Q1 2026 Box Inc Earnings Call
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Krista: Ladies and gentlemen, thank you for standing by my name is Krista and I will be your conference operator today at this time I would like to welcome everyone to the box Inc. First quarter fiscal 2026 earnings conference call. All lines have been placed on mute to prevent any background noise.
Krista: The Speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you liked withdraw that question again press star one and I would now like the.
Cynthia: I would now like to turn the conference over to Cynthia <unk>, Vice President Investor Relations. Please go ahead.
Good afternoon, and welcome to boxes first quarter fiscal 2026 earnings conference call I Am Cynthia Ponyo, Vice President Investor Relations on the call today, we have Aaron Levie box co founder and CEO and Dylan Smith, <unk> co founder and CFO.
Krista: In 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 Dotcom, our webcast will be audio only however, supplemental slides are now available for download from our website.
Krista: On this call, we will be making forward looking statements, including our second quarter and full year 2026 financial guidance and our expectations regarding our financial performance for fiscal 2026th in future periods, including gross margins operating margins operating leverage future profitability net retention rates remain.
Krista: Performance obligations revenue and billing and the impact of foreign currency exchange rates and deferred 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 margin and other operating model targets.
Krista: I mean in market adoption of and benefits from our new products pricing models and partnership.
Krista: Our ability to address enterprise challenges and deliver cost savings for our customers.
Krista: Impact of the macro environment on our business and operating results and our capital allocation strategies, including potential repurchase of our common stock.
Krista: These statements reflect our best judgment based on factors currently known to us and actual events or results may differ materially. Please refer to our earnings press release filed today and the risk factors and documents, we filed with the SEC, including our most recent annual report on Form 10-K for information on risks and uncertainties.
Krista: That may cause actual results to differ materially from statements made on this earnings call.
Krista: These forward looking statements are being made as of today may 27th 2025, and we disclaim any obligation to update or revise them should they change or cease to be up to date.
Krista: In addition, during today's call we will discuss our non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release.
Krista: Please and in the related supplemental slides, which can be found on the IR page of our website.
Krista: Unless otherwise indicated all references to financial measures on a non-GAAP basis. Thank you and with that let me turn the call over to Erin.
Erin: Thank you Cynthia and thank you all for joining the call today.
Erin: We had a strong start to FY 'twenty with results, reflecting continued growth in customer demand for box AI in Q1, our revenue grew 4% year over year or 5% in constant currency <unk> grew 21% year over year.
Krista: And we saw strong outperformance on billings.
Krista: We delivered operating margins of 25, 3% and EPS was <unk> 34 cents above our guidance. Following the launch of enterprise advanced late in Q4, and Q1, we saw strong momentum in customer adoption as enterprises look to box to help them transform their AI driven workflows around content.
<unk> include a leading University hospital upgraded to enterprise advanced and significantly expanded their box seats.
Krista: Currently content is siloed across the organization and the aim to make box their single source of truth, while unlocking value through box apps and AI driven metadata extraction.
And investment advisory firm, who has already been leveraging the box AI API for metadata extraction upgraded to enterprise advance to expand their use of diverse AI models through the box AI studio.
Krista: We also plan to use box apps dashboards to manage and organize critical business information more strategically and leverage Dr. Chen to further streamline operations.
A financial services firm and a new box customer purchased enterprise advanced to modernize and secure their critical business data by moving from an outdated on Prem system to box.
Erin: Looking to improve their control over sensitive content for personally identifiable information enhance their user experience and optimize their retention strategy. They needed a scalable compliant platform supporting loan origination HR and legal functions.
Erin: In the first quarter I had the opportunity to meet with well over 100 customers and it's incredibly clear that there is a fundamental shift in what business will look like in an AI first world. In fact tomorrow. We are releasing our first date of AI in the Enterprise survey, where we recently surveyed over 1300 IC leaders across.
A range of industries and geographies.
Erin: And then half of the respondents expect to see transformation from AI in the next two years and nearly 90% are already using AI agents in some capacity.
Erin: And many of the top desired use cases for AI around working with documents and unstructured data.
Erin: What's clear is that as companies increasingly go AI first they are beginning to rethink how they can take advantage of their enterprise content from their contracts and invoices to their research data and marketing assets for years. The value of this content has been limited to only what humans can do with this information.
Erin: Which means most companies have never been able to truly tap into the full value of this information.
Erin: But in a world of AI and AI agent. This finally becomes possible.
Erin: Inside all of this information are the answers to our company's next product breakthrough their customer upsell opportunities.
Erin: They can hire amazing new talent or optimize their supply chains.
Erin: AI agents make this all possible.
Erin: At box, we're building out the leading intelligent content management platform to help enterprises fully connected the power of AI to their content.
Erin: Now to deliver on this strategy at our content plus AI summit in mid May we announced our biggest set of AI agent updates ever designed to transform how organizations work with their content.
Erin: We unveiled all new capabilities to support AI agent that can do deep research search and enhanced data extraction on content securely and box and all with a focus on openness and interoperability.
Imagine being able to have AI agents that can comb through any amount of your unstructured data contracts research documents marketing assets film scripts financial documents invoices and more to produce insights or automate work.
Erin: Box AI agents will enable enterprises to streamline a due diligence process on hundreds or thousands of documents in an M&A transaction correlate customer trends amongst customer surveys in product research data or annualized life Sciences, and medical research documents to generate reports on new drug discovery and development.
