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spk05: Thank you for standing by, and welcome to Box Inc. Fourth 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 on 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 the speaker today, Alice Lopato. Please go ahead.
spk04: Good afternoon and welcome to Boxer's fourth quarter and fiscal year 2021 earnings conference call. On the call today, we have Aaron Levy, 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 the highlights of today's call on Twitter at the handle at Boxing IR. On this call, we will be making forward-looking statements, including our Q1 and FY22 financial guidance and our expectations regarding our financial performance for fiscal 2022 and future periods, timing of and market adoption of our products, our markets and the size of our market opportunity, and our expectations regarding our free cash flow, gross margins, operating margins, operating leverage, future profitability, unrecognized revenue, remaining performance obligations, and billings. Our planned investments and growth strategies, our ability to achieve our long-term revenue and other operating model targets, the timing of and benefits from our new products, pricing, and partnerships, the impact of our acquisitions on future box product offerings, and 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 from statements made on this earnings call. These forward-looking statements are being made as of today, March 2, 2021, 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 in 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.
spk11: Thanks, Allison. Thanks, everyone, for joining the call today. As always, we hope you and your families are staying safe and healthy. i'm incredibly proud of the team at box and the milestones we achieved in fy21 this was a substantial year of progress across all facets of our business strategically operationally and financially we exceeded our commitment to achieve a revenue growth rate plus free cash flow margin of 25 percent ultimately delivering 26.3 percent versus 13.4 percent just a year ago In addition, we drove significant margin expansion with a 15% non-GAAP operating margin up from 1% a year ago. This year, we delivered the category-defining cloud content management platform to the market by making significant product enhancements in security and compliance, collaboration and workflow, and strengthening our ecosystem of partner integrations. and to further expand our product portfolio at the start of this new fiscal year we just recently announced box sign our native e-signature product offering that will be coming out later this summer In a year of immense market uncertainty, we delivered both revenue growth and improved profitability, advanced our long-term strategy, brought on three new amazing independent directors onto our board, and maintained a relentless focus on enabling our customers to work in an all-new, modern, and digital way. With this foundation in place and the momentum we are seeing across the business, we are confident in our ability to achieve accelerated growth and higher operating margins in the years ahead. Turning to our Q4 results, we delivered revenue of $199 million, up 8% year-over-year, non-GAAP operating margin of 18%, up significantly from 7% a year ago, and non-GAAP EPS of 22 cents, up from 7 cents a year ago, and well above our guidance. We also generated more than $41 million in positive free cash flow, a substantial improvement from breakeven last year. Growing demand for our more advanced capabilities such as Box Shield and Box Relay drove further suite adoption, including a record 45% attach rate for suite, as well as a 60% attach rate for Box Shield in our six-figure deals. Over 100,000 customers now rely on Box to power secure content management and collaboration in the cloud. In Q4, we closed wins and expansions with leading organizations like Arena Pharmaceuticals, Asahi Group Holdings in Japan, Pan American Life Insurance Group, Twilio, and UPS. Our customers are choosing Box to power high-value use cases that are integral to how they run their businesses. Here are just a few examples from Q4. An innovative biopharmaceutical company purchased a six-figure ELA with Box's GXP and KeySafe offerings to help power its mission to transform the way that drugs and therapies are manufactured in the U.S. A global leader in the insurance sector who has been a Box customer since 2016 purchased Box Governance to support claims processes while meeting critical compliance requirements. And a Japanese manufacturing company moved to Box to address their need for a content platform to facilitate remote work, as well as integrate with applications such as SAP, Salesforce, and Google Workspace. 2020 was a dynamic year for all enterprises, and we are now seeing IT strategies shifting to support the long-term trend of virtual and distributed teams, digital operations, and an increasingly complex and high-stakes security and compliance landscape. In this context, how organizations manage and collaborate on content is at the center of how they operate, whether it's a life sciences company sharing highly regulated IT with their partners and regulators around the world, an insurance organization automating workflows around confidential claims and records, or a government agency's need to digitize paper-based processes. All of these organizations across all industries run on content. To power these processes, the days of fragmented on-prem content storage and enterprise content management systems no longer works. Customers fundamentally need a single content cloud connected across all their apps to power their end-to-end content workflows on a single platform. As the experts in content, our vision is to power the entire content journey, giving enterprises a secure platform for managing all of their content from the moment it's created to when it's uploaded, shared, edited, published, approved, signed, classified, and retained. This is our vision for the Box Content Cloud. Having dramatically improved our overall balance between growth and profitability in FY21, the next chapter for Box is to continue building on our leadership position and transform how enterprises work in the digital age. To accelerate this strategy, just last month we acquired SignRequest, a leading cloud-based electronic signature company, to develop Box Sign, our new e-signature capability that will be natively embedded into Box. every day more and more transactions are moving from paper-based manual workflows to the cloud e-signature is already a multi-billion dollar market and it's still in the earliest days with digital transactions just beginning to become critical in every industry when we surveyed hundreds of our customers in 2020 e-signature was the most requested For example, legal teams will be able to create and finalize contracts within Box, from drafting and co-editing to signing and retaining the agreement with Box governance. HR teams will be able to initiate and complete offer letters using Box Relay together with Box Sign. Sales teams can initiate digital customer contracts for signature right from Salesforce. And compliance teams will be able to retain and protect executed agreements while securing sensitive content with Box Shield. BoxSign is expected to be generally available in the summer of 2021. It will be integrated into Box's existing subscription plan with additional levels of functionality being available in our enterprise plans and suite offerings. We want to ensure all of our customers have access to the value of BoxSign while also enabling us to monetize the higher-end signature use cases