Q1 2021 Earnings Call
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I would now like to hand, the conference over to your Speaker today, Alex Potter head of Investor Relations. Thank you. Please go ahead.
[music] good afternoon, and welcome to boxes first quarter and dispose 2021 earnings conference call.
On the call today, we have Aaron lobby.
Oh, and Dylan Smith, our CFO.
Following our prepared remarks, we will take question.
This call is being webcast and will also be available for replay on our Investor Relations website at Www Dot box that Tom Ford flashing Masters.
A webcast will be audio only however, supplemental slides are now available for download from a website.
Well I suppose the highlights of today's call on Twitter handle boxing's IR.
On this call, we will be making forward looking statements, including our Q2, and why 21 financial guidance and our expectations regarding our financial performance for fiscal 2021 in future periods.
Or timing of end market adoption of our product.
Markets in market size.
Operating leverage our expectations regarding maintaining positive free cash flow Earth margin operating margins. These are profitability and unrecognized revenue and remaining performs obligation.
Our planned investments in growth strategies.
Our ability to achieve our long term revenue and other operating model targets.
The timing of benefits from our new product pricing in partnership and our expectations regarding the impact of the Koby 19 pandemic on our business and operating result.
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 and documents, we filed with Securities and Exchange Commission, including our most recent annual report on form 10-K for information on risk and uncertainties that may cause actual results could differ materially.
These forward looking statements are being made up of today May 27, 2020, and we disclaim any obligations to update or revise that should they change or seems to be up to date.
In addition, during today's call we will discuss non-GAAP financial measures. These non-GAAP financial measure should be considered in addition to not a substitute for werent isolation from a GAAP results.
You can find additional disclosure regarding these non-GAAP measures, including reconciliations with comparable GAAP results.
Earnings Press release, and then the related Powerpoint presentation, which can be found on the Investor Relations page of our website.
Unless otherwise indicated all references to financial measures on a non-GAAP basis.
That money handed over to Aaron.
Thanks, Alex and thanks, everyone for joining the call today before we begin I'd just like to say that I hope you in your families are all staying safe and healthy right. Now these are challenging it on person that at times and its or Martin group health and safety of our families. Our friends and our communities should always be our first priority.
There's no playbook are operating in all the follow we've been actively monitoring cobot 19 development and we took early measures to protect the health and safety our employees in early March we transitioned all of our nearly 2000 boxers to work from home smoothly, but.
But nearly all right he's back in the cloud and integrations between box another best of breed technologies, such as doing slack I began October Webex Officethree hundred 65, G suite and Salesforce, we were ideally set up for remote work, we were immediately able to double down on support for our customers both by ensuring the resiliency of our systems to deliver on and.
Dropped in service in by making sure our customers had the resources they would need to enable secure remote work for their organization through box.
I'm extremely proud of all of our teams at box globally, we've done an amazing job supporting our customers and continuing to drive innovation. During this time.
While these have been very stressful one dynamic times I'm proud to say that box is not.
Our virtual all hands meetings are good getting record engagement teams are making decisions faster than ever we can reach and connect with more customers virtually and we're continuing to ship software and innovate more rapidly than ever to that point. We recently shared the news that all boxers can work from anywhere until the end of the fiscal year, if they so choose.
Providing increased flexibility and peace of mind for our nearly 2000 employees globally.
Even when our offices reopen we will remain a digital first organization bridging the physical and virtual way of working through a digital workplace.
Well at the beginning of what will be one of the most transformative period in business history.
Over the past couple of months I've been speaking with dozens of see iOS and Ceos, a fortune 500 companies and it's very clear the building toward a digital first workplace will be a key pillars in a much broader new normal for how organizations operate going forward.
The opportunities for flexible work global in virtual teams and Reimagine business processes have always been a key element in our vision.
While there is undoubtedly significant economic disruption in many sectors right now there's also an unmistakable sense, but this is an opportunity to accelerate digital transformation.
Organizations are now beginning to re factor how they operate for the 21st century, eliminating paper based prophecies automating manual work flows and creating new digital customer experience as.
Well see manufacturers enable secure collaboration across global supply chains are complex networks of partners health care providers will fast track telemedicine experiences and build new ways to share data with their patients retailers can collaborate on advertising campaigns, virtually and connect and evolve their digital and store experiences.
Life Sciences organizations can manage clinical trials and research across distributed teams and banks can onboard clients without paper or manual processes.
This future will be built on modern cloud platforms, and that's where box comes in.
100000 customers now rely on box the power secure collaboration and critical processes across their businesses.
In Q1 highlighted how important boxes to our customers and just how much of a transformational impact we can.
Just to give you a few examples as we announced in the quarter. The U.S.D.A. recently chose box to power the organization secure remote work initiatives and help digitize operations within its 2500 foreign service centers across the country.
