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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices and Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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☒ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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Small reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of July 31, 2022, the number of shares of the registrant’s Class A common stock outstanding was
TABLE OF CONTENTS
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Page |
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Item 1. |
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5 |
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Condensed Consolidated Balance Sheets as of July 31, 2022 and January 31, 2022 |
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5 |
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6 |
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7 |
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8 |
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10 |
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11 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 |
Item 3. |
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34 |
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Item 4. |
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35 |
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Item 1. |
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36 |
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Item 1A. |
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36 |
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Item 2. |
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59 |
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Item 6. |
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60 |
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61 |
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
3
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.
4
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
BOX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
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July 31, |
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January 31, |
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2022 |
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2022 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Accounts receivable, net |
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Deferred commissions |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets, net |
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Goodwill |
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Deferred commissions, non-current |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable, accrued expenses and other current liabilities |
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$ |
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$ |
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Accrued compensation and benefits |
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Finance lease liabilities |
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Operating lease liabilities |
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Deferred revenue |
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Total current liabilities |
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Debt, net, non-current |
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Operating lease liabilities, non-current |
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Other long-term liabilities |
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Total liabilities |
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Series A convertible preferred stock, par value of $ |
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Stockholders’ deficit: |
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Class A common stock, par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
) |
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( |
) |
Accumulated deficit |
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( |
) |
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( |
) |
Total stockholders’ deficit |
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( |
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( |
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Total liabilities, convertible preferred stock and stockholders’ deficit |
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$ |
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$ |
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See notes to condensed consolidated financial statements.
5
BOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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July 31, |
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July 31, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Income (loss) from operations |
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( |
) |
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( |
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Interest and other expense, net |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Income (loss) before provision for income taxes |
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( |
) |
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( |
) |
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( |
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Provision for income taxes |
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Net income (loss) |
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( |
) |
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( |
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( |
) |
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Accretion and dividend on series A convertible preferred stock |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Net loss attributable to common stockholders |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Net loss per share attributable to common stockholders, basic and diluted |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted |
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See notes to condensed consolidated financial statements.
6
BOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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July 31, |
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July 31, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net income (loss) |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Other comprehensive loss: |
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Net foreign currency translation loss |
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( |
) |
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( |
) |
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( |
) |
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( |
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Other |
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( |
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Other comprehensive loss |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Comprehensive loss |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
See notes to condensed consolidated financial statements.
7
BOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY
(In thousands)
(Unaudited)
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Three Months Ended July 31, 2022 |
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Series A Convertible |
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Class A Common |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Deficit |
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Balance as of April 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Issuance of common stock under employee equity plans, net of shares withheld for employee payroll taxes |
|
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— |
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— |
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— |
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( |
) |
|
|
— |
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|
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— |
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|
( |
) |
|
Stock-based compensation related to stock awards |
|
|
— |
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|
— |
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|
|
— |
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— |
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— |
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— |
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Accretion and dividend on series A convertible preferred stock, net of dividends paid |
|
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— |
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— |
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— |
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( |
) |
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— |
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— |
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|
( |
) |
|
Repurchases of common stock |
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— |
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|
— |
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( |
) |
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( |
) |
|
|
( |
) |
|
|
— |
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|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
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|
— |
|
|
|
— |
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|
|
— |
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|
|
— |
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|
|
— |
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|
|
( |
) |
|
|
— |
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|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
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|
|
— |
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Balance as of July 31, 2022 |
|
|
|
|
$ |
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|
|
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
( |
) |
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Three Months Ended July 31, 2021 |
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Series A Convertible |
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Class A Common |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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(Deficit) |
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Balance as of April 30, 2021 |
|
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
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||||
Issuance of common stock under employee equity plans, net of shares withheld for employee payroll taxes |
|
|
— |
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— |
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— |
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|
( |
) |
|
|
— |
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|
— |
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|
|
( |
) |
|
Stock-based compensation related to stock awards |
|
|
— |
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|
— |
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|
|
— |
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— |
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— |
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— |
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Series A convertible preferred stock, net of issuance costs |
|
|
|
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|
|
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|
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— |
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— |
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— |
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— |
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|
— |
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— |
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Accretion and dividend on series A convertible preferred stock |
|
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— |
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— |
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|
— |
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( |
) |
|
|
— |
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|
|
— |
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( |
) |
|
Repurchases of common stock |
|
|
— |
|
|
|
— |
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|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
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— |
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|
— |
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|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
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( |
) |
|
|
— |
|
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|
( |
) |
Net loss |
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|
— |
|
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|
— |
|
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|
— |
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|
— |
|
|
|
— |
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|
|
— |
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|
|
( |
) |
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( |
) |
Balance as of July 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
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See notes to condensed consolidated financial statements.
8
BOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY
(In thousands)
(Unaudited)
|
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Six Months Ended July 31, 2022 |
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Series A Convertible |
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Class A Common |
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Additional |
|
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Accumulated |
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Accumulated |
|
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Total |
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||||||||||||||
|
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Shares |
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|
Amount |
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Shares |
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|
Amount |
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Capital |
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|
Loss |
|
|
Deficit |
|
|
Deficit |
|
||||||||
Balance as of January 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|||||
Issuance of common stock under employee equity plans, net of shares withheld for employee payroll taxes |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock consideration in connection with fiscal 2022 acquisition |
|
|
— |
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|
|
— |
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|
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|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation related to stock awards |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
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|
— |
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||
Accretion and dividend on series A convertible preferred stock, net of dividends paid |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Repurchases of common stock |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
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( |
) |
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— |
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|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance as of July 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Six Months Ended July 31, 2021 |
|
||||||||||||||||||||||||||||||
|
|
Series A Convertible |
|
|
|
Class A Common |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated |
|
|
Total |
|
||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Deficit |
|
|
(Deficit) |
|
||||||||
Balance as of January 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Cumulative adjustment due to adoption of ASU 2020-06 |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
Stock consideration in connection with fiscal 2022 acquisition |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of common stock under employee equity plans, net of shares withheld for employee payroll taxes |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation related to stock awards |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Series A convertible preferred stock, net of issuance costs |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Accretion and dividend on series A convertible preferred stock |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Repurchases of common stock |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance as of July 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|||||
See notes to condensed consolidated financial statements.
9
BOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 31, |
|
|
July 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of deferred commissions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts receivable, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Deferred commissions |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Operating lease right-of-use assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other assets |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Accounts payable, accrued expenses and other liabilities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Purchases of short-term investments |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Maturities of short-term investments |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Purchases of property and equipment, net of sale proceeds |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Capitalized internal-use software costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Acquisitions, net of cash acquired |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Other |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
||
Net cash provided by (used in) investing activities |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Series A convertible preferred stock, net of issuance costs |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Repurchases of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Payments of dividends to preferred stockholders |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
Proceeds from issuances of common stock under employee equity plans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Employee payroll taxes paid for net settlement of stock awards |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Principal payments of finance lease liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net (decrease) increase in cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Cash, cash equivalents, and restricted cash, beginning of period(1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash, cash equivalents, and restricted cash, end of period(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1)
See notes to condensed consolidated financial statements.
10
BOX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business and Basis of Presentation
Description of Business
We were incorporated in the state of Washington in April 2005, and were reincorporated in the state of Delaware in March 2008. We changed our name from Box.Net, Inc. to Box, Inc. in November 2011. Box provides a leading cloud content management platform that enables organizations of all sizes to securely manage cloud content while allowing easy, secure access and sharing of this content from anywhere, on any device.
Basis of Presentation
The accompanying condensed consolidated balance sheet as of July 31, 2022 and the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive loss, the condensed consolidated statements of convertible preferred stock and stockholders’ (deficit) equity, and the condensed consolidated statements of cash flows for the three and six months ended July 31, 2022 and 2021, respectively, are unaudited. The condensed consolidated balance sheet data as of January 31, 2022 was derived from the audited consolidated financial statements that are included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022 (the Form 10-K), which was filed with the Securities and Exchange Commission (the SEC) on March 16, 2022. The accompanying statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our Form 10-K. There have been no other material changes to our critical accounting policies and estimates during the six months ended July 31, 2022 from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K.
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the financial information and footnotes required by GAAP for complete financial statements. In the opinion of our management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in the Form 10-K and include all adjustments necessary for the fair presentation of our balance sheet as of July 31, 2022, and our results of operations, including our comprehensive loss, our convertible preferred stock and stockholders’ (deficit) equity, and our cash flows for the three and six months ended July 31, 2022 and 2021. All adjustments are of a normal recurring nature. The results for the three and six months ended July 31, 2022 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending January 31, 2023.
Certain prior period amounts reported in our condensed consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation. Such reclassifications did not affect total revenue, operating income (loss), or net income (loss).
Use of Estimates
Certain Risks and Concentrations
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. Although we deposit our cash with multiple financial institutions, our deposits, at times, may exceed deposit insurance coverage limits.
11
We sell to a broad range of customers. Our revenue is derived primarily from the United States across a multitude of industries. Accounts receivable are derived from the delivery of our services to customers primarily located in the United States. We accept and settle our accounts receivable using credit cards, electronic payments and checks. A majority of our lower dollar value invoices are settled by credit card on or near the date of the invoice. We do not require collateral from customers to secure accounts receivable. We maintain an allowance for doubtful accounts based upon the expected collectability, which takes into consideration specific customer creditworthiness and current economic trends. We believe collections of our accounts receivable are probable based on the size, industry diversification, financial condition and past transaction history of our customers. As of July 31, 2022 and January 31, 2022,
We serve our customers and users from data center facilities and public cloud hosting operated by third parties. In order to reduce the risk of down time of our subscription services, we have established data centers and third-party cloud computing and hosting providers in various locations in the United States and abroad. We have internal procedures to restore services in the event of disaster at any one of our current data center facilities and with our cloud providers. Even with these procedures for disaster recovery in place, our cloud services could be significantly interrupted during the implementation of the procedures to restore services.
