Thank you for standing by. My name is Jill, and I will be your conference operator today. At this time, I would like to welcome everyone to the Box, Inc. Fourth Quarter and Fiscal 2025 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. I would now like to turn the conference over to Box. You may begin.

Thanks, Jill. Good afternoon, and welcome to Box's fourth quarter and full year fiscal 2025 earnings conference call. I'm Cynthia Hiponia, Vice President, Investor Relations. On the call today, we have Aaron Levie, Box cofounder and CEO, and Dylan Smith, Box cofounder 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 Investor Relations dot com. Our webcast will be audio only. However, supplemental slides are available for download from our website. On this call, we will be making forward-looking statements, including our first quarter and full year fiscal 2026 financial guidance, our expectations regarding our financial performance for fiscal 2026 and future periods, including 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 deferred tax expenses, 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, our ability to address enterprise challenges 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 known to us currently, 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 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, March 4, 2025, and we disclaim any obligation to update or revise them should they change or cease to be up to date. In addition, 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 supplemental 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. Finally, our guidance today reflects the impact of several factors, which Dylan will describe more fully in his comments. We've created a detailed guidance slide which summarizes these items. You can find this slide in the related supplemental slides posted to our IR website. Thank you. With that, let me turn the call over to Aaron.

Thank you, Cynthia, and thank you all for joining the call today. We delivered strong Q4 operating results, customer demand for BoxAI, We achieved revenue of $280 million, up 6% year over year, or 8% in constant currency. Operating margins of 27.3%, and EPS of 42 cents, one cent above our guidance. In fiscal 2025, we drove revenue growth of 5% year over year or 7% in constant currency, and expanded operating margins by 320 basis points to 28%. It was a defining year for Box as we introduced the most transformational product lineup in our company's history with the delivery of our intelligent content management platform. In the last two weeks of the quarter, we released Enterprise Advanced, combining the full power of our ICM platform to customers in a single multiproduct offering. We are pleased with the momentum we are seeing with customers and closed several dozen Enterprise Advanced deals in Q4. We are seeing companies start to adopt Enterprise Advanced to power intelligent metadata extraction from documents, automate workflows and dashboards with Box apps, gain access to forms, doc gen, and archive, and create custom AI agents with the AI Studio. Examples of Enterprise Advanced customer wins in Q4 include through a systems integrator, a state DMV who is forecasting a huge increase in online title submissions, to the changing regulations. We'll be using Enterprise Advanced to replace a legacy file system and to create custom portals to ease customer submissions and extract metadata to create dashboards for processing and managing of records. A US-based global investment firm that uses Box to power its client portal as well as provide a custom internal document management system for its financial advisors upgraded to Enterprise Advanced to support contract life cycle management for their legal team, doc gen for…

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us today. In fiscal 2025, we made substantial progress against the three financial priorities we outlined heading into the year. First, we strengthened our foundation to deliver profitable growth by launching Enterprise Advanced and ramping up key go-to-market initiatives. Second, we significantly expanded gross and operating margin through cost discipline and advancing our workforce location strategy. Finally, executing our capital allocation strategy enabled us to further strengthen our balance sheet and efficiently return capital to shareholders. In FY 2025, we delivered revenue of $1.09 billion, up 5% year over year, and up 7% in constant currency. Operating margin came at 27.9% up 320 basis points year over year and up 460 basis points in constant currency. We delivered EPS of $1.71, up 17% year over year and up 27% in constant currency. Finally, in FY 2025, we generated record free cash flow of $305 million up 13% year over year. Turning to Q4, We closed the year with strong results exceeding our guidance for Q4 revenue of $280 million was up 6% year over year up 8% in constant currency, exceeding our expectations despite absorbing an incremental FX headwind of 70 basis points. We now have approximately 1,920 total customers paying us at least $100,000 annually, up 8% year over year. Our Q4 suites attach rate in large deals was strong at 87% an improvement from 81% in Q4 of last year. When we launched Suite several years ago, our objective was for Suites to represent the vast majority of our sales to large customers we are pleased to have achieved this goal. As such, going forward, we will no longer be providing this metric. As our intelligent content management platform enables customers to adopt Box for more advanced use…