Mr Energy, which produces electricity from nearly 60 power plants across the country for 5 million customers leverage box, along with our tight integrations that slack zoom Officethree hundred 65, and G suite to quickly and smoothly transition teams to remote work and box enable general electric to keep employees connected bowl to each other and to their customers.
Also keeping them secure on more than half a million connected devices.
It's incredibly energizing to be such an essential in strategic part of how our customers are navigating this unprecedented time and we're even more excited to see how we can partner with them to shape. The future now, let's dive into our results for the quarter.
Q1 revenue was $183.6 million up 13% year over year non-GAAP EPS in Q1 was 10 cents compared to negative three cents a year ago.
We delivered wins that expansions with thousands of customers in Q1, including the city of Berkeley, FLIR NASA Nation National Bank of Canada, Toyota Financial Corporation, U.S.D.A. and many more we close 40 deals greater than over $100000 versus 33, a year ago and nearly 80% of our 100000 dollar.
Deals included at least one out on product.
Over the past few years Weve methodically been building the category defining cloud content management platform focused on three key Differentiators frictionless security and compliance seamless external and internal cooperation workflow and world class integrations and shipyards that extend the value of box and any application.
In today's new work environment. This product strategy is incredibly relevant and in Q1, we delivered several new innovations, we announced new automated malware detection capabilities and controls and box she'll box yield is our fastest growing add on products in the company's history, and we have plans to continue to enhance it expanded capabilities to drive even further adoption.
With the average cost of the cyber attack, reaching $2.6 million are more now where has become one of the costliest security incidents facing businesses, but now or detection. When users preview filed but now were identified box shield well now automatically alert the user restrict downloads and sharing of malicious filed and notify IP and security team.
Yes.
Earlier. This month, we also introduced the all new box experienced the increased productivity and enhance team collaboration the all new box experience includes an updated simplified designed a much faster performance box collections, which provides the ability to organize.
Files and folders around topics and work streams that are important to the user and annotations, which will allow users to leave freeform markups and tax comments directly in box when previewing more than 100 different file types.
We also continued to expand our integrations with partners and leverage our open interoperable platform.
We delivered and enhance integrations with Microsoft teams to make box and Microsoft 365 experiences as easy as possible building upon the many integrations, we already have with Microsoft products.
I think earlier this month, we join Rob Thomason Stewart Butterfield to discuss our shared vision for the future of work and we announce an integration with Watson AI ops. We're incredibly excited about the work we're doing with I. I B M to enable IC organizations and businesses to get worked on faster simpler and more securely.
Additionally, we continue to expand our integration with zone, which allows users to create or join to zoom meeting directly from box unsurprisingly usage of boxing and our zoom integration has grown dramatically over the past few months and ensuring users can collaborate zoom Swat teams Webex G suite I B M and all the applications in our customer.
As I teach that remains critical and strengthening our remote work strategy.
Looking at the year ahead, we have been exciting road map of innovation enhancements that will continue to drive adoption and enable our customers to work in new ways and we'll be sharing some of these new and advancements at this year's Boxworks, which will be an all digital event. The first time ever taking place on September 17.
We already have an incredible slate of speakers, including the Ceos of IB M. Cisco Slack zoom octa and more to come.
This is lining up to be the defining event for the future of work.
We'll be announcing more great speakers over the summer with Ceos and leaders from across our customer base joining to share their insights and experiences on the future of secure melt work and how they're transparent forming their organizations going forward.
Turning to our business model last year, we laid the foundation to improve our balanced between growth and profitability for F. Why 21 and beyond.
With a focus on delivering growth more efficiently and implementing significant cost discipline in the business.
Well the future macroeconomic impacted cobot 19 on the market remains uncertain. We believe we're in a strong position to achieve long term healthy growth rates with increased profitability.
Drive efficient and consistent revenue growth, we will continue to execute on our multi product strategy and drive more efficiency into our go to market motion.
We're going after one of the largest markets in enterprise software and our focus is on growing existing accounts by continuing to drive out on product adoption with box you suites and seat expansion as well as efficiently driving new logo acquisition in key markets.
What we expect to see softness in our small business segment due to the economic environment, they're facing we are seeing greater momentum from our enterprise customers expanding right now as they have greater needs for secure network solutions due to our cloud technology stack, our global sales team was able to move to virtual selling smoothly and our focus on our land that expand motion has enabled.
Lets say drive a strong run rate base of customer expansion right now.
Further in the quarter, we implemented new ways to expand our relationship with with existing customers, including virtual selling program specifically focused on security at work virtual executive briefings to engage with key senior executives that are customers a shift toward digital events to bring together I see decision makers virtually and launching.
In new sales program for enterprise wide license agreements to help customers expand wall to wall.
Next to drive greater profitability as we discussed in our last call. We are focused on three key initiatives, we're optimizing our workforce expenses, improving gross margin and continuing to take an ROI based approach to all areas of spend and our <unk> and are implementing greater cost discipline across the business, which is evident in Q1.
This improvement of non-GAAP EPS.
