Q4 2020 Earnings Call
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Ladies and gentlemen, thank you for standing bar and welcome to the box incorporated fourth quarter fiscal 2020 earnings conference call.
This time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session twice. Good question. During recession, you will need to press star one on your telephone.
Please be advised the todays conference is being recorded few require any further assistance. Please press star zero I would now like to have a conference over to your speaker today, Our school Pato head of Investor Relations. Thank you. Please go ahead.
Good afternoon, and welcome to boxes fourth quarter fiscal 2020 earnings conference call on the call today, we have Aaron lobby, our CEO and Dylan Smith, our CFO following our prepared remarks, we will take question.
Today's call is being webcast and will also be available for replay on our Investor Relations website at Www Dot box Dot Com fourth flash investors, our webcast will be audio only however, supplemental slides are now available for download from our website was supposed to highlights of today's call on Twitter at the handle at boxing IR.
On this call, we will be making forward looking statements, including our Q1, and why 21 financial guidance and our expectations regarding our financial performance for fiscal 2021 in future periods timing of end market adoption of our product our market the market size, our operating leverage our expectations regarding maintaining positive.
Free cash flow gross margins operating margins future profitability and unrecognized revenue and remaining performance obligations.
Our planned investments in growth strategies, our ability to achieve our long term revenue and other operating model targets unexpected timing and benefits from our new product pricing and partnership.
These statements reflect our best judgment based on factors currently known to US an actual events or results may differ materially. Please refer to the press release and the risk factors in documents, we file with the Securities and Exchange Commission, including our most recent quarterly report on form 10-Q for information on risks and uncertainties that may cause actual results to differ materially.
These forward looking statements are being made as of today February 26, 2020, and we disclaim any obligation to update or revise them. If they change our seems to be up to date.
In addition, during today's call we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to not as a substitute for or in isolation from our GAAP result.
You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and in the related Powerpoint presentation, which can be found on the investor Relations page of our website.
Unless otherwise indicated all references to financial measures or any non-GAAP basis.
With that let me hand, it over to Aaron.
Thanks, Alex and thanks, everyone for joining the call today before we go into our quarterly results I'd first like to share a few thoughts about what we accomplished as a business and halfway 20 overall F. why 20 was a critical year for us and fully building out our multiproduct platform to address the broad needs of our nearly 100000 customers and driving more efficient and.
Affordable growth.
In the year, we launched our powerful native workforce solution box relay and the most advanced content security technology box Shield. These two major products as well as hundreds of other platform enhancements, we deployed in the year have enabled us to deliver the leading cloud content management platform in the market with a more comprehensive product portfolio in place we launched our enterprise.
Hi suites to bring together our advanced capabilities in a single bundled package and we expanded our integration partnerships with Microsoft I B M Splunk, Adobe, Google and many others to enable our customers to experienced the full power a box.
At the same time in the year, we made meaningful progress toward driving more profitability and leverage through more efficiency in focus across our operations as mentioned on her last earnings call. We've implemented a more stringent ROI based approach to all areas of the business in order to significantly improve our balanced between growth and profitability.
Overall, our changes to drive greater efficiency are starting to yield positive result, and we expect them to have a meaningful impact to our financial performance and halfway 21 and beyond now switching to the results from the quarter in Q4 revenue was $183.6 million up 12% year over year.
Above the high end of our guidance billings was $281.9 billion up 19% year over year non-GAAP EPS in Q4 was seven cents compared to six cents a year ago and also above the high end of our guidance and we delivered on our commitments to achieve our first full year of non-GAAP profitability.
In fiscal year, 20, but non-GAAP EPS of positive three cents versus negative 12 cents a year ago.
We delivered wins and expansions with thousands of customers in Q4, including U.S. for service Macquarie Bank ATP financial Vice Media Secondly, we house in Japan, and many more we closed 112 deals greater than $100000 versus 94 year ago 14 deals over $500000 versus the 12, a year ago and Ford.
Deals over $1 million versus two a year ago and more than 80% of our 100000 dollar plus deals include at least one out on product.
We also delivered a record quarter, an add on product bookings of over 60% year over year growth and we're thrilled to share that box shield is already exceeding our expectations growing faster at this point and its rollout than any other add on product in our history. Further our enterprise suites continued to be successful and making it easier for new and existing customers to adopt.
The full power of box for example, a multi national technology company, who has been a customer since 2016 renewed their contract in Q4 with 100000 dollar plus box sweet deal.
Through this expansion they will add box score licenses and extend box relay shield and platform to their entire box instance, the deployment of these add on products will bolster security of their most sensitive information further integrate their IP applications and infrastructure North American financial services company purchased the suite in the six figure deal to reduce cost by becoming.
Completely paperless improve operational efficiency managed enterprise risk and create and engaging digital client experience portal for clients and agents to collaborate and by leveraging the box platform and box shield.