Thank you. The floor is now open for questions. If you would like to withdraw your questions, simply press star one again. If you are called upon to ask a question and are listening via loud speaker on your device, please pick up handset and ensure that your phone is not on mute when asking your question. Again, it is star one to join the queue. Your first question comes from the line of Brian Peterson of Raymond James. Your line is open.

Hey, guys. Thanks for taking the time. And sorry about the background noise. And, look, the billings number was great this quarter. I just love to understand the early momentum you're seeing with Advance. Was it better than you expected, and how do we think about the pipeline for that product as we enter fiscal year 26?

Yeah. So we were very happy with results in Q4 on Enterprise Advanced. You know, this was a plan that our customers didn't really even have much early heads up on. We were moving pretty quickly throughout the year and announced it officially at Boxworks. And so that only gave customers really, you know, kind of sixty days maybe at best to really, you know, dive in understand the offering, understand the plan. And so to have, you know, dozens of deals at the end of Q4 that were Enterprise Advanced, we were very happy about. The momentum is certainly building in all of our customer conversations. And as folks who have paid attention to our rollout of these plans know, you know, that there's definitely a transition period from one plan to the next. But very quickly, most of the sales conversation we're going to have will certainly start with the functionality that's an Enterprise Advanced. And then, obviously, customers can down select to Enterprise Plus or another plan if they don't need that automation or intelligent document processing, but we will start to veer more toward highlighting all those capabilities and those use cases to customers. Gonna see this quite a bit in all of our major announcements. They'll tend to have, you know, some Enterprise Advanced capability or component in them throughout the year, and we're just gonna drive more and more momentum. So super happy with the results in Q4 in Enterprise Advanced, and we expect that to be a core part of our selling motion. But you know, still, you know, wanting to note that it's a ramp process as you can imagine.

Gotcha. Because you reached out earlier. You mentioned Clover's couple of different times. As we're thinking about the mix of kinda direct versus indirect however you wanna say it. How should we think about that evolving going forward?

Yeah. So we've long been in a mostly direct business other than Japan, which is a very channel-heavy business even though we still have direct reps involved in those deals. And, you know, there's a lot of lessons in Japan that we'd like to be able to bring to other regions. And just naturally with the kind of use cases we're now going after where we are really going into the core of a customer's transformational workflows, you know, moving from legacy systems to the cloud, being able to start to automate more business processes, These are the types of workflows that need implementation. It usually is a broader part of a bigger strategy. And there's now obviously very, very relevant partners in all of these categories that help customers every single day in every single industry with those types of transformation. So we wanna be embedded in each of those partners. When they think about content, we want them thinking about Box. And so we'll bring them into more deals as relevant, and we wanna build flywheels with a lot of these top GSIs as well as, you know, boutique and even kinda regional firms that have a specialty a particular domain. At the Analyst Day, we'll certainly talk a little bit more about the overall partner and system integrator strategy. But we do expect that this is a more critical part of our go-to-market engine where last year we started to rev up the engine. And now this year, I think it's gonna be a you'll hear more from us on this part.

Your next question comes from the line of Michael Funk of Bank of America. Your line is open.

Thank you for the questions tonight. You know, first one, higher level macro question. Growing uncertainty with the macro environment last month or so. You get any sense from your clients about uncertainty on their end for purchasing due to the macro or shift in behavior?