Erin: None of this would've been possible, even a year ago.
Erin: But with the cost of AI inference, dropping context windows expanding to support larger datasets reasoning models handling much more complex tasks and better understanding designing agentic workflows. This all of a sudden becomes possible.
Erin: Next we believe in a world, where AI agents work together to complete tasks across platforms.
So this means that an AI agent from box can work across an enterprise's entire AI stack.
Krista: In addition to our newly announced box AI agent for Microsoft 365, Copilot and IBM Watson ex orchestrate bots AI agents are available or in development with Google agent space Salesforce agent Force Slack AI service now AI agent fabric and the zoom AI companion.
Krista: Developers can also build custom agents that leverage box content using the box MCP server, the Google agent SDK and opening eyes, Asians SDK as well as through their preferred developer and data platforms.
Krista: Building on these recent announcements just last week chat GBT officially integrated box as a secure connected data source for their deep research AI agent.
Krista: Now instead of moving your data around between each platform that you want to work in you can just work where you want and have the AI agents coordinate together in the background to get the data that you need from box.
Krista: This is the future of software in an era of AI.
Krista: Finally, we will continue to partner with the broader AI model ecosystem to ensure customers have the choice of any model provider they want to work with <unk>.
Krista: Just in Q1 alone we saw incredible examples of us sitting at the center of this industry such as the recent Nvidia GTC keynote from Jensen mentioning box box joining open AI as a launch partner for their agent SDK.
Krista: Showcasing box and IBM support for Lama at their latest AI developer events box.
Krista: <unk>, serving as a day one <unk> three API launch partner with X AI and many more.
Krista: Being neutral to the AI models means that our customers get instant access to the best that AI has to offer on their content instead of having to keep their data stuck with just one particular AI provider and this partner momentum will only increase in Q2 and beyond.
Krista: Over the coming months, we'll be gearing up for box works in September which will include our biggest and most exciting announcements we've ever had on this platform.
Krista: This is the year of AI agents and the ability to drive automation around any kind of workflow with AI and box will be building out the leading capabilities to help our customers do this with their enterprise content at scale, we look forward to sharing more in early September at box works.
Krista: Now turning to go to market, we're continuing to drive enterprise advanced momentum across segments and geographies.
Krista: Even after the large number of early adopters, we saw in Q4 bring on enterprise advance. We were pleased to see the continued growth in deals in Q1, our seasonally lowest quarter.
Krista: With a strong pipeline continuing to build as customers look to drive intelligent workflows in box.
Krista: Additionally, we're continuing to drive pricing improvements and our target 20% to 40% increase range for these enterprise advanced deals.
Krista: As we've discussed one of our key initiatives to drive growth is to expand and grow our partner ecosystem, particularly with global and regional system integrators. In Q1, we're already seeing solid momentum in customer wins enabled by our partners.
Krista: After announcing our partnership with data bank in March we had a great win with a local government upgrading to enterprise advanced to replace legacy enterprise content management system.
Krista: We also partnered with regional size and financial services and life Sciences with partnered enabled deals to replace legacy systems and automate processes to deliver secure compliant solutions that are well suited for regulated environments.
Krista: Also in the first quarter, we were excited to announce that we received fed ramp high authorization, allowing U S government agencies and authorized government contractors the ability to leverage boxes intelligent content management platform for highly sensitive data.
Speaker Change: Finally, before I turn the call over to Dylan, Let me discuss how we had box or building an AI first company as.
Krista: As customers zero, we are driving an AI first culture as we use box AI to help us move faster make better decisions and automate work.
Krista: Not only will this drive productivity and innovation going AI first as a company is also important for our strategy of building the leading AI platform for enterprise content.
Speaker Change: Paul Graham famously gave the startup advice of living in the future and then build what's missing.
Speaker Change: The idea behind this is that the teams that deeply figure out where the world is going we will often see the new opportunities that arise far sooner than others.
Speaker Change: Is what we're doing at box.
Speaker Change: Across box, we are seeing bauxite it'd be leveraged to help transform how we work every day internally, we use AI powered hubs to help answer customer support questions onboard new sales reps faster get HR questions answered instantly and much more.
Speaker Change: <unk> can access every leading AI model alongside their content to streamline understanding data reviewing code or generating new content for marketing assets our product documentation.
Speaker Change: Boxers are creating custom AI agents to generate call scripts create more personalized sales materials or answer rfps.
Speaker Change: And we use AI agent to extract metadata on policy documents to help streamline internal compliance and document management workflows.
Speaker Change: And finally beyond box AI, we use AI first coding tools and customer service tools to augment our workforce and drive productivity.
Speaker Change: Importantly, our principle focus of going AI first is to move faster.
Speaker Change: And be able to deliver better outcomes for our customers. We want to ensure that every box or it's fully equipped to be as productive as possible with AI, which is why we're making it easy to experiment with AI across the company and we're highlighting the best practices as they emerge and driving as much upskilling of our workforce as possible.
Speaker Change: And for new employees coming in we will increasingly look for AI first skills as a part of our hiring criteria.
Don: This is the biggest shift in work that we've ever seen in our lifetimes and we're excited to make sure that box sits right at the center of it with that let me turn the call over to Don.
