Q2 2023 Box Inc Earnings Call
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If you would like to withdraw your question, please press star 1 again. Thank you. And I would now like to turn the conference over to Cynthia Japonia. Please go ahead.
Good afternoon and welcome to Box's second quarter fiscal 2023 earnings conference call. I'm Cynthia Eponia, Vice President Investor Relations. On the call today we have Erin Levy, Box co-founder and CEO , and Dylan Smith, Box co-founder and CFO . Following our prepared remarks, we will take your questions.
Today's call is being webcast and will also be available for replay on our investor relations website at box.com forward slash investors.
Our webcast will be audio only, however supplemental slides are now available for download on our website.
We'll post the highlight to today's call on Twitter at the handle, at boxincir.
On this call, we will be making forward-looking statements including our Q3 and full-year fiscal 2023 financial guidance and our expectations regarding our financial performance for fiscal 2023 and future periods, including our free cash flow, gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance obligations, revenue and billings, and the impact of foreign currency exchange rates.
our expectations regarding the size of our market opportunity, our planned investments, future product offerings and growth strategies, our ability to achieve our long-term revenue and other operating model targets.
The timing and market adoption of and benefits from our new products pricing models and partnerships
our ability to address enterprise challenges and deliver cost savings for our customers, the impact of the macro environment on our business and operating results, and our capital allocation strategies including M&A and potential repurchase of our common stock.
These statements reflect our best judgment based on factors currently known to us, and natural events or results may differ materially.
Please refer to our earnings press release filed today and the risk factors and documents we file with the Securities Exchange Commission, including our most recent quarterly report on Form 10Q for information on risks and uncertainties that may cause actual results to differ materially from statements made on this earnings call.
These forward-looking statements are being made as of today, August 24, 2022, and we disclaim any obligation to update or revise them should they change or cease to be up to date.
In addition, during today's call, we will be discussing 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 in our earnings press release and in the related PowerPoint presentation, which can be found on the investor relations page of our website, unless otherwise indicated, all references to financial measures are on a non-GAAP basis.
With that, let me hand the call over to Erin.
Thanks, Cynthia, and thank you all for joining the call today. We continue to deliver strong results in FY23, with second quarter revenue growth of 15% year over year. Our sharp focus on profitability drove non-GAAP operating margin of 21.7%, up 110 basis points from 20.6 a year ago.
Gross margins remain strong at over 76 percent, and our net retention rate increase both sequentially and year over year.
Our current execution and business momentum gives us confidence in increasing our EPS guidance while maintaining our revenue guidance for the full fiscal year, despite the higher impact of FX.
Our results show the success of our Content Cloud strategy, which powers the full lifecycle of content in a single platform.
Our strategy is aligned with the three major trends that are driving the future of work. Number one, hybrid work styles.
2. The urgent need to digitally transform every business process 3. The ongoing pressures of data security, compliance, and privacy on all enterprises
More customers are turning to the Box Content Cloud to deliver secure content management and collaboration built for the new way of working.
In the second quarter, our net retention rate was 112%, up from 106% in the prior year, driven by strong customer expansion rates.
For our large deals, over $100,000 plus revenue annually, we had 86 new deals, up from 60 in the prior quarter and 74 in the year-ago period, with 62 of these $100,000 plus deals being on multi-product suites.
up from 44 sweet deals in the prior quarter and 54 sweet deals a year ago in this 100k plus segment.
Our fiscal Q2 results reflect healthy customer metrics.
particularly in the complicated macro environment that enterprises are experiencing today.
I have spoken with dozens of CIOs in the past couple of months across nearly every industry and different geographies.
What is clear is that enterprises today are looking to work with strategic technology platforms that can help them overcome the multitude of challenges that they're facing.
The Box Content Cloud is the platform that enables CIOs to offer secure cloud content management for the most critical workflows of the business from anywhere employees, partners, or customers are working.
In a hybrid and digital world, the value and volume of content is greater than ever before. Whether it's streamlining how government employees work across a distributed organization, simplifying a financial services company's onboarding workflows, or a large semiconductor company collaborating with a global supply chain, content is more mission critical than ever for enterprises. For more information on Africa's launched and modified systems, please, contact us at poet answering www.or Hannabat,irens Providence, Dane Oil $4.99
And yet, the tools most enterprises have to work with for their information just don't cut it.
