Good day and thank you for standing by. Welcome to the Box Inc., First Quarter Fiscal 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to your speaker today, Chris Foley, VP of Finance and Investor Relations. Thank you. Please go ahead.

Good afternoon and welcome to Box’s first quarter fiscal year 2022 earnings conference call. On the call today we have Aaron Levie, 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/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 @boxincir. On this call we will be making forward-looking statements, including our Q2 and FY 2022 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, the impact of the COVID-19 pandemic on our business and operating results. The impact of the KKR-led investment in Box and any 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 the press release and the risk factors and documents we filed with the Securities and Exchange Commission, including our most recent annual report on Form 10-K 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, May 27, 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.

Thanks, Chris. And thanks everyone for joining the call today. I’m incredibly proud of our team at Box and our strong start to FY 2022, delivering a 200 basis point improvement in our revenue growth rate versus the previous quarter, 24% billings growth and 20% growth in RPO year-over-year. With the strong momentum we’re driving, we are confident in our ability to achieve accelerated growth and higher operating margin now and in the years ahead. As a result, we are raising our revenue guidance for the full year. Dylan will go over the financial results and guidance in more detail. But before I hand it over to him, I’d like to talk about our strategy, the value that our Content Cloud brings to our customers and the positive impact we’re seeing in the market as a result of our strong execution. Our strategy is well aligned to three major trends that are driving the future of work. First, work is being defined by hybrid work environment. In a recent Gartner study, more than 80% of company leaders surveyed said they plan to allow employees to continue working remotely at least some of the time. Even as offices open back up, traditional physical boundaries will continue to blur and enterprises will need to empower collaboration both internally amongst virtual and distributed teams, and externally with partners, customers and suppliers to get work done from anywhere. Second, we know that the future of business will be cloud and digital first. Customer and partner interaction will increasingly be executed digitally from the onboarding of employees to automating workflows with partners. These workflows must function using multiple cloud-based application, access to content in a single unified platform across a multi-cloud environment is critical to ensure productivity and business success. And finally, data security, compliance…

Thanks, Aaron. Good afternoon, everyone. And thank you for joining us. In Q1, we are pleased to have exceeded our guidance across all key metrics. Our acceleration in revenue growth, billings growth, RPO growth, and the operating profit clearly demonstrates the strong trajectory of our business. As a result, we are raising our full-year revenue guidance. We delivered revenue of $202 million up 10% year-over-year, a 200 basis points improvement from the 8% growth we delivered in the previous quarter. Our Content Cloud offerings are increasingly resonating with our customers, as demonstrated by the strong add-on product traction and large deal growth we achieved in Q1. As Aaron mentioned, we’re excited by the early customer response and demand for native e-signature capabilities in Box, and we’re on track to make Box Sign generally available this summer. As our customers are increasingly adopting products with more advanced capabilities, 60% of our revenue is now attributable to customers who have purchased at least one additional product up from 54% a year ago. In Q1, we closed 59 deals worth more than $100,000 up 48% year-over-year. Importantly, 49% of these six-figure deals included one of our multi product suite offerings, a new record for us and up significantly from 28% a year ago. We ended Q1 with remaining performance obligations or RPO of $865 million, up 20% year-over-year, exceeding our revenue growth by 1000 basis points and an acceleration from the prior quarters RPO growth rate. Q1s RPO growth is comprised of 15% deferred revenue growth, and 23% backlog growth, demonstrating Box’s stickiness as we continue to sign longer term agreements to support our customers content strategies. We expect to recognize more than 60% of our RPO over the next 12 months. Q1 billings of $159 million were up 24% year-over-year, and a…

[Operator Instructions] Your first question comes from George Iwanyc from Oppenheimer.

Thank you for taking my question. So Aaron, with the success, you’re showing the selling suite, can you give us a sense of how you feel about your sales investment, and whether you think you are at a point where you can maybe be a little bit more aggressive with hiring and kind of focusing on particular verticals, and maybe regional expansion?

Yes, thanks for the call. We are definitely seeing really healthy acceleration on things like our multi-product selling. And as we call out with the $100,000 plus deals stat nearly 50% growth year-over-year, which is I think, the highest metrics that I can least recall in the past few years. So it’s a really great start of the year on that front. As relates to our sales investment, and, Dylan called this out last quarter; we’re going to be definitely investing incrementally in sales capacity. In particular, in key regions and segments where we’re seeing high productivity rates, we obviously want to drive efficient and profitable growth. But we do see an opportunity to invest more and obviously, that’s in the, guidance from a top and bottom line standpoint, as you look at verticals, this is another area of increasing focus for us. So, we see really tremendous momentum in areas like financial services, life sciences, public sector, both at the federal level and even state level, and then, kind of any business doing kind of large global collaboration. So global manufacturing, professional services, the technology sector has been very attractive for us. So, I think you’ll see us continue to incrementally invest in these high growth verticals where data security matters, where protecting and enabling the collaboration and workflows around content is incredibly critical. So, we will be making further investment in those areas.

