Box, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Box Incorporated third quarter fiscal 2023 earnings conference call. All lines have been placed on listen only to prevent any background noise. After the prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If at any point you would like to remove yourself from the queue, simply press star one again. At this time, I would like to turn the call over to Cynthia Hiponia, Head of Investor Relations. You may begin.

Good afternoon and welcome to Box's third quarter fiscal 2023 earnings conference call. I'm Cynthia Hiponia, Vice President, Investor Relations. On the call today, we have Aaron Levy, Box co-founder and CEO, and Dylan Smith, Box co-founder and CFO. Following our prepared remarks, we will take your questions. Today's call is being webcast and will be available for replay on our investor relations website at box.cominvestors. Our webcast will be audio only. However, supplemental slides are now available for download on our website. We'll also post the highlights of today's call on Twitter at the handle at boxincir. On this call, we'll be making forward-looking statements, including our Q4 and full-year fiscal 2023 financial guidance, and our expectations regarding our financial performance for fiscal 2023, fiscal 2024, and future periods, including our free cash flow, gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance obligations, revenue and billings, and the impact of foreign currency exchange rates, and our expectations regarding the size of our market opportunity, our planned investments, future product offerings and growth strategies, Our ability to achieve our long-term revenue and other operating model targets. The timing and market adoption of and benefits from our new products, pricing models, and partnerships. Our ability to address enterprise challenges and deliver cost savings for our customers. The impact of the macro environment on our business operating results and our capital allocation strategies, including M&A and potential repurchases of our common stock. These statements reflect our best judgment based on factors currently known to us and actual events or results may differ materially. Please refer to our earnings press release filed today and the risk factors and documents we file with the Securities 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, November 30, 2022, 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 a related PowerPoint presentation which can be found on our 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, Cynthia, and thank you all for joining the call today. We delivered strong third quarter results with revenue growth of 12% year-over-year or 17% on a constant currency basis. Our sharp focus on profitability drove record non-GAAP operating margins of 24% up 330 basis points from 20.7% a year ago. Gross margins remained strong at over 76%, while our net retention rate increased slightly versus the year-ago period. We are particularly pleased with these quarterly results and our substantial year-over-year bottom-line improvements, given the increasingly difficult macro environments. Over the last couple of months, I've had the opportunity to chat with dozens of CIOs and CEOs across nearly every sector and in companies large and small. And it's clear that companies are facing a very dynamic environment in front of them. In every industry, companies are dealing with a complex mix of economic pressures while at the same time needing to drive significant transformation across their businesses. My customer conversations and our Q3 results confirm that companies are prioritizing strategic IT initiatives that allow them to better serve their customers, operate with speed and agility, enable an increasingly distributed workforce, all while seeking to reduce complexity of their technology stacks and keeping their enterprises secure from threats. These remain the top priorities for nearly any business or technology leader that you talk to today. While IT budgets might tighten and some larger deals may require more scrutiny across verticals and geographies, we are in a unique position to help our customers become future ready. At the center of the future of work is how companies protect, share, and manage their most important content. Whether it's the creative media that goes into a blockbuster film, the research that goes into producing a new life-saving drug or vaccine, the client data used to onboard a new customer, or project files that go into producing a new breakout consumer product, every business runs on content. Yet we see today that most enterprises are dealing with a mix of legacy enterprise content management solutions, network file shares, and point collaboration and signature tools to work with their content. This fragmentation creates security risks, lowers productivity, and ultimately costs enterprises far more than they need to spend. The Box Content Cloud helps companies drive up productivity, reduce risk, and save substantially in the process. Examples of Box delivering this value to our customers in Q3 include a global technology leader who has been a Box customer for more than 10 years, purchased a seven-figure Enterprise Plus ELA in Q3 to double down on leveraging Box for their business strategy, which includes M&A. With Box, they plan to retire redundant systems and technology with the goal of saving millions of dollars each year while also improving productivity and reducing risk by protecting their sensitive data. A global entertainment company implemented Enterprise Plus in Q3 to secure and protect content and reduce cost and complexity by consolidating data assets and network file shares from M&A activities into one content cloud solution. Despite ongoing budgetary pressures, it's clear that enterprises are increasingly making strategic, long-term decisions on how to support a hybrid workforce and digital processes while maintaining a high level of security and compliance. The Box Content Cloud is in the best position to help customers reduce the cost and complexity of their traditional content stack, and we are continuing to double down on powering the full lifecycle of content in a single platform and address major trends in the future of work. In Q3, we drove significant innovation across the platform, which we shared at Boxworks in October. We unveiled several major enhancements to Box Shield and Box Governance, our flagship security and data governance solutions. In Box Shield, we've extended our malware deep scan capabilities by adding the ability to scan additional file types, including Microsoft Office. reinforcing Box's commitment to supporting third-party file types and helping admins apply critical protection to a wider variety of intellectual