We lay the foundation to significantly improve our margins if you quarters ago, and we're confident that this focus on efficient growth in cost discipline will be an advantage in today's uncertain environment.
Before I conclude I want to take a moment to share with you. The progress you've made continuing to build out a world class Board. This year, we've added three new directors to the board, including Jack was our Bethany Mayer and earlier today, we announced Carl bass, who brings over 30 years of technology experience, including most recently serving as the CEO.
Of Autodesk.
We're excited by the collective expertise our board brings the box and I'm thrilled to be working with these new board members.
We are entering a new normal for business and we are in the best positioned to help our customers emerged stronger than ever the same goes for box as well.
Q1 results demonstrates the progress that we've made and we believe that bite powering secure remote worked for enterprises of all sizes. We are positioned well for further execution going forward with that I'll hand, it over to doing.
Thanks Aaron.
Good afternoon, everyone and thank you for joining us today.
Before we get into our quarterly results I'd like to provide an overview and how we're managing our business during these unprecedented times.
As Aaron mentioned organizations are accelerating the remote work and digital strategies and boxes in a strong position to help our customers remain secure productive and innovative during these transformations. The combination of our business model and the recent actions we've taken have positioned us well to maintain our financial resiliency.
While we navigate through this dynamic situation.
The nature of our business model creep financial stability with recurring revenue representing more than 95% of our total revenue. We also have relatively low exposure to the market segments. Most impacted by cobot 19 with less than 10% of our revenue coming from the industry's whose businesses have been hardest hit by cobot Nike.
While our business is not immune to the impact of this pandemic. Our go to market motions are focused on what we're seeing the strongest demand.
We had again, that's why 21 with an increased emphasis on driving that expansion in our large existing customer base, which is a more efficient and predictable sales motion than sales to entirely new customers.
I need for solutions like box that power remote work have benefited sales to existing customers, which contributed more than 70% of new bookings in Q1.
We're also seeing momentum at a revamp digital channel, which is enabling us to more efficiently acquired new customers.
In addition, we've continued to take a more rigorous approach the overall cost discipline, which began in the second half of last year.
Even in these turbulent times, we've demonstrated significant improvements in profitability and we expect to generate further improvements in F. Why 21 through our focused on optimizing workforce expenses, improving gross margin and driving cost discipline across the business by taking a vigorous ROI based approach to all areas of spend.
For F. Why 21, we now expect our non-GAAP operating margin to be 11% to 12% of revenue and improvement from the 9% to 10% range that we provided on our last earnings call.
Let's now move onto our quarterly results in the first quarter, we delivered strong financial performance across the board.
We delivered revenue of 183.6 million in Q1 up 13% year over year.
27% of this revenue came from regions outside of United States, driven by continued strength in Japan.
We delivered strong subscription revenue driven by high customer expansion rates in Q1, particularly with our larger enterprise customers.
These larger companies are accelerating the adoption of remote work solutions and tend to have more pronounced needs for boxes differentiated security workflow automation and integration capabilities. As they did you guys have work is being done across their increasingly distributed workforces.
While we saw solid revenue results the cobot banking environment is resulting in softness in our small business customers given a greater proportion of sales from customer expansion, our professional services bookings and revenue were also impacted in Q1.
Finally in Q1, we experienced a higher allowance for bad debt to account for potential customer collection delays, which created a headwind of roughly a million dollars to Q1 revenue.
Our remaining performance obligations or arpino represent non cancelable contracts that we expect to recognize as revenue in future periods. This metric consist of deferred revenue in backlog offset by contract assets.
We ended Q1 RPL at 722.7 million.
14% year over year.
We expect to recognize approximately 65% of this ARPU over the next 12 months.
First quarter billings came in at a 128.1 million, representing 8% calculated and duration adjusted billings growth year over year.
As you'd expect the dynamics of this economic environment have created a slight mix shift toward quarterly versus the annual customer payment durations.
As a result, we currently expect our billings growth rate to slight lag our revenue growth rate for the remainder of this year.
However, I would highlight that we have not seen customers seek to reduce their contract durations today as they continue to give you box as a critical long term component of their IP strategies.
In Q1, we saw solid growth in six figure deal volume, including 40 deals worth more than $100000 versus 33 year ago up 21% year over year.
Additionally, we closed five deals were $500000 versus 60 year ago, and three deals over a million dollars in line with a year ago.
We ended Q1 with an annualized net retention rate of 170% up from 106% a year ago and 104% last quarter. This increase was primarily attributable to improvements in our customer expansion rates in Q1, our full churn rate was 5% on an annualized basis.
Stable versus a year ago and Q4.
Turning to margins.
Non-GAAP gross margin came in at 73.1% versus 72.3% a year ago and an improvement from our Q4 gross margin of 71.5%.
Our focus on reducing infrastructure cost is paying off and we expect this upward trend to continue in future years.