And finally in international information Technology company purchase a six figure sweet deal that will extend its use of core box to box governance platform and related first entire organization, including employees and a 150 countries.
Over the past few years, we've been methodically building out the category defining cloud content management platform focused on our three key Differentiators frictionless security and compliance secure external internal collaboration and workflow and world class integrations and Npis that extend the value of box platform to every application.
We are glad to say that we met a significant milestone in that journey by being named the cloud content management leader by all three major analyst firms Gartner Forrester an ITC, we remain excited by the size of the market, we're going after and we're in the best positioned to go after the tens of billions of dollars spent every year a content management collaboration and secure.
30 around content as it moves to the cloud and these trends driving enterprises to move the clatter only accelerating every enterprise is going through significant digital transformation to better serve customers and employees content is growing exponentially more apps are being deployed overtime collaboration is becoming more cross enterprise and cyber security threats and compliance challenges.
Prove difficult to overcome the legacy approach to managing securing governing storing and driving workflows on content no longer works and basic file sharing tools can solve the problems and enterprises are dealing with we're building the only platform that can truly disruptive companies work with their content and our pace of innovation is only increasing.
As we scale for example in Q4, we launched automated classification within box relay, our workload product. This capability enables organizations to automatically secure content right. When it's created by incorporating security classifications into automated workflows together box relay and shield now enable organizations to integrate con.
Insecurity, and an easy and consistent way that feels natural in the flow of work.
Also in Q4, we expanded our partnership was due to power secure content management for video collaboration the all new zoom integration for box allows users to easily share box content zoom, enabling easy collaboration on files without having to lose leave resume app. We now provide a single secure content layer for more than 1400 applications, including officers 65 and micro.
A soft games slack G suite and apples I work just to name a few finally earlier. This month, we launched a new box shielding Splunk integration first announced at Boxworks now with the new shielding Splunk integration security teams using shield can leverage the benefits of Splunk cloud based monitoring and the ability to investigate several security incidents such as data excellent.
Gration insider threats and an anomalous behavior to defend against increasingly sophisticated risk organizations need a best in class security stack that works well together and that is what we're delivering.
We're thrilled with the product delivery, we saw UNEV why 20, and 21 is setting up to be a banner year for innovation at box throughout every 21 will be delivering significant innovation by expanding our security and compliance offerings with more intelligent solutions, expanding our workflow and collaboration capabilities and continuing to embed into the world's leading SaaS applications and.
Build out our platform eyes.
Now looking ahead to fight 21, as we laid out at Investor Day in October we are focused on driving a greater balance of growth and profitability as we scale for the full year. We are targeting a combination of revenue growth and free cash flow margin of at least 25%. We're committed to achieving this goal and have already implemented several initiatives to drive growth.
Okay, and achieve greater profitability to drive efficient and consistent revenue growth, we will continue to execute on our multi product strategy and drive more efficiency in our go to market motion, we're going after one of the largest markets in SaaS and our strategy is to focus on growing existing accounts by continuing to drive product adoption in seat expansion as well as efficiently driving.
New logo acquisition in key markets for growth just within our customer base today, we have billions of revenue opportunity by selling more seats and products.
We are continuing to optimize our go to market motion for scale, including better aligning compensation incentives to drive higher renewals and expanding customers by selling suites, an add on products further to drive higher productivity levels across sales in the past few months, we have shifted investments from lower performing segments in regions, the higher productivity segments in the business.
Yeah.
Next to drive greater profitability as we discussed in our last call. We're focused on three key initiatives first is optimizing workforce expenses by further optimizing headcount investments and our location strategy second is improving gross margins through our public cloud strategy and more efficient infrastructure utilization across our platform and third is taking.
An ROI based approach to all areas of spend including greater cost discipline across the business. We're already executing on all three of these areas and we see more opportunity ahead to drive even greater efficiency, improving the combination of revenue growth and free cash flow margin of at least 25% for 21 to at least 35%.
And for 23 billion will provide more detail on these efforts shortly.
Before I conclude I want to take a moment to share with you. The progress we've made in building and maintaining an unparalleled culture a box boxes adult first and foremost on the amazing talent of our boxers and this continues to be a key driver of our evolution together with the box community our board and leadership team have been dedicated to cultivating an open inclusive and collaborative environment, where employees can do their best way.
Mark just last week, we were recognized for the second you're in a row as one of Fortune magazine's top 100 places to work.
And just as we are focused on continuing to bring on world class talent in the business as we did last year. We're also continuing to build out a world class Board. We've added three seasoned operators as directors in the past couple of years and we will continue to evolve the board has reshaped the company for the future while there's more work to be done we're focused on delivering long.
Term healthy growth rates and to drive significantly more profitability in our business going forward. We've made tremendous progress in this past year and laying the foundation to achieve major near term milestones for after why 21.