Yeah. You know, certainly very top of mind question. It's an, you know, increasingly dynamic environment as I think we've all seen. You know, every day there's, you know, some type of change or reversion that keeps everyone on their toes. We're staying very close to our customers. On the environment, and we wanna continue to, you know, partner with every customer in every industry to help them drive more efficiency, to help them drive more automation, to help them get more intelligence from their business. So, you know, we believe we're an asset in this environment. In dynamic times. You wanna have more leverage from your technology. You wanna be able to retire more legacy systems. You wanna automate more work. So we think we're in a very strong position there, but certainly dynamic macro environment and we're continuing to watch it very carefully.

Okay. Great. And on NRR, so maybe help me think on the components to NRR you know, as far as pricing contribution, product, and then change in seed count as we think about maybe potential for improvement moving forward.

Yeah. So on NRR, I would say for the, you know, call it medium term and what's baked in our confidence in being able to improve that net retention rate from 102% to 103% year over year largely driven by the same types of dynamics that we've experienced over the past year. Which is to say continued improvements in price per seat. So pricing driving a lot of the customer expansion particularly now that we have Enterprise Advanced. As part of our portfolio. And then, you know, expect to see still pretty muted and minimal contribution from seat growth. And then at the same time and kinda completing the kinda three factors on the overall kinda full churn rate, we also expect that to remain very strong and stable at 3%. And then outside of NRR, you're not expecting to see a big shift in the contribution of expansion from our existing customers, which is represented in that NRR and the contribution to growth from, you know, kinda new customers buying Box for the first time. So longer term, I think that, you know, of those various factors, the one that will hopefully and we expect contribute more to growth is on the seat side, but we'll say that we do expect you know, even steady state in longer term for price improvements to have be a bigger driver of net retention improvements rather than a seat growth.

Great color, guys. Thank you so much.

Your next question comes from the line of Steve Enders of Citi. Your line is open.

Okay. Awesome. Thanks for taking the questions here. I guess maybe just to start on the advanced custom adoption that you've seen so far, I guess maybe what are kind of the core use cases that you're seeing those customers utilize for? You know, how much of an uplift has the advanced plan driven you know, from the ACV growth on a like-for-like basis to those customers just any, you know, further details around that would be, you know, would be helpful. Thanks.

Yeah. So I'll go through some of the use cases, maybe Dylan can provide some of the pricing color. You know, there's gonna be a few different kinda killer apps within Enterprise Advanced. It's the first time that we've released a new suite that had, on day one, the kind of breadth of functionality that this does. The Enterprise Plus offering was really built on the success of Shield, and then we added more to it over time. Enterprise Advanced has a little bit of something for the different kinds of workflow and content management use cases that are out there that we've been missing. So forms and doc gen, if you're doing a lot of sort of form-based automation where, you know, data comes in, need to be able to automatically generate a contract or an invoice or some other statement with that data. So we've seen a number of customers be very excited by that functionality. We have unlocked with archive a lot of customers' use cases where they have large datasets they wanna be able to manage within Box. But we haven't historically given them the tooling to manage that content outside of, really, the end user experience. It's how archive lets you go. But content you wanna be able to govern over a long period of time for a records management use case. And that's now built in. So those are a few of the capabilities that have been exciting. The really, really big ones are likely going to really revolve around this metadata extraction from documents. And so that's our AI-powered document processing capabilities. So you take a contract or an invoice or a bank statement, and inside of that document, today with Box, unless you can, like, tell us what's inside of it, we…

Yeah. And then to hit on, you know, some of the economics, you asked for the ACVs. We are pleased that the Enterprise Advanced deals that we've sold so far have achieved the target pricing uplift. Of 20% to 40% versus Enterprise Plus that we had outlined when announcing Enterprise Advanced. And as you'd imagine, that's where virtually all of the deals we've sold so far are coming from. From current or previously, I guess, Enterprise Plus customers. Still a bit too early to tell and speak to the deal trends either on, you know, overall contract values or on pricing. Comparisons for customers who are coming into Enterprise Advanced as their first sale. But we will, you know, certainly, you know, kinda share what we're seeing there once we have more of those data points as well.

