Q2 2025 Box Inc Earnings Call

Abby: Ladies and gentlemen, good afternoon and thank you for standing by. My name is Abby and I will be your conference operator today. At this time I would like to welcome everyone to the box incorporated second quarter fiscal 2025 earnings conference call.

Abby: My name is Abby, and I will be your conference operator today.

Abby: At this time, I would like to welcome everyone to Box Inc. second quarter fiscal 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you.

Abby: All lines have been placed on mute to prevent any background noise, and after the speaker's remarks there will be a question and answer session.

Abby: If you would like to ask a question during that time, simply press B star key, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time.

Cynthia Hiponia: And I would now like to turn the conference over to Cynthia Hiponia, Vice President of Investor Relations. You may begin.

Abby: Thank you, and I would now like to turn the conference over to Cynthia Hiponia Vice President of Investor Relations. You may begin.

Cynthia Hiponia: Good afternoon and welcome to Box. The second quarter fiscal 2025 earnings conference call. I'm Cynthia Hiponia, Vice President of Investor Relations on the call today. We have Aaron Levie, Box co-founder and CEO, and Dylan Smith, Box co-founder and CFO, following our prepared remarks. We will take your questions. Today's call is being webcast and will be available for replay on our Investor Relations website at box investor relations.com. Our webcast will be audio only. However, supplemental slides are now available for download from our website. We'll also post the highlights of today's call on the X platform at the handle @box IR Inc.

Cynthia Hiponia: Good afternoon, and welcome to Box's second quarter of Cisco 2025 earnings conference call. I'm Cynthia Hiponia Vice President and Vester Relations.

Speaker Change: On the call today, we have Aaron Levie, Box co-founder and CEO and Dylan Smith, Box co-founder and CFO. Following our prepared remarks, we will take your questions.

Speaker Change: Today's Call is in Webcast and we'll be available for replay on our Investor Relations website at boxinvestorrelations.com.

Speaker Change: Our web task will be audio only. However, supplemental files are now available for download from our website. We'll also post the highlights of today's call on the X-Pot form at the handle at box IR ink.

Cynthia Hiponia: On this call, we'll be making forward with the statements, including our third quarter and full year fiscal 2025 financial guidance and our expectations regarding our financial performance for fiscal 2025 and future periods, including our gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance obligations revenue and buildings, and the impact of born turns to exchange rates and the third tax expenses. And our expectations regarding the size of our market opportunity, our planned investments, future product offerings and growth strategy, our ability to achieve our revenue, operating margins and other operating marital targets, the timing and market adoption of, and benefits from our new products, pricing models and partnerships.

Speaker Change: On this call we'll be making forward the case statements included.

Speaker Change: are third quarter and full year fiscal 2025 financial guidance.

Speaker Change: and their expectations regarding our financial performance for fiscal 2025.

Speaker Change: and Future Periods, including our gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance applications, revenue and billings, and the impact of foreign currency exchange rates and the third tax expenses.

Speaker Change: Arrestment Cations regarding

Speaker Change: The ties of our market opportunity are planned investments to share products offering and growth strategies. Our ability to achieve our revenue operating margins and other operating models targets.

Speaker Change: to timing and market adoption of the benefits from our new products, pricing models and partnerships.

Cynthia Hiponia: The proceeds from the sale of our data center equipment, 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 may reflect our best judgment based on factors currently known to us, and actual events and results may differ materially.

Speaker Change: The proceeds from the sale of our data center equipment are ability to address enterprise challenges and deliver cost savings for our customers. The impact of the macro environment on our business and operating results.

Speaker Change: and our capital allocation strategies, including potential repurchase of our common stock.

Speaker Change: These statements may reflect our best judgment based on factors currently known to us and actual events and results may differ materially.

Cynthia Hiponia: Please refer to our earnings press release file today and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for information on risks and uncertainties that may cause actual results to differ materially from statements made on the earnings call. These forwarded statements are being made as of today, August 27, 2024, and we just claim any obligation to update or revise them should they change or seek to be up to date.

Speaker Change: So you prefer to earn these press release files today, and the risk factors and documents we file with the Security Assistance Change Commission, including our most recent quarterly report on Form 10Q for information on risks and on certain deeds that may cause actual results to differ materially from statements made on the earnings call.

Speaker Change: These forward-looking statements are being made as of today, August 27, 2024, and we just claim any obligation to update or revise them so they change or seek to be up to date.

Cynthia Hiponia: In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from our GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliation with comparable GAAP results in our earnings press release and in the related supplemental slides, which can be found on the IR page of our website. Unless otherwise indicated, all references to financial measures are under non-GAAP basis.

Speaker Change: In addition, during today's call, we will discuss non-gap financial measures. These non-gap financial measures should be considered in addition to not as a substitute for or in isolation from our gap results.

Speaker Change: You can find additional disclosures regarding these non-gap measures, including reconciliation with comparable gap results in our earnings press release and in the related supplemental slides, which can be found on the IR page of our website.

Speaker Change: Unless otherwise indicated, all references to financial measures are under non-gap basis. With that, let me turn the call over to Aaron.

Aaron Levie: With that, let me turn the call over to Aaron. Thank you, Cynthia, and thanks everyone for joining us today. We delivered a strong second quarter with operating results at the high end. This includes revenue growth of 3% year-of-year or 6% in Concentrancy and record gross margin of 81.6%. Our focus on operational discipline drove operating margin of 28.4%, an increase of 360 basis points from a year ago. While our continued investments in growth are reflected in our Q2 accelerated buildings growth of 10% year-over-year and RPO growth. Our results show the continued success of building out the most powerful AI-enabled platform for secure content management, collaboration, workflow automation, and intelligence.

Aaron Levie: and thanks everyone for joining us today. We delivered a strong second quarter with operating results at the high end or above our guidance.

Abby: My name is Abby and I will be your conference operator today.

Abby: At this time I would like to welcome everyone to the Box Inc, second quarter fiscal 2025 earnings conference call. All lines have been placed on mute to prevent any background noise.

Aaron Levie: This includes revenue growth of 3% year of year or 6% in constant currency and record growth margin of 81.6%.

Speaker Change: Our focus on operational discipline drove operating margin of 28.4% up 360 basis points from a year ago.

Abby: And after the speakers remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one, a second time. Thank you.

Speaker Change: While our continued investments in growth are reflected.

Speaker Change: and our Q2 accelerated buildings for a 10% year of year and RP over a 12% year of year.

Cynthia Hiponia: And I would now like to turn the conference over to Cynthia Hiponia, vice president of investor relations. You may begin. Good afternoon and welcome to Box the second quarter fiscal 2025 earnings conference call. I'm Cynthia Hiponia, vice president of investor relations on the call today.

Speaker Change: Our results show the continued success of building out the most powerful AI enabled platform for secure content management collaboration, workflow automation and intelligence.

Cynthia Hiponia: We have Aaron Levy, Box co founder and CEO and Dylan Smith, Box co founder and CFO following our prepared remarks. We will take your questions.

Aaron Levie: In Q2, we saw customer demand for Box AI continue to grow, driving both upgrades and new logo wins in enterprise plus in order to gain access to Box AI. Customer examples in Q2 include a large US-based law firm and a new boxed customer that purchased Enterprise Plus in a six-figure deal. They plan to leverage Box Hubs and Box AI to create easily searchable repositories for their attorneys and other staff. They will also leverage Box Sign, replacing an existing eSignature vendor to help Box serve as their attorney-client collaboration layer. A leading consumer convenience store in Japan upgraded to Enterprise Plus and expanded its use of Box company-wide to boost productivity by enabling all employees to use Box AI.

Speaker Change: In Q2, we saw customer demand for Box AI continued to grow, driving both upgrades and new lollins in Enterprise Plus in order to gain access to Box AI.

Speaker Change: Customer examples in Q2 include a large US-based law firm and a new boxed customer that purchase enterprise plus in a six-figure deal.

Cynthia Hiponia: Today's call is being webcast and will be available for replay on our investor relations website at box investor relations.com. Our webcast will be audio only, however supplemental slides are now available for download from our website. We'll also post the highlights of today's call on the X platform at the handle at box IR Inc.

Speaker Change: They plan to leverage box hubs and box AI to create easily searchable repositories for their attorneys and other staff. They will also leverage box sign, replacing an existing eSignature vendor to help box serve as their attorney client collaboration layer.

Speaker Change: In leading consumer convenience store in Japan upgraded to Enterprise Plus and expanded its use of box company wide to boost productivity by enabling all employees to use box AI. They chose box as their content platform to leverage AI and reinforce their security posture.

Cynthia Hiponia: On this call, we'll be making forward looking statements, including our third quarter and full year fiscal 2025 financial guidance and our expectations regarding our financial performance for fiscal 2025 and future periods, including our gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance obligations, revenue and buildings, and the impact of born turns to exchange rates and the third tax expenses. And our expectations regarding the size of our market opportunity, our plan investments, future product offerings and growth strategy, our ability to achieve our revenue, operating margins and other operating models, targets, the timing and market adoption of and benefits from our new products pricing models and partnerships.

Aaron Levie: They show Box as their content platform to leverage AI and reinforce their security posture. These wins illustrate what has become clear in my conversations with customers: that almost every enterprise is working to figure out how to use AI to enable more productivity from their employees. By automating more work, improve their data security and deliver improved experiences for their customers. And the center of all of this is enterprise content. You have heard me talk about how 90% of an enterprise's data is unstructured, with most of that unstructured data being enterprise content. Historically, enterprises have not been able to truly get the value from this enterprise content due to years of investment in disparate technologies, where content is scattered across many repositories in the enterprise among numerous applications and not built for a modern way of working with AI.

Speaker Change: The user wins, illustrate what has become clear in my conversations with customers that almost every enterprise is working to figure out how to use AI to enable more productivity from their employees by automating more work.

Speaker Change: and prove their data security and deliver improved experiences for their customers.

Speaker Change: and the center of all of this is Enterprise Content.

Speaker Change: You have heard me talk about how 90% of an enterprise of data is unstructured with most of that unstructured data being enterprise content.

Speaker Change: Historically, Enterprise has not been able to truly get the value from this Enterprise content due to years of investment in disparate technologies, where content is scattered across many repositories in the Enterprise, among numerous applications, and not built for a modern way of working with AI.

Cynthia Hiponia: The proceeds from the sale of our data center equipment, 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 may reflect our best judgment based on factors currently known to us and actual events and results may differ materially.

Aaron Levie: At Box, we are fundamentally transforming how companies leverage their enterprise content with intelligent content management. Instead of enterprises investing in fragmented legacy ECM technologies, workflow products, e-signature tools, and security solutions, and attempting to bolt on AI on top of these systems, Box is delivering a singular platform that can power the end-to-end lifecycle of content with intelligence built right in. and building on our leadership in secure content management and collaboration, we are now extending our value into workflow automation and intelligence. With Box AI, we can change the equation and enable enterprises to fully leverage their content to gain insights in dramatically increased productivity.

Speaker Change: At Box, we are fundamentally transforming how companies leverage their enterprise content with intelligent content management.

Speaker Change: and set of enterprises investing and fragmented legacy ECM technologies, workflow products, each sector tools and security solutions, and attempting to bolt on AI on top of these systems.

Cynthia Hiponia: So you prefer to our earnings press release file today and the risk factors and documents we file with the Security and Exchange Commission, including our most recent quarterly report on form 10 queue for information on risks and uncertainties that may cause actual results to differ materially from statements made on the earnings call. These forwarded statements are being made as of today, August 27, 2024, and we just claim any obligation to update or revise them should they change or seek to be up to date.

Speaker Change: Boxes delivering a singular platform that can power the end-to-end life cycle of content with intelligence built right in.

Speaker Change: And building on our leadership in secure content management and collaboration, we are now extending our value into workflow automation and intelligence.

Speaker Change: With Box AI, we can change the equation and enable enterprises to fully leverage their content to gain insights and dramatically increase productivity.

Aaron Levie: And critically, instead of legacy ECM systems that cost a fortune and can only be used in relatively rigid ways, intelligent content management from Box extends well beyond the use cases of traditional ECM systems by offering modern user experiences, integrating with every app, having security and compliance at the core, building an enterprise-grade AI, and being entirely in the cloud. We're seeing more and more customers turn to Box to replace their legacy ECM solution and choose us as a more flexible, multi-tenant, lower cost, and more powerful, intelligent ECM solution. With Box, on a single platform, customers will be able to power everything from their secure collaboration externally with clients to internally use cases including how they manage their most important digital assets and marketing or sales, how they automate workflows with their contracts or financial documents, and ultimately how they govern and protect their sensitive records over the long run.

Cynthia Hiponia: In addition, during today's call, we will discuss non-gap financial measures. These non-gap financial measures should be considered in addition to not as a substitute for or in isolation from our gap results. You can find additional disclosures regarding these non-gap measures, including reconciliation with comparable gap results in our earnings press release and in the related supplemental slides, which can be found on the IR page of our website. Unless otherwise indicated all references to financial measures are under non-gap basis.

Speaker Change: and critically, instead of legacy ECM systems that cost a fortune and can only be used in relatively rigid ways, intelligent content management from box extends well beyond the use cases of traditional ECM systems.

Speaker Change: by offering modern user experiences, integrating with every app, having security and compliance at the core, building in enterprise grade AI and being entirely in the cloud.

Speaker Change: We're seeing more and more customers turn to box to replace their legacy ECN solution and choose us as a more flexible, multi-tenant, lower cost and more powerful and intelligent ECN solution.

Aaron Levie: With that, let me turn the call over to Aaron. Thank you Cynthia and thanks everyone for joining us today. We delivered a strong second quarter with operating results at the high end or above our guidance. This includes revenue growth of 3% year-of-year or 6% in constant currency and record gross margin of 81.6%. Our focus on operational discipline drove operating margin of 28.4% of 360 basis points from a year ago, while our continued investments in growth are reflected in our Q2 accelerated buildings growth of 10% year-of-year and RPOG.

Speaker Change: with box on a single platform. Customers will be able to power everything from their secure collaboration externally with clients.