Don: Thanks, Aaron Good afternoon, everyone and thank you for joining us today.
Speaker Change: Q1 was a strong start to the year as we exceeded all guidance, while also delivering double digit billings in short term RPM growth.
Speaker Change: These strong results enable us to deliver on our key FY 'twenty six priorities.
Speaker Change: Investing in our intelligent content management platform and key go to market initiatives generating consistent operating leverage and executing on our disciplined capital allocation strategy.
Speaker Change: Q1 revenue of 276 million was up 4% year over year and up 5% in constant currency.
Speaker Change: We now have approximately 1900 40 total customers paying us at least $100000 annually up 8% year over year.
Speaker Change: Suites customers now represents 61% of our revenue up from 56% a year ago.
Speaker Change: Our continued suites momentum was driven by early traction with enterprise advanced and strong demand for our various AI capabilities.
Speaker Change: We ended Q1 with remaining performance obligations or <unk> of $1 5 billion or 21% year over year increase and up 17% in constant currency.
Speaker Change: Our strong long term RPM growth was driven by continued lengthening in customer contract durations.
Speaker Change: We expect to recognize roughly 55% of our RPE over the next 12 months.
Speaker Change: Q1, billings of 242 million were up 27% year over year and up 17% in constant currency.
Speaker Change: This result exceeded our expectations of low to mid teens growth due to strong bookings, including a tailwind from early renewals of approximately 400 basis points.
Speaker Change: FX also provided a tailwind of 700 basis points versus our prior expectations.
Speaker Change: We ended Q1 with a net retention rate of 102% up from 101% a year ago and in line with our expectations.
Speaker Change: Our annualized full churn rate remained at 3% demonstrating the continued stickiness of our platform.
Speaker Change: We continue to expect our net retention rate to improve to 103% exiting FY 'twenty six.
Speaker Change: We delivered Q1 gross margin of 85% up 30 basis points year over year.
Speaker Change: As a reminder, in Q1 of last year, our gross margin benefited by approximately 100 basis points due to data center equipment sales in the quarter.
Speaker Change: Q1, gross profit of 222 million was up 5% year over year slightly exceeding our revenue growth rate.
Speaker Change: We delivered Q1 operating income of $70 million and operating margin of 25, 3% versus 26, 6% in the year ago period.
Speaker Change: Adjusting for the impact of datacenter equipment sales the leap year and FX operating margin would have been up 90 basis points year over year.
Speaker Change: As a result, we delivered EPS of <unk> 30 in Q1, <unk> above the high end of our guidance.
Speaker Change: This includes a negative impact of <unk> <unk> from FX and 12 from noncash deferred tax expenses.
Speaker Change: I'll now turn to our cash flow and balance sheet.
Speaker Change: In Q1, we generated free cash flow of $118 million in cash flow from operations of $127 million.
Speaker Change: We ended Q1 with $792 million in cash cash equivalents restricted cash and short term investments.
Speaker Change: In Q1, we repurchased one 6 million shares for approximately $50 million.
Speaker Change: As of April 32025, we had approximately $152 million of remaining buyback capacity under our current share repurchase plan.
Speaker Change: We remain committed to Opportunistically, returning capital to our shareholders through our ongoing stock repurchase program.
Speaker Change: With that let me now turn to our Q2 and FY 'twenty six guidance.
Speaker Change: As a reminder, approximately one third of our revenue is generated outside of the U S with roughly 65% of our international revenue coming from Japan.
Speaker Change: Before providing guidance I wanted to remind you of the tax impacts we mentioned on our last call.
Speaker Change: We continue to expect that the noncash deferred tax expenses will be an incremental non-GAAP EPS headwind of 52 and FY 'twenty six.
Speaker Change: For the second quarter of fiscal 2026.
Speaker Change: We expect Q2 revenue to be in the range of $290 million to $291 million, representing approximately 8% year over year growth at the high end of the range and 6% growth in constant currency.
Speaker Change: We anticipate our Q2 billings to be roughly flat year over year.
Speaker Change: This includes an expected tailwind from FX of approximately 70 basis points as well as roughly 230 basis point negative impact from Q1 early renewals.
Speaker Change: We expect Q2 gross margin to be approximately 81%.
Speaker Change: We anticipate our Q2 non-GAAP operating margin to be approximately 28% versus 28, 4% a year ago.
Speaker Change: Note that this includes the impact of a 70 basis point headwind from datacenter equipment sales in the year ago period.
Speaker Change: Offset by unexpected FX tailwind of approximately 80 basis points.
Speaker Change: We expect our Q2 non-GAAP EPS to be in the range of 30 to 31.
Speaker Change: Which includes an expected tailwind of approximately <unk> <unk> from FX.
Speaker Change: Weighted average diluted shares are expected to be approximately $150 billion.
Speaker Change: For the full fiscal year ending January 31 2026.
Speaker Change: While our strong Q1 results and enterprise advanced momentum give us confidence in our ability to execute we are mindful of the macroeconomic uncertainty and potential impact to it spending.
Speaker Change: While this environment has not had a material impact on our business. So far we want to remain prudent in our outlook for the remainder of fiscal 2026.
Speaker Change: Okay.
Speaker Change: We now expect revenue to be in the range of $1 165 to $1 $1 7 billion, representing a $10 million increase versus our previous guidance and roughly consistent on a constant currency basis.