Okay. Great. No. That's helpful context there. And then on the, you know, on the go-to-market investments that you're making, can you just help us, I guess, think through, I guess, what kind of needed to be built out still or, you know, whether it's, I guess, the most kind of, like, direct investment coming on the go-to-market front. And I guess secondarily, just as we think about the unit economics of a customer coming in from a partner versus direct, how do those compare as you kinda lean into that partner-driven model?

Yeah. So on the go-to-market side, and I do wanna note that we're being very methodical, about the investments. It is a very surgical approach to what we're gonna be adding reach. But if you look at where we are taking the platform and the kind of customer conversations we're having, there's a few components that we believe will accelerate those conversations and be able to respond to more of the demand that's out there. So gonna see, you know, incrementally, more on the industry's efforts and kinda key industries that we're going after. You can think, you know, financial services, life sciences, etcetera. We are doing more on the system integrator front as per the kinda last question. So you can imagine that we wanna have the right kind of talent enabling the key system integrator partners around our platform and then bring them into more deals and really building that flywheel. So there's that kind of an expansion of the kind of relationships we wanna have there. We are gonna be investing in key segments of the business that simply need more sales capacity or the sort of respective overlay functions that are tied to that. And so, you know, those will be segments that we see as performing very well that we wanna keep doubling down in. And then, you know, there's certainly gonna be incrementally more around driving the story of content and AI in the market. And, again, responding to a lot of the demand and interest that's out there around having solutions that let you tap into your unstructured data. So that all combined will be where we drive the overall, you know, go-to-market engine.

Yeah. And then, this is Dylan. On the, respective economics of direct versus indirect customers. Those actually end up being extremely comparable. And that is to say that even when factoring in with whatever, you know, margin or payments the partner's getting, still nets out to be fairly neutral because in a lot of cases, those customers are getting other benefits, cost leverage cost leverage by working through that partner, whether it's marketplace credits or, you know, part of broader spend with them or something like that, and tends to come in as such at kinda on average a slightly higher pricing, which kinda offset some of the margin impact. And that, you know, doesn't even speak to a lot of the other support that our partners provide whether that's, you know, whether on customer support side, you know, certainly going out and finding these customers, which is, you know, more efficient you know, with respect to, you know, our own sellers or marketing spend doing the same job. So I would say overall and what's actually a little bit unique I think, the Box's business versus what you might normally see across the software landscape, is our indirect customers are actually effectively just as profitable as our direct customers.

Okay. Awesome. No. That's great to great to hear, and thanks for taking the questions again.

Thank you.

Your next question comes from the line of Lucky Schreiner of DA Davidson. Your line is open.

Great. Thanks for taking the questions. Maybe just on the guidance. It seems to imply a little bit of a change in terms of the seasonality of the business being more backend weighted. Is that the right way to think about it? Or, you know, how should we sort of think about linearity here?

Yeah. So do you for which metric are you asking much specifically?

Revenue.

Revenue. Sure. Yeah. So I would say a couple things there. I mean, first, as we had mentioned, Q1 is kind of artificially lower as it were because of the impact of the leap year and that kind of 120 basis point impact. But even adjusting for that, you're right that we do expect to see a gradual acceleration in our revenue growth right rate, apples to apples, throughout the year. As, you know, a lot of as we mentioned, a lot of the investments been making in growth, you know, kind of the early traction from Enterprise Advanced and everything else that Aaron and I have been discussing, is what's driving that acceleration. And you see that again in the net retention rate and our expected improvement by a point year over year, as well as with, you know, billings coming in, you know, a little bit higher than our revenue growth rate expectations for the year.

Makes sense. And then maybe on you know, the top of funnel interest, have you noticed just in general interest from new customers increasing significantly with the Enterprise Advanced solution, or is it really more from the existing basically. Given how early it is.