Speaker Change: To internal use cases including how they manage their most important digital assets and marketing or sales, how they automate workflows with their contracts or financial documents, and ultimately how they govern and protect their sensitive records over the long run.

Aaron Levie: Because we can now support vastly more use cases across the enterprise than traditional ECM, and for customers of all sizes, this represents a dramatic expansion of our market opportunity, similar to when Salesforce disrupted CRM or ServiceNow disrupted ITSM.

Speaker Change: Because we can now support vastly more use cases across the enterprise than traditional ECM and for customers of all sizes.

Speaker Change: This rep presents a dramatic expansion of our market opportunity, similar to when Salesforce disrupted CRM or ServiceNow disrupted ITSM.

Aaron Levie: Our results show the continued success of building out the most powerful AI-enabled platform for secure content management, collaboration, workflow automation and intelligence. In Q2, we saw customer demand for Box AI continue to grow, driving both upgrades and new logo wins in enterprise plus in order to gain access to Box AI. Customer examples in Q2 include a large US-based law firm and a new boxed customer that purchased enterprise plus in a six-figure deal.

Aaron Levie: In a strategic move to significantly expand Box's intelligent content management platform, we recently announced the acquisition of the AI-powered intelligent document processing, where IDP technology and team from Alphamoon. Alphamoon's technology combines leading large language models from OpenAI and others with proprietary image and document processing technology to intelligently structure documents of scale. Once natively integrated into Box, Alphamoon's technology will further expand the capabilities of the Box AI platform to revolutionize IDP and address the longstanding challenges of metadata creation at scale and empower our customers with unprecedented new automation capabilities. Once metadata is applied to content within Box, customers can more easily automate workflows like contract management, digital asset management, invoice processing, client onboarding, and so much more.

Speaker Change: and Strategic move to significantly expand boxes and intelligent concept management platform. We recently announced the acquisition of the AI-powered intelligent document processing or IDP technology and team from Alpha Moon.

Speaker Change: Alpha Moon's technology combines leading largely with models from open AI and others, with proprietary image and document processing technology to intelligently structure documents of scale.

Aaron Levie: They planned to leverage Box Hubs and Box AI to create easily searchable repositories for their attorneys and other staff. They will also leverage Box Sign, replacing an existing eSignature vendor to help Box serve as their attorney client collaboration layer. A leading consumer convenience store in Japan upgraded to Enterprise Plus and expanded its use of Box company-wide to boost productivity by enabling all employees to use Box AI. They showed us Box as their content platform to leverage AI and reinforce their security posture.

Speaker Change: Once natively integrated into box, Alpha Moon's technology will further expand the capabilities of the box AI platform to revolutionize IDP and address the longstanding challenges of metadata creation and scale and empower our customers with unprecedented new automation capabilities.

Speaker Change: Once metadata is applied to content within box, customers can more easily automate workflows like contract management, digital asset management, invoice processing, client onboarding, and so much more.

Aaron Levie: Combined with the technology from our cruise acquisition earlier this year, Box will be able to transform critical content-centric business processes for enterprises of all sizes. And critical to our success in intelligent content management is our ability to enable Box customers to be on the leading edge of innovation with enterprise-grade Box AI. In June, we announced that Enterprise Plus customers now have unlimited end user queries for Box AI in notes, documents, and hubs, making it even easier for customers to roll out Box AI across their enterprise. Customers can now focus on leveraging AI to drive value without having to worry about usage.

Aaron Levie: These wins illustrate what has become clear in my conversations with customers that almost every enterprise is working to figure out how to use AI to enable more productivity from their employees by automating more work, improve their data security and deliver improved experiences for their customers, and the center of all of this is enterprise content. You have heard me talk about how 90% of an enterprise's data is unstructured with most of that unstructured data being enterprise content.

Speaker Change: Combined with the technology from our cruise acquisition earlier this year, box will be able to transform critical, content-centric business processes for enterprises of all sizes.

Speaker Change: And critical to our success in intelligent content management is our ability to enable box customers to be on the leading edge of innovation with Enterprise Grade Box AI.

Speaker Change: In June, we announced that Enterprise Plus customers now have unlimited end-user queries for Box AI in notes, documents, and hubs, making it even easier for customers to roll that box AI across their enterprise.

Aaron Levie: Historically, enterprises have not been able to truly get the value from this enterprise content due to years of investment in disparate technologies where content is scattered across many repositories in the enterprise among numerous applications and not built for a modern way of working with AI. At Box, we are fundamentally transforming how companies leverage their enterprise content with intelligent content management. Instead of enterprises investing in fragmented legacy ECM technologies, workflow products, eSignature tools and security solutions, and attempting to bolt on AI on top of these systems, Box is delivering a singular platform that can power the end-to-end lifecycle of content with intelligence built right in, and building on our leadership in secure content management and collaboration, we are now extending our value into workflow automation and intelligence.

Speaker Change: Customers can now focus on leveraging AI to drive value without having to worry about usage caps.

Aaron Levie: Caps. In Q2, we also unveiled a new set of features in Box AI, which include access to GPD40 for products such as Box hubs, as well as support for new file types, including images and spreadsheets in Box AI. We expect these features will be available later this year and will be included in Enterprise Plus plans. Box AI for metadata is also available in our API in beta for customers on the Enterprise Plus plans. Developers are able to integrate Box AI with custom applications using new Box AI for metadata API functionality to automatically extract key information from documents at scale.

Speaker Change: Thank you, too. We also unveiled a new set of features in Vox AI, which include access to GPD 40 for products such as box hubs, as well as support for new file types including images and spreadsheets in Vox AI.

Speaker Change: We expect these features will be available later this year and will be included in Enterprise Plus Plans.

Speaker Change: Box AI for metadata is also available in our API in beta for customers on the Enterprise Plus Plans.

Speaker Change: Developers are able to integrate box AI with custom applications using new box AI for metadata API functionality to automatically extract key information from documents at scale.

Aaron Levie: With Box AI, we can change the equation and enable enterprises to fully leverage their content to gain insights and dramatically increase productivity. And critically, instead of legacy ECM systems that cost a fortune and can only be used in relatively rigid ways, intelligent content management from Box extends well beyond the use cases of traditional ECM systems by offering modern user experiences, integrating with every app, having security and compliance at the core, building in enterprise grade AI and being entirely in the cloud.

Aaron Levie: When combined with Box's workflow automation tools, customers will be able to automate processes based on file metadata, extract key fields from unstructured content, and save information to external applications such as Salesforce. We also continue rollout advancements across security and compliance. Over the last several months, we've launched EuroTrust 2.0 enhancements for admins and GXP validation sandbox management, and we are on track to meet federally high compliance in the common quarters to expand our use cases in the federal government. Finally, our flexible and interoperable platform is a major differentiator for Box. We are supporting deeper integrations with Salesforce, Microsoft Teams, Microsoft Co-Pilot, IBM Technologies, CIRS now, and our customers' custom built applications.

Speaker Change: When combined with boxes workflow automation tools customers will be able to automate processes based on file metadata, extract key fields from unstructured content and save information to external applications such as Salesforce.

Speaker Change: We also continue rollout advancements across security and compliance.

Speaker Change: Over the last several months, we've launched the EuroTrust 2.0 enhancements for admins and GXC validation sandbox management, and we are going to track to meet Fedramp High Compliance in the coming quarters to expand our use cases in the federal government.

Aaron Levie: We are seeing more and more customers turn to Box to replace their legacy ECM solution and choose us as a more flexible multi tenant, lower cost and more powerful intelligent ECM solutions. With Box, on a single platform, customers will be able to power everything from their secure collaboration externally with clients to internal use cases, including how they manage their most important digital assets and marketing or sales, how they automate workflows with their contracts or financial documents, and ultimately how they govern and protect their sensitive records over the long run.

Speaker Change: Finally, our flexible and interoperable platform is a major differentiator for box. We are supporting deeper integration to the sales force, Microsoft Teams, Microsoft Co-Pilot, IBM Technologies, CERS now, and our customers' custom-built applications.

Aaron Levie: Just last month, we announced an expanded partnership with Slack that brings secure AI to enterprise content. Joint customers of Slack and Box can access unlimited Box AI queries directly in Slack, allowing users to ask critical questions and uncover timely insights from their Box files.

Speaker Change: Just last month, we announced an expanded partnership with Slack that brings secure AI to enterprise content.

Speaker Change: Join customers of Slack and box and access unlimited box AI queries directly and Slack, allowing users to ask critical questions and uncover timely insights from their box files.

Aaron Levie: Now, turning to go to market. As I mentioned earlier, we continue to see strong adoption of Enterprise Plus, our multi-product suite offering with unlimited access to Box AI. In Q2, suites comprise 87% of our deals over $100,000, up from 78% a year ago. With Enterprise Plus comprising over 95% of those deals, we saw solid suites attach rates in large deals across verticals and all geographies, including record attach rates in Japan. Now, with 57% of our revenue coming from suites compared to 48% a year ago, we still have a large opportunity to drive Enterprise Plus adoption.

Aaron Levie: Because we can now support vastly more use cases across the enterprise than traditional ECM and for customers of all sizes, this represents a dramatic expansion of our market opportunity similar to when Salesforce disrupted CRM or service now disrupted ITSM.

Speaker Change: Now, turning to go to market, as I mentioned earlier, we continue to see strong adoption of enterprise plus, our multi-product suite offering with unlimited access to Box AI.

Speaker Change: In Q2, suites comprise 87% of our deals over $100,000, up from 78% a year ago.

Aaron Levie: In a strategic move to significantly expand Box's intelligent content management platform, we recently announced the acquisition of the AI-powered intelligent document processing where IDP technology and team from Alphamoon. Alphamoon's technology combines leading large language models from open AI and others with proprietary image and document processing technology to intelligently structured documents of scale. Once natively integrated into Box, Alphamoon's technology will further expand the capabilities of the Box AI platform to revolutionize IDP and address the longstanding challenges of metadata creation and scale and empower our customers with unprecedented new automation capabilities.

Speaker Change: With Enterprise Plus comprising over 95% of those deals, we saw solid-sweet detestrates in large deals across verticals and all geographies, including record detestrates in Japan.

Speaker Change: Now, with 57% of our revenue coming from Swedes compared to 48% a year ago, we still have a large opportunity to drive enterprise plus adoption.

Aaron Levie: Our Q2 customer expansions and wins with Enterprise Plus include one of the largest marketing companies in the world, upgraded to Enterprise Plus with a six-figure upsell as the organization looks to leverage Box AI metadata and Box Hubs to create client-centric hubs with workflow to reduce the time for teams to come up to speed on new engagements with clients, partners, vendors, and securely collaborate across their ecosystem. A UK-based event, design and production company purchased Enterprise Plus with a three-year Enterprise license agreement, with a key focus on replacing legacy ECM tools like SharePoint in order to enhance and streamline their collaboration efforts as they create engaging experiences for their clients.

Speaker Change: Our Q2 customer expansions and wins with Enterprise Plus include

Speaker Change: One of the largest marketing companies in the world.

Speaker Change: Upgraded to Enterprise Plus, with a six-figure upsell, as the organization looks for leveraged box AI metadata and box hubs to create client-centric hubs with workflow to reduce the time for teams to come up to speed on new engagements with clients, partners, vendors, and securely collaborate across the ecosystem.

Aaron Levie: Once metadata is applied to content within Box, customers can more easily automate workflows like contract management, digital asset management, invoice processing, client onboarding, and so much more. Combined with the technology from our cruise acquisition earlier this year, Box will be able to transform critical content-centric business processes for enterprises of all sizes. And critical to our success in intelligent content management is our ability to enable Box customers to be on the leading edge of innovation with Enterprise Grade Box AI.

Speaker Change: A UK-based event, design and production company purchased Enterprise Plus.

Speaker Change: with a 3-year Enterprise License Agreement with a key focus on replacing legacy ECM tools like SharePoint.

Speaker Change: In order to enhance and streamline their collaboration efforts as they create engaging experiences for their clients.

Aaron Levie: and an organization that regulates and creates policies for the construction industry for just Box with a six-figure deal to replace an antiquated on-prem ECM system. With Box as their modern intelligent content management solution, they expect to save costs associated with their on-prem solution, including hardware, storage, maintenance, upgrades, and support costs. The organization also has plans to integrate Box to their contract permitting system, and utilize Box AI with their contract team. As we power more advanced workflows, a partnership with key system integrators in Q2, we saw a number of wins with large customers across critical focus industries with the help of these strong SI partners, including the replacement of many legacy ECM systems. Now, looking forward, our go-to-market engine will continue to drive enterprise plus expansion, catalyzed by gaining access to Box AI.

Speaker Change: and an organization that regulates and creates policies for the construction industry, purchase box with a six figure deal to replace an antiquated on-prem ECM system.

Aaron Levie: In June, we announced that Enterprise Plus customers now have unlimited end user queries for Box AI in notes, documents, and hubs making it even easier for customers to roll out Box AI across their enterprise. Customers can now focus on leveraging AI to drive value without having to worry about usage.

Speaker Change: with Fox as their modern intelligent content management solution, they expect to save costs associated with their on-prem solution, including hardware storage, maintenance, upgrades, and support costs.

Aaron Levie: Caps. In Q2, we also unveiled a new set of features in Box AI, which include access to GPD40 for products such as box hubs, as well as support for new file types, including images and spreadsheets in Box AI. We expect these features will be available later this year and will be included in Enterprise Plus plans. Box AI for metadata is also available in our API in beta for customers on the Enterprise Plus plans.

Speaker Change: The organization also has plans to integrate box to their contract permitting system and U.S. box AI with their contract team.

Speaker Change: As we power more advanced workflows, in partnership with key system integrators in Q2, we saw a number of wins with large customers across critical focus industries with the help of these strong SI partners.

Speaker Change: including the replacement of many legacy ECN systems.

Speaker Change: Now, looking forward, our GoToMarket Engine will continue to drive enterprise plus expansion, catalyzed by gaining access to Box AI.

Aaron Levie: Developers are able to integrate Box AI with custom applications using new Box AI for metadata API functionality to automatically extract key information from documents at scale. When combined with Box's workflow automation tools, customers will be able to automate processes based on file metadata, extract key fields from unstructured content, and save information to external applications such as Salesforce.

