Box, Inc.

Good day, my name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Box Incorporated third quarter fiscal 2024 earnings conference call. 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 that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star 1. Thank you. I will now like to turn the conference over to Cynthia Hyponia, Vice President of Investor Relations. You may begin.

Good afternoon and welcome to Box's third quarter fiscal year 24 earnings conference call. I am Cynthia Hyponia, Vice President of 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.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 at the handle at boxincir. On this call, we'll be making forward-looking statements, including... our fourth quarter and full year fiscal 2024 financial guidance, and our expectations regarding our financial performance for fiscal 2024, fiscal 2025, 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 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 proceeds from the sale of our data center equipment, 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 and documents we filed 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, December 5, 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 a substitute for or in isolation from, our GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliation 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 references to financial measures are on a non-GAAP basis. With that, let me hand it over to Aaron.

Thank you, Cynthia, and thanks, everyone, for joining us today. In Q3, we delivered revenue growth in line with our guidance with year-over-year growth of 5% or 7% in constant currency. Our 25% operating margins were up 70 basis points from a year ago, demonstrating our operational discipline and delivering year-over-year margin expansion. Despite the various macro headwinds affecting IT budgets, companies still prioritize the Box content cloud to help power their hybrid workforces, secure their most important content, and automate and digitize their business processes. Examples of Box delivering this value to our customers in Q3 include a leading biotech company expanded its use of Box with a six-figure upsell to enable both collaboration on GXP content in an efficient manner for both internal and external parties, as well as support content sharing and collaboration for non-GXP compliant content and use cases. They also plan to integrate Box with their existing applications, including Okta and ServiceNow. An advertising and marketing firm expanded its use of Box with a six-figure upsell and ELA as they move the entire agency to Box to meet their content cloud needs. As the company adopts Box enterprise-wide, it will eliminate storage costs from other platforms and will be able to consolidate several SaaS applications eliminating redundancy and complexity from their IT environment. One of the largest technology companies in the world expanded its use of Box with the purchase of KeySafe in an Enterprise Plus upsell to support the organization's content modernization initiative. With this upsell and access to governance capabilities, Box meets their highest level of security classification for content storage and can now be used for restricted content and records management content while also supporting necessary integrations. In the third quarter, we held our annual user conference, BoxWorks, and our exclusive CIO Summit, CIOWorks. With record BoxWorks attendance, we heard directly from our customers on how they are driving significant transformation across their businesses, even in the face of near-term economic pressures. Enterprises are also seeing new challenges as they respond to the rapidly evolving era of AI-powered work. We know that content is the lifeblood of so many businesses. And yet, right when content is more important than ever, the way that enterprises manage content in legacy systems no longer works. The challenge is that content is getting produced at an ever-increasing rate and enterprises increasingly are finding it hard to secure all this fragmented content or enable employees to access the right information to do their jobs. This fragmented content will mean companies can't easily take advantage of the power of AI to get the most out of their data. More than ever before, enterprises will need a content cloud. By building the only end-to-end platform that can help customers power their complete content lifecycle in a single architecture, we're reshaping what enterprises can do with their content. At Boxworks, we made several key product announcements, delivering innovation across security and compliance, collaboration and workflow, and our platform. Our focus is to deliver the best ways to secure and protect sensitive content, ensure compliance for nearly every major industry and government requirement and power the full document governance process for our customers. We have expanded Box Shield for ransomware protection capabilities in order to mitigate the ever-growing threat of malware and announced an AI-powered threat detection to identify anomalous file activities originating from Box Drive. We also announced a new integration partnership with CrowdStrike where security and IT teams can detect malicious files, ransomware, and suspicious activity, as well as configure security policies directly in Box's administrative console. Across collaboration and workflow, we're adding new capabilities to Box Notes, improving the experience and performance of Canvas, doubling down on our e-signature feature set, and continuing to advance next-gen workflow capabilities with the announcements of DocGen and Forms. And this year, we've taken our strategy even further with the announcement of two major breakthroughs, Box AI and Box Hubs. With Box AI, we're going to revolutionize how companies work with their content. Since the early days of enterprise software, we could always query and understand our structured data. But we've never been able to do the same easily with our unstructured data or our content, which is estimated at 90% of corporate information. All of the content that an enterprise produces is being dramatically underutilized relative to the value inside of this content. But now, with AI, we can solve problems that previously were only possible with high-level human understanding at scale. From extracting metadata efficiently at scale, getting expert analysis to document understanding and summarization and creating new content, With AI, we can now process information at a speed and at a cost that opens up completely new possibilities of what we can do with our information. Additionally, we also announced Box Hubs, a revolutionary way to publish content in the enterprise. With Box