Enterprises today are dealing with a highly fragmented landscape of legacy enterprise content management, storage, e-signature, workflow, and collaboration tools that all serve to isolate workflows, increase security risks, and increase IT expenses.
In fact, tens of billions of dollars are spent every year on this mix of fragmented technology within enterprises today. And the problem will only keep growing. It's estimated that there will be 175 zettabytes of data by 2025. And a substantial portion of this data is going to be in the form of content.
The legacy approach no longer makes any sense.
given the new demands on businesses.
With the Box Content Cloud, enterprises can reduce the cost and complexity of their IT environments, dramatically simplifying their business operations, lowering their spend on redundant technology, while keeping their information secure. Examples of Box delivering this value to customers in Q2 include a leading home builder who has completely standardized on Box for cloud content management, and eliminated an estimated $1 million in process costs.
by utilizing Box workflows across onsite teams, vendors, and sales reps. A Fortune 500 financial services group purchased a six-year, seven-figure, Enterprise Plus ELA in Q2 as Box has become a more strategic and integral part of its business.
With Box, this customer anticipates saving more than $4 million in annual storage costs, including hardware, software, and maintenance, as they eliminate on-premises servers and disparate systems.
From our business performance and customer wins, it's clear that enterprises are increasingly making strategic long-term decisions on how to support a remote workforce and digital processes.
while maintaining a high level of security and compliance.
We continue to build out the capabilities in our content clouds to power the full life cycle of content in a single platform and address major trends in the future of work.
Our investments in expanding our product features will add substantial value to our customers as we address a $74 billion TAM.
In Q2, we rolled out additional capabilities to box relay, box sign, and API enhancements.
These capabilities are included in Box core subscription and bundles, allowing customers to benefit from getting new value from the Box platform instantly and provides additional upside as customers move up to higher tier plans for more features.
We are very pleased with the momentum we are seeing in customer adoption and use of BoxTign.
Second quarter customers include a real estate development and management company who purchased box and a six figure deal as the key technology in its content management strategy.
As part of this strategy, the company purchased Box Sign Premier Services to support the signing and collaboration around new development properties.
leading medical device company who was already wall-to-wall with Box Enterprise Plus purchased additional licenses to support new use cases for box sign as they work with physicians treating patients suffering from heart and lung issues due to COVID.
With data security, compliance, and privacy increasing in importance for our customers, Box's security capabilities also remain a critical driver of why customers choose our content cloud. In the second quarter, we attained authorized security status for StateRAMP, a cybersecurity framework that ensures service providers offering solutions to state and local governments are receiving adequate protection for their sensitive content.
We also announced updates to our Trust Partner Program, which brings together a select group of industry-leading security and compliance platforms to advance security in the enterprise.
These updates include new and deepened integrations including with Cisco and Splunk among many others.
We will continue to invest in key product areas like BoxShield that extend our leading security compliance and governance capabilities.
Finally, the ability to integrate deeply across the SaaS landscape is an integral part of our platform strategy, including our deep integrations with Microsoft Teams, Office 365, Zoom, IBM, Slack, WebEx, ServiceNow, and many more. And in Q2, we rolled out enhancements to the Box for Salesforce integration on the Salesforce AppExchange that enables customers to use Box as the content management solution for signature base.
processes and workflows in Salesforce. As we look at the second half of FY23, we are going to continue to rapidly extend our platform by doubling down in security and compliance with major box shield and governance enhancements.
workflow in collaboration with Box Sign, Relay, Notes, and the rollout of Box Canvas.
and our open platform and partner integrations.
And critically, we'll continue to scale our infrastructure in the cloud so we can continue to help serve customers globally with their most complex use cases.
At Foxworks this October , we'll be making a number of announcements around major product updates and further share our vision for where the Box Content Cloud is heading.
What all of these capabilities and platform improvements have in common is they reinforce the value of having content in a single platform.
They help streamline and automate our customers' businesses, and they help retire more of their legacy systems, saving them a ton in the process.