Speaker Change: This represents approximately 7% year over year growth of approximately 6% in constant currency.
Speaker Change: We now expect a tailwind of approximately 120 basis points from FX.
Speaker Change: We expect our FY 'twenty six billings growth to be approximately 9%, including a tailwind of approximately 340 basis points from FX.
Speaker Change: We expect FY 'twenty six gross margin to be approximately 81%.
Speaker Change: When adjusting for the impact from datacenter equipment sales last year, which also flows through to operating margin. This represents a year over year improvement of 40 basis points.
Speaker Change: We expect our FY 'twenty six non-GAAP operating margin to be approximately 28%, including a tailwind of approximately 40 basis points from FX.
Speaker Change: As we look at the linearity of operating margin in the second half of the year. Please note that our annual customer conference box works has moved from Q4 to Q3 shifting approximately $3 million in expenses in Q3.
Speaker Change: We now expect FY 'twenty six non-GAAP EPS to be in the range of $1 22 to $1 26, including an expected tailwind of approximately <unk> <unk> from FX.
Speaker Change: This represents an increase of nine.
Speaker Change: Or <unk> on a constant currency basis.
Speaker Change: Weighted average diluted shares are expected to be approximately $151 million.
Speaker Change: FY 'twenty six is off to a strong start driven by continued growth in customer demand for box AI.
Speaker Change: As we outlined at financial Analyst Day, we are in the early innings of a once in a generation opportunity that will revolutionize how AI can transform content in the enterprise, we will continue to invest in our intelligent content management platform and key go to market initiatives to execute against this opportunity and.
Speaker Change: We remain firmly committed to driving meaningful long term improvements in our financial profile from top to bottom.
Speaker Change: With that Aaron and I will be happy to take your questions.
Speaker Change: Operator.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue and if you'd like to withdraw that question again press star one.
George: Last question comes from George <unk> with Citi. Please go ahead.
Speaker Change: Actually operator pardon me George.
George: Yeah, one quick correction does go ahead.
George: Just wanted to note for our Q1 results for EPS.
George: That was that had included a benefit of <unk> <unk> from FX, whereas I had mentioned that as a <unk> <unk> negative impact. So it was actually a one penny tailwind.
George: Due to FX in the quarter. Thank you.
George: So actually you can go ahead with your question.
George: Okay, great. Thanks for taking the question I'm on for Steve Maybe you can just touch on the demand picture kind of the topic of.
Speaker Change: The quarter it sounds like Youre not seeing much in the business, but maybe theres a little bit incrementally baked into the guide if you could just talk about how customer conversations have been and then help us frame what kind of.
Speaker Change: Incremental prudence, you've baked into the guidance.
Speaker Change: Yes, so overall.
Speaker Change: Very <unk>.
Speaker Change: Healthy robust customer conversations as you saw in the Q1 results were very happy with what the Q1 performance seeing strong momentum coming into Q2.
Speaker Change: The AI.
Speaker Change: Kind of first strategy that we've laid out for customers I think is resonating.
Speaker Change: All of our customer conversations are starting with or.
Speaker Change: At some point in the conversation turning into really AI oriented conversations around how companies can get the most out of their unstructured data automate workflows bring intelligence to their content. So so a lot of momentum on that front.
Speaker Change: And then overall, we wanted to just be prudent with the overall environment, obviously, it's a dynamic macro and and so I'm just trying to balance all those factors right now.
Speaker Change: Okay, Great. That's helpful. And then maybe just a follow up question, we're getting is billings and RPM growth really strong 17% quarter on quarter. You guys are guiding to 6% for constant currency revenue growth. If you could just kind of help us bridge the gap there it sounds like maybe there's a little timing in Q1, just anything else.
Speaker Change: We should keep in mind there.
Speaker Change: Yes, so really primarily comes down to the timing and we had even called out heading into the quarter that we did expect to see somewhat of a unique dynamic in the billings growth rate between Q1, and Q2, but with the first half and second half being relatively consistent and then we.
Speaker Change: That even a little bit more pronounced because of that early renewal dynamic. So we called that out and in terms of the impact we saw about $7 million in early renewals included in that benefit to Q1 billings. That's what represents the roughly 400 basis points.
Speaker Change: The impact that I mentioned that so about $7 million and about $6 million of that comes.
Speaker Change: Right out of Q2, so basically making that Q1 to Q2 impact a little bit more pronounced and then in terms of the haps overall.
Speaker Change: Can now see that in.
Speaker Change: We expect a little bit more strength in the first half because some of those dynamics as well as that incremental conservatism that we mentioned.
Speaker Change: Related to the macroeconomic environment, So no big change relative to our original expectations other than the early renewal dynamics between the first and the second quarter.
Speaker Change: Super helpful color, Thanks for taking the questions.
Speaker Change: Your next question comes from the line of Jason Ader with William Blair. Please go ahead.
Jason Ader: Yes. Thank you good afternoon, guys I just wanted to ask about seats.
Jason Ader: I think you called out a customer where there was good seat growth can you just comment overall on what youre seeing out of seat growth and even some doubt if theres any down sell or how that has trended.
Jason Ader: For some of your some of your customers. Thank you.
Jason Ader: Yeah. So overall the trends that we're seeing in the dynamic between seat growth and then pricing improvements have been pretty consistent what we've seen over the last several quarters, where seats are growing on a net basis.
