Box, Inc. Form 10-Q Summary
Business context and reporting period
Box provides a cloud-based enterprise content management and collaboration platform for securely storing, sharing, managing and accessing content. This unaudited report covers the three months ended April 30, 2016, compared with the three months ended April 30, 2015. Box reported more than 46 million registered users and more than 62,000 paying organizations at period end.
Key financial metrics
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | $90.2 million | $65.6 million | +37% |
| Gross profit | $62.3 million | $48.5 million | +29% |
| Gross margin | 69% | 74% | Down 5 points |
| Loss from operations | $(38.6) million | $(46.6) million | Improved $8.0 million |
| Operating margin | (43%) | (71%) | Improved 28 points |
| Net loss | $(38.6) million | $(47.3) million | Improved $8.7 million |
| GAAP net loss per share | $(0.31) | $(0.40) | Improved |
| Non-GAAP net loss | $(22.7) million | $(33.2) million | Improved $10.5 million |
| Billings | $75.9 million | $69.8 million | +9% |
| Cash used in operating activities | $(4.2) million | $(32.2) million | Improved $28.0 million |
| Free cash flow | $(16.2) million | $(17.3) million | Improved $1.2 million |
Cost of revenue increased 62% to $27.9 million, reducing gross margin primarily because of continued investment in data-center infrastructure, customer support and Box Consulting. Operating expenses were $100.9 million, or 112% of revenue, compared with $95.1 million, or 145% of revenue, in the prior-year quarter. Stock-based compensation was $16.1 million, compared with $12.7 million.
Cash and cash equivalents were $182.7 million at April 30, 2016, and marketable securities were $0.7 million, for total cash and marketable securities of approximately $183.4 million. Total assets were $434.2 million and the accumulated deficit was $770.9 million. Debt was $40.0 million under a revolving credit facility maturing in December 2017; capital lease obligations totaled approximately $16.0 million on a present-value basis. The company stated that it was in compliance with all financial covenants.
Material changes versus the prior comparable period
- Revenue growth was driven by new customers, larger deployments, renewals and expansion within existing accounts. Paying organizations increased by more than 30% year over year.
- Retention rate declined to 116% from 123%, but remained above 100%; enterprise customer churn was below 5% of prior-period annual contract value.
- Billings growth decelerated sharply to 9% from 58%, reflecting early renewals in the prior quarter, increased emphasis on annual rather than multi-year payment terms, and greater seasonality.
- Operating and net losses narrowed despite higher infrastructure and personnel spending, aided by stronger revenue growth and improved sales and marketing efficiency.
- Accounts receivable declined to $57.6 million from $99.5 million at January 31, 2016, primarily reflecting seasonal collections. Deferred revenue declined to $172.2 million from $186.4 million.
- Capital expenditures were $11.0 million, including approximately $9.0 million related to the new Redwood City headquarters.
Outlook, commentary, risks and unusual items
- Management expects continued investment in sales and marketing, research and development, data-center infrastructure, international operations and professional services, and does not expect profitability for the foreseeable future.
- Management said existing cash, marketable securities and credit facilities should fund working capital and capital expenditure needs for at least the next 12 months, but additional financing could be required depending on growth and spending.
- Management expects billings growth to decelerate faster than revenue growth because of payment-frequency changes and expects billings to become increasingly concentrated in the second half of the fiscal year, particularly the fourth quarter.
- The Open Text patent litigation was settled on March 31, 2016. Box paid $3.75 million, ending an obligation for approximately $4.9 million plus pre- and post-judgment interest. Reversal of prior accruals and related accounting produced approximately $1.7 million of net income in the quarter.
- Major risks include continuing losses and negative cash flow, intense competition and pricing pressure, customer renewal and expansion risk, security breaches or service outages, dependence on third-party data centers, privacy and data-transfer regulation, international expansion, intellectual-property claims, and potential need for additional capital.
- The company reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth remains durable as billings growth and retention rate have moderated.
- Whether continued infrastructure investment stabilizes or further pressures gross margin.
- The pace at which operating losses and free cash flow usage improve, excluding non-cash stock-based compensation and one-time litigation effects.
- Available borrowing capacity, covenant compliance and the terms of the December 2015 revolving facility.
- Future capital requirements and the potential for equity or debt financing and shareholder dilution.
- Customer retention, expansion rates, enterprise adoption, competitive pricing and security or service-continuity performance.