Yeah. I think just given the how early stage you know, the plan is, it's heavily, you know, weighted toward customer that we're in conversation with and highlighting new use cases. But maybe the plan aside for one second, I would say our ability to draw in a wider audience is increasing as a result of the latest functionality that we've been introduced. You know, AI has been has been this incredibly important technology for us in let's say, expanding the aperture of our of our potential customer base. There's a large amount of customers that sort of know that they're sitting on unstructured data, documents, and AI is the first time that they are starting to realize they can get insights from that data or automate business processes around that. So know, just as an example, I'm often talking to chief data officers, and that was never really an audience that we would talk to before. We were usually in kind of core infrastructure within the CIO organization, but this the chief data officer realizes now that once you have AI on unstructured data, they can treat that as another data type to pull business insights from. And so this is opening up that aperture as an example. We're having more conversations with company CTOs that are trying to deliver better experiences, and they know that if they can get data from within their unstructured information, they could go and automate a better client-facing experience. And so what's gonna happen is as we really, really own this content and AI message in the market, I believe you're gonna see a widening of the funnel the kind of audiences we can go talk to. Not even to mention in the lines of business, that are also, you know, trying to figure out how can I bring AI to marketing, how do I bring AI to HR process see his. And this is where you're gonna see us have a very strong story around how companies can run-in an AI-first way really, in any line of business that they're operating in?

Very helpful. Thanks for taking the questions.

Thank you.

Your next question comes from the line of Taylor McGinniss of UBS. Your line is open.

Yeah. Hi. Thanks so much for taking my questions. Maybe first just on the operating income margin guide for 2026. So roughly implying flat year over year. I know there's it sounds like a 60 basis point headwind embedded in that. But just when we think about that in the context of, you know, like, where you guys stand with investments, you know, what you're doing around AI, like, anything, you know, you can give us a little bit more color there in terms of what might be embedded. And then also to just how that relates to, you know, comments around significant margin expansion still left in the business. Thanks.

Yeah. Sure. Thanks, Taylor. I would say at a high level, you know, as we mentioned, just given the state of, you know, kind of ramping up and making sure that we really both drive the innovation around our product as well as invest in things, that we started this past year such as, you know, really standing up and making and setting up our partner ecosystem for success, in addition to, you know, kind of invest in some of the key markets, you know, kind of sales segments that we've been seeing, really strong results. Wanna make sure that we're, you know, doubling down there just given you know, how critical of a juncture it is in terms of a lot of these technology decisions. And with AI, I would think about it as really, you know, kinda making a lot of those sales marketing investments. But, you know, as you know, even once we have those resources ramped, you know, just take it takes a few quarters for those deals to come to fruition. And then the revenue, you know, kinda, you know, kinda follows in the year, you know, that follows actually closing the deal. So you can think of it as kind of the lag of a lot of the investments we're making that we are seeing early signs of those paying off. You're not quite getting the revenue impact that we expect to show up over time. And so that's, you know, a lot of it without doing anything, you know, dramatically different is what leads to that confidence and, you know, how we're thinking about that approach. Which is why this coming year, because of that timing, we are expecting to generate again some apples to apples operating margin expansion on a year over year basis, but, you know, nothing, you know, like what we've generated in the past couple of years both because, you know, the significant improvements we made on gross margin already, which will incrementally improve over time, as well as you know, OpEx leverage being, you know, positive but fairly minimal for this year.

Yeah. Maybe just the I just one other second of color that Dylan covered is philosophically, you know, I think we are in a moment right now where we're just seeing a tremendous amount of opportunity on really connecting AI and content together. And it's the most excited that we've been, you know, as a company and from a technology standpoint and the amount of interest from customers is certainly the highest for what they can now do with their data. We wanna be extremely prudent, to be clear, which is why we're making extremely thoughtful investments and we are still on the path to the higher operating margin levels that we've discussed. But this is a kind of period where we do wanna make sure that we're tuning that allocation just a little bit differently than maybe we have in the past couple of years.