With that I'll hand, it over to deleverage.
Thanks Aaron.
Good afternoon, everyone and thank you for joining us today.
In the fourth quarter, we continued to demonstrate momentum in our cloud content management strategy exceeding the high end of our ranges for top and bottom line guidance for the full year of ethylene 20, we delivered on our commitment to generate our first year of non-GAAP profitability.
As Aaron mentioned and that's why 21, we remain committed to achieving at least 25% of combined revenue growth plus free cash flow margin in particular, we plan to significantly improve our profitability. This year, delivering non-GAAP operating margin of 9% to 10% versus our prior target of 8% and up from one person.
It's an f. wide 20, as we continue to drive cost discipline and leverage throughout fly 21, we expect to exit the year with Q4 operating margin in the low teens to accomplish this will continue to focus on profitability improvements in three key areas.
First we are optimizing our workforce expenses by eliminating non strategic roles, reducing head count in lower performing geographies and hiring in more productive were lower cost locations. As a result, we exited Q4 with 60 fewer employees than we had at the end of Q3.
Second we're improving gross margin by optimizing our datacenter footprint and other costs to deliver our service. We're on track to complete our datacenter migration in the coming months with the majority of duplicative costs now behind us.
We've also renegotiated key contracts to reduce our public cloud cost structure.
Finally, our R&D organization is working on several projects to drive further efficiencies and delivering our service to customers.
Third we are driving cost discipline across the business by continuing to take a more rigorous ROI based approach to all spending.
For example, we've been rationalizing our marketing programs and events, reducing our outside consulting spend streamlining TNT and leveraging systems and automation to drive efficiencies as we scale.
Let's now move on to our quarterly results.
We delivered revenue of 183.6 million in Q4 up 12% year over year and above the high end of our guidance, 25% of our Q4 revenue came from regions outside of United States, driven by continued strength in Japan, which now accounts for more than 10% of global revenue.
Our remaining performance obligations are ARPO represent noncancelable contracts that we expect to recognize as revenue in future periods. This metric consists of deferred revenue in backlog offset by contract assets.
We ended Q4 with ARPO at 767.8 million up 12% year over year.
We expect to recognize approximately 65% of this ARPO over the next 12 months.
Fourth quarter billings came in at 281.9 million, representing 19% calculated an 18% duration adjusted billings growth year over year.
In Q4, a handful of large customers originally set to renew in Q1 decided to expand their box footprint by purchasing additional products than seats.
These early renewals and expansions drove roughly 10 million of additional billings in Q4 that would have normally been build in Q1 that thats why 21.
Even adjusting for this impact in Q4, we would have achieved our strongest billings growth for any quarter and fytwenty.
For the full year, if thats why 21 after adjusting for the previously mentioned early renewals, we expect billings growth to track roughly in line with revenue growth.
As Aaron mentioned, we're seeing increasing momentum in customers adopting our cloud content management portfolio driven by the recent introductions of box relay box shield and suites.
Total AD on product bookings in Q4 were up more than 60% year on year with add on products now representing 17% of our total recurring revenue.
We're also seeing continued improvement in closing large deals in Q4, we closed 112 deals worth more than $100000 versus 94 year ago up 19% year over year. Additionally, we closed 14 deals over $500000 versus 12 year ago, and four deals over $1 million versus.
Two a year ago.
Turning to margins.
Non-GAAP gross margin came in at 71.5% versus 73.5% a year ago, an improvement from our Q3 gross margin of 70.7%.
As we've mentioned previously throughout F. why twentyth, the migration of our datacenter footprint to more scalable lower cost regions involve temporary higher costs as we supported duplicative Datacenters. We expect Q1 gross margin to be roughly in line with Q4 vessels by 20, and we expect asked why 21 gross margin to be in the range.
Of 72% to 73%.
As we consolidate our datacenter footprint and benefit from the other optimizations. We've discussed we expect this upward trend to continue in future years lending at roughly 75% by 523.
Q4 was another successful quarter of driving leverage across the business as we continue to scale and focus on our cost and productivity initiatives.
Sales and marketing expenses in the quarter were 64.9 million, representing 35% of revenue down from 39% in the prior year.
In the coming year, we will focus on achieving more consistent execution, while driving higher efficiency by selling our broader product offerings to existing customers.
In combination with the head count reductions, we already made in non strategic roles and low performing regions and that's why 21, we expected decrease sales and marketing expenses in absolute dollars generating at least six points of leverage year over year as a percentage of revenue.
We're entering halfway 21 with quota carrying sales reps up 2% year over year.
Note that we expect quota carrying sales head count to remain roughly flat over the course of the next year with a greater proportion of these reps in high performing regions. This provides us with sufficient sales capacity to deliver against our fight 21 growth targets.