Geographic Locations
For the three and six months ended July 31, 2022, revenue attributable to customers in the United States was
As of July 31, 2022 and January 31, 2022, substantially all of our property and equipment was located in the United States.
Summary of Significant Accounting Policies
Marketable Securities
We classify our marketable securities as available-for-sale securities as we may sell these securities at any time for use in operations or for other purposes. We record such securities at fair value in our condensed consolidated balance sheet, with unrealized gains or losses reported as a component of accumulated other comprehensive loss. The amount of unrealized gains or losses reclassified into earnings is based on specific identification when the securities are sold. We periodically evaluate if any security has experienced credit-related declines in fair value, which are recorded against an allowance for credit losses with an offsetting entry to interest and other expense, net on the condensed consolidated statement of operations.
There have been no other material changes to our significant accounting policies during the six months ended July 31, 2022 from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended January 31, 2022. Additionally, we have a reporting segment and all required segment information can be found in the condensed consolidated financial statements.
Note 2. Revenue
Deferred Revenue
Deferred revenue was $
Transaction Price Allocated to the Remaining Performance Obligations
As of July 31, 2022, we had remaining performance obligations from contracts with customers of $
12
Note 3. Fair Value of Financial Instruments
The amortized cost, unrealized gain (loss) and estimated fair value of marketable securities were as follows (in thousands):
|
|
July 31, 2022 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Unrealized Gain |
|
|
Unrealized Loss |
|
|
Estimated Fair Value |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury securities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Commercial paper |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Money market funds |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total cash equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury securities |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
Commercial paper |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total short-term investments |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
Total cash equivalents and short-term investments |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
January 31, 2022 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Unrealized Gain |
|
|
Unrealized Loss |
|
|
Estimated Fair Value |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Total cash equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
As of July 31, 2022, contractual maturities of marketable securities were all within one year.
As of July 31, 2022, we do not consider any portion of the unrealized losses to be credit losses.
Fair Value Measurements
We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We define fair value as the exchange price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
13
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets subject to the fair value disclosure requirements were as follows (in thousands):
|
|
July 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury securities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Commercial paper |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Money market funds |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total cash equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury securities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Commercial paper |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total short-term investments |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Total cash equivalents and short-term investments |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
January 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
As of January 31, 2022, we had certificates of deposit for a total of $
Fair Value Measurements of Other Financial Instruments
In November 2017, we entered into a secured credit agreement (as amended or otherwise modified from time to time, the “November 2017 Facility”). As of July 31, 2022 and January 31, 2022, we had total debt outstanding relating to the November 2017 Facility with a carrying amount of $
In January 2021, we issued $
Note 4. Balance Sheet Components
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
|
|
July 31, |
|
|
January 31, |
|
||
|
|
2022 |
|
|
2022 |
|
||
Servers and related equipment |
|
$ |
|
|
$ |
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Computer hardware |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Total property and equipment |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
$ |
|
||
14
As of July 31, 2022, the gross carrying amount of property and equipment included $
Depreciation expense related to property and equipment was $
Operating Lease Right-of-Use Assets, Net
Operating lease right-of-use assets, net consisted of the following (in thousands):
|
|
July 31, |
|
|
January 31, |
|
||
|
|
2022 |
|
|
2022 |
|
||
Operating lease right-of-use assets |
|
$ |
|
|
$ |
|
||
Less: accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Operating lease right-of-use assets, net |
|
$ |
|
|
$ |
|
||
Note 5. Leases
We have entered into various non-cancellable operating lease agreements for certain of our offices and data centers with lease periods expiring primarily between fiscal years
We have also entered into various finance lease arrangements to obtain servers and related equipment for our data center operations. These agreements are primarily for
We sublease certain floors of our Redwood City and London offices. Our current subleases have total lease terms ranging from
The components of lease cost, which were included in operating expenses in our condensed consolidated statements of operations, were as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 31, |
|
|
July 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of finance lease right-of-use assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest on finance lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease cost, gross |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable lease cost, gross |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sublease income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total lease cost (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
15
As of July 31, 2022, maturities of our operating and finance lease liabilities, which do not include short-term leases and variable lease payments, are as follows (in thousands):
Years ending January 31: |
|
Operating Leases (1) |
|
|
Finance Leases |
|
||
2023 |
|
$ |
|
|
$ |
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
— |
|
|
2027 |
|
|
|
|
|
— |
|
|
Thereafter |
|
|
|
|
|
— |
|
|
Total lease payments |
|
$ |
|
|
$ |
|
||
Less: imputed interest |
|
$ |
( |
) |
|
$ |
( |
) |
Present value of total lease liabilities |
|
$ |
|
|
$ |
|
||
(1)
Note 6. Acquisitions
Results of operations for the acquisitions described in this Note have been included in our consolidated statements of operations since the acquisition dates and were not material. Pro forma results of operations for these acquisitions have not been presented because they were also not material to the consolidated results of operations.
SignRequest B.V.
On February 8, 2021, we completed the acquisition of SignRequest B.V. (SignRequest), an e-signature provider, for total aggregate consideration of $
The consideration paid was $
Under the acquisition method of accounting, the total final purchase price was allocated to SignRequest’s net tangible and intangible assets based upon their estimated fair values as of the acquisition date. Of the total purchase price, $
Cloud FastPath
On February 16, 2021, we purchased certain assets and assumed certain liabilities of, and hired certain employees from, Cloud FastPath, a cloud-based content migration solution, for total consideration of $
The fair value of the consideration transferred on the date of purchase totaled $
Under the acquisition method of accounting, the total final purchase price was allocated to Cloud FastPath’s net tangible and intangible assets based on their estimated fair values as of the date of purchase. Of the total purchase price, $
16
Note 7. Goodwill and Acquired Intangible Assets
Goodwill was $
Acquired intangible assets are included in other long-term assets in the condensed consolidated balance sheets. Acquired intangible assets consisted of the following (in thousands):
|
|
Weighted-Average Remaining Useful Life (Years) |
|
|
Gross Value |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
||||
Balance as of January 31, 2022 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Developed technology |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Balance as of July 31, 2022 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Acquired intangible assets are amortized on a straight-line basis over the useful life. Amortization of acquired developed technology is included in cost of revenue in the condensed consolidated statements of operations.
As of July 31, 2022, expected amortization expense for acquired intangible assets was as follows (in thousands):
Fiscal years ending January 31: |
|
|
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Total |
|
$ |
|
|
Note 8. Commitments and Contingencies
Letters of Credit
As of July 31, 2022 and January 31, 2022, we had letters of credit in the aggregate amount of $
Purchase Obligations
Our purchase obligations relate primarily to infrastructure services and IT software and support services costs.
Fiscal years ending January 31: |
|
|
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
— |
|
2027 |
|
|
|
|
Total |
|
$ |
|
|
Our contracts for infrastructure services and IT software, which have terms ranging from
17
Legal Matters
From time to time, we are subject to litigation and claims that arise in the ordinary course of business. We investigate litigation and claims as they arise and accrue estimates for resolution of legal and other contingencies when losses are probable and estimable. Although the results of litigation and claims cannot be predicted with certainty, we believe there was not at least a reasonable possibility that we had incurred a material loss with respect to such loss contingencies as of July 31, 2022.
Note 9. Debt
Convertible Senior Notes
In January 2021, we issued $
There have been no changes to the conversion or redemption terms of the Notes during the six months ended July 31, 2022 from those disclosed in Item 8. Financial Statements and Supplementary Data in our Form 10-K for the fiscal year ended January 31, 2022.
As of July 31, 2022, the conditions allowing holders of the Notes to convert were not met.
The net carrying amount of the Notes consisted of the following (in thousands):
|
|
July 31, |
|
|
January 31, |
|
||
|
|
2022 |
|
|
2022 |
|
||
Principal |
|
$ |
|
|
$ |
|
||
Unamortized issuance costs |
|
|
( |
) |
|
|
( |
) |
Net carrying amount |
|
$ |
|
|
$ |
|
||
Issuance costs are being amortized to interest expense over the term of the Notes using the effective interest rate method. The effective interest rate used to amortize the issuance costs was
Capped Calls
In connection with the pricing of the Notes, we entered into privately negotiated capped call transactions with certain counterparties (the "Capped Calls"). The Capped Calls each have a strike price of approximately $
Line of Credit
On
18
As of July 31, 2022, we had total debt outstanding with a carrying amount of $
Note 10. Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Series A Convertible Preferred Stock
On April 7, 2021, we entered into an investment agreement with group of investors led by KKR & Co. Inc. (collectively “KKR”) relating to the issuance and sale of
The Series A Preferred Stock rank senior to our Class A common stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of Box. The Series A Preferred Stock initially have a liquidation preference of $
The Series A Preferred Stock is convertible at the option of the holders thereof at any time into shares of Class A common stock at an initial conversion price of $
There have been no changes to the voting rights or redemption terms of the Series A Preferred Stock during the six months ended July 31, 2022 from those disclosed in Item 8. Financial Statements and Supplementary Data in our Form 10-K for the fiscal year ended January 31, 2022.
