that increase their propensity to convert into a paying subscriber over time. And then with these kinds of insights in mind, our engineering teams have been revamping our onboarding prompts to encourage users on a plus trial to take these types of actions, and then that helps to drive improvements in our mobile trial to purchase conversion rates. And so definitely, a timely investment. I would say that we may certainly -- we made it without all the context and the foresight of what was to come ahead, which was COVID, and these are investments that we made really across Q4 and into early Q1, and we launched earlier this year. But I would say well timed, just given that surge in kind of mobile plus trials that we've seen over the last couple of months.

Got it. I have a question, but I'm going to also integrate it with the question I got from the audience. You said churn remained stable from 4Q to the first quarter and into 2Q on the last call. Can you give us an update on how you're thinking about SMB churn risk given recessionary pressures? And I'll overlay that with a question I got, Box did warrant a higher churn in SMB. So what are you thinking about that? And why might Dropbox be different than Box?

Sure. I would say -- so at a high level, yes, what you said, absolutely correct. Our business has been resilient, churn was stable from Q4 '19 to Q1 of '20 and into our call as well. And this is because the majority of our subscribers are knowledge workers, and we play an important role in managing business-critical content and that -- all that being said, as I just mentioned, we'll be keeping a close eye on retention in newer cohorts where we're seeing elevated trial volumes as well as that potential impact from broader macroeconomic conditions on existing subscribers. I would say it's too early to tell on both those dimensions vis-a-vis the impact that we may or may not see manifest across the second half of the year. I think we want to be prudent in how we manage expectations and things like guidance, and we've done that. And we're proactively investing in levers to improve and mitigate churn in the future to the extent that we do see higher levels. And that's, for example, we're implementing new more flexible cancellation flows to facilitate higher rates of retention. And then there are some kind of separate, I would say, independent drivers of kind of fluctuations in our retention and churn rates. Over the last few years, as you recall, we've introduced some pricing and packaging initiatives, where we've raised pricing and as you raise pricing across these kinds of growth initiatives, there's some incremental churn associated with that pricing change for the cohorts that are subject to it. But those initiatives certainly continue to be very strong overall net tailwinds to ARR and to revenue growth.

Got it. And any thoughts on what would be differential between you and Box? Is it types of customers? Just -- you don't have to say the numbers, but just kind of conceptually what might be different?

Sure. Well, we are -- overall, a mission-critical service for our users and our customers. And our bread and butter is really that freelancer and SMB and smaller team within larger organizations segment of the market. And that's where we have the most market resonance and the most loyalty. And so I would say we have a healthier retention profile and more market resonance with the segments that we serve, that's not a core area of focus in the same way for players like Box.

Got it. Okay. Something we thought a lot about in our thesis for the stock, but given that you're adding higher value users over time and certainly, your team is still below 50% but growing. Why are churn rates not declining? And we'll ignore this COVID period, of course. But just in general, would they -- should they be declining? Or how do you think about that?

Yes. Certainly, over time, we're investing in like a number of levers and making the right structural investments in the business and in the product to improve retention rates over time, beginning with net retention and then over the medium to long term things like churn. I would say, at a high level, we have a very large subscriber base today. We have nearly 15 million paying users, and these are folks that, again, majority of whom are individuals today. And so we're driving this kind of mix shift towards higher and higher value users, as you noted, and you're seeing that manifest in things like average revenue per user period-over-period. And so the output of that conversion engine just gets better and better as we get better at fine-tuning it towards high-value conversion. So similar conversion volumes but higher and higher across the ASPs and ARPU over time. But that mix just is one that takes some time to manifest in the overall paying user base and some of those cumulative metrics, like kind of year-over-year annual churn across that base of nearly 50 million paying users. So part of this is just the laws of physics and how that kind of plays into mix shift in kind of externally reported metrics.

Got it. So ARR, I think, is a new disclosure since Analyst Day, has been above subscriber growth, but below revenue growth. And obviously, ASPs are part of the factor here. But can you talk about the key dynamics that's driving ARR versus subscriber growth? And is that a better measure of growth than revenues? Or would you use both? Or how do you think about that?

Yes. Yes. It's a great question. We believe that ARR is the best indicator of our business performance and provides the most complete insights into the contribution from really all of our revenue streams. And those include future planned products, add-ons, transaction volume-based offerings, fees from the referral of users to our partners and so it really helps to capture all of that success with that. With those kinds of initiatives we'll manifest in total ARR, but they can distort or be excluded from metrics like paying users as well as ARPU and ARR is also less subject to distortions from the launch of new growth initiatives as well as deal timing. So if you think about -- if we launch a new pricing and packaging initiative, there can be an impact as to we're working through renewals of existing users on kind of on a net new paying user metric. But that initiative overall, just given the tailwind is helping to drive to things like ASPs can be an overall net tailwind to kind of dollars into the top of the funnel. And so you'll see a positive impact to ARR even though you may see a contraction in a metrically net new paying users. So it helps to contextualize the growth initiatives that we're launching. Deal timing is also a great example of where we may close a larger outbound deal towards the end of the period. And it may increase the net new paying user number, but then the true contribution of that deal will really manifest in ARR, the annualized value of those incremental paying users that we're adding. So it's just -- it's a way to kind of get a true sense and measure of the dollars that we're adding to the top of the funnel.