Aaron Levie: And we plan to expand our efforts with critical go-to-market partners like system integrators that can expand our penetration into key prospects and accounts and get Box embedded into more customer workflows and retire legacy ECM systems. We are also incredibly excited to host Box Works, our flagship customer conference this year on November 12 in San Francisco, which will also be live streamed to tens of thousands of customers globally. At Box Works this year, we expect to unveil major new product enhancements, as well as highlight major partnerships across the AI landscape and system integrator ecosystems. In conjunction with Box Works, we are hosting a virtual IR product briefing for investors to discuss these major updates.

Speaker Change: and we plan to expand our efforts with critical go-to-market partners, like system generators that can expand our penetration into key prospects and accounts and get box embedded in the more customer workflows and retire legacy ECM systems.

Speaker Change: We are also incredibly excited to host boxworks, our flagship customer conference this year on November 12th in San Francisco.

Aaron Levie: We also continue to roll out advancements across security and compliance. Over the last several months, we've launched zero trust 2.0 enhancements for admins and GXP validation sandbox management, and we are on track to meet federally high compliance in the common quarters to expand our use cases in the federal government. Finally, our flexible and interoperable platform is a major differentiator for Box. We are supporting deeper integrations with Salesforce, Microsoft Teams, Microsoft co-pilot, IBM technologies, serves now, and our customers custom built applications.

Speaker Change: which will also be live streamed to tens of thousands of customers globally.

Speaker Change: At Boxford's this year, we expect to unveil major new product enhancements, as well as highlight major partnerships across the AI landscape and system integrator ecosystems.

Speaker Change: In conjunction with boxworks, we're hosting a virtual IR product briefing for investors to discuss these major updates.

Aaron Levie: Now, in the last few months, we have been pleased to announce the appointment of some fantastic leaders with decades of enterprise software experience to our leadership team. This includes Samantha Wessels, who has joined us as President of Box Media. Samantha has led successful teams at high-performing SaaS and software companies, including Elastic and Sneak, and large system integrators in India. Another new leader, Trisha Galman, has joined as our Chief Marketing Officer. Trisha brings over two decades of experience in driving growth and innovation for leading technology companies, including high growth startups in industry giants like Salesforce and Adobe.

Speaker Change: Now, in a lot of few months, we have been pleased to announce the appointment of some fantastic leaders with decades of enterprise software experience to our leadership team.

Aaron Levie: Just last month, we announced an expanded partnership with Slack that brings secure AI to Enterprise content. Joint customers with Slack and Box can access unlimited Box AI queries directly in Slack, allowing users to ask critical questions and uncover timely insights from their Box files.

Speaker Change: This includes Samantha Wessels, who has joined us as President of Box VIA. Samantha has led successful teams at high-performing SaaS and software companies, including elastic and sneak and large system integrators in VIA.

Aaron Levie: Now, turning to go to market. As I mentioned earlier, we continue to see strong adoption of Enterprise Plus, our multi-product suite offering with unlimited access to Box AI. In Q2, suites comprise 87% of our deals over $100,000, up from 78% a year ago. With Enterprise Plus comprising over 95% of those deals, we saw solid suites attach rates in large deals across verticals and all geographies, including record attach rates in Japan. Now, with 57% of our revenue coming from suites compared to 48% a year ago, we still have a large opportunity to drive Enterprise Plus adoption.

Speaker Change: Another new leader, Trisha Galman, has joined as our chief marketing officer. Trisha brings over two decades of experience in driving growth and innovation for leading technology companies, including high growth startups and industry giants like Salesforce and Adobe.

Aaron Levie: These leaders will help us to drive our evolution as the leading intelligent content management platform, delivering AI-powered collaboration, workflow automation, security, and intelligence.

Speaker Change: These leaders will help us to drive our evolution as the leading intelligent content management platform, delivering AI-powered collaboration, workflow automation, security and intelligence.

Aaron Levie: Finally, we are also pleased to welcome Steve Murphy to our Board of Directors. Steve is the CEO of Epicor Software and has had an extensive career in the software industry, a track record of operational excellence and expertise in the content management market.

Speaker Change: Finally, we're also pleased to welcome Steve Murphy to our Board of Directors. Steve is the CEO of Ethic Horse Offwear and has had an extensive career in the software industry, a track record of operational excellence and expertise in the content management market.

Aaron Levie: Overall, we are incredibly pleased with our strong performance and executing Q2. Our acceleration in RPO growth will continue to drive momentum in the second half of this year and beyond.

Speaker Change: Overall, we are incredibly pleased with our strong performance and execution in Q2. Our acceleration in RPO Group will continue to drive momentum in the second half of this year and beyond. And with that, let me hand it off to Dylan.

Aaron Levie: Our Q2 customer expansions and wins with Enterprise Plus include one of the largest marketing companies in the world upgraded to Enterprise Plus with a six-figure upsell as the organization looks to leverage Box AI metadata and Box Hubs to create client-centric hubs with workflow to reduce the time for teams to come up to speed on new engagements with clients, partners, vendors, and securely collaborate across their ecosystem. A UK-based event, design and production company purchased Enterprise Plus with a three-year enterprise license agreement with a key focus on replacing legacy ECM tools, like SharePoint, in order to enhance and streamline their collaboration efforts as they create engaging experiences for their clients, and an organization that regulates and creates policies for the construction industry for just box with a six-figure deal to replace an antiquated on-prem ECM system.

Dylan Smith: And with that, let me hand it off to Don. Thanks, Aaron. Good afternoon, everyone, and thank you for joining us today. Day. We are very pleased with our strong Q2, delivering accelerated buildings growth, as well as record gross margin, operating margin, and EPS. These record results demonstrate both our proven business model and early signs of success from the investments we're making in our intelligent content management platform. Consistent with our key financial priorities, we're continuing to generate operating leverage and execute on our disciplined capital allocation strategy. In Q2, we delivered revenue of 270 million at the high end of our guidance, up 3% year over year and 6% in constant currency.

Dylan Smith: Thanks Aaron, good afternoon everyone and thank you for joining us today.

Speaker Change: We are very pleased with our strong Q2 delivering accelerated billing growth, as well as record gross margin, operating margin, and EPS.

Dylan Smith: These record results demonstrate both our proven business model and early signs of success from the investments we're making in our intelligent content management platform.

Dylan Smith: Consistent with our key financial priorities were continuing to generate operating leverage and execute on our disciplined capital allocation strategy.

Dylan Smith: In Q2, we delivered revenue of 270 million at the high end of our guidance up 3% year over year and 6% in constant currency.

Dylan Smith: We now have more than 1,800 total customers paying us at least $100,000 annually. Our Q2 suites ataturate in large deals with 87%, a new high watermark, and up from 78% a year ago. Suites customers now account for 58% of our revenue, up significantly from 48% in Q2 of last year. We're seeing increasing demand for box AI and our more advanced capabilities, which has been a key driver of our strong Suites momentum. We ended Q2 with remaining performance obligations, or RPO, of 1.3 billion, a 12% year-over-year increase, or 14% in constant currency. This represents a strong acceleration from last quarter's constant currency, RPO growth of 8%, driven by the combination of bookings outperformance and longer average contracturations.

Aaron Levie: With Box as their modern intelligent content management solution, they expect to save costs associated with their on-prem solution including hardware, storage, maintenance upgrades, and support costs. The organization also has plans to integrate Box to their contract permitting system, and utilize Box AI with their contract team. As we power more advanced workflows and partnership with key system integrators in Q2, we saw a number of wins with large customers across critical focus industries with the help of these strong SI partners, including the replacement of many legacy ECM systems. Now, looking forward, our go-to-market engine will continue to drive enterprise plus expansion, catalyzed by gaining access to Box AI.

Dylan Smith: We now have more than 1,800 total customers paying us at least $100,000 annually.

Dylan Smith: Our Q2 suite to Tatrate in large deals with 87% a new high watermark and up from 78% a year ago.

Dylan Smith: Sweet Customers now account for 58% of our revenue, up significantly from 48% in Q2 of last year.

Dylan Smith: We're seeing increasing demand for box AI and our more advanced capabilities, which has been a key driver of our strong, sweet, momentum.

Dylan Smith: We ended due to with remaining performance obligations or RPO of 1.3 billion, a 12% year-over-year increase, or 14% in constant currency.

Aaron Levie: And we plan to expand our efforts with critical go-to-market partners like system integrators that can expand our penetration into key prospects and accounts and get Box embedded into more customer workflows and retire legacy ECM systems. We are also incredibly excited to host Box Works, our flagship customer conference this year on November 12 in San Francisco, which will also be live streamed to tens of thousands of customers globally. At Box Works this year, we expect to unveil major new product enhancements, as well as highlight major partnerships across the AI landscape and system integrator ecosystems. In conjunction with Box Works, we are hosting a virtual IR product briefing for investors to discuss these major updates.

Dylan Smith: This represents a strong acceleration from last quarter's constant currency RPO growth of 8% driven by the combination of bookings out performance and longer average contractorations.

Dylan Smith: Consistent with prior quarters, we expect to recognize roughly 60% of our RPO over the next 12 months. Q2 billings of 256 million were up 10% year over year, and mid-single digit growth. Roughly half of this outperformance was driven by strong bookings, particularly in Japan and our public sector business. Q2 billings also benefited from roughly $3 million in early renewals, as well as roughly $4 million tailwind from FX versus our prior expectations. Our net retention rate for Q2 was 102%, up from last quarter's net retention rate of 101%, and driven by improving price-perceit trends. Our annualized full-churn rate continues to remain stable at 3%, demonstrating best-in-class product stickiness with our customers.

Dylan Smith: Consistent with prior quarters, we expect to recognize roughly 60% of our RPO over the next 12 months.

Dylan Smith: Q2 Billings of 256 million, we're up 10% year over year and up 9% year over year in constant currency above our expectations for low to mid-singled digit growth.

Dylan Smith: Roughly half of this outperformance was driven by strong bookings, particularly in Japan and our public sector business.

Dylan Smith: Q2 Billings also benefited from roughly $3 million in early renewals, as well as roughly $4 million till when from FX versus our prior expectation.

Aaron Levie: Now, in the last few months, we have been pleased to announce the appointment of some fantastic leaders with decades of enterprise software experience to our leadership team.

Dylan Smith: Our net retention rate for Q2 was 102% up from last quarter's net retention rate of 101% and driven by improving price-perceete trends.

Aaron Levie: This includes Samantha Wessels, who has joined us as president of Box Media. Samantha has led successful teams at high-performing SaaS and software companies including Elastic and Sneak and large system integrators in India.

Dylan Smith: Our annualized full turn rate continues to remain stable at 3% demonstrating best and class products stickiness with our customers.

Aaron Levie: Another new leader, Trisha Galman, has joined as our chief marketing officer. Trisha brings over two decades of experience in driving growth and innovation for leading technology companies including high growth startups in industry giants like Salesforce and Adobe. These leaders will help us to drive our evolution as the leading intelligent content management platform, delivering AI-powered collaboration, workflow automation, security and intelligence.

Dylan Smith: We now anticipate exiting FY25 with a net retention rate of roughly 102% and improvement from our prior expectations of at least 101%. Q2 gross margin came in at a record 81.6% of 470 basis points year over year and exceeding our expectation of roughly 80%. In Q2, we were able to sell data center assets that we're no longer using, generating a gross margin tailwind of approximately 60 basis points. Q2 gross margin came in at a record. We expect to realize a similar benefit in Q3 as we complete the sale of our remaining data center assets. Q2 gross profit of 220 million was up 10% year over year, exceeding our revenue growth rate by more than 600 basis points.

Dylan Smith: We now anticipate eggs being FY25 with a net retention rate of roughly 102% and improvements from our prior expectations of at least 101%.

Dylan Smith: 22 gross margin came in at a record 81.6% up 470 basis points year over year and exceeding our expectation of roughly 80%.

Dylan Smith: In Q2, we were able to sell data center assets that were no longer using, generating a gross margin tailwind of approximately 60 basis points.

Aaron Levie: Finally, we are also pleased to welcome Steve Murphy to our Board of Directors. Steve is the CEO of Epicor Software and has had an extensive career in the software industry, a track record of operational excellence and expertise in the content management market. Overall, we are incredibly pleased with our strong performance and executioning Q2.

Dylan Smith: We expect to realize a similar benefit in Q3 as we complete the sale of our remaining data center assets.

Dylan Smith: Q2 gross profit of 220 million was up 10% your year, exceeding our revenue growth rate by more than 600 basis points.

Aaron Levie: Our acceleration in RPO growth will continue to drive momentum in the second half of this year and beyond. And with that, let me hand it off to Don.

Dylan Smith: Thanks, Aaron.

Dylan Smith: In Q2, we delivered operating income of 77 million of 19% year to generate leverage across the business. Q2's record operating margin of 28.4% was up 360 basis points year over year, despite absorbing an FX headwind of roughly 180 basis points. Our rigorous approach to expense management, coupled with gross margin expansion, continues to generate additional leverage in our operating model. As a result, we also delivered a record EPS result of 44 cents in Q2, up 8 cents year over year and well above the high end of our guidance of 41 cents. This result includes a negative impact from FX of approximately 5 cents.

Dylan Smith: In Q2, we delivered operating income of 77 million up 19% year over year, once again demonstrating our commitment to generate leverage across the business.

Dylan Smith: Good afternoon, everyone, and thank you for joining us today. We are very pleased with our strong Q2, delivering accelerated buildings growth, as well as record gross margin, operating margin and EPS. These record results demonstrate both our proven business model and early signs of success from the investments we're making in our intelligent content management platform. Consistent with our key financial priorities, we're continuing to generate operating leverage and execute on our discipline capital allocation strategy.

Dylan Smith: Q2's record operating margin of 28.4% was up 360 basis points you over here despite absorbing an FX headwind of roughly 180 basis points.

Dylan Smith: Our rigorous approach to expense management coupled with most margin expansion continues to generate additional leverage in our operating model.

