Q1 2025 Box Inc Earnings Call
Operator: Hello, thank you for standing by, and welcome to the Box Inc. first quarter fiscal 2025 earnings conference call. All lines have been placed on mute to prevent any background noise.
Hello, Thank you for standing by and welcome to the box, Inc. First quarter fiscal 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time. Please press star one on your telephone keypad.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star one on your telephone keypad. I would now like to turn the conference over to Cynthia Hiponia, Vice President, Investor Relations. You may begin.
Speaker Change: Now I'd like to turn the conference over to Cynthia <unk>, Vice President Investor Relations you may begin.
Cynthia Hiponia: Good afternoon, and welcome to Box's first quarter fiscal 2025 earnings conference call. I'm Cynthia Hiponia, Vice President, Investor Relations. On the call today, we have Aaron Levie, Box co-founder and CEO, and Dylan Smith, Box co-founder and CFO.
Good afternoon, and welcome to boxes first quarter fiscal 2025 earnings conference call I'm, Cynthia Ponyo, Vice President Investor Relations on the call today, we have Aaron Levie box co founder and CEO and Dylan Smith, <unk> co founder and CFO. Following our prepared remarks, we will take your questions.
Cynthia Hiponia: 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. The webcast will be audio only.
Cynthia Hiponia: However, supplemental slides are now available for download from our website. We'll also post the highlight of today's call on the X-Platform at the handle at boxincir. On this call, we'll be making forward-looking statements, including our second quarter and full year 2025 financial guidance and our expectations regarding our financial performance for fiscal 2025 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, and our expectations regarding the size of our market opportunity, our planned investments, future product offerings and growth strategies, our ability to achieve our revenue, operating margins, and other operating model targets, the timing and market adoption of and benefits from our new products, pricing models, and partnerships.
Speaker Change: Today's call is being webcast and will also be available for replay on our Investor Relations website, our webcast will be audio only.
Speaker Change: However, supplemental slides are now available for download from our website. We'll also post the highlight of today's call on the X platform at the handle at box, Inc. I R.
Speaker Change: On this call, we'll be making forward looking statements, including our second quarter and full year 2025 financial guidance and our expectations regarding our financial performance for fiscal 2025 in future periods, including our free cash flow gross margins operating margins operating leverage future profitability net retention rates remaining performance.
Speaker Change: Obligations revenue in billings and the impact of foreign currency exchange rates and our expectations regarding the size of our market opportunity.
Speaker Change: Planned investments future product offerings and growth strategies, our ability to achieve our revenue operating margin 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.
Cynthia Hiponia: 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 potential repurchase of our common stock. These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially. Please refer to our earnings press release file today and the risk factors in the documents we file with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, 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, May 28, 2024, and we disclaim any obligation to update or revise them should they change or cease to be up to date.
Speaker Change: <unk> the impact of the macro environment on our business and operating results and our capital allocation strategies, including potential repurchase of our common stock.
Speaker Change: These statements.
Speaker Change: <unk> reflect our best judgment based on factors currently known to us and actual events or results may differ materially.
Speaker Change: Please refer to our earnings press release filed today and the risk factors in the documents, we file with the Securities and Exchange Commission, including our most recent annual report on Form 10-K for information on risks and uncertainties that may cause actual results to differ materially from statements made on this earnings call.
Speaker Change: These forward looking statements are being made as of today May 28, 2024, and we disclaim any obligation to update or revise them should they change or cease to be up to date in.
Cynthia Hiponia: In addition, during today's call, we will discuss our 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 supplemental slides, 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.
Speaker Change: In addition, during today's call we will discuss our 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.
Speaker Change: <unk> press release and in the related supplemental slides, 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.
Cynthia Hiponia: With that, let me turn the call over to Aaron.
Speaker Change: With that let me turn the call over to Erin.
Aaron Levie: Thank you, Cynthia, and thanks, everyone, for joining us today. We are pleased to have delivered first-quarter operating results above our guidance. This includes revenue growth of 5 percent year-over-year and 8 percent on a constant-currency basis. In addition, a strong focus on profitability, which resulted in operating margins of 27%, up 400 basis points from a year ago. While we continued to experience headwinds in FX that are reflected in our updated guidance, we were overall pleased with execution in the quarter.
Thank you Cynthia and thanks, everyone for joining US today, we're pleased to have delivered first quarter operating results above our guidance. This includes revenue growth of 5% year over year and 8% on a constant currency basis. In addition to our strong focus on profitability, which resulted in operating margins of 20%.
Speaker Change: 7% up 400 basis points from a year ago.
Speaker Change: While we continued to experience headwinds and FX that are reflected in our updated guidance. We were overall pleased with execution in the quarter.
Aaron Levie: As we shared in our last earnings call, we are in a new chapter for Box, one that is driven by the AI transformation. We saw this in Q1, which was defined by continued AI momentum with customers choosing Box as a platform to enable intelligent ways of working. Demand for Box AI and our upcoming more advanced capabilities continues to grow. And since we rolled out Box AI to Enterprise Plus customers last year, we have seen an increasing number of customers upgrade to Enterprise Plus in order to gain access to Box AI. In fact, we saw a meaningful increase in wins by revenue in Q1 where Box AI was central to the win compared to Q4.
Speaker Change: As we shared in our last earnings call. We were in a new chapter for box. One that is driven by AI transformation. We saw this in Q1, which was defined by continued AI momentum with customers choosing box is a platform to enable intelligent ways of working demand for box AI and our upcoming more advanced <unk>.
Aaron Levie: Customer examples in Q1 include a commercial real estate firm that upgraded to Enterprise Plus for access to Box AI, along with additional security and eSign functionality. They will be using Box AI to identify patterns across client leases, in addition to client analysis and generating marketing content. A leading global commerce company that moved to Enterprise Plus to gain access to Box AI and Box Hubs as they are looking to bring content together in a central location and extract the value from their unstructured content with the enterprise-grade security controls that Box provides.
Speaker Change: <unk> continues to grow and since we rolled out box AI to enterprise plus customers last year, we have seen an increasing number of customers upgraded to enterprise plus in order to gain access to box AI. In fact, we saw a meaningful increase in wins by revenue in Q1, where box AI was central to the win.
Speaker Change: And then in Q4.
Speaker Change: Customer examples in Q1 include our commercial real estate firms that upgraded to enterprise plus for access to box AI, along with additional security in Esign functionality.
They will be using box AI to identify patterns across client leases. In addition to client analysis and generating marketing content.
Speaker Change: Yeah.
Speaker Change: A leading global Commerce company that moved to enterprise plus to gain access to box AI and box hubs as theyre looking to bring content together in a central location and extract the value from their unstructured content with enterprise grade security controls that box provides.
Aaron Levie: Over the past quarter, we've hosted BoxAI Connect events in major cities in the U.S. and Europe, and I've had a chance to meet with hundreds of IT leaders and business executives from some of our top prospects and existing clients.
Speaker Change: Over the past quarter, we've hosted box AI connect events across major cities in the U S. In Europe, and I've had a chance to meet with hundreds of ICU leaders and business executives from some of our top prospects and existing clients. What stands out to me is how significant of an opportunity. These leaders believe they have around.
Aaron Levie: What stands out to me is how significant of an opportunity these leaders believe they have around new ways of working with their content and the power of AI. All of the insights necessary to create better business decisions and smoother business processes are living inside of an enterprise's content. It's the key data points inside of contracts that help businesses close new deals, the assets that create a major new ad campaign, the manufacturing and R&D files that enable the next breakthrough product to ship on time, and the financial documents that help close the books smoothly.
Speaker Change: New ways of working with their content and the power of AI.
Speaker Change: All of the insights necessary to create better business decisions and smoother business processes are living inside of an enterprise content.
Speaker Change: It's the key data points inside of contracts that help businesses closed new deals the assets that create a major new AD campaign, the manufacturing and R&D files that enables the next breakthrough product to ship on time and the financial documents that helped close the books smoothly.
Aaron Levie: Yet, for as important as all of this unstructured data is, and it makes up 90% of our corporate information, we've never been able to fully extract all of the value from it. We can't ask questions easily and pull insights from this content. We can't synthesize, summarize, or calculate against it, and only in limited situations, and often with massive investments in labor and intensive processes, have we been able to automate workflows around it. But this is all changing.
Speaker Change: Yet for as important as all this unstructured data is and it makes up 90% of our corporate information, we've never been able to fully extract all the value from it.
Speaker Change: We can't ask questions easily and pull insights from this content, we can synthesize summarize our calculate against it and only in limited situations and often with massive investments in labor and intensive processes have we've been able to automate workflows around it.
Speaker Change: But this is all changing.
Aaron Levie: With the latest breakthroughs in AI, we can finally tap into the full value of our content by extracting insights from it and letting anyone ask questions about this data. We can structure the data within our content to automate our content-centric business processes, and we can better protect our most important information. But we can't do this with traditional fragmented approaches to managing content.
With the latest breakthroughs in AI, we can finally tap into the full value of our content by extracting insights from it and letting anyone ask questions of this data we can structure the data within our content to automate our content centric business processes, and we can better protect our most important information.