that leverage advanced functionality and APIs. Adding eSignature is a significant step in building out the complete content cloud. Another exciting announcement we made last month was the availability of the all-new Box Shuttle. For many organizations, moving to the cloud has been a priority, but the cost of content migration, especially in complex content management environments, has been a major impediment to cloud adoption. The new Box Shuttle can migrate some of the most complex and large-scale content management environments at a lower cost and faster than ever. We want it to be simple, fast, and cost-effective as possible to retire legacy systems and move information from source platforms like network file shares, SharePoint, OneDrive, Documentum, and OpenText to the Box content cloud. And with more high-value content in Box, our customers can empower their teams to collaborate more effectively and accelerate their digital transformation initiatives. In Q4, we also continued to stay at the center of our customers' digital experiences by deepening our integrations with Google Workspace, Slack, and WebEx. As more organizations use multiple applications such as Slack, Salesforce, Teams, WebEx, and Zoom to get their work done, they need to access their content from these applications securely and seamlessly. Box connects to these applications, and with over 1,500 integrations, we create a seamless experience for our customers to work in new ways. Overall, we're more excited than ever to continue to build out the complete content cloud. FY22 will be our singular biggest year for product innovation as we expand into new market adjacencies like e-signatures, while continuing to double down on product areas like Box Shield and Box Governance for advanced security and compliance, Box Relay for workflow automation, and our open platform to connect to all of our customers' applications. This product innovation will enable us to build on our leadership position, which has been validated by IDC, Gartner, and Forrester. Next, to bring all of this value to our customers in FY22, we're focused on continuing our land and expand strategy to drive growth with new and existing customers. In Q4, we saw tremendous success with box suites, our ELA licensing model, and a significant improvement to our $100,000 plus deal growth. We continue to see significant headroom and expanding within current accounts. As just within our current customer base today, Box has a 7x potential increase in seats from upselling existing customers. To drive continued logo growth and customer expansion, we are focused on a number of priorities across our go-to-market engine. First, we are continuing to double down on our digital channels. This remains an area we will continue to invest in as we scale to efficiently bring in new logos and drive upsells across enterprises of all sizes. Second, we know that driving strong partnerships with leading technology companies and system integrators is key to our success at scale. This is why we are excited to continue to partner with IBM, Google, Salesforce, Slack, Zoom, Cisco, Okta, Microsoft, as well as many others, including leading system integrators, to ensure we're delivering our content cloud solution to our customers at scale. Third, we will continue to double down in key verticals like life sciences, federal government, financial services, media, consumer products, and the technology sector, among other markets, where we continue to see substantial upside and a significant need for secure content management in the cloud. Finally, we see continued opportunity for efficient expansion in key international markets, especially in Japan, EMEA, Canada, and Australia. To ensure that we're building a stronger precedent and consistent execution in EMEA, we've just filled our previously vacant EMEA GM role with a world-class go-to-market leader. We're excited to share more about this new leader when we formally introduce this individual to our internal teams and public stakeholders. As we look to FY22 and beyond, we are focused on innovation and further opening new areas of growth while reinforcing our gains and profitability. As we shared at our most recent analyst day, we are committed to driving a revenue growth rate between 12% and 16% with operating margin in the mid-20s by FY24. Our FY21 results demonstrate that our strategy is working and that we are making tremendous progress toward achieving our long-term goals. We are confident in our ability to achieve these results based on the customer momentum we're seeing, our product roadmap, and the total market opportunity ahead. We are going after one of the largest markets in software, attacking a total addressable market of over $55 billion in spend on content management, collaboration, storage, and data security annually. And with the new addition of e-signature capabilities, our market is only getting larger. We have built the leading content cloud with well over 100,000 customers on our platform, and we have an exciting roadmap to continue pioneering in this industry going forward. With that, I'll hand it over to Dylan. Thanks, Aaron. Good afternoon, everyone, and thank you for joining us today. In fiscal 21, we are proud to have delivered a strong balance of growth and profitability, achieving a non-GAAP operating margin of 15%, up significantly from 1% a year ago. We also exceeded our 25% commitment for revenue growth plus free cash flow margin, delivering 26.3%, a strong improvement from the 13.4% we recorded a year ago. In Q4, we delivered revenue of $199 million, up 8% year-over-year. Importantly, 29% of this revenue came from regions outside of the United States, up 400 basis points from 25% a year ago. Our remaining performance obligations, or RPO, represent non-cancellable contracts that we expect to recognize as revenue in future periods. We ended Q4 with RPO of $897 million, up 17% year-over-year, comprised of 10% deferred revenue growth and 21% backlog growth. Average customer contract durations have continued to lengthen, driven by a higher volume of longer-term strategic deals, which contributed to the strength we saw in our backlog growth. We expect to recognize approximately 61% of our RPO over the next 12 months. Fourth quarter billings came in at $310 million, representing 10% year-over-year growth and ahead of our revenue growth. This acceleration was driven by strong sales execution in the quarter, reflecting continued momentum in our enterprise business and a clear recovery in our SMB business. As Aaron mentioned, we were extremely pleased to achieve a record 45% attach rate for our suite offerings across six-figure deals in Q4. This quarter, we closed 121 deals worth more than $100,000 versus 112 a year ago, 21 deals over $500,000 versus 14 a year ago, and $4 million deals in line with a year ago. Our success in cross-selling our product portfolio is driving higher-value use cases across our largest customers, improving the average contract value of our six-figure deals in both Q4 and the full year. Our Land and Expand strategy is generating momentum and large customer growth. We now have 1,216 customers paying more than $100,000 annually, up 10% year-over-year, and $99 million customers up 24% year-over-year. Going forward, we will be reporting these cumulative customer counts on an annual basis in addition to the number of 100K-plus deals that we close in each quarter. In Q4, we drove very strong bookings from net new customers, up more than 25% year-over-year, which isn't reflected in our net retention rate. We ended Q4 with an annualized net retention rate of 102%, down slightly from 103% in Q3 due to the