Box, Inc.

Good afternoon. My name is Emma and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. I will now turn the call over to the box team.

Good afternoon, and welcome to Box's second quarter fiscal year 24 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 also be available for replay on our IR website at 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 the X platform handle at boxincir. On this call, we'll be making forward-looking statements including our third quarter and full year fiscal 2024 financial guidance and our expectations regarding our financial performance for fiscal 2024, and future periods, including our free cash flow, gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance applications, 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 revenue, operating margins, and other operating model targets, the timing and market adoption of and benefits from our new products, pricing models, and partnerships, the timing of our public cloud migration efforts, our ability to address enterprise challenges and deliver cost savings for our customers, the impact of the macro environment on our business and operating results, and our capital allocation strategies, including potential repurchase 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 in documents we file with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for information on the 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 today as of August 29, 2023, 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 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 supplemental slides, which can be found on the IR page of our website. Unless otherwise indicated, all reference to financial measures are on a non-GAAP basis. With that, let me hand the call over to Aaron.

Thank you, Cynthia, and thanks, everyone, for joining us today. In Q2, we delivered revenue growth of 6% year-over-year or 9% in constant currency. Our 25% operating margins were up 310 basis points from a year ago. reflecting our operational discipline in a continued challenging macro environment. Over the last few months, I've spoken with customers across nearly every size business, geography, and industry. While customers are still facing various macro pressures that impact IT spend and seek growth in the near term, Box is still being prioritized in the areas where our unique value proposition is aligned with the IT decisions they are making in the near and long term around digital imperatives and the role of AI. In my conversations with CIOs, it's clear that they're looking to advance their digital strategies to help drive growth in their business, improve productivity across their organization, leverage integrated platforms that can provide them more value, and keep their enterprises secure from threats. At the same time, they have more content than ever before and are looking to leverage AI to accelerate their business processes and how they work. The Box Content Cloud is in a unique position to enable enterprises to drive productivity across the business, simplify IT environments, and protect an enterprise's most important data. And with our platform-neutral approach to AI, we're bringing the full range of large language models to enable customers to transform how they work with their data in the cloud. Recent customer wins in Q2 that validate our strategies working and that we are aligned to the key trends facing our customers include a federal institutional system who purchased Box with a six-figure deal to enable the organization to move to the cloud for secure document collaboration and workflow. With Box, they will be able to conduct necessary audits and exams of other government agencies by collaborating effectively and seamlessly internally, as well as with external parties, while also securely managing documents in a single platform. An international law firm that expanded its use of Box with a seven-figure upsell. As the company adopts Box enterprise-wide as its single content layer, it will eliminate storage costs from other platforms. remove costs from legacy file servers, as well as eliminate e-signature solution costs by moving to BoxSign. And a large global video game and digital entertainment company, who has been a Box customer for more than 10 years, expanded its use of Box with a six-figure upsell to Enterprise Plus for access to Box's Shield capabilities. In Q2, we delivered meaningful updates to our platform, to help customers drive their productivity and automate workflows, secure their most important content, and integrate Box into more of their IT stack. To advance Box's security and compliance capabilities, we introduced a new retention policy integration for Box Shield classifications, added zero trust 2.0 enhancements for admins, and Box governance reporting enhancements as well. To streamline workflows and productivity, We delivered new advanced signature request management in BoxSign, continued rolling out Box Canvas to all customers, as well as launched new enhancements to our end user app. And across our platform, in Q2, we released updates to BoxSign for Salesforce, Box for Slack, Box for Salesforce, as well as Box for NetSuite. Finally, we launched additional enhancements to the Box for Microsoft 365 integrations. including new enhancements to Box for Teams and Box for Microsoft Office on the desktop. And consistent with our platform neutral approach to AI innovation, in July, we announced Box AI for Microsoft 365 Copilot, a new plugin for Microsoft's next generation AI workplace tool. The plugin will enable our joint customers to use Microsoft 365 Copilot to make the Box files inside of an organization more useful and valuable than ever. Now, looking forward, we continue to drive substantial innovation for our customers to deliver the best way for them to manage their full lifecycle of content in the cloud. In security and governance, we're advancing Box Shield to help customers stay protected against their most daunting threats around losing sensitive data. We're expanding our governance capabilities to help customers with their content lifecycle management, and we're making continued progress on delivering the most compliant content platform. On the productivity front, we'll be adding important feature updates to make collaborating with Box Canvas and Box Notes more powerful, and