Speaker Change: But we can't do this with traditional fragmented approaches to managing content not only our legacy ECM document management and collaboration systems too complex and costly to maintain and often unsecured. It's also nearly impossible to leverage AI against all of these silos.
Aaron Levie: Not only are legacy ECM, document management, and collaboration systems too complex and costly to maintain and often unsecure, but it's also nearly impossible to leverage AI against all of these silos. This will lead to a continued disruption of the traditional enterprise content management landscape. This is the opportunity that is driving our strategy and that Box is uniquely positioned to accelerate. We are leading the era of intelligent content management, and our Q1 wins and momentum highlight the sheer size and potential of this opportunity.
Speaker Change: This will lead to a continued disruption of the traditional enterprise content management landscape.
Speaker Change: This is the opportunity that is driving our strategy and that box is uniquely positioned to accelerate.
Speaker Change: We are leading the era of intelligent content management, and our Q1 wins and momentum highlight this sheer size and potential of this opportunity.
Aaron Levie: Our Intelligent Content Cloud delivers the most secure way to power collaboration, workflow automation, and content intelligence in a single platform, and we've been building towards this vision for several years to deliver the full value of content in the AI-enabled era of work and business processes. We're focused on four areas of innovation.
Speaker Change: Our intelligent content cloud delivers the most secure way to power collaboration workflow automation and content intelligence in a single platform and we've been building towards this vision for several years.
Speaker Change: To deliver the full value of content in the AI enabled era of work and business processes.
Speaker Change: We're focused on four areas of innovation store.
Aaron Levie: Starting with workflow and collaboration, with the beta release of AI-enabled Box Hubs in mid-May, we are transforming how companies can distribute content throughout an organization. Box Hubs provides a new lens into all of the content that customers collaborate on in Box with intelligent portals that simplify curation, organization, and publishing, no matter the file type or where it lives in Box. This means you can put the right content into the right teammates' hands when they need it most.
Speaker Change: Starting with workflow and collaboration with the beta release of AI enabled box hubs in mid May.
Speaker Change: We are transforming how companies can distribute content through an organization.
Speaker Change: Hubs provides a new lens into all of the content that customers collaborate on inbox with intelligent portals that simplified curation organization and publishing the matter of the final type or where it lives in box.
Speaker Change: This means you can put the right content into the right teammates hands when they need it most.
Aaron Levie: And with Box AI for Hubs in beta also rolling out to Enterprise Plus customers, viewers can ask questions across multiple documents curated in the hub and tap into insights from their data with AI to get answers in seconds. Importantly, this provides enterprises an instant way to deliver retrieval and augmented generation use cases in AI around large groups of content that can be instantly enabled with no code. With Box AI, customers will soon be able to extract metadata from a large number of document and content types within their enterprise. Once you have metadata on content, you can automate almost any workflow in the enterprise, from invoice processing and contract management to digital asset management and clinical trial management.
Speaker Change: And with box AI for hubs in beta also rolling out to enterprise plus customers viewers can ask questions across multiple documents curated in the hub and tap into insights from their data with AI to get answers in seconds.
Speaker Change: Importantly, this provides enterprises and instant way to deliver retrieval augmented generation used cases NII around large groups of content that can be instantly enabled with no code.
Speaker Change: With box AI customers will soon be able to extract metadata from a large number of document and content types within their enterprise.
Once you have metadata on content you can automate almost any workflow in the enterprise from invoice processing and contract management to digital asset management and clinical trial management. This is why we acquired crews back in December and we are working aggressively to natively integrate cruises no code application.
Aaron Levie: This is why we acquired Cruise back in December, and we are working aggressively to natively integrate Cruise's no-code application building and metadata features into Box to support powering content-centric workflows on Box. We'll share more about how these technologies are coming together throughout FY25. Across security and compliance, we are working to expand BoxShield features for advanced data security, introduce a new native archiving solution later this year, and accomplish critical compliance levels like FedRAMPi to expand our use cases in the federal government.
<unk> building and metadata features in the box to support powering content centric workflows on box.
Speaker Change: We will share more around how these technologies are coming together throughout FY 'twenty five.
Speaker Change: Across security and compliance we are working to expand box shield features for advanced data security.
Speaker Change: We introduced a new native archiving solution later, this year and accomplished critical compliance levels like fed ramp high to expand our use cases and the federal government.
Aaron Levie: We are also doubling down on our open platform to support deeper integrations with Salesforce, Slack, Microsoft Teams, Microsoft Copilot, IBM's technologies, and our customers' custom-built applications. To further highlight the power of our platform, at ServiceNow's Knowledge 2024 keynote, ServiceNow highlighted Box as a content repository to demonstrate the value of their NowAssist AI product. Going forward, Box is well positioned to be the platform for providing unstructured data to SAS and AI providers.
We are also doubling down on our open platform to support deeper integrations with Salesforce Slack, Microsoft teams, Microsoft Co pilot Ibm's technologies, and our customers custom built applications too.
Speaker Change: To further highlight the power of our platform at service now knowledge 2020 for keynote serves now highlighted box as a content repository to demonstrate the value of their analysis AI product.
Speaker Change: Going forward boxes, well positioned to be the platform for providing unstructured data to SaaS and AI providers.
Aaron Levie: Finally, we are working to deliver the most advanced AI within Box with the Box AI platform. The Box AI platform is a critical abstraction layer that securely connects leading AI models to content in Box. Our secret sauce is a set of AI services that we've built out for developers and our Box first-party apps, such as retrieval augmented generation, processing documents for vector embeddings, tool use for AI agents to use within Box, model-agnostic AI management, and more.
Speaker Change: Finally, we are working to deliver the most advanced AI within box with the box AI platform the.
Speaker Change: The box AI platform is a critical abstraction layer that securely connects leading AI models to content in box. Our secret sauce is a set of AI services that we built out for developers and our box first party apps, such as retrieval augmented generation processing documents for vet.
Speaker Change: Durham Bettings tool used for AI agents to use within box model agnostic AI management and more.
Aaron Levie: Instead of enterprises maintaining many disparate back-end systems to bring AI to their content, the Box AI platform handles all of this for them, seamlessly, while respecting the inherent security and content access permissions within Box. Importantly, a core part of our platform is that we can quickly bring the power of any AI model to Box content. For instance, we already have GPD 4.0 working within Box Hubs internally just a week after its release.
Speaker Change: Instead of enterprises, maintaining many disparate backend systems to bring AI to their content.
Speaker Change: The box AI platform handles all of this for them seamlessly, while respecting the inherent security and content access permissions within box.
Importantly, our core part of our platform is that we can quickly bring the power of any AI model to box content for instance, we already have GBT for working with inbox hubs internally just a week after its release.
Aaron Levie: In Q1, we announced a new integration with Microsoft Azure OpenAI, which brings together Box and Microsoft's enterprise-grade standards for security, privacy, and compliance for AI. And also in Q1, as part of Box's technology partnership with NVIDIA, with NVIDIA's newly launched NIM microservices, Box can more easily leverage various AI models and capabilities within Box AI to improve how our customers can unleash the value of their unstructured content. Now, I'm switching gears to go to market.
Speaker Change: In Q1, we announced a new integration with Microsoft Azure Open AI, which brought together box and Microsoft Enterprise grade standards for security privacy and compliance to AI.
Speaker Change: And also in Q1 as part of boxes technology partnership with Nvidia with Nvidia is newly launched NIM micro services box can more easily leverage various AI models and capabilities within box AI to improve how our customers can unleash the value of their unstructured content.
Aaron Levie: As we outlined in our March Financial Analyst Day, we are focused on leveraging our go-to-market engine to bring the full value of Box to all of our customers. We are also focused on leveraging our go-to-market engine to bring the full value of Box to all of our customers. We continue to see the successful adoption of Enterprise Plus, our multi-product offering that brings the full value of the Box Intelligent Content Cloud to our customers.
Speaker Change: Now switching gears to go to market as we outlined in our March financial Analyst Day, we are focused on leveraging our go to market engine to bring the full value of box to all of our customers. We continued to see the successful adoption of enterprise plus our multi product offering that brings the full value of.
Speaker Change: The box intelligent content cloud to our customers.
Aaron Levie: In Q1, Enterprise Plus continued to be well over 90% of our suites sales in large deals, with suites now comprising 85% of our deals over $100,000 in Q1. We saw solid suite attach rates in large deals across all geographies.
Speaker Change: In Q1 enterprise plus continued to be well over 90% of our suite sales and large deals with suites now comprising 85% of our deals over $100000 in Q1.
Speaker Change: We saw solid suites attach rates and large deals across all geographies.
Aaron Levie: Our Q1 customer expansions and new wins with Enterprise Plus include a global pharmaceutical and medical device company who purchased Box with a six-figure Enterprise Plus deal for their core ECM platform. They will leverage Box for records management, moving off legacy technology to modernize their content strategy. This will allow them to centralize important records, HR, and customer service data in Box while also meeting GXP compliance for auditable records. A leading broadcast company in Japan that signed an Enterprise Plus upsell to build a secure content platform to prevent unexpected information leaks and prevent ransomware attacks with Shield.
Speaker Change: Our Q1 customer expansions and new wins with enterprise plus include a global pharmaceutical and medical device company, who purchased box with a six figure enterprise plus deal for their core ECM platform.