trailing 12-month nature of this metric. Note that the net retention rate of customers who have adopted at least one of our add-on products is approximately 20 points higher than the rate of our core-only customers. So as our customers increasingly implement higher value use cases and adopt our add-on products, this will create a tailwind to our overall net retention rate. As such, we expect our net retention rate to stabilize in Q1 and improve by a couple of percentage points over the course of this year. In Q4, our full churn rate was 5% on an annualized basis in line with Q3 and the prior year. Turning to margins. Non-GAAP gross margin came in at 73.2%, up 170 basis points from 71.5% a year ago and roughly in line with Q3. Our focus on reducing infrastructure costs and gaining economies of scale is paying off. Q4 gross profit of $146 million was up 11% year-over-year, outpacing our revenue growth. We expect gross margin to continue improving in the coming years and to land in the 74% range this year. Total Q4 operating expenses represented 55% of revenue, representing a significant 900 basis point improvement from the 64% recorded a year ago, demonstrating our commitment to efficient growth. As a result of our emphasis on revenue growth, gross margin expansion, and operating expense leverage, in Q4 we generated an 1,100 basis point improvement in our non-GAAP operating margin year over year, coming in at 18% versus 7% a year ago. Sales and marketing expenses in the quarter were $57.5 million, representing 29% of revenue, down 600 basis points from 35% in the prior year. Our go-to-market improvements enabled us to deliver efficient and consistent revenue growth, and we generated a 13% year-over-year improvement in Salesforce productivity, primarily driven by our enterprise Salesforce. We plan to grow our quota-carrying Salesforce and the load teams in FY22, focusing on our higher-performing geographies and segments. We will also continue investing in our customer success organization to help our customers adopt higher-value use cases. Research and development expenses were $33.6 billion, or 17% of revenue, down 200 baseless points from 19% in the prior year. We have now opened our first offshore engineering center of excellence in Poland, where we expect to have more than 100 boxers located by the end of the year. Going forward, this distributed development strategy will enable us to generate additional leverage from our R&D investments. This past year, we drove both innovation and enhancements to our product portfolio, generating strong momentum in our customers' adoption of higher-value use cases. 59% of our revenue is attributable to customers who have adopted at least one of our add-on products, up from 52% a year ago. Strong Suites adoption is evidenced by the 36% of our revenue attributable to customers who have adopted multiple products, up from 24% a year ago. Our general and administrative costs were 18.2 million, or 9% of revenue, down from 10% a year ago. We expect to drive leverage in G&A through greater operating discipline and by evolving our workforce location strategy as we scale. Non-GAAP EPS came in at $0.22 and well above the high end of our guidance. This represents an especially strong improvement from $0.07 a year ago. Let me now move on to our balance sheet and cash flows. We ended the quarter with $596 million in cash, cash equivalents, and restricted cash. This includes net proceeds of $309 million raised through our Q4 offering of convertible notes. We delivered very strong cash flow from operations of $57.5 million in Q4, a $42.5 million, or 280%, improvement from the $15.0 million recorded a year ago. Combined CapEx and capital lease payments were 8% of revenue in Q4. Total CapEx was $1.7 million, and capital lease payments, which we factor into our free cash flow calculation, were $13.9 million. We expect capital lease payments to be lower, both in dollar terms and as a percentage of revenue, versus this past year's payments. We expect CapEx and capital lease payments combined to be roughly 8% of revenue in Q1 and roughly 7% of revenue for the full year of FY22. Finally, we delivered exceptionally strong free cash flow in the fourth quarter of $41.0 million, meaningfully from essentially break-even a year ago. Before we turn to our guidance, I want to remind you that, as we noted at our most recent Investor Day, we're committed to delivering FY24 revenue growth in the range of 12% to 16% with non-GAAP operating margin in the mid-20% range. We're confident in achieving these targets as more of our customers continue to adopt multiple products, resulting in significantly higher contract values, price per seat, and net retention. Salesforce productivity will continue to improve as customers increasingly adopt these solutions and as we focus our investments in higher-performing regions and segments. Q4's results demonstrate that the strategy is working with strong sweep sales and big deal metrics and with both RPO and billings growth exceeding our revenue growth. As we continue to drive revenue growth, we will also continue to generate operating leverage across the business, driven primarily by our lower cost location strategy, continued gross margin improvements, and maintaining a rigorous ROI-based approach to all areas of our spending. With that, let's now turn to our guidance. We're well positioned to stabilize our revenue growth rate in FY22 and to re-accelerate growth next year. While we remain prudent in our growth expectations given the macroeconomic environments, we anticipate continued strength in our enterprise business, a recovery in SMB demand, and accelerated growth in our international markets. While we do expect certain COVID-related expenses to partially return over time, we don't expect our spend in these areas to return to pre-COVID levels even after we return to an office-based environment. For the first quarter of fiscal 2022, We anticipate revenue of 200 to 201 million, up 9.5% at the high end of this range, and an improvement from the revenue growth that we delivered in Q4. We expect our non-GAAP EPS to be in the range of 16 to 17 cents, and GAAP EPS in the range of negative six cents to negative five cents on approximately 166 million and 161 million shares, respectively. for the full fiscal year ending January 31st, 2022. We expect our FY22 revenue to be in the range of 840 million to 848 million, representing 10% year-over-year growth at the high end of this range. We expect our FY22 non-GAAP EPS to be in the range of 76 to 81 cents on approximately 169 million diluted shares. Our GAAP EPX is expected to be in the range of negative 25 cents to negative 20 cents on approximately 164 million shares. For the full year of FY22, we expect billings growth to be slightly above revenue growth. We do expect variability in our billings growth rate on a quarterly basis, including in Q1, where we expect billings growth to be in the high teens, up from 10% this past quarter. we will provide further color around our upcoming quarter's billing expectations on future earnings calls. As we shared at our most recent analyst day, we remain committed to achieving a combined revenue growth rate plus free cash flow margin of 30% this year. In summary, In FY21, we delivered strong financial results, balancing both growth and profitability, and capped off the year by exceeding our commitment to achieve revenue growth plus free cash flow margin of 25%. We are well positioned to deliver strong revenue and profitability growth as we continue to build on our leadership position in cloud content management. With that, I would like to open it up for questions. Operator?