We continue to execute on key initiatives to scale and support our land and expand go-to-market motion.
where we've seen significant productivity improvements in the past couple of years.
With organizations managing hundreds of applications and an increasing number of those apps that are related to content, we have increased our focus on showing customers how we can reduce the cost and complexity in their tech stack.
A key part of our optimized pricing and packaging is our multi-product suite offering, Enterprise Plus, which we launched a year ago.
In Q2, Enterprise Plus accounted for more than 80% of our suite deals. Our Q2 customer expansions and new wins with Enterprise Plus include an American multinational medical devices and pharmaceutical company expanded its use of Box with a six-figure Enterprise Plus upgrade to support more sophisticated use cases, including managing content across regulated functions and supporting structured business processes.
A large vehicle retailer based in the US purchased Box with a six-figure Enterprise Plus deal, enabling them to eliminate on-premises file servers and solve key reliability issues.
They will also leverage Box Platform to power new customer experiences.
We are pleased with the accelerating adoption of our multi-product offerings, which provides increased efficiencies in our sales process, higher total account value, net retention, and gross margins.
It's clear that our mission of powering how the world works together has never been more important for our customers.
as enterprise faces a growing set of challenges around hybrid work, digital transformation, and cybersecurity threats that they're facing.
Our platform is in the best position to solve these challenges while reducing complexity and cost for our customers.
Before I hand it off to Dylan, I want to take a moment to acknowledge the focus and hard work of our boxers.
Across Box, we continue to invest in our people and talent, and our strong culture is what enables us to stay ahead of the competition and deliver for our customers.
Boxers have an opportunity to find what work looks like in the future, both within our platform and how we operate and scale as a business.
As we continue to build an enduring business for the long run, we remain hyper-focused on driving growth while also continuing to deliver even greater profitability.
With that, I'll hand it over to Dylan.
Thanks, Aaron. Good afternoon, everyone, and thank you for joining us.
Q2 marked another quarter of strong business momentum with revenue and EPS at the high end of our guidance.
Our focus on delivering profitable growth is working demonstrated by gross margins of more than 76% and a net retention rate that was up both sequentially and year-over-year.
Even amid this complicated macro environment, we remain on track to achieve the three key financial objectives for FY23 that we laid out at the beginning of this year.
accelerating annual revenue growth,
expanding operating margins, and prudently allocating capital to optimize shareholder returns.
In Q2, we delivered revenue of $246 million, up 15% year-over-year and at the high end of our guidance. Today's
Strong veal pacing throughout the quarter enabled us to offset the negative 3 percentage points of FX headwinds that we experienced in Q2.
Our content cloud platform continues to generate high demand from our customers.
In Q2, we closed 86 deals worth more than $100,000 annually up 16% year-over-year with a sweep detach rate of 72% on these large deals.
As Box is increasingly viewed as a critical partner to our customers, we're seeing strong adoption of our products with more advanced capabilities.
Roughly 40% of our revenue is now attributable to customers who have purchased suites, an exceptional 12 percentage point increase from 28% a year ago.
We ended Q2 with remaining performance obligations, or RPO, of 1.1 billion, a 14% year-over-year increase.
which includes an impact of negative 7 percentage points from FX.
We expect to recognize more than 60% of our RPO over the next 12 months.
Q2 billings of $235 million grew 10 percent year over year, well above our expectations of mid-single digit range growth.
Our billings growth rate was negatively impacted by six percentage points due to currency headlines.
Our net retention rate at the end of Q2 was 112 percent, up 100 basis points sequentially, and up 600 basis points from the prior year.
We continue to see strong customer expansion and an improvement to our annualized full-term rate of 3% versus 5% in the prior year.
We still expect our net retention rate to remain roughly consistent.
for our full turn rate to be in the range of 3 to 4 percent throughout the remainder of FY 23.
Gross margin came in at 76.2% up 170 basis points from 74.5% a year ago.
Q2 gross profit of 187 million was up 17% year over year.
exceeding our revenue growth rate by 200 basis points.
Going forward, our public cloud migration strategy will unlock additional leverage to improve our long-term gross margin profile.