Got it. Okay. I've got 4 questions from the audience. So maybe I'll jump over to those. This is a high-level one. "If I already use Microsoft and Google, could you elaborate why I also need to use Dropbox?" And I think this just gets into the competitive question we get all the time.

Sure. Yes. It's a good question. And I would say that there are a few different reasons. One, you're already likely a Dropbox user. We have a network today of over 600 million registered users and penetration into virtually every organization and commercial domain out there in the world. There's a lot of utility that comes from operating a network at that scale and a collaboration network at that scale where you're already the home for the vast majority of the world's content and the vast majority of the world's business content. And so a lot of the folks that you will work with internally, at your organization, but almost certainly that you will work with externally if you're collaborating between organizations are already going to be up and running on Dropbox. And the reason they're going to be up and running on Dropbox, really, there are a handful of reasons, but 2 of the most important, I would say, are platform independence and neutrality, being one and product performance and quality being the other and people want a tool that is completely interoperable and works just as well, whether you're using it from a Microsoft family of products or operating system or through Apple. Whether you're using it on mobile or on desktop and a product that has deep integrations with all the tools that you love and need to get your work done. It's that platform neutrality and independence, super important to our users, especially in this day and age where there's a fragmentation of tools that you use. And certainly, within an organization, if you try to standardize on one platform or another, the second you start cooperating between organizations, that model falls apart pretty quickly. And the product quality and experience. This is what we do for a living day-to-day. It's our primary focus. FSS is a market category that we pioneered, it helps to create and certainly lead today. And so the product is superior relative to really any competition out there by a pretty long shot. And so people love the reliability, the performance and the feature set and innovation that we launched into the product. And so that's been the driver of our growth and success to date, and that continues to be -- those continue to be very strong drivers of our growth and success. And I would say like if you think about where we have the footprint today, again, I mentioned that it's really virtually with all types of knowledge workers and all types of organizations and really across all verticals, where we tend to focus a little less proactively or on the more regulated industries and verticals. So parts of financial services, government, health care. These are areas that we spend a little bit less resourcing on running after proactively because these tend to be industries with organizations that try to lock down the computing environment. And so like those are probably a few of the industries where you can try to standardize, for example, like the Microsoft family of products. But again, the second, you introduced user choice into the equation, which is in virtually every other industry and size of company. And second, that you introduce kind of collaboration, intracompany collaboration, so between companies with a client to a customer that model falls apart effectively overnight. And so that's just -- that's a quick run-through of why we've achieved the success we have and continue to remain on the trajectory that we're on.

Got it. All right. Next question. In which industry verticals and which consumer segments has the recent surgeon trials and page subs been from? And can you give us any update on the shape of demand so far in May versus April? Maybe you'll start with step 1 and then we can go back a step 2 if you want -- if you can say, provide us an update.

Sure. I would say it's been -- it really has been across the board in terms of this uptick in demand. So early on, it started to follow COVID-impacted countries. So where we saw the most pronounced impact of COVID early -- it's like Italy, for example, so on and so forth across Europe, Spain. So where countries really started to get impacted by COVID. They moved to a shelter in place model. There was effectively a mandatory work from home enforced in these regions. That's where we saw a surge in demand for Dropbox and started with sign-ups. We saw a surge in sign-ups, we put a blog post out around the time of our last earnings call that kind of detailed some of these sign-ups trends that we noted. And that surge in sign-ups was then followed by an increase in trial starts and top of funnel demand for our paid product. And then very quickly, that kind of translated into broader global demand. And so as a lot of these organizations in impacted countries shifted to working remotely and distributed, then the second-order impact of that was just broader global demand as other -- as their customers and partners and other organizations had to make similar accommodations and a similar shift. So it's been across the board, across like all the verticals that we serve, and we do serve all verticals and we do follow demand into all verticals, including the regulated ones, even though we spend a little bit less proactively to run after those. We've also seen an increase in demand from edu. And so we've seen this shift towards remote work that's been a tailwind. We're also seeing a shift towards remote learning as I'm sure all of you know, a lot of these higher education institutions have shifted to a remote and distributed learning model as well. And there, we have a strong footprint across a number of leading universities and colleges both across the country in the U.S. as well as across the world. But that demand has also increased. And so that's another area you'll probably hear us talk about a little bit more over the next few months and quarters. And then as the result -- pertains rather to April results relative to May results, again, it's still too early for us to share data there like we'll have more that we can talk to on the August call. I would expect some tapering after we get through this initial push to work from home and remote work and remote learning. There'll be some tapering of the elevation we've seen in some of these top of funnel statistics. But nothing that we're sharing yet today. We'll have a little bit more to share in August.