Speaker Change: Will leverage box for records management, moving off legacy technology to modernize their content strategy. This will allow them to centralize important records HR and customer service data and box, while also meeting GSP compliance for Auditable Records.
Speaker Change: And our leading broadcast company in Japan that signed an enterprise plus upsell to build a secure content platform to prevent unexpected information leaks and to prevent ransomware attacks with shield.
Aaron Levie: To bring the full value of our platform to our customers, this year, we have expanded our demand-gen efforts. We are continuing our global AI Connect events and other CIO events. We are introducing new offerings throughout this year to help our customers modernize their ECM environment within Box, and we are driving larger deals with customers and powering more workflows in partnership with key system integrators. For instance, in Q1, we saw a number of key wins with large customers across critical focus industries with the help and support of key partners. We are at a major moment as an industry. With AI, the role of unstructured data in enterprises has exploded.
To bring the full value of our platform to our customers. This year, we have expanded our demand Gen efforts, we are continuing our global AI connect events in other CIO events.
Speaker Change: We are introducing all new offerings throughout this year to help our customers modernize their ECM environment within box and we are driving larger deals with customers and powering more workflows in partnership with key system integrators for instance in Q1, we saw a number of key wins with large.
Speaker Change: Customers across critical focus industries with the help and support of key partners.
Speaker Change: We are at a major moment as an industry with AI the role of unstructured data and enterprises has exploded and box is at the center of this movement within the most important businesses and organizations in the world.
Aaron Levie: And Box is at the center of this movement within the most important businesses and organizations in the world. Of course, what drives our success is not only our strategy and our platform but the work our boxers do globally. I'm proud that Box was recently recognized by Fortune magazine as the 18th best company to work for in 2024, up from number 27, a year ago. Our mission at Box is to power how the world works together. And as a company, we will look back on this as a defining period for how work will be shaped for decades to come. And with that, I will hand it off to Dylan.
Of course, what drives our success is not only our strategy and our platform, but the work our boxers do globally.
Speaker Change: I'm proud that box was recently recognized by Fortune magazine as the number 18 in the 100 best companies to work for.
Speaker Change: In 2024 up from number 27.
A year ago.
Speaker Change: Our mission at box is to power, how the world works together and as a company. We will look back on this as a defining period for how work with shaped for decades to come.
Dawn: And with that let me hand, it off to dawn.
Aaron: Thanks, Aaron Good afternoon, everyone and thank you for joining us today.
Dylan C. Smith: Aaron, good afternoon, everyone, and thank you for joining us today. Q1 was a strong quarter for Box as we once again delivered on our key financial priorities to drive long-term profitable growth. Accelerating revenue growth in constant currency, expanding operating margins, and executing a Disciplined Capital Allocation Strategy to Optimize Shareholder Returns. In Q1, we delivered revenue of $265 million, 5% year-over-year, and 8% in constant currency. This was above the high end of our guidance, driven by strong bookings linear. We now have approximately 1,800 total customers paying us more than $100,000 annually.
Dawn: Q1 was a strong quarter for box as we once again delivered on our key financial priorities to drive long term profitable growth.
Dawn: Accelerating revenue growth in constant currency, expanding operating margins and executing a disciplined capital allocation strategy to optimize shareholder returns.
Dawn: In Q1, we delivered revenue of $265 million up 5% year over year and 8% in constant currency.
Dawn: This was above the high end of our guidance driven by strong bookings linearity.
Dawn: We now have approximately 800 total customers paying us more than $100000 annually.
Dylan C. Smith: Our Q1 suites attach rate in large deals was 85%, a new high watermark, and up significantly from 69% a year ago. Suites customers now account for 56% of our revenue, a strong improvement from 47% in Q1 of last year. As Aaron mentioned, we're seeing strong demand for Box AI and our more advanced capabilities, which has been a key catalyst for this accelerating suites adoption.
Dawn: Our Q1 suites attach rate in large deals was 85% a new high watermark and up significantly from 69% a year ago.
Dawn: Suites customers now account for 56% of our revenue a strong improvement from 47% in Q1 of last year.
Dawn: As Aaron mentioned, we're seeing strong demand for box AI and our more advanced capabilities, which has been a key catalyst for this accelerating suites adoption.
Dylan C. Smith: We ended Q1 with remaining performance obligations, or RPO, of $1.2 billion, a 3% year-over-year increase or 8% in constant currency. We expect to recognize roughly 60% of our RPO over the next 12. Q1 billings of $190 million were down 1% year-over-year and up 5% year-over-year in constant currency. Q1 billings were in line with our expectations when adjusting for an FX headwind that was 250 basis points higher than we had anticipated in our guidance. Our net retention rate for Q1 was 101%, consistent with last quarter's results. Our annualized full churn rate remains strong and stable at 3%, demonstrating continued product stickiness with our customers.
Speaker Change: We ended Q1 with remaining performance obligations or <unk> of.
Speaker Change: Of $1 2, billion% to 3% year over year increase or 8% in constant currency.
Speaker Change: We expect to recognize roughly 60% of our RP over the next 12 months.
Speaker Change: Q1, billings of $190 million were down 1% year over year and up 5% year over year in constant currency.
Speaker Change: Q1 billings were in line with our expectations when adjusting for an FX headwind there was 250 basis points higher than we had anticipated in our guidance.
Our net retention rate for Q1 was 101% consistent with last quarter's results.
Speaker Change: Our annualized full churn rate remained strong and stable at 3% demonstrating continued product stickiness with our customers.
Dylan C. Smith: We continue to anticipate exiting FY25 with a net retention rate at or slightly above this. Q1 gross margin came in at 80.2%, up 230 basis points year over year, and above our guidance of roughly 79%, and represents the first time we've reported 80% gross margin. As we continue to realize the efficiencies of running our infrastructure fully in the public cloud, we expect to deliver additional gross margin expansion over time. Q1 gross profit of $212 million was up 8% year-over-year, exceeding our revenue growth rate by 300 basis points.
Speaker Change: We continue to anticipate exiting FY 'twenty five with a net retention rate at or slightly above this level.
Q1 gross margin came in at 82% up 230 basis points year over year and above our guidance of roughly 79% and represents the first time, we've reported 80% gross margins.
Speaker Change: As we continue to realize the efficiencies of running our infrastructure fully in the public cloud, we expect to deliver additional gross margin expansion over time.
Q1, gross profit of $212 million was up 8% year over year exceeding our revenue growth rate by 300 basis points.
Dylan C. Smith: In Q1, we delivered operating income of $70 million, up 23% year-over-year, once again demonstrating our commitment to generating leverage across the business. Q1 operating margin of 26.6% was up 380 basis points year over year, despite absorbing an FX headwind of roughly 150 basis points. Our disciplined approach to expense management is continuing to generate additional leverage in our operations. As a result, we delivered EPS of $0.39 in Q1, up $0.07 year over year and well above the high end of our guidance of $0.36. This result includes a negative impact from FX of approximately four.
Speaker Change: In Q1, we delivered operating income of $70 million up 23% year over year, once again, demonstrating our commitment to generating leverage across the business.
Speaker Change: Q1 operating margin of 26, 6% was up 380 basis points year over year, despite absorbing an FX headwind of roughly 150 basis points.
Speaker Change: Our disciplined approach to expense management is continuing to generate additional leverage in our operating model.
Speaker Change: As a result, we delivered EPS of <unk> 39 in Q1 up seven <unk> year over year, and well above the high end of our guidance of 36.
Speaker Change: This result includes a negative impact from FX of approximately <unk> <unk>.
Dylan C. Smith: I'll now turn to our cash flow and balance. In Q1, we had an exceptionally strong free cash flow generation of $123 million, up 14% year-over-year. We generated cash flow from operations of $131 million, a 5% increase from Q1 of last year. Let's now turn to our capital allocation. We ended the quarter with $567 million in cash, cash equivalents, restricted cash, and short-term investments. In Q1, we repurchased approximately 1.4 million shares for approximately $37 million.
Speaker Change: I'll now turn to our cash flow and balance sheet.
Speaker Change: In Q1, we had exceptionally strong free cash flow generation of $123 million up 14% year over year.
Speaker Change: We generated cash flow from operations of $131 million, a 5% increase from Q1 of last year.
Speaker Change: Let's now turn to our capital allocation strategy.
Speaker Change: We ended the quarter with $567 million in cash cash equivalents restricted cash and short term investments.
In Q1, we repurchased approximately one 4 million shares for approximately $37 million.
Dylan C. Smith: As of April 30, 2024, we had approximately 126 million of remaining buyback capacity under our current share repurchase program. We remain committed to opportunistically returning capital to our shareholders through our ongoing stock repurchase program. With that, let me now turn to our Q2 and full year. As a reminder, approximately one-third of our revenue is generated outside of the U.S., with roughly 60% of our international revenue coming from Japan.
Speaker Change: As of April 32024, we had approximately 126 million of remaining buyback capacity under our current share repurchase plan.
Speaker Change: We remain committed to Opportunistically, returning capital to our shareholders through our ongoing stock repurchase program.
Speaker Change: Okay.