Q1 was another successful quarter of driving leverage across the business as we continue to grow revenue faster than our expenses through numerous cost and productivity initiatives, while we scale.
Total Q1 operating expenses represented 64% of revenue a significant improvement from 74% a year ago.
Sales and marketing expenses in the quarter were 62.7 million, representing 34% of revenue down from 43% in the prior year.
Core part of our strategy, we are seeing success in achieving higher overall sales productivity by selling our broader product offerings to existing customers.
Research and development expenses were 35.8 million or 20% of revenue flat with last year as we continue to enhance our cloud content management product offering to further differentiate our platform.
In Q1. This included automated malware detection capabilities and controls and box shield and an all new box experience.
Additionally, we plan to open our first engineering center of excellence outside the us in the back half of this year in Poland, which will contribute to our ability to scale more efficiently going forward.
Our general and administrative costs were 18.4 billion or 10% of revenue an improvement from 11% a year ago.
We expect to drive continued leverage in DNA through greater operating discipline and automation as we scale.
As a result in Q1, we generated an 1100 basis points improvement in our non-GAAP operating margin year over year coming in at 9% versus negative 2% year ago.
Non-GAAP EPS came in at 10 cents compared with negative three cents, a year ago and well above the high end of our guidance.
Let me now move onto our balance sheet and cash flow.
We ended the quarter with 268.4 million in cash cash equivalents unrestricted cash.
In Q1, we decided to make a 30 million dollar drawdown on the revolver, which further bolsters our already strong balance sheet.
Cash flow from operations was 61.9 million in Q1, compared to 25.5 million year ago and improvement of 143% year over year.
Combined capex and capital lease payments were 10% of revenue in Q1.
Total Capex was 1.4 million versus 1.6 million a year ago.
Capital lease payments, which we factor into our free cash flow calculation were 17.4 million versus 9.2 million a year ago.
Roughly half of this year over year increase reflects higher capital lease liabilities from our migration to lower cost data center locations with the other half, resulting from the timing of capital lease payments.
We expect Capex and capital lease payments combine to be 8% to 9% of revenue in Q2, and roughly 8% of revenue for the full year of F. why 21.
As a result free cash flow in the first quarter was 39.8 million a 196% improvement from free cash flow generation of 13.4 million a year ago.
With that let's now turn to our guidance.
Our guidance is based on our observations on assumptions about the overall macroeconomic environment kind of you're factoring in the dynamics as we see them today associated with Cobot 19.
Our revenue guidance reflects the continued strength of enterprise customers, increasing their adoption of our solutions, while taking into account the softness we expect from our smaller business customers and our professional services business.
The pivot to remote workforce has enabled us to accelerate how we operate more efficiently which is reflected in our EPS estimates.
For the second quarter of fiscal 2021.
We anticipate revenue of 189 to 190 million, representing approximately 10% year over year growth.
We expect our non-GAAP EPS to be in the range of 12 to 14 cents and GAAP EPS in the range of negative 13 to negative 11 cents on approximately 161 million and 154 million shares respectively.
For the full year fiscal 2021.
We are adjusting our flight 21 revenue guidance to be in the range of 760 million to 768 million, representing roughly 10% year over year growth at the midpoint of this range.
We now expect our flight 21, non-GAAP EPS to be in the range of 47 52 cents on approximately 162 million diluted shares.
Our GAAP EPS is expected to be in the range of negative 55 cents to negative 50 cents on approximately 155 million shares.
We expect our non-GAAP operating margin to be in the range of 11% to 12% of revenue.
We still expect to achieve a combined revenue growth rate plus free cash flow margin of 25% enough why 21.
In summary in Q1, we delivered strong financial results across the board, we would like to thank our box employees and partners for their tremendous focus and effort leading by example in delivering these results in such a dynamic and challenging environments.
Our product innovation around remote work combined with our resilient business model put us in a strong position to partner closely with our customers and support them through this new era of digital transformation.
Our strategy and execution delivered strong revenue growth and significant profitability improvements in our first fiscal quarter and we are well positioned to drive further profitability improvements as we continue to build on our leadership position.
With that I would like to open it up for questions.
Operator.
As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the founder hash key please standby we compile the culinary roster.
Your first question comes from the line of Melissa Frenchie with Morgan Stanley. Your line is open.
Great. Thank you for taking my question and congrats on the quarter. Aaron you mentioned strong customer expansion in the quarter as you're looking into the pipeline for the rest of the year can you talk about the the level of upsell activity that you're anticipating and is that coming really more so from that.
Pete expansion within your existing customers or is it more so around adding on additional functionality through some of the add ons like shield.
Yeah, Thanks, most and a great to hear from <unk>.
We we as we shared with investors in the past, we haven't had tremendous opportunity to expand.
Box throughout throughout our customer base in most large organizations. We're still in some cases only penetrated in 10 or 15 or 20% of the employee population that is available so, especially in this move to remote work or a work from anywhere strategy enterprises need the ability that use technology across their organization.