Got it. Okay. Next question. How is the relationship with those Dropbox's integrated with change at all with the new Dropbox, considering Dropbox's moving into a more prominent meta-layer type of position with customers? Is there any friction at all? And then I guess I would take the other side of that, are there any benefits at all? Talk about that.

Yes. Yes, that's a really great question. I would say we have 5 deep integration partners that we launched when we push the new Dropbox into GA. And so the new Dropbox, again, for a little bit of context for those on the call that may be unfamiliar with the product, it's something that we moved into GA with last fall. It's a brand-new desktop application that helps Dropbox move from operating largely as a background service that lives in the finder to one that's also a foreground service. So this high-velocity collaborative canvas that facilitates a lot of content-based workflow. So our users and customers store their most important and business-critical content on Dropbox, they leverage us today and historically, to share and manage some lightweight collaboration around that content. But the ask to us consistently has been, hey, there's a lot more I want to do with what I'm storing on Dropbox and sharing with Dropbox. Can you help me do that? Can you help me facilitate that? So how do we help facilitate those content-based workflows, so customers can spend more and more time living out of our product and less and less time context switching and having to manage this problem, the fragmentation of the tens or hundreds of different SaaS applications that they use to get their work done. That was kind of the thesis behind the new Dropbox. And so it kind of transforms this traditional shared folder experience into a connected workspace, like a smart workspace. And then we launched -- when we launched into GA, we launched with Microsoft and Google, deep integration, because people want to certainly be able to use the productivity suite that they leverage at work to get their work done. And so having that productivity suite integrated into and next to the content is super important. We also launched with deep integrations with Slack, Zoom and Atlassian, again, 3 tools -- communication tools largely that our users leverage to get their work done. And so in speaking to our users, important tools for them and for us to have the right level of integration with. If we think about like that integration strategy going forward, I think we're learning a lot from our users right now as they get up and running on the new desktop application. And there's the tremendous amount of utility they certainly get from Microsoft, Google, Slack, Zoom and Atlassian integration vis-a-vis having access to the right productivity suites and communication tools, but then on a vertical by vertical basis, there are other tools. There is a long tail of tools and deep integrations that they want to see to really get their work done and to make this foreground canvas like very high utility for them, where they can really be spending a lot of their day without having to switch between different tools. And so if you're a designer, for example, you want things like Figma or Sketch integration, into the smart workspace. And so right now, that product team is focused on isolating the organic feature development as well as that next steps of kind of partner integrations that are going to help to unlock even more of that smart workspace opportunity. But to get back to the original question perhaps around those partnerships and how the competitive landscape evolves with the launch of this kind of a product. I would say, absolutely, it's more of a coopetition than a partnership dynamic with the Microsofts and Googles of the world. And there's a heavy reliance in both directions there on one another and on facilitating the best possible experience for our collective users. That's always been the focus with us and them, and that continues to be the focus going forward. And then with folks like Slack and Zoom, these are phenomenal communication tools and platforms and our focus is not to build the next communications platform, it's to help our users leverage the tools that they want to use to get their work done and to bring and marry that communication and context to the content that it's about. The most important workflows that a company revolve around content. Content is the IP of a company, content is what you work on developing. Content is what you regularly work on publishing and sharing. And we want to make sure that all the right context and conversations live alongside that content as it's developed and published and shared. So it's not something that you have to search for or hunt for in isolation. And so there, that's absolutely a partnership dynamic to kind of marry the conversations and context and content itself.

Do they have any input on how they're shown or featured within Dropbox?

We do have conversations with partners about that, and it depends on which elements of the product experience you're talking about. And so we have, for example, Dropbox extensions, which allow you to right-click on any file, store in Dropbox and take a certain kind of workflow action. eSignature was an example that we talked about there, ahead of our acquisition of HelloSign, where you can see a kind of a world ranking of eSignature partners there. And so there's different dialogue and conversation that goes into that. And then there is -- certainly, with like these larger scale partners, there's opportunity for a joint go-to-market component to these relationships as well, where we're kind of facilitating cross customer discovery and adoption of one another's products. And just given our scale, you can imagine there's quite a bit of interest from other SaaS partners around that, around promoting their products at the right time to our installed base. And just given the scale of our distribution engine, if we're able to funnel the right leads to those partners and expose our users to their products at the right time. If we're adding value and delivering high-value users to them then there's kind of a joint kind of economic arrangement that can be structured there, too. So all stuff that we're in various stages of looking into or launching.

