Good day and thank you for standing by and welcome to the Box Inc., Second Quarter Fiscal 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator instructions] I'd now like to hand the conference over to your speaker today, Cynthia Hiponia. Please go ahead.

Good afternoon and welcome to Box’s second quarter fiscal year 2022 earnings conference call. I am Cynthia Hiponia, Vice President, Investor Relations. On the call today we have Aaron Levie, our CEO; and Dylan Smith, our 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 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 Q3 and Fiscal Year 2022 financial guidance and our expectations regarding our financial performance for fiscal 2022 and future periods, including our free cash flow, gross margins, operating margins, operating leverage, future profitability, unrecognized revenue, remaining performance obligations and billings and our expectations regarding the size of our market opportunity, our planned investments 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 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 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 earnings press release filed today and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent annual 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, August 25, 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 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. Lastly, while we recognize there's been news around our upcoming annual meeting on September 9, the purpose of today's call is to discuss our financial results. We ask that during the Q&A portion of this call, you keep your questions focused on our performance. With that, let me hand the call over to Aaron.

Thanks, Cynthia and thank you for joining the call today. We achieved strong second quarter results across all metrics marking our fifth consecutive quarter of achieving both revenue and non-GAAP EPS above our guidance. We delivered second quarter revenue growth of 12% year-over-year, a second consecutive quarter of accelerating revenue growth, billings growth of 13% and RPO growth of 27%. From our business performance and building momentum, it's clear that enterprises are increasingly making strategic long-term decisions on how to support a remote workforce and digital processes while still maintaining a high level of security and compliance policies. As a result, more customers are turning to the Box content cloud to deliver a secure content management and collaboration built for this new way of working. Our strong momentum is best illustrated by our customer deal metrics in the second quarter. Our net retention rate was 106% up from 103% in the prior quarter. We had 74 new deals over a $100,000 up 16% year-over-year and we had a 73% attach rate of suite on deals over $100,000 in the quarter up from 49% in the prior quarter and up from 31% in Q2 fiscal '21. We view these strong customer metrics as evidence that we are executing on the right product, one that is well aligned with the three major changes happening around the future of work in the enterprise. First, hybrid work is going to be a necessity going forward. Second, digital transformation is driving significant change across all industries and third cyber security and privacy threats are increasing at a growing rate as we've seen with recent ransomware attacks. These trends have major implications for how companies work with their content. Content is at the heart of how leading life sciences firms discover, develop and deliver new drugs…

Thanks Aaron. Good afternoon, everyone and thank you for joining us. As Aaron mentioned, we are proud to have delivered strong top and bottom line results in Q2. We drove an acceleration across key metrics; revenue growth, net retention, and operating profit, clearly demonstrating strong business momentum as we build on our content cloud vision. Revenue of $214 million was up 12% year-over-year an acceleration from our Q1 revenue growth of 11% and above the high end of our guidance. Our content cloud offerings are increasingly resonating with our customers as shown by the strong suites traction and net retention rate we achieved in Q2. As our customers are increasingly adopting products with more advanced capabilities, 61% of our revenue is now attributable to customers who have purchased at least one additional product up from 56% a year ago. In Q2, we closed 74 deals worth more than a $100,000 up 16% year-over-year. A record 73% of the six-figure deals were sold as a suite up from 49% in Q1 and from 31% in the year ago period. Suites have enabled us to streamline our sales process and drive greater adoption of multi-product solutions resulting in customers who are larger stickier and have a greater propensity to expand over time. We couldn't be more encouraged by our traction here. We ended Q2 with remaining performance obligations or RPO of $922 million up 27% year-over-year an acceleration from the prior quarter's RPO growth rate of 20% and exceeding our revenue growth by 1500 basis points. Q2's RPO growth is comprised of 16% deferred revenue growth and 37% backlog growth demonstrating Box's stickiness as we continue to sign longer term agreements to support our customer's content strategies. We expect to recognize more than 60% of our RPO over the next 12 months.…

