box q3 fy17 earnings presentation for website
TRANSCRIPT
1
November 30, 2016
Third Quarter FY17Financial Results
2
Investor Disclosure: Forward‐Looking Statements and Non‐GAAP Measures
• This presentation contains forward‐looking statements that involve risks and uncertainties, including statements regarding Box’s expectations regarding the size of its market opportunity, the demand for its products, its ability to scale its business, its ability to achieve positive free cash flow, profitability, planned product enhancements, and the success of strategic partnerships, as well as expectations regarding revenue, GAAP and non‐GAAP earnings per share, the related components of GAAP and non‐GAAP earnings per share, and weighted average basic and diluted outstanding share count expectations for Box’s fiscal fourth quarter and full fiscal year 2017.
• There are a significant number of factors that could cause actual results to differ materially from statements made in this presentation, including: (1) adverse changes in general economic or market conditions; (2) delays or reductions in information technology spending; (3) factors related to Box’s intensely competitive market, including but not limited to pricing pressures, industry consolidation, entry of new competitors and new applications and marketing initiatives by Box’s current or future competitors; (4) the development of the cloud‐based Enterprise Content market; (5) risks associated with Box’s ability to manage its rapid growth effectively; (6) Box’s limited operating history, which makes it difficult to predict future results; (7) the risk that Box’s customers do not renew their subscriptions or expand their use of Box’s services; (8) Box’s ability to provide successful enhancements, new features and modifications to its platform and services; (9) actual or perceived security vulnerabilities in Box’s services or any breaches of Box’s security controls; and (10) Box’s ability to realize the expected benefits of its third‐party partnerships. Further information on these and other factors that could affect the forward‐looking statements we make in this presentation can be found in the documents that we file with or furnish to the US Securities and Exchange Commission, including our most recent Quarterly Report on Form 10‐Q filed for the fiscal quarter ended July 31, 2016.
• You should not rely on any forward‐looking statements, and we assume no obligation, nor do we intend, to update them. All information in this presentation is as of November 30, 2016.
• This presentation contains non‐GAAP financial measures and key metrics relating to the company's past and expected future performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the appendix at the end of this presentation. You can also find information regarding our use of non‐GAAP financial measures in our earnings release dated November 30, 2016.
3
The Leading Enterprise Content Platform
• Sustained strong revenue growth
• ~95% recurring revenue, SaaS product
• 69,000 customers, 63% of Fortune 500
• Significant new products (Governance, KeySafe, Zones, Shuttle, Relay, & Platform)
• Focus on positive FCF & Op Margin improvement
• Key alliances with Google, IBM and Microsoft
• 1,400+ Employees, HQ in Redwood City, CA
$59
$124
$216
$303
$398*
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Revenue Growth ($M)
*High end of guidance as of November 30, 2016
4
Cross‐enterpriseworkflows
Advanced insights
Productive anywhere
Flatter organizations
The New Way to Work
5
Analytics
Compliance
Data protection policies
Workflow automation
Key management
Information governance
Data residency
Files
Collaboration
Search
Metadata
Box is the World’s Only Modern Content Platform
6
Connects to all the apps your enterprise uses today
End‐users love Box – fast adoption
One extensible platform for internal and customer‐facing scenarios
Box is Where All Your Work Comes Together
7
Fortune 50063%
69KCustomers
Box Transforms Work Across All Industries
8
Enterprise File Sync and Share Enterprise Content Management
Inflection Point in Growth and InnovationNew Products Provide Further Competitive Differentiation
Core Box
CY 2005‐ 2014
2015: Starting to replace legacy ECM solutions
New Cross Sell Opportunities