Jason Ader: But.
Jason Ader: Pretty minor contribution to growth most of that customer expansion is being driven by pricing increases and we've seen that continue and expect it to be the same especially with the impact of enterprise advanced in the healthy pricing uplift that we see is customers upsell into that suite and <unk>.
Jason Ader: So that's really the dynamic that we've been seeing pretty consistent over the past few quarters.
Jason Ader: And.
Jason Ader: But theres a lot that we're doing especially with a lot of these new enterprise advanced AI driven use cases do we do think open up.
Jason Ader: Some new opportunities to expand across departments.
Jason Ader: Okay. So just to be clear it sounds like.
Jason Ader: Price is going to be a bigger driver of growth lets call. It over the next several quarters than seats.
Jason Ader: And if so.
Speaker Change: What do you think you guys need to do.
Speaker Change: Or do you need to see I guess on the seed side for you to be able to say okay.
Speaker Change: We're starting to see an inflection on seat growth.
Speaker Change: So thats exactly right in terms of what we're baking in to your expectations for this year with pricing and driving the lion's share of that expansion.
Speaker Change: And then on the seed side, what we're doing again around.
Speaker Change: You know kind of the use cases that we're pushing that enterprise advanced enables.
Speaker Change: As well as with new logos and some of the go to market investments that we've called out as a way to reach.
Speaker Change: Kind of new customers and grow the overall seat base from there and then certainly as that dynamic evolves, we will be sure to provide updates in terms of what we're seeing in the business.
Speaker Change: I'd also note and as we've called out in the past that seat growth and that net fee growth tends to be more closely correlated with the economic environment, whereas in good and bad we continue to see steady and strong pricing improvements that seat dynamic is a little bit more sensitive to the overall macroeconomic.
Speaker Change: Environment.
Speaker Change: Very helpful. Thank you.
Speaker Change: Okay.
Speaker Change: And I would just note that.
Speaker Change: Overall.
Speaker Change: <unk> point, obviously enterprise advanced is the primary focus.
Speaker Change: Which is both driving the price per seat increase as well as expanded use cases. So so we feel pretty comfortable at the momentum in overall spot that we're in.
Speaker Change: Your next question comes from the line of Michael Funk with Bank of America. Please go ahead.
Speaker Change: Yeah.
Speaker Change: One follow up on the.
Speaker Change: On the earlier enrollments you called out earlier 400 basis points of help.
Speaker Change: In the quarter can you remind us what you're expecting during the quarter and then also what are you doing to catalyze early renewals.
Speaker Change: Yes, so for early renewals the biggest driver that we saw in Q1 was really around.
Speaker Change: The adoption of <unk>.
Speaker Change: Customers looking to adopt our AI capabilities, both with enterprise plus and now more and more with enterprise advanced even though we're early days. So that was the majority of those enterprise advanced sales that we saw in the first quarter were customers early renewing.
Speaker Change: Looking to move and bring all those capabilities sooner than there theyre scheduled renewal date.
Speaker Change: And then just on <unk> you.
Speaker Change: You mentioned earlier in the call cost of AI inferencing dropping in that and that's helpful. So maybe maybe two questions. There first how should we think about cost of AI and compute impacting margin you made some margin expectation comments earlier, and then as you land with customers with AI.
Speaker Change: Is it still primarily.
Speaker Change: Smaller seat counts or are customers still doing smaller use case testing the water deployment.
Speaker Change: The point of where are we in the spectrum of adoption with AI.
Speaker Change: Anthony.
Speaker Change: Now to your product.
Anthony: Yeah. So the two parts of that so on the AI inference side, we've just been very happy about.
Speaker Change: The rate of.
Speaker Change: Like for like AI model improvements that we're seeing from a cost standpoint, and that can show up in two ways. The first is that you can take an existing use case and it might just on a one to one basis be cheaper on a kind of a pretty regular basis every kind of six to 12 months at a minimum the alternative is that you get a new capability unlock because.
Speaker Change: Can you either get the base model.
Speaker Change: Is is getting much better or you can use an existing model and do multiple passes through the model for better accuracy or more complex use cases, so depending on the use case that we have some things that that quite literally just immediately get cheaper for us and then other use cases, where we start to unlock more powerful capabilities. Both of those are driven by <unk>.
Speaker Change: <unk> prices going down.
Speaker Change: <unk>.
Speaker Change: We've all we've all kind of collectively seen in.
Speaker Change: That trend is alive and well right now, which is which is fantastic to see.
Speaker Change: And then on the Rollouts.
Speaker Change: Broad mix.
Speaker Change: We have a couple of benefits in our platform. So we have given.
Speaker Change: We've made box AI for for sort of base use cases, querying documents asking questions of data generating summaries of content.
Speaker Change: Thats now included capability in all of our business plans on above so customers really have an easy way to start to try.
Speaker Change: I deploy it for really kind of core end user productivity use cases, and then we've got multiple upsell vectors either for your entire enterprise instance to be upgraded with enterprise advanced.
Speaker Change: You sort of talked about the early strong momentum, we're seeing there or AI unit volume consumption for more.
Speaker Change: Either complex use cases or much more kind of high volume use cases. So so you can already start to try it quite easily by just using some of the included functionality and then we've got again multiple upsell pause that we're driving customers through so I think we've landed on a.