Thanks Dylan. Before we open it up to questions, we wanted to share that on October 6, we will be hosting tens of thousands of attendees at Box Works, which will be an all-digital event for the second year in a row. This year will be another incredible event where we'll share more on our vision for the content cloud and we'll showcase major product advancements. Attendees will also be hearing from an outstanding slate of speakers, including the CEOs of Okta, Slack and Zoom, as well as IT leaders from enterprises like Lions Gates State Street USA, and World Fuel Services among many others. Q2 was a strong quarter, not only in terms of achieving quarterly revenue and non-GAAP operating results that were above our original guidance, but also in our metrics that showed the power of our Content Five platform, net retention, rate billings and RPO growth are all leading indicators that show the success of our strategy to not only retain customers, but expand our solutions within our existing customer base to drive revenue growth and operating margin improvements and ultimately shareholder value. Dylan and I would be happy to take your questions. Operator.

Thank you. [Operator instructions] We have our first question coming from the line of Brian Peterson with Raymond James. Your line is open.

Hi everyone and thanks for taking the question. So wanted to hit on the sales with large deals this quarter. Aaron or Dylan, could you maybe unpack that a little bit and I'd be curious, how does that pipeline look for the back of the year because obviously the execution has been strong, but what are you seeing in terms of pipeline generation and how are those customer conversations maybe changed a little bit with the suites offering?

Yeah, thanks Brian. This is Aaron. We're certainly very happy to update the Q2 and overall the first half results when we look at our big deal metrics and our suites adoption that we've seen. And as we look forward and as I think you can tell evidenced in the revenue guidance, we're also feeling really confident about the back half of the year and the momentum that we're going to see on suite expansion the large deals that we're now we're now seeing in the pipeline. And even within the large deals, a 100,000 plus deals in Q2, we also saw a very healthy number and an increase on the 500 K plus deals as well. So nice set of trends within the customer base right now that we're seeing and overall customers are fully expanding into our multiproduct plans and we're going to keep doubling down on that momentum.

Okay. That's a good segue into my next question. Just, how are you guys thinking about incremental go-to-market best investments going forward? I know sales productivity has been in focus. It looks like that's ramping up. Just curious how we're thinking about headcount, investment going forward? Thanks.

Yeah, I think the message that we've had in the past couple of earnings calls I would say is consistent. We're incrementally investing in go to market capacity right now. And we certainly saw that in Q2 over Q1. And I think the key is though we're going to make investments into the highest productivity regions, the highest productivity segments, the areas where we're seeing increasing momentum. But in Q2, I think we saw that in a number of a number of areas around the world and across segments. So we're really happy about the results and we're going to incrementally invest certainly consistent with our operating margin targets that we've called out, but we want to make sure that we're doubling down in the areas of growth right now that we're saying, thank you.

We have our next question coming from the line of Steve Enders with KeyBank Capital Markets. Your line is open.

Okay, great. Thanks for taking my question. Just want to get a better sense for what you are seeing out there and on the macro side, impressive growth with RPO of 27% and bookings up 39% there, but I guess what would you kind of attribute the strength to in the quarter on that front? Do you think it's more the macro driven and markets coming towards you, or is this proportion of better sales productivity and better execution on your front?

Yeah, thanks Steve. I think it's certainly been many quarters of work to get here and we also are absolutely seeing very favorable mega trends within our customer base of major moves to the cloud a massive push toward remote and hybrid work, significant issues around cybersecurity challenges and then broad digital transformation tailwinds. And so when you add up those three or four mega tailwinds in our market specifically and then having the right product that we're building out with the right message around the content cloud and then the right team that's able to deliver that product. I think we're just seeing a confluence of events that are certainly contributing to these positive results. On the macro front, we have seen, and I think we've seen this across our peer group and I'm sure all of you have seen it as well. The macro environment has certainly improved markedly in the past year from a year ago. Customers were worried about the shutdowns that they were doing, the layoffs that they had to enact and that was causing a decrease in IT spending in some sectors of the IT environment and a year later with certainly a strong macro environment, but more importantly, very strong tailwinds in digital transformation and remote work, we are absolutely capitalizing on that with again, the right team and the right product. And then when you get one level, even more specific, if you look at our multiproduct plans, this is again, this has been a couple years of that finally really coming together nicely. Box Shield is performing incredibly well. Box Relay is helping us advance our workflow story, having an open platform that customers can build on and integrate. Many of our largest deals in the quarter both our $500,000 plus deals and our seven figure deals, were customers that were buying into the entire suite of our technology, building custom applications and integrating us across their software landscape and fundamentally driving new digital experiences for their employees and their customers and partners. So I think we are we're benefiting from again, the right platform and having this content cloud where the market is heading toward.