So we saw that that really pick up in Q1 that led to some some pretty significant deals in one case, we had a fortune 500 company that was using boxing up you know one subset of their organization and then they decided to go without effectively enterprise wide.
And that turns you know what may have been normally a hub.
Multi quarter sales cycle into really under a couple of months. So I think we're starting to see that show up more in the pipeline I think you're going to see a mix of bulk seat expansion driving the revenue outcome going forward as well as out on products are out on product strategy.
As a is obviously the big differentiator of box because we can pull together advanced security advanced workload data governance.
All in one solution for our customers I think you're going to see a mix.
A growth in both of those especially in the enterprise segment.
Going out any other color if you'd like on the on that mix shift.
Yeah. Thanks to build on that I would also note that while as Aaron mentioned a lot of the Tailwinds that we saw in the first quarter were attributable to see expansion or we are continuing to see strong momentum in the adoption of our add on products, especially continued momentum and Oh.
Oh, very strong start with which shielding with suites and so when you look at the revenue a tree attributable to the customers who have purchased at least one of our add on products.
That's come up about 35% year on year, and we're continuing to see momentum in the more sophisticated use cases being adopted by our customer base, we've talked about in the past become different categories in implications of that.
And we'll be look at our customers who have adopted at least one of our add on products. They collectively now represents about 54% of our recurring revenue and that's up from about 45% a year ago.
Okay, Great. That's very helpful and just one follow up for you Dylan and when we're looking at your revenue guide for the full year 21 can you help us quantify what the impact is from some of the assumptions around you know a lower SMB renewal rate versus professional services headwinds or any other factors that might be.
Driving a lower our outlook for the full year. Thank you.
Sure. So what what I'd say is of course that.
When we were looking to set our guidance for the year and coming up with that especially for the back half we wanted to be cautious because of the uncertainty around the macroeconomic conditions.
Later this year, which is also why we slightly widened our revenue guidance range to accommodate for some of those things I would say that if you think about the impact that we're seeing on our professional services revenue.
Expect that relative to our initial expectations for the year to be in the mid single digit million range in terms of.
The the lowered expectations because the dynamics that you mentioned.
Perfect and for you, but we think about that yes, the remainder being from the smaller business impact that you mentioned as well.
Okay, great. Thanks, so much.
Your next question comes from the line of ITI Kidron with Oppenheimer. Your line is open.
[noise] thanks, guys.
Congrats on good quarter.
Just had a couple of questions.
First maybe a Aaron you can talk about suites I don't even think you mentioned that in your prepared.
Unless I missed it.
I just was like a very big.
Changed into story help me think them out where we are in.
Customers understand I guess adopting it.
How much are still trying to pick off of many reverses willing to you to haul and chelada as they say.
Yeah actually I did I did mention it.
Around or go to market model and so the evolution of both driving seat expansion as well as out on expansion through through our suite strategy. So.
So it remains fundamentally at the center of our go to market motion.
It's a it's obviously, enabling us to reduce the friction in the sales cycle by bringing together the full power of of box.
To a customer conversations the.
One of the deals that I mentioned in the quarter being a fortune 500 company going effectively enterprise wide was wasn't major sweet deal on bringing together shield and and related that transaction. So we're seeing the we're continuously really really strong momentum with suite overall, I think that will even be stronger throughout the year as we have a chance that tip even better.
Position suites in this new virtual selling environment I think a lot of the deals.
That that maybe initially kind of came out in Q1 work, where these sort of rapid fire expansion deals where customer really needed more seats right away and now we are going to obviously continuing to but the sweet story right in front of that conversation to be able to bring shield governance and relay.
All altogether. So we had we had around a quarter of our six figure deals that that had a suites and involved in them.
So the 100000 dollar plus deals, which was consistent with Q4, but again.
A lot of the Q1 business was that rapid fire expansion. So suites remains the fundamental to our whole strategy. This year.
Got it maybe I guess following up for that doesn't rapid fire expansion.
Do you feel that if you ask is a baseball analogy and outlets you named what inning already we only having your customers kinda reacts very quickly to theirs and moving into more I don't know what he is a new normal somewhat normal sales cycles or how do I think about that.
Yeah, well I'm I'm not I'm not the baseball expert on this call billing as but I would say our our response is probably and one of the latter antibodies.
In terms of our our ability to go and sell the customers that virtual sales methodology I'm doing virtual events, having virtual executive briefings, we were able to up to move to that model within.
Really honestly a week or two in this environment I think now the question is on the customer side I think there's sort of two ways to think about the customers response to this environment. The first was the immediate tree eyes of I need my employees to be able to work from an unmanaged device on unmanaged network and be able to get on video conferencing you'd be able to get on chat.
I think were largely in well into the lottery things of that have that remote immediate tree OS and now I think we're in the very early innings of what to US as you know, we're really excited about which is on companies now starting to realize that they have to reevaluate what the future of their workplace looks like what the future of their business processes.