Speaker Change: Very strategic pricing model for our customers that they've been quite happy about.
Speaker Change: We've generally had very very strong positive interactions with customers on that upsell motion because it's very logical enterprise advanced unlocks a whole new set of features as well as kind of core AI use cases.
Speaker Change: And then just to clarify the first question the price performance.
Speaker Change: Are they largely offsetting so you say margin neutral from rolling out AI or it's one.
Speaker Change: Greater factor in the other.
Speaker Change: Well.
Speaker Change: We've called out that that we're aiming to.
Speaker Change: To have AI be relatively margin neutral.
Speaker Change: Over the over the at least the medium term and then I think it only gets better from there.
Speaker Change: So, but there isn't because we're not directly charging customers on on a kind of a per use case basis, because some of our core AI functionality is included.
Speaker Change: Hard to exactly parse something is margin neutral without a dedicated kind of pricing line for it I would just say overall as a company we are intending to remain.
Speaker Change: More or less margin neutral, even as we bake in more AI functionality and the reason that we can do that is because the cost of inferences dropping even as we add more capabilities to our customers.
Speaker Change: Okay. Thank you so much for the time.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Lucky Schreiner with D. A Davidson. Please go ahead.
Lucky Schreiner: Thanks for taking my questions and congrats on the great quarter, maybe just with all the recent platform innovation and the rapid advancements across the ecosystem how is that impacting your ability to win customers migrating away from the from the legacy ECM providers that typically aren't able to keep pace are you noticing an uptick in win rates in those deals.
Speaker Change: And maybe as a follow up have you noticed the improvement maybe in the box.
Speaker Change: And the market overall from customers just overall customer awareness.
Speaker Change: Yes, so so I think.
Speaker Change: Great performance on both of those topics.
Speaker Change: Seeing more customers.
Speaker Change: Elect to move and migrate to modern platforms for driving AI driven workflows on content, we announced this partnership with data bank as folks remember at our financial Analyst Day. That's a great example of a partner who works with a lot of the traditional document management environments out there and really it isn't a.
Speaker Change: Positioned to help customers accelerate their move to the cloud and we're seeing great momentum with them. As an example, similarly, we've had strong momentum with folks like slalom and other system integrators on similar use cases of customers that want to migrate or modernize their it.
Speaker Change: Infrastructure and get content to the cloud to be able to use AI on that content. So that's the first part and then on the second part.
Speaker Change: We.
Speaker Change: Just look at Q1 alone and I mentioned this in the call, but just to be redundant.
Speaker Change: If you if you look at the announcements of Quad $3 seven in Q1.
Speaker Change: <unk> 3.0, opening eyes agent SDK, Nvidia GTC and a number of other announcements in Q1 from the AI ecosystem box was included in every single one of those and then.
Speaker Change: At the at the start of the quarter or at the tail end of Q1 Lama Con announcing the work that IBM and box are doing together to bring Lama Ford auto too to customers. So we have thought we are sitting very naturally at the center of so much of the innovation happening in AI right now.
Speaker Change: And I think it helps that we're not competing with any of the AI model providers, we are bringing together an ecosystem of all of the leading AI to our customers. So we act as a very natural kind of convening point for.
Speaker Change: For these AI models when customers want to be able to use data on.
Speaker Change: With any of these leading platforms. So so I think the momentum is building around box.
Speaker Change: Box AI as a platform and Thats certainly starting to show up in our brand. We are seeing strong enterprise advanced pipeline begin to build that effectively all AI driven pipeline in terms of the use cases customers are unlocking. So overall, we're really happy with the momentum.
Speaker Change: Awesome and then last question from me you had a nice diversity of wins and expansion across our industry.
Speaker Change: Anything to call out I think the early renewals were especially.
Speaker Change: It's impressive to hear given the April volatility that we all experienced in so maybe anything to call out in the pipeline from an industry perspective, given the macro backdrop and your recent partner go to market improvements. Thanks.
Speaker Change: I think from an industry standpoint, no major shifts.
Speaker Change: We're continuing to see strength in a lot of the core industries that we've talked about especially spaces, where the customer is in a regulated environment data is mission critical for them. So.
Speaker Change: One thing that they can't be underscored enough is as you want to do AI on your data all of the things that we've gotten very good at over nearly two decades of working in the enterprise become mission critical so how do I secure my content, how do I make sure. It's compliant how do I ensure that only the right people have access to the data.
Speaker Change: Especially via agent interactions, our CTO has a great great quote of AI agents can't keep a secret.
Speaker Change: So you never want to put your your security in in the agent part of the infrastructure you want to ensure that data access controls are actually maintaining the security of your of your information and so you don't want to be in a position, where where youre trying to pack too much of that intelligence into the model layer you want to.
Speaker Change: Back that into the data the data plane and the architecture around that which is what box provides customers. So.
Speaker Change: That then means that companies in life sciences or banking and.
Speaker Change: Public sector.
Speaker Change: On healthcare.
Speaker Change: Healthcare all of these types of industries that really have sensitive mission critical use cases are able to thoughtfully and safely deploy AI to their end users.
Speaker Change: Appreciate the question and answering the questions.
Speaker Change: Thank you. Your next your next question comes from the line of Josh <unk> with Morgan Stanley. Please go ahead.
Speaker Change: Thanks for the question and congrats on a great quarter.
