Q4 2021 Box Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to box, Inc. Fourth quarter fiscal 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
Ask the question during the session you will need the press star one on your telephone please be advised that today's conference is being recorded.
And you require any further assistance. Please press star zero and I would now like to hand, the conference what would your speaker today, Alex low Pato. Please go ahead.
Good afternoon, and welcome to the boxes fourth quarter and fiscal year 'twenty 'twenty One earnings conference call on the call today, we have Aaron Levie, our CEO and Dylan Smith, our CFO following our prepared remarks, we will take questions.
Today's call is being webcast and will also be available for replay on our Investor Relations website at Www Dot box dotcom forward slash and doctors our webcast will be audio only however of supplemental slides are now available for download from our website well suppose the highlights of today's call on Twitter at the handle at box, Inc. I R.
And on this call, we will be making forward looking statements, including our Q1 in FY 'twenty to financial guidance and our expectations regarding our financial performance for fiscal 2022, and future periods timing of and market adoption of our products our markets and the size of our market opportunity and our expectations regarding our free cash flow gross margins operating.
<unk> operating leverage future profitability unrecognized revenue revenue remaining performance obligations and billings and our planned investments and growth strategies, our ability to achieve our long term revenue and other operating model targets, the timing of and benefits from our new products pricing and partnerships the impact of our acquisitions on the.
Future box product offerings, and the impact of the COVID-19 pandemic on our business and operating results.
These statements reflect our best judgment based on factors currently known to Us and <unk>.
Actual events or results may differ materially please refer to the press release and the risk factors and documents, we filed with the Securities and Exchange Commission, including our most recent quarterly report on form 10-Q for information on risks and uncertainty and may cause actual results to differ materially from statements made on this earnings call. These forward looking statements are being made.
As of today March 2nd of 2021, and we disclaim any obligation to update or revise them should they change or cease to be up today and.
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 results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results and our earnings press release, and then the related Powerpoint.
Presentation, which can be found on the Investor relations page of our website and.
Unless otherwise indicated all references to financial measures are on the non-GAAP basis.
With that let me hand, it over to Aaron.
Thanks, Alice and thanks, everyone for joining the call today as always we hope you and your families are staying safe and healthy I'm incredibly proud of the team and box and the milestones we achieved in FY 'twenty. One this was the substantial year of progress across all facets of our business strategically operationally and financially we exceeded our.
And to achieve of revenue growth rate plus free cash flow margin of 25% ultimately delivering 26, 3% versus 13, 4% just the year ago. In addition, we drove significant margin expansion with a 15% non-GAAP operating margin up from 1% of <unk>.
Year ago.
This year, we delivered the category defining cloud content management platform to the market by making significant product enhancements and security and compliance collaboration and workflow and strengthening our ecosystem of partner integrations and the further expand our product portfolio at the start of this new fiscal year, we just recently and.
The box sign our native E signature product offering that will be coming out later this summer and a year of of men's market uncertainty, we delivered both revenue growth and improved profitability and advance our long term strategy brought on three new amazing independent directors onto our board and maintained a relentless focus on.
Enabling our customers to work and and all new modern and digital way with this foundation in place and the momentum we're seeing across the business, we are confident and our ability to achieve accelerated growth and higher operating margins and the years ahead.
Turning to our Q4 results, we delivered revenue of $199 million up 8% year over year non-GAAP operating margin of 18% up significantly from 7% of year ago, and non-GAAP EPS of 22% up from seven cents, a year ago and well above our guidance.
We also generated more than $41 million and positive free cash flow a substantial improvement from breakeven last year gross.
Strong demand for our more advanced capabilities, such as box shield and box relay drove further suite adoption, including a record 45% attach rate per suite as well as a 60% attach rate for box shield and our six figure deals.
Over 100000 customers now rely on box the power secure content management and collaboration and the cloud and Q4, we closed wins and expansions with leading organizations like Arena Pharmaceuticals, Asahi and group Holdings, and Japan Pan American life, and insurance group Twilio and U P. S are cut.
<unk> are choosing box the power of high value use cases that are integral to how they run their businesses here are just a few examples from Q4.
And innovative biopharmaceutical company purchased of six figure E. L. A with boxes G X P and key safe offerings to help power its mission to transform the way the drugs and therapies are manufactured in the U S.
A global leader and the insurance sector, who has been of box customer since 2016 purchased box governance. The support claims processes, while meeting critical compliance requirements and the Japanese manufacturing company moved to box to address their need for our content platform to facilitate remote work as well as integrate with applications such as that.
Sales force and Google Workspace.
2020 was the dynamic year for all enterprises, and we are now seeing ice's strategy of shifting to support the long term trend of virtual and distributed teams digital operations and an increasingly complex and high Stakes security and compliance landscape in this context, how organizations manage and collaborate on.
Content is at the center of how they operate whether it's the life sciences companies sharing highly regulated IP with their partners and regulators around the world and insurance organization automating workflows around confidential claims and records or a government agency's needs of digitized paper based processes all of these organizations.
Across all industries run on content.
The power of these processes the days of fragmented on Prem content storage and enterprise content management systems, no longer works customers fundamentally need a single content cloud connected across all of their apps to power their end to end content workflows on a single platform.
As the experts and content our vision is the power the entire content and journey, giving enterprises, a secure platform for managing all of their content from the moment. It is created to when it's uploaded shared edited published approved signed the classified and retain this is our vision for the box content and cloud.
And having dramatically improved our overall balance between growth and profitability and FY 'twenty. One the next chapter for box is to continue building on our leadership position and transform how enterprises work and the digital age to accelerate the strategy just last month, we acquired sign request, a leading cloud based electronics thing.