Research and development expenses were 35.2 million or 19% of revenue up from 18% last year as we significantly enhanced our cloud content management product offerings, including the continued development of box shield and box relay.
In fact 21, we will continue to enhance these product features and capabilities to further differentiate our platform. While also executing on software efficiency projects to improve our gross margin.
As such an appetite 21, we expect R&D to remain roughly flat year over year as a percentage of revenue.
Our general and administrative costs were 18.8 million or 10% of revenue a reduction of one percentage point from a year ago.
We expect to drive continued leverage in DNA through greater operating discipline and automation as we scale.
Perhaps why 21, we expect DNA spending as a percentage of revenue to decrease by roughly one percentage point.
Total Q4 operating expenses represented 64% of revenue compared to 68% a year ago. So despite the temporary 2% reduction in gross margin, we were able to drive our Q4 non-GAAP operating margin to a two percentage point improvement year over year coming in at 7% versus 5% a year ago.
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Non-GAAP EPS came in at seven cents compared six cents, a year ago and above the high end of our guidance the cost discipline initiatives that Aaron and I discussed are already well underway, which will show up more fully in our bottom line results throughout Fi 21.
In Q4, our full churn rate was 4% on an annualized basis stable versus Q3.
We ended Q4 with an annualized net retention rate of 104% down from 105% last quarter.
These calculations exclude customers paying us less than $5000, who currently represent roughly 10% of our recurring revenue.
Going forward, we will be including all customers and our churn and net retention calculations, both of which will be year over year measures.
Given our increased focus on driving an efficient land and expand go to market motion, we're seeing large enterprise customers start with sub 5000 dollar deployments and expand significantly overtime. This new methodology will provide a more comprehensive view of how existing customers contribute to our overall revenue growth.
Under this new methodology, our Q4 full churn rate was just over 5% on an annualized basis and our net retention in Q4 was still 104%.
As we lap the impact of the single large customer reduction we saw in the first quarter of last year, we expect to see an improvement in our net retention rate beginning in Q1 of this year.
With respect to pricing trends once again, we saw an improvement in our price per seat on a year over year basis, reflecting the strong customer uptake of our add on products. We now have 13.6 million paid users.
Let me now move onto our balance sheet and cash flow.
We ended the quarter with 195.6 million in cash cash equivalents unrestricted cash.
Cash flow from operations was 15.0 million in Q4 compared to 31.3 million a year ago.
This was impacted by the prepayment to a public cloud provider that we mentioned on our last earnings call customer payments that we had expected to collect in Q4, which we ultimately collected in February and elevated capital lease payments associated with our datacenter migration.
Collectively these three factors amounted to a roughly 18 million dollar impact.
As a result free cash flow in the fourth quarter was essentially zero compared to positive 21.0 million a year ago.
In Q4, total Capex was 1.2 million versus $2.2 million a year ago.
Capital lease payments, which we factor into our free cash flow calculation were 12.3 million versus 6.7 million a year ago as we invested in equipment related to our datacenter migration project.
Combined capex and capital lease payments were 7% of revenue.
We expect Capex and capital lease payments combines to be roughly 8% of revenue in Q1, and 7% to 8% of revenue for the full year of F. wide 21.
With that let's now turn to our guidance.
For the full year fiscal 2021.
We expect revenue to be in the range of 771 to 777 million, representing approximately 11% to 12% year over year growth.
We expect our flight 21, non-GAAP EPS to be in the range of 38 to 44 cents on approximately 160 million diluted shares.
Our GAAP EPS is expected to be in the range of negative 78 cents to negative 71 cents on approximately 154 million shares.
For the first quarter of fiscal 2021.
We are setting revenue guidance in the range of 183 to 184 million, representing approximately 12% to 13% year over year growth.
We expect our non-GAAP EPS to be in the range of four to six cents and for our GAAP EPS to be in the range of negative 25 cents to negative 23 cents on approximately 157 million and 151 million shares respectively.
In summary, we're pleased with the progress we made this past year in building out our cloud content management product portfolio, while optimizing our go to market motions to drive more predictable and profitable growth.
We're committed to achieving at least 25% in the combination of revenue growth plus free cash flow margin in F. Why 21 and at least 35% in 523.
We're confident that this year's plan sets the stage to drive further profitability improvements in the years to come as we continue building on our leadership position for the long term.
With that I'd like to open it up for questions operator.
At this time I would like to remind everyone in order to ask your question. Please press Star then the number one on your telephone keypad, we will pause for just a moment chicken Paul the culinary roster.
Your first question comes from the line of Phil Winslow from Wells Fargo.
Your line is open.
Hi, guys. This is rich hilliker on for Phil Congrats on the strong finished the year just a quick one for dumb and one for Aaron So first first for guidance regarding guidance for doing.
Your analyst day, and you guys mentioned a few times on this call you got in fiscal 2001, two combined 25% of revenue growth plus the free cash flow margin would equal contributions floor.
