Box, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Box Inc. third quarter fiscal 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 in your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Alice Lopato, Head of Investor Relations. Thank you. Please go ahead.

Good afternoon and welcome to Box's third quarter fiscal 2021 earnings conference call. On the call today, we have Aaron Lubbe, our CEO, and Dylan Smith, our CFO. Following our prepared remarks, we will take questions. Today's call is being webcast and will also be available for replay on our investor relations website at www.box.com forward slash investors. Our webcast will be audio only. However, supplemental slides are now available for download from our website. We'll also post highlights of today's call on Twitter at the handle at BoxSyncIR. On this call, we will be making forward-looking statements, including our Q4 and FY21 financial guidance and our expectations regarding our financial performance for fiscal 2021 and future periods, timing of and market adoption of our products, our markets and the size of our market opportunity, our operating leverage, our expectations regarding maintaining positive free cash flow, gross margins, operating margins, future profitability, and unrecognized revenue, remaining performance obligations, and billing. our planned investments and growth strategies, our ability to achieve our long-term revenue and other operating model targets, expected timing and benefits from our new products, pricing, and partnerships, and our expectations regarding the impact of the COVID-19 pandemic on our business and operating results. These statements reflect our best judgment based on factors currently known to us and actual events or results may differ materially. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for information on risks and uncertainties that may cause actual results to differ materially. These forward-looking statements are being made as of today, December 1, 2020, and we disclaim any obligation to update or revise them should they change or cease to be up to date. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or an 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 and in the related PowerPoint presentation, which can be found on the Investor Relations page of our website. Unless otherwise indicated, all references to financial measures are on a non-GAAP basis. With that, let me hand it over to Aaron.

Thanks, Alice, and thanks, everyone, for joining the call today. We hope you and your families are all staying safe and healthy. I continue to be proud of our teams at Box globally who strive to provide tremendous support for our customers and for continuing to drive our product innovation during a challenging year. Our cloud content management product suite is gaining momentum with enterprises that are prioritizing digital transformation and building around best-of-breed applications. This growing demand was evident at our 10th annual Boxworks conference, where thousands of customers joined us virtually to learn about our innovations in security, compliance, collaboration, and workflow, and a growing network of partner integrations, including Microsoft Teams, Slack, and many more. In Q3, we delivered revenue of $196 million up 11% year-over-year, non-GAAP operating margin of 18% up significantly from just 0% a year ago, and non-GAAP EPS of 20 cents up from negative 1 cent a year ago and well above our guidance. We also generated more than $26 million in positive free cash flow, an improvement of $28 million versus a year ago, Growing demand for products like Box Shield and Box Relay drove more suite adoption, including a 35% attach rate for suite in our six-figure deals. Over 100,000 customers now rely on Box to power secure collaboration and critical business processes. And in Q3, we closed wins and expansions with leading organizations, including Intuit, Murata Manufacturing, Nationwide Insurance, USAA, and the US Air Force. To share just a few examples of the use cases we saw in Q3 deals, one of the country's leading financial services companies, who has been a Box customer since 2014, purchased a seven-figure ELA to support new use cases for Box, including claims processing in a more secure virtual environment. A multinational technology company also expanded its use of Box and purchased an ELA along with Box's GXP offering to support the manufacturing efforts of a COVID-19 vaccination currently in development. And a government agency selected Box to replace legacy systems like SharePoint and several of its own on-premises solutions to support a variety of use cases, including secure internal team collaboration, records management, secure mobile access to content, and external collaboration with the agency's customers and partners. These challenging times have highlighted the strength of our full product suite. IT strategies are shifting from focusing primarily on secure file sharing, which is critical early in the pandemic, to now more broadly reimagining and migrating major business processes to the cloud so they can better fit a new normal characterized by more virtual teams, remote work, and digital operations. While this has created tailwinds for our business, especially in enterprises that have large room for expansion, we are not immune to the adverse effects of an uncertain macro environment that our customers face. And as we mentioned earlier this year, we expected to see softness from our professional services business and smaller business customers, both of which were evident in Q3. Looking forward, we believe the differentiation of our full product suite is well positioned to drive improved growth, and our profitability initiatives will put us in an even stronger position in the coming years. Over the past few years, we've methodically built the category-defining cloud content management platform, focused on three key differentiators, frictionless security and compliance, seamless internal and external collaboration and workflow, and world-class integrations and APIs that extend the value of Box into any application. And as I mentioned, in Q3, we hosted our 10th annual Boxworks