Speaker Change: And I was hoping you could talk a little bit more about platform revenue.
Speaker Change: Sure. It's still early days for AI unit consumption.
Speaker Change: But I was hoping you could comment a little more on early traction as well as anything else driving that platform revenue.
Speaker Change: And yes.
Speaker Change: Just thinking about the targets to grow that approximately 30%.
Speaker Change: <unk> ahead in how we're tracking tobacco.
Speaker Change: Yes so.
Speaker Change: So overall.
Speaker Change: Still very early in the AI unit adoption, obviously, this just became available to customers.
Speaker Change: In the past quarter or so so we're in the very early days of <unk>.
Speaker Change: What that volume looks like the deals are.
Speaker Change: A pretty wide spectrum of deal sizes. So it's still in the kind of lumpy territory.
Speaker Change: So we're not at a kind of a normalized point, but in terms of the kinds of customers and the use cases.
Speaker Change: Just as we as we kind of think about industries and scanned use cases, we have everything from.
Speaker Change: Legal industry, we have public sector, we are universities.
Speaker Change: We have financial services players advisers, so really across the continuum and the most common use case right now just based on what were the functionalities. Most robust is I have a set of data and I wont be able to run an AI agent or many AI agents across all of that data to do some form of data extraction data parsing on my <unk>.
Speaker Change: Content.
Speaker Change: And so that can be looking through contracts to pull out critical details from contracts, taking bank statements to read and validate the information and the bank statement.
Speaker Change: Some customers are doing the very early phases of image extraction, where you gave.
Speaker Change: The AI model it could be handwritten content or images from a from a construction site and be able to label all of that data. So so we're seeing kind of healthy healthy early adoption. This is going to be a continued focus of ours and we expect it to be.
Speaker Change: A healthy contributor to our overall top line over the coming quarters and years.
Speaker Change: Great very clear.
Speaker Change: I was hoping you could just comment on early renewals I appreciate all the color in Q1, I'm really just wondering when you guide in like thinking about Q2.
Speaker Change: Do you embed like what's the assumption is it just for on time renewals just thinking about early renewals contributed in Q4 as well in a positive way just wondering if it's a trend if it's something that can continue to benefit and what assumptions you have in guidance.
Speaker Change: Sure. So we do assume that there is some volume of early renewals.
Speaker Change: Because we don't have perfect line of sight into those we tend to be fairly conservative and to your point.
Speaker Change: That has been an area of outperformance.
Speaker Change: A few times over the past.
Speaker Change: Year or two.
Speaker Change: So we do assume that we're going to have some early renewals.
Speaker Change: But youre.
Speaker Change: Not at the same rate as we saw over the past couple of quarters, especially because some of those were just customers who are looking to get the enterprise advanced as quickly as possible. Some of our most loyal customers who've been more familiar with that but certainly optimistic that we'll continue to see.
Speaker Change: Higher than historical volumes and those early renewals and to the extent that becomes.
Speaker Change: More consistent trends, then we would update those assumptions around early renewal volume.
Speaker Change: As it relates to our guidance as well.
Speaker Change: Great. Thanks.
Speaker Change: Your next question comes from the line of Joanne <unk> with J P. Morgan. Please go ahead.
Speaker Change: Great and one question for Alan and I have a follow up for Dylan and.
Speaker Change: Books kind of integrates with different partners opening.
Speaker Change: Research and others, how do you make sure that the engagement with some of these external vendors listen you're keeping the engagement within the box platform.
Speaker Change: <unk> also thinking of coming out of the deep research right. Now you can actually do deep research with open AI. So how do you think of that bifurcation, how long you're monetizing the people who are doing deep research on Bulks two opening for instance.
Speaker Change: As that proliferates beyond but in some other.
Speaker Change: Although bookings yes.
Speaker Change: Yes.
Speaker Change: Great question and something we think.
Speaker Change: Quite a bit about and spend a lot of time on.
Speaker Change: There is.
Speaker Change: Just to get philosophical for five seconds. There is theres going to be this question for years and years I think in AI.
Speaker Change: Around kind of which layer of the stack do you occupy and whats everybody's role in this and we sort of are going to occupy two parts of the stack. So if there was like two or three or four layers going down to the infrastructure. We're in we're in about two of them which is.
Speaker Change: We're in the software plane.
Speaker Change: For for the end user interaction at the SaaS level and then we're in the data platform plan as well as as an API either agentic Apis or regular Apis and we want to basically have both of those execute as fast as possible in as much in tandem as possible.
Speaker Change: Because we are not going to be no single company is going to decide where all of the user does its work, it's just not possible and.
Speaker Change: And Bill Joy had this famous quote 35 years ago, or whatever that said theres more developers outside of sun than inside of Sun and so we're more smart smart developers with the implication being like you just have to let 1000 flowers bloom.
Speaker Change: You do not want to be in a position where you're trying to kind.
Speaker Change: King make any particular experience our platform or use case, there's just simply too much innovation happening and so kind of similarly.
Speaker Change: Your data is going to your data is going to eventually need to flow to wherever the work is getting done and no. One platform will be able to control where that work is getting done because the internet two large companies have too many different use cases, they want to go and solve so because of that our focus is ensuring that we can <unk> bring information to wherever the user is doing their work.