spk05: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound or hash key. Please stand by. We compile the Q&A roster. Your first question comes from the line of Phil Winslow from Wells Fargo. Your line is open.
spk06: Hey, guys. Thanks for taking my question. Congrats on a strong close to the year. I just wanted to focus in on slides 17 and 28. They attach a shield and relay and suites, but also the multi-product contribution. Obviously, a big step function up in those metrics this year. When you think about the guidance for this coming year, how do you think about the ability to continue to drive those percentages higher, but also to potentially Just acquire new customers, because I did notice your comment about growing the sales force. I believe it was double digits. So just kind of help us through the growth algorithm called increasing go-to-market capacity relative to attaching new products.
spk11: Yeah, so I would say that we do feel very confident given the consistent trajectory we've seen in higher attach rates for our newer products as well as suites. So all of our suites offering BoxRelay and BoxShields delivered record attach rates in the fourth quarter. And I think we've now had enough time in the market and have really kind of built our go-to-market initiatives and the way that we communicate our value to customers to be more oriented around these much broader deployments that leverage these capabilities. So we do feel very confident in continuing to evolve and have more and more of our customers adopting these add-on products and think that certainly at least kind of stabilizing, if not improving, the detach rates we demonstrated in Q4 is what we'd expect to see in the coming year. To kind of frame up what that means from a business model point of view, we now have 59% of our revenue attributable to customers who have adopted at least one of our add-on products versus 52% a year ago. So it's definitely showing up in the overall kind of sophistication of what our typical customer is using Box for. And then as it relates to growth going forward, you mentioned on the productivity side, We are expecting to, based on the strong productivity trends that we've been seeing, especially over the back half of the year, we do expect to grow our sales force in the low teens with a continued focus on our higher performing regions and geographies that have higher sales force productivity. And at the same time, the sales force and the things you've done over the course of this past year have been ramping really nicely. So we also have a greater percentage of our sales force that is fully ramped versus where we were entering this past year. So overall feel really good about both the underlying product trends as well as the capacity that we have to deliver against our growth targets for next year.
spk06: Got it. And then just more of a strategic follow-up for Aaron. You know, over the past, you know, call it 90 days or so, we've seen a lot of changes on the, call it the communication side of the content and collaboration and communications market with, for example, the announced acquisition of Slack by Salesforce. Curious what customers are saying to you if there's a belief that there's increased call or sort of permanent fragmentation at the communications layer, you know, what that means for the, call it the content layer, you know, of that stack and boxes position.
spk11: I think so, yeah. This is... This is exactly what we're seeing where as there are more applications that enterprises are going to be deploying, whether those are communication applications or collaboration applications or business process applications, the more heterogeneity in those tools, the more you need a central, independent, neutral content platform or content cloud to manage the content across all those different ecosystems. And so with Slack pairing up with Salesforce, with obviously the success and growth of Microsoft Teams, with other major technologies like ServiceNow and WebEx and Zoom and other platforms. These all bolster our position as being that neutral content cloud that can connect to all the different applications that our customers have. And we're seeing that show up day in and day out in our customer conversations where we'll go to an enterprise While there will be a lot of maybe Microsoft in that environment or Google in that environment or Salesforce in that environment, the fact that those customers might have three or five or ten other cloud platforms that employees are working from increases the need for having a central content cloud that connects to all those tools.
spk06: Great. Thank you very much.
spk05: Your next question comes from the line of Brian Peterson from Raymond James. Your line is open.
spk10: Hey, thanks, guys. Kevin here on for Brian. I wanted to ask on Box Shuttle, can you help us frame how to think about new business leads or seed expansions that you think potentially don't materialize due to complexity or friction surrounding the onboarding process? And how do you see that product playing a role in your funnel of opportunities across the enterprise segment?