And as for the company to develop box sign our new E signature capability that will be natively embedded in the box every day more and more transactions are moving from paper based manual workflows to the cloud E signatures already and multibillion dollar market and it's still and the earliest days with digital.
And just beginning to become critical and every industry when.
When we survey of hundreds of our customers and 2020 Esignature was the most requested new box capability. There are an incredible number of use cases that box I and we'll address for our customers. For example, legal teams will be able to create and finalized contracts within box from drafting and co editing to signing and retaining the agreement with.
The box governance.
HR teams will be able to initiate and complete offer letters using box relay together with bauxite sales teams can initiate digital customer contracts for signature right from the sales force and compliance teams will be able to retain and protect executed agreements, while securing sensitive content with box shield box.
Box sign is expected to be generally available in the summer of 2021.
It will be integrated in the boxes existing subscription plans with additional levels of functionality being available and our enterprise plans and suite of offerings. We.
We want to ensure all of our customers have access and the value of box sign while also enabling us to monetize the higher and signature use cases that leverage advanced functionality and ati's, adding esignature is a significant step and building out the complete content and cloud.
Another exciting announcement, we made last month was the availability of the all new box shuttle for many organizations moving to the cloud has been a priority, but the cost of content migration, especially and complex content management environment has been a major impediment to the cloud adoption.
The new box shuttle can migrate some of the most complex and large scale content management environment, and a lower cost and faster than ever.
We want it to be simple fast and cost effective as possible to retire legacy systems and move information from source platforms like network file shares Sharepoint and Onedrive document and and open text to the box content cloud.
And with more high value content and box market.
And our customers can empower their teams to collaborate more effectively and accelerate their digital transformation initiatives.
In Q4, we also continued to stay at the center of our customers' digital experiences by deepening our integrations with Google Workspace slack and Webex as more organizations use multiple applications such as slack sales force teams Webex and zoom to get their work done and they need to access their content from these application.
And securely and seamlessly box.
Box connects two of these applications and with over with 1500 integrations, we create a seamless experience for our customers to work and new ways.
Overall, we're more excited than ever to continue to build out the complete content and cloud FY 'twenty two will be our singular biggest year from product innovation as we expand into new market Adjacencies like E signatures, while continuing to double down on product areas like box shield and box governance for advanced security and compliance.
Box relay for workflow automation and our open platform to connect to all of our customers' applications.
This product innovation will enable us to build on our leadership position, which has been validated by IDC and Gartner and Forrester.
Next to bring all of this value to our customers and FY 'twenty. Two we're focused on continuing our land and expand strategy to drive growth with new and existing customers and Q4, we saw tremendous success with box suites R. E. L. A licensing model and a significant improvement to our $100000 plus deal growth.
We continue to see significant headroom and expanding within current accounts.
And just within our current customer base today box has a seven ex potential increase and seats from upselling existing customers to.
And to drive continued logo growth and customer expansion. We are focused on a number of priorities across our go to market engine.
First we are continuing to double down on our digital channels and this remains an area. We will continue to invest and as we scale to efficiently bring and new logos and drive upsells across enterprises of all sizes.
We know that driving strong partnerships with leading technology companies and system integrators is key to our success and scale. This is why we are excited to continue to partner with IBM, Google sales force and slack zoom, Cisco Okta, and Microsoft as well as many others, including leading system integrators to ensure.
We're delivering our content cloud solution to our customers at scale.
Third we will continue to double down and key verticals like life Sciences Federal government financial services media and consumer products and the technology sector. Among other markets, where we continue to see substantial upside and a significant need for secure content management and the cloud.
Finally, we see continued opportunity for efficient expansion and key international markets, especially in Japan, EMEA, Canada, and Australia to ensure that we're building a stronger presence and exist and consistent execution and EMEA. We've just build our previously vacant EMEA G. M rule with a world class go to market leader.
And we're excited to share more about this new leader when we formally introduced this individual to our internal teams and public stakeholders.
As we look to FY 'twenty, two and beyond we are focused on innovation and further opening new areas of growth, while reinforcing our gains and profitability as we shared at our most recent analyst day, we are committed to driving a revenue growth rate between 12, and 16% with operating margin and the mid twenties by FY.
24 of our FY 'twenty one results demonstrate that our strategy is working and that we are making tremendous progress toward achieving our long term goals. We are confident and our ability of achieved these results based on the cost of Ramentum and we're seeing our product roadmap and the total market opportunity ahead, we are going after one.
Of the largest markets and software attacking a total addressable market of over $55 billion and spend on content management collaboration storage and data security annually and with the New addition of esignature capabilities, our market is only getting larger.
We have built the leading content cloud with well over 100000 customers on our platform and we have and exciting roadmap to continue pioneering and this industry going forward with that I'll hand, it over to dawn.
Thanks, Aaron and good afternoon, everyone and thank you for joining us today and.
In fiscal 'twenty. One we are proud to have delivered a strong balance of growth and profitability achieving of non-GAAP operating margin of 15% up significantly from 1% of year ago.
We also exceeded our 25% commitment for revenue growth plus free cash flow margin delivering 26, 3% a strong improvement from the 13, 4% we recorded a year ago.
In Q4, we delivered revenue of $199 million up 8% year over year importantly.
Importantly, 29% of this revenue came from regions outside of the United States up 400 basis points from 25 per cent a year ago.
Our remaining performance obligations or our P. O represent noncancelable contracts that we expect of recognized as revenue in future periods. We ended Q4 with RP O of $897 million up 17% year over year comprised of 10% deferred revenue growth and 21% backlog.
Gross.