Like and that's where you can start to have more strategic conversations.
Around how box can be used across the enterprise around how we can help them with their data security strategy with box shield or how we can automate workflows with box relay. So I think we're in the earliest of innings of a more of the long term impact of of the business transformation in this market on but our responses is quite mature at this at this stage in terms of how we can go in.
And work with customers I mean, only other final point I'd say is.
Effectively all of the big transactions that we did in the quarter.
We're done posts pandemic.
Kicking off so they were being done completely remotely completely virtually on in a in driving those large deals so our ability to sell with two customers drive adoption.
Remains very very resilient right now.
That makes sense, I guess kind just to be lindale enough.
We picked up $10 million that came in in the last quarter. It was supposed to come in this quarter that 10 million billings that shifted and move it back to this quarter or you would have posted billings growth of 17%, which is extremely strong especially for [noise].
Since we quarter Needless to say given what Aaron mentioned that makes sense right. There's a lot of kind of media attribute that to happen I guess it stays at the best way to kind of reconcile while why we've been effective billings go for 72% you're kind of guiding revenue for 10 minutes. After like we just think about this.
Yes, I think you're you're spot on that when we do.
Account for that $10 billion of additional Q4 billings from customers, who had been originally set to renew in this past quarter. In Q1 that is the type of impact you would have gotten on both calculated and adjusted billings growth.
I think when you look at kind of our expectations. We've set for the remainder of the year a lot of it does come down to just the different dynamics and uncertainties that we're seeing in the environment.
And wanting to be pretty prudent on that front, but certainly in terms of especially the enterprise traction that we've seen and the fleet expansion and some of the Tailwinds that we're seeing in the business and that it continued into may we feel really confident in the incentive for the remainder of the year.
Very good good luck guys.
Your next question comes from the line of Phil Winslow with Wells Fargo. Your line so.
Yeah, I think I've for taking my question and I'm glad to hear that Youre, well and so I'm sure if your family and your teams.
Actually question for into the fall for Doug Aron, you talked about obviously, a significant increase in and end users. But also just you talked about record upload volumes call just number files amount of data getting transfer to box. So Mike brings about sort of engagement longer term because boxes always had a very high renewal rates begin with but not when do you think about sort of the spiderweb complexity of more use.
There is more files more engagement.
This is the opportunity to see that.
Basically that retention rates since we've hired to stay higher how are you thinking thinking through that.
Yes, thanks, Phil.
Right out of the gate and we published this on our blog for any investors that are interested.
Right out of the gate, we saw a pretty market shifts in the work patterns happening within our customers, they're sort of this Norman.
Yeah.
In February transitioning to middle of March where you can see that collaboration is going up in a range of industries public sector life Sciences, healthcare marketing and advertising Tech companies and and then usage of things like integrations with zoom and Webex and slack and other tools so that that.
That shift in more collaboration more sharing.
More external collaboration of data is a as persisted throughout the quarter. We think this is a great opportunity to drive greater adoption within our within our our customer base right now and with that greater adoption, we have huge opportunity to be able to go and drive out on product expansion with those customers. So if you take a.
Core seat license and and you're getting a lot of activity from that from a customer that ability to go in AD data security and data governance add workflow automation becomes that much more or they have an opportunity for us so right now and really kind of in Q1, especially our focus was make sure customers can remain as successful as possible.
Make sure that they can drive adoption make sure that we can help them expand very very easily without any friction and then and then we've got really I think significant opportunities to go and drive out on product expansion suite expansion from there.
Great. Thanks, and then filling a follow up.
Think about you an n. referred to were just shift to a virtual sales cycle, what sort of things we've heard from.
From software sales people tell you I used to be six meetings a week now I can do six me today.
Obviously, maybe it's called the philosophy hired and maybe the conversion lower but how are you kind of thinking through that maybe the maybe even the longer term ramifications on the positive side of just our velocity engagement.
I was sort of personally there Oh I'm sorry go ahead.
Let's go ahead, you always you're going to say.
You know, we're very excited about.
About that that transition to a more virtual selling.
That ability to get more and more customers on on video right away I mean, it used to be that if we wanted to go I have a conversation with a fortune 500 company that might be punted by 234 weeks out you have to travel to get the team together and we're having this meeting scheduled within a day or two.
The initial kick off so that's one dimension. So the speed of of conversations that are happening is fantastic the ability to be in multiple regions. At once on is also really great for any of our sales managers. So obviously you know in sales territories that can be spread throughout geographies. So you're spending less time on the road you're able to get on video calls throughout the day with customers. That's also helpful.
And then we've been able to engage our broader customer community on way more effectively right now so we hosted our customer Advisory board.
I a couple of weeks ago, and it brought together nearly 40 CIO of more or less the fortune 500, and that was a meeting where we were able to bring everybody on video very.
Seamlessly to be able to share best practices, what people are seeing share our product roadmap get get feedback on it was a three hour meeting.