spk11: Yeah, thanks, Kevin. So I think for the most part, we're not held back on sort of the volume of opportunities that we have due to data migration because we have had a strong partner ecosystem that we use for data migration services. However, There's a large number of enterprise environments where we haven't necessarily captured all the use cases that that customer has. So we might come in and, you know, certain departments will use Box for content management and collaboration, maybe in the sales team or in the supply chain or for client onboarding. but they'll still be legacy SharePoint sites or document them environment that that enterprise has. With the new Box Shuttle, we're going to be able to now take the momentum that we have with existing customers and help them actually migrate more of their data, more of their content into Box, which ultimately is going to lead to either more seats, more api volume and then ultimately greater stickiness over time so we see this as another significant lever to help our customers just continue to complete the full migration into having one single content cloud that is modern secure and drives this new level of productivity so we think this is going to be very very important for our continued expansion within our customer base
spk10: Got it. That's helpful. And then just quick follow up. I know you mentioned high teams, billings, expectations for Q1. Just curious if you could talk through some of the drivers that you see driving that acceleration.
spk11: Yeah, so the primary driver that relates to the full year commentary around billings coming in slightly ahead, billings growth coming in slightly ahead of revenue growth is really around a lot of the underlying momentum that we're seeing in the business. As mentioned and as always, we do see some variability quarter to quarter just due to things like when certain large deals renew, if we see early renewals, as well as payment durations. But overall, nothing unusual going on either in Q1 or throughout the course of the year and more a function of the strength we expect to see in the quarter, as well as some of those dynamics around just the timing of some of the larger renewals. Okay. Thanks, guys.
spk05: Your next question comes from the line of Josh Bauer from Morgan Stanley. Your line is open.
spk00: Thanks for the question. I wanted to ask one on capital allocation and I guess M&A and free cash flow in there, too. Basically, you've operated with $200 million, give or take, in cash on the balance sheet for at least four years. Now, that's inflecting, and you're generating hundreds of millions in free cash flow. I was hoping you could review your capital allocation strategy. Obviously, we've seen recent M&A and e-signature solution but just wanted your updated thinking around potential for more M&A or anything else to consider around capital allocation.
spk11: Sure. So going back to the convertible debt offering, we executed that as we saw it as a very optimistic time to bolster our balance sheet through that offering, given the market environment and terms. So we're able to achieve a combination of a 0% coupon rate with no covenants as a flexible way to fund our future needs at a relatively low cost. As mentioned, we are seeing a number of attractive tuck-in M&A opportunities to deliver more value to our customers by accelerating the innovation in our product roadmap. And the acquisition of SignerQuest is a great example of that, which will become the foundation for our box sign launch this summer. And anything we do acquire will actually be a logical fit with the business that doesn't disrupt customers. Our targets for revenue growth or operating margin expansion. And more broadly, we really look at using our capital to continue to fuel growth and capture even more of the market opportunity in front of us. And we look at our capital allocation strategy through the lens of what will deliver the most value to our shareholders. So there are certain things that, you know, we evaluate like a stock repurchase program is certainly one of the actions that we regularly look at as part of this. But, you know, more I would say just the overall orientation is around going after the market opportunity and delivering shareholder value.
spk00: Great, that's helpful. And if I could just ask, you mentioned a couple times around SMB stabilization, maybe improvement, looking ahead. If you could just go a level deeper, like what are you seeing in the SMB customer base? Is this, should we expect more new customers? Is this an improvement in spend from existing customers? Thank you.
spk11: Sure. So what we saw in our SMB business in the middle part of the year, post-COVID, did see a decrease in the demand levels and the bookings performance in that middle part of the year. Q2 was really the low point. We saw the beginnings of recovery. and pipeline building in Q3. And then that resulted in a strong Q4 performance with the bookings in our SMB business up about 15% year on year. And those trends that we saw in Q4 have really continued. And there isn't really anything about the mix shift of new customers versus customer expansion. We've seen both of those components really bounce back to really healthy levels and a very different type of volume of demand versus what we saw in the middle part of the year.
spk00: Great, thanks.
spk05: Your next question comes from the line of Dakai Kidron from Oppenheimer. Your line is open.
spk01: Thanks. Nice quarter, guys. Aaron, maybe you can talk about when you look at your fiscal 22, the growth that you've guided for fiscal 22 is pretty much on par as fiscal 21. I'm kind of wondering if you're exiting the year on such good, strong momentum, and it looks like you're going back to hiring quite nicely on the quarter base. Why shouldn't we see a better performance there? And then also maybe you could talk, Aaron, Dylan, maybe you can talk about the RPO. You talked about 17% year-over-year. Is there a way you can give us the growth rate duration adjusted, what that would have been? Thanks.