Got it. Okay. Next question. This is just a follow-up on churn. They're asking about the new cohorts. Could they retain at a lower rate? And I think you kind of addressed this, you just don't know. But as they return to work or emerge from COVID? Or do you think that they could retain at a higher rate because some knowledge workers are seeing more value? I guess, just your overall thoughts on churn on these new cohorts.

Yes. Again, I'll say it's a little bit too early for us to tell and have any data to share. I think whenever we see kind of this kind of material increase in demand and volumes like we always will be a conservative and prudent in modeling slightly elevated rates of churn or slightly lower retention rates just because the volume is going to be so much higher. You don't really know how these kinds of subscribers in these newer cohorts are going to behave. So I think that's the prudent thing to do. That being said, like, again, the world has changed and the utility of our platform is higher than ever to these kinds of users. So I think it's -- we'll have to wait and see. And certainly, as we generate more data points, we'll be sharing those as we do on our earnings calls.

Got it. Great. And we're running a little low on time, but I want to make sure I get this one in. So during your Analyst Day in September, you framed your long-term growth and margin model $1 billion in cash flow with significant margin expansion by 2024. Can you give us some of the thinking behind the margin focus versus maybe more of an aggressive growth focus and thoughts on the top line trade-off versus margins?

Sure. I would say, like looking ahead, we remain confident in our ability to deliver a healthy balance of growth at scale, while accelerating margin expansion and free cash flow generation, and we're focused on solving large and unmet customer needs. We're focused on methodically expanding the markets we serve. We're focused on this emergent distributed work opportunity and as we noted on the February earnings call, we are focused on maintaining double-digit revenue growth, while delivering over $1 billion in annual free cash flow by 2024. That's always been a focus for us. That balance between growth and profitability. It's always been something that's been important to Drew and been important to me. And as we execute to these expense targets, we're not -- I think it's really important to note that we're not reducing investment in our growth engine and new product development. What we're doing is really carefully considering where we can drive material efficiency improvements across the business, while preserving investment in our highest potential product and growth bets. And so what you're seeing in our margin and profitability guidance is really reflective of the inherent operating efficiency of our business, and we're doing more and more to unlock that.

Got it. One follow-up I got, "what could the lead generation third-party software reseller revenue, could that be material, do you think someday?"

In the future, it's something that, I think, has a fair amount of potential, given kind of resourcing today and like the opportunity that we have with this emergent distributed work opportunity and everything that we're out through with the smart workspace, I think there's a lot of low-hanging fruit there for us that we want to tackle, and there are some new market categories that we want to pioneer, establish and own. And so that's where you'll see our focus. But if you think about the utility of a high-velocity collaborative surface like the new Dropbox, it's really about all the functionality and integrations that you can offer to users for at least something that they get -- they derive a lot of value out of that, that they spend a lot of their day in. And so the more we can surface the right products and the right partners to our users in context, in as part of a content workflow at the right time, the better experience we're delivering to them. And so certainly, there's a lot of opportunity there in the medium to long term. So if you're engaging and, as I mentioned earlier, a content workflow to finish writing up a sales contract and to send that contract out for signature, we should make sure that we're exposing you to the right products at the right point in time in that workflow. And if that's resulting in a lot of value to our partners, then that's something that we should be sharing in and vice versa.

Got it. Last one, I'll try to sneak in, got from the audience before we run out of time. Just about your long-term value to CAC ratio. Can you talk about recent trends on those 2 ratios?

I can talk a bit about trends we're seeing with margins, and it will play into a similar answer to what I think is being asked for this question. But certainly, as I mentioned before, we're focused on maintaining double-digit growth. That's how we're investing in the business, and we're focused on executing to the margin targets that we put out there, both the 28% to 30% non-GAAP OM by '24 as well as $1 billion in annual free cash flow. I think looking ahead, if you kind of run a number of scenarios, do some math around the implications there over the next few years, you'll see -- you can probably get a sense for kind of the output of our conversion engine and the dollars of business that we're adding the top of the funnel relative to the investment that we're making and the margin expansion that we're driving. And it's a relatively consistent story that we guided to you for the next few years. We obviously aspire to outperform and do better than what we're stating today. And so we want to make sure that we're improving efficiency at a faster clip and delivering more than we hope we can on top line. But again, I think we will be prudent at this juncture and stage, and the numbers and guidance that we put out there are what we -- that's the official line and what we believe today, that we're obviously going to aspire to outperform.

Great. Ajay, really appreciate you spending time with us. Super interesting quarter going on and very much looking forward for your August report.

Awesome. Thank you. I appreciate, Justin. Thanks for the time.

Talk to you soon.

Yes. Bye.