Dylan Smith: As a result, we also delivered a record EPS result of 44 cents in Q2, up 8 cents year a year, and well above the high end of our guidance of 41 cents.

Dylan Smith: In Q2, we delivered revenue of 270 million at the high end of our guidance, up 3% year over year, and 6% in constant currency. We now have more than 1,800 total customers paying us at least $100,000 annually. Our Q2 suites ataturate in large deals with 87% a new high watermark and up from 78% a year ago. Suites customers now account for 58% of our revenue up significantly from 48% in Q2 of last year.

Dylan Smith: Disresolved includes a negative impact from FX of approximately five cents.

Dylan Smith: I'll now turn to our cash flow and balance sheet. In Q2, we generated free cash flow of 33 million, or 59% from Q2 of last year. We generated cash flow from operations of 36 million of 11% year year. Let's now turn to our capital allocation strategy. We ended the quarter with 483 million in cash, cash equivalence, restricted cash, and short-term investments. In Q2, we repurchased approximately 3.9 million shares for approximately 102 million dollars. As of July 31st, 2024, we had approximately $25 million of remaining buyback capacity under our current share repurchase plan. We remained committed to opportunistically returning capital to our shareholders through our ongoing stock repurchased program; had our board recently authorized an additional 100 million stock repurchased plan.

Dylan Smith: All now turned to our cash flow and balance sheet.

Dylan Smith: In Q2, we generated free cash flow of 33 million up 59% from Q2 last year.

Dylan Smith: We generate cash flow from operations of 36 million of 11% year over year.

Dylan Smith: We're seeing increasing demand for box AI and our more advanced capabilities which has been a key driver of our strong suites momentum. We ended Q2 with remaining performance obligations or RPO of 1.3 billion, a 12% year over year increase or 14% in constant currency. This represents a strong acceleration from last quarter's constant currency, RPO growth of 8%, driven by the combination of bookings out performance and longer average contract relations. Consistent with prior quarters, we expect to recognize roughly 60% of our RPO over the next 12 months.

Dylan Smith: Let's now turn to our Capital Allocation Strategy.

Dylan Smith: We ended the quarter with 483 million in cash, cash equivalents, restricted cash, and short-term investments.

Dylan Smith: In Q2, we repurchased approximately $3.9 million for approximately $102 million.

Dylan Smith: As of July 31, 2024, we had approximately 25 million of remaining buyback capacity under our current share repurchase plan.

Dylan Smith: We remain committed to opportunistically returning capital to our shareholders through our ongoing stock repurchase program and our board recently authorized an additional 100 million stock repurchase plan.

Dylan Smith: With that, let me now turn to our Q3 and full year guidance. As a reminder, approximately one third of our revenue is generated outside of the US, with roughly 60% of our international revenue coming from Japan. Since we last provided guidance, the US dollar has weakened versus the yen, and the following guidance includes the expected impact of FX, assuming current exchange rates. Additionally, we expected non-tash deferred tax expenses that we discussed previously to represent an impact of roughly 1 cent to GAAP and non-GAAP EPS in Q3 and 5 cents for the full year. Finally, I would note that the seasonality of our second half expenses is expected to differ from the past few years for two reasons.

Dylan Smith: Q2 billings of 256 million were up 10% year over year and up 9% year over year in constant currency above our expectations for low to mid single digit growth. Roughly half of this out performance was driven by strong bookings, particularly in Japan and our public sector business. Q2 billings also benefited from roughly 3 million in early renewals, as well as roughly $4 million tailwind from FX versus our prior expectations. Our net retention rate for Q2 was 102% up from last quarter's net retention rate of 101% and driven by improving price perceived trends.

Dylan Smith: With that, let me now turn to our Q3 and full year guidance.

Dylan Smith: 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 Smith: Since we last provided guidance, the U.S. dollar has weakened versus the yen, and the following guidance includes the expected impact of FX, assuming current exchange rates.

Dylan Smith: Additionally, we expect a non-task deferred tax expenses that we discussed previously to represent an impact of roughly one cent to gap and non-gap EPS in Q3 and five cents for the full year.

Dylan Smith: Our annualized full-churn rate continues to remain stable at 3%, demonstrating best-in-class product stickiness with our customers. We now anticipate exiting FY25 with a net retention rate of roughly 102% and improvement from our prior expectations of at least 101%. Q2 gross margin came in at a record 81.6% of 470 basis points year over year and exceeding our expectation of roughly 80%. In Q2, we were able to sell data center assets that we're no longer using, generating a gross margin tailwind of approximately 60 basis points We expect to realize a similar benefit in Q3 as we complete the sale of our remaining data center assets.

Dylan Smith: Finally, I would note that the feasibility of our second half expenses is expected to differ from the past few years for two reasons.

Dylan Smith: First, in Q3, we expect to recognize the benefit from data center equipment sale that I mentioned earlier, resulting in lower Q3 costs. Box of Sales. Second, this year box works will be held in person in Q4, representing a little more than 2 million in Q4 sales and marketing expenses. For the third quarter of fiscal 2025, we expect Q3 revenue to be in the range of 274 million to 276 million, representing 5% year-over-year growth. This includes an expected headwind from FX of approximately 130 basis points. We anticipate our Q3 billings growth rate to be in the mid-single-digit range.

Dylan Smith: First, in Q3, we expect to recognize the benefit from data center equipment sales that I mentioned earlier, resulting in lower Q3 cost of sales.

Dylan Smith: Second, this year box works will be held in person in Q4, representing a little more than 2 million in Q4 sales and marketing expenses.

Dylan Smith: from the third quarter of fiscal 2025.

Dylan Smith: We expect Q3 revenue to be in the range of 274 million to 276 million representing 5% your over your growth.

Dylan Smith: This includes an expected headwind from FX of approximately 130 basis points.

Dylan Smith: Q2 gross profit of 220 million was up 10% your year exceeding our revenue growth rate by more than 600 basis points. Q2's record operating margin of 28.4% was up 360 basis points your year despite absorbing an FX headwind of roughly 180 basis points. Our rigorous approach to expense management coupled with gross margin expansion continues to generate additional leverage in our operating model. As a result, we also delivered a record EPS result of 44 cents in Q2 up 8 cents your year and well above the high end of our guidance of 41 cents. This result includes a negative impact from FX of approximately 5 cents.

Dylan Smith: We anticipate our Q3 Billings growth rate to be in the mid-single digit range.

Dylan Smith: This includes an expected tailwind from FX of approximately 210 basis points, as well as an expected headwind of roughly 3 million from the early renewals that were built in Q2. As we complete the sale of our remaining data center assets in Q3, we expect our Q3 gross margin to be roughly flat sequentially, representing a year-over-year improvement of more than 500 basis points. Beginning in Q4, data center asset sales will have been completed and will no longer impact our gross margin going forward. We expect our Q3 non-GAAP operating margin to be approximately 28%, which includes an expected negative impact of approximately 110 basis points due to FX.

Dylan Smith: This includes an expected tailwind from FX of approximately 210 basis points, as well as an expected headwind of roughly 3 million from the early renewals that were built in Q2.

Dylan Smith: As we complete the sale of a remaining data center assets in Q3, we expect our Q3 gross margin to be roughly flat sequentially representing a year over year improvement of more than 500 basis points.

Dylan Smith: Beginning in Q4, data center assets sales will have been completed and will no longer impact a gross margin going forward.

Dylan Smith: We expect our Q3 non-gap operating margin to be approximately 28%, which includes an expected negative impact of approximately 110 basis points due to FX.

Dylan Smith: This represents a 330 basis point improvement year-over-year and a 440 basis point improvement in constant currency. We expect our Q3 non-GAAP EPS to be in the range of 41 to 42 cents, a 16% year-over-year increase at the high end of this range. This includes an expected headwind of approximately 2 cents from FX and one cent from non-cash-deferred tax expenses. Weighted average diluted shares are expected to be approximately 148 million.

Dylan Smith: This represents a 330 basis point improvement year over year and a 440 basis point improvement in constant currency.

Dylan Smith: We expect our Q3 non-gap EPS to be in the range of 41 to 42 cents, a 16% ure your increase at the high end of this range.

Dylan Smith: I'll now turn to our cash flow and balance sheet. In Q2 we generated free cash flow of 33 million up 59% from Q2 of last year. We generated cash flow from operations of 36 million up 11% year over year.

Dylan Smith: The thing includes an expected headwind of approximately two cents from FX

Dylan Smith: and one cent from non-cash deferred tax expenses.

Dylan Smith: Waded Average Deluded Chairs are expected to be approximately 148 million.

Dylan Smith: Let's now turn to our capital allocation strategy. We ended the quarter with 483 million in cash, cash equivalence, restricted cash and short-term investments. In Q2 we repurchased approximately 3.9 million shares for approximately 102 million dollars. As of July 31st, 2024, we had approximately 25 million of remaining buyback capacity under our current share repurchased plan. We remain committed to opportunistically returning capital to our shareholders through our ongoing stock repurchased program had our board recently authorized an additional 100 million stock repurchased plan.

Dylan Smith: For the full fiscal year ending January 31st, 2025, we anticipate revenue to be in the range of 1.086 to 1.09 billion, representing approximately 5% year-over-year growth and 7% growth in constant currency. This represents a 10.5 million dollar increase at the midpoint versus our prior guidance, with roughly two-thirds of this increase attributable to FX and roughly one-third attributable to strength in our underlying business. We now expect an FX headwind of roughly 170 basis points versus our previous expectations of 250 basis points. We now expect our FY25 billings growth rate to be in the mid-single-digit range and improvement from our previous expectations of a low-single-digit growth rate.

Dylan Smith: for the full fiscal year and in January 31st, 2025.

Dylan Smith: We anticipate revenue to be in the range of 1.086 to 1.09 billion representing approximately 5% year for your growth and 7% growth in constant currency.

Speaker Change: This represents a $10.5 million increase at the midpoint versus our prior guidance with roughly two thirds of this increase attributable to FX and roughly one third attributable to strength and our underlying business.

Speaker Change: We now expect an FX headwind of roughly 170 basis points versus our previous expectations of 250 basis points.

Dylan Smith: With that, let me now turn to our Q3 and full year guidance. As a reminder, approximately one third of our revenue is generated outside of the US with roughly 60% of our international revenue coming from Japan. Since we last provided guidance, the US dollar has weakened versus the yen and the following guidance includes the expected impact of FX assuming current exchange rates. Additionally, we expect the non-tash deferred tax expenses that we discussed previously to represent an impact of roughly 1 cents to gap and non-gap EPS in Q3 and 5 cents for the full year.

Speaker Change: We now expect our FY-25 Billings Growth Rate to be in the mid-single-digit range and improvement from our previous expectations of a low-single-digit growth rate.

Dylan Smith: We now expect FX to have a negative impact of approximately 30 basis points on this year's billings growth versus our previous expectations of approximately 150 basis points. We are raising our FY25 growth margin expectations to roughly 81%, an increase of 100 basis points from roughly 80. This represents a year-over-year improvement of 360 basis points. We are also raising our FY 25 non-GAAP operating margin expectations to approximately 27.5%, up from approximately 27%, and representing a 280 basis point improvement year-over-year. We now expect FX to have a negative impact on operating margin of roughly 130 basis points.

Speaker Change: We now expect FX to have a negative impact of approximately 30 basis points on this year's Billings Growth, versus our previous expectations of approximately 150 basis points.

Speaker Change: Boyd's.

Speaker Change: We are raising our FY25 gross margin expectations to roughly 81% and increase of 100 basis points from roughly 80%.

Speaker Change: This represents a year-over-year improvement of 360 basis points.

Dylan Smith: Finally, I would note that the seasonality of our second half expenses is expected to differ from the past few years for two reasons. First, in Q3, we expect to recognize the benefit from data center equipment sale that I mentioned earlier resulting in lower Q3 costs.

Speaker Change: We are also raising our FY-25 non-gap operating margin expectations to approximately 27.5% up from approximately 27% and representing a 280 basis point improvement you're a year.

Speaker Change: We now expect FX to have a negative impact on operating margin of roughly 130 basis points versus our previous expectations of 160 basis points.

Dylan Smith: Box of Sales. Second, this year, Box Works will be held in-person in Q4 representing a little more than 2 million in Q4 sales and marketing expenses. For the third quarter of fiscal 2025, we expect Q3 revenue to be in the range of 274 million to 276 million representing 5% year-over-year growth. This includes an expected amount of expected headwind from FX of approximately 130 basis points. We anticipate our Q3 billings growth rate to be in the mid-single-digit range.

Dylan Smith: Versus our previous expectations of 160 basis points. We are raising our EPS expectations for the full year, driven by outperformance and the leverage we've been able to generate across the business. We now expect FY 25 non-GAAP EPS to be in the range of $1.64 to $1.66, representing a 14% increase at the height of this range versus $1.46 in the prior year. This includes the 5-cent impact from deferred tax expenses that I noted previously, as well as an expected FX headwind of $0.12, which is $0.3 lower than our previous expectations. Weighted average deluded shares are now expected to be approximately $148 million, $2 million lower than our previous expectations.

Speaker Change: We are raising our EPS expectations for the full year driven by out performance and the leverage we've been able to generate across the business.

Speaker Change: We now expect FY25 non-gap EPS to be in the range of $1.64 to $1.66 representing a 14% increase at the height of this range versus $1.46 in the prior year.

Speaker Change: This includes the five-cent impact from deferred tax expenses that I noted previously, as well as an expected FX headwind of 12 cents, which is three-cent lower than our previous expectations.

Dylan Smith: This includes an expected tailwind from FX of approximately 210 basis points, as well as an expected headwind of roughly 3 million from the early renewals that were building Q2. As we complete the sale of our remaining data center assets in Q3, we expect our Q3 gross margin to be roughly flat sequentially representing a year-over-year improvement of more than 500 basis points. Beginning in Q4, data center asset sales will have been completed and will no longer impact our gross margin going forward.

Speaker Change: Weighted average, diluted shares are now expected to be approximately 148 million, 2 million lower than our previous expectations.