spk11: Yeah, thanks, Ty. So great question. Obviously, you know, we are focused on driving a strong balance between growth and profitability going forward, and we've guided to or provided targets for that long-term growth. growth rate of 12 to 16% by FY24. And I think as we looked at last year, you know, we did see some impact on our professional services business. This is really our consulting offering where we help customers, you know, with deployments and expansion. And because a lot of our of our bookings were coming from existing customers driving seat expansion or add-on product expansion, there was, in some cases, less need for that professional services. And so some of that flows through in terms of recognizable revenue in professional services coming into FY22. And then we also saw, obviously, you know, between the S&B business that Dylan just talked about and some of our segments you saw, you know, some impact to that, which obviously was an impact in FY21 but flows into FY22. So we still have some of that impact flowing into the FY22 numbers. However, as you just called out, you know, with the momentum we're seeing in Q4, the fact that we're seeing really, really healthy expansion of suites, box shield now in nearly 60% of our $100,000-plus deals, you know, really, really healthy adoption rates of those products right now. We do believe that there's a lot more momentum that we're going to be able to capture, which is why we want to make sure that we're, again, driving that balance of growth and profitability going forward. And then certainly when you layer on things like FoxSign, where it's the number one kind of new product most requested product from our customers, we see a lot of momentum possible throughout this year. So we want to be prudent on our guidance and make sure that we're continuing to drive that balance of growth and profitability. But we're excited to see and keep executing throughout this year. And to answer the question about the RPO dynamics, so as mentioned, we have seen a lengthening in contract durations because of just the volume of longer-term strategic deals that we're signing with our customers. And so now the average contract duration across our business is up. and now about 19 months versus about 18 months a year ago. So the impact, that's more on the backlog component of RPO, and the total impact to RPO because of that dynamic specifically is in the low single-digit range in terms of the percentage impact to the 17% RPO growth.
spk01: Great. That's great. Aaron, maybe just as a follow-up, in your preparum, I should talk about how you see a 7x potential of upselling within your existing And then, you know, you've talked about hiring the quarter-based individuals and targeting new regions, customer success segment. It feels like it would be fair to say that as you look at fiscal 22, you're taking perhaps a little bit more of a balanced approach between going after new business versus expansion versus past year, which was very expansion-focused.
spk11: I think certainly incrementally with our current product portfolio and some of the updates with things like BoxSign, I think incrementally we are continuing to drive more differentiation and improvement on being able to attract new logos onto the platform. But equally, with that seven exceed opportunity and with the product portfolio we have, we do want to make sure that we go and support all of our existing customers and expand them as much as possible. And so some of the go-to-market areas that we want to continue to support, those will even go into making sure that we can drive growth within the current install base. So some of those investments will help us go deeper within today's install base, not just go out and expand the new logos
spk01: Very good. Good luck, guys.
spk11: Thank you. Thanks.
spk05: Your next question comes from the line of Steve Enders from KeyBank Capital Markets. Your line is open.
spk07: Hi, Greg. Thanks for taking the question. I just wanted to check. It sounded like you had pretty solid performance in new customer bookings in the quarter. I just wanted to get a sense of how you're thinking about that strong performance there and, I guess, kind of expectations going forward when it comes to new customers onboarding. Sure.
spk11: So I'm very pleased with the performance there and think it really comes down to a couple of drivers, the first of which is just as it relates to the overall improvement that I mentioned earlier in the SMB business, while the ratio of new customer versus customer expansion wasn't too different from what we typically see, we do see a stronger mix and a greater contribution from net new customers in that part of the business versus the enterprise, which is a little bit more concentrated in customer expansion. And so as the SMB performance really continued, that was part of the reason that we saw such strong net new customer bookings growth. And then the other driver is really strong quarter and outcome for our Japan business, signing up some pretty key new customers on the box. So those are the two biggest kind of components that drove the net new customer growth.
spk07: Okay, great. Thanks. And then on, you know, You talked a little bit about the new Box Time product that you're rolling out and just wondering how you're thinking about the evolving strategy going forward with the Box Content Cloud and what are the incremental opportunities that that strategy could open up for you?
spk11: Yeah, thanks. So, you know, the way that we've been driving our multi-year strategy, and we laid this out many years ago as we went to go and drive the cloud content management market and category broadly, was really being able to power the complete workflow or lifecycle of content within a single multi-tenant cloud platform. And that's been the That's been the journey that we've been on as a platform now for well over a decade. And as we looked at that lifecycle for where content travels through business processes and needs to be secured and classified and then ultimately governed, you know, certainly over the past year we've seen all new use cases that have increased in importance. So massive increase in digital transactions around content. So whether that's a contract management workflow or employee transactions, or compliance workflow, we know that e-signatures have really just propelled in growth in any enterprise around the world. So we recognized that, okay, we really had to accelerate having e-signature capabilities natively built into the platform and really provided to the market in a very disruptive, compelling way. So that obviously drove our acceleration into the e-signature market. Conversely, we see all new use cases around being able to do new content workflows around content publishing, things like digital asset management and contract collaboration and sales enablement. So there's all new use cases that help us go deeper in every key vertical and line of business from a content management standpoint that we're very excited about. to be releasing throughout the year. So we want to power that complete lifecycle of content in a single cloud platform, and that's what we are driving with our content cloud vision. And you'll see continued organic innovation on that front. And then, of course, you know, when appropriate, areas where we can accelerate that innovation with what we did with the sign request tuck-in. So that's how we're going to be driving growth going forward.
spk07: Okay, great. Thank you.
spk05: Your next question comes from the line of Rishi Jaluria from DA Davidson. Your line is open.
spk08: Hey, this is Phil Brigby on for Rishi Jaluria. Thanks for taking the question. I wanted to get a bit more color on the customer wins you highlighted, like the Japanese manufacturer and the biopharma manufacturer. Anything you can tell us about what drove the displacements or wins there? I appreciate the commentary about your broad integrations, but just interested to hear any incremental thoughts on those.