Share Repurchase Plan
Between July 2021 and July 31, 2022, our board of directors authorized the repurchase of up to an aggregate of $
Note 11. Stock-Based Compensation
Employee Equity Plans
We currently have
19
Stock Options
The following table summarizes the stock option activity under the equity incentive plans and related information:
|
|
Shares Subject to Options Outstanding |
|
|
Weighted- |
|
|
|
|
|||||||
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
|
|
||||
|
|
|
|
|
Average Exercise |
|
|
Contractual Life |
|
|
Aggregate |
|
||||
|
|
Shares |
|
|
Price |
|
|
(Years) |
|
|
Intrinsic Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
||||
Balance as of January 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Options exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Options forfeited/cancelled |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Balance as of July 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and expected to vest as of July 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable as of July 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Restricted Stock Units
The following table summarizes the restricted stock unit activity under the equity incentive plans and related information:
|
|
Number of |
|
|
Weighted- |
|
||
|
|
Restricted |
|
|
Average |
|
||
|
|
Stock Units |
|
|
Grant Date |
|
||
|
|
Outstanding |
|
|
Fair Value |
|
||
Unvested balance - January 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited/cancelled |
|
|
( |
) |
|
|
|
|
Unvested balance - July 31, 2022 |
|
|
|
|
$ |
|
||
As of July 31, 2022, there was $
Performance-Based Restricted Stock Units
We use performance-based incentives for certain employees, including our named executive officers, to achieve our annual financial and operational objectives, while making progress towards our longer-term strategic and growth goals. Based on a review of our actual achievement of pre-established corporate financial objectives and additional inputs from our Compensation Committee, the Fiscal 2022 Executive Bonus Plan was determined, settled and paid out in the first quarter of fiscal year 2023 in the form of fully vested restricted stock units. During the first quarter of fiscal year 2023, our Compensation Committee also adopted and approved the performance criteria and targets for the Fiscal 2023 Executive Bonus Plan, which is expected to be paid out in the form of cash and fully vested restricted stock units in the first quarter of fiscal year 2024.
During the six months ended July 31, 2022, we recognized stock-based compensation expense related to the Fiscal 2022 and Fiscal 2023 Executive Bonus Plans in the amount of $
2015 ESPP
As of July 31, 2022, there was $
20
Stock-Based Compensation
The following table summarizes the components of stock-based compensation expense recognized in the condensed consolidated statements of operations (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 31, |
|
|
July 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note 12. Net Loss per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):
|
|
Three Months Ended July 31, |
|
|
Six Months Ended July 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Accretion and dividend on series A convertible preferred stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average number of shares used to compute net loss per share attributable to common stockholders, basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share attributable to common stockholders, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because the impact of including them would have been antidilutive (in thousands):
|
|
Three Months Ended July 31, |
|
|
Six Months Ended July 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Options to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares related to convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares related to the convertible senior notes |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Note 13. Income Taxes
We evaluate uncertain tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. We believe that we have provided adequate reserves for our income tax uncertainties in all open tax years.
We file tax returns in the U.S. for federal, California, and other states. All tax years remain open to examination for both federal and state purposes as a result of our net operating loss and credit carryforwards. We file tax returns in the United Kingdom and other foreign jurisdictions in which we operate. Certain tax years remain open to examination.
21
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled “Risk Factors” and in other parts of this Quarterly Report on Form 10-Q.
Overview
Box is the Content Cloud: one secure, cloud-native platform for managing the entire content journey. Content – from blueprints to wireframes, videos to documents, proprietary formats to PDFs – is the source of an organization’s unique value. The Box Content Cloud enables our customers, including 67% of the Fortune 500, to securely manage the entire content lifecycle, from the moment a file is created or ingested to when it’s shared, edited, published, approved, signed, classified, and retained. Box keeps content secure and compliant, while also allowing easy access and sharing of this content from anywhere, on any device – both within the organization and with external partners.
With our Software-as-a-Service (SaaS) platform, users can collaborate on content both internally and with external parties, automate content-driven business processes, develop custom applications, and implement data protection, security and compliance features to comply with legal and regulatory requirements, internal policies and industry standards and regulations. The Box Content Cloud accelerates business processes, improves employee productivity, enables secure remote work, and protects an organization’s most valuable data. Our platform enables a broad set of high-value business use cases across enterprises, hundreds of file formats and media types, and user experiences. Our platform integrates with more than 1,500 leading enterprise business applications, and is compatible with multiple application environments, operating systems and devices, ensuring that workers can securely access their critical business content whenever and wherever they need it.
In addition, we continue to innovate by expanding our core services and offerings with a focus on frictionless security and compliance, seamless internal and external collaboration and workflow, and integration with best-of-breed applications. For example, we provide Box Shield, our advanced security offering that helps customers reduce the risk of accidental content leakage and protect their business from insider threats and account compromise; Box KeySafe, a solution that builds on top of Box’s strong encryption and security capabilities to give customers greater control over the encryption keys used to secure the file contents that are stored with Box; Box Governance, which gives customers a better way to comply with regulatory policies, satisfy e-discovery requests and effectively manage sensitive business information throughout its lifecycle; Box Relay, which allows our end users to easily build, manage and track their own workflows; Box Sign, which enables customers to securely send documents for electronic signature directly from Box; Box Platform, which further enables customers and partners to build enterprise apps using our open APIs and developer tools; Box Zones, which gives global customers the ability to store their content locally in certain regions; Box Notes, our native content authoring tool which enables users to seamlessly share and collaborate in real time; and Box Canvas, our natively integrated, interactive virtual whiteboarding tool, which we expect to be released later this year in all Box plans. We also offer self-service and managed content migration services with Box Shuttle and Box Consulting, which provide professional services such as implementation support, assisted content migration, and change management. The increasing traction of these product innovations allows our customers to realize the full set of capabilities of our Content Cloud.
We offer our solution to our customers as a subscription-based service, with subscription fees based on the requirements of our customers, including the number of users and functionality deployed. The majority of our customers subscribe to our service through one-year contracts, although we also offer our services for terms ranging from one month to three years or more. We typically invoice our customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments. We recognize revenue as we satisfy our performance obligations. Accordingly, due to our subscription model, we recognize revenue for our subscription services ratably over the term of the contract.
Current Period Highlights
For the three months ended July 31, 2022 and 2021, our revenue was $246.0 million and $214.5 million, respectively, representing year-over-year growth of 15%. As of July 31, 2022, our remaining performance obligations were $1.05 billion, representing a 14% increase from our remaining performance obligations of $922.4 million as of July 31, 2021. For the three months ended July 31, 2022, our operating income was $3.1 million, and our operating margin was 1.3%, compared to our operating loss of $6.1 million and our operating margin of negative 2.8% for the three months ended July 31, 2021. For the three months ended July 31, 2022, our net cash provided by operating activities was $28.3 million and totaled $136.1 million for the first half of fiscal year 2023. This compares to net cash provided by operating activities of $44.8 million for the three months ended July 31, 2021 and totaled
22
$139.6 million for the first half of fiscal year 2022. For the three months ended July 31, 2022, our free cash flow was positive $18.0 million and totaled $108.8 million for the first half of fiscal year 2023. This compares to free cash flow of positive $29.8 million for the three months ended July 31, 2021 and $105.7 million in the first half of fiscal year 2022.
COVID-19
We continue to monitor, analyze and respond to evolving developments regarding the COVID-19 pandemic, which has significantly impacted global economic activity and social practices. We have re-opened our offices globally for employees on a voluntary basis and are transitioning to a hybrid workforce (with a mix of employees working from offices and others working remotely). In addition, our customer and marketing events in the United States continue to be predominantly virtual-only experiences.
Although the COVID-19 pandemic did not have a material adverse impact on our financial results for the second quarter of our fiscal year 2023, the pandemic has negatively impacted some of our customers and prospects. As a result, we may experience, increased customer churn and delayed sales cycles, as well as customers and prospective customers reducing budgets related to services that we offer. Despite these adverse impacts, the COVID-19 pandemic has fundamentally changed how organizations get work done, with many businesses shifting to remote and hybrid remote work environments. This shift has created additional opportunities for Box by enabling our customers’ and prospects’ employees to engage in secure remote work through our platform.
The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations, and financial position will depend on future developments, which are uncertain and cannot be predicted at this time. These factors are described in more detail in Part II, Item 1A "Risk Factors" of this Form 10-Q. As a result, the extent and magnitude of the impact COVID-19 will have on our business and operating results cannot be predicted at this time.
Key Business Metrics
We use the key metrics below for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these key metrics provide meaningful supplemental information regarding our performance. We believe that both management and investors benefit from referring to these key metrics in assessing our performance and when planning, forecasting, and analyzing future periods. These key metrics also facilitate management's internal comparisons to our historical performance as well as comparisons to certain competitors' operating results. We believe these key metrics are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by institutional investors and the analyst community to help analyze the health of our business.
Remaining Performance Obligations
Remaining performance obligations (RPO) represent, at a point in time, contracted revenue that has not yet been recognized. RPO consists of deferred revenue and backlog. Backlog is defined as non-cancellable contracts deemed certain to be invoiced and recognized as revenue in future periods. Future invoicing is determined to be certain when we have an executed non-cancellable contract or a significant penalty is due upon cancellation, and invoicing is not dependent on a future event such as the delivery of a specific new product or feature, or the achievement of contractual contingencies. While Box believes RPO is a leading indicator of revenue as it represents sales activity not yet recognized in revenue, it is not necessarily indicative of future revenue growth as it is influenced by several factors, including seasonality, contract renewal timing, average contract terms and foreign currency exchange rates. Box monitors RPO to manage the business and evaluate performance.
RPO as of July 31, 2022 was $1.05 billion, an increase of 14% from July 31, 2021. The increase in RPO was primarily driven by expansion within existing customers as they broadened their deployment of our product offerings through the conversion to multi-product Suites, resulting in extended customer contract durations. The increase in RPO was also driven by the addition of new customers and the timing of customer-driven renewals. RPO growth was partially offset by a negative impact from foreign currency exchange rates.
Billings
Billings represent our revenue plus the changes in deferred revenue and contract assets in the period. Billings we record in any particular period primarily reflect subscription renewals and expansion within existing customers plus sales to new customers, and represent amounts invoiced for all of our products and professional services. We typically invoice our customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments. If the customer negotiates to pay the full subscription amount at the beginning of the period, the total subscription amount for the entire term will be reflected in billings. If the customer negotiates to be invoiced annually or more frequently, only the amount billed for such period will be included in billings.