Average customer contract durations had continued to lengthen driven by a higher volume of longer term strategic deals, which contributed to the strength, we saw and our backlog growth we expect.
The recognized approximately 61% of our RP over the next 12 months.
Fourth quarter billings came in at $310 million, representing 10% year over year growth and ahead of our revenue growth.
This acceleration was driven by strong sales execution and the quarter, reflecting continued momentum and our enterprise business and a clear recovery and our SMB business is.
As Aaron mentioned, we were extremely pleased to achieve a record 45% attach rate for our suite offerings across six figure deals in Q4.
This quarter, we closed 121 deals worth more than $100000 versus the 112, a year ago 21 deals over $500000 versus <unk> 14, a year ago, and 4 million dollar deals in line with a year ago our.
Our success and cross selling our product portfolio is driving higher value use cases across our largest customers improving the average contract value of our six figure deals in both Q4 and the full year.
Our land and expand strategy is generating momentum and large customer growth.
We now have 1200, 16 customers paying more than $100000 annually up 10% year over year and $99 million customers up 24% year over year.
Going forward, we will be reporting these cumulative customer accounts on an annual basis. In addition to the number of 100, K plus deals that we closed and each quarter.
In Q4, we drove very strong bookings from net new customers up more than 25% year over year, which isn't reflected in our net retention rate.
We ended Q4 with an annualized net retention rate of 102% down slightly from 103% and Q3 due to the trailing 12 month nature of this metric.
Note that the net retention rate of customers, who have adopted at least one of our add on products is approximately 20 points higher than the rate of our core only customers. So as our customers increasingly implement higher value use cases and adopt our add on products. This will create a tailwind to our overall net retention rate.
As such we expect our net retention rate the stabilized in Q1 and improve by a couple of percentage points over the course of this year.
In Q4 of our full churn rate was 5% on an annualized basis in line with Q3 and the prior year.
Turning to margins.
Non-GAAP gross margin came in at 73, 2% up of 170 basis points from 71.5 per cent a year ago and roughly in line with Q3.
Our focus on reducing infrastructure costs and gaining economies of scale is paying off Q.
Q4 gross profit of 146 million was up 11% year over year outpacing our revenue growth.
We expect gross margin to continue improving in the coming years and the land and the 74 per cent range. This year.
Total Q4 operating expenses represented 55% of revenue representing a significant 900 basis points improvement from the 64% recorded a year ago, demonstrating our commitment to efficient growth.
As a result of our emphasis on revenue growth gross margin expansion and operating expense leverage in Q4, we generated and 1100 basis point improvement and our non-GAAP operating margin year over year, coming and at 18% versus 7% of year ago.
Sales and marketing expenses and the quarter were $57 5 million, representing 29% of revenue down 600 basis points from 35% and the prior year.
Our go to market improvements enabled us to deliver efficient and consistent revenue growth and we generated a 13% year over year improvement and sales force productivity, primarily driven by our enterprise sales force we.
We plan to grow our quota carrying sales force and the low teens and FY 'twenty, two focusing on our higher performing geographies and segments.
We will also continue investing and our customer success organization to help our customers adopt higher value use cases.
Research and development expenses were $33 6 million or 17% of revenue down 200 basis points from 19% and the prior year.
We have now opened our first offshore engineering center of excellence and Poland, where we expect to have more than 100 boxers located by the end of the year.
Going forward. This distributed development strategy will enable us to generate additional leverage from our R&D investments.
This past year, we drove both innovation and enhancements to our product portfolio generating strong momentum and our customers' adoption of higher value use cases.
And 59% of our revenue is attributable to the customers who have adopted at least one of our add on products up from 52% of year ago.
Strong suites adoption is evidenced by the 36% of our revenue attributable to customers who've adopted multiple products up from 24% of a year ago.
Our general and administrative costs were $18 2 million or 9% of revenue down from 10% of year ago.
We expect to drive leverage and G&A through greater operating discipline and by evolving our work force location strategy as we scale.
Non-GAAP EPS came in at 22 cents and well above the high end of our guidance.
This represents and especially strong improvement from seven cents a year ago.
Let me now move onto our balance sheet and cash flow.
We ended the quarter with 596 million and cash cash equivalents and restricted cash and this includes net proceeds of 309 million raised through our Q4 offering of convertible notes.
We delivered very strong cash flow from operations of 57, 5 million and Q4 of $42 5 million or 280% improvement from the 15.1 million recorded a year ago.
Combined capex and capital lease payments were 8% of revenue in Q4.
Total capex was $1 7 million and capital lease payments, which we factor into our free cash flow calculation were $13 9 million we.
We expect capital lease payments to be lower both in dollar terms and as a percentage of revenue versus this past June of payments.
We expect Capex and capital lease payments combined to be roughly eight percentage of revenue in Q1, and roughly 7% of revenue for the full year of FY 'twenty two.
Finally, we delivered exceptionally strong free cash flow and the fourth quarter of $41.1 million up meaningfully from essentially breakeven a year ago.
Before we turn to our guidance I want to remind you that as we noted at our most recent investor day, we're committed to delivering FY 'twenty for revenue growth and the range of 12% to 16% with non-GAAP operating margin and the mid 20% range.
We're confident in achieving these targets as more of our customers continue to adopt multiple products, resulting in significantly higher contract values price per seat and net retention.
Sales force productivity will continue to improve as customers increasingly adopt the solutions and as we focus our investments and higher performing regions and segments.
Q4's results demonstrate that the strategy is working with strong suite sales and big deal metrics and with both our P O and billings growth exceeding our revenue growth.