Once again, we demonstrated the leverage in our business and our commitment to delivering higher profitability with a 21% increase in Q2 operating income to $53 million.
Our 21.7% operating margin was up 110 basis points from the 20.6% we recorded a year ago.
We are also proud to have achieved our first quarter of positive gap net income of 1 million up from negative 9 million a year ago.
We delivered 28 cents of diluted non-GAAP EPS in Q2, up 33% from 21 cents a year ago.
Q2 non-GAAP EPS includes a negative impact of three cents from currency ends.
I'll now turn to our cash flow and balance sheet.
For the first half of FY23, we generated free cash flow of $109 million, up from the first half of last year and ahead of our expectations.
As we mentioned last quarter, our Q2 cash flow was impacted by strong collections in Q1.
In Q2, we delivered cash flow from operations of $28 million versus $45 million in the year ago period. In Q3, we delivered cash flow from operations of $28 million versus $45 million in the year
We also generated free cash flow of $18 million versus $30 million in the year ago period.
Capital lease payments which we include in our free cash flow calculation were 8 million down from 13 million in Q2 of last year.
For the full year of FY23, we continue to expect CapEx and capital lease payments combined to be roughly 5% of revenue and roughly 5% of revenue for Q3 as compared to 6% in the prior year.
Let's now turn to our capital allocation strategy.
We ended the quarter with $394 million in cash, cash equivalents, restricted cash, and short-term investments.
Our strong balance sheet and increasing free cash flow generation enables us to maintain a disciplined M&A strategy to accelerate our product roadmap, while also allocating the majority of our free cash flow generation to enhance shareholder returns via our stock repurchase programs.
In Q2, we repurchased 4.6 million shares for approximately $118 million.
As of the end of Q2, we had approximately 29 million of remaining buyback capacity under our current plan.
Our disciplined equity issuance approach combined with a robust share repurchase program has allowed us to reduce total shares outstanding for three consecutive quarters.
As a result, over the past three quarters, we've reduced our basic and diluted total shares outstanding by roughly 8 million and 10 million shares respectively.
Note that the share count reduction excludes the shares we repurchased through last year's tender offer.
With that, I would like to turn to our guidance for Q3 and Fiscal 2023.
As you know,
Since our prior earnings announcements on May 25th, 2022, the US dollar has strengthened even further versus the currencies in which we transact our international business.
resulting in a larger than expected FX headwind to both Q3 and the full year of FY23.
As a reminder, approximately one third of our revenue is generated outside of the US.
The following guidance reflects the strength and momentum of our underlying business and also includes the impact of any expected FX headwinds assuming present foreign currency exchange rates. The following guidance reflects the strength and momentum of our underlying business and
for the third quarter of fiscal 2023.
We anticipate revenue of 250 to 252 million, representing 13% year-over-year growth at the high end of this range.
This includes an expected FX impact of approximately 4% to our Q3 revenue growth rate.
We expect our non-GAAP operating margin to be approximately 23%, representing a 230 basis point improvement year over year.
We expect our non-GAAP EPS to be in the range of 29 to 30 cents.
GAAP EPS to be in the range of one cent to two cents on approximately 151 million diluted shares and 143 million basic shares respectively.
For the full fiscal year ending January 31, 2023.
We are maintaining our FY23 revenue estimate in the range of $992 million to $996 million, up 14% year-over-year at the high end of this range.
Including the impacts from FX headwinds, we anticipated when we gave our initial FY23 guidance
We now estimate the full currency headwinds to FY23 revenue growth to be approximately four percentage points.
We are prudently focusing our investments on compelling long-term growth opportunities and our disciplined cost savings initiatives are generating efficiencies across the business.
We expect our FY23 non-GAAP operating margin to be approximately 22.5%, representing a 270 basis point improvement from last year's result of 19.8%.
We are raising our FY23 non-GAAP EPS expectations to be in the range of $1.13 to $1.16 on approximately 152 million diluted shares end up from 85 cents in the prior year.
Our GAAP EPS is expected to be in the range of negative three cents to zero cents on approximately 145 million shares.