And just to build on that a bit, this is Dylan, because you asked about sales productivity is as we've shared, our strategy has really been to focus our go to market and sales in particular investments in higher performing regions and geographies. That strategy is definitely paying off and is the approach that we'll continue to take going forward. So for both enterprise and SMB in Q1 and Q2, we saw a strong increase in the percentage of AEs achieving quota, as well as a strong year on year improvements in sales force productivity. So we have been, as Aaron mentioned, incrementally, been adding to that sales force and remain on track to grow the size of that sales force in the low teens as a percentage of this year.

Okay, perfect. Great to hear. And just on Box, I know it's only been out for about a month now, but guess what have you seen in terms of -- in terms of adoption or interest within that product so far?

Yeah, the interest is absolutely been very strong and overwhelming. We are in the midst of rolling the product out to our customers throughout this fall, the select customers that we're getting it out to are starting to adopt it. I was on a call with a fortune 500 customer yesterday and this was the main topic of conversation was being able to roll out Box Sign to all of their end-users and also through the API. So we're seeing a lot of great use cases emerge. It's getting us into new conversations. It's also helping drive further retention and renewals of customers because customers are getting a fuller suite of functionality in the same platform. And when you look at the categories that are adjacent to content sharing and collaboration, whether it's advanced data security, workflow automation, e-signature content publishing, content analytics, you can see multiple categories that our platform is a natural fit to expand into. And as we laid out over the past year or so, our strategy is to really build out that entire content life cycle in a single architecture. And that message is resonating very well right now with customers. We're becoming a much more, I think, strategic vendor for them, and we're having much more strategic conversations because of that.

Okay, great to hear. Thanks for taking my question.

We have our next question coming from the line of Matthew Cox with JPMorgan. Your line is open.

Hi, good afternoon. Thanks for taking my question. Dylan on the sales productivity, I think you mentioned last quarter, you expected the improvement in productivity to ramp at a more measured pace. And I just want to dig into this to see did sales productivity truly exceed your expectations this quarter? And if so, what happened that you may be changed that versus your expectations the last quarter?

Sure, so last year, as a reminder, we improved overall sales force productivity by 13% year-over-year and that was primarily driven by enterprise because of some of the challenges we saw with COVID in the SMB segment in the middle part of the year. In the first half of this year, we've seen even stronger growth in both enterprise and SMB. So that has outperformed our expectations and to make as Aaron had talked about, we're really seeing the traction of our newer products boosting that performance as well as a lot of the reasons that we've been investing in outperforming as well. And that's what gives us the confidence as we look at the business on a region-by-region, geography-by-geography basis in continue to grow the sales force and most parts of the business, certainly where the productivity trends have been strong and where we are seeing the greatest momentum and suites and large deals. So as mentioned, we do have more modest expectations for the rate of sales force productivity improvements going forward, but we do expect continue improving that metric in both enterprise and SMB even as we grow the size of our sales force.

Okay. And then can you share how many of your reps are ramped currently, maybe versus last quarter or this time last year?

We don't break out the specific numbers, but we'll say that we entered this year and have a higher percentage of reps who are ramped versus the same time a year ago especially, as in those higher performing regions, we tend to see a stronger sales force.

Okay. And then last one from me. Can you help parse the demand that you're seeing now? How much of the demand can you attribute to maybe a pent up demand or business that might have normally closed last year or in a more normal environment versus anything where you're seeing a secular surge that might suggest something is truly changing or maybe Aaron it's, as simple as what you alluded to earlier, sort of the multi-year effort behind the product strategy is really taking well, just trying to figure out what's maybe a pent-up versus what's a secularly different.