23
Billings help investors better understand our sales activity for a particular period, which is not necessarily reflected in our revenue given that we recognize subscription revenue ratably over the contract term. We consider billings a significant performance measure. We monitor billings to manage our business, make planning decisions, evaluate our performance and allocate resources. We believe that billings offer valuable supplemental information regarding the performance of our business and will help investors better understand the sales volumes and performance of our business. We do not consider billings to be a non-GAAP financial measure because it is calculated using exclusively revenue, deferred revenue, and contract assets, all of which are financial measures calculated in accordance with GAAP.
Billings for the three and six months ended July 31, 2022 were $235.0 and $407.1 million, respectively, representing an increase of 10% and 9% from the three and six months ended July 31, 2021, respectively. The increase in billings was primarily driven by expansion within existing customers as they broadened their deployment of our product offerings through the conversion to multi-product Suites, the addition of new customers, and the timing of customer-driven renewals. Billings growth was partially offset by a negative impact from foreign currency exchange rates.
Our use of billings has certain limitations as an analytical tool and should not be considered in isolation or as a substitute for revenue or an analysis of our results as reported under GAAP. Billings are recognized when invoiced, while the related subscription and premier services revenue is recognized ratably over the contract term as we satisfy a performance obligation. Also, other companies, including companies in our industry, may not use billings, may calculate billings differently, may have different billing frequencies, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of billings as a comparative measure.
Over time, we expect to continue to normalize payment durations. In addition, as we have gained and expect to continue to gain more traction with large enterprise customers, we also anticipate our quarterly billings to increasingly concentrate in the back half of our fiscal year, especially in the fourth quarter.
A calculation of billings starting with revenue, the most directly comparable GAAP financial measure, is presented below (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 31, |
|
|
July 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
GAAP revenue |
|
$ |
246,015 |
|
|
$ |
214,486 |
|
|
$ |
484,447 |
|
|
$ |
416,927 |
|
Deferred revenue, end of period |
|
|
458,249 |
|
|
|
422,039 |
|
|
|
458,249 |
|
|
|
422,039 |
|
Less: deferred revenue, beginning of period |
|
|
(468,350 |
) |
|
|
(423,249 |
) |
|
|
(534,242 |
) |
|
|
(465,613 |
) |
Contract assets, beginning of period |
|
|
1,491 |
|
|
|
677 |
|
|
|
1,111 |
|
|
|
25 |
|
Less: contract assets, end of period |
|
|
(2,424 |
) |
|
|
(866 |
) |
|
|
(2,424 |
) |
|
|
(866 |
) |
Billings |
|
$ |
234,981 |
|
|
$ |
213,087 |
|
|
$ |
407,141 |
|
|
$ |
372,512 |
|
Free Cash Flow
We define free cash flow, a non-GAAP financial measure, as cash flows from operating activities less purchases of property and equipment, principal payments of finance lease liabilities, capitalized internal-use software costs, and other items that did not or are not expected to require cash settlement and that management considers to be outside of our core business.
Free cash flow for the three and six months ended July 31, 2022 was $18.0 million and $108.8 million, respectively, compared to free cash flow of $29.8 million and $105.7 million for the three and six months ended July 31, 2021. Free cash flow for the three months ended July 31, 2022 was impacted by strong collections during the three months ended April 30, 2022.
A calculation of free cash flow starting with net cash provided by operating activities, the most directly comparable GAAP financial measure, is presented below (in thousands):
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
||||||||||||
|
|
July 31, |
|
|
|
July 31, |
|
|
||||||||||||
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
|
||||
GAAP net cash provided by operating activities |
|
$ |
28,339 |
|
|
|
$ |
44,792 |
|
|
|
$ |
136,069 |
|
|
|
$ |
139,564 |
|
|
Purchases of property and equipment, net of proceeds from sales |
|
|
(211 |
) |
|
|
|
(1,090 |
) |
|
|
|
(769 |
) |
|
|
|
(2,235 |
) |
|
Principal payments of finance lease liabilities |
|
|
(7,913 |
) |
|
|
|
(12,623 |
) |
|
|
|
(19,416 |
) |
|
|
|
(25,885 |
) |
|
Capitalized internal-use software costs |
|
|
(2,257 |
) |
|
|
|
(1,275 |
) |
|
|
|
(7,062 |
) |
|
|
|
(5,750 |
) |
|
Non-GAAP free cash flow |
|
$ |
17,958 |
|
|
|
$ |
29,804 |
|
|
|
$ |
108,822 |
|
|
|
$ |
105,694 |
|
|
24
Net Retention Rate
Net retention rate is defined as the net percentage of Total Annual Recurring Revenue (Total ARR) retained from existing customers, including expansion. We define Total ARR as the annualized recurring revenue from all active customer contracts at the end of a reporting period. We adjust exchange rates used to calculate Total ARR on an annual basis, at the beginning of each fiscal year. We calculate constant currency Total ARR growth rates by applying the current period rate to prior period results. We calculate our net retention rate as of a period end by starting with the Total ARR from customers as of 12 months prior to such period end (Prior Period Total ARR). We then calculate Total ARR from these same customers as of the current period end (Current Period Total ARR). Finally, we divide the Current Period Total ARR by the Prior Period Total ARR to arrive at our net retention rate. In calculating our net retention rate, we include only Total ARR associated with those customers who have subscribed to Box for at least 12 months. We present net retention rate on a constant currency basis to provide a framework for assessing how our business performed excluding the effects of foreign currency rate fluctuations. We believe our net retention rate is an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain and grow revenue from our customer base. Net retention rate is an operational metric and there is no comparable GAAP financial measure to which we can reconcile this particular key metric.
Our net retention rate was 112% and 106% as of July 31, 2022 and 2021, respectively. Our net retention rates were primarily attributable to seat growth in existing customers and strong attach rates of add-on products and our bundled Enterprise Plus plan. As our customers purchase add-on products or our bundled Enterprise Plus plan, we tend to realize significantly higher average contract values and stronger net retention rates as compared to customers who only purchase our core product. We believe our go-to-market efforts to deliver a solution selling strategy and our investments in product, customer success, and Box Consulting, including our Box Shuttle migration offering, have been significant factors in our customer retention results. As we penetrate customer accounts, we expect our net retention rate to remain above 100% for the foreseeable future.
Components of Results of Operations
Revenue
We derive our revenue primarily from three sources: (1) subscription revenue, which is comprised of subscription fees from customers who have access to our content cloud platform including routine customer support; (2) revenue from customers purchasing our premier services package; and (3) revenue from professional services such as implementing best practice use cases, project management and implementation consulting services.
To date, practically all of our revenue has been derived from subscription and premier services. Subscription and premier services revenue are driven primarily by the number of customers, the number of seats sold to each customer and the price of our services.
We recognize revenue as we satisfy our performance obligation. Accordingly, due to our subscription model, we recognize revenue for our subscription and premier services ratably over the contract term. We typically invoice our customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments. Our subscription and premier services contracts are typically non-cancellable and do not contain refund-type provisions. The majority of our customers subscribe to our service through one-year contracts, although we also offer our services for terms ranging between one month to three years or more.
Professional services are generally billed on a fixed price basis, for which revenue is recognized over time based on the proportion performed. Professional services revenue was not material as a percentage of total revenue for all periods presented.
Revenue is presented net of sales and other taxes we collect on behalf of governmental authorities.
Cost of Revenue
Our cost of revenue consists primarily of costs related to providing our subscription services to our paying customers, including employee compensation and related expenses for data center operations, customer support and professional services personnel, payments to outside technology service providers, depreciation of servers and equipment, security services and other tools, as well as amortization expense associated with acquired technology and capitalized internally developed software. We allocate overhead such as rent, information technology costs and employee benefit costs to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each of the operating expense categories set forth below.
25
Operating Expenses
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities, information technology costs and employee benefit costs.
Research and Development. Research and development expense consists primarily of employee compensation and related expenses, as well as allocated overhead. Our research and development efforts are focused on scaling our platform, building an ecosystem of best-of-breed applications and platforms, infrastructure, adding enterprise grade features, functionality and enhancements such as workflow automation, intelligent content management capabilities, and advanced security to enhance the ease of use of our cloud content management services. We capitalize certain qualifying costs to develop software for internal use incurred during the application development stage.
Sales and Marketing. Sales and marketing expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel-related expenses, as well as allocated overhead. Marketing programs include but are not limited to advertising, events, corporate communications, brand building, and product marketing. Sales and marketing expense also consists of data center and customer support costs related to providing our cloud-based services to our free users. We market and sell our cloud content management services worldwide through our direct sales organization and through indirect distribution channels such as strategic resellers.
General and Administrative. General and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, recruiting, information systems, enterprise security, compliance, fees for external professional services and cloud-based enterprise systems, as well as allocated overhead. External professional services fees are primarily comprised of outside legal, accounting, audit and outsourcing services.
Interest and Other Expense, Net
Interest and other expense, net consists of interest expense, interest income, gains and losses from foreign currency transactions, and other income and expense. Interest expense consists primarily of interest charges for our line of credit and interest rate swap agreement, interest expense related to finance leases, and the amortization of issuance costs of our convertible senior notes. Interest income consists primarily of interest earned on our cash and cash equivalents and short-term investments. We have historically invested our cash and cash equivalents in overnight deposits, certificates of deposit, money market funds, U.S. treasury securities and commercial paper.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and state income taxes in the United States and, as applicable, changes in our deferred taxes and related valuation allowance positions and uncertain tax positions, and taxes associated with jurisdictional transfers of intellectual property.