As we continue to drive revenue growth. We will also continue to generate operating leverage across the business driven primarily by a lower cost location strategy continued gross margin improvements and maintaining a rigorous ROI based approach to all areas of our spending.
With that let's now turn to our guidance.
We're well positioned to stabilize our revenue growth rate and FY 'twenty, two and the Reaccelerate growth next year.
While we remain prudent and our growth expectations, given the macroeconomic environments, we anticipate continued strength and our enterprise business, our recovery and SMB demand and accelerated growth and our international markets.
While we do expect certain COVID-19 related expenses, the partially return of over time, we don't expect our spend in these areas to return to pre COVID-19 levels. Even after we return to an office based environments.
For the first quarter of fiscal 2020 two.
We anticipate revenue of 200, the $201 million up nine 5% at the high end of this range and an improvement from the revenue growth that we delivered in Q4.
We expect our non-GAAP EPS to be and the range of 16 to 17.
And GAAP EPS and the range of negative <unk> to negative five cents on approximately of 166 million and of 161 million shares respectively.
For the full fiscal year ending January 31 2022.
We expect our FY 'twenty two revenue to be and the range of 840 million the $848 million, representing 10% year over year growth at the high end of this range.
We expect our FY 'twenty, two non-GAAP EPS to be and the range of 76 to 81 cents on approximately 169 million diluted shares.
Our GAAP EPS is expected to be and the range of negative 25 to negative <unk> 20 cents on approximately 164 million shares.
For the full year of FY 'twenty, two we expect billings growth to be slightly above revenue growth.
We do expect variability and our billings growth rate on a quarterly basis, including in Q1, where we expect billings growth to be and the high teens up from 10% this past quarter.
We will provide further color around our upcoming quarters billing expectations on future earnings calls.
As we shared at our most recent analyst day, we remain committed to achieving a combined revenue growth rate plus free cash flow margin of 30% this year.
In summary, and.
In FY 'twenty, one we delivered strong financial results balancing both growth and profitability and capped off the year by exceeding our commitment to achieve revenue growth plus free cash flow margin of 25 per cent.
We are well positioned to deliver strong revenue and profitability growth as we continue to build on our leadership position and cloud content management.
With that I would like to open it up for questions operator.
Thank you as a reminder to ask the question you will need the press star one on your telephone to withdraw your question. Please press the pound or hash key please standby, we compile the Q&A roster.
Yeah.
Your first question comes from the line of Phil Winslow from Wells Fargo. Your line is open.
Hey, guys. Thanks for taking my question and congrats on the strong closer of the year, but just wanted to focus in on slides 17, and 28 of the attach of shield and relay and suites, but also the the multi product contribution obviously.
Big step function up and and those and those are those metrics. This year, what do you think about the the guidance for this coming year. How do you think about the ability to continue to drive those percentages higher but also to you potentially you've just acquired you know net new customers because I didnt notice of your comment about you growing the sales force and I believe it was.
Double digits, so just kind of help us through the growth algorithm called you increase and go to market capacity relative to attach of new products.
Yeah. So I would say that we do feel very confident given the consistent trajectory, we've seen and higher attach rates for our newer products as well as suites.
So all of our suites offering box really and box shields delivered record attach rates in the fourth quarter.
As I think we've now had enough time and the market and have really kind of built our go to market initiatives and the way that we communicate our value to customers to be more oriented around these.
Broader deployments that leverage these capabilities. So we do feel very confident and continuing to evolve and and have more and more of our customers adopting these add on products and things of that.
Certainly at least kind of stabilizing if not improving the attach rates. We demonstrated in Q4 is what we'd expect to see in the coming year.
And kind of a kind of frame up what that means from a business model point of view, we now have 59% of our revenue attributable to the customers who've adopted at least one of our add on products versus 52% of year ago. So it's definitely showing up and the overall kind of sophistication of what our typical customer is using box work and then as it relates to gross.
Going forward.
Mentioned on the productivity side.
We are expecting two are based on the strong productivity trends that we've been seeing especially over the back half of the year, we do expect to grow our sales force and the low teens with a continued focus on our higher performing regions and geographies that of higher sales force productivity and at the same time the.
The sales force and and the things we've done over the course of this past year had been ramping really nicely. So we also have a greater percentage of our sales force that is fully ramped versus where we were entering this past year. So overall feel really good about both the underlying product trends as well as the capacity that we have to deliver it.
And our growth targets for next year.
Got it and then just more of a strategic follow up for for Aaron you know over the past year of call. It 90 days or so we've seen a lot of changes on the you called the communication side of the content and collaboration and communications market with for example, the announced the acquisition of Slack by sales force curious what customers are saying to you. If there's a belief that the theres increased called or per sort of permanent fragmentation of the communications.
And what that means for the of call. It the content layer of that stack and boxes of position.
Thanks, Phil Yeah. This is.
This is exactly what we're seeing where.
As there are more applications that enterprises are going to be deploying whether those are communication applications of our collaboration applications or business process applications. The more heterogeneity in those tools. The more you need a central independent and neutral content platform or content cloud to manage the content across all of those different.
The systems and so with slack pairing up with sales force with obviously the success and growth of Microsoft teams with other major technologies like the surface now and Webex and zoom and other platforms. These all bolster our position as being that neutral content cloud that can connect to all of the different applications out of customers have and we're seeing that show up day in and.
The day out and our customer conversations where we'll go to an enterprise.
And there will be a lot of Microsoft in that environment, or Google and the environment or a sales force in that environment. The fact of those customers might have three of five or 10. Other cloud platforms that employees are working from the increases the need for having a central of content cloud that connects all of those tools.
Great. Thank you very much.
Your next question comes from the line of Brian Peterson from Raymond James Your line is open.