B2B2B & B2B2CBox Platform expands addressable market to hundreds of millions of potential new users
CY 2016
KeySafeEncryption Key Management
GovernanceData Retention & Classification
Core Box
ZonesIn‐Region Data
ShuttleData Migration
KeySafeEncryption Key Management
GovernanceData Retention & Classification
CY 2015
Core Box
CY 2017
KeySafeEncryption Key Management
GovernanceData Retention & Classification
Core Box with Launch of Box for
Desktop
ZonesIn‐Region Data
ShuttleData Migration
RelayWorkflow
9
Third Quarter Fiscal 2017 Financial HighlightsStrong Sales Execution, Increased Adoption of New Products and Continued Operational Efficiencies
Q3FY17 Q3FY16 Y/Y Growth
Revenue $102.8M $78.7M 31%
Billings $112.4M $89.4M 26%
Deferred Revenue $192.6M $141.1M 36%
GAAP EPS (30¢) (45¢) 15¢
Non‐GAAP EPS (14¢) (31¢) 17¢
Cash Flow from Operations ($6.8M) ($17.3M) $10.5M
Free Cash Flow ($10.9M) ($37.8M) $26.9M
10
$78.7$85.0
$90.2$95.7
$102.8
Q3'16 Q4'16 Q1'17 Q2'17 Q3'17
Strong Revenue Growth of 31% YoY in Q3FY17Driven by Best‐In‐Class Retention Rate
11
$89.4
$130.2
$75.9
$106.5$112.4
Q3'16 Q4'16 Q1'17 Q2'17 Q3'17
Billings & Deferred RevenueStrong Execution and New Product Traction
$141.1
$186.4
$172.2
$183.0$192.6
Q3'16 Q4'16 Q1'17 Q2'17 Q3'17
Billings Deferred Revenue
12
21% 13%
25% 21%
75%58%
Non‐GAAP Op Expense As a % of Revenue
G&A R&D S&MQ3’16 Q3’17
GAAP and Non‐GAAP Gross Margin and Op ExpenseGross Margin Improvement QoQ and Continued Operating LeverageGAAP Gross Margin 73.6%, Non‐GAAP 76.1%GAAP Op Expense $113M, Non‐GAAP $95M
Note: Expenses and operating margin shown on a non‐GAAP basis (reconciliations to the GAAP basis can be found in the Appendix of this presentation).
• S&M improved 17 percentage pts YoY, demonstrating leverage in model; includes annual Q3 BoxWorks expenses in both periods.
• R&D improved 4 percentage pts YoY, even including product offering expansion.
• G&A improved 8 percentage pts YoY due to efficiency improvements and lower legal expenses.
73.4% 73.2% 72.4% 74.0% 76.1%
Q3'16 Q4'16 Q1'17 Q2'17 Q3'17
Non‐GAAP Gross Margin
Improved 29 pts
• QoQ increase driven by lower infrastructure expenses due to shifting launch date of a more efficient data center, the change in the useful life of certain data center servers and driving ongoing optimizations.
13
Best‐in‐Class Retention RateLow Churn Continues to Demonstrate Product Stickiness
1. Net expansion defined as the net increase in contract value from our existing customers, who had $5K+ in TAV 12 months ago.2. Retention rate defined as the net % of Total Account Value (“TAV”) retained from existing customers, including expansion. This metric is calculated by
dividing current TAV of customers who 12 months ago had $5K+ in TAV by their TAV 12 months ago.
Retention Rate(2)
115%18%3%Net Expansion(1)Churn
Product stickiness Continued growth within existing customers
Best‐in‐class
14
$194.9
($6.8) ($1.9) $3.1
$200.5
Q2 Cash &Equivalents,MarketableSecurities (1)
CFO(2) CAPX Other Q3 Cash andEquivalents (1)
Cash, Cash Equivalents & Restricted CashHealthy Cash Balances for Long Term Growth
• Cash from operations of ($6.8M), compared to ($17.3M) a year ago – an improvement of 61%.
• ~$1.9M of CAPEX materially lower than $20M a year ago, following completion of move to Redwood City HQ.
• “Other” primarily consists of proceeds from exercise of options and issuance of common stock under ESPP (cash from financing).
(Millions)
1. Balance includes ~$27 million in restricted cash for Q2FY17 and Q3FY17
15
‐48%
‐25%
‐18%
‐8% ‐11%
Q3'16 Q4'16 Q1'17 Q2'17 Q3'17
Substantial YoY Improvement in Free Cash Flow Margin(1)Excluding $6 million in BoxWorks costs, FCF margin improved sequentially
FCF improvement due to:• Improvements in non‐GAAP operating loss from prior quarter • Cash flow from operations improving with tighter working capital
management• End of significant HQ move costs
1. Free Cash Flow Margin = Free Cash Flow as a percentage of Revenue. Free Cash Flow is defined as cash (used in) provided by operating activities less purchases of property and equipment, principal payments of capital lease obligations, and other items that did not or are not expected to require cash settlement and which management considers to be outside of Box’s core business. Refer to the Appendix for the reconciliation of Free Cash Flow to the nearest GAAP measure.