Speaker Change: So there is like no game theory, where you could ever kind of contemplate closing off access to a particular platform simply because the users want to be able to do the work where they want and so so given that we kind of flip it and we say okay. So then we should be everywhere and ensure that the customer never has to make a sort of a.
Speaker Change: Core decision about where their content can be managed.
Speaker Change: By virtue of where they want users doing work we wanted to make sure that you can manage your content in one place and ensure that it works everywhere.
Speaker Change: From a monetization standpoint, there's a few different ways that gets monetized certainly the end user seat gets monetized and so to the extent that you have a user on chat Govt, asking a deep research question by definition they have a seat.
Speaker Change: Processing that and that's where I get into this idea of AI agents can't manage security. The end user still have to have access controls that allow them to access the content that is relevant for that deep research queries. So theres no way to there's no way to sort of game the system and sort of have all the data in one end user account and have that show up to multiple users and Chad <unk>.
Speaker Change: By definition, you need those two things to be aligned to ensure the proper security. So so that's how you monetize via seats and then in this case deep.
Speaker Change: Researchers using our direct API is but as more and more use cases emerge where you have a third party system that wants to use an AI agent within box, where we've announced partnerships with Salesforce agent force and Google agent space and IBM Watson orchestrate as you have those use cases that will be monetize via our AI unit.
Speaker Change: So as you have more queries going into boxes that are <unk> in nature. Then, we'll just charge on a per volume basis for those so let's say you're inside of agent force inside of Salesforce and you want an AI agent to go extract metadata from documents.
Speaker Change: Monetize that exactly the same way that we could monetize that if the if that workflow was driven directly in the box product from an end user standpoint. So we think we've got our bases covered obviously over time, you might be able to argue okay, well there might be a slightly different margin depending on the on the modality of the usage, but overall were.
Speaker Change: Massive believers that an open internet is a better one.
Speaker Change: <unk> and interoperability as long term always going to be better for us because the more places people want to be able to do work from and the more places. They can successfully do that work from the more the more need they have for an open and interoperable data platform connected to all of those systems. So if you just kind of compare the alternative world where everything gets closed.
Speaker Change: And you only have one or two providers that is actually a worse world and it's the one that we don't think is going to happen because of how much kind of agent interoperability is starting to emerge. So that's a little bit of the philosophy that we're running with.
Speaker Change: Makes it makes a lot of fronts. Thank.
Speaker Change: Thank you for the detail there.
Dylan Smith: One for Dylan.
Speaker Change: When I look at the Billings guide for the year, if I did this math pretty quickly, but it sounds like.
Speaker Change: And when you first gave that and so it was about 7% in USD with 30 basis point tailwind.
Speaker Change: From FX now it seems like 9% to USD with 340 basis points of FX tailwind. So it sounds like on a constant currency basis, youre guiding billings down what am I reading it wrong because you had.
Speaker Change: We had a very strong.
Speaker Change: Q1, and I understand the early renewals.
Speaker Change: Why would that impact the full year so.
Speaker Change: Is that largely driven by some of the prudent that youre talking about maybe talk about the guidance for the year.
Speaker Change: That's exactly right so.
Speaker Change: Cost currency basis down about a point and some of that is just we round as we give guidance on an as reported.
Speaker Change: Basis and in round numbers.
Speaker Change: And then a portion of that is as we discussed just that incremental conservatism around the back half.
Speaker Change: And so that's the exact dynamic I think youre doing the math right, but overall very.
Speaker Change: You know kind of optimistic about what we're seeing in the business.
Speaker Change: The trends and how kind of customer conversations are materializing, but did want to be.
Speaker Change: Kind of prudent with what we're assuming in the back half of the year.
Speaker Change: Got it thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Brian Peterson with Raymond James. Please go ahead.
Brian Peterson: Congrats on a strong start to the year guys. So I'll keep it to one I know you answered the questions on industries before but I know theres been a lot of debate on what's going on in the federal vertical or anything that you guys would call out.
Brian Peterson: As a customer trends or pipeline any color there thanks guys.
Brian Peterson: Yes so.
Brian Peterson: Still a bit of a dynamic where I think we expect.
Brian Peterson: Yes, I do.
Brian Peterson: <unk> kind of caution on the federal side.
Brian Peterson: You've put a lot of emphasis in our state and local.
Brian Peterson: Part of the business and the and in the meantime, feathering in Pi, which obviously, we just got certified for.
Brian Peterson: <unk> is clearly going to be.
Brian Peterson: Sort of a.
Brian Peterson: Net helper to the overall dynamic in the federal side, because a lot of the use cases that we will continue to get funded or those out of Dod and much more kind of highly sensitive use cases. So we're now in a better position to go capture those so I would still say dynamic environment.
Brian Peterson: But we're happy with fed ramp high as a way to bolster that position.
Brian Peterson: And we're very happy about their kind of overall AI momentum that we're driving.
Speaker Change: Thanks Sarah.
Brian Peterson: And that concludes our question and clubs are a question and answer session. I will now turn the call back over to Cynthia Hudson for closing comments.
Brian Peterson: Great. Thank you everyone for joining us today, and we look forward to updating you again on our next earnings call.
Brian Peterson: This concludes today's conference call. Thank you for your participation and you may now disconnect.
Brian Peterson: Okay.
Brian Peterson: Yeah.
Brian Peterson: Yeah.
Brian Peterson: Okay.