Dylan Smith: As we enter the era of intelligent content management, Fox is powering the full life cycle of content in a single platform with native enterprise-grade security and AI capabilities. As Aaron mentioned, we are already seeing the success of this strategy with increasing adoption of Enterprise Plus and its enhanced Fox AI capabilities, catalyzing an acceleration in our RPO growth and an improvement in our net retention rate. Additionally, our discipline financial strategy allows us to continue making targeted investments to fuel product innovation and our go-to-market initiatives, while also expanding margins and returning capital to our shareholders.

Speaker Change: As we enter the era of intelligence content management, box is powering the full life cycle of content in a single platform with native enterprise-grade security and AI capabilities.

Speaker Change: As Aaron mentioned, we are already seeing the success of this strategy with the increasing adoption of enterprise plus and its enhanced box AI capabilities, catalyzing and acceleration in our RPO growth and an improvement in our net retention rate.

Dylan Smith: We expect our Q3 non-gap operating margin to be approximately 28%, which includes an expected negative impact of approximately 110 basis points due to FX. This represents a 330 basis point improvement year-over-year and a 440 basis point improvement in constant currency. We expect our Q3 non-gap EPS to be in the range of 41 to 42 cents, a 16% year-over-year increase at the high end of this range. This includes an expected headwind of approximately 2 cents from FX and one cent from non-cash-deferred tax expenses.

Aaron Levie: Additionally, our discipline, financial strategy allows us to continue making targeted investments to fuel product innovation and our go-to market initiatives will also expand margins and return in capital to our shareholders.

Aaron Levie: With that, Aaron and I will be happy to take your questions.

Operator: Operator?

Aaron Levie: With that, Aaron and I will be happy to take your questions.

Operator: Thank you, and we will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on when asking your question.

Aaron Levie: Operator.

Speaker Change: Thank you, and we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press star 1 a second time.

Dylan Smith: Weighted average diluted shares are expected to be approximately 148 million. For the full fiscal year ending January 31st, 2025, we anticipate revenue to be in the range of 1.086 to 1.09 billion, representing approximately 5% year-over-year growth and 7% growth in constant currency. This represents a 10.5 million dollar increase at the midpoint versus our prior guidance with roughly 2 thirds of this increase attributable to FX and roughly 1 third attributable to strength in our underlying business.

Speaker Change: If you are called to ask your question and are listening via speaker phone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Steve Enders: Again, it is star one if you would like to join the queue, and your first question comes from the line of Steve Enders.

Speaker Change: Again, it is star one if you would like to join the queue.

Steve Enders: Your line is open. Okay, great. Thanks for taking the questions here.

Speaker Change: And your first question comes from the line of Steve Enders. Your line is open.

Aaron Levie: I guess we were just a start. I mean, good to hear the, you know, performance on the booking side. I guess we would greatly get a little bit more clarity on what you're seeing out there in the macro and deal environment. And if you feel like there's an improvement going on there versus maybe a little bit of better execution on the sales side. Yeah, so definitely, you know, we're very happy with the execution in the quarter. You know, the team delivered strong results really across segments. I think we still see, you know, some degree of incremental pressure in areas, not incremental, but relative pressure in areas like SMB.

Steve Enders: Okay, great. Thanks for taking the questions here.

Steve Enders: I guess we just started, I mean, good to hear the, you know, performance on the booking side. I guess we're going to get a little bit more, I guess, clarity on kind of what you're seeing out there in the, in the macro and deal on by your man. And if you feel like...

Dylan Smith: We now expect an FX headwind of roughly 170 basis points versus our previous expectations of 250 basis points. We now expect our FY25 Billings Growth Rate to be in the mid-single-digit range and improvement from our previous expectations of a low single-digit growth rate. We now expect FX to have a negative impact of approximately 30 basis points on this year's Billings Growth versus our previous expectations of approximately 150 basis points. We are raising our FY25 Growth margin expectations to roughly 81% and increase of 100 basis points from roughly 80.

Speaker Change: There's an improvement going on there, but there's maybe a little bit of better execution on the sail side.

Speaker Change: Yeah, so definitely we're very happy with the execution in the quarter. The team delivered strong results really across segments, I think.

Speaker Change: We still see some degree of incremental pressure in areas, not incremental, but relative pressure in areas like SMB and a couple kind of regional segments, but when we look at the Q2 performance.

Aaron Levie: And, you know, a couple, a couple of kind of regional segments, but when we look at the Q2 performance, it feels like, you know, relatively stable compared to, let's say, Q1 and the general trends we've been seeing. And overall, I think, I think it was a quarter driven by demand for Box AI and our Enterprise Plus plan. So the teams are very much focused on continuing to drive both new logos and upsells into the E Plus plan. And that momentum just continues, you know, relatively unabated, which is great to see. And customers really doubling down on this idea of having an intelligent content management platform.

Speaker Change: It feels like, you know, relatively stable compared to let's say Q1 and the general trends we've been seeing.

Dylan Smith: 18% This represents a year-over-year improvement of 360 basis points. We are also raising our FY25 non-gap operating margin expectations to approximately 27.5% up from approximately 27% and representing a 280 basis point improvement year-over-year. We now expect FX to have a negative impact on operating margin of roughly 130 basis points versus our previous expectations of 160 basis points. We are raising our EPS expectations for the full year driven by outperformance and the leverage we've been able to generate across the business.

Speaker Change: and overall, I think I think it was a quarter driven by demand for Box AI and our enterprise plus plan. So the teams are very much focused on continuing to drive both new logos and upsells.

Speaker Change: into the E-plus plan, and that momentum just continues relatively unabated, which is great to see.

Speaker Change: and customers really doubling down on this idea of having an intelligent content management platform, but I think we're happy with the performance on a broad basis, even though there are some areas where, you know, we still see some degree of kind of macro pressure in areas like S&B, et cetera.

Aaron Levie: But I think we're happy with the performance on a broad basis, even though there are some areas where, you know, we still see some degree of kind of macro pressure in areas like SMB, et cetera.

Dylan Smith: Okay, no, that's great to hear. And then I guess on the AI side of the equation, I think you call us some pretty solid winds there. I guess there are ways to maybe just slow down maybe what contribution, you know, the AI side is beginning to have in terms of monetization and the revenue impact.

Speaker Change: Okay, so that's great to hear. And then I guess on the AI side of the equation, I mean, I think you can call us some pretty follow-to-winds there.

Dylan Smith: We now expect FY25 non-gap EPS to be in the range of $1.64 to $1.66 representing a 14% increase at the height of this range versus a $1.46 in the prior year. This includes the 5-cent impact from deferred tax expenses that I noted previously, as well as an expected FX headwind of 12 cents, which is 3 cents lower than our previous expectations. Weighted average deluded shares are now expected to be approximately $148 million, $2 million lower than our previous expectations.

Speaker Change: I guess it's their way to, I guess maybe just fill down, maybe what contribution, you know, the AI side is beginning to have in terms of...

Aaron Levie: And I guess, if secondarily, as we think about that, you know, that that law firm, when you caught out in the, in the prepare remarks, I guess what kind of drove the, then choosing box for their AI use cases versus maybe leveraging some other kind of platform out there. Yeah, so, so I think, you know, we made a key decision about a year ago on the pricing strategy for AI. And it was really due to the fact that we saw trends in the AI space where the cost of AI tokens and the underlying AI models were becoming, you know, cheaper and cheaper and more cost-effective over time, at the same time as the performance and powerfulness of those models were improving.

Speaker Change: Monetization and the revenue impact and I guess, secondarily, as we think about that, the law firm, when you call out in the prepared remarks, is what kind of drove the...

Speaker Change: and then choosing box for their AI use cases versus maybe leveraging some other kind of platform out there.

Speaker Change: Yeah, so I think we made a key decision about a year ago on the pricing strategy for AI and it was...

Dylan Smith: As we enter the era of intelligent content management, Box is powering the full-life cycle of content in a single platform with native enterprise-grade security and AI capabilities. As Aaron mentioned, we are already seeing the success of this strategy with increasing adoption of enterprise plus and its enhanced Box AI capabilities, catalyzing an acceleration in our RPO growth and an improvement in our net retention rate. Additionally, our discipline financial strategy allows us to continue making targeted investments to fuel product innovation and our go-to-market initiatives while also expanding margins and returning capital to our shareholders.

Speaker Change: really due to the fact that we saw trends in the AI space where the cost of AI tokens and the underlying AI models were becoming cheaper and cheaper and more cost effective over time at the same time as the performance.

Aaron Levie: And so, anytime you have those kinds of trajectories where the technology is getting better and cheaper at the same time, you have to make a decision on kind of how do you want to price and package it to make sure that you're letting your customers really get the kind of accruing of all that value. And so we made the call to include Box AI in our Enterprise Plus plan, as you know. And with the goal and expectation that what that would do is drive an upgrade cycle for, you know, any customers that maybe were holding out on moving to Enterprise Plus, you know, we had multiple chances of getting them to upgrade for a variety of other features, but for some reason, they still hadn't kind of moved to the E Plus plan.

Speaker Change: and powerfulness of those models we're improving. And so anytime you have those kinds of trajectories for the technology is getting better and cheaper at the same time, you have to make a decision on how do you want to price and package it to make sure that you're letting your customers really get the kind of accruing of all that value. And so we may be called to include Box AI in our enterprise plus plan as you know.

Speaker Change: and with the goal and expectation that what that would do is drive an upgrade cycle for any customers that maybe were holding out on moving to enterprise plus, we had multiple chances of...

Aaron Levie: With that, Aaron and I will be happy to take your questions. Operator?

Speaker Change: Kingland upgrade for a variety of other features, but for some reason they still hadn't moved to the E-plus plan.

Abby: Thank you, and we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your hand set and ensure that your phone is not on when asking your question. Again, it is star 1 if you would like to join the queue.

Aaron Levie: And AI has provided just yet that additional catalyst that is turning out to be a very big component of the plan to get customers into that upgrade cycle. So really, in any particular deal, in this case of the law firm, you mentioned that I mentioned in the remarks. This is really, again, the full portfolio of capabilities box sign included that the potential use case of box hubs in the future. And so AI just becomes another kind of core foundational capability that gets that type of customer over the edge to getting a deal done. We had a number of either renewals or upgrades in E Plus in Q2 that were just further catalyzed by customers wanting access to Box AI for all of their employees.

Speaker Change: and AI has provided just yet that additional catalyst that is turning out to be a very big component of the plan to get customers into that upgrade cycle. So really in any particular deal in this case of a law firm you mentioned that I mentioned in the remarks.

Speaker Change: This is really, again, the full portfolio of capabilities, box sign, included the potential use case of box hubs in the future. And so AI just becomes another kind of core foundational capability that gets that type of customer over the edge.

Steve Enders: And your first question comes from the line of Steve Enders. Your line is open. Okay, great. Thanks for taking the questions here. I guess we were just to start. I mean, good to hear the, you know, performance on the booking side.

Speaker Change: to getting a deal done. We had a number of either renewals or upgrades in E-plus in Q2 that were just further catalyzed by customers wanting access to box AI for all of their employees. If you kind of step back and you think about any kind of CIO or IT leader right now, they need to be able to have an AI strategy for their leadership team, for the company, for the board of directors. And so we're making an extremely easy to say, okay, boxes, my intelligent content management platform based on the fact that box AI is included as a core component of the platform. And so we've just made it easier and easier for that to happen.

Aaron Levie: If you kind of step back and you think about, you know, any kind of CIO or IT leader right now, they need to be able to have an AI strategy for their leadership team, for the company, for the board of directors. And so we're making it extremely easy to say, okay, Box is my intelligent content management platform based on the fact that Box AI is included as a core component of the platform. And so we've just made it easier and easier for that to happen.

Aaron Levie: I guess we'd great to get a little bit more clarity on kind of what you're seeing out there in the macro and deal environment and if you feel like there's an improvement going on there versus maybe a little bit of better execution on the sale side. Yeah, so definitely, you know, we're very happy with the execution in the quarter. You know, the team delivered strong results really across segments. I think we still see, you know, some degree of incremental pressure in areas, not incremental, but relative pressure in areas like SMB.

Dylan Smith: Yeah, and this is Dylan. I just a build on that in terms of where you can really see the impact currently with our current set of offerings is in that suites attach rate and larger deals on our overall, you know, suites penetration, i.e. the revenue attributable to suites with both of those metrics that, you know, record highs and up about 10 point year on year. And then, even going forward, once we have our newer sets of offerings and AI capabilities, we still expect to see the biggest, the most direct impact from those AI capabilities driving yet another upgrade cycle to our highest tier plan as well as Enterprise Plus.

Dylan Smith: and this is Dylan. I just built on that in terms of where you can really see the impact currently with our current set of offerings, is in that sweep's, a tatrate in larger deals and are overall, you know, sweep's penetration. I eat the revenue, a trivial, the sweep's.

Aaron Levie: And, you know, a couple, a couple of kind of regional segments, but when we look at the Q2 performance, it feels like, you know, relatively stable compared to let's say Q1 and the general trends we've been seeing. And overall, I think, I think it was a quarter driven by demand for box AI and our enterprise plus plan. So the teams are very much focused on continuing to drive both new logos and upsells into the E plus plan.

Dylan Smith: with both of those metrics that record highs and about 10 points a year on year. And then even going forward, once we have our newer sets of offerings and AI capabilities, we still expect to see the biggest and most direct impact from those AI capabilities driving yet another upgrade cycle to our highest year plan as well as enterprise plus.

Dylan Smith: And so we will be monetizing AI discreetly as well, and so that will be very clearly connected and directly attributable to AI queries. But we expect the majority of the impact to be coming from customers electing to move into higher tier.

Aaron Levie: And that momentum just continues, you know, relatively unabated, which is great to see. And customers really doubling down on this idea of having an intelligent content management platform. But I think we're happy with the performance on a broad basis, even though there are some areas where where, you know, we still see some degree of kind of macro pressure in areas like SMB, et cetera.

Dylan Smith: and so we will be monetizing AI discreetly as well, and so that'll be very clearly connected and directly attributable to AI queries. But we expect the majority of the impact to be coming from customers electing to move into higher tier plans.

Steve Enders: Thanks for the questions.