Our FY23 gap and non-gap EPS guidance includes an expected impact from FX of approximately 19 cents.
For the full year of FY23, we anticipate currency headwinds to impact our billing growth rate by approximately 6% or 2% more than the impact to our revenue growth rate.
As such, our FY23 billings growth rate on an as-reported basis is expected to lag slightly behind our FY23 revenue growth rate, although we expect these growth rates to be roughly in line in constant currency.
We expect our reported billings growth rate to be in the high single-digit range for Q3 and to be in the mid to high teens range for Q4.
We continue to expect our FY23 RPO growth to exceed our anticipated full year revenue and billings growth rate.
As Erin mentioned, we are proud of our boxers and the continued strong execution of our growth strategy while remaining focused on improving profitability year over year.
The business momentum we are seeing is a direct result of our content cloud platform resonating with customers as they look to reduce the cost and complexity in their tech stacks while keeping their content secure.
We are well on our way to delivering against our FY23 revenue growth plus free cash flow margin target of 37%
A 400 basis point improvement from last year's outcome of 33%.
Before we conclude, I'll hand it back to Aaron for a few closing remarks.
Thanks, Dylan. Before we open it up to questions, we wanted to share that on October 6th and 7th, we will be hosting tens of thousands of attendees virtually at BoxWorks. This event will be available to the investment community to attend. This year will be another incredible event where we'll share more on our vision for the content cloud and we'll showcase major product advancements and partnership announcements.
Attendees will also be hearing from an outstanding slate of speakers including the CEOs of IBM, Zoom, HubSpot, PagerDuty and CrowdStrike as well as IT leaders from enterprises like NHL, Shriners Hospital, USAA and WorldFuel Services among many others.
We are also hosting an investor product briefing on October 6th at 1pm Pacific time. We hope you can join us.
Now, Dylan and I would be happy to take your questions. Operator?
And as a reminder, that is star one if you would like to ask a question. Our first question will come from Jason Ader with William Blair.
Please go ahead.
Yeah, thank you. Hey guys, I just was curious on the buildings growth that was a good number relative to your guidance. Where did most of the upside come from there?
Sure, so really we saw strength in the billings outcome across both our enterprise and SMB segments. So both have been growing nicely across the year. So really pleased with the billings outperformance there, especially as that included a six percentage point impact from FX, which was a couple points higher than our expectations entering the quarter. Gotcha. So on a… Right.
Constant currency basis, what was the building's growth again?
The Billings' North rate would have been 16% on the Cox Incorrect.
Okay, gotcha. And then maybe for you, Aaron, are there any specific verticals that you'd like to highlight just where you're seeing increased momentum?
Yeah, I think, you know, we saw a momentum that was pretty healthy across a number of verticals, financial services, life sciences, manufacturing, the tech industry, really kind of broad-based. So, I wouldn't call it a specific one that, you know, meaningfully drove the outcome, but we are seeing, I think, healthy demand across a number of key verticals.
Okay, and then one quick last one, and I can slip in. Did you see any macro impact at all out there in any region or any vertical? I mean, you didn't really seem to talk about impact from macro beyond the FX stuff, but is there any demand?
you know, changes that you've witnessed here in the last several months.
Yeah, in Q2 there was nothing pronounced from a macro standpoint. I mean, we want to be super explicit and note that our customers are dealing with the broader macro challenges and we do have those conversations with them around supply chain costs and inflation that they're seeing in their businesses. We have really, really tried to set up the platform to be a technology that can be really advantageous for customers in this kind of environment for streamlining their businesses, lowering the total cost of ownership around content management technology.
impact that we did notice is pretty meaningful for the full year. Yeah and I'd say that actually over the past really year our deal cycles have remained relatively stable even as we've been selling larger deals and more often selling a broader suite of services through suites we haven't seen much change at all in deal cycles for the past year.
Thanks guys, good luck.
Thank you. Thanks.
And our next question will come from Itai Kidron with Oppenheimer.
Please go ahead. Hi.