And this is Dylan and just to build on that a bit. We do expect to continue improving sales force productivity for the trends that Aaron mentioned, as you said before, that was up overall 13% last year. And while we have more modest expectations for the rate of sales, productivity improvements going forward. We do expect to continue making those improvements, even as we grow our sales force. And in Q1 for both enterprise and SMB, we saw a strong increase.

[Technical Difficulty] that, as you see that productivity kind of tick up, and your retention rates have also ticked up with the growth that you’re anticipating in the later part of the year. Do you feel that’s something that can maybe get back to the 105%, 106% type of level that you saw early last year?

So, let’s say that we based on that the trends that we’ve been seeing, from a customer expansion and the churn rate, we do expect to deliver continuing improvement or net retention rate this year. So, set the expectation that we’d end this year, making a year-on-year – year-over-year improvement of a couple of points so to a 104%, and certainly if we do continue to see these trends playing out, then there could be some upside to that, certainly over time. But that’s how we’re thinking about our net retention rate currently.

Thank you.

Your next question comes from Josh Baer from Morgan Stanley.

Thanks for the question. I was hoping to double-click on hiring actually, I think the growth in sales force that you’re looking to do this year, from what Dylan mentioned last quarter was low teen. So, I’m just wondering if there’s an update there. That’s still the right number, how that’s been tracking. We’ve definitely been hearing about challenging, hiring environment and some companies seeing longer time to ramp there. So just looking for an update on your hiring efforts?

Yes, this is Aaron. We still intend for that metric to be the goal that we’re executing on and that will be throughout the year. So overall, definitely, it’s an environment where, there’s really great opportunities for sales talent, and we think we have a very attractive opportunity and we’ve been ramping up on the hiring side pretty aggressively in that run. So we do intend to hit that metric.

Got it. And with the commentary around RPO growth outpaced revenue and billings growth this year, sort of setting up for to see an acceleration in those revenue and billings growth metrics in the following year.

Yes. [Technical Difficulty] deferred revenues up 15% year-on-year, backlog up 23% year-on-year. So, we’d say that backlog, because most that’s driven from the long-term backlog and long-term RPO doesn’t necessarily be an impact over, revenue over the next 12 months. But the overall trends that we’re seeing in RPO, including healthy growth, and our short-term RPO, of 14% year-on-year does definitely indicate a lot of the momentum that we’re seeing and part of what leads to the confidence that we have in improving our growth rates over time.

Great, thanks.

Your next question comes from Alex Carr from Raymond James.

Great, thank you. Aaron, you touched on return to work at the outset of your prepared remarks has being a potential driver for the business. I’m curious what you’ve seen so far in terms of either late-stage or early-stage pipeline with some of your existing customers in terms of propensity to buy newer or incremental solutions from Box.

Yes, so I think the, we have to capture the two periods that we’ve been in, would be at the kind of first half. To some extent leading into Q3 of last year, it was really this remote work triage mode that customers were dealing with, with the backdrop of obviously, a lot of economic disruption for most businesses globally. And that’s where we saw things like an SMB slowdown; we saw, the lower professional services slowdown as an example. And the use cases, customers were coming to us for really just basic remote work, kind of file sharing and access use cases. As we went into Q4 of last year, and certainly Q1 of this year, our conversations with customers are much more around longer term digital transformation and IT trends that we think aligned to our strategy. So, remote work moving more into hybrid work. The benefit of that for Box is that companies are really going to need to look again at how they’re managing their content as employees are working from multiple locations as they need to be able to work from the office and from anywhere be able to collaborate with their partners and employees and clients from all around the world. And so we’re starting to see much longer term, IT transformation initiatives emerge within our pipeline, as opposed to just the kind of rapid fire triage that we saw last year. So when you look at that metric in Q1 of nearly 50%, growth in $100,000, plus deals, that’s about as good as evidence as I think we could ever put up that shows customers are now being much more strategic about their long-term, IT strategy, moving more content to the cloud, shutting down legacy fragmented architectures moving more of that to Box, and we think we’re really set up for being right at the center of these megatrends of remote and hybrid work, digital first experiences and data security and compliance, really driving a new way to manage content.