Steve Enders: Perfect. Now, great to hear and appreciate all the extra detail there. Thank you.

Speaker Change: Perfect, no, great to hear and appreciate all the extra detail there.

Aaron Levie: Okay, that's great to hear. And then I guess on the AI side of the equation, I think you call us some pretty solid winds there. I guess there are ways to maybe just slow down maybe what contribution the AI side is beginning to have in terms of monetization and the revenue impact. And I guess secondarily, as we think about that, you know, about law firm when you caught out in the compared remarks, I guess what kind of drove the, then choosing box for their AI use cases versus maybe leveraging some other kind of platform out there.

Pinjalim Bora: And your next question comes from the line of Pinjalim Bora. Your line is open. Great. Thanks for taking the question. One question on the seat. You're talking about a little bit better. It seems like price per seat. Let's see what are you seeing around kind of the seat growth trends at this point. Is that stabilizing? Any signals of seat growth improving?

Speaker Change: Thank you. And your next question comes from the line of Pendulum Borough. Your line is open.

Pendulum Borough: So great. Thanks for taking the question. One question I'll just say you're talking about a little bit better, seems like price per seat. But I'd like to hear what are you seeing around the kind of seat groups, friends at this point, who's that stabilizing.

Dylan Smith: Yeah, so at your point, really, what we saw that uptick in our overall net retention rate was attributable to stronger pricing, which was in large part due to what we were just talking about around more and more customers electing to move to our highest tier Enterprise Plus. Plan driven by AI on the seat front. We are seeing a relatively stable dynamic environment there. So, you know, we have been seeing continued pressure on overall seat expansion rates. And so while we do feel confident that those will improve over time, that was not a factor in the most recent net retention rates and that improvement to 102% that we just reported.

Pendulum Borough: [inaudible]

Speaker Change: Signals of Seed Groot and Promenk.

Speaker Change: Yeah, so at suit your points, you really will re-saw that uptick in our overall net retention rate. Was it for the result to stronger pricing, which...

Aaron Levie: Yeah, so, so I think, you know, we made a key decision about a year ago on the pricing strategy for AI, and it was really due to the fact that we saw trends in the AI space where the cost of AI tokens and the underlying AI models were becoming, you know, cheaper and cheaper and more cost effective over time at the same time as the performance and powerfulness of those models were improving. And so anytime you have those kinds of trajectories where the technology is getting better and cheaper at the same time, you have to make a decision on kind of how do you want to price and package it to make sure that you're letting your customers really get the kind of accruing of all that value.

Speaker Change: It was in large part due to what we were just talking about around more and more customers, electing to move to our highest tier enterprise plus, planned or by AI. On the seat front, we are seeing a relatively stable dynamic and environment there, so we haven't been continuing pressure on overall seat expansion rates.

Speaker Change: and so while we do, you know, feel confident that those will improve over time, that was not a factor in the most recent net retention rates and that improvement to 102% that we just reported.

Pinjalim Bora: Yep, understood.

Dylan Smith: And one for you, Aaron, maybe talk about the reasoning behind providing unlimited AI queries in the E Plus plan. Is that driven by the lower cost to run those queries? Is it mainly, I think you were saying this in the question before, maybe the Lord learning the friction of adoption, maybe just the reasoning behind it. And then could there still be some avenues sounds like to monetize our users on a consumption basis, just trying to think how you can manage the gross margins. Yeah, great. So two factors for why we gave unlimited, and then I'll share one more factor in terms of future monetization.

Aaron Levie: And so we made the call to include box AI in our enterprise plus plan, as you know. And with the goal and expectation that what that would do is drive an upgrade cycle for, you know, any customers that maybe were holding out on moving to enterprise plus, you know, we had multiple chances of getting them to upgrade for a variety of other features, but for some reason, they still hadn't kind of moved to the E plus plan.

Speaker Change: and I wanted you to hear. Maybe talk about the reason behind providing our limited I queries in the ethos plan. Is that proven by the lower cost?

Speaker Change: To run those queries, is it mainly, I think you were saying this kind of thing.

Speaker Change: I've been in the question before, maybe the Lord is learning the fiction of adoption.

Aaron Levie: And AI has provided just yet that additional catalyst that is turning out to be a very big component of the plan to get customers into that upgrade cycle. So really, in any particular deal, in this case of the law firm, you mentioned that I mentioned that in the remarks, this is really, again, the full portfolio of capabilities box sign included the potential use case of box hubs in the future. And so AI just becomes another kind of core foundational capability that gets that type of customer over the edge to getting a deal done.

Speaker Change: Maybe just the reason behind it, and then could there still be some avenue sounds like to monetize power uses on a consumption, is just trying to think how you'd manage the gross margins.

Speaker Change: Yeah, great. So, two factors for why we gave unlimited, and then I'll share one more factor in terms of future monetization. So, the first factor was we wanted to encourage, um...

Aaron Levie: So the first factor was we wanted to encourage the kind of most seamless and frictionless adoption of box AI. And what we were finding with some customers was not deploying box AI broadly as their sort of internal demand suggested because they were worried about running over their query limits. And that was kind of the opposite of why we decided to include Box AI into Enterprise Plus. So we really didn't like that friction that we were seeing from some, some, you know, limited customer deployments at the same time. And these are dependent on each other. I don't think we would be able to do this without the secondary factor.

Speaker Change: The...

Speaker Change: and the most seamless and frictionless adoption of Box AI.

Speaker Change: and what we were finding was some customers were not deploying Box AI's broadly as their internal demand. So, just because they were worried about running over their query limits, and that was kind of the opposite of why we decided to include Box AI in two enterprise plus. So, we really didn't like that friction that we were seeing from some limited customer to deployments. At the same time, and these are dependent on each other, I don't think we would be able to do this without the secondary factor. At the same time, we've seen the drop in costs of the underlying AI models.

Aaron Levie: We had a number of either renewals or upgrades in E plus in Q2 that were just further catalyzed by customers wanting access to box AI for all of their employees. If you kind of step back and you think about any kind of CIO or IT leader right now, they need to be able to have an AI strategy for their leadership team for the company, for the board of directors. And so we're making an extremely easy to say, okay, box is my intelligent content management platform based on the fact that box AI is included as a core component of the platform.

Aaron Levie: At the same time, we've seen the drop in costs of the underlying AI models by probably more or less an order of magnitude just in the past kind of 12 to 18 months. So, you know, the fact that GP40 mini is priced at a lower rate than whatever the leading models were just in the past couple of quarters is, you know, we're seeing breakthroughs on a very regularly basis in this space. So for us, the models themselves are improving at a rapid rate. The costs are dropping fairly precipitously. You know, competition is alive and well in the model space, that keeping all of the model providers on their toes.

Speaker Change: by probably more or less an order of magnitude just in the past 12 to 18 months. So the fact that GP4, Omnini, is priced at a lower rate than whatever the leading models were just in the past couple of quarters, we're seeing breakthroughs on a very regularly basis in this space.

Aaron Levie: And so we've just made it easier and easier for that to happen. Yeah, and this is Dylan, I just a build on that in terms of where you can really see the impact currently with our current set of offerings is in that suites attach rate and larger deals on our overall, you know, suites penetration, i.e, the revenue attributable to suites with both of those metrics that, you know, record highs and about 10 point year on year.

Speaker Change: So for us, the models themselves are improving at a rapid rate, the costs are dropping fairly precipitously, you know, competition is alive and well in the model space that's keeping all of the model providers on their toes, and that is something that we can then just benefit our customers with.

Aaron Levie: And that is something that we can then just benefit our customers with.

Aaron Levie: The other component is the monetization of more, let's say, excessive use or large volume use. So what we announced was our end user use cases for Box AI became uncapped. So if you're a user and you ask a question of a document or a set of documents, that's now included at an unlimited basis in the platform. If you want to do something with our APIs, so read through, you know, thousands of documents, power and onboarding process, extract metadata from a large amount of data, a large amount of content, that's on a per volume basis. So we will continue to monetize any of the kind of high volume use cases with AI using our platform and Box AI API monetization capabilities.

Aaron Levie: And then even going forward once we have our newer sets of offerings and AI capabilities, we still expect to see the biggest, the most direct impact from those AI capabilities driving yet another upgrade cycle to our highest tier plan as well as enterprise plus. And so we will be monetizing AI discreetly as well. And so that will be very clearly connected and directly attributable to AI queries, but we expect the majority of the impact to be coming from customers electing to move into higher tier.

Speaker Change: The other component is the monetization of more, let's say, excessive use or...

Speaker Change: Relage Volume News. So what we announced was our end user use cases for Box AI, or became uncapped.

Speaker Change: So, if you're a user and you ask a question of a document or a set of documents, that's now included at an unlimited basis in the platform. If you want to do something with our APIs, so read through thousands of documents, power and onboarding process.

Unknown Executive: Okay, perfect. Now, great to hear and appreciate all the extra detail there.

Unknown Executive: Thank you.

Speaker Change: Extract metadata from a large amount of content, that's on a prevailing basis. So we will continue to monetize any of the kind of high-volume use cases with AI using our platform and Box AI API monetization capabilities, and I mentioned the metadata aspect of that. That will only increase over time when you think about things like the Alpha Moon technology being baked in the box.

Aaron Levie: And I mentioned the metadata aspect of that. That will only increase over time when you think about things like the alpha moon technology being baked in the box. You'll see even more kind of high volume metadata extraction use cases. And we will monetize that separately. We still want to make sure that we are delivering very, very price competitive performance in that. So we want to make sure that we can, you know, get as much market share as possible, but not to the extent that it deludes, you know, the fundamental underlying margins of the company. Understood.

Pinjalim Bora: And your next question comes from the line of Pinjalim Bora. Your line is open. Oh, great. Thanks for taking the question. One question on the seat. You're talking about a little bit better. It seems like price per seat. Well, let's hear what are you seeing around kind of the seat growth trends at this point. Is that stabilizing? Any signals of seat growth improving? Yeah, so at your point, really, what we saw that uptick in our overall net retention rate was attributable to stronger pricing, which was in large part due to what we were just talking about around more and more customers electing to move to our highest tier enterprise plus plan, or by AI.

Speaker Change: You'll see even more kind of high volume metadata extraction use cases and we will monetize that separately. We still want to make sure that we are delivering very, very price competitive performance in that. So we want to make sure that we can get as much market share as possible, but not to the extent that it deludes.

Speaker Change: You know, the fundamental underlying margins of the company.

Pinjalim Bora: Thank you very much. Thank you.

Brian Peterson: Your next question comes from the line of Brian Peterson. Your line is open. Hey guys, congrats on the strong quarter.

Speaker Change: I'll just thank you very much.

Speaker Change: Thank you.

Speaker Change: Here next question comes from the line of Brian Peterson, your line is open.

Dylan Smith: So I'd be curious to hear how the demand environment evolves to the quarter or anything that you guys could share on linearity and what you're seeing so far in August. Yeah, so I think we saw a pretty healthy linearity in the quarter. So nothing, you know, kind of to speak of one way or another. And you know, our expectations are obviously have been embedded into our Q3 guidance and fully your guidance for what we're seeing right now for the rest of the year thus far. Great.

Brian Peterson: Hey guys, congrats on the truck order. So I'd be curious to hear how the demand environment involves to the quarter or anything that you guys can share on linearity and what you're seeing so far in August.

Pinjalim Bora: On the seat front, we are seeing a relatively stable dynamic in environment there. So, you know, we have been seeing continued pressure on overall seat expansion rates. And so while we do, you know, feel confident that those will improve over time, that was not a factor in the in the most recent net retention rates and that improvement to 102% that we just reported. Yep, understood. And one for you, Aaron, maybe talk about the reasoning behind providing unlimited AI queries in the E plus plan.

Speaker Change: Yeah, so I think we saw a pretty healthy linearity in the quarter, so nothing, you know, kind of just speak of one way or another and, you know, our expectations obviously have been embedded into our Q3 guidance and fully your guidance for what we're seeing right now for the rest of the year that's far.

Aaron Levie: Maybe just following up. I know Aaron; you called up the strength and public sector. Is there any use case or anything prevalent that's really driving that strength, and is it reasonable to correlate some of the AI products or higher price point plan there? Is that what's resonating? Just curious unpacking out of it. Thanks, guys.

Graham: Graham, maybe just following up, I know Aaron, you called up the strength and public sector. Is there any use case or anything prevalent that's really driving that strength? Is it reasonable to correlate some of the AI products or higher price point plans there? Is that what's resonating? Just curious to unpack that a bit. Thanks guys. Yeah, I think the overall message probably all taken together is producing that momentum. When you think about a traditional government agency, I think our brains may be, you know, instantly think of federal governments, but the state and local.

Pinjalim Bora: Is that driven by the lower cost to run those queries? Is it mainly, I think you were saying this in the question before maybe the Lord learning the friction of adoption, maybe just the reasoning behind it. And then could there still be some avenues sounds like to monetize our users on a consumption basis, just trying to think how you can manage the gross margins. Yeah, great.

Aaron Levie: Yeah, I think the overall message, probably all taken together, is producing that momentum. When you think about a, you know, traditional government agency, you know, I think our brains maybe instantly think of federal government, but the state and local spaces is very vast, you know, highly decentralized lots of legacy systems. And these are environments where they're running mission-critical work for for their state in whatever capacity that agency is operating in. And they're often on legacy document management and storage technology. And so our platform is really representing a the first time in many cases where. Because of compliance and security reasons, they're able to now move to the cloud and be able to do at scale enterprise content management with intelligence baked in to power modern experiences for their constituents and citizens and ecosystems. So that message is now really resonating.

Speaker Change: Space is very vast, you know, highly decentralized lots of legacy systems and...

Aaron Levie: So, two factors for why we gave unlimited and then I'll share one more factor in terms of future monetization. So the first factor was we wanted to encourage the kind of most seamless and frictionless adoption of box AI. And what we were finding with some customers were not deploying box AI broadly as they're sort of internal demand suggested because they were worried about running over their query limits. And that was kind of the opposite of why we decided to include box AI into enterprise plus.

Speaker Change: These are environments where they're running mission critical work for their state and whatever capacity that agency is operating in.