enhance box sign and relay capabilities to automate our customers' most important workflows. And in our platform, we're advancing our integrations with leading external platforms as well as delivering enhanced experiences and reporting for developers building on Box. And with Box AI, we're bringing intelligence to enterprise content. We've seen an incredible response to Box AI in the first couple of months since our announcement. We know that AI is going to transform how enterprises work with their data, and organizations are going to need a secure way to connect their most important data to leading AI models. And with Box AI, we're building the leading platform neutral approach to connecting enterprise content to AI, starting with OpenAI's leading large language models. In our early customer conversations, including in our design partner program, we are hearing valuable feedback on use cases from customers that are looking to automatically extract metadata from their documents to drive workflows, ask questions of large sets of documents to find things no human would be able to answer, or intelligently protect their content with more advanced data classification. And this is just the start of what's possible. Our customers are excited about the new possibilities for productivity and insight they will gain from using Box AI with their content. We'll be sharing even more news at Boxworks around how we're advancing Box AI and bringing it into the hands of even more customers. At Boxworks this October, we're excited to share updates from across the entire product platform to our customers and lay out our vision for the future of work with AI. This year's Boxworks is set to be our best one yet, and we've just announced headliners like Sam Altman, the CEO of OpenAI, Dustin Moskovitz, the CEO of Asana, and Lidiane Jones, the CEO of Slack, all discussing the future of work and AI. Further, we'll also be hosting our first in-person CIO Works post-pandemic in Palo Alto on October 24th, where we will host our top customers with some of the key leaders in AI and technology. Finally, I'd like to note a critical milestone that in Q3 we will be fully running our production environment in the cloud. This has been a major multi-year effort to move our infrastructure from our data centers to the cloud to gain better performance, scalability, and gross margins. Dylan will discuss the impact to our gross margins more fully in his comments. But given the complexity of this migration, I'm incredibly proud of our execution on this critical initiative. Now, turning to go-to-market. Our Salesforce and go-to-market programs delivered continued results in the quarter, including healthy new logo growth as well as key customer expansions. We also continued to see the successful adoption of Enterprise Plus, our multi-product suites offering that brings the full value of the Box Content Cloud to our customers. In Q2, Enterprise Plus was well over 90% of suite sales in large deals, and suites comprised over 78% of deals over $100,000. Notably, in Q2, we achieved record suites attach rates in large deals in Japan. Earlier this month, I spent time in Japan speaking with our largest customers, and those conversations reinforced the continued upside we have in this market. We have never been more excited about the opportunity available to us. Our Q2 Enterprise Plus customer expansions and wins include one of Japan's largest institutional investors, who expanded its use of Box with the purchase of Enterprise Plus to enable secure content sharing and collaboration with external parties for the entire organization. They also plan to integrate Box with their existing tech stack, including Microsoft 365 and ServiceNow. And one of the leading hospitals in the United States, who has been a Box customer since 2013, signed an Enterprise Plus upsell to get access to additional resources needed to support the growth and expansion of the hospital and school of medicine. They'll be leveraging Shield to protect the sensitive content that they have stored today, which includes research content, and they plan to integrate Box into their Microsoft applications to help with consolidation efforts. Overall, we're focused on expanding our go-to-market programs and leveraging our land and expand motion to drive the progression of our customers into higher tier product plans and enabling them to leverage the full breadth of the Box platform. We remain focused on building healthy pipeline across the business, and this year we have doubled down in our field marketing programs, digital marketing engine, system integrators and distribution partners, vertical sales efforts in key markets like life sciences, financial services, and the public sector, and much more. Before I turn it over to Dylan, I'd like to briefly comment on the current business climate we're seeing. It's clear that the macro environment has resulted in lower seat growth than anticipated. Despite this, our best-in-class full churn rate remains at 3% as enterprises are prioritizing use cases to areas where the Box content cloud delivers the most value in delivering secure content management workflow and collaboration. I'm confident that with the strongest product portfolio and roadmap we've ever had, a world-class go-to-market team, and a healthy customer base of well over 110,000 customers that we set the stage for future accelerating revenue growth as economic conditions improve. And we remain relentlessly focused on operational excellence, allowing us to deliver year-over-year gross margin and operating margin expansion in FY24. The opportunity in front of us is massive. We're going after a more than $74 billion market with the leading content cloud platform to power the full lifecycle of content in the enterprise. In a joint report we recently released with IDC, IDC found that 90% of a company's data is in unstructured information, and that number is growing by 28% to over 73,000 exabytes in 2023. And with Box AI, we will transform our customers' ability to gain productivity and insight from their data. The need to manage, secure, automate, collaborate, and bring intelligence to this information is more important than ever before. And Box is uniquely positioned to help enterprises solve these challenges and transform how they work. With that, I'll hand it over to Dylan.