26
Results of Operations
The following tables set forth our results of operations for the periods presented (in thousands, except per share data):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 31, |
|
|
July 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
$ |
246,015 |
|
|
$ |
214,486 |
|
|
$ |
484,447 |
|
|
$ |
416,927 |
|
Cost of revenue (1) |
|
|
64,843 |
|
|
|
60,788 |
|
|
|
127,052 |
|
|
|
121,735 |
|
Gross profit |
|
|
181,172 |
|
|
|
153,698 |
|
|
|
357,395 |
|
|
|
295,192 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development (1) |
|
|
61,965 |
|
|
|
52,722 |
|
|
|
123,698 |
|
|
|
103,581 |
|
Sales and marketing (1) |
|
|
83,442 |
|
|
|
72,788 |
|
|
|
166,509 |
|
|
|
142,599 |
|
General and administrative (1) |
|
|
32,625 |
|
|
|
34,298 |
|
|
|
63,424 |
|
|
|
65,385 |
|
Total operating expenses |
|
|
178,032 |
|
|
|
159,808 |
|
|
|
353,631 |
|
|
|
311,565 |
|
Income (loss) from operations |
|
|
3,140 |
|
|
|
(6,110 |
) |
|
|
3,764 |
|
|
|
(16,373 |
) |
Interest and other expense, net |
|
|
(651 |
) |
|
|
(1,940 |
) |
|
|
(4,808 |
) |
|
|
(5,939 |
) |
Income (loss) before provision for income taxes |
|
|
2,489 |
|
|
|
(8,050 |
) |
|
|
(1,044 |
) |
|
|
(22,312 |
) |
Provision for income taxes |
|
|
1,444 |
|
|
|
650 |
|
|
|
2,610 |
|
|
|
961 |
|
Net income (loss) |
|
|
1,045 |
|
|
|
(8,700 |
) |
|
|
(3,654 |
) |
|
|
(23,273 |
) |
Accretion and dividend on series A convertible preferred stock |
|
|
(4,304 |
) |
|
|
(3,785 |
) |
|
|
(8,526 |
) |
|
|
(3,785 |
) |
Net loss attributable to common stockholders |
|
$ |
(3,259 |
) |
|
$ |
(12,485 |
) |
|
$ |
(12,180 |
) |
|
$ |
(27,058 |
) |
Net loss per share attributable to common stockholders, basic and diluted |
|
$ |
(0.02 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.17 |
) |
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted |
|
|
143,739 |
|
|
|
161,163 |
|
|
|
144,224 |
|
|
|
161,443 |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 31, |
|
|
July 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Cost of revenue |
|
$ |
4,787 |
|
|
$ |
4,883 |
|
|
$ |
9,142 |
|
|
$ |
10,223 |
|
Research and development |
|
|
18,095 |
|
|
|
16,626 |
|
|
|
35,821 |
|
|
|
32,079 |
|
Sales and marketing |
|
|
14,800 |
|
|
|
12,919 |
|
|
|
30,089 |
|
|
|
24,470 |
|
General and administrative |
|
|
11,004 |
|
|
|
9,700 |
|
|
|
20,744 |
|
|
|
19,146 |
|
Total stock-based compensation |
|
$ |
48,686 |
|
|
$ |
44,128 |
|
|
$ |
95,796 |
|
|
$ |
85,918 |
|
Comparison of the Three Months Ended July 31, 2022 and 2021
Revenue
|
|
Three Months Ended |
|
|
|
|
||||||||||
|
|
July 31, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Revenue |
|
$ |
246,015 |
|
|
$ |
214,486 |
|
|
$ |
31,529 |
|
|
|
15 |
% |
The increase in revenue was primarily driven by an increase in the number of large deals and higher attach rates of our multi-product Suites offerings, particularly Enterprise Plus, driving improvement in our net retention rate from 106% during the three months ended July 31, 2021 to 112% during the three months ended July 31, 2022. The increase in subscription services was also driven by the addition of new customers, as the number of paying organizations increased by 3% from July 31, 2021 to July 31, 2022. During the three months ended July 31, 2022, we experienced strong growth in Japan, driving an increase in revenue from non-U.S. customers to 33%, compared to 32% during the three months ended July 31, 2021. The increase was partially offset by a negative impact from foreign currency exchange rates and customers partially churning their deployment with Box.
27
Cost of Revenue
|
|
Three Months Ended |
|
|
|
|
||||||||||
|
|
July 31, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Cost of revenue |
|
$ |
64,843 |
|
|
$ |
60,788 |
|
|
$ |
4,055 |
|
|
|
7 |
% |
Percentage of revenue |
|
|
26 |
% |
|
|
28 |
% |
|
|
|
|
|
|
||
The increase in absolute dollars was primarily due to an increase of $3.3 million in subscription software contract expenses primarily driven by increases in subscription software contracts and an increase of $2.9 million in public cloud infrastructure costs. This was partially offset by a decrease of $1.7 million in depreciation expense and a decrease of $0.8 million in data center rent expense. Cost of revenue as a percentage of revenue decreased 200 basis points year-over-year. We expect our cost of revenue to increase in absolute dollars but decrease as a percentage of revenue over time as we continue to optimize data center efficiencies and invest in public cloud infrastructure.
Research and Development
|
|
Three Months Ended |
|
|
|
|
||||||||||
|
|
July 31, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Research and development |
|
$ |
61,965 |
|
|
$ |
52,722 |
|
|
$ |
9,243 |
|
|
|
18 |
% |
Percentage of revenue |
|
|
25 |
% |
|
|
25 |
% |
|
|
|
|
|
|
||
The increase in absolute dollars was primarily due to increases of $6.8 million and $1.5 million in employee related costs and allocated overhead costs, respectively, due to a 40% increase in headcount, and an increase of $1.7 million in stock-based compensation expense driven by equity grants to existing and new employees. The increased employee headcount and related costs are driven by the growth of our Research and Development Engineering center in Poland. The increase in research and development expenses was partially offset by an increase of $0.8 million in capitalized internally developed software costs. Research and development expenses as a percentage of revenue remained flat year-over-year. We expect our research and development expenses to increase in absolute dollars but decrease as a percentage of revenue over time as we continue to make significant improvements to our content cloud product offerings and services and migrate a larger portion of our development to lower cost regions.
Sales and Marketing
|
|
Three Months Ended |
|
|
|
|
||||||||||
|
|
July 31, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Sales and marketing |
|
$ |
83,442 |
|
|
$ |
72,788 |
|
|
$ |
10,654 |
|
|
|
15 |
% |
Percentage of revenue |
|
|
34 |
% |
|
|
34 |
% |
|
|
|
|
|
|
||
The increase in absolute dollars was primarily due to increases of $4.8 million and $1.6 million in employee and related costs and allocated overhead costs, respectively, due to a 14% increase in headcount, an increase of $1.9 million in stock-based compensation expense driven by equity grants to existing and new employees, an increase of $1.7 million in commission expense primarily driven by a 15% increase in revenue year-over-year, and an increase of $0.9 million in travel-related costs. The increase in sales and marketing expenses was partially offset by a decrease of $1.0 million in marketing expenses. Sales and marketing expenses as a percentage of revenue remained flat year-over-year.
Our sales and marketing expenses are generally higher for acquiring new, or expanding existing, customers than for renewals of existing customer subscriptions. We expect to continue to invest in capturing our large market opportunity globally and capitalize on our competitive position with a continued focus on our profitability objectives. We expect our sales and marketing expenses to increase in absolute dollars but decrease as a percentage of revenue over time as our existing customer base grows and a relatively higher percentage of our revenue is attributable to renewals versus new or expanding Box deployments and as we continue to focus on improving sales productivity. While we expect certain expenses that were reduced due to COVID-19 to increase over time, we currently do not expect to return to pre-COVID-19 levels, even as we return to a hybrid workforce which partially includes an office-based environment.
28
General and Administrative
|
|
Three Months Ended |
|
|
|
|
||||||||||
|
|
July 31, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
General and administrative |
|
$ |
32,625 |
|
|
$ |
34,298 |
|
|
$ |
(1,673 |
) |
|
|
-5 |
% |
Percentage of revenue |
|
|
13 |
% |
|
|
16 |
% |
|
|
|
|
|
|
||
The decrease in absolute dollars was primarily due to a decrease of $4.8 million in shareholder activism and acquisition-related fees and a decrease of $0.5 million in depreciation expense. The decrease in general and administrative expense was partially offset by an increase of $2.4 million in employee and contractor related costs and an increase of $1.2 million in stock-based compensation expense driven by equity grants to existing and new employees. General and administrative expense as a percentage of revenue decreased 300 basis points year-over-year. We expect our general and administrative expense to increase in absolute dollars but continue to decrease as a percentage of revenue over time as we benefit from greater operational efficiency.
Interest and Other Expense, Net
|
|
Three Months Ended |
|
|
|
|||||||||
|
|
July 31, |
|
|
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|||
|
|
(dollars in thousands) |
||||||||||||
Interest and other expense, net |
|
$ |
651 |
|
|
$ |
1,940 |
|
|
$ |
(1,289 |
) |
|
* |
* Percentage change not meaningful.
The decrease in interest and other expense, net was primarily due to a decrease of $0.5 million in interest expense related to our finance leases, an increase of $0.4 million in interest income from our certificates of deposit and money market funds, and a decrease of $0.3 million in foreign currency losses.
Comparison of the Six Months Ended July 31, 2022 and 2021
Revenue
|
|
Six Months Ended |
|
|
|
|
||||||||||
|
|
July 31, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Revenue |
|
$ |
484,447 |
|
|
$ |
416,927 |
|
|
$ |
67,520 |
|
|
|
16 |
% |
The increase in revenue was primarily driven by an increase in the number of large deals and higher attach rates of our multi-product Suites offerings, particularly Enterprise Plus, driving improvement in our net retention rate from 106% during the six months ended July 31, 2021 to 112% during the six months ended July 31, 2022. The increase in subscription services was also driven by the addition of new customers, as the number of paying organizations increased by 3% from July 31, 2021 to July 31, 2022. During the six months ended July 31, 2022, we experienced strong growth in Japan, driving an increase in revenue from non-U.S. customers to 33%, compared to 31% during the six months ended July 31, 2021. The increase was partially offset by a negative impact from foreign currency exchange rates and customers partially churning their deployment with Box.