Hi, it's George Iwanek. So maybe following up on your comments there Dylan can you give us a sense of what you're seeing from a sales productivity standpoint and Maybe you know the context of selling Box sign and the new features like canvas and how the value based selling motion is going
Sure. So, we'd say that in terms of the productivity trends that we called out last year, we're continuing to see, again, strength in both our enterprise and SMB segments. So, we are seeing incremental improvements in Salesforce productivity year-to-date. As we had called out, because of the very strong productivity trends and improvements that we've driven over the past couple of years, that gave us the confidence to grow the size of our Salesforce in the low to mid-teens percentage range.
too much on the results, much more of a forward-looking product that customers are super excited about. Sign, we continue to build a lot of strong demand for. And again, it just helps reinforce the overall story and the value of our platform of being able to power the complete life cycle of content in a single platform with all of these capabilities integrated in one core platform.
All right and maybe just following up on your hiring comments Dylan, when you look at the overall hiring for the rest of the year and the margin improvement you know what are the key levers that you're looking at?
Yeah, so certainly in terms of the go-to-market hiring and the Salesforce, we look very closely at the segment by segment, geography by geography, Salesforce productivity trends that we can dial up or down there. Would say that certainly we're being very prudent with our expenses and investing in the highest leverage areas, especially given the current climate, but you can expect us to see.
Just one for me. So Aaron, you mentioned a couple examples in your prepared remarks about ROI and a lot of quantitative savings for customers. I'm curious in this kind of macro environment, does that come up more often? And given the value you're providing, are there four ways to drive savings now with Box versus maybe a couple years ago? I'd love to get your thoughts on that. Thanks, guys.
Yeah, thanks Ryan. Absolutely. I think when you think about Box, let's say 3, 4, 5 years ago, largely we were a secure storage sharing collaboration technology and platform, really, really directly focused on content management takeouts, and the modern sort of use cases around content management. Today with eSignature, with Workflow, with advanced data security and compliance, anything critical about getting to a Mark-In- Presidents
we've become a much more strategic and broader vendor for our customers, in some cases being able to replace dozens of different technologies inside of their organization. So in every conversation in our go-to-market team, we are trying to identify with customers areas where we can help that customer be able to go and save dollars by being able to move a certain or particular workflow or workload to the Box Content Cloud. And that is showing up again on a daily basis in more of our customer conversations. If you just add up the technology…
of those fragmented systems.
It may be a follow up Aaron, is that coming up, it sounds like you're pushing that to go to market, but is that coming up a lot more now than maybe even kind of your customer conversations even like 6 to 9 months ago?
I think it is, I don't have a particular quantitative way to call it out. I would say qualitatively talking with customers it's increasing. Certainly CFOs are reviewing way more of these spend items, which means that we are putting together more of these value proposals that talk about the total cost of ownership that we can save versus other systems. So that has been an increase. But I would just note in the past couple of years,
the bigger strategic transformation we've been driving as a company as a multi-product platform is to do exactly this. And so whether it's an environment where customers are investing just for growth, or investing for both growth and efficiency, we think the Box Content Cloud will perform certainly better than we would have a number of years ago, but we think we are a better set up for success, and that is certainly helping. So our message is really resonating more from customers.
And I think we're in a strong position to go and continue to drive this. Appreciate the color. Thanks, Aaron. Thanks.
Our next question will come from Josh Bayer with Morgan Stanley . Please go ahead.
Great, thanks for the question. Before you've talked about seven times seed expansion opportunity just within your base, I was wondering, Aaron, looking ahead, what are some of the biggest factors that could help unlock that seed opportunity potential?
Yeah, so when we look at our roadmap, there's pieces of all of our core products that will increase the likelihood that a customer would want to expand by seats. In our security and compliance space, things like Box Shield, the advancements we are making on Box Shield will continue to help customers use Box as their kind of single choke point for content security. So if you think about ransomware attacks or anomaly detection for...
and collaboration functionality, each of these capabilities equally increases the need for more seats on Box. Box Sign as an example, the idea that you get a complete license to an e-signature product for every seat that is unboxed means that you can go and retire other e-sign solutions and add more seats to your Box license to solve that. And then our platform as well, our API integrations with things like Microsoft Teams, or Slack, or Salesforce all enhance the need for Box within an...