Certainly anecdotally even and given my dozens of CIO interactions in just the past month or so hundreds in the first half of the year, I think we're seeing sustaining trends across the business. When I look at the sectors that are buying and expanding, financial services, life sciences, healthcare, the technology sector, professional services, federal government and the trends are remarkably consistent across the CIO conversations, every single CIO, whether you're the CIO of a 500-person company or a 500,000-person company, you're trying to figure out what is the future of your workforce, and what's your future of your workplace? You know that you're not going to have any analog processes going forward. You know that you're not going to have any on premises infrastructure for the most part. There's certainly going to be some lag to that. But for the most part, you're moving to the cloud. You know, that you're dealing with massive cyber security and ransomware and data privacy challenges. And so, as you're thinking about this modern architecture, you have major vendors that you have to make sure work together. You've got a Microsoft stack, you've got a Google stack, you have a Salesforce stack, you have a Slack stack or a Service Now stack and fundamentally you need a platform that helps you manage content across those technologies. And when I look at the trends that we're seeing within our customer base, these are long-term architectural -- architecturally driven trends that we believe will sustain and we're just seeing that talent pick up. And that's why, again, we are really focused on driving this continued performance.

[Operator instructions] We have our next question coming from the line of Chad Bennett with Craig Hallum Capital. Your line is open.

Great. Thanks for taking my question. So, if we look at RPO non-current RPO has grown significantly above from a growth rate perspective current RPO for, I think on the order of six quarters now. And, my guess is in this quarter it was significant in terms of Delta between the two. You guys have talked about from a strategic selling standpoint moving to suites and getting the sales force comfortable with that and kind of making sure the repeatability of that sale improves in, it certainly looks like it did this quarter. I guess can you give us an update on how that impacts contract duration? Obviously you're signing more multi-year deals which show up in that longer-term RPO number. And since the attach rates went up so much this quarter, it'd be good to get some perspective on where they are now versus a year ago.

Sure. So as you see, we did generate improvements in all components of what contributes to RPO growth both on a year on year and quarter over quarter basis. But your point, a lot of that was really due to the outsize backlog growth, which was driven by the large multi-year contracts, the higher volume of those that we're seeing especially as customers are increasingly signing those longer term contracts. On average, we have seen to your point that that's led contract durations to improve by a little more than a month over the past year, because we do see longer contracts as you'd expect for our customers who are adopting a more sophisticated solutions and our add on products. And so as we see more of these customers adopt suites and move into that category that is one of the big things that's driving that mix shift longer durations and then contributing to the backlog growth as well as overall RPO.

And that increase or impact of a month, Dylan, is there a rough, are we at kind of 1.2, 1.4 and just in terms of duration these days, just for some perspective

Yeah, so it's a little more than a year and a half on average for kind of a total contract duration or average contract duration. But again, those suites and core plus customers tend to be on multi-year deals. And so while we also do see some variability quarter to quarter in those in our RPO growth what this is also being driven on it by in arrowhead this is, there are some customers who are, early renewing their contracts. We're setting those for longer durations once they really buy into that broader suite strategy and it's really a function of bigger customers who are betting on us for the long term.

Okay. And then just in terms of when you speak of acceleration in the business and in particular revenue growth obviously we want to be conservative in guide and expectations going forward. But, the secondary metrics have looked really good relative to real time revenue growth. Let's just say the last two quarters, and the guide forecast and kind of roughly the same type of growth rate you've seen this quarter and last quarter in the second half, is there anything that I know last year, I think this time we're talking about maybe professional services being a headwind and SMB being a headwind, is there anything in your guide that that's a headwind to the revenue growth rate that we might not be seeing? Thanks.

Yeah, so your point as revenue growth, these now reflects the prior 12 months of business performance. As the momentum we're not seeing on our business flows through to revenue, we do expect to see a continued upward trends over time. So ending the year as implied in our guidance for Q3 and the full year at a higher growth rate than either our Q1 or Q2 actuals or Q3 guidance and that's really what gives us the confidence in improving our growth rate over time. On the headwinds, we are continuing to see both from a revenue point of view because it's trailing 12 months, some of the impacts of the middle of the year in COVID at least from a near term point of view going forward. And then we do even now continue to see some pressure on our professional services business. So that continues to be a slight headwind to the overall revenue growth.

Great. Thanks for taking my questions.

Thank you. The call has now ended. I will now turn the call back over to Cynthia for any closing remarks.

Thank you, everyone for joining us this afternoon. And we look forward to obtaining you again on our next earnings call.

This concludes today's conference call. Thank you for participating. You may now disconnect.