Speaker Change: With that let me now turn to our Q2 and full year guidance.
Speaker Change: As a reminder, approximately one third of our revenue is generated outside of the U S with roughly 60% of our international revenue coming from Japan.
Dylan C. Smith: Since we last provided guidance, the U.S. dollar has strengthened versus the yen, and the following guidance includes the expected impact of FX headwinds, assuming current exchange rates. Additionally, we expect the non-CAS deferred tax expenses that we discussed last quarter to represent an impact of roughly 1 cent to GAAP and non-GAAP EPS in Q2 and 5 cents for the full year in the second quarter of fiscal 2025. We expect Q2 revenue to be in the range of $268 million to $270 million, representing 3% year-over-year growth or 6% growth on a constant currency basis. We anticipate our Q2 billings growth rate to be in the low to mid-single digits. This includes an expected headwind from FX of approximately 50 kilometers per hour.
Speaker Change: Since we last provided guidance the U S. Dollar has strengthened versus the yen and the following guidance includes the expected impact of FX headwinds assuming current exchange rates.
Speaker Change: Additionally, we expect a noncash deferred tax expenses that we discussed last quarter to represent an impact of roughly <unk> <unk> to GAAP and non-GAAP EPS in Q2 and five for the full year.
Dylan C. Smith: We expect our Q2 gross margin to be roughly flat sequentially, representing a year-over-year improvement of more than 300 basis points. We expect our Q2 non-GAAP operating margin to be approximately 27%, which includes an expected negative impact of approximately 200 basis points due to FX. This represents a 220 basis point improvement year over year and a 420 basis point improvement in constant current. We expect our Q2 non-GAAP EPS to be in the range of $0.40 to $0.41, a 12% year-over-year increase at the high end of this range, even as we absorb the non-cash deferred tax expenses I mentioned earlier. Weighted average diluted shares are expected to be approximately 148 for the full fiscal year ending January 31st, 2025.
Speaker Change: For the second quarter of fiscal 2025.
Speaker Change: We expect Q2 revenue to be in the range of 268 million to $270 million, representing 3% year over year growth or 6% growth on a constant currency basis.
Speaker Change: We anticipate our Q2 billings growth rate to be in the low to mid single digit range.
Speaker Change: This includes an expected headwind from FX of approximately 50 basis points.
Speaker Change: We expect our Q2 gross margin to be roughly flat sequentially, representing a year over year improvement of more than 300 basis points.
Speaker Change: We expect our Q2 non-GAAP operating margin to be approximately 27%, which includes an expected negative impact of approximately 200 basis points due to FX.
Speaker Change: This represents a 220 basis point improvement year over year, and a 420 basis point improvement in constant currency.
Speaker Change: We expect our Q2 non-GAAP EPS to be in the range of 40 to 41.
Speaker Change: A 12% year over year increase at the high end of this range, even as we absorbed the noncash deferred tax expenses I mentioned earlier.
Speaker Change: Weighted average diluted shares are expected to be approximately $148 million.
Speaker Change: For the full fiscal year ending January 31 2025.
Dylan C. Smith: We anticipate revenue in the range of $1.075 to $1.08 billion, representing approximately 4% year-over-year growth and 7% growth in constant currency at the high end of this. On a constant currency basis, this represents a $3 million increase versus our prior guidance. This includes an expected headwind from FX of roughly 250 basis points, 80 basis points higher than our previous expectations, representing an incremental $8 million headwind. We expect our FY25 billings growth rate to be in the low single-digit range as compared with our previous guidance of roughly in line with revenue growth of approximately 4% on an as-reported basis. This change is driven by an incremental FX headwind, which we now expect to have a negative impact of approximately 150 basis points on revenue.
Speaker Change: We anticipate revenue in the range of one point <unk> 75 to $1 eight.
Speaker Change: Billion, representing approximately 4% year over year growth and 7% growth in constant currency at the high end of this range.
Speaker Change: On a constant currency basis. This represents a $3 million increase versus our prior guidance.
Speaker Change: This includes an expected headwind from FX of roughly 250 basis points 80 basis points higher than our previous expectations, representing an incremental $8 million headwind.
We expect our FY 'twenty five billings growth rate to be in the low single digit range as compared with our previous guidance of roughly in line with revenue growth of approximately 4% on an as reported basis.
Speaker Change: This change is driven by an incremental FX headwind, which we now expect to have a negative impact of approximately 150 basis points to billings growth.
Dylan C. Smith: We expect our FY25 gross margin to be roughly 80%, representing a year-over-year improvement of 260 basis points. We continue to expect our FY25 non-GAAP operating margin to be approximately 27%, representing a 230 basis point improvement year over year. We expect FX to have a negative impact on operating margin of roughly 160 basis points. This guidance is in line with our previous guidance, despite an expected incremental headwind from FX of approximately 50 basis points. We are raising our EPS expectations for the full year due to our ability to generate additional leverage across the business, as well as an improvement in our expected below-the-line income. We now expect FY25 non-GAAP EPS to be in the range of $1.54 to $1.58, representing an 8% increase at the high end of this range versus $1.46 in the prior year.
Speaker Change: We expect our FY 'twenty five gross margin to be roughly 80%, representing a year over year improvement of 260 basis points.
Speaker Change: We continue to expect our FY 'twenty five non-GAAP operating margin to be approximately 27%, representing a 230 basis points improvement year over year.
Speaker Change: We expect FX to have a negative impact on operating margin of roughly 160 basis points.
This guidance is in line with our previous guidance, despite an expected incremental headwinds from FX of approximately 50 basis points.
Speaker Change: We are raising our EPS expectations for the full year due to our ability to generate additional leverage across the business as well as an improvement in our expected below the line income and expenses.
Speaker Change: We now expect FY 'twenty five non-GAAP EPS to be in the range of $1 54 to $1 58, representing an 8% increase at the high end of this range versus a $1 46 in the prior year.
Speaker Change: This includes the <unk> <unk> impact from deferred tax expenses that I noted previously as well as an expected FX headwind of <unk> 15.
Dylan C. Smith: This includes the $0.05 impact from deferred tax expenses that are noted previously, as well as an expected FX headwind of $0.15, which is $0.05 higher than our previous expectations. Weighted Average Diluted Shares are expected to be approximately 150 million.
Speaker Change: Which is <unk> <unk> higher than our previous expectations.
Speaker Change: Weighted average diluted shares are expected to be approximately $150 million.
Speaker Change: Yes.
Dylan C. Smith: We are embarking on an exciting new chapter as a company driven by years of investment and innovation in building out our intelligent content class. Our differentiated product capabilities will enable us to power AI-driven business processes around workflow automation and enterprise. As we prepare for the upcoming launch of a new plan offering later this year, we'll be fueling our go-to-market engine through the targeted growth initiatives that Aaron outlined. And with a disciplined financial strategy in place, we built a strong foundation to deliver long-term profitable growth.
Speaker Change: We are embarking on an exciting new chapter as a company driven by years of investment in innovation and building out our intelligent content cloud.
Speaker Change: Our differentiated product capabilities will enable us to power AI driven business processes around workflow automation and enterprise content.
Speaker Change: As we prepare for the upcoming launch of a new plan offering later this year will be fueling our go to market engine through the targeted growth initiatives that Aaron outlined and.
Speaker Change: And with a disciplined financial strategy in place, we built a strong foundation to deliver long term profitable growth.
Dylan C. Smith: With that, Aaron and I will be happy to take your questions. Operator. Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you wish to withdraw your call,
Speaker Change: With that Aaron and I will be happy to take your questions operator.
Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you wish to withdraw your question, simply press star one again. If you are called upon to ask your question, please ensure that your phone is not on mute. Your first question comes from the line of Brian Peterson. Your line is open. Well, hey, guys, thanks for taking the questions. And so starting off with AI, it sounds like that's really responding.
Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you wish to withdraw your question simply press Star one again.
Speaker Change: If you are called upon to ask a question. Please ensure that your phone is not on mute.
Your first question comes from the line of Brian Peterson Your line is open.
Brian Christopher Peterson: Oh, Hey, guys. Thanks for taking the questions. So starting off with AI. It sounds like that's really resonating I'm curious do you feel like Theres any targeted verticals, where there is more interest there I know you mentioned real estate, but I'm curious how broad that is any discussion on how people are thinking about budgets for that we'd love to get the color there.
Brian Christopher Peterson: Yeah, so I would say right now that we're seeing it across, you know, basically every vertical that we see. I think there are verticals where, over the medium and long term, stand to gain, you know, on a relative basis, maybe more than others, if you look at things like financial services, life sciences, federal government, you know, categories that typically are very document and content-centric verticals where AI can begin to unlock much more around being able to answer questions from data or automate workflows.
Speaker Change: Yes so.
Speaker Change: I would say right now we're seeing it across.
Speaker Change: Basically every vertical that we see.
Speaker Change: I think there's verticals where over the medium and long term stand to gain on a relative basis.
Speaker Change: Maybe more than others. If you look at things like financial services Life Sciences Federal government categories that typically are very document and content centric verticals, where AI can begin to unlock.
Speaker Change: Way more around being able to answer questions from data or automate workflows. So we have seen a high degree of residents in our conversations in those verticals, but in terms of where we saw enterprise plus upgrades in the quarter.