Aaron Levie: So we really didn't like that friction that we were seeing from some, you know, limited customer deployments at the same time. And these are dependent on each other. I don't think we would be able to do this without the secondary factor. At the same time, we've seen the drop in cost of the underlying AI models by probably more or less an order of magnitude just in the past kind of 12 to 18 months.

Speaker Change: and they're often on legacy document management and storage technology and so our platform is really representing a the first time in many cases where because of compliance and security reasons they're able to now move to the cloud.

Speaker Change: and be able to do at-scale enterprise content management with intelligence baked in to power modern experiences for their constituents and citizens and ecosystems.

Aaron Levie: We've been building up our public sector efforts again in addition to federal at the state and local level as well. And so we've seen. I think some really nice balance success across both federal and SLED, you know, internally. And then equally on the federal side, you know, we continue to see large agencies and departments look toward boxes, a modern way to deliver intelligent content management in their environment. And so AI is a part of it.

Speaker Change: So that message is now really resonating. We've been building up our public sector efforts again in addition to federal at the state and local level as well. And so we've seen I think some really nice balance success across.

Speaker Change: Both Federal and Sled internally and then equally on the federal side, we continue to see large agencies and departments look toward boxes a modern way to deliver intelligent content management in their environment. So AI is a part of it, but I think in the case of the government, there's so much modernization that is possible that the whole platform story is very, very compelling. And then the only additional piece this is we're not generating revenue from this yet.

Aaron Levie: So, you know, the fact that GP40 mini is priced at a lower rate than whatever the leading models were just in the past couple of quarters is, you know, we're seeing breakthroughs on a very regularly basis in this space. So for us, the models themselves are improving at a rapid rate. The costs are dropping fairly precipitously. Competition is alive and well in the model space that's keeping all of the model providers on their toes.

Aaron Levie: But I think in the case of the government, there's so much modernization that is possible that the whole platform story is very, very compelling. And then the only additional piece, this is we're not generating revenue from this yet. So it's more upside in the future. But we are going through the federal and high process that will open up yet another set of use cases for our federal customers for much more, you know, kind of sensitive data. So right now we're in the federal Federal Marketplace in process for our high applications. You can see that right on the federal website to great momentum on the compliance certification process there.

Speaker Change: So it's more upside in the future, but we are going through the federal ramp high process. That will open up yet another set of use cases for our federal customers, for much more, you know, kind of a sensitive data. So right now we're in the federal federal market place in process for our high applications. So you can see that right on the federal ramp website to great momentum on the compliance certification process there.

Aaron Levie: And that is something that we can then just benefit our customers with. The other component is the monetization of more, let's say, excessive use or large volume use. So what we announced was our end user use cases for box AI would became uncapped. So if you're a user and you ask a question of a document or a set of documents, that's now included at an unlimited basis in the platform. If you want to do something with our APIs, so read through, you know, thousands of documents, power and onboarding process, extract metadata from a large amount of data, a large amount of content, that's on a per volume basis.

Brian Peterson: Appreciate the color. Thanks, Eric. Yeah, thanks.

Jason Ader: And your next question comes from a line of Jason Ader. Your line is open. Yeah, thank you. Good afternoon, guys. I just wanted to ask, as we think about the next couple of years, what, from your perspective, is the growth algorithm to get you back to double-digit growth? Smith, and as part of that question, just wondering if what your thoughts are on maybe taking a few points out of operating margin to drive top line growth. You think that is a potential way to boost the top line? Yeah, so it would say, you know, at a high level as we think about getting, you know, from our, you know, kind of normalize constant currency, you know, pushing into the high single-digit growth.

Speaker Change: Thank you. Thank you. Thank you.

Speaker Change: and your next question comes from a line of Jason Aether, your line is open.

Jason Aether: Yeah, thank you. Good afternoon, guys. I just wanted to ask as we think about the next couple of years, what from your perspective is the growth algorithm to get you back to double as you grow.

Aaron Levie: So we will continue to monetize any of the kind of high volume use cases with AI using our platform and box AI API monetization capabilities. And I mentioned the metadata aspect of that. That will only increase over time when you think about things like the alpha moon technology being baked in the box, you'll see even more kind of high volume metadata extraction use cases and we will monetize that separately. We still want to make sure that we are delivering very, very price competitive performance in that.

Speaker Change: and as part of that question, just wondering if what your thoughts are on maybe taking a few points out of operating margin to drive top line growth, you think that is a potential way to boost the top line.

Aaron Levie: So we want to make sure that we can, you know, get as much market share as possible, but not to the extent that it deludes, you know, the fundamental underlying margins of the company. Understood. Thank you very much.

Speaker Change: Yeah, so it would say, you know, at a high level as we think about getting, you know, from our, you know, kind of normalized, con concurrency, you know, pushing into the high single digit growth, you know, range where we are currently, you know, moving up to the double digit range. We do think the majority of that is going to be coming through and show up in our network tension rates as that moves up a few points.

Dylan Smith: If you know, range where we are currently, you know, moving up into the double digit range, we do think the majority of that is going to be coming through and show up in our net retention rates as that moves up a few points, and would expect, you know, at that stage in, you know, in the coming years, as the macro environment, you know, kind of returns a bit more to normal to see a pretty balanced contribution between seat growth and pricing over the past several years. So, you know, in terms of the overall recorders, it's been much more, you know, weighted toward pricing improvements, as we mentioned. But we would expect to see a healthier mix, sorry, a more radical mix over time, both driven from the macro economic improvement, but also as you think about the impact that a lot of the newer initiatives and use cases that that opens up will enable us to sell the customers. So that's what we expect the majority of the improvement. But at the same time, you know, there's some, you know, markets internationally, you know, we've talked about a Mia in the past, where I think we're kind of seeing, you know, less contribution to the business and growth currently versus the opportunity, and some other emerging markets that we will think would contribute, you know, a little bit more to the net new logo and net new customer growth part of the equation as well.

Unknown Executive: Thank you.

Brian Peterson: Your next question comes from the line of Brian Peterson. Your line is open. Hey guys, congrats on the strong quarter. So I'd be curious to hear how the demand environment evolves to the quarter or anything that you guys could share on linearity and what you're seeing so far in August. Yeah, so I think we saw a pretty healthy linearity in the quarter. So nothing, you know, kind of to speak of one way or another.

Speaker Change: and would expect, you know, at that stage in, you know, in the coming years, as the macro environment, you know, kind of returns a bit more to normal to see a pretty balanced contribution between seat growth and pricing. Over the past several quarters, it's been much more, you know, weighted toward pricing improvements, as we mentioned, but we would expect to see a healthier mix, or sorry, a more radical mix over time. Both driven from the macro economic improvement, but also, as you think about the impact that a lot of the newer initiatives and use cases that that opens up will enable us to sell the customers. So that's where we expect the majority of the improvement, but at the same time.

Brian Peterson: And, you know, our expectations are obviously have been embedded into our Q3 guidance and fully your guidance for what we're seeing right now for the rest of the year thus far. Great, and maybe just following up, I know Aaron, you called up the strength and public sector. Is there any use case or anything prevalent that's really driving that strength and is it reasonable to correlate some of the AI products or higher price point plan there?

Brian Peterson: Is that what's resonating? Just curious unpacking out of it. Thanks guys. Yeah, I think the overall message, probably all all taken together is producing that momentum. When you think about a, you know, traditional government agency, you know, I think our brains maybe instantly think of federal government, but the state and local spaces is very vast, you know, highly decentralized lots of legacy systems and these are environments where they're running mission critical work for for their state in whatever capacity that agency is operating in. And they're often on legacy document management and storage technology.

Speaker Change: You know, there's some, you know, markets internationally, you know, we've talked about a mea in the past, where they were, you kind of seeing, you know, less contribution to the business and growth currently, you know, versus the opportunity and some other emerging markets that we will think would contribute.

Speaker Change: Little bit more to the net new logo and net new customer growth part of the equation as well. So those are kind of the big buckets and can certainly drill into any of those other areas. And then it relates to the gross versus profitability balance.

Dylan Smith: So, those are kind of the big buckets and can certainly drill into any of those other areas, and then as it relates to the, you know, kind of growth versus profitability, you know, balance, certainly exactly where we land, you know, in any given year it's going to be a function of exactly that balance, and as we see, you know, a lot of the investments we're making like we are today, you know, really paying off, we'll continue to invest, and so I think you'll see, you know, as we have those proven signs of success, that we may, you know, kind of change the mid shift of how we improve that, you know, rule of equation between revenue growth and profitability, but we're very confident that we'll, you know, that we will be able to continue to expand our bottom line, you know, regardless of the growth rate just because a lot of the initiatives that are well underway, that we have a lot more juice to squeeze out of that we've talked through in the past.

Aaron Levie: And so our platform is really representing a the first time in many cases where because of compliance and security reasons, they're able to now move from the cloud and be able to do at scale enterprise content management with intelligence baked in to power modern experiences for their constituents and citizens and ecosystems. So that message is now really resonating. We've been building up our public sector efforts again in addition to federal at the state and local level as well.

Speaker Change: and certainly exactly where we land, you know what I'm going to give in here is going to be a function of exactly that balance. And as we see, you know, a lot of the investments we're making like we are today, you know, really paying off, we'll continue to invest. And so I think you'll see, you know, as we have those proven signs of success that we may, you know, kind of change the mixture of how we improve that, you know, rule of equation between revenue growth and profitability. But we're very confident that we will be able to continue to expand our bottom line. You know, regardless of the growth rate, just because a lot of the initiatives that are well underway, that we have a lot more juice to squeeze out of that we've talked through in the past.

Aaron Levie: And so we've seen, I think some really nice balance success across both federal and fled, you know, internally. And then equally on the federal side, you know, we continue to see large agencies and departments look toward boxes a modern way to deliver intelligent content management in their environment. And so AI is a part of it.

Dylan Smith: Thank you, and then one quick follow-up just on the M&A that you've gone to shares. Are there any impacts on either revenue or EPS from these two acquisitions? Yeah, so I would say no impact on the revenue sides, you know, so not bringing any of that over, you know, from Althamune, for example, and then those are embedded in the guidance that we provided. And just to get a sense of scale with the Althamune acquisition, we're bringing in, or we brought in, about 15 engineers to join the box team, but that's all, you know, kind of well incorporated.

Aaron Levie: But I think in the case of the government, there's there's so much modernization that is possible that the whole platform story is very, very compelling. And then the only additional piece, this is we're not generating revenue from this yet. So it's more upside in the future. But we are going through the FedRAMP high process that will open up yet another set of use cases for our federal customers for much more, you know, kind of sensitive data.

Speaker Change: Thank you, and then one quick follow up just on the M&A that you've done this year is already in fact, I'm either revenue or EPS from these two acquisitions.

Speaker Change: Yes, so we would say no impact on the revenue side. So not bringing any of that over from Alpha Moon, for example, and then those are embedded in the guidance that we provided, and just to get a sense of scale with the Alpha Moon acquisition, we'll bring in and we brought in about 15 engineers to join the box team.

Aaron Levie: So right now we're in the federal FedRAMP marketplace in process for our high applications. You can see that right on the FedRAMP website to great momentum on on the compliance certification process there. Appreciate the color. Thanks, Eric. Yeah, thanks.

Jason Ader: And your next question comes from a line of Jason Ader. Your line is open. Yeah, thank you.

Jason Ader: And the expectations will be... Thank you. Good luck.

Speaker Change: But that's all, you know, kind of well incorporated into the expectations we set.

Taylor McGinnis: Thanks. And your next question comes from the line of Taylor McGinnis. Your line is open.

Speaker Change: Thank you, good luck.

Speaker Change: Thanks.

Speaker Change: and your next question comes from the line of Taylor McGinnis, your line is open.

Dylan Smith: Yeah, I think much for a particular question. So the first one is just I look at the revenue guide and provide me an exciting acceleration and fork you and I know in the prepared remarks there were some comments about an accelerating growth outlook. So, with the booking momentum, we saw more stabilization of demand, demand environment, and tailwind from some of the emerging areas like Box AI. Does any color you can provide on how we should think about that exit rate as a leading indicator into next year and the comfort in the drivers behind that. Yeah, so it's actually, you know, what we do expect to see, you know, that top line acceleration over time and are seeing some of those early signals of success and a lot of the initiatives that were intended that are intended to drive that.

Dylan Smith: Good afternoon, guys. I just wanted to ask as we think about the next couple of years, what, what from your perspective is the growth algorithm to get you back to double digit growth? Jeff, and as part of that question, just wondering if what your thoughts are on maybe taking a few points out of operating margin to drive top line growth, do you think that is a potential way to boost the top line?

Taylor McGinnis: Yeah, I think it's much better for taking my questions, so the first one is just I look at the revenue guide and implies an exciting, exciting acceleration and forks you and I know in the prepared remarks, there were some comments about an accelerating growth outlook, so with the booking is momentum, we saw more stabilization demand, environment and tailwind from some of the emerging areas like Box AI. Does any color you can provide on how we should

Speaker Change: Think about that exit rate as leading indicator into next year and the comfort in the drivers behind that.

Dylan Smith: Yeah, so would say, you know, at a high level as we think about getting, you know, from range where we are currently, you know, moving up to the double-digit range, we do think the majority of that is going to be coming through and show up in our net retention rates as that moves up a few points and would expect, you know, at that stage in, you know, in the coming years as the macro environment, you know, kind of returns a bit more to normal to see a pretty balanced contribution between seat growth and pricing over the past several quarters, it's been much more, you know, weighted toward pricing improvements as we mentioned, but we would expect to see a healthier mix, sorry, a more radical mix over time, both driven from the macro economic improvement, but also as you think about the impact that a lot of the newer initiatives and use cases that that opens up will enable us to sell to customers. So that's where we expect the majority of the improvement, but at the same time, you know, there are some, you know, markets internationally, you know, we've talked about AMIA in the past, where we're kind of seeing, you know, less contribution to the business and growth currently versus the opportunity and some other emerging markets that we will think would contribute, you know, a little bit more to the net new logo and net new customer growth part of the equation as well.