spk11: Yeah, thanks. So, you know, we are, I think as we highlighted certainly the past couple analyst earnings calls, at the start of the year, maybe the first half of the year, we had a pretty robust set of conversations around just kind of secure remote work within our customer base. So companies calling us saying we need more licenses at Box because we have to enable work from anywhere, which was obviously, you know, great, great momentum we saw, of course. There were equal headwinds in some parts of the segment that we serve, especially SMB and other parts of the business. As we came into the second half, we saw a very noticeable shift in the kinds of conversations we were having with customers where it was no longer just around remote work enablement but really around long-term digital transformation initiatives so in the case of you know various customers in life sciences really starting to think about revamping all operations around clinical drug trials and working with the fda and collaborating with cro partners or global manufacturers and cpg companies that need to be able to securely collaborate all around the globe with all of their partners And in all of these cases, there is a very consistent trend of the need for an extreme amount of data security. So that's where BoxShield comes in. The ability to have a single platform for the content workflows and collaboration, that's where obviously our core platform and Relay come into play. And then being able to have integrations with all of their IT stack, whether that's Microsoft Teams or Slack or Zoom or other major tools like WebEx that they're using. And so when we bring in that full value proposition of data security, collaboration and workflow, and an open platform, that's really what led to the acceleration of a large number of deals in Q4, including the ones that you highlighted. But frankly, I think these are trends that we're seeing across every segment, every industry, and all around the world right now.
spk08: Very helpful. Congrats on the quarter. Thank you.
spk05: Your next question comes from the line of Mark Murphy from JP Morgan. Your line is open.
spk09: Yes, thank you very much. Dylan, I think you alluded to this, but I'm just wondering to what extent you'll – Expect to see a structurally different cost structure on the real estate side and then the T&E expense profile post-pandemic. In other words, just interested in how you're envisioning your own company's workforce location and then the trend in business travel for this year and maybe into next year also.
spk11: Yeah, so I would say that, you know, certainly for the coming year, the current year, based on the timing of when we expect to return to offices and just some of the other dynamics of COVID kind of gradually abating, we expect to stay at the kind of levels we've seen over the last few quarters for the first half of the year. Going forward, once we do return to an office-based environment, As mentioned, do expect some of these expenses to return. But I think based on some of the success and ways that we've been able to move certain types of conversations, demand generation, things we might have needed to travel for, have customer basic events for online, even steady state, we do expect that to be more efficient. So that combined with the overall shift that we've talked about in location strategy is really what's driving a lot of that kind of continued benefits, those continued benefits in our ability to remain at pre-COVID levels versus anything dramatically different from a structural standpoint.
spk09: Okay, understood. The other question I have for you is, I think in the past you've had relatively little FX impact, but just given some of the recent volatility in rates, can you just clarify, was there any material FX impact one way or the other on revenue or deferred revenue in fiscal Q4, or are those all the same numbers in... constant currency terms. And while I'm at it, I guess I'd ask the same. The short-term RPO, I think that grew 10%. Are those all kind of the same numbers in constant currency?
spk11: There are very similar. So as it relates to the Q4 outcome, there was an impact, a tailwind on billings and then deferred revenue of kind of low single-digit millions, and then really an immaterial impact on revenue and expenses. And so those are very close in terms of the overall growth rates on the billing side about a, you know, less than 1% impact and even less pronounced when you look at items like deferred revenue or RPO. And all of those are related to the same dynamics that you mentioned.
spk09: Okay, very good. Thank you.
spk05: Your next question comes from the line of Chad Bennett from Craig Howell. Your line is open.
spk11: Great. Thanks for taking my questions. So just on the billings commentary for the current quarter, I think you spoke about high teams. I mean, you know, I don't want to hold you to anything, but just looking forward from the current quarter, including the current quarter, you really have pretty favorable comps on the billing side for this entire year. Is there anything or puts and takes, mainly puts, I guess, that would decelerate that billings growth rate in the last three quarters of the year? No, there really isn't anything unusual that we'd anticipate. I mean, again, and feel really confident in the kind of commentary around FY22 for that billings growth to exceed our revenue growth. And again, from quarter to quarter, we do see our billings outcome occasionally impacted by the timing of large customer renewals and things like that, but nothing unusual that would be creating, you know, the sort of, you know, strange compares for the coming year. We expect the underlying drivers to remain pretty consistent with what we saw in FY21, and so really the higher performance is more driven by the underlying business momentum that we expect to see. Okay. And then just trying to at least big picture-wise put the pieces together on the guide for the year, about 10% growth, which is kind of similar growth to what you saw this past year. You guys talked about a $55 billion TAM increase. You talk about being a pretty significant player in digital transformation and cloud acceleration. You're still a sub-billion-dollar revenue company. The software plays on these kind of secular trends that are very robust right now from a spend standpoint. aren't growing at 10%, I guess, to put it bluntly. And even your target growth rate of 12 to 14, you know, if you took the midpoint, you'd argue, you know, that's fairly low. So, you know, I love the color on the attach rates and box shield and suites and relay and so forth. I mean, they're all up into the right, but our net expansion continues to decline. And even if you expected... you know, a couple more points on that expansion, you know, it still seems, you know, that something's, I'm missing something or maybe, you know, there's something, you know, kind of in the go-to-market that does, you know, that's not quite clicking yet. Can you provide any color there? yeah so um so first of all i mean uh certainly great uh great question um i think if you look at the um the broader market in content management and uh document management collaboration and data security around content um you know i think our growth rate would uh would certainly be the highest if not if not one of the highest growth rates of the category and so it's a very large cam but certainly one that has to be migrated from on-premises systems and legacy systems into the Cloud. That's certainly a relevant nuance, which is we are really going out and disrupting the broader market. By doing so, certainly driving one of the highest growth rates again, if not the largest growth rate from an enterprise platform standpoint in this segment. So I would just kind of factor that in as you think about this. It's very different from the kind of a net new market that many other cloud players or SaaS platforms are going after where those markets are going from a smaller base because of the influx of just more of the cloud and SaaS adoption. And then, obviously, we are working aggressively to make sure that we continue to expand our product portfolio to drive these higher growth rates. We want to be prudent in our long-term model and not get ahead of ourselves and kind of provide targets that get too far ahead of where we're growing today. But we also want to be ambitious and make sure that we're expanding our product portfolio and really helping our customers have that single content cloud opportunity. to manage the full life cycle of their content. And that's, I think, what drives that kind of 12% to 16% growth number in the next couple of years. And we'll certainly keep the market up to date as we drive further growth on that front and see the results show up. But ultimately, we want to be prudent at this stage. Yeah, and then as it relates to FY22, to build on that, as Erin said, we do want to remain prudent as we expect to see some COVID-related headwinds continuing this year. For example, continued pressure in our professional services. uh business and revenue um and then as the growth really reflects the prior 12 months of business performance as the momentum that we're seeing in our business flow through the revenue we do expect to see a slight upward trend uh over time and to end this year uh in q4 at a higher growth rate than our q1 guidance calls for And then, you know, as I mentioned, based on the strong foundation that we've been building over the past years, the momentum we're seeing currently, we remain confident in the long-term targets that we laid out at our most recent investor day. Great. Thanks for taking my questions.