property. We also announced ethical wall capabilities in Box Shield, which creates reinforced information barriers within organizations to prevent communication or exchange of information that could lead to conflicts of interest between groups. This can be used to safeguard insider information, especially for our customers in financial and legal services. And finally, we advanced our box governance capabilities to support more flexible retention policies to serve a wide range of industry use cases, with future improvements to come around making it easier to export content under legal hold and providing better reporting and disposition insights and more. Across our collaboration and workflow efforts, we launched additional capabilities in Box Sign to help customers move more of their signature transactions to the cloud. These include the ability for users to publish documents online for signature, edit signature requests in flight, enjoy an improved signer experience, and much more. We announced the general availability of the all-new Box Notes for real-time content collaboration and project management, and we announced the beta launch of Box Canvas, our new visual collaboration and virtual whiteboarding tool, which will begin to roll out this quarter. And we enhance content insights to ensure users and enterprises have rich insights into how their content is being accessed, consumed, and leveraged for enhanced business intelligence. Finally, a critical part of our product strategy is our ability to integrate deeply across the SaaS landscape. and we are pleased that our interoperability has enabled us to build strong partnerships with leading technology companies. At Boxworks, IBM CEO Arvind Krishna discussed how Box and IBM have partnered to drive digital transformation for our customers. Kirk Koningsbauer, CVP and COO of the Experiences and Devices Group at Microsoft, spoke about the importance of openness and interoperability, and Box's ongoing collaboration with Microsoft. Thomas Kurian, the CEO of Google Cloud, shared how Box and Google partnership enables secure modern collaboration in the enterprise. And finally, Jitu Patel, Cisco's EVP of security and collaboration, discussed how Box and WebEx joint customers can now use Box and WebEx better together. And more recently, we launched an enhanced Box app for Zoom that enables customers to automatically select Zoom recordings directly to Box. With this new feature, joint customers can manage their content in one place while maintaining enterprise-grade security compliance and governance all within Zoom. Now, more than ever, customers are looking to partner with platforms, not point tools, to help them drive greater efficiency, user experience, and security. As we head into Q4 and looking out into next year, we'll be doubling down across our three core pillars of innovation. Across security and compliance, we'll be delivering major enhancements to Box Shield and governance to protect customers in a very dynamic threat landscape, extend our leadership in compliance, and drive all new efforts on the most ambitious security and governance roadmap we've ever had. We will be driving major product improvements to Box Sign to support more advanced signature processes, adding richer features into Box Notes and Canvas, further building out relay and laying the groundwork for a major year of workflow innovation, enhancing core parts of our main web application user experience, deepening our development of content publishing and other advanced content management capabilities, and much more. And within our platform, we'll continue to double down on our scalability and developer experience efforts like UI elements, in addition to our integrations, with other third-party applications like Teams, Slack, Zoom, Salesforce, and more. As we've shared, Enterprise Plus, our multi-product suites offering, is a key strategy to increase the efficiency of our sales motion and to bring the full value of the Box content cloud to customers. Enterprise Plus brings the full suite of Box's advanced product capabilities into a simple product bundle. and we've seen tremendous uptake from our go-to-market teams and customers. We launched Eplus just over a year ago, and it has become our most successful Sweets launch to date. In Q3, Enterprise Plus comprised over 90% of our Sweets sales in our large deals, and Sweets represents 73% of our large deals, up from 63% just a year ago. and we are now seeing renewal rates of ePlus come in higher than our overall company renewal rates. Our Q3 customer expansions and new wins with Enterprise Plus include a sports marketing and talent management company who has been a long time Box customer purchased an Enterprise Plus ELA in Q3 as Box has become a more strategic and integral part of their business. With this upgrade, They will now be replacing their current e-signature provider with BoxSign and will be using BoxShield to safeguard health records and PHI in Box, as well as protect themselves from cyber attacks with threat and malware detection. A financial services company providing insurance to thousands of businesses purchased Box with a six-figure Enterprise Plus deal in Q3. Prior to Box, they had been running on legacy and on-premises systems for their claims agents. They recognized the need to replace this system, and after working on a proof of concept, proving out several use cases using Box's APIs, they selected Box as their backend content layer for their entire organization to store and work on sensitive client information. We are pleased with our continued strong adoption of Enterprise Plus, as we know that when a customer adopts our multi-product offerings, we see greater total account value, higher net retention, higher gross margins, and a more efficient sales process. In summary, we are pleased to have delivered a strong Q3. Since our last earnings call, the FX and macro environment headwinds have increased. However, our operational discipline that led to our Q3 record operating margins will continue. Operational discipline has been built into the core of the company, and we are proud of our demonstrated significant margin improvements and we remain committed to our FY23 operating margin target. The confluence of remote work, digital transformation, and cybersecurity challenges is causing enterprises to rethink how they work with their content, and these trends are only accelerating. We are confident Box is uniquely positioned to gain from this shift. Our record Q3 gross and operating margins and a very dynamic market once again demonstrates our commitment to increasing profitability. We remain hyper-focused on driving growth and profitability as we look to the next billion dollars of Box revenue. With that, I'll hand it over to Dylan.