Cost of Revenue
|
|
Six Months Ended |
|
|
|
|
||||||||||
|
|
July 31, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Cost of revenue |
|
$ |
127,052 |
|
|
$ |
121,735 |
|
|
$ |
5,317 |
|
|
|
4 |
% |
Percentage of revenue |
|
|
26 |
% |
|
|
29 |
% |
|
|
|
|
|
|
||
29
The increase in absolute dollars was primarily due to an increase of $6.0 million in public cloud infrastructure costs, an increase of $6.0 million in subscription software contract expenses primarily driven by increases in subscription software contracts, and an increase of $0.7 million in acquired intangible assets amortization. The increase in cost of revenue was partially offset by a decrease of $2.9 million in depreciation expense, a decrease of $2.3 million in bandwidth and data center rent expense, a decrease of $1.2 million in employee and contractor related costs, and a decrease of $1.1 million in stock-based compensation expense. Cost of revenue as a percentage of revenue decreased 300 basis points year-over-year.
Research and Development
|
|
Six Months Ended |
|
|
|
|
||||||||||
|
|
July 31, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Research and development |
|
$ |
123,698 |
|
|
$ |
103,581 |
|
|
$ |
20,117 |
|
|
|
19 |
% |
Percentage of revenue |
|
|
26 |
% |
|
|
25 |
% |
|
|
|
|
|
|
||
The increase in absolute dollars was primarily due to increases of $13.2 million and $3.8 million in employee and contractor related costs and allocated overhead costs, respectively, due to a 40% increase in headcount, and an increase of $4.0 million in stock-based compensation expense driven by equity grants to existing and new employees. The increased employee headcount and related costs are driven by the growth of our Research and Development Engineering center in Poland. The increase in research and development expenses was partially offset by an increase of $1.4 million in capitalized internally developed software costs. Research and development expenses as a percentage of revenue increased 100 basis points year-over-year.
Sales and Marketing
|
|
Six Months Ended |
|
|
|
|
||||||||||
|
|
July 31, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Sales and marketing |
|
$ |
166,509 |
|
|
$ |
142,599 |
|
|
$ |
23,910 |
|
|
|
17 |
% |
Percentage of revenue |
|
|
34 |
% |
|
|
34 |
% |
|
|
|
|
|
|
||
The increase in absolute dollars was primarily due to increases of $9.3 million and $3.6 million in employee and related costs and allocated overhead costs, respectively, due to a 14% increase in headcount, an increase of $5.6 million in stock-based compensation expense driven by equity grants to existing and new employees, an increase of $4.7 million in commission expense primarily driven by an 16% increase in revenue year-over-year, and an increase of $1.0 million in travel-related costs. The increase in sales and marketing expenses was partially offset by a decrease of $1.7 million in marketing expenses and a decrease of $0.9 million in data center and customer support costs to support our free users. Sales and marketing expenses as a percentage of revenue remained flat year-over-year.
General and Administrative
|
|
Six Months Ended |
|
|
|
|
||||||||||
|
|
July 31, |
|
|
|
|
|
|
|
|||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
General and administrative |
|
$ |
63,424 |
|
|
$ |
65,385 |
|
|
$ |
(1,961 |
) |
|
|
-3 |
% |
Percentage of revenue |
|
|
13 |
% |
|
|
16 |
% |
|
|
|
|
|
|
||
The decrease in absolute dollars was primarily due to a decrease of $6.7 million in shareholder activism and acquisition-related fees and a decrease of $0.7 million in depreciation expense. The decrease in general and administrative expense was partially offset by an increase of $2.8 million in employee and related costs, an increase of $1.4 million in stock-based compensation expense driven by equity grants to existing and new employees, and an increase of $1.4 million in outside agency and consulting services. General and administrative expense as a percentage of revenue decreased 300 basis points year-over-year.
30
Interest and Other Expense, Net
|
|
Six Months Ended |
|
|
|
|
||||||||||
|
|
July 31, |
|
|
|
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(dollars in thousands) |
|
|||||||||||||
Interest and other expense, net |
|
$ |
4,808 |
|
|
$ |
5,939 |
|
|
$ |
(1,131 |
) |
|
|
-19 |
% |
The decrease in absolute dollars was primarily due to a decrease of $1.6 million in net interest expense primarily related to our finance leases. The decrease in interest and other expense, net was partially offset by an increase of $0.5 million in foreign currency losses.
Liquidity and Capital Resources
As of July 31, 2022, we had cash and cash equivalents, restricted cash, and short-term investments of $394.4 million. Since our inception, we have financed our operations primarily through equity financing, cash generated from operations and debt financing. We believe our existing cash, cash equivalents and short-term investments, together with our finance leases and credit facilities, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and beyond. Our long-term capital requirements will depend on many factors including our growth rate, subscription renewal activity, billing frequency, data center obligations, the timing and extent of spending to support development efforts, the expansion of international activities, the introduction of new and enhanced service offerings, and the continuing market acceptance of our services. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.
Cash Flows
For the six months ended July 31, 2022 and 2021, our cash flows were as follows (in thousands):
|
|
Six Months Ended |
|
|||||
|
|
July 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net cash provided by operating activities |
|
$ |
136,069 |
|
|
$ |
139,564 |
|
Net cash provided by (used in) investing activities |
|
|
119,228 |
|
|
|
(110,585 |
) |
Net cash (used in) provided by financing activities |
|
|
(310,844 |
) |
|
|
156,142 |
|
Operating Activities
For the six months ended July 31, 2022, cash provided by operating activities was $136.1 million. The primary factors affecting our operating cash flows during this period were our net loss of $3.7 million, favorably offset by non-cash charges of $95.8 million for stock-based compensation, $36.3 million for depreciation and amortization of our property and equipment and capitalized software, and $26.4 million for amortization of deferred commissions. Cash provided by operating activities during the six months ended July 31, 2022 were further adjusted by net cash outflows of $20.7 million due to changes in our operating assets and liabilities.
The primary drivers for the changes in operating assets and liabilities include a $86.2 million decrease in accounts receivable that was primarily due to the timing of our cash collections and a $20.1 million decrease in operating right-of-use assets due to amortization, partially offset by a $67.3 million decrease in deferred revenue, a $23.6 million increase in deferred commissions resulting from capitalization of incremental commissions paid to our sales force, a $22.2 million decrease in operating lease liabilities, a $11.9 million increase in other assets, and a $2.0 million decrease in accounts payable, accrued expenses and other liabilities.
Investing Activities
Cash provided by investing activities of $119.2 million for the six months ended July 31, 2022 was primarily driven by $185 million in maturities of short-term investments, partially offset by $59.7 million in purchases of short-term investments and $4.5 million of capitalized internally developed software costs.
Financing Activities
Cash used in financing activities of $310.8 million for the six months ended July 31, 2022 was primarily driven by $234.9 million in repurchases of our common stock, $58.7 million of employee payroll taxes paid related to net share settlement of stock
31
awards, $19.4 million of principal payments of finance lease liabilities, and $7.5 million of dividend payments to preferred stockholders. This was partially offset by $14.7 million from issuances of common stock under our employee equity plans.
Debt
In January 2021, we issued $345.0 million aggregate principal amount of 0.00% convertible senior notes due January 15, 2026. The Notes are senior unsecured obligations and do not bear regular interest. Each $1,000 principal amount of the Notes is convertible into 38.7962 shares of our Class A common stock, which is equivalent to a conversion price of approximately $25.78 per share, subject to adjustment upon the occurrence of specified events. We have made an irrevocable election to settle the principal portion of the Notes only in cash. Accordingly, upon conversion, we will pay the principal in cash and we will pay or deliver, as the case may be, the conversion premium in cash, shares of common stock or a combination of cash and shares of common stock, at our election.
In connection with the pricing of the Notes, we entered into privately negotiated Capped Calls. The Capped Calls each have a strike price of approximately $25.80 and initial cap prices of $35.58 per share, subject to certain adjustments.
On November 27, 2017, we entered into a secured credit agreement (as amended or otherwise modified from time to time, the November 2017 Facility). On July 26, 2021, we entered into Amendment No. 4 to the November 2017 Facility. Pursuant to the terms of the amendment, the maturity date of borrowings under the November 2017 Facility is July 26, 2024, the revolving commitment is $65.0 million, and it provides for a sublimit for the issuance of letters of credit of $45.0 million. As of July 31, 2022, debt outstanding under the November 2017 Facility was $30.0 million. Refer to Note 9 for a detailed description of the November 2017 Facility.
Series A Convertible Preferred Stock
On April 7, 2021 we entered into an investment agreement with KKR and certain other investors relating to the issuance and sale of 500,000 shares of our Series A Convertible Preferred Stock, par value of $0.0001 per share, for an aggregate purchase price of $500 million, or $1,000 per share. The closing of the issuance of such stock occurred on May 12, 2021. Refer to Note 10 for a detailed description of our Series A Convertible Preferred Stock.
Share Repurchase Plan
Between July 2021 and July 31, 2022, our board of directors authorized the repurchase of up to an aggregate of $610 million of shares of our Class A common stock. As of July 31, 2022, we had used $556.8 million to repurchase 22.1 million shares and approximately $29.3 million remained available for additional share repurchases.
Off-Balance Sheet Arrangements
Through July 31, 2022, we did not have any relationships with unconsolidated entities that have, or are reasonably likely to have, a material effect on our financial statements.