Perfect. That was great color. And then just maybe on the outperformance in Billingston Q4, I think you guys had a tougher compare, so that was a really solid number. Could you just maybe talk about, you know, what drove that? And then when we look into the first half of the year, the stronger Q1 number versus Q2, anything just the Flag on that.

Yeah. So it's say it actually the Let's say in Q4, you know, we had a solid new result in the prior quarter, but not at, you know, unusually hard compare. There were some FX, you know, headwinds that created a lot of the kind of comparison challenges that we'd expected and did see. FX was actually a little bit more of a factor and a bigger negative impact than we had expected. You know, when we set our Q4 expectations, I would say it was really that strength of the combination, you know, as mentioned of just, you know, strong adoption and early momentum. With Enterprise Advanced. Just overall, you know, a solid bookings quarter for us. And on the early renewal dynamic that I mentioned, that was had about a $5 million impact to Q4's results. So a little less than two points of the outperformance was attributable to that. So, you know, again, I would say that, you know, any way you slice it, we're really pleased with Q4's billing results. And came in ahead of our expectations, but they just wanna be transparent that there were a couple of items, and the payment durations in particular that, you know, kind of, you know, helped with the with the Q4 billings growth rate. And then turning to Q1 and Q2, is, you know, kind of somewhat follows that. And would note that in Q1, versus Q2 of last year, that was where we did have both, respectively, the weakest and then the strongest billings growth rate. At, you know, kind of basically flat to 10% plus going Q1 to Q2, At the same time, as we mentioned, there is the impact of the of FX that flips where in Q1 of last year, it was Q1 of this year this coming year, we expect FX to be a 300 basis point tailwind, but then for Q2, we expect that to be a headwind of about 140 basis points. Because there was significant FX volatility throughout the first half of last year. So that's one big factor, a nearly 500, basis point swing attributable to FX. And then the final piece in Q2 is some of those early renewals that we mentioned in Q4 are actually coming out of customers who had been set to renew in Q2. So that's where you see a little bit of that dynamic set in as well. Which is why you see teens growth in Q1 and then comes down a bit in Q2. But that's basically primarily optics and just some of the cosmetic factors. And, again, for the full first half of the year, we expect that billings growth rate to be about 7% consistent with both the full year and second half expectations.

Perfect. Thank you so much.

Your next question comes from the line of Pinjalim Bora of JPMorgan. Your line is open.

Oh, great. Thanks for taking the question. Aaron, interesting to see the consumption AI units that you launched. Can you help us understand maybe what drives the consumption of an AI unit? I'm trying to understand if that's, like, a per document of metadata extraction, or is that per word of metadata extraction? I how granular is it? Kindly just understand how should we think about kind of the ramping of those AI units.

Yeah. So we realized that we probably and we'll have somewhere between, I don't know, five and ten different kind of applied AI use cases in making up a time frame of the next year or two, let's just say. And we didn't wanna have to have a SKU for each of those different capabilities where a customer has a, you know, different billing sheet for each product they want, and then you have a know, a complex sales cycle for every single thing they wanna do with AI. So we, you know, looked at the industry, looked at different models, and came up with AI units, which is really the subtraction layer from any individual sort of function that you wanna leverage. So there'll be a basically, a conversion chart that says one AI unit, you know, equals x amount of things in that particular capability set. So, you could imagine a scenario where extracting data from a page of a document costs a certain number of AI units. Then how many ever pages you wanna do or how many documents you wanna do. That will generate a certain AI consumption amount. Similarly, you know, you can imagine, you know, an agentic workflow in the future where an agent is sort of doing a long-running process, Maybe that takes five or ten minutes for that agent to complete the work. And we would have some kind of conversion ratio on the amount of kind of work the AI agent is doing and the amount of AI units. And then one more x factor in there is the model capability or quality that you wanna be able to leverage becomes yet another variable. So you know, a lower, you know, a lower class model that might be great at one kind of simple thing would cost a certain number of AI units but then a much more powerful reasoning model that's doing, you know, thinking and chain of thought the response, know, that might cost a little bit more. So those are the different kind of philosophical variables. I'd say we're way too early to ask anybody to start to model that. This was just released a couple weeks ago as the first way that we can help our customers have more flexibility in how they're using AI. And then we're gonna expand it from there. But, you know, essentially, you can think about it as a customer will call us, say, know, I have a hundred thousand documents I wanna process, and then we'll convert that into a number of AI units that they need, in addition to the core functionality, which is unlocked at the Enterprise Advanced plan in this case.