Okay, great. And then maybe just one on the partner channel. I know typically, it’s been a source of strength internationally. But as you’ve kind of expanded the product portfolio here, some of the things we’ve already talked about, and with Box Sign coming a little bit later, does the partnership channel looking for – incremental and just curative, looking incrementally more or less strategic than it did previously.

Yes, definitely looks a lot more strategic for us. So, international, has been very strong in particular in Japan, where it’s an environment where we have very strong kind of global partners there. As we look, throughout this year, in particular as sign comes to market and as a new functionality around platform and workflow continues to come to market, I think you’ll see us have, incremental focus and investments on things like system integrators both on global and in kind of industry basis. And, whether that’s in Europe where we have a new President, that’s onboarding, that will have a focus in that area as well. As well as we go deeper industries like financial services, public sector, life sciences, and other space that you’ll see our system integrator partnerships be even more important to that strategy.

Okay. Great, thank you.

Your next question comes from Jason Ader from William Blair.

Yes. Thank you, you guys did very well with the $100,000 plus deals. Can you talk about what’s happening with seven figure deals? And also, if you’ve seen any recovery in the commercial segment, kind of a sub $100,000 segment?

Yes. So on the seven figure deals this basically steady on a year-over-year basis. I think what we’re and what we pointed to in Q4; we wanted to move more to focusing the attention on customers. With a total account value of certain thresholds just because we think that’s more indicative of our land and expand motion. So as an example, that 50% growth and $100,000 plus deals is a much more meaningful metric because it moves customers into different size buckets and total spend. So, we’re very excited about that. Do you mind repeating the second part of the question?

Yes, just the kind of sub $100,000 deals to the commercial segment?

Yes, very strong momentum in the commercial segment, and SMB? I think as we noted, last year, there were some headwinds, mostly around the economic environment. So, you had SMBs that we’re really kind of, dealing with just the impact of COVID. Not spending a lot on kind of long-term IT infrastructure. In some cases, we saw, higher churn rates in the low end of the market. But as we noted in Q4, really meaningful recovery, starting in Q4, and in Q1, I mean, I don’t think we couldn’t be happier about the momentum that we saw in that kind of SMB mid market segment of the business. So really, really strong momentum. Obviously, we only cut out the $100,000 plus deal band, but very meaningful, suit sales in the SMB and mid market segment below the $100,000 threshold. And again, really, I think that’s a part of the market that’s on fire for us right now.

Yes, this is Dylan. The only I’d add is that even in that 100K, plus deal counts up 48%, year-on-year, there was a pretty material contribution, even from those SMB and mid market segments up very dramatically from where we were a year ago. So because of suites, largely, for especially the customers that are at the higher ends, or the larger end of that segment, where those with that sales force serves that was a big driver of the strength that we saw.

Great. And then one quick follow-up. Aaron you guys are growing around 10% revenue this year, how do you articulate to an investor the bridge, from the current kind of 10%-ish growth rate to the 12% to 16% that you hope to get to?

Yes, sure. Well, firstly, we did just rate of guidance coming in around 11% growth for the year. So that’s the first bridge. Second, we did have a headwind that we noted, on last quarter’s call around professional services, that was really a flow through from bookings last year where customers didn’t need as much professional services, which obviously turns into revenue, growth headwind this year in professional services. And so that’s something that obviously we’re carrying this year on the growth rate. But when we look at our Q1 performance as it relates to whether it’s billings growth, suites growth, customers moving into $100,000 plus deal segments, it’s very evident that 12% to 16% growth rate can be achieved with our current strategy. And obviously, we want to continue to expand the market that we’re going after in the opportunity, but we feel very, very confident in achieving those long-term growth rates.

Thank you. Good luck.

Thank you.

Your next question comes from Steve Enders from KeyBanc Capital Markets.

Okay, great. Thanks for taking my question. I guess I just want to get a better understanding of the billings pull forward that you mentioned in the in the quarter, was there any – I guess what would you consider it kind of drove that was any new product capabilities that were being not sold or any incentives that drove the contracts early in this quarter instead of in 2Q?

Sure. So, no specific incentives and really the demands, and I think just desire to get on to some of these and adopting these more advanced capabilities faster. And suites would really call out as the main catalyst of those early renewals, where you’d have a customer who had – would have ordinarily renewed in the second quarter, but given just kind of combination of, kind of being sold on the value of some of the products and capabilities they didn’t yet have, and then a couple of cases, just really strong fee growth within those companies that they were an overage is what drove those customers to ultimately renew and upsize those contracts earlier in Q1, which is what drove that $5 million of movement from expected Q2 billings into Q1.

Okay, gotcha. That’s helpful. And then just on, this might touch a little bit on the guidance on the op margin side, I guess coming in. And kind of a point or more above that we are expecting just our – what the consensus was that, but just kind of wondering what you’re seeing or what’s leading to that uptick on the margin front that’s providing an upside there.