Speaker Change: Yeah, so it's actually, you know, what we do expect to see, you know, that top-line acceleration over time, and are seeing some of those, you know, early signals of success.

Dylan Smith: I would say that while the back half of this year, you know, we are expecting to see, you know, stronger growth and in Q4, you know, to your question specifically, but I'd also note that, you know, that we expect to see a little bit less of an FX headwind in Q4 just because of how rates have recently moved and, you know, how they moved throughout the year. So actually, there's not too much of a difference in terms of the constant currency growth that we expect in the back half first of the first half. And in terms of a, you know, kind of underlying, you know, growth through the business, you know, you look at again, kind of the constant currency, you know, growth outlook and provided for Q4 for the full year to get a sense of that.

Speaker Change: and a lot of the initiatives that were intended that are intended to drive that would say that while the back after this year, we are expecting to see stronger growth and then Q4 to your questions specifically, but I'd also note that we expect to see a little bit less of an FX headwind in Q4 just because of how rates have recently moved and how they moved throughout the year. So, actually there's not too much of a difference in terms of the constant currency growth that we expect and the back cap versus the first half. And in terms of a underlying growth through the business, you look at again kind of the constant currency growth outlook that we've provided for Q4 for the full year.

Dylan Smith: But we'll certainly provide a lot more color into what we're seeing and specific expectations for next year, you know, which were, you know, a bit, a bit deeper into the year.

Speaker Change: To get a sense of that, but we'll certainly provide a lot more color into what we're seeing and specific expectations for next year, you know, which were a bit deeper into the year.

Taylor McGinnis: Perfect.

Dylan Smith: And then my second one is just if we look at the net add for the greater than 100 K customers, that looked pretty strong this past quarter. So just when you think about what like the main drivers of that, whether that we have been better execution box AI, I guess, what would you attribute that to? And as we think about that metric going forward, any, you know, expectations that you guys have on your own there. Thanks. Yeah, so we're not guiding to a particular metric on, you know, an increase on that front, but overall, we were really happy with Q2's performance in those deals.

Speaker Change: Perfect. And then my second one is to quickly look at the net ad for the greater than 100k customers. It looks pretty strong this task quarter. So just when you think about what like the main driver's of that, whether that could have been better execution, box AI, I guess what would you attribute that to? And as we think about that method going forward, any expectations that you guys have on your end there. Thanks.

Dylan Smith: So those are kind of the big buckets and can certainly drill into any of those other areas, and then as it relates to the, you know, kind of growth versus profitability, you know, balance, certainly exactly where we land, you know, in any given year it's going to be a function of exactly that balance, and as we see, you know, a lot of the investments we're making like we are today, you know, really paying off, we'll continue to invest, and so we may, you know, kind of change the mid shift of how we improve that, you know, rule of equation between revenue growth and profitability, but we're very confident that we'll, you know, that we will be able to continue to expand our bottom line, you know, regardless of the growth rate, just because a lot of the initiatives that are well underway, that we have a lot more use to squeeze out of that we've talked through in the past.

Speaker Change: We're not guiding to a particular metric on increase on F-run, but overall we were really happy on Q2's performance in those deals. I think the general trend is again, customers.

Dylan Smith: I think, you know, the general trend is again, customers really gaining access to Box AI through Enterprise Plus. It really becomes another component that kind of tips the scale in favor of doing the enterprise plus upgrade in addition to Box Shield for advancing data security or Box Governance for. For better governing your content or some of our more advanced box sign functionality, and you'll just continue to see this be a trend as we add additional capabilities into higher tier plans in the future. We'll be able to go and drive another upgrade cycle beyond the Enterprise Plus plan, but right now that's the main contributor to our hundred plate 100 K plus deals.

Speaker Change: really getting access to Box AI through Enterprise Plus.

Speaker Change: It really becomes another component that kind of tips the scale and favor of doing the enterprise plus upgrade in addition to box shield for advancing data security or box governance for.

Speaker Change: for better governing your content or some of our more advanced box science functionality. And you'll just continue to see this be a trend. As we add additional capabilities into higher tier plans in the future, we'll be able to go and drive another upgrade cycle beyond the enterprise plus plan. But right now, that's the main contributor to our 100K plus deals.

Rishi Jaluria: Thank you. And your final question comes from the line of Rishi, Jaluria; your line is open. Oh, wonderful. Thanks so much for taking my question. Maybe I just wanted to start off by thinking about kind of the benefits on margins that you've seen from data center sales. Can you just remind us what are the specific quantification that we've seen on the whole year and you know how much of that is extra that you're going to this quarter versus last quarter. What was that already contemplated in the prior full year margin graduate gave when I have a quick follow.

Speaker Change: Thank you.

Speaker Change: and your final question comes from the line of Rishi Jalluria, your line is open.

Dylan Smith: Thank you, and then one quick follow-up just on the M&A that you've gone this year is already impact on either revenue or EPS from these two acquisitions. Yeah, so it would say no impact on the revenue sides, you know, so not bringing any of that over, you know, from Althamune, for example, and then those are embedded in the guidance going to be provided, and just to get a sense of scale with the Althamune acquisition, we're bringing in, or we brought in about 15 engineers to join the box team, but that's all, you know, kind of well incorporated into the expectations. Thank you.

Rishi Jalluria: Oh wonderful thanks so much for taking my question. Maybe I just wanted to start off by thinking about...

Unknown Executive: Good luck. Thanks.

Speaker Change: Kind of the benefits on margins that you've seen.

Speaker Change: from Data Center Sales. Can you just remind us of what is this specific quantification that we've seen on the full year? And, you know, how much of that is extra that you're guiding to this quarter versus last quarter? What was that already contemplated in the prior full year margin-daggered gave when I have a quick follow-up?

Dylan Smith: Yeah, so for this year, those sales represent about a 60 basis point tailwind to both gross and operating margin in both Q2 and Q3. So, for the full year, you think about it as roughly 30 basis points or so. And that was kind of incremental, you know, relative to our expectation. Entering the year. So that was upside because of, you know, our ability to execute against that. So is all of that baked into our, the guidance to be provided today, but was not incorporated into our prior rights. Got a thanks. That's really helpful.

Speaker Change: Yeah, so for this year, those sales represent about a 60 basis point.

Speaker Change: Tailwind, to both gross and operating margin in both Q2 and Q3. So for the full year, you think about it as roughly 30 basis points or so. And that was kind of incremental relative to our expectations entering the year. So that was upside because of our building and executing in that. So, all of that is based into the guidance that we provided today, but was not incorporated into our prior guidance.

Taylor McGinnis: And your next question comes from the line of Taylor McGinnis. Your line is open. Yeah, I think much for a particular question.

Dylan Smith: So the first one is just, look, it's a revenue guide. It implies an exciting acceleration and pork you. And I know in the prepared remarks, there were some comments about an accelerating growth outlook. So with the bookings momentum, we saw more stabilization of demand, demand environment and tailwinds from some of the emerging areas like Box AI. Does any color you can provide on how we should think about that exit rate as a leading indicator into next year and the comfort in the drivers behind that.

Dylan Smith: And then I want to ask a question on Japan. So you talk, it sounds like you're seeing an improvement or an off-tick in bookings in Japan. Maybe can you walk us through what is driving that because you did have a woman to slow down in the past. Sounds like things are getting better, which is great to see. Maybe walk us through kind of, was there any changes you made as a macro environment, anything else. Thanks. Yeah, Japan performance, we, it continues to be strong as we've kind of mentioned that they remain a steady part of our business and we've called out in the past, you know, significant remaining upside across the Japanese market, given the kinds of industries that were still pretty early in penetration, penetrating so things like financial services, pharmaceuticals, the federal and government spaces in Japan.

Speaker Change: We've got a thanks, that's really helpful and then I want to ask you a question on Japan. So you talk, it sounds like you're seeing an improvement or an uptick in bookings in Japan. Maybe you can walk us through what is driving that because you did have a woman to slow down in the past. Some of the things are getting better, which is great to see. Maybe walk us through kind of, was there any changes you made? Is it the macro environment or anything else? Thanks.

Dylan Smith: Yeah, so it's actually, you know, what we do expect to see, you know, that top line acceleration over time and are seeing some of those, you know, early signals of success and a lot of the initiatives that were intended that are intended to drive that. Would say that while the back half of this year, you know, we are expecting to see, you know, stronger growth and in Q4, you know, to your question specifically, but I'd also note that, you know, that we expect to see a little bit less of an FX headwind in Q4 just because of how rates have recently moved and, you know, how they moved throughout the year.

Speaker Change: Yeah, Japan performance, it continues to be strong as we've kind of mentioned that they remain a study part of our business and we've called out.

Speaker Change: in the past, you know, significant remaining upside.

Speaker Change: across the Japanese market, given the kind of industries that were still pretty early in penetration, penetrating, so things like financial services.

Dylan Smith: So actually there's not too much of a difference in terms of the constant currency growth that we expect in the back half first of the first half. And in terms of a, you know, kind of underlying, you know, growth through the business, you know, you look at, again, kind of the constant currency, you know, growth outlook and provided for Q4 for the full year to get a sense of that.

Speaker Change: Pharmaceuticals, the federal and government spaces in Japan. So lots of upside we still believe across Japan and you know, they have been major adopters of early adopters of our box AI functionality.

Aaron Levie: And so lots of upside, we still believe across Japan and, and, you know, they have been major adopters of early adopters of our box AI functionality. So this is a market that is extremely interested in AI and really bring more automation to their content use cases. So I think, you know, they've been relatively stable on the macro front. Obviously, we, we just see, you know, continued upside in, in the kinds of industries that we saw a lot of room to, to work in. All right, wonderful.

Dylan Smith: But we'll certainly provide a lot more color into what we're seeing and specific expectations for next year, you know, which were, you know, a bit, a bit deeper into the year. Perfect.

Speaker Change: So this is a market that is extremely interested in AI and really being bring more automation to their content use cases.

Speaker Change: So I think they've been relatively stable on the macro front, obviously we're, we just see, you know, continue it upside in the kinds of industries that we saw a lot of room to work in.

Dylan Smith: And then my second one is just if we look at the net ad for the greater than 100k customers that looked pretty strong this past quarter. So just when you think about what like the main drivers of that, whether that we have been better execution box AI, I guess what would you attribute that to? And as we think about that metric going forward, any, you know, expectations that you guys have on your own there.

Rishi Jaluria: Thank you. Yeah, thanks.

Cynthia Hiponia: And that concludes our question-and-answer session.

Speaker Change: All right, wonderful. Thank you. Good, thanks.

Cynthia Hiponia: I would now like to turn the conference back over to Cynthia Hipponia for closing remarks. Great. Thank you, everyone, for joining us today, and we look forward to updating you again on our next call.

Speaker Change: and that concludes our question and answer session. I would now like to turn the conference back over to Cynthia Hiponia for closing remarks.

Dylan Smith: Thanks. Yeah, so we're not guiding to a particular metric on, you know, increase on that front, but overall we were really happy on Q2's performance in those deals. I think, you know, the general trend is, again, customers really gaining access to box AI through Enterprise Plus. It really becomes another component that kind of tips the scale and favor of doing the Enterprise Plus upgrade in addition to box shield for advancing data security or box governance for better governing your content or some of our more advanced box sign functionality.

Cynthia Hiponia: Great, thank you everyone for joining us today and we look forward to updating you again on our next call.

Operator: Ladies and gentlemen, that concludes today's call, and we thank you for your participation. You may now disconnect.

Speaker Change: Ladies and gentlemen, that concludes today's call and we thank you for your participation. You may now disconnect.

Speaker Change: [inaudible]

Dylan Smith: And you'll just continue to see this be a trend as we add additional capabilities into into higher tier plans in the future. We'll be able to go and drive another upgrade cycle beyond the Enterprise Plus plan, but right now that's the main contributor to our 100 K plus deals. Thank you.

Rishi Jaluria: And your final question comes from the line of Rishi, Jaluria. Your line is open. Oh, wonderful. Thanks so much for taking my question. Maybe I just wanted to start off by thinking about. Kind of the benefits on margins that you've seen from data center sales. Can you just remind us what are the specific quantification that we've seen on the whole year? And, you know, how much of that is extra that you're guiding to this quarter versus last quarter?

Rishi Jaluria: What was that already contemplated in the prior full year Mars graduate gave when I have a quick follow? Yeah, so for this year, those sales represent about a 60 basis point tailwind to both gross and operating margin in both Q2 and Q3. So for the full year, you think about it as roughly 30 basis points or so. And that was kind of incremental relative to our expectations entering the year. So that was upside because of our ability to execute against that. So all of that is baked into the guidance that we provided today, but was not incorporated into our prior writings. Got a thanks. That's really helpful.

Dylan Smith: And then I wanted to ask a question on Japan. So you talk, it sounds like you're seeing an improvement or an uptick in bookings in Japan. Maybe can you walk us through what what is driving that because you did have a woman to slow down in the past. Sounds like things are getting better, which is, which is great to see.

Aaron Levie: Maybe walk us through kind of was there any changes you made as a macro environment, anything else. Thanks. Yeah, Japan performance. We continue to be strong as we've kind of mentioned that they remain a steady part of our business and we've called out in the past, you know, significant remaining upside across the the Japanese market, given the kinds of industries that were still pretty early in penetration, penetrating so things like financial services, pharmaceuticals, the federal and government spaces in Japan.

Aaron Levie: And so lots of upside, we still believe across Japan, and they have been major adopters of early adopters of our box AI functionality. So this is a market that is extremely interested in AI and really bring more automation to their content use cases. So I think, you know, they've been relatively stable on the macro front. Obviously were, we just see, you know, continued upside in in the kinds of industries that we saw a lot of room to work in.

Unknown Executive: Wonderful. Thank you. Yeah, thanks.

Cynthia Hiponia: And that concludes our question and answer session.

Cynthia Hiponia: I would now like to turn the conference back over to Cynthia Hipponia for closing remarks. Great. Thank you, everyone, for joining us today and we look forward to updating you again on our next call.

Abby: Ladies and gentlemen, that concludes today's call and we thank you for your participation.

Abby: You may now disconnect.