Understood. Thank you for the color. And then Dylan maybe help us understand about the federal sector. How should investors kind of think about the US federal exposure for Box? And are you baking in some caution around that segment as it as you're thinking about the guys.

Sure. So some of the dynamics with that market are what leads to the prudence. And so we are certainly wanna be cautious. But, again, I think it's too soon to tell exactly what the impact could look like, and that has been, you know, such a key area for our growth. We've seen a lot of green shoots because of, you know, becoming FedRAMP high compliance and all of those things that we are certainly remain focused on that opportunity. What I would say in terms of the size and impact in terms of our current business, fairly minimal exposure there where what I would say is that our total United States public sector business is in the mid-single-digit percentage range of our overall revenue, then the federal business is a portion of that as we also have a pretty successful state and local business as well. So, you know, it's kinda low single-digit percentage range of overall revenue, but certainly one that we are paying a lot of attention to.

Understood. Thank you.

Your next question comes from the line of Rishi Jaluria of RBC Capital Markets. Your line is open.

Oh, wonderful. Thanks so much for taking my questions. Maybe two. I wanna start one a little bit, you know, housekeeping and better understanding. For Dylan and then one for Aaron. Dylan, just to start off with, you know, you saw a pretty big increase in long-term RPO, and you called out duration as kinda being a tailwind. At the same time, we see a lot of enterprise software companies are actually seeing shorter shortening duration. Can you maybe walk us through the dynamic of why you're seeing better contract durations? And then I have a follow-up for Aaron. Thanks.

Yeah. I would say, really, maybe a function you know, it's where we had started to see this trend, and now with Enterprise Advanced, that really represents the type of commitment and, you kind of demonstration of buy into the platform that it makes sense to sign a multiyear deal, whereas maybe those customers had just had annual contracts as well. Particularly as some of these use cases that are more complex and add more value, takes some time to ramp up. And so built into that contract structure there might be a gradual increase in the amount that they're getting billed per year. So there's contractually some incentive and really alignment for customers to adopt our solutions as quickly as possible that is having an impact there. I would say the other thing that fuels it, it's not just the overall duration but also the volume of early renewals. So if you had a customer where maybe they had a year remaining even on a multi-year contract, and now they're renewing early in a given period for example, because they're really excited and wanna get all the capabilities of Enterprise Advanced as soon as possible, Now instead of having with a year left, it would have had nothing in long-term RPO. And now if they re-up for another three-year term, early renewing, that has now two years that shows up in backlog and our long-term RPO growth. So I'd really say it's the combination of just becoming a much more critical and strategic platform for our customers. Which leads to that lengthening as well as some of the mechanics of the early renewals both fueling that growth.

Alright. Wonderful. That's really help. And then, Dylan, if we could please just think about you know, you mentioned during your prepared remarks that you are using Box internally as well as some of the Box AI features and SKUs. Can you maybe talk a little bit about what have you seen in internally, especially anything that can be benchmarked in terms of driving greater efficiency, cost saving, or even kind of driving better execution and better growth as a result of using Box AI, what would have you seen anything you'd benchmark? Thanks.