spk05: Your next question comes from the line of Brett Knoblosch from Burnhamburg Capital Markets. Your line is open.
spk11: Hi, guys. Thanks for taking my question back in the quarter. Just maybe a couple on the headcount increases. I guess first, what was the quota carrying growth this year? And will the new hires be focused on existing expansion or kind of new customer acquisition? So, sorry, the second part of the question was if the AEs that were hired will be focused on customer expansion versus new logos? Correct. Okay, so to speak to the trends, the size of our sales force was down slightly over – by – Over the course of this past year, as we really looked to focus our investments and resource into the regions that were performing better, where we did continue to grow sales headcount there. And then going forward, if you think about that low teens growth that we mentioned that we expect to see, it really is focused on a combination of new logos and customer expansion. pretty consistent with the ratios that we've been seeing in the business, particularly because, as mentioned, we are going to be continuing to focus on the segments and geographies where we see higher levels of performance. And those tend to have more mature customer bases and expansion opportunities. But the reps who will be hiring in those regions certainly are going after pretty significant new customer acquisition opportunities as well. I mentioned Japan as a highlight, and that was the exact dynamic that we saw in Q4. But our sellers typically, just for context, have a combination of prospects and existing customers in each of their individual territories versus an explicit or pure hunter versus farmer model. Perfect. And then maybe just one on sign requests. I guess, can you disclose anything there from maybe deal terms to revenue contribution to billings as well?
spk09: I guess you got it for billings growth to exceed revenue growth this year. Does sign requests have a big factor to play in that?
spk11: No, so in terms of the total purchase price of Sign Request was $55 million. And then in terms of the contribution, expect that to be immaterial, the revenue, and not to impact our bottom line commitments either. To get a sense of scale, there will be a little more than 20 Sign Request employees joining the Box team today. And the strategy here is really to leverage this technology and team as the foundation of our BoxSign offering. And that we're really excited about. As Aaron mentioned, that's the single biggest request that our customers have had in terms of a new feature. And so really the reason we did this was in order to kind of fuel and build out those efforts as they'll show up as part of BoxSign in the future and really add to the functionality and differentiation of our suite's offerings as well. But the actual financial impact of the sign request business is immaterial. And then you guys also have kind of like API integration with DocuSign. So is this maybe a form of coopetition that you're going with, or how will DocuSign and Box customers, I guess, choose between if they want to use BoxSign or DocuSign? Yeah, so we obviously are a very open and partner-centric platform. So we remain committed to our partnerships with DocuSign, with Adobe Sign, and other players in the market. And any customer that chooses to use any other technology will be able to do so in a very seamless way where there'll be no shortage of functionality or features that we would provide by our APIs to those partners. And in fact, And we continue to make those integrations even more visible and available to our customers. At the same time, as we surveyed our customers throughout last year, we saw a tremendous amount of use cases where customers were not licensed for one of these third-party products, or maybe they were only licensed in a very small subset of their employee base. where there were e-signature use cases that went beyond what they hadn't already licensed an external service for. And so that's really the power of BoxSign is every seat on Box is going to be able to have native e-signature capabilities built directly into the product and through our APIs and our platform. So that's any customer that is certainly using Box, you know, broadly across their enterprise, or maybe they have an ELA with Box, or maybe they're continuing to expand their use cases, BoxSign is now going to be built directly into the product, and you're going to be able to make native e-signature functionality available to all of those users. So we see that as very powerful, but certainly we will continue to be incredibly complementary to the other products in this market as well. Perfect. And then maybe just one last on the paying users. I guess, how many did you add in Q4? And that'll be it for me. Thanks, guys. So we ended the quarter with 15.5 million paying users up from 15.0 million last quarter. Perfect. Thanks, guys. Appreciate it.
spk05: Thanks. That's all the time we have for questions today. This concludes today's conference call. Thank you for participating. You may now disconnect.
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