And so do you view would kind of I.
I guess attributed that to little bit of Prudence, because it was a slight downtick from than 2020 guidance and while we're glad to see the fiscal 2000 revenue was better than expected. We noted that fiscal 21 guidance implies a slight downtick from there. So I guess kind of same question is as we close at analyst day kind of curious if you could help us understand which rose this change despite the strong billings and does it differ.
Third revenue to end the year.
And I guess also to add onto that curious whether the possibility for re acceleration still on the table.
Just given that you increase your operating margin guidance as well thanks.
Sure. So we set our guidance in a way that we expect to meet or exceed.
And overall that dynamic in terms of how we're thinking about the balance between both growth and profitability as well as the commitment that we laid out at analyst day Havent changed what we don't provide free cash flow margin guidance. The high end of our revenue and operating margin guidance ranges are consistent with our commitment to deliver 25 years.
Sent in the combination of revenue growth and free cash flow margin and I'd note that we typically expect to see annual free cash flow margin coming a few percentage points higher than operating margin due largely to the cash impact of the difference between billings and revenue and this year, we should have a fairly normalized cash flow dynamic as well and in terms.
Of the overall kind of growth, we are seeing our growth rate stabilizing and very focused on maintaining healthy growth rates in the future really driving and focused on a more consistent execution, especially now that we have a broader product offerings and we have reallocated.
A lot of our go to market resources from lower performing regions to invest in our higher performing regions that combined with our focus on driving expansion from within our existing customer base, which is also a more efficient type of sale are the types of things that give us confidence in the overall growth rate.
Okay, Great. That's helpful. And then one for Aaron just just to close up here.
And in the press release, you guys had talked about and a little bit on the call you talked about how the enterprise suite adoption was strong and you saw some record business from add on products, particularly shield I was wondering if you could talk little bit more about shields impact on suite adoption, and maybe even suites impact or shield impact on suite adoption relative to relay.
Thanks.
Yes. Thank you for the question So shield is.
Is definitely a one of the core catalysts for suite adoption.
Primarily because it's a completely horizontal product that really every industry is facing challenges around data security and one of the kind of key phenomenon.
That happens as you move content from an on premise is environment to.
To the cloud is the architecture of securing that content fundamentally changes you can't really have bolt on security technologies that you manage yourself and your datacenter and so it really becomes the cloud providers responsibility for ensuring the security of your of your content. So thats created this massive opportunity for us to deliver more innovation around content security and Thats.
Obviously, what shield is focused on and so that broadening the probably the budget pool and the wallet share that we can go after within customers and very again horizontal way that is working across all sized customers and all industry. So.
I think and then maybe I'd point is Theres, obviously, a lot of momentum built up coming into Q4 around shield. So so that is that was one of the big drivers of shield driving a lot of the sweet adoption and then and then to your second point unrelated we're very happy with the relay on our performance, thus far it's probably less kwan.
Feasible as a catalyst to to suites as as shield is on but it is driving a lot of.
Fantastic used cases that get us deeper into the workflow of our customers. So you can imagine how important is to embed much more deeply into their business processes, whether that's customer Onboarding HR Onboarding document review and approval digital asset approvals and so it will ultimately make box far stickier overtime, which is what we're really excited about.
Your next question comes from the line of I take your drawn from Oppenheimer. Your line is open.
Thanks, So it really could my name could tie you try here congrats guys on a great quarter and great to see all the initiatives that you worked so hard on for long for this long finally pay some dividends.
Aaron I did want to ask you about the suites adoption and especially more into context. So Paul.
What is the mandate for sales.
Is it focus more on.
So shield and relay or try to push the suite for US help me understand the pass.
The sales are mandated to walk through and then Dylan on the 100 1200 K deals.
Tend to come us how many of them are suite deals.
Yes. Thanks.
On the first part of the question.
We are we achieved.
Differentiated some of our incentives toward our AD on product strategy that doesn't particularly differentiate suites versus add on products because we want to make sure. We're doing what is in the best interest of the customer and where they are in their journey with box.
That being said the sales motion itself is vastly more efficient when our when our sales reps are selling suites and so very organically.
We're seeing that push toward sweet selling with again that compensation differentiation still being there because it's driving our AD on product growth. So we're seeing plenty of uptake across the salesforce. It obviously is still a and evolving part of our sales motion just because we have thousands of transactions a quarter and we have to make sure that this is.
Really entering into each of those conversations.
But overall, we're happy with the early adoption that we're seeing across our salesforce going into customers and we have additional programs that were driving that will only increase that in the in the near term.
Your next question comes from a line of Mike Murphy from JP, Mark Murphy My apologies from JP Morgan Your line is open.
Hi, Good afternoon. This is Matt costs on behalf of Mark Murphy. Thanks for taking our questions. There and you just said the sales motion is actually more efficient one reps are selling suites suites.