on our Nix calls in the past, but is becoming a very helpful engine for us, is we really help customers deploy Box Enterprise-wide with our very efficient ELA structures. So a customer that is ramping their deployment of Box, we can make it very easy for them to be able to do that across their entire organization with a lot of efficiency and volume licensing. So we've got pricing and packaging that helps. Obviously, Enterprise Plus also gets customers fully licensed with all of our features, and so we are seeing some trends where customers will elect.
to do Enterprise Plus as an ELA, and then deploy all of Box to their entire organization. So between our go-to-market efforts and our product roadmap, I think we are going to have even more reasons why customers can deploy Box across their organization to capture that CDAP side.
Great, thank you very much.
And again, that is Star 1 if you would like to ask a question. Our next question will come from Nick Matache from K-Calvary. Please go ahead.
Hi this is Nick Onford, Chad Bennett. Thanks for taking our questions. So I guess apart from the currency headwinds could you speak to how your business is performing in the Japanese market and just your thoughts on the demand environment, sweet attach rates there, and then how much opportunity you see ahead of you in Japan.
Yeah, Japan continues to perform very well, even amidst obviously the FX headwinds that we do face there. The suite attach rate has continued to improve. Our channel partners over there have certainly gotten the message and built the rhythm around bringing Enterprise Plus to their customers with the support of our sales team. So I think the trends overall in Japan are still strong. We're certainly aware of the macro factors that are happening in Japan.
the business has remained resilient even amidst that so far. Got it. And then with the success you've seen with BoxSign, I guess, how does that translate into your appetite to do similar M&A deals and then...
any comments you're willing to share on kind of what makes the most sense to add to the platform next and what you're seeing as far as private market valuations Yeah, so box sign, you know for us is sort of the the case study acquisition for For how box wants to be able to drive and integrate M&A into into the company We've we have other similar examples but but certainly box I'm being one of the bigger ones that that we can point to but You know
looking out at our roadmap, having a sense of customer demand in a market IEE signature in this case, and then being able to rapidly identify a technology that we can incorporate into Box that accelerates our entry into that space. BoxSign was a fantastic example of that. So our appetite remains, I think, fairly strong for repeating that success. Our bias is still really to do organic development of many of these new capabilities.
selective if and when we do additional technology deals. Yeah, and just to build on that, this is Dylan, because you asked about what we're seeing in the private markets and with valuations. Certainly we have seen a pretty material reset in those valuations, especially in the late stage part of the market, but I wouldn't think about that as really having a direct impact on our M&A strategy, as we're very focused on that disciplined approach, really focused on teams and technology that are going to allow us to accelerate our product roadmap versus transformative.
You said the FX headwind for 23 was 4%. Can you tell us what the headwind was when you gave this guidance last quarter? And then I have a follow-up for Aaron. Yeah, so to clarify, you mean for our revenue growth, Eric?
Yeah, yeah. Sure, so full year revenue growth, as you said, we expect that to...
see a roughly four percentage points headwind from FX. Last quarter our expectations were for that headwind to be three percent so quarter on quarter about one percent of incremental impact.
Okay. And then Aaron, I think you said it was 80% of
new business was with Enterprise Plus. Is that correct? And if that is correct, how much upside is there left for price lifts as customers continue to upgrade? Or has sales of Enterprise kind of run its course at this point and the upside, the opportunity for...
deal size to expand on pricing is somewhat limited here. Yeah, so this is Dylan. First to clarify, the Enterprise Plus metric is that of the suites deals that we sold in Q2 which were 72% of the total larger deals, more than 80% of those suites deals were Enterprise Plus. And then as it relates to the upside, as we called out while we've been really pleased the momentum that we're seeing in suites.
We still have about 40% of our revenue attributable to Sweets customers, so quite a bit of room to run as in the coming years we would expect that to be the significant majority of our revenue. And I would also note that even once customers are on Sweets, we tend to see a pretty significant expansion opportunity. In fact, the net retention rate driven by both the strongest relative expansion and the strongest relative retention is higher than any other category of customers. So we do have both room to improve pricing and overall average contract.
And this will conclude today's conference. Thank you for your participation, and you may now disconnect.
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