Speaker Change: Was really across the board so I would say.
Speaker Change: Every vertical that we serve we saw.
Speaker Change: Strong up sells for for box AI.
Speaker Change: And.
Speaker Change: And then in terms of your budget question feel free to build on it more but I would say.
Speaker Change: For right now because especially.
Speaker Change: <unk> capabilities are being unlocked within the enterprise plus plan.
Speaker Change: It's still largely coming out of it budget is coming out of often the spend that we are helping displace from legacy systems I think over time, if we maybe fast forward a year or two from now I can see that the budget increases when you look at line of business that we'll be able to drive more efficiency because of AI.
Brian Christopher Peterson: So we have seen a high degree of resonance in our conversations in those verticals. But in terms of, you know, where we saw enterprise plus upgrades in the quarter, it was really across the board. So I would say, you know, in every vertical that we serve, we saw, you know, strong upsells for box AI. When you look at lines of business that will be able to drive more efficiency because of AI, we're only in the earliest days of what that looks like. But certainly, as AI really drives workflow automation and more business process transformation, I think you'll see an even increased budget that opens up for AI use cases around content. That's a great call, Aaron.
And that we are only in the earliest days of what that looks like but certainly as AI really drives workflow automation and more business process transformation I think youll see even increased budget that opens up for AI use cases around content.
Aaron Levie: You know, it's great to see you guys raise the revenue outlook in constant currency. I'm curious, anything that you call out in terms of the demand environment or deal cycles as the quarter progresses? Thanks.
Speaker Change: That's great color, Eric it's great to see you guys raised the revenue outlook in constant currency I'm curious anything that you'd call out in terms of the demand environment, our deal cycles as the quarter progress. Thanks, guys Yeah.
Aaron Levie: Yeah, so, you know, as I think we've noted in the past couple of quarters, we are starting to see some degree of stabilization. Again, that's different from any kind of inflection point that that sort of, you know, you know, looking like we're out of the woods on the macro front, but the lack of increase in the head of new headwinds, I think has been notable in the past couple of quarters.
Speaker Change: So.
Speaker Change: I think we've noted in the past couple of quarters.
We are starting to see.
Speaker Change: Some degree of stabilization again, that's different from any kind of inflection point.
Speaker Change: That that's sort of.
Speaker Change: Looking like we're out of the woods on the macro front, but sort of the lack of increase of new headwinds I think has been notable in the past couple of quarters, we had strong performance, especially in our U S enterprise business in federal.
Aaron Levie: We had strong performance, especially in our US enterprise business and federal. In addition to the US enterprise business, I think we're still seeing some degree of pressure on the SMB segment. But when we look at the business overall, you know, on balance, we're happy with the performance in Q1. And we certainly look forward to driving more growth throughout the year.
Speaker Change: In addition to the U S enterprise business I think we're still seeing some degree of pressure on the SMB segment, but.
But when we look at the business overall on balance we're happy with the performance in Q1, and we certainly look forward to driving more growth throughout the year.
Speaker Change: Yes.
Eric: Thanks, Eric.
Speaker Change: Yes.
Pinjalim Bora: Your next question comes from the line of Pinjalim Bora. Your line is open.
Speaker Change: Your next question comes from the line of Pendulum Bora Your line is open.
Pinjalim Bora: Oh, great. Congratulations on the quarter, guys.
Speaker Change: Oh, great Congrats on the quarter guys. Thanks for taking the question again on AI Aaron what have you seen so far with respect to kind of the volume of queries made by users within the box content hubs for.
Speaker Change: It's early but any color would be helpful to those those volume of queries that youre seeing are those tracking to your expectations. So far and the flip side of that is how has that fared versus the cost side of the equation on the gross margin side.
Pinjalim Bora: Thanks for taking the question. Again, on AI, Aaron, what have you seen so far with respect to the volume of queries made by users within the box content hubs for AI? I know it's early, but any color would be helpful, the volume of queries that you're seeing, are those tracking to your expectations so far? And the flip side of that is, how has that fared versus the cost side of the equation on the gross margin side?
Speaker Change: Yeah. So so as you note hubs has literally been around for I think maybe a week and a half in terms of it being in beta.
Aaron Levie: Yeah, so as you know, Hubs has literally been around for, I think, maybe a week and a half in terms of it being in beta. And so we're just getting the early data in.
And so we're just getting the early data and we're reviewing kind of initial customer use cases and scenarios right now.
Aaron Levie: We're reviewing kind of initial customer use cases and scenarios right now. Hubs is already driving about a quarter or so of our total AI queries. So kind of right out of the gate, it's been strong in terms of it's one of the kind of immediate use cases that customers adopt, just because it's such a huge unlock to be able to ask questions about any amount of content. And as we've noted, both in our keynotes and a little bit on this earnings call, the use cases are quite vast, because really, there hasn't been another product at real commercial scale where Similarly, in product and engineering or equity research in financial services.
Speaker Change: <unk> already is driving.
Speaker Change: About a quarter or so of our total AI queries, so kind of right out of the gate. It's been it's been strong in terms of its one of the the kind of immediate use cases that customers adopt just because it's such a huge unlock to be able to ask questions of any amount of content.
Speaker Change: And as we've noted both in our keynotes and a little bit on this earnings call.
The use cases are quite vast because really there hasnt been another product that at real commercial scale, where you can collect your sales materials and create a sales hub that anybody can ask questions within an HR portal with all your HR documentation that anyone can ask questions in.
Speaker Change: Similarly in product and engineering, our equity research in financial services I was with a C.
Aaron Levie: I was with the CEO of an investment bank just about a month and a half ago, and this was a breakthrough product for him, because instantly, he can enable any new employee in the firm to have as much knowledge access as somebody that's been at the firm for a decade or two. And that's basically what we're able to now do with our content; this content really becomes the kind of digital memory of an organization that anyone can tap into. So just this ability to instantaneously make all of your employees as knowledgeable as your most experienced employee is transformational.
Speaker Change: Oh of an investment bank.
Speaker Change: Just about a month and a half ago and this was a breakthrough product for him because instantly know he can enable any new employee in the firm to have as much knowledge access as somebody that's been at the firm for a decade or two.
Speaker Change: And that's basically what we're able to now do with our content is this content really becomes the kind of digital memory of an organization that anyone can tap into so just as the ability to instantaneously make all of your employees as knowledgeable as your most experienced employees is transformational and so the hubs use case is going to really be.
Aaron Levie: And so the Hubs use case is going to really be a massive unlock for enabling that in every one of our customers. And we think we'll certainly contribute to more enterprise plus upgrades and more volume. And I think you had something on the kind of gross margin. Did I catch that? Or the cost side? Did you mention that?
Speaker Change: A massive unlock for enabling that in every one of our customers and we think will certainly contribute to more enterprise plus upgrades and more volume and then I think you have something on the kind of gross margin did I catch that or the cost side did you did you mentioned that yes.
Aaron Levie: Yeah, so as I think we've mentioned, you know, we expect to be able to maintain our gross margin levels, even with the addition of AI, really driven by the fact that, you know, as customers are on these higher tier plans, we tend to see higher gross margins in those higher tier plans in the first place. And then for a lot of the extremely high volume use cases, things like metadata extraction or being able to run a workflow that generates a lot of AI usage, that will be volume-based and not included in the enterprise plus plan or other plans.
Speaker Change: Yes. So I think we've mentioned, we expect to be able to maintain our gross margin levels, even with the addition of AI.
Really driven by the fact that as customers are in these higher tier plans, we tend to see higher gross margin on those higher tier plans in the first place and then for a lot of the extremely high volume use cases things like metadata extraction or being able to run a workflow.
Speaker Change: Generates a lot of AI usage that will be all volume based and not included in the enterprise plus plan or other plans and so in that in those cases customers will just be paying us for the volume and we will ensure that we're driving the appropriate kind of margin structure.
Aaron Levie: And so in that, in those cases, customers will just be paying us for the volume, and we'll ensure that we're driving the appropriate kind of margin structure that delivers, you know, our margin goals on that front.
That delivers our margin goals on that front.
Dylan C. Smith: You understand one quick follow-up for Dylan. Dylan, it seems like the linearity in the quarter was a little bit better. What drove that? Are you doing something different to drive that, and could that be something that you would like to add? I wouldn't say
Yeah understood one quick follow up for Dylan doesn't it seems like the linearity in the quarter was a little bit better. What drove that are you are you doing something different to drive that and could that be sustainable.
Dylan C. Smith: I wouldn't say that we did anything significantly different. I think just a lot of energy and momentum, you know, heading into the first quarter with some of the product capabilities that we talked about, so really a continuation of some of the Q4 execution and demand around Enterprise Plus driven by everything Aaron's been talking about. So we did see, you know, certainly a stronger than we'd even expected to see start to the quarter, which would lead to that revenue upside that we mentioned.
Dylan: I wouldn't say that we did anything significantly different thing just a lot of energy and momentum.
Speaker Change: Into the first quarter with some of the product capabilities do we talked about is really a continuation of some of the Q4 execution and demand around enterprise plus driven by everything Aaron has been talking about so we did see.