How do you feel that your sales reps are tracking towards at 15% sales productivity improvement goal and then in addition to incentive pricing rep add so add on products, but other changes have you made or steps have been.
Taken to get confident that you'll get to this 15% sales productivity improvement goal.
Yes, so we have a handful of levers and drilling and build on this.
Certainly, but the kind of big focus areas versus that pricing and packaging evolutions and making sure that our reps are able to sell.
At a higher average contract value that drives obviously productivity rates pretty pretty considerably. So that's really about suites and add to it ties. Prior question, we're seeing a growing population of those $100000 plus deals.
The do include suites, obviously, there's really only the first quarter, where suites were out there. So we're shields and so thats, that's going to be a growing percentage on so the first is on on HCV increases the second is on.
Significant focus on on sales enablement and productivity improvements on just driving that repeatable sales motion that we've talked about a bunch, how do we get a consistent land and expand motion.
Where more and more of our reps are participating every single month of every single quarter, driving Upsells and cross sells of our products into the into the customer base and then I think the third dynamic is really around and mix of performance management as well as shifting investment into higher productivity segments of the business, where we do see greater performance.
Of of the average rep and so those are in again the segment that Weve I think called out previously, but where we know that that we still have a dramatic addressable market that we can go and reach and we see high productivity rates into moving more of our dollars into those segments. The combination of those various levers drive that 15%.
Productivity improvement, we call that an analyst day.
Great and then it looks like the sequential growth in short term RPM. So in Q4.
A lot better than it was in the last Q4 is there any reason behind that in addition to currently renewals that you saw.
No as we had noted and expected we did see a higher volume of multi year renewals not necessarily payments.
But longer contracts and large customers coming up in Q4, we successfully executed those which helped our BPO recovered a more normalized levels as we had set the expectation for and then on top of that pretty pleased with the overall volume of new deals including customer.
Spansion that we saw in the quarter, which had a benefit to ARPU as well.
Thank you Beth.
Your next question comes from the line of Melissa Frenchie from Morgan Stanley. Your line is open.
Great. Thanks for taking my question I wanted to dig into box relay and just wondering if you're seeing any meaningful change and adoption.
All came out with the new updated version of box relay last year.
Yes, thanks, a lot so definitely seeing a pretty healthy uptake also in part because it now included in <unk> and our sweet.
A bundle that we.
Our are driving.
So so you're just getting multiple ways that customers can go and adopt relay and and so it's now in the hands of of.
Passing more customers at the end of Q4 that was just even in Q2.
Of that year of last year. The use cases are probably the part that is.
Our exceeding our expectations.
We we've been really really satisfied with.
The breadth of types of use cases, where customers have either a paper based process or they have a legacy process from a legacy document management system or they are using email or other tools to be able to drive workflows that are really about caught moving content through a business process and so this can be anything from when you need to onboard a new client at a bank.
When you need to be able to review any type of documentation or any kind of contracts before they have to get signed by a customer has a digital asset process. So we're seeing a really broad set of use cases, and we've made sure that relate to be adopted horizontally across our entire customer base as easily as possible. So.
Its price for the entire company to use which means that we're going to see more and more organic adoption ones customers.
Purchasing and turn it on for their organization. So very happy that relate it has definitely delivered on the goal that we had which was having a native workflows solution that would let us rapidly innovate on the product and make sure that it was much more embedded into our core user experience of that that part has also been that thesis has been proven out which is really important.
Strategy around embedding morph into business process overtime as opposed to just being used for collaboration or file Sharon.
Okay. Thanks for the color and then a quick one for Dillon I'm wondering if you can comment on what you're seeing in terms of ASP. So it sounds like you're starting to see some early adoption, but just thinking about the core product I don't like to like basis, but are you seeing in terms of ASP trends.
Yes, so as mentioned so we did see our.
Price per seat ASP, improving a year on year and Thats been a consistent trend other we've seen now for more than a year that as mentioned is now being primarily driven by the impact of add on products and even more so now that we have suites more regularly being adopted bye bye.
Customers.
We are seeing from a core seat price.
A little bit of the uptake as well overtime. So we've been able to maintain the value of the core offering even as we sell these larger deals and capture the upside from the impact of the add on products.
Great. Thank you very much.
Your next question comes from the line of Brian Peterson from Raymond James Your line is open.
Thank you and congrats on the and then really strong billings number this quarter gentlemen, but just maybe one for you here and so on the R&D side, we've seen a lot of products launched since the IPO I'm just curious what does the cadence of new products that we should expect going forward or is the platform the portfolio broad enough.
We're really going to be focused on maybe improvements to what you've already announced today.
Yes, thanks right.
I think I think thats that's spot on so probably in the past four or five years.
Just purely coincidental with the kind of post IPO.