Contractual Obligations and Commitments
Our principal commitments consist of (i) obligations under operating leases for office spaces and data centers, (ii) obligations under finance leases for servers and related equipment for our data center operations, (iii) purchase obligations not recognized on the condensed consolidated balance sheet as of July 31, 2022, which relate primarily to infrastructure services and IT software and support services, and (iv) debt, including obligations under both our November 2017 Facility and Notes. For more information regarding our obligations for leases, purchase agreements, and debt, refer to Notes 5, 8, and 9, respectively, in Part I, Item 1. Financial Statements.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies and estimates during the six months ended July 31, 2022 from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended January 31, 2022.
32
Recent Accounting Pronouncements
Refer to Part I, Item 1. Financial Statements—Note 1 for information regarding the effect of new accounting pronouncements on our financial statements.
Non-GAAP Financial Measures
Regulation S-K Item 10(e), “Use of Non-GAAP Financial Measures in Commission Filings,” defines and prescribes the conditions for use of non-GAAP financial information. Our measure of free cash flow (as defined above) meets the definition of a non-GAAP financial measure.
We use non-GAAP financial measures and our key metrics for financial and operational decision-making (including for purposes of determining variable compensation of members of management and other employees) and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures and key metrics provide meaningful supplemental information regarding our performance by excluding certain expenses that may not be indicative of our recurring core business operating results. We believe that both management and investors benefit from referring to these non-GAAP financial measures and key metrics in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures and key metrics also facilitate management’s internal comparisons to our historical performance as well as comparisons to our competitors’ operating results. We believe these non-GAAP financial measures and key metrics are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.
Free Cash Flow
We consider free cash flow to be a profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can possibly be used for investing in our business and strengthening the balance sheet; but it is not intended to represent the residual cash flow available for discretionary expenditures. The presentation of free cash flow is also not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity.
Limitations on the use of non-GAAP financial measures
A limitation of our non-GAAP financial measures is that they do not have uniform definitions. Our definitions will likely differ from the definitions used by other companies, including peer companies, and therefore comparability may be limited. Thus, our non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.
We compensate for these limitations by reconciling non-GAAP financial measures to the most comparable GAAP financial measures. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view our non-GAAP financial measures in conjunction with the most comparable GAAP financial measures.
33
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We had cash and cash equivalents, restricted cash, and short-term investments of $394.4 million as of July 31, 2022. Our cash and cash equivalents and short-term investments primarily consist of overnight cash deposits, money market funds, U.S. treasury securities, and commercial paper. We do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates and we do not enter into investments for trading or speculative purposes.
Interest rate risk also reflects our exposure to movements in interest rates associated with the November 2017 Facility. As of July 31, 2022, we had total debt outstanding with a carrying amount of $30.0 million which approximates fair value. The revolving loans accrue interest at a LIBOR rate (based on one, three or six-month interest periods) plus a margin ranging from 1.15% to 1.65%.
Effective September 5, 2019, we entered into the Swap Agreement in order to minimize our interest rate risk exposure due to the volatility of LIBOR. Under the Swap Agreement, we have hedged a portion of the variable interest payments of our debt by effectively fixing our interest payments over the five-year term of the agreement. As of July 31, 2022, our interest rate swap had a notional value of $30.0 million.
A hypothetical change in interest rates of 100 basis points after July 31, 2022 would not have a material impact on the combined net fair value of our outstanding debt and Swap Agreement.
Foreign Currency Risk
Our sales contracts are denominated predominantly in U.S. dollars. We support sales contracts denominated in 11 foreign currencies and consequently, our customer billings denominated in foreign currencies are subject to foreign currency exchange risk. Specifically, given our growth in Japan, we have increasing exposure to changes in the Japanese Yen. Five of the 11 currencies are only offered at this time through our online sales experience and are required to be settled by credit cards; accordingly, our foreign currency exposure on these transactions is limited only to ordinary credit card settlement timeframes. A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, which are also subject to fluctuations due to changes in foreign currency exchange rates. Our international subsidiaries maintain certain asset and liability balances that are denominated in foreign currencies. Additionally, fluctuations in foreign currency exchange rates can result in fluctuations in our total assets, liabilities, and cash flows and may cause us to recognize transaction gains and losses in our statement of operations impacting our revenue and operating expenses. To date we have managed our foreign currency risk by maintaining offsetting assets and liabilities and minimizing non-U.S. dollar cash balances and have not entered into derivatives or hedging transactions; however, we may do so in the future. For the six months ended July 31, 2022 and 2021, we incurred $3.0 million and $2.5 million, respectively, in foreign currency exchange losses, which are recognized in interest and other expense, net on our condensed consolidated statements of operations.
34
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
35
PART II – OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Refer to Note 8 in Part I, Item 1 of this Quarterly Report on Form 10-Q under the subheading “Legal Matters,” which is incorporated herein by reference.
Item 1A. RISK FACTORS
Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes, before making a decision to invest in our securities. If any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.
Risk Factors Summary
Our business is subject to a number of risks and uncertainties, including those risks discussed at length below. These risks include, among others, the following:
36
Risks Related to Our Business and Our Industry
The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed.
The market for cloud content management services is fragmented, rapidly evolving and highly competitive, with relatively low barriers to entry for certain applications and services. Many of our competitors and potential competitors are larger and have greater brand recognition, longer operating histories, and significantly greater resources than we do. Our primary competitors in the cloud content management market include Microsoft and OpenText (Documentum). In the enterprise file sync and share market, our primary competitors include Microsoft, Google and, to a lesser extent, Dropbox. As we expand our product offerings and use cases, we also compete with companies in the e-signature, content collaboration, workflow automation, and security and governance markets. With the introduction of new technologies and market entrants, we expect competition to intensify in the future. If we fail to compete effectively, our business will be harmed. Some of our competitors offer their products or services at lower prices or for free as part of a broader bundled product sale or enterprise license arrangement, which has placed pricing pressure on our business. If we are unable to achieve our target pricing levels, our operating results will be negatively impacted. For us to compete effectively, we need to introduce new products and services in a timely and cost-effective manner, meet customer expectations and needs at prices that customers are willing to pay, and continue to enhance the features and functionalities of our cloud content management platform. In addition, pricing pressures and increased competition could result in reduced sales, lower margins, losses or the failure of our services to achieve or maintain widespread market acceptance, any of which could harm our business.
Many of our competitors are able to devote greater resources to the development, promotion and sale of their products or services. In addition, many of our competitors have established marketing relationships and major distribution agreements with channel partners, consultants, system integrators and resellers. Competitors may offer products or services at lower prices or with greater depth than our services. Our competitors may be able to respond more quickly and effectively to new or changing opportunities, technologies, standards or customer requirements. Furthermore, some potential customers, particularly large enterprises, may elect to develop their own internal solutions. For any of these reasons, we may not be able to compete successfully against our competitors.
Our business depends substantially on customers renewing their subscriptions with us and expanding their use of our services. Any decline in our customer renewals or failure to convince our customers to broaden their use of our services would harm our future operating results.
In order for us to maintain or improve our operating results, it is important that our customers renew their subscriptions with us when their existing subscription term expires. We cannot assure you that customers will renew their subscriptions upon expiration at the same or higher level of service, for the same number of seats or for the same duration of time, if at all. Although our net retention rate has increased in recent quarters, we have also experienced periods where it has decreased and it may decrease again in the future if our customers do not renew their subscriptions with us or decrease their use of our services. Our net retention rate was approximately 112% and 106% as of July 31, 2022 and 2021, respectively.
Our net retention rate may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our services, the effectiveness of our customer support services, the performance of our partners and resellers, our pricing, the prices of competing products or services, mergers and acquisitions affecting our customer base, our ability to successfully integrate acquired technology into our products, our ability to execute on our product roadmap, the effects of global economic conditions, such as those arising from the COVID-19 pandemic, or reductions in our customers’ spending levels. If our customers do not renew their subscriptions, renew them on less favorable terms, purchase fewer seats, or fail to purchase new product offerings, our revenue may decline, and we may not realize improved operating results from our customer base.
37
In addition, our business growth depends in part on our customers expanding their use of our services. The use of our cloud content management platform often expands within an organization as new users are added or as additional services are purchased by or for other departments within an organization. Further, as we have introduced new services throughout our operating history, our existing customers have constituted a significant portion of the users of such services. If our customers do not expand their use of our services, our operating results may be adversely affected.
If the market for cloud-based enterprise services declines or develops more slowly than we expect, our business could be adversely affected.
The market for cloud-based enterprise services is not as mature as the on-premise enterprise software market. Because we derive, and expect to continue to derive, substantially all of our revenue and cash flows from sales of our cloud content management solutions, our success will depend to a substantial extent on the widespread adoption of cloud computing in general and of cloud-based content management services in particular. Many organizations have invested substantial personnel and financial resources to integrate traditional enterprise software into their organizations and may be reluctant or unwilling to migrate to a cloud-based model for managing their content. It is difficult to predict customer adoption rates and demand for our services, the future growth rate and size of the cloud computing market or the entry of competitive services. The expansion of the cloud content management market depends on a number of factors, including the cost, performance and perceived value associated with cloud computing, as well as the ability of companies that provide cloud-based services to address security and privacy concerns. If there is a reduction in demand for cloud-based services, it could result in decreased revenue, harm our growth rates, and adversely affect our business and operating results.
Because we recognize revenue from subscriptions for our services over the term of the subscription, downturns or upturns in new business may not be immediately reflected in our operating results.
We generally recognize revenue from customers ratably over the terms of their subscription agreements, which range from one month to three years or more. As a result, most of the revenue we report in each quarter is the result of subscription agreements entered into during prior quarters. Consequently, a decline in new or renewed subscriptions in any one quarter may not be reflected in our revenue results for that quarter. However, any such decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales, our failure to achieve our internal sales targets, a decline in the market acceptance of our services, or a decrease in our net retention rate may not be fully reflected in our operating results until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from additional sales must be recognized over the applicable subscription term.