Speaker Change: Certainly a stronger.
Then than we even expected to see a start to the quarter, which would lead to that revenue upside that we mentioned.
Speaker Change: So certainly something we'd like to repeat every quarter, but I wouldn't say that there is anything significantly.
Dylan C. Smith: So certainly something we'd like to repeat every quarter, but I wouldn't say that there is anything, you know, significantly different that we did this time around. I would just point to really compelling products and demand for that, as well as sales execution.
The difference that we did this time around I would just point to really compelling.
Speaker Change: Kind of kind of products and demand for that as well as sales execution.
Speaker Change: Got it thank you very much.
George Michael Kurosawa: Your next question comes from the line of George Kurosewa. Your line is open.
Speaker Change: Your next.
Speaker Change: Question comes from the line of George <unk>. Your line is open.
Speaker Change: Okay.
George Michael Kurosawa: Hi, thanks for taking the question. I'm on behalf of Steve Enders.
Hi, Thanks for taking my question I'm on for Steve Enders, you talked about I just wanted to ask about kind of your competition with legacy ECM providers, you talked about AI is kind of helping further augment your relative value proposition have you seen any change so far in kind of win rates, there or maybe the number of opportunities.
Aaron Levie: You know, you talked about I just want to ask about the kind of competition with legacy ECM providers. You talked about AI is kind of helping further augment your relative value proposition. Have you seen any change so far in in kind of win rates there or maybe the number of opportunities?
Aaron Levie: Yeah, so we are definitely seeing a directionally increasing number of ECM both full takeouts as well as expansion deals from customers. You know, when we look at the cruise acquisition, that opens up a number of new ECM use cases for us. So this is a trend that is definitely moving in a positive direction, and then throughout this year, as we have the more natively integrated cruise offering, our metadata extraction capabilities with AI, and we roll that all together in some of our higher tier packages, you know, packages that we're anticipating, I think you'll see even further momentum on taking out legacy ECM systems.
Speaker Change: Yes, so we are seeing definitely.
Speaker Change: Directionally an increase in ECM, both full takeouts.
Speaker Change: As well as.
Speaker Change: Expansion deals with customers when we look at the cruise acquisition that opens up a number of new ECM use cases for us. So this is a trend that is definitely moving in a positive direction and then throughout this year as we have the more natively integrated cruise offering our metadata extraction capabilities with AI and we roll that all.
Together.
In some of our higher tier package.
Packages that were anticipating I think youll see even further momentum on taking out legacy ECM systems, but I would call out that this is becoming an increasing trend in the quarter and certainly in the past few quarters NII just represents.
Aaron Levie: But I would call out that this is becoming an increasing trend in the quarter and certainly in the past few quarters, and AI just represents, you know, another catalyst for customers to rethink their content management environments, and, you know, certainly there's a very good chance it'll be the defining catalyst just because, again, if you look at having millions and millions of documents in a legacy content store, it's going to be near impossible to really So we think this is a huge breakthrough for us to use AI to really catalyze even further movement of ECM to modern, advanced systems.
Speaker Change: I think another catalyst for customers to rethink their content management environments.
Speaker Change: And certainly there is there is a very good chance it will be the defining catalysts just because again as you look at that having millions of millions of documents and our legacy content store.
Speaker Change: It's going to be near impossible to really take advantage of that data in an AI already way.
Speaker Change: Just architecturally.
Speaker Change: Given the complexity there. So we think this is a huge breakthrough for us to use AI to really catalyze even further movement of ECM to modern.
Speaker Change: Modern CIS.
Speaker Change: Systems.
Aaron Levie: Awesome, that's great to hear. And then a follow-up, you called out a few of your, you know, partnerships, you look at your partner ecosystem, that have maybe been deepened or enhanced by kind of this renewed focus on AI. Maybe you can just talk about how that's kind of shifted your, you know, your thinking on the partner ecosystem and where you've seen kind of the biggest needle move.
Speaker Change: Awesome, that's great to hear and then a follow up you called out a few of your partnerships and you look at your partner ecosystem.
Speaker Change: That have maybe been deepened or enhanced by kind of.
Speaker Change: This renewed focus on AI, maybe you can just talk about how that has kind of shifted your youre thinking on on the partner ecosystem, and where you're seeing kind of the biggest needle move.
Aaron Levie: Yeah, so maybe I'll just share two categories. You have the – actually, realistically, there's probably three categories, but – so the first is just the models – the AI models themselves represent fantastic partner opportunities for us, and right now, there's a number of leading AI model providers that are delivering these foundation models, and we – due to our open architecture and model-agnostic approach, we anticipate partnering with effectively all of them, and then letting our customers really kind of choose which AI model works best for them, but by extension, by working and having an open platform, it means that we have certainly more incentive for those model providers to grow with us in accounts, and so we think this represents great new opportunities to work with the Googles of the world, the Amazons of the world, the IBMs of the world, and others as they need to get their models in front of customers for really mission-critical workloads.
Speaker Change: Yes, so maybe I'll just share two categories.
Speaker Change: Actually realistically, there's probably three categories, but.
Speaker Change: But.
Speaker Change: So the first is just the models the AI models themselves represent.
Speaker Change: Fantastic partner opportunities for us.
And right now there's a number of leading AI model providers that are delivering these foundation models.
Speaker Change: And we do to our open architecture and model agnostic approach, we anticipate partnering with effectively all of them and then letting our customers really kind of choose which AI model works best for them, but but by extension by working and having an open platform. It means that we have certainly more incentive for those model.
Speaker Change: <unk> providers to grow with us and accounts and so we think this represents great new opportunities to work with the googles of the world. The Amazons of the world the Ibms of the world and others as they would need to get their models in front of customers before really mission critical workloads.
Aaron Levie: So that's kind of one partner category. Another partner category is if you think about all of the AI products that you hear about in terms of whether they are these sort of assistant use cases or co-pilot use cases, all of these AI assistants and SaaS applications really thrive by having access to data in a sort of AI-ready or very easily usable way, and so we have one of the leading platforms for managing a significant portion of corporate data that is incredibly mission-critical and very useful within the context of AI, and we can connect into these AI products relatively seamlessly.
Speaker Change: That's kind of one partner category. Another partner category is if you think about all of the AI products that that you hear about in terms of whether they are these sort of assistant use cases or co pilot use cases.
Speaker Change: These all of these AI assistance and SaaS applications really thrive by having access to data and then sort of AI ready or very easily usable way.
Speaker Change: And so we have one of the leading platforms for managing a significant portion of corporate data that is incredibly mission critical and very useful within the context of AI and we can connect into these AI products relatively seamlessly.
Aaron Levie: Again, certainly way, way more seamlessly than any kind of legacy architecture or infrastructure, and so that was the example of ServiceNow, where Box was highlighted in their demo as a content platform that you connect to ask questions within their assist product. We similarly have expanded our partnership with Microsoft and Microsoft CoPilot to be a content platform that connects to CoPilot, and you can just kind of go down the list of really any kind of software product that talks to data or needs access to data.
Speaker Change: Certainly way way more seamlessly than any kind of legacy architecture, our infrastructure and so that was the example of service now where box was highlighted in their demo as a content platform that you connect into to ask questions of within their assist product.
Speaker Change: Similarly, we have expanded our partnership with Microsoft and Microsoft Co pilot to be a content platform that connects the copilot and you can just kind of go down the list of really any kind of software product that talks to data or needs access to data box represents a really.
Aaron Levie: Box represents a really secure, scalable platform to connect to those AI systems, and then finally, this is also opening up a number of use cases around system integrators or other types of partners that can plug us in as a sort of piece of the architecture for having an AI-ready document management or unstructured data platform. This is really where we can embed our AI capabilities more deeply in a set of products. For instance, we've had conversations with a leading vertical SaaS provider where Box and metadata extraction using AI is becoming a very relevant and increasingly important component for their platform capabilities, so that's sort of the B2B2C or B2B2B type environment where, through another SaaS platform, our technology will be embedded because it really gives them a leg up in AI document processing.
Speaker Change: Secure scalable platform to connect into those AI systems and then finally this is also opening up really a number of use cases around system integrators or other types of partners that can plug us in as a sort of piece of the architecture for having an AI ready document management or unstructured data platform and this is really where we can embed.
Speaker Change: Third our AI capabilities more deeply in a set of products. So for instance, we've had conversations with a leading vertical SaaS provider, where box and metadata extraction using AI becomes a very relevant.
Speaker Change: An increasingly important component for for their platform capability. So that's sort of the b to b to C or.
Speaker Change: Or <unk> type environment, where through another SaaS platform, our technology will be embedded because it really gives them a leg up in AI document processing. So those are a few of the categories that we're spending time on from a partnership standpoint, each of each of which is almost nearly net new.
Aaron Levie: So those are a few of the categories that we're spending time on from a partnership standpoint, each of which is almost net new in terms of use cases for customers or growth opportunities for us. So we're organized against those opportunities right now, and I think over the next couple of quarters and then certainly years, you'll see a lot of continued traction on that front.
Speaker Change: In terms of use cases, where customers are growth opportunities for us. So we're organized against those those opportunities right now and I think over the next couple of quarters, and then certainly years Youll see a lot of.