Timeframe, we have brought into out the product portfolio in a in a pretty methodical.
And I think rigorous way, we really started the company as a secure file sharing and collaboration tool focused on enterprises, we expanded with advanced data security with things like Keysafe and our permissions model than right around the IPO time, or just a little bit before we launched our real first on product, which was our governance module then expanded our platform that obviously skills.
And then and then this year has been a dramatic increase with work flow and really now shield for Advair really advanced security I think when you look at that breadth of capabilities. We have now kind of checked the major boxes that that we're hearing from customers in terms of.
To be able to new content to the cloud to be able to power more use cases to help extend.
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They are used cases with box, maybe retire legacy network file shares or document management system. So we feel like the core platform is a much.
Better state at the moment.
Really than it obviously, it's ever been and now it's about going deep within these product areas. So I would say that youre going to see a lot of innovation in the categories of security and compliance workflow and collaboration and our platform, but it's about going deep in each of those three pillars as opposed to the same cadence maybe we've been on wafer new Skus I think we have actually.
Plenty to sell to customers at this point, what we wanted outdo is command more value from each of those add on products make sure that we can go and solve much deeper customer challenges insecurity or in workflow Orient data governance, and and so I think I think you're going to see US go deep in these are in these core areas and then of course on a.
On a regular basis as appropriate continue to add more into the portfolio. When we think it makes sense. When we think there's a big opportunity for us to to either enter an adjacent category or possibly.
Expand one of our product lines into into another into another space. So so that that's the super high level, a lot of innovation, but a lot about going deep in the pillars that weve that we've launched and really now getting the majority of our customer base on to these are under these products.
Understood. Thanks, Aaron It may be Dylan, just as we think about selling into the installed base.
Really focusing on expanding how does that works from a from a contract perspective, when they see a significant add on does that become coterminous the contract. They change just trying to see if there could be any impact on that to billings as we think about fiscal year 2000 and beyond. Thank you, yes sure. So it sometimes depends on.
The situation and the magnitude of the sale there are many times that.
Thats contracts or that sale will become coterminous and doesnt change the renewal date, but in a lot of cases, and especially when the expansion is a larger percentage relative to what a customer is paying before that expansion than we will often.
The kind of bring in reset the contract date and that's exactly the dynamic that we saw in Q4, which was driven by in particular a lot of the pull we are seeing from the market with which shield and suites in particular so in that example, we called out that we drove $10 million of additional Q4 billings from expanding those customers.
Who had been set to renew in Q1. So in those cases, we did end up billing them for what what would have been build in Q1, a quarter early effectively billing them twice in F. Why 20, and then their new renewal dates with a new contract would be in Q4 of 520.
One.
So so in short.
It depends on the situation and especially if we see pretty consistent execution and volumes here. It shouldn't have too much of an impact to the overall billings growth rate as it will be embedded into just the overall run rate a business as we've seen but but to your point that certainly could create a little bit of variability from a quarterly quarter to quarter base.
Yes.
Got it thanks.
Your next question comes from the line of Brett not look from Berenberg capital markets. Your line is open.
Hi, guys. Thanks for taking my questions. A couple from me. The first is on stock based comp in your guidance relatively large step up for.
21 seems like has an hovering around.
20% as a percentage of revenue and your guide each posted 20 fives or I guess any meaningful change and incentives that's really driving that stock based comp.
No. So so wouldn't there hasn't been a change in on that front in terms of.
What's what's leading to stock based comp and would say that while we don't control all the factors that lead into that we've been very mindful of the overall dilution would expect both stock based comp and that burn rates to trend down steadily over time.
Okay. Thank you and then maybe some international seems like international is strong in the quarter on the you also referenced Japan as a stand out is there any kind of ours kind of factored into your guidance or maybe how you're thinking about that.
Yes.
So at the moment, we we havent seen an impact and in our conversations with customers. So again purely anecdotally.
It's not yet showing up we.
We're obviously in watch and see mode, and and watching it very carefully into the guidance that we're providing right now is obviously.
Not factoring in.
What could certainly happen, but we have no no reason to believe that this is a risk at the moment, but we're in watch and see mode. I think like the rest of the ITC sector.
Perfect. Thank you guys.
Your next question comes from the line of Reshoot jewelry from D.A. Davidson. Your line is open.
Hey, guys. Thanks for taking my questions back nice to see pretty solid quarter for us in Florida.
And I've got two questions first I want to fall off in the prior question on spot maybe faster than the but I'm not.
Having stock comp given your growth rate less fuel high rights on lump sum of revenue of 1% solution and that Fytwenty. Your guidance I was about 4.1% business in FX, forming won as we see thinking that's about 22 personal revenue I I mean I guess.
What gives you confidence to say that will come down over time and then.
Yes, some of that is going to shift from stock comp the cash comp as well have to happen, if you're actually going to bring down the levels of SBC does that potentially creating a headwind at your free cash margins and then a follow up.
