Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Box Inc (BOX, Financial) delivered strong second-quarter results with revenue growth of 3% year over year, or 6% in constant currency, and a record gross margin of 81.6%.
- The company saw accelerated billings growth of 10% year over year and a 12% increase in remaining performance obligations (RPO), indicating strong customer demand.
- Box Inc (BOX) continues to expand its market opportunity with the acquisition of Alphamoon's AI-powered Intelligent Document Processing technology, enhancing its Intelligent Content Management platform.
- The company reported a record operating margin of 28.4%, up 360 basis points from the previous year, demonstrating effective operational discipline.
- Box Inc (BOX) is experiencing strong adoption of its Enterprise Plus suite, with 87% of deals over $100,000 including this offering, up from 78% a year ago.
Negative Points
- Box Inc (BOX) continues to face macroeconomic pressures, particularly in the SMB segment and certain regional markets.
- The company is experiencing relatively stable seat growth, with continued pressure on overall seat expansion rates.
- Despite strong performance, Box Inc (BOX) is not yet generating revenue from its FedRAMP high compliance efforts, which could impact future federal government opportunities.
- The company's guidance includes a negative impact from foreign exchange rates, affecting both revenue and operating margins.
- Box Inc (BOX) is still working to improve its net retention rate, which, while improved to 102%, indicates room for further enhancement.
Q & A Highlights
Q: Can you provide more clarity on the macro and deal environment, and whether there's an improvement or better execution on the sales side?
A: Aaron Levie, CEO: We are pleased with the execution this quarter, with strong results across segments. While there is some pressure in areas like SMB, the overall environment feels stable compared to Q1. The demand for Box AI and our Enterprise Plus plan drove the quarter's performance, with a focus on new logos and upsells.
Q: How is AI contributing to monetization and revenue impact, and why did a law firm choose Box for their AI use cases?
A: Aaron Levie, CEO: We included Box AI in our Enterprise Plus plan to drive an upgrade cycle. AI is a catalyst for customers to upgrade, as seen with the law firm example. Customers want an AI strategy, and Box AI makes it easy for them to adopt our Intelligent Content Management platform.
Q: What are the trends in seat growth, and how is pricing impacting net retention rates?
A: Dylan Smith, CFO: The uptick in net retention rate is due to stronger pricing, driven by more customers moving to our Enterprise Plus plan. Seat growth remains stable, with continued pressure on expansion rates. We expect improvement over time, but it wasn't a factor in the recent net retention rate increase.
Q: Why provide unlimited AI queries in the Enterprise Plus plan, and how will you manage gross margins?
A: Aaron Levie, CEO: We wanted to encourage seamless adoption of Box AI, and unlimited queries remove friction. The cost of AI models has dropped significantly, allowing us to offer this. We will monetize high-volume use cases separately, ensuring competitive pricing without diluting margins.
Q: How did the demand environment evolve through the quarter, and what are you seeing in August?
A: Aaron Levie, CEO: We saw healthy linearity in the quarter, with expectations embedded in our Q3 and full-year guidance. The demand environment remains stable, and we are confident in our outlook for the rest of the year.
Q: What is driving strength in the public sector, and is AI contributing to this?
A: Aaron Levie, CEO: The public sector is adopting our platform for modernizing legacy systems. Our compliance and security allow them to move to the cloud, and AI is part of the modernization story. We are also pursuing FedRAMP high compliance for more sensitive data use cases.
Q: What is the growth algorithm to return to double-digit growth, and would you consider reducing operating margins to boost growth?
A: Dylan Smith, CFO: We expect growth to come from improved net retention rates, with a balanced contribution from seat growth and pricing. International markets and emerging markets will also contribute. We will continue to invest in growth while expanding margins.
Q: What impact do recent acquisitions have on revenue or EPS?
A: Dylan Smith, CFO: The acquisitions have no impact on revenue and are incorporated into our guidance. The Alphamoon acquisition brought in about 15 engineers, and we are focused on integrating their technology into Box.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