Speaker Change: Continued traction on that front.
George Michael Kurosawa: Awesome, Kelly. Thanks for taking the questions. Yeah, thanks.
Speaker Change: Awesome color thanks for taking the questions.
Joshua Phillip Baer: Your next question comes from the line of Josh Baer. Your line is open.
Speaker Change: Your next question comes from the line of Josh Baer. Your line is open.
Joshua Phillip Baer: Great, thanks for the question. One for Aaron and a quick one for Dylan.
Great. Thanks for the question one for Aaron.
Speaker Change: Quick one for Dylan.
Joshua Phillip Baer: Erin I've followed your insights around the cost of AI the cost of units of work and the potential for AI agents. What are we going to see from box in that respect how does box, but fit into this AI agent future work.
Aaron Levie: Aaron, I've followed your insights around the cost of AI, the cost of units of work, and the potential for AI agents. What are we going to see from Box in that respect? How does Box fit into this AI agent feature of work?
Aaron Levie: Yeah, so as you can probably tell, I'm unbelievably excited about this prospect. I'll keep it at a relatively high level because there's obviously still announcements to come in this space.
Yeah. So.
Speaker Change: As you as you can probably tell I'm unbelievably excited about this prospect.
I'll keep it at a relatively high level because there is obviously still announcements to come in this space, but when you think about.
Aaron Levie: But when you think about, you know, when you use AI within the Box AI platform, we have created an abstraction layer that effectively talks to an AI model, connects that to content in Box, and that model, we give it a set of prompts and instructions that it follows, and then effectively tools within our platform that that AI model can interact with. You know, one of the tools is being able to do vector embeddings.
Speaker Change: When you use AI within the box AI platform, we have created an abstraction layer that effectively talks to an AI model connects to that.
Speaker Change: Content in box.
Speaker Change: And that model, we gave it a set of prompts and instructions that follows and then effectively tools that within our platform that that AI model can interact with one of the tools is us being able to do vector embedding another tool is.
Aaron Levie: Another tool is being able to do effectively this sort of enhancer enterprise RAG service that we've created. So if you think about the AI model has a set of tools, it has a prompt and set of instructions, and that all gets abstracted into something that the user doesn't have to, you know, worry about any of that complexity. They are just talking to effectively describe what an AI agent that does a specific task like summarize a document or ask a question within a hub or extract metadata.
Speaker Change: Being able to do effectively.
Speaker Change: Enhance our enterprise Rag service that we've created so if you think about the model has a set of tools has a prompt incentive instruction and that all gets abstracted.
Speaker Change: And something that the user doesn't have to worry about any of that complexity. They are just talking to effectively what is an AI agent that does that does a specific tax task like summarize a document or ask a question within our hub or extract metadata.
Aaron Levie: Where this gets extremely powerful is as AI models continue to advance, as our AI platform capabilities continue to advance, you'll be able to deploy, you know, effectively these AI agent experiences across really any use case around your content that maybe a human otherwise would go and do. So, you know, today everybody has workflows where a human reads a contract, and they pull out the metadata from that contract, and then they route the contract to someone in their organization, or a human looks at a digital asset and labels that digital asset for some kind of digital asset management process.
Speaker Change: This gets extremely powerful as is.
<unk> AI models continue to advance as our AI platform capabilities continued advance you'll be able to deploy effectively these AI agent experiences across really any use case around your content that may be a human otherwise would go and do so.
Speaker Change: Today, everybody has workflows, where a human <unk> contract in a pullout the metadata from that contract and then they route the contract too.
Speaker Change: Somewhere in their organization or a human looks at a digital asset and labels that digital asset for some kind of digital asset management process. So in within the box AI platform Youll effectively have AI agents go and do those things for you.
Aaron Levie: So within the Box AI platform, you'll effectively have AI agents go and do those things for you. And we're, you know, building out the tooling to let you organize and manage and effectively, you know, administer all of that AI labor, as it were, within the Box environment and then tie that to business processes and workflows within Box. So our mental model at Box is to kind of take any work we do today with content and basically be able to have AI go and do that work.
Speaker Change: We're building out the tooling to let you organize and manage and.
Speaker Change: Actively administrate all of that that AI labor as well as it were.
Speaker Change: Within the box environment, and then and then tie that to business processes and workflows within box. So so our mental model at boxes to kind of take any work today that we do with content.
Speaker Change: And and basically be able to have AI go and do that work and we are building. The all of this scaffolding abstraction layer and platform services to make that possible and where that becomes extremely.
Aaron Levie: And we are building all of this scaffolding, the abstraction layer, and platform services to make that possible. And where that becomes extremely, you know, exciting for us is that 90% of corporate data that is unstructured or that is content, the vast majority of that data today is not tied to an automated business process, is not data that you can kind of look into or ask questions of, is not necessarily sort of secured in the best way possible from an advanced, you know, highly contextualized, you know.
Speaker Change: Exciting for US is if you think about that 90% of corporate data that is unstructured or that is content.
Speaker Change: The vast majority of that data today is not tied to an automated business process is not data that you can kind of look into or ask questions of.
Speaker Change: Is not necessarily sort of secured and the best way possible from from from an advanced highly contextualized standpoint, and in the future AI is going to let you go and do those things and so we are going to open up.
Aaron Levie: And in the future, AI is going to let you go and do those things. And so we are going to open up, you know, a wide number of use cases that today we don't have automation in the enterprise to go and solve, you know, where the traditional kind of RPA or IDP process was just too labor intensive or too complex to go and deploy across every department in your organization. That's what we see as the potential for AI.
Speaker Change: A wide number of use cases that today, we don't have automation in the enterprise to go and solve where the traditional kind of RPI or IDP process was just too labor intensive or too complex to go and deploy across every department in your organization. That's what we're what we see as the potential for.
Aaron Levie: So basically, when a customer thinks about content and they think AI, that is what our intelligent content cloud is going to be delivering for them, that end-to-end platform set of capabilities to deploy AI against their content securely. Does that answer the question?
Speaker Change: So basically when a customer thinks content and they think AI that is what our intelligent content cloud is going to be delivering for them is that end to end platform set of capabilities to deploy AI against their content securely. So does that answer your question.
Joshua Phillip Baer: Yeah, perfect. Really interesting. Thanks. And then Dylan, just one clarification, really appreciate the details on the FY25 revenue guidance change and like breaking out that on a constant currency basis, the guidance increased by $3 million, just with all the moving parts. What about the billings guidance as far as the change in constant currency or any change for FY25?
Speaker Change: Yes perfect.
Speaker Change: Thanks, and then doing just one clarification really appreciate the details on that.
Speaker Change: FY 'twenty revenue guidance change in like breaking out that on a constant currency basis, the guidance increased by $3 million just with all the moving parts what about for the billings guidance as far as the change in constant currency or any change for FY 'twenty five yes.
Dylan C. Smith: Yeah, really, our expectations are consistent with our initial guidance on a constant currency basis. So, as we had kind of talked about, roughly in line with what our reported revenue growth expectations were at the time, of about 4%. From a constant currency standpoint, that's still what we expect, but on an as-reported basis, you know, now expecting that to land in the low single-digit range because of that kind of incremental and new 150-basis point headwind that's coming from FX.
Speaker Change: So really.
Speaker Change: Our expectations are consistent with our initial guidance on a constant currency basis. So there is we had kind of talked about roughly in line with what our reported revenue growth expectations were at the time of about 4% from a constant currency standpoint.
Speaker Change: That's still what we expect but on an as reported basis now.
Speaker Change: Now expecting that to land in the low single digit range because of that.
Speaker Change: Incremental a new 150 basis point headwind, that's coming from FX.
Joshua Phillip Baer: Okay, I got it. Thank you.
Speaker Change: Okay got it thank you.
George Michael Iwanyc: Your next question comes from the line of George Iwanyc. Your line is open.
Speaker Change: Your next question comes from the line of George <unk>. Your line is open.
George Michael Iwanyc: Thank you for taking my question. Aaron, I'll start with you, and maybe in the context of BoxAI and BoxHubs. But, you know, you're seeing this sweet momentum. Can you give us some perspective on how that's driving other products like BoxRelay and BoxSign and the adoption, you know, really broadly across the Box platform?
George: Thank you for taking my question Erinn I'll start with you and maybe in the context of box AI and box hubs, but.
Speaker Change: Youre seeing the suites momentum can you give us some perspective on how that's driving other products like box relay and box sign in that adoption really broadly across the box platform.
Aaron Levie: Yeah, so in general, you know, every time, obviously, our Enterprise Plus plan gets purchased, that opens up a number of new use cases and value propositions for customers, our advanced e-sign capabilities, our most advanced version of Relay, and so we are certainly seeing that open up, you know, more value and more stickiness for customers. Q1, we had some notable wins, you know, for instance, in the sign space, a major pharmaceutical company that will be adopting Box Sign for their validation processes, a major automotive company that will be using Box Sign for kind of critical customer transactions, so again, our whole vision is really when you, you know, implement Box as an intelligent content cloud, you get that entire lifecycle of content from the moment you create and ingest data to that final kind of transaction to then governing the content, all of that is in one streamlined experience, and so whether you come in because of workflow or collaboration or e-signature or AI, you know, our job is to make sure that you're seeing the full value of the platform overall, and AI, again, just represents a major catalyst for customers to really think about the role of content in their organization, in their enterprise, are they getting as much value from it as is now possible.