Sure so so on that.
I would say that.
We very intentionally.
Kind of kind of set the equity budgets and the overall and that maps to our overall hiring strategy and expectations for the future was what drives that confidence in the overall trajectory.
Certainly on the dilution that we more directly control to come down overtime. A note I'd make there is that it's not necessarily coming from a shifts from stock based comp in the cash comp, but rather some of the other trends related to optimizing our worst workforce expenses that we had called out earlier.
So for example, everything we're doing around just managing and metering. The overall head count growth that we've talked about we'll certainly impact that amount of dilution and then.
Also us.
Stock based comp.
And then as part of the overall location a lever that we're pulling is weak increasingly higher in areas.
Outside of the Bay area those roles tend to and those folks in those places tend to have lower equity requirements because of where the market is in those locations. So I'd say, it's really the combination of the overall way that we expect to grow the company as well as where we'll be doing so.
Okay, great. Thanks, that's helpful.
In your prepared remarks, you need a lot of references to.
As in the business as a percent of recurring revenue can you just remind us how big is that non recurring piece of your business is that all just professional services minus or from your services piece gets spacing you didn't match that thanks.
Sorry, you use it to clarify you're asking about the professional services line item of revenue well.
So that's why I'm asking is how much of your revenue is nonrecurring directionally and what is that got implies that.
The non Premier professional service.
Sure, Yes, so it is been running at about 4% of revenue.
And virtually all of that is exactly what you noted on the prefer it which is professional services.
And so as just a note that is that business tends to carry tend to 20% margins.
In that 4% of revenue that it applies to so that creates a three year so percentage points.
Kind of impact on our overall.
Gross margins relative to suffer gross margins, which are higher.
Thank you so much.
Your next question comes from the line of Chad Bennett from Craig Hallum. Your line is open.
Great. Thanks for taking my questions. So.
Implied in the revenue guide for this year is there anyway.
At least give us some sense of how much of that comes from net new customers versus cross sell up seller expansion.
Sure. So historically, we've been running were about two thirds of a new bookings is coming from.
Our existing customer base and as mentioned because of where we're focused and now with a broader portfolio.
Product portfolio to go and cross sell and Upselling existing customer base, we do expect that ratio to be a little bit higher.
Probably north of 70% in terms of what we're currently expecting and starting to see in the business in terms of the pipeline.
Got it and then is there any way to look at the overall base or the paid user base of.
13.6 million I think you indicated.
Hum how much of that base has just a single core product versus add on products from a penetration standpoint.
Sure so.
I would first note that some of those users our education customers.
And when we look at the overall revenue, while we haven't given a number of seats who are using.
One of at least one of our add on products. What I would say is that now more than 50% of our revenue is coming from customers who have purchased at least one of those add on products. So that trajectory has been pretty steadily increasing.
And is becoming.
Adopted by a buy more and more of our paying customers and users.
Got it.
Good color and then maybe one last one quick for me.
Considering the pretty dramatic expansion in op income and profitability.
And cash flow for that matter.
What is management and or the board's position on on the potential for a stock buyback and then I'll jump off thanks.
Yes. Thanks. So this is there and again, we're definitely considering.
Anything on the table from a shareholder value.
Standpoint, and so that will certainly be it a topic as as we drive more free cash flow in the business and cash generation, obviously want to compare that to other.
Other levers that we have from a shareholder appreciation standpoint, so, but this will remain a topic that.
That will we'll be talking about.
Thank you.
Again, if you would like to ask your question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Terry Koala from first analyst. Your line is open.
Good afternoon, congratulations on on executing this quarter and thanks for taking my question.
Just want to ask about this the new sign deals in the quarter. Just wondering if you could comment for this quarter versus prior quarters was there any any change in the length of time. These deals were in the pipeline.
And then if there was any regional impact if there are particular regions from a new business perspective that.
The outperformed.
And then any changes in the close rate versus prior quarters. Thanks.
Yes, so we have seen a good progress, especially over the last couple of quarters, driving repeatability and velocity in our go to market motion. So over the last few quarters a deal cycles have stabilized and we're seeing more predictability and forecast accuracy.
So so pretty pleased with the way thats trending and that was true in Q4 as well.
We are still seeing some some different performance levels across various regions, but pretty consistent with the trends that we've been calling out throughout the year.
So continue to see strength in particular in Japan, as you mentioned and continuing to see some challenges in EMEA and some of our emerging market.
Great. Thank you.
The only other thing I would act as you asked about some of the international progress we did see.
Some some positive momentum also in Australia, and Canada that we're happy about on the big deal front.
Great. Thanks.
There are no further questions. This ends today's conference call. Thank you everybody for joining box Incorporateds fourth quarter fiscal 2020 earnings Conference call you may now disconnect.
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