If we are unable to attract new customers at rates that are consistent with our expectations, our future revenue and operating results could be adversely impacted.
In order for us to improve our operating results and continue to grow our business, it is important that we continue to attract new customers and expand deployment of our solutions and products with existing customers. To the extent we are successful in increasing our customer base, we could incur increased losses because costs associated with new customers are generally incurred up front, while revenue is recognized ratably over the term of our subscription services. Alternatively, to the extent we are unsuccessful in increasing our customer base, we could also incur increased losses as costs associated with marketing programs and new products intended to attract new customers would not be offset by incremental revenue and cash flow. Changes in economic conditions may financially impact our existing and prospective customers and cause them to delay or reduce their technology spending, which may adversely affect our ability to attract new customers. All of these factors could negatively impact our future revenue and operating results.
The continuing impacts of the COVID-19 pandemic may have an adverse effect on our business, operations and future financial performance.
In March 2020, the World Health Organization declared COVID-19 a pandemic. Governments and municipalities around the world have instituted measures to control the spread of COVID-19, including quarantines, shelter-in-place orders, school closures, travel restrictions, vaccine mandates, and closure of non-essential businesses. These measures have led to significant adverse economic impacts which have had, and could continue to have, an adverse impact on our business operations in a number of ways, including, without limitation, (1) disruptions to our sales operations and marketing efforts as a result of restrictions on our sales team's ability to travel and meet customers in person, (2) negative impacts on our customers and prospects that could result in (i) extended customer sales cycles, delayed spending on our services, impairment of our ability to collect accounts receivable, and (ii) reduced payment frequencies, demand for our services, renewal rates, and spending on our services, and (3) negative impacts to the financial condition or operations of our vendors and business partners, as well as disruptions to the supply chain of hardware needed to offer our services. Although we have re-opened offices globally for employees on a voluntary basis, our transition to a hybrid workforce (with a mix of employees working from offices and others working remotely) may lead to disruptions and decreased productivity and
38
other adverse operational business impacts. The COVID-19 pandemic may also have long-term effects on the nature of the office environment and remote working, as well as operational, cybersecurity, talent recruiting and retention, and workplace culture challenges that may adversely affect our business. The extent to which the COVID-19 pandemic and resultant economic impact affects our business, results of operations and financial condition will depend on future developments (such as the potential emergence of new variants, vaccines, treatments, and government responses to such developments), which are highly uncertain and cannot be predicted.
Adverse economic conditions may negatively impact our business.
Our business depends on the overall demand for cloud content management services and on the economic health of our current and prospective customers. The United States and other key international economies have experienced cyclical downturns from time to time that have resulted in a significant weakening of the economy, more limited availability of credit, a reduction in business confidence and activity, and other difficulties that may affect the industries to which we sell our services. An economic downturn, recession, or uncertainty about economic conditions, including volatility in the credit, equity and foreign exchange markets, inflation, rising interest rates, ongoing supply chain disruptions, and the effects of COVID-19 and the Russian invasion of Ukraine, could cause customers to delay or reduce their information technology spending. This could result in reduced sales, longer sales cycles, slower adoption of new technologies and increased price competition. Any of these events would likely have an adverse effect on our business, operating results and financial position. In addition, there can be no assurance that cloud content management and collaboration spending levels will increase following any recovery.
If we are not able to successfully launch new products and services or provide enhancements or new features to our existing products and services, our business could be adversely affected.
Our industry is marked by rapid technological developments and new and enhanced applications and services. If we are unable to enhance our existing services or offer new services such as our electronic signature offering, Box Sign, or our recently-announced virtual whiteboarding offering, Box Canvas, that achieve market acceptance or keep pace with rapid technological developments, our business could be adversely affected. The success of any new services or enhancements to our existing services depends on several factors, including their timely completion, introduction and market acceptance. We also may experience business or economic disruptions that could adversely affect the productivity of our employees and result in delays in our product development process. For example, we have re-opened our offices globally to non-essential personnel and are transitioning to a hybrid workforce (with a mix of employees working from offices and others working remotely). This may lead to disruptions and decreased productivity that could result in delays in our product development process. Failure in this regard may significantly impair our revenue growth and our future financial results. Our product development efforts could also be impacted by our workforce location strategy as we hire an increasing number of our engineers in regions such as Poland and the Netherlands. In addition, because our services are designed to operate on a variety of systems, we must continuously modify and enhance our services to keep pace with changes in internet-related hardware, mobile operating systems, and other software, communication, browser and database technologies. We may not be successful in developing these modifications and enhancements or bringing them to market in a timely fashion, which may negatively impact our customer renewal rates, limit the market for our solutions, or impair our ability to attract new customers. Furthermore, modifications to existing platforms or technologies will increase our research and development expenses. Any failure of our services to operate effectively with existing or future network platforms and technologies could reduce the demand for our services, result in customer dissatisfaction and adversely affect our business.
Our sales to government entities are subject to a number of additional challenges and risks.
We sell to government customers, which can be highly competitive, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government certification requirements may change, or we may lose one or more government certifications, and in doing so restrict our ability to sell into the government sector or maintain existing government customers until we attain revised certifications. Government demand and payment for our products and services are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our solutions. Moreover, an extended federal government shutdown resulting from budgetary decisions may limit or delay federal government spending on our solutions and adversely affect our revenue. Government entities may also have statutory, contractual or other legal rights to terminate contracts with us for convenience or due to a default, and any such termination may adversely affect our future operating results.
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As our sales efforts are increasingly focused on cloud content management use cases and are targeted at enterprise and highly-regulated customers, our sales cycles may become longer and more expensive, we may encounter greater pricing pressure and implementation and customization challenges, and we may have to delay revenue recognition for more complicated transactions, all of which could harm our business and operating results.
As our sales efforts are increasingly focused on cloud content management use cases and are targeted at enterprise and highly-regulated customers, we face greater costs, longer sales cycles and less predictability in the completion of some of our sales. In this market segment, a customer’s decision to use our services may be an enterprise-wide decision. These types of sales opportunities require us to provide greater levels of customer education regarding the uses and benefits of our services, as well as education regarding security, privacy, and data protection laws and regulations, especially for customers in more heavily regulated industries or with significant international operations. In addition, larger enterprises may demand more customization, integration, support services, and features. Furthermore, our sales efforts may be impeded by catastrophic events, including public health epidemics such as the COVID-19 pandemic, that limit our ability to travel or meet customers in person. These factors could increase our costs, lengthen our sales cycles and leave fewer sales support and professional services resources for other customers. Professional services may also be performed by a third party or a combination of our own staff and a third party. Our strategy is to work with third parties to increase the breadth of capability and depth of capacity for delivery of these services to our customers. If a customer is not satisfied with the quality or interoperability of our services with their own IT environment, we could incur additional costs to address the situation, which could adversely affect our margins. Moreover, any customer dissatisfaction with our services could damage our ability to encourage broader adoption of our services by that customer. In addition, any negative publicity resulting from such situations, regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective customers.
If we fail to meet the service level commitments we provide under our subscription agreements, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face subscription terminations, which could adversely affect our revenue. Furthermore, any failure in our delivery of high-quality customer support services may adversely affect our relationships with our customers and our financial results.
Our customer subscription agreements provide service level commitments. If we are unable to meet our service level commitments or suffer periods of downtime that exceed the periods allowed under our customer agreements, we may be obligated to provide customers with service credits, which could significantly impact our revenue in the period in which the downtime occurs and the credits could be due. We have encountered issues in the past, and may again in the future, that have caused Box services to be temporarily unavailable. We could also face subscription terminations, which could significantly impact our current and future revenue. Any extended service outages could also adversely affect our reputation, which would also impact our future revenue and operating results.
Our customers depend on us to resolve technical issues relating to our services. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. Increased customer demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on the ease of use of our services, our reputation and positive recommendations from our existing customers. Any failure to maintain, or a market perception that we do not maintain, high-quality customer support could adversely affect our reputation and our ability to sell our services to existing and prospective customers.
We are in the process of expanding our international operations, which exposes us to significant risks.
A key element of our growth strategy is to expand our international operations and develop a worldwide customer base. In addition, we have opened, and may continue to open, international offices and hire employees to work at these offices in order to gain access to additional talent. For example, we recently established an office in Warsaw, Poland and acquired SignRequest B.V., a company located in The Netherlands. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic, geographic, social, and political risks that differ from those in the United States. Because of our limited experience with international operations and significant differences between international and U.S. markets, we may not succeed in creating demand for our services outside of the United States or in effectively selling our services in all of the international markets we enter. In addition, we will face challenges in doing business internationally that could adversely affect our business, including:
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In addition, the United Kingdom’s (UK) withdrawal from the European Union (EU), or Brexit, became effective on January 31, 2020. The UK and EU subsequently signed an EU-UK Trade and Cooperation Agreement. This agreement provides details on how some aspects of the UK and EU’s relationship will operate going forward, however there continues to be uncertainty over the practical consequences of Brexit. The impact of Brexit depends on the implementation of this agreement, as well as the terms of the UK’s future trade agreements with other countries, and such impact may not be fully realized for several years or more. This lack of clarity could lead to economic and legal uncertainty, including significant volatility in global stock markets and currency exchange rates, among other things. Any of these effects of Brexit, among others, could adversely affect our operations, especially in the United Kingdom where we have a significant employee and customer base, and our financial results.
We are exposed to fluctuations in currency exchange rates, which could adversely affect our operating results or financial position.
We sell our services and incur operating expenses in various currencies. Therefore, fluctuations in the relative value of the U.S. dollar and foreign