Conference, fully virtual this year, which brought together thousands of attendees with an incredible slate of speakers, including the CEOs of Cisco, IBM, Okta, ServiceNow, Slack, and Zoom. and Box customers like Battelle, International Rescue Committee, Nike, Schneider Electric, and USAA. We also announced new capabilities and integrations to help customers bring content and business processes together on Box, reducing risk, improving collaboration, and making it easier than ever to get work done securely. For example, to make it easier to collaborate across distributed teams on content in real time, we introduced all new annotations capabilities for the web and mobile. For Box Relay, we expanded the custom-built templates users can create and announced API extensibility that enables customers to connect workflows in Box to applications like Salesforce or ServiceNow, as well as their own custom applications. For Box Shield, we announced a new policy exception capability and an integration with Microsoft Information Protection to protect the flow of information between Microsoft 365 and Box's ecosystem. And finally, we expanded our partnership with IBM, integrating more deeply with QRadar. Importantly, we announced enhancements to Box for Microsoft Teams, including new features that make it easier for users to find, share, and access content from Box within the Microsoft Teams app. This integration enables users to unify content across Teams and all their other apps into a single content platform, a key differentiator for Box. This integration follows the increased integration work that we've been doing with Slack to ensure that customers can have access to any of their content securely from their Slack channels seamlessly. We're incredibly excited about the momentum in this industry where customers are going to use multiple applications such as Slack, Salesforce, Teams, WebEx, and Zoom to get their work done. And they're going to need access to their content from those applications securely. Enterprises, more and more than ever before, need a single source of truth for their content across their IT stack. And Box is the singular content layer that connects to these applications. With over 1,500 integrations, we continue to expand on our open and interoperable platform by creating a seamless experience for our customers. As a result of our continued product innovation, last month we were named a leader in the Gartner Magic Quadrant for content services platforms once again out of 18 vendors evaluated in the market. In the past three years, Box has quickly taken market share from legacy systems and is now recognized by Gartner as having the highest growth rate of all content services platform vendors. In October, Box was also recognized as Gartner's customer choice vendor for the content collaboration tools market, with 97% of customers willing to recommend Box. Looking ahead, we have an exciting roadmap of innovation and enhancement that will continue to drive adoption and enable our customers to work in all new ways. Now, turning to our business model, last year we laid the foundation to improve our balance between growth and profitability for FY21 and beyond. Our focus was on delivering growth more efficiently and implementing significant cost discipline in the business. We continue to deliver on this commitment. To drive efficient and consistent revenue growth, we continue to execute on our multi-product strategy and drive more efficiency into our land and expand strategy. We're focusing on landing new customers with a repeatable sales motion by leveraging our enhanced digital experiences, which has benefited us in this COVID environment and through our robust partnerships with key resellers. Our expand strategy is focused on growing existing accounts by driving add-on product adoption and seed expansion with box suites, as well as efficiently driving new logo acquisition in key markets. To drive greater profitability, we are focused on three key initiatives, continuing to optimize workforce expenses, improving our gross margins by shifting more toward the public cloud, and taking an ROI-based approach to all areas of spend. We have implemented greater cross-discipline across the business, and this is evident in our significant gross margin, operating margin, and cash flow improvements throughout the year. As you can see from our operating margin of 18% in Q3, we have been executing well on these efficiency efforts. With our rigorous approach to overall cost discipline, we are now committed to delivering at least 14% operating margin versus our previous goal of 12% to 13% for the full fiscal year. up significantly from the one percent operating margin we reported in fy20 before i conclude i want to take a moment to talk about our commitment to esg whether we are enabling our customers business continuity as they work remotely empowering nonprofits through box.org implementing diversity and inclusion programs or conducting company-wide gender pay analysis to commit to pay equity we hold ourselves accountable to a high standard of social responsibility Most recently, we hired a Vice President of Communities Impact, who will lead ESG improvements in partnership with the investor relations and legal teams, and our progress will be reviewed by our Nominating and Governance Committee. We also recently launched our ESG website that highlights the progress we are making on this front, which you can find in the About Us section of our corporate website. To conclude, in Q3, we continued to execute on our strategy to drive long-term profitable growth and further demonstrated the significant progress we made in strengthening our competitive differentiation in the cloud content management market, while also delivering increased value to our customers. At Box, we're going after one of the largest markets in software, attacking a total addressable market of $55 billion in spend on content management, collaboration, storage, and data security with the leading cloud-based platform. I've never been more excited about the market opportunity in front of us and to power how the world works together. With that, I'll hand it over to Dylan.