Yes, so really combination of the stronger revenue outlook for the year based on the momentum that we’re seeing, as well as been really pleased with a lot of the kind of expense kind of management initiatives, and especially around our infrastructure and workforce expenses, as we’ve driven a lot of those savings. And so that’s what translates into that, that roughly 1% improvements in our operating margin expectations.

Okay, great. Thank you.

Your next question comes from Brett Knoblauch from Berenberg.

Hi, guys, thanks for taking my question. I guess, on capital allocation, how are you guys thinking about that, I know the funds from KKR going to use to repurchase shares. But I guess as we look beyond that, do have a sizable cash reserves from the balance sheet, we think that should be more M&A driven, or maybe more repurchase driven, maybe help outline your strategy there.

Sure. So, we certainly look at capital allocation through the lens of what’s going to deliver the most value to our shareholders. We expect to use our capital primarily to fuel growth and capture more of the market opportunity ahead of us, including M&A when it makes sense for the business and our strategy, while still preserving a strong balance sheet and flexibility. But because of now, our strong cash flow generation that we’re seeing, we do also regularly have the conversations around things like share repurchases with the board. And then as mentioned, because we did raise $500 million recently, on top of an already strong balance sheets, it is why we expect to launch ourselves tender offer next week, and we’ll announce all of those details at that time.

Very thanks. Maybe just one follow-up on Box Sign and SignRequest. I guess in your annual revenue guide, how much revenue is coming from SignRequest?

On the SignRequest from is virtually nothing’s a very immaterial to revenue, at certainly from Box Sign once that’s introduced and becomes generally available in the summer. We’re very optimistic about the type of impact that can have, especially in terms of the contribution and adoption of suites. But the standalone business, you could think about as very immaterial.

Is Box Sign currently in your updated guide, or would that kind of just be an upside to your current guidance?

That is incorporated into our current guidance?

Understood. Thanks, guys. Appreciate it.

Your next question comes from Chad Bennett from Craig-Hallum.

Great, thanks for taking the question. So just the billings front, your normalized billings growth indicated with a 13% first half. So why, considering the tax rates and successes you’ve had with suites and ancillary products. Why would billings growth decelerate in second half? I understand, comp are bit easier in the first half but is there something that you’re – I guess seen, because everything it sounds like from a secondary metric standpoint seems like it would be accelerating. And so any kind of indication on seasonality or comps or anything that would kind of cause that?

Sure, so nothing in terms of the underlying business and continue to be very optimistic about the trajectory that the business is on, I would say that to your point, there is not just seasonality, but I did see more challenging comps in the back half of last year. And then also, we just given the timing have a lot more confidence and predictability in terms of the sales cycles and everything that influences billings near in. So, we certainly do see upside to that growth and we do expect billings growth to exceed revenue growth for the full year. But there’s nothing in terms of the underlying trends that we’re seeing in the business that drives that.

Okay. And then maybe one follow-up real quick, I think last quarter, you spoke of Dylan, could you give kind of a net new bookings growth metric? I think it was something like 24%. Is there any update to how that performed this quarter?

Not sure what you’re referring to, do you clarify which metric we don’t typically talk about our bookings for the business overall.

Yes, I guess, trying to getting indication of kind of net new logo bookings and how that trended in the quarter?

Okay, yes, that’s been pretty consistent with what’s been the past few quarters. I think we did callout that that in Q4, it was particularly strong because of some large net new wins. And both in SMB as well as in Japan, and it’s back, it’s pretty normal levels, where we tend to see about 70% or so of our bookings coming from our existing customers and about 30% coming from net new customers.

Okay, thank you so much.

Your next question comes from Erik Suppiger from JMP Securities.

Yes, thanks for taking my question. First off, you know that the billings growth will be faster than the than the revenue growth? Can you give us some flavor or context around the difference that you would anticipate and will that – this is that was meaningful in the first quarter here. But how’s that going to be as we progress forward? How is that difference going to evolve?

Yes, I would say that for now, we would think about the billings growth in the back half of this year to be fairly consistent with our revenue growth in the back half. And so the slightly higher expectation that we’re setting are based on the first half 13% year-on-year growth that we’ve seen. And then certainly, as we move and head into next quarter, we’ll give more color into our billings expectations are shaping up for the back half of the year.

Okay, very good. Thank you.

And that was our last question. At this time, I will turn the call back over to the presenters.

Great. Well, thank you. We again very excited about a momentum in Q1 and looking forward to following up with all of you soon.

This concludes today’s conference call. Thank you for participating.