16
Q4 and Fiscal Year 2017 Guidance Ranges
Q4 FY17 Guidance
Revenue GAAP EPS Non‐GAAP EPS Weighted Average Shares Outstanding
Low High Low High Low High
$108 M $109 M ($0.33) ($0.32) ($0.14) ($0.13) 130 million
FY 17 Guidance
Revenue GAAP EPS Non‐GAAP EPS Weighted Average Shares Outstanding
Low High Low High Low High
$397 M $398 M ($1.24) ($1.23) ($0.60) ($0.59) 127 million
17
Appendix
18
GAAP Revenue to Billings Reconciliation
($ in thousands) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17
GAAP revenue $78,651 $84,982 $90,155 $95,713 $102,811
Deferred revenue, end of period 141,147 186,413 172,184 183,004 192,598
Less: deferred revenue, beginning of period (130,349) (141,147) (186,413) (172,184) (183,004)
Billings $89,449 $130,248 $75,926 $106,533 $112,405
19
GAAP to Non‐GAAP Reconciliation – Gross Margin
($ in thousands) Q3FY16As a % of revenue Q4FY16
As a % of revenue Q1FY17
As a % of revenue Q2FY17
As a % of revenue Q3FY17
As a % of revenue
GAAP gross margin $55,021 70.0% $59,301 69.8% $62,296 69.1% $68,111 71.2% $75,696 73.6%Add: Stock‐based
compensation 1,272 1,500 1,512 1,830 1,986
Add: Intangible assets amortization 1,431 1,433 1,420 878 506
Non‐GAAP gross margin $57,724 73.4% $62,234 73.2% $65,228 72.4% $70,819 74.0% $78,188 76.1%
20
GAAP to Non‐GAAP Reconciliation – Operating Expenses
($ in thousands) Q3FY16As a % of revenue Q2FY17
As a % of revenue Q3FY17
As a % of revenue
GAAP research and development $26,324 33% $28,265 30% $29,652 29%
Less: stock‐based compensation (6,455) (7,348) (7,730)
Non‐GAAP research and development $19,869 25% $20,917 22% $21,922 21%
GAAP sales and marketing $63,972 81% $60,186 63% $66,796 65%
Less: stock‐based compensation (5,005) (6,416) (6,744)
Non‐GAAP sales and marketing $58,967 75% $53,770 56% $60,052 58%
GAAP general and administrative $19,757 25% $17,579 18% $16,999 17%
Less: stock‐based compensation (2,672) (3,470) (3,457)
Less: Intangible assets amortization (39) (38) (39)Less: Expenses related to a legal verdict (299) ‐ ‐
Non‐GAAP general and administrative $16,747 21% $14,071 15% 13,503 13%
21
GAAP to Non‐GAAP Reconciliation – Operating Margin
($ in thousands) Q3FY16As a % of revenue Q2FY17
As a % of revenue Q3FY17
As a % of revenue
GAAP operating margin ($55,032) (70%) ($37,919) (40%) ($37,751) (37%)
Less: stock‐based compensation 15,404 19,064 19,917
Less: Intangible assets amortization 1,470 916 545
Less: Expenses related to a legal verdict 299 ‐ ‐
Non‐GAAP operating margin ($37,859) (48%) ($17,939) (19%) ($17,289) (17%)
22
GAAP to Non‐GAAP Reconciliation – Free Cash Flow
($ in thousands) Q3FY16As a % of revenue Q4FY16
As a % of revenue Q1FY17
As a % of revenue Q2FY17
As a % of revenue Q3FY17
As a % of revenue
GAAP net cash (used in) provided by operating activities
($17,343) (22%) $4,865 6% ($4,231) (5%) ($4,879) (5%) ($6,829) (7%)
Less: purchases of property and equipment (19,998) (25,097) (10,976) (771) (1,892)
Less: Payments of capital lease obligations (508) (1,108) (949) (2,312) (2,178)
Free cash flow ($37,849) (48%) ($21,340) (25%) ($16,156) (18%) ($7,962) (8%) ($10,899) (11%)
23
GAAP to Non‐GAAP Reconciliation – EPS Outlook
For the Three Months Ended January 31, 2016
For the Year Ended January, 31, 2017
GAAP net loss per share range, basic and diluted $(0.33‐0.32) $(1.24‐1.23)
Stock based compensation 0.19 0.62
Intangible assets amortization 0.00 0.03
Expense (income) related to a legal verdict 0.00 (0.01)
Non‐GAAP net loss per share range, basic and diluted $(0.14‐0.13) $(0.60‐0.59)
Weighted average shares outstanding, basic and diluted 129,853 127,475