Yeah. So, this is Aaron. But, you know, we have a very kind of, you know, box on box first approach to AI rollout. So we want, you know, boxers to be using the product for every possible use case. So we can figure out, you know, ahead of our customers what's working well, what's not. So we're getting, you know, a stream of great anecdotes and quantitative case studies. And so, you know, we still have to aggregate kind of all these across the board, but, you know, we'll have examples of just a single HR process where we're using Box Hubs and rolling that out for employees to ask questions about, let's say, a new kind of HR process. You know, just saving, you know, dozens and dozens of hours for one micro type of task like that that normally would have been, you know, internal emails and conversations constantly. From people asking questions. Now you offload on to AI. So we have hundreds of those scenarios, and we'll be sharing a bit more at the analyst day to kinda roll that up. But just think about it as, you know, whether you're interacting with documents or contracts or you know, writing a product spec on a team or working on a marketing asset. Or asking questions about HR information or sales materials or product support questions or all of that is routing through Box.ai today. And so the expectation, of course, is that you know, we're gonna be shipping more software. We're gonna be selling customers better. Gonna be able to, you know, deliver more marketing campaigns, and that is that's already sort of showing up across the business.

Alright. Very helpful. Thanks, guys.

Thank you.

The last question is from the line of Sebastien Naji of Morgan Stanley. Your line is open.

Great. Thanks for the question. We're seeing a really strong uplift in advance from Enterprise Plus. So existing customers clearly finding the value and all the new features and Box AI. Hoping you could talk about how BoxAI, the latest innovation are impacting new customer wins. And, also, just wondering if you've seen all this new technology as an accelerant to broader platform you know, enterprise content management platform rip and replace as well.

Yeah. So to start with the second question first, you know, AI is absolutely going to be a catalyst for driving more, let's say, replatforming of traditional approaches to document management and content management. And so sort of see two kind of vectors to this. The first is customer that might be on a pure legacy enterprise content management system. And just the amount of, you know, the modernization of the functionality is just not there to be able to go drive intelligence from data. We have a partner that we're building more and more momentum with that has sort of highlighted, you know, how little innovation there's been in this category from maybe traditional players. And it's creating a huge opening for us because now Box.ai is letting them, you know, start to bring us in conversations that, traditionally they've not been able to move to the cloud or leverage a modern solution for, but now AI kinda creates that catalyst for them. So that's sort of vector one. And then vector two is think about all of the business units or parts of the organization that didn't have a traditional content management system, and, you know, the customer wasn't really even thinking they were in the market for traditional enterprise content management. So, you know, the team marketing, you know, leveraging, or managing digital assets or the team that was managing contracts or the invoice processing team in an organization, a lot of times, that data just goes into file systems or it's, you know, stuck in email attachments. And so AI now, all of a sudden, dramatically exceeds what they were doing in their workflows before, which has the opportunity now to cause customers to say, okay. Maybe actually I do want software for this problem. I don't wanna just have my data floating around and handling these workflows on a manual basis. So that's gonna be, frankly, I think over the medium term, the largest part of the category, you know, the traditional enterprise content management space is measured in the sort of $7 to $10 billion range, plus or minus is. But the much bigger opportunity is actually all of the use cases that today don't go into an OpenText or a Documentum or a Hyland. And that's the data that we can now go drive, you know, significant amount of automation for. And then to the first question, you know, we are, you know, again, very, very early in rolling out Enterprise Advanced. A lot of the demand is coming from existing customers, but we're now, you know, gonna make sure that this is very much front and center for all of our new sales conversations, all of our marketing campaigns. You know, our entire marketing story right now is content plus AI. And really highlighting what customers can now do with it and Enterprise Advanced is certainly gonna be the best plan type to enter for driving those use cases.

That concludes our Q&A session. I will now turn the conference back over to Cynthia Hiponia, VP of Investor Relations for closing remarks.

Great. Thank you everyone. As a reminder, we're holding our fiscal 26 Financial Analyst Day on Tuesday, March 18th. Just reach out to Elaine or myself at ir@box.com to register, and we look forward to chatting with you again on analyst day and on our next earnings call.

Concludes today's conference call. You may now disconnect.