And and it was incredibly effective on to be able to take engaged with our customers and so we're seeing we're seeing that began to emerge all throughout the business, where we can get our customers engaged.
Much more efficiently one more final example on that is you know, we just announced Boxworks digital this morning, and we have the Ceos of Cisco IBM slack zoom octa and more to more to come on and we're going to expect tens of thousands of attendees to that virtual event, because it's so much more efficient.
Be able to how people then dial in and tune in to a virtual conference and so we can actually brought in the amount of customers that were able to reach within an event like that and start to reach demographics and customers that maybe we wouldn't have been able to get to fly out the San Francisco to attend so so we think there's a lot of benefits the to the push toward virtual selling and more did.
Digital marketing and I think the big question is how much of this will remain in the kind of new normal kind of post pandemic world, but done but right now we're certainly.
Making sure that we can operate very smoothly universal way.
Yes, and then just to build on that this is bill and I think in terms of how this impacts sales cycles in the dynamics longer term, it's a bit earlier pell, but had certainly seen some deals even larger deals come together very quickly and faster than the typical deal.
Especially given the urgency that customers are seeing right now to quit remote working solutions in place.
So I think ultimately as a lot of the deals that are being created now in the pipeline have not yet come to fruition it'd be hard to see exactly where that shakes out but overall do expect within one mentions many of the positive trends that we are seeing in our go to market motions to persist even over the longer term.
Great. Thanks, guys inspection.
Thanks So.
Your next question comes from the line of Brian Peterson with Raymond James Your line is open.
Hi, gentlemen, thanks for taking my questions and congrats on the strong results. So errand first one for you.
I know there's been a big push over the last few years to really get more integrated into your customers business processes. Obviously, that's still the case here, but I'm curious when you talk to your customers has the idea of compliance or endpoint security has that come up a lot more than it has maybe four or five.
Months ago. It does that lend itself to may be higher up sell attach rates as we think about maybe the pipeline of opportunity for the next 12 to 18 months.
Yes, I think I think we're going to see a a big shift toward the first the first phase being how do people work remotely and and then the question starts to emerge how do we keep employee secure in this environment, how do we keep our compliance standards up to the levels that they need to be how do we ensure data governance and this and.
So I think the focus on data security compliance and privacy will remain core to our ability to grow with customers right now and and very important for being able to drive expansion. So that's where box shield comes and that's where our suite strategy comes into play but that core differentiator is.
Only becoming more important to our customer base right now.
Got it understood and I know a key topics of conversation a few years ago was around GDPR I mean since EPA is obviously very topical right now any thoughts on that might impact how might that might impact some of your customers and how that could be an influence your box. Thanks guys.
Yeah, I think you know.
These reasons I think the first.
The first focal point of most customers right now is on data security as opposed to some of the longer term data privacy challenges.
But but were you know we know that customers are going to really care about how they manage their data over the long run.
And Thats, where box governance comes into play, that's where our compliance posture with things like.
Our GSP solution and our support for TCPA as well as GDPR are really important but I think the first phase is data security because you don't want people working from home and then accidentally having malicious files on their computers or having.
Malicious actors and be able to to access data. So Fox shield is is it really kind of core product area for us to continue to innovate on to help drive threat detection and better better security offerings for our customers right now.
Thanks.
Your next question comes from the line of Mark Murphy with JP Morgan Your line is open.
Hi, guys Adam on for Mike Austin. This you guys execute against your financial targets and so first on net sales and marketing as a percentage of revenue has come down very nicely on and we're starting to see nice leverage in the model and is there any additional color you can provide here on.
Are you guys mentioned achieved that you guys briefly mentioned shuffling, some resources and selling into the existing days.
Just anything else to call out here.
Sure. So as mentioned in appreciate it is we have seen significant leverage in the sales marketing line over the past year. It came in at 34% of revenue.
This past quarter versus 43% a year ago and most of that is through some of the things we've done to drive both salesforce productivity improvements as well as the reallocation of resources and sort of streamlining our overall go to market motions as we discussed on our last earnings call.
Entering the year at the same time, we are seeing a certain expense reductions related to be current environment. Other benefited our bottom line, particularly on travel, but that's not nearly as material and on a go forward basis.
For all the reasons that we mentioned around our ability to successfully drive these deals and momentum.
In a different environment, we don't need dissipates traveling events expenses, returning to a 100% if they're pretty coated levels.
Awesome and as a quick follow up.
You guys kind of balance between.
Assigned to the existing base versus new business. I know you guys mentioned over 70% of bookings this quarter were to existing which is super impressive. So just wanted to think about how do you guys kind of defenses resources there. Thanks.
Yes, so from a resource allocation standpoint.
Just one knew about the way that weve structured our salesforce and overall incentives is most of our account executives actually are responsible for both acquiring new logos and accounts and customers might be prospects as well as the existing customer base and.