Hubs, we're enabling companies to take the most important content in their organization, and make sure it's easily available and distributed to exactly the right people seamlessly. Content sprawl is one of the biggest challenges facing enterprises today, and never before has there been a simple way for any line of business to point to the most important content that they need to share broadly in a customized fashion. Any team or department in an enterprise can create a hub to service its most relevant content, like a sales enablement portal, HR policy portals, marketing branding sites, and more. And importantly, when combined with Box AI, we are unleashing the power of enterprise content in an organization by turning unstructured data into valuable knowledge. Most importantly, because the content in a hub is curated by topic, enterprises can ensure that the answers they're getting from AI are accurate and based on the authoritative information in an organization. The vision for what's possible when companies have a modern approach to working with their content with our new innovative products has been incredibly well received by customers. At CIO Works, we heard from our customers directly who are using Box AI, and this quote from a CIO of a financial advisory firm after turning on Box AI is quite representative of what we're hearing. And I quote, we just enabled the Box AI beta this morning, game changer. force multiplier, knowledge overload. The future is bright with Box. Thank you. Finally, we recently announced an expanded partnership with Google Cloud, whereby Box will integrate with Vertex AI, Google Cloud's unified AI platform, to help customers process and analyze data faster and create a more personalized user experience, intelligent search, and more. This builds on our earlier announcement to integrate Google Cloud's advanced large language model into Box AI, with Vertex AI helping to power our new metadata extraction feature. Further, part of our Google Cloud partnership announcement, Box will now be a part of the Google Cloud Marketplace. GCP customers will be able to buy Box directly through Marketplace and use their GCP credits toward the purchase of Box. This new channel for Box expands our opportunity to land new customers who can unlock the potential for cost savings against existing Google Cloud commitments, streamline lengthy procurement cycles, and consolidate billing. Now, turning more broadly to go-to-market, a key component of our strategy to drive profitable growth at scale is our ability to land, adopt, expand, and retain our customers. Driving the adoption of Enterprise Plus is a critical strategic lever to increase the efficiency of our sales motion and bring the full value of the Box content cloud to our customers. And by continually adding value through additional features and functionality to existing suites plans, we strengthen our ability to retain customers as shown by our best in class 3% turn rates in Q3. Our momentum with Enterprise Plus remains strong and we have now reached 51% of our revenue coming from Swedes customers, up from 48% last quarter. Given the large base of customers that we believe are still ripe for upgrading into Enterprise Plus, we have added Box AI into this plan to encourage further upsells to this plan. At the same time, we know that there's going to be even more advanced AI capabilities that some of our customers will require, and we expect to introduce a higher tier plan next year to address these needs. Already within Q3, we saw numerous Enterprise Plus upgrades that were in part driven by the inclusion of Box AI in this offering, including a worldwide consulting firm, who has been a Box customer since 2013, signed an Enterprise Plus upsell to get access to the Box AI beta. BoxAI has the potential to help the consultants be more productive day-to-day with automated metadata to help search and finding files. BoxAI will be critical in transforming how this organization works with its petabyte of content in Box. An international corporate law firm moved to Enterprise Plus to give its lawyers and staff access to BoxAI. Being able to summarize large briefs and documents and find information in a matter of seconds will cut down on time, increase productivity, and be hugely beneficial to their employees. We're incredibly excited to be able to bring Box AI to our customers, and we will share more updates with all of you soon. As we look ahead to FY25, we are focused on continuing to drive profitable growth at scale. We are entering one of the most transformative periods in enterprise software, and we are focused on capitalizing on the opportunity in front of us. Next year, we'll be continuing to drive investments across AI, security, advanced content management, and workflow capabilities to help our customers transform how they work with their content. Further, given the market opportunity right now, in FY25, we'll be expanding our focus on key strategic partners and system integrators, scaling our high ROI pipeline generating initiatives, investing in growth in key verticals, and continuing to optimize our international growth efforts. We will drive these initiatives while at the same time delivering improving profitability, putting us on a path to achieve our long-term financial targets. To help drive these efforts forward, in November, we announced that Olivia Nottenbaum has joined us as Chief Operating Officer, succeeding retiring COO, Steph Carrillo. Olivia brings proven leadership and execution to Box, with executive roles at Google Cloud and most recently Notion, a cloud-based productivity platform, and over a decade at McKinsey, focused on the software industry. I'm excited to work with her as we deliver new products and plans, expand our partner and system integrator network, go deeper in key vertical markets, and continue our global expansion. I'd also like to provide a huge thank you to Stephanie Carrillo, who has been an amazing partner to me and the team for over six years at Box, taking us from less than 500 million in revenue to over a billion in revenue, as well as helping execute a seamless transition to bring on Olivia. I'm wishing Steph the best in her retirement, and I'm excited to have her stay close as we continue to scale. In summary, while macro trends and currency rates have impacted our results in the near term, We have continued to execute our content cloud strategy, creating more high-value and repeatable use cases that further differentiate Box and grow our CAM. Demonstrating our product leadership with Box AI and Box Hubs positions us for growth, delivering to customers the platform that they need to meet the demands of the rapidly evolving era of AI-powered work. With that, let me turn it over to Dylan.