Box, Inc. Form 10-Q Summary
Business Context and Reporting Period
Box provides a cloud content management platform for secure content storage, sharing, collaboration, workflow, security, compliance, and integrations. This unaudited Form 10-Q covers the three and nine months ended October 31, 2020, with comparable periods ended October 31, 2019. Box reported 75.9 million registered users, more than 100,000 paying organizations, and operations in the United States, Europe, and Asia.
Financial Performance and Liquidity
| Metric | Three Months Ended October 31, 2020 | Three Months Ended October 31, 2019 | Nine Months Ended October 31, 2020 | Nine Months Ended October 31, 2019 |
|---|---|---|---|---|
| Revenue | $196.0 million | $177.2 million | $571.9 million | $512.7 million |
| Revenue growth | 11% | — | 12% | — |
| Gross profit | $139.2 million | $120.9 million | $405.7 million | $353.8 million |
| Gross margin | 71% | 68% | 71% | 69% |
| Operating loss | $(2.6) million | $(39.2) million | $(34.4) million | $(110.9) million |
| GAAP net loss | $(5.3) million | $(40.9) million | $(38.5) million | $(114.0) million |
| GAAP net loss per share | $(0.03) | $(0.28) | $(0.25) | $(0.78) |
| Cash flow from operations | $45.1 million | $8.9 million | $139.3 million | $29.7 million |
| Free cash flow | $26.2 million | $(1.7) million | $79.3 million | $(7.2) million |
- As of October 31, 2020, cash and cash equivalents were $275.4 million, or $275.8 million including restricted cash.
- Total debt was $50.0 million. Box had a $100.0 million secured revolving credit facility, with borrowings maturing July 12, 2022, and was in compliance with its financial covenants.
- Box repaid $20.0 million of debt in October 2020 after drawing $30.0 million in April 2020.
- Total liabilities were $854.0 million and stockholders’ equity was $87.6 million at October 31, 2020. Accumulated deficit was $1.3 billion.
- Deferred revenue was $354.4 million, compared with $423.8 million at January 31, 2020. Remaining performance obligations were $755.9 million, of which 64% was expected to be recognized as revenue within 12 months.
- Billings were $185.5 million in the quarter and $502.4 million for the nine months. Net retention was 103%, compared with 104% in the prior-year comparable period.
- Non-GAAP operating income was $35.2 million for the quarter and $82.5 million for the nine months, versus non-GAAP operating losses in the comparable 2019 periods. Non-GAAP results exclude primarily stock-based compensation and certain shareholder-activism fees.
Material Changes Versus the Prior Comparable Period
- Revenue increased 11% in the quarter and 12% for the nine-month period, driven primarily by new customers, customer expansion, add-on product adoption, and higher price per seat.
- Gross margin improved by approximately three percentage points in the quarter and two percentage points for the nine months, reflecting lower hosted data service costs and infrastructure efficiencies.
- Sales and marketing expense declined 19% in the quarter and 14% for the nine months. The decreases reflected fiscal 2020 restructuring, lower travel costs related to COVID-19, reduced BoxWorks costs after moving to a virtual format, and greater sales efficiency.
- Research and development expense decreased 2% in the quarter but increased 4% for the nine months, while general and administrative expense decreased 5% in the quarter and increased 5% for the nine months.
- Operating and net losses narrowed substantially, although Box remained GAAP loss-making. Stock-based compensation increased to $115.4 million for the nine months from $106.9 million.
- Operating cash flow increased by $109.6 million for the nine months, and free cash flow improved from negative $7.2 million to positive $79.3 million.
- Paying organizations increased 3% year over year. Non-U.S. customers represented 28% of nine-month revenue, compared with 25% in the prior-year period.
Guidance, Outlook, Commentary, and Risks
- The filing does not provide clear quantitative revenue or earnings guidance. Management expects revenue to increase in dollars over time, cost of revenue to increase in dollars but decline slightly as a percentage of revenue, and sales and marketing and general and administrative expenses to decline as a percentage of revenue.
- Management expects continued investment in product development, security, compliance, collaboration, workflow automation, integrations, infrastructure, international operations, and customer success.
- Box stated that COVID-19 had not materially adversely affected financial results through the first three quarters of fiscal 2021, but it negatively affected small-business customers and prospects through increased churn risk, delayed sales cycles, delayed renewals, and reduced budgets. Remote work also created additional demand opportunities.
- Management believed available cash, cash equivalents, finance leases, and credit facilities would meet working-capital and capital-expenditure needs for at least the next 12 months, while noting that additional financing may be required in the future.
- Material risks include COVID-19 and broader economic weakness, competition from Microsoft, Google, Dropbox, OpenText, and others, customer renewal and expansion risk, persistent GAAP losses, cybersecurity and data privacy incidents, service outages, dependence on third-party hosting providers and partners, international regulatory requirements, foreign-exchange exposure, and compliance with debt covenants.
- Contractual commitments totaled approximately $693.6 million, including debt, operating and finance leases, and purchase obligations. Letters of credit totaled $27.0 million.
- Box reported no material loss contingency from litigation as of October 31, 2020 and no material costs from customer service-level or indemnification obligations. Management concluded that disclosure controls and procedures were effective.
Investor Verification Checklist
- Reconcile GAAP losses with non-GAAP profitability, particularly the effect of $115.4 million of nine-month stock-based compensation.
- Assess whether positive operating and free cash flow are sustainable after finance lease payments, capital expenditures, software capitalization, and changes in deferred revenue.
- Monitor net retention, customer churn, paying-organization growth, billings, and remaining performance obligations, especially given COVID-19 effects on small businesses and sales cycles.
- Review the $50.0 million debt balance, secured-credit-facility covenants, variable-rate exposure, and substantial lease and purchase commitments.
- Evaluate whether lower travel and event costs are temporary COVID-19 benefits or lasting operating efficiencies.
- Assess cybersecurity, data privacy, service availability, third-party hosting, regulatory, and indemnification exposures.
- Confirm the absence of quantitative full-year guidance in the filing and distinguish management’s qualitative margin outlook from formal guidance.