Hey, Thanks, guys, Kevin here on for Brian I wanted to ask on box shuttle can you help us frame how to think about new business leads or seat expansions that you think potentially don't materialize due to complexity of friction surrounding the onboarding process and.
And how do you see that product playing a role and your funnel of opportunities across the enterprise segment.
Yeah, Thanks, Kevin and so on so I think for the most part we're not held back on on the sort of the volume of opportunities that we have due to data migration because we have had a strong partner ecosystem that we use.
For the data migration services. However, there's a large number of enterprise environments, where we haven't necessarily capture all of the use cases, the that customer has so we might come in and and.
Certain departments will use box of content management and the collaboration maybe and the sales team are and the supply chain or per client onboarding, but they'll still be legacy sharepoint sites are documented and environment that that enterprise has and so with the new box shuttle, we're gonna be able and now it take the momentum that we have with existing customers and help them actually migrate more of their data and more of their cash.
And the box, which ultimately is going to lead to either more seats more API volume and then ultimately greater stickiness over time. So we see this as another significant lever to help our customers just continue to complete the the full migration into having one single content cloud that is modern and secure and drives us this new level of pro.
Activity. So we think this is going to be very very important for our continued expansion within our customer base.
Got it and that's helpful and the just quick follow up I know you mentioned the high teens billings expectations for.
Q1, just curious if you could talk through some of the drivers that you see driving that acceleration.
Yeah. So the the primary driver of that relates to the the full year of commentary around billings coming in slightly ahead of billings growth coming in slightly ahead of revenue growth is really around a lot of the underlying momentum that we're seeing and the business as mentioned and as always we do see some variability.
And quarter to quarter, just due to things like when certain large deals renew and if we see early renewals as well as payment durations, but overall nothing unusual going on either in Q1 are throughout the course of the year and and more a function of the strength and we expect to see and the quarter as well as some of those diner.
The mix around just the timing of some of the larger renewals.
Okay. Thanks, guys.
The next question comes from the line of Josh box from Morgan Stanley. Your line is open.
Thanks for the question I wanted to ask one on capital allocation, and I guess, M&A and free cash flow and there too but.
You've operated with 200 million give or take and cash on the balance sheet for.
At least four years.
And now Thats, inflicting and you're generating hundreds of millions and free cash flow. So I was hoping you could review your capital allocation strategy, obviously, we've seen recent M&A and and esignature solution.
But just wanted your updated thinking around potential for more M&A or anything else to consider around capital allocation.
Sure. So so going back to the the convertible debt offering.
We executed that as we saw at the very opportunistic time to bolster our balance sheet through that offering given the the market environment and terms. So we're able to achieve the combination of a zero percent coupon rate with no covenants of the flexible way to fund our future needs and a relatively low cost as mentioned we are.
We're seeing a number of attractive tuck in M&A opportunities to deliver more value to our customers by accelerating the.
And the innovation and our product roadmap and the acquisition of sign of Quest is a great example of that which will become the foundation for a box sign launch this summer and anything we do acquire and will have to be a logical fit with the business that doesn't disrupt our targets for revenue growth or operating margin expansion.
And more broadly we really look about look at using our capital to continue to fuel growth and capture even more of the market opportunity in front of us and we look at our capital allocation strategy through the lens of what will deliver the most value to our shareholders. So there are certain things that we evaluate.
The repurchase program and certainly one of the actions that we regularly look at and as part of this.
But the more I would say just the the overall orientation is around going after the market opportunity and and deliver.
Delivering shareholder value.
Great that's helpful and and.
If I could just ask you mentioned and a couple of times on around the SMB stabilization maybe improvement looking ahead and you could just go a level deeper like what are you seeing and in the SMB customer base is this.
Should we expect more new customers and.
And improvement and spend from existing customers.
Thank you.
Sure. So what we saw and the in our SMB business in the middle part of the year post Covid.
And did see a decrease in the the demand levels and the bookings performance in that middle part of the year Q2 was really the low point, we saw the beginnings of recovery and pipeline building and in Q3, and then that resulted in our strong Q4 performance with the bookings and our.
Sandy business up about 15% year on year and those trends that we saw in Q4 have really continued and.
And there isn't really anything different about the mix shift of new customers versus customer expansion. We've seen both of those components are really bounce back to really kind of healthy levels and a very different type of.
Volume of demand versus what we saw in the middle part of the year.
Great. Thanks.
Your next question comes from the line of.
And from Oppenheimer. Your line is open.
Thanks.
Nice quarter guys.
And then maybe you could talk about the.
You know when you look at your fiscal 'twenty two.
Of the growth that you've guided for fiscal 'twenty, two is pretty much on par as fiscal 'twenty, one and I'm kind of wondering if you're exiting the year and such good strong momentum and it looks like youre going back to hiring quite nicely on the quota based.
And why shouldn't we see a better performance there.
And then also maybe you could talk kind of era of deal and maybe you could talk about the RPE Oh, you've talked about some of 2% year over year.
Joey can give us the.
The growth rate the duration adjusted what would've been thanks.
Yeah.
Yeah. Thanks, Thanks to the high so great great question and obviously.
We are focused on driving.
The balance between growth and profitability going forward and we've guided to or provided targets for all of that long term growth rate of called the 16% by FY 'twenty four and.
And I think as we looked at last year.
Did see some impact on our professional services business. This is really our consulting offering where we help customers with deployments and expansion and because of lot of our of our bookings are coming from existing customers driving seat expansion or add on product expansion. There was and some cases less need for that professional services and so some of that flows through in terms of recognizable revenue in professional.