Speaker Change: Yes. So so in general every time, obviously, our enterprise plus plan gets gets purchased that opens up a number of new use cases and value propositions for customers.
Speaker Change: Our advanced design capabilities, our most advanced version of <unk>.
Speaker Change: So we are certainly seeing that open up more.
Speaker Change: More value and more stickiness for customers Q1.
Speaker Change: We had some notable wins for instance in the science base major pharmaceutical company that.
Speaker Change: That will be adopting <unk> for their validation processes are major.
Speaker Change: Automotive company that we'll be using box sign for kind of critical customer transactions. So so again, our whole vision is really when you implement boxes and intelligent content cloud you get that entire lifecycle of content from the moment, you create and ingest data to that final kind of transaction to then governing the content.
Speaker Change: All of that is in one streamline experience and so whether you come in because of workflow or collaboration or esignature or AI.
Speaker Change: Our job is to make sure that youre seeing the full value of the platform overall NII again just represents a.
Speaker Change: A major catalyst for customers to really think about the role of.
Content in their organization and their enterprise are they getting as much value from it is as it is and as it is now possible.
Dylan C. Smith: And Dylan, one question for you, maybe expanding on your comments related to investing in demand generation. Can you give us kind of how you're investing, where you're investing, what kind of focus you're putting on the sales organization and marketing organization? Sure. So, really...
Speaker Change: And one question for you then maybe expanding on your Comcast comments related to.
Speaker Change: Investing in demand generation can you give us kind of the.
Speaker Change: How youre investing where youre investing west kind of focus you're putting on the sales organization and marketing organization.
Dylan C. Smith: Sure. So really, you know, it kind of comes back to a lot of the programs and growth initiatives that Aaron highlighted in his prepared remarks. So I would call it, you know, kind of doubling down on and scaling some of the demand gen, both, you know, kind of programs that are, you know, kind of online spend to a lot of those CIO-focused field events that have been working really well for us in the past couple of quarters.
Speaker Change: Sure so really.
Speaker Change: It kind of comes back to a lot of the programs and kind of growth initiatives that Erin highlighted in his prepared remarks, so I would call. It kind of a combination of really doubling down on in scaling some of the demand Gen.
Speaker Change: <unk>.
Speaker Change: Programs that are kind of online spend to a lot of those CIO focused field events that have been working really well for us over the past couple of quarters.
Dylan C. Smith: So now, and especially with all the exciting kind of newer products that we have coming out, we're seeing really strong interest and demand from customers there. So that's one category is kind of straight demand generation. Also investing in building out that partner ecosystem that we talked about. So, especially with SIs and just kind of strengthening our overall reach through some of those channels. And then, you know, at the same time, we will be, you know, kind of growing our sales force as well, commensurate with the demand that we're seeing and to set us up for that, you know, kind of growth and, kind of laying the foundation. So we're ready, as we do have the new products, to be able to take advantage of that opportunity. So that's kind of the high-level categories that we've really focused on this year.
So now and especially with all of the exciting kind of newer products that we have coming out.
Speaker Change: Seeing some really strong interest and demand from customers. There. So that's one category is kind of straight demand gen.
Speaker Change: <unk> also investing in building out that partner ecosystem that we talked about so, especially with size and just kind of strengthening our overall reach through some of those channels and then at the same time, we will be.
Speaker Change: Kind of growing our sales force as well commensurate with the demand that we're seeing and this set us up for that.
Speaker Change: Our growth and kind of laying the foundations already as we do have the new products to be able to take advantage of that opportunity. So that's kind of the.
Speaker Change: The high level categories that we've really focused on this year.
Speaker Change: Thank you.
Rishi Nitya Jaluria: Your next question comes from the line of Rishi Jaluria. Your line is open.
Speaker Change: Your next question comes from the line of Rishi Kimbler Yeah. Your line is open.
Rishi Nitya Jaluria: Oh, wonderful. Thanks, guys, so much for taking my question. I have two specifically on the workforce. Number one, you know, I know you've talked for years about wanting to do more hiring outside of the US, especially in Poland. Maybe can you give us an update on that kind of global workforce strategy and what percentage of your workforce is actually outside the US at this point? And then maybe, alongside that, SPC is now taking near 20% of revenue.
Wonderful thanks, guys. Thanks for taking my question.
Speaker Change: To specifically on the workforce number one I know you've talked for years about wanting to do more hiring outside of the U S, especially in Poland. Maybe can you give us an update on that kind of global workforce strategy.
Speaker Change: What percentage of your workforce is actually outside the U S. At this point and then maybe alongside that SPC has now taken a near 20% of revenue. It is growing faster than revenue I know, there's puts and takes that how that is measured but maybe walk us through why that's the case I understand youre buying back.
Rishi Nitya Jaluria: It's growing faster than revenue. I know there are some objections to how that is measured, but maybe you can walk us through why that's the case. I understand you're buying back shares, and it's more than offsetting dilution, but I guess I'm not sure that issuing a lot of stock instead of cash and then buying back stock with cash is necessarily the right strategy instead of shifting more of the compensation away from stock into cash
Speaker Change: Shares and mix more than offsetting dilution, but I guess I'm not sure that it's really a lot of stock instead of cash and then buying back stock or cash is necessarily the right strategy instead of shipping more of the compensation away from stock and the cash maybe just help us understand both of those as it relates to your workforce.
Dylan C. Smith: Maybe just help us understand both of those as it relates to your workforce. Thanks.
Dylan C. Smith: Sure. So on the first one, you know, I've been really, really pleased by the results that we've seen in terms of our workforce and location strategy, most notably in Poland, where we ended this past year with more than 300 employees on the ground there. So a little more than 10% of our workforce and kind of moving quickly into the teams, and that includes more than 30% of our engineering team.
Speaker Change: Sure so on the first one.
Speaker Change: <unk> been really really pleased by the results that we've seen in terms of our workforce location strategy, most notably in in Poland.
Speaker Change: We ended this past year with more than 300.
Speaker Change: Employees on the ground there.
Speaker Change: So a little more than 10% of our workforce and kind of moving quickly into the teens and that includes more than 30% of our engineering team.
Dylan C. Smith: So that's where the primary focus has been, where we're hiring this significant majority of the kind of R&D hires that we're making in Poland but also a lot of our G&A functions, for example, as well, and expect that to continue to increase the percentage of the overall mix over time.
Speaker Change: That's where the primary focus has been where we're hiring the significant majority of kind of the iron R&D hires that we're making in Poland, but also a lot of our G&A functions.
Speaker Change: For example, as well and expect that to continue to increase as a percentage of the overall mix overtime and then as it relates to the stock based compensation would note.
Dylan C. Smith: And then as it relates to stock-based compensation, I would note that, you know, maybe just a couple of things. First of all, even with, you know, and kind of independent of the robust share repurchase program that we have in place that's been bringing down total shares outstanding over time, at the same time for, you know, a couple of years running now, we've also reduced the overall equity burn rate. So we are actually issuing fewer net shares on a year-on-year basis.
Speaker Change: That maybe just a couple of things first of all we actually even with.
Speaker Change: And kind of independent of the robust share repurchase program that we have in place that's been bringing down total shares outstanding over time at the same time for.
Speaker Change: A couple of years running now we've also reduced the overall equity burn rate. So we are actually issuing fewer net shares on a year on year basis. The reason that SBC has not.
Dylan C. Smith: The reason that SBC has not, you know, kind of yet followed that same path is a kind of combination of, you know, we have seen very, very strong retention, so low attrition, and it largely comes down to a higher share price. So it's a little bit more of a lagging indicator of the overall equity practices that we put into place the last couple of years, but just like we've seen in our burn rate and total shares outstanding, we would expect stock-based compensation as a percentage of revenue to follow that same trend and come down over time.
Speaker Change: Yet follow that same path is kind of a combination of.
Speaker Change: We have seen very very strong retention, so low attrition and largely comes down to a higher share price.
Speaker Change: It's a little bit more of a lagging indicator of the overall equity practices that we put into place. The last couple of years, but just like we've seen in our burn rate and total shares outstanding we would expect stock based compensation as a percentage of revenue to follow that same trend and come down over time as well.
Rishi Nitya Jaluria: All right, wonderful. Thank you so much.
Speaker Change: Alright wonderful thank you so much.
Speaker Change: Okay.
Cynthia Hiponia: This concludes the question and answer session. I will turn the call over to Cynthia for closing remarks.
Speaker Change: This concludes the question and answer session I will turn the call to Cynthia for closing remarks.
Cynthia Hiponia: Great, thank you everyone for joining us today, and we look forward to updating you again on our next earnings call.
Cynthia: Great. Thank you everyone for joining us today, and we look forward to updating you again on our next earnings call.
Operator: This concludes today's conference. Thank you for joining us. You may now disconnect your lines.
This concludes today's conference. Thank you for joining you may now disconnect your lines.
Cynthia: Okay.
Okay.
Okay.
Cynthia: Yeah.