We have the same compensation rates between those two categories and so what we have done is we've set up our territories in a way that aligns kind of our top priorities, our biggest opportunities with the sellers kind of capabilities to drive those conversations and at the same time as we've talked about heading into this.
Here, we shifted our resources from lower performing regions and segments into the higher performing regions and segments and in the latter where we are seeing strength, we tend to have more mature larger existing customer bases. So based on where weve allocated our go to market resources.
As well as if inaccurate natural territory alignments is really what we've done proactively.
To to move more and more of our sales from customer into customer expansion. This year, which is both a more predictable and more efficient sale versus.
Using entirely new customers.
Got it thank you.
Again, if you would like to ask a question press star one on your telephone.
Next question comes from the line of Ricci jewelry, you with D.A. Davidson Your line is open.
Hey, guys. Thanks for taking my questions and nice to see that runs doing well and continuing to execute I wanted to start by asking about the margin guidance. So clearly raising the margin guidance by about 200 basis points. After the full year can you give us some signs for how much providing.
Auction of just expecting slower growth because of co bad and maybe being a little bit more.
In.
Particular about the areas you invest then.
On alongside the massive cost savings you have about having a physical conference and be able to do that virtual this year versus other areas, where you've been opportunistically able to find cost efficiencies.
A follow up.
Sure. So I'd say the majority of the improvement in our operating margin expectations are not directly related to were driven by.
This specific dynamics of this environment such as on the traveling event side.
Thats certainly contributes but it's.
Quite a bit but less than 50%.
However, a lot of what we've done in what has enabled these improvements have been changes that we made just further driving prioritization around but head count in the overall expenses.
Especially in light of the situation.
Although we things again that are not directly driven by it so.
Overall, it folds really into those three main categories.
We've talked about earlier around managing workforce expenses, improving gross margin and then just overall cost discipline and all three contributed to the improvements between what we're expecting now for the year versus our initial expectations.
Okay. That's helpful. Thanks.
On the prepared remarks.
Mentioned that you're seeing customers more customers opting for from monthly versus annual deal.
<unk> expenses in this environment, just how you're thinking about the potential impact on future churn numbers.
Does that mean on the castle aside and maybe on a longer term basis would you expect them to see more collections out of these customers given the fact that they're not getting there the annual discount because they are going for monthly. Thanks.
Yes. So so as you noted we are seeing customers I'm more focused on on cash conservation aunts environment, which is leading to that slight shift toward quarterly versus annual payment durations.
And we're assuming that customers under financial strain that we're requesting payment extensions you mentioned the end duration changes will persist throughout the year, which is why we currently expect our billings growth rate to slightly less revenue growth for the duration of effect like 21, one due to make in terms of the churn side of things and just the overall dynamic.
His line there that are on track duration haven't been impacted.
In this environment as we continue to be a critical part of our IP customers I key strategies. So we've actually seen the average contract duration length of those commitments improving a bit overtime and that on average about 18 months across our customer base, our larger enterprise customers are much more likely to sign.
Multiyear commitments with many of our smaller customers signing one year deals, but I just wanted to differentiate between be payment duration impact and the contract duration lack of impact.
Okay Thats helpful. Thank you.
Your next question comes from the line of Chad Bennett with Craig Hallum. Your line is open.
Great. Thanks for taking my questions. So just wanted to follow up on a question asked earlier on a net expansion.
I'm not sure what.
What to what the answer was but but based on on the.
Accelerated net expansion rate of 107%.
This quarter.
Relative to your guide for the year do you expect that 107 to to be sustainable or to actually improve as we go throughout the year, then I have a follow up.
Yes, I think.
Certainly we are seeing an acceleration and any particular strengthen in the first quarter around a seat expansion in our enterprise customers for the reasons. We've discussed in the urgency in importance of remote work solutions like box.
We do expect to see strong expansion trends continue throughout the year. Although the same time the dynamics of Cobot 19 have created I turn pressure in our smaller customers as we as we talked about so as a result, there a bunch of moving pieces that go into this metric, but we do expect.
Our net retention rate to end this year above where we ended asked why 20, and we'll certainly continue to provide more color commentary and.
I kind of drilling to our expectations as we move throughout the year, Okay, and then dealing could you elaborate anymore on on the I think you termed it the slight change and billing terms to quarterly from annual is there any.
Kind of.
Historical comparison, you can give us.
So.
We haven't given.
Kind of we did contract to reaching a rates or anything like that and it's also.
A little bit more qualitative as we did not see a pronounced impact in Q1 and as you saw we were able to deliver very strong billings results in the quarter. So this was more based on the expectation that we're going to see customers requesting payment extensions, we are starting to see that in some conversations.
But did want to emphasize that it's not a material impact and we just want to be prudent in terms of how this might then impact billings throughout the course this year as we're going to do what we can to make sure that we support our customers and meet their needs during this challenging environments.
Got it thanks.
There are no further questions at this time.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
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