Services coming into FY <unk> FY 'twenty two and then we also saw obviously between the F&B business that Dylan just talked about and some of our segments you saw some impact of that which at which obviously was an impact in FY 'twenty, two but flow of FY 'twenty one of flows in the FY 'twenty. Two so we have we still have some of that impact.
Flowing into the FY 'twenty two numbers. However, as you just called out with the momentum we're seeing and Q4. The fact that we're seeing really really healthy expansion of suites box shield now and nearly 60% of our $100000 plus deals.
Really really healthy adoption rates of of those products right. Now we do believe that there's a lot more momentum that we're gonna be able to capture which is why we want to make sure that we're again driving that that balance of of growth and profitability going forward.
And then certainly when you layer on things like box sign where it's the number one kind of knew most requested product from our customers. We see a lot of momentum possible throughout this year. So we want to be prudent on our guidance.
And and make sure that we're continuing to drive that balance of growth and profitability, but we're excited to see.
And keep executing growth this year.
And the answer the question about the the RP O dynamics.
So as mentioned, we have seen a lengthening and contract durations because of just the volume of longer term strategic deals that we're signing with our customers and so now the average contract duration across our business as it is up and now about 19 months versus about 18 months a year ago. So the impact.
<unk>, that's more on the backlog component of our Po and the total impact of <unk> because of that dynamic specifically is and the low single digit range in terms of the percentage impact to the 17% RPM growth great.
Great that's great the Aaron maybe it's just as a follow up.
And on your prepared remarks, you talked about how you see of seven ex potential of up selling within your existing base.
And then.
You've talked about the hiring of the court of based individuals and targeting.
The new regions customer success segment.
It feels like it would it be fair to say that the as you look at fiscal 'twenty, two you're taking perhaps a little bit more of a balanced approach between going after new business versus expansion of <unk>.
Versus past year, which was very expansion focus.
And I think I think you know certainly incrementally with with our current product portfolio.
And and some of the updates with things like box line I think incrementally. We are we are continue to drive more differentiation and improvement on being able to attract new logos onto the platform, but equally with that seven ex seat opportunity and with the product portfolio. We have we do want to make sure that we go in and.
And support all of our existing customers and expand and as much as possible and so some of the go to market.
Areas that we want to continue to support those will even go into.
Making sure that we can drive growth within the current installed base and so so so some of those investments will help us go deeper within today's install base not just go out and and expand the new logos.
Very good the logos.
Thank you.
Thanks.
Your next question comes from the line of Steve Enders from Keybanc capital markets. Your line is open.
Hi, great and thanks for taking the question.
And just wanted to check it sounds like you had pretty solid performance and new customer bookings and in the quarter.
Just wanted to get a sense of how you're thinking about that the strong performance there and I guess kind of expectations are going forward and when it comes to our new customers Onboarding.
Sure so.
Very pleased with the performance there and think it really comes down to a couple of drivers the.
First of which is just as it relates to the overall improvement that I mentioned earlier on the in the SMB business, while the ratio of new customer versus customer expansion wasn't too different from what we typically see we do see a stronger mix and and a greater contribution from net new customer.
And that part of the business versus the enterprise, which is a little bit more concentrated and customer expansion and so as the SMB performance really continued that was.
Part of the reason that we saw such strong net new customer bookings growth and then the other driver is.
Really strong quarter and outcome for our Japan business and signing up some some pretty key new customers on the box. So there's the two biggest kind of components that are <unk>.
Drove the the net new customer growth.
Okay, great. Thanks, and then on you.
You talked a little bit about kind of the new box high and product that you're rolling out and just kind of wondering how youre thinking about kind of the evolving strategy going forward with the with the box of content cloud and.
What are kind of the incremental opportunities that that strategy could open up for you.
Yeah. Thanks so.
The way the we've been driving our multi year strategy and and we laid this out many years ago. As we went to go and drive the cloud content management market and the category broadly was really being able to power of the complete workflow of lifecycle of content within a single and multi tenant cloud platform and that's been the.
And the journey that we've been on as a as the platform now for well over a decade and as we looked at that lifecycle.
And for where content and travel through business processes and needs to be secured and classified and then ultimately govern.
Certainly over the past year, we've seen all new use cases that have increased and importance. So massive increase and digital transactions around content and so whether that's the contract management workflow or employee or compliance workflow. We know the E signatures have really just propelled and growth in every large of any enterprise around the world and so.
So we recognize that okay, we really had to accelerate having E signature capabilities natively built into the platform and really provided to the market and a very disruptive compelling way. So that was obviously drove our acceleration into the esignature market. Conversely, what we see all new use cases around being able to do new content workflows around.
Content publishing and things like digital asset management and contract collaboration and sales enablement. So theres all new use cases that helped US go deeper in every key vertical and line of business from a content management standpoint that we're very excited to be releasing throughout the year. So we want a power of that complete lifecycle of content and a single cloud platform and that's what we are.
Driving with our content cloud vision and you'll see continued organic innovation on that front and then of course when appropriate areas, where we can accelerate that that innovation.
With that with what we did with the sign of request.
And so that's how we're going to be driving growth going forward.
Okay, great. Thank you.
Your next question comes from the line of free sheet salary from D. A Davidson your line is open.
Hey, this and scope beyond for Richie Deloria of thanks for taking the question.
And to get a bit more color on the customer wins, you highlighted like the the joke Japanese manufacturer and the Biopharma.
Anything you can tell us about what drove the displacements of wins there.
The commentary about the bra you brought the integrations, but just interested to hear any incremental thoughts on those.
Yes, I think so.
We are.
And I think as we highlighted and certainly the past couple of analysts earnings calls at the start of the year, maybe the first half of the year, we had a pretty robust.
The set of conversations around just kind of secure remote work within our customer base, so companies, calling us, saying, we need more licenses of box because we have to enable work from anywhere and which was obviously great great momentum we saw of course.
And there were there were equal headwinds and some parts of the the the <unk>.
Segment that we serve especially F&B.
And and other other parts of the business as we came into the second half, we really kind of we saw a very noticeable shift and the kinds of conversations we're having with customers where it was no longer just around remote work enablement, but really around the long term digital transformation initiatives, so and the case of.
Various customers and life Sciences really starting to think about revamping all operations around clinical drug trials and working with the FDA and collaborating with CRM partners or global manufacturers and CPG companies that need to be able to securely collaborate all around the globe with all of their partners and and all of these cases there is a.
A very consistent trend of the need for an extreme amount of data security. So that's where box shield comes in and the ability to have a single platform for the content workflows and collaboration and that we're obviously of our core platform and.
And really come into play and then being able to have integrations with all of their it stack, whether that's Microsoft teams or slack or zoom or other major tools like webex that they're using and so when we bring in that full value proposition of data security and collaboration and workflow and and open platform. That's really what led to the acceleration of a large number of deals in Q4.
Including the ones that you highlighted but frankly I think these are trends that were seeing across every segment every industry and all around the world right now.
Very helpful and congrats on the quarter.
Thank you.
Your next question comes from the line of Mark Murphy from Jpmorgan. Your line is open.
Yes, thank you very much.
And I think you alluded to this but I'm just wondering to what extent.
And you'll expect to see of structurally different cost structure on the real estate side and then the teenie.
The expense profile post pandemic and other words.
Just interested and how you're envisioning your own companies work force location and then the trended business travel for this year and maybe into next year also.
Yeah, So I'd say that.
Certainly for the coming year, the current year based on the timing of when we expect to return to offices and just some of the other dynamics of the code with Covid kind of gradually abating, we expect the stay at the kind of levels. We've seen over the last few quarters for the first half of the year going for.
And once we do return to an office based environments.
And do expect some of these expenses to return but at the.
And based on some of the success and ways that we've been able to move certain types of conversations and demand generation and things we might have needed and travelport has customer base of events for online even steady state and we do expect that to be more efficient so that combined with the overall of shifts that we've talked about and locations.
Strategy is really what's driving a lot of that kind of continued benefits of those continued benefits and our ability to remain at pre COVID-19 levels versus anything dramatically different from a structural standpoint.
Okay understood.
The other question I had free as I I think in the past you've had relatively little of.
FX impact, but just given some of the recent volatility in rates.
Can you just clarify if was there any material FX impact one way or the one way or the other on a revenue or deferred revenue in fiscal Q4 or were those all are those all of the same numbers and.
Constant currency terms and and while I'm at it I guess I guess I'd ask the sand the the short term RPE, Oh, I'm not I think that grew 10% and.
And is that the kind of all of this all kind of the same numbers and constant currency.
On the day they are very similar so as it relates to the Q4.
From there.
And there was an impact of tailwind on billings and and then.
Deferred revenue of kind of low single digit millions and.
And then really an immaterial impact on revenue and expenses and so those are very close in terms of the overall growth rates on the billing side about a less.
Less than one per cent impact and even less pronounced when you look at items like deferred revenue, where our P O.
And and and all of those are related to the same dynamics that you mentioned.
Very good thank you.
Your next question comes from the line of Chad Bennett from Craig Hallum and your line is open.
Great. Thanks for taking my questions. So just on on the billings commentary for the current quarter I think you spoke about high teens I.
I mean.
You know I don't want to hold the two anything but just looking forward from the current quarter.
And including the current quarter.
You really have pretty favorable comps on the billing side for this entire year.
Is there anything or puts and takes mainly mainly puts I guess that.
And would decelerate that billings growth rate and the last three quarters of the year.
No there really isn't anything unusual that we would anticipate and again and and feel really confident in the the kind of commentary around the FY 'twenty two for that billings growth to exceed our revenue growth.
And.
And from quarter to quarter, we do see our billings outcome occasionally impacted by the timing of of large customer renewals and and things like that but nothing unusual there.
That would be creating.
The the sort of a strange.
Strange compares.
For the coming year, we expect the underlying drivers are to remain pretty consistent what we saw and FY 'twenty, one and so really the the higher performance is more driven by the underlying business momentum that we expect to see.
Okay, and then just trying.
Trying to at least you know Big picture Wise, you know put the pieces together on the guide for the year about 10% growth, which as you know.
And of similar growth to what you saw this past year.
You guys just talk about a $55 billion Tam.
You talk about being a pretty significant player in digital transformation and cloud acceleration.
Youre still of sub billion dollar revenue company.
You know the the software plays on on the these kind of secular trends that are very robust right now from a spend standpoint.
Oh aren't growing at 10% I guess to put it bluntly and and even your target growth rate of 12 to 14, you know if you. If you took the midpoint you'd argue that's fairly low so in it.
I love the the color on on the attach rates and and box shield and suites and relay and so forth I mean, they're all up into the right, but our net expansion.
Continues to decline and and even if you expected.
Couple of more points of net expansion.
You know.
It still seems.
Net that some things.
And I'm missing something or maybe maybe there's something kind of in the go to market that that the you know that that's not quite clicking yet can you provide any color there.
Yeah. So so first of all I mean.
Great Great question I think if you look at the the broader market and content management and document management and collaboration and data security around content I think our growth rate would would certainly be the highest if not if not one of the highest growth rates of the category and so it's a very large tam, but certainly one that has to be migrated.
From on premise of systems and legacy systems into the cloud and so that's.
Certainly of relevant nuance, which is we are really going out and and disrupting the broader market.
And and by doing so you know certainly driving one of the the highest growth rates again, if not the largest growth of it from an enterprise platform standpoint in the segment. So on and so I was just kind of and factor that into as you think about this it's very different from the kind of the net new market that many many other cloud players of SaaS platforms are going.
After wear.
And where those are those markets are growing from the smaller base because of the influx of of just more and more of the cloud and SaaS adoption.
And then obviously, we are working aggressively to make sure that we continue to expand our product portfolio to drive these higher growth rates and we want to be prudent and our long term model and and not get ahead of ourselves and kind of provide targets that the.
That get too far ahead of of where we're growing today, but we also want to be ambitious and make sure that we're expanding our product portfolio and really helping our customers have that single content cloud to manage the full lifecycle of the their content and that's I think what what drives that kind of 12% to 16% growth number and the next couple of years and we will certainly keep the market up the data is as we drive.
And further growth on that front and see the results show up but ultimately you know clearly want to be prudent at this stage.
Yeah, and then as it relates to FY 'twenty two to build on that and.
As Aaron said, we do and we remain prudent as we expect to see some COVID-19 related headwinds and this continue and this year. For example continued pressure and our professional services business and revenue and then there is the growth really reflects the prior 12 months of the business performance as the momentum that we're seeing and our business flow through to revenue.
We do expect to see a slight upward trends over time and the and this year in Q4, and a higher growth rate than our Q1 guidance calls for and then you know as Aaron mentioned based on the strong foundation that we've been building over the past years. The momentum. We're seeing currently we remain confident and the long term targets that we laid out.
At our at our most recent Investor day.
Okay.
Great. Thanks for taking my questions.
Your next question comes from the line of Fred Mouthwash from burn number of capital markets. Your line is open.
Hi, guys. Thanks for taking my question and congrats on the quarter.
Just maybe a couple of the head count increases I guess I guess first what was the quota carrying growth this year.
And will the new hires be focused on existing and expansion or kind of new customer acquisition.
Okay.
So.
And sorry, the second part of the question was if the Aes that were hiring will be focused on customer expansion versus new logos.
Correct.
Okay. So so to speak of the trends the size of our sales force was down slightly.
Over a bye bye.
The.
Over the course of this past year as we really look to focus our investments and resource into the regions that were performing better. We did continue to grow sales head count there and then going forward. If you think about that low teens growth that we mentioned that we expect to see.
It really is focused on a combination of new logos and and customer expansion and pretty consistent with the ratios that we've been seeing and the business, particularly because as mentioned we are going to be continuing the focus on the segments and geographies, where we see higher levels of performance and those tend to have.
The more mature customer bases and expansion opportunities.
And the reps will be hiring those regions will be hiring in those regions certainly are going after a pretty significant new customer acquisition opportunities as well mentioned, Japan as the highlight and that was the exact dynamics that we saw in Q4, but our sellers typically just for context have a combination of prospects.
And existing customers in each of their individual territories versus and explicit or pure hunter versus farmer model.
Perfect and then maybe it's one of them sign requests.
I guess can you disclose anything there from maybe a deal terms to revenue contribution.
The billings as well I guess, you got and support billings growth to exceed revenue growth. This year. The sign requests have a big factor to play and not.
So in terms of the the total purchase price of sign the request was $55 million and then in terms of the contribution.
And that to be immaterial the revenue.
And not to impact our bottom line commitments either to get a sense of scale there will be a little more than 20 sign of quest employees, joining the box team and the strategy is really to leverage this technology and team is the foundation of our box sign of offering.
And that we're really excited about as Aaron mentioned, that's the single biggest requests that our customers have had in terms of a new feature and so really the the reason we did this was.
In order to kind of fuel and build out those efforts as they will show up as part of a box sign in the future and really add to the functionality and differentiation of our suites offerings as well.
The actual financial impact of the sign of quest business is immaterial.
And then you guys also have kind of like API integration with Doctor sign and so this may be a form of co-opetition that youre going with the how will this and doffy sign and box customers.
I guess choose between if they want to use box non or.
Darkies done.
Yeah. So we are we obviously are very open and and partner centric platform. So we remain committed to our partnerships with doctor sign with Adobe sign and other players and the market and any customer that chooses to use any other technology, we'll be able to do so and a very seamless way, where there'll be no shortage of functionality or feed.
And that we would provide via our API to those partners and in fact.
And we continue to make those.
Integration of even more visible and available to our customers.
At the same time as we surveyed our customers throughout last year, we saw a tremendous amount of use cases, where customers were not licensed for one of these third party products or maybe they were only license and a very small subset of their employee base, where there were esignature use cases that went beyond what they had already licensed and external services for ex.
And on surface for it and so that's really the power of box sign is every seat on box is going to be able to have need of esignature capabilities built directly into the product and through our API and our platform. So any customer that is certainly using box broadly across the enterprise or maybe they haven't E. L. A with box or maybe they are continuing to expand their use case.
The box line is now going to be built directly into into the product and and youre going be able to and make native esignature functionality available to all of those users. So we see that is very powerful, but certainly we will continue to be and.
The incredibly complementary to the other products and this market as well.
Perfect and then maybe just one last on the paying users.
I guess, how many of them in Q4 and all of it from me. Thanks.
Thanks, guys.
So we ended the quarter with the $15 5 million paying users up from $15 1 million last quarter.
Perfect. Thanks, guys appreciate it.
Thanks, that's all the time, we have for questions today.
Today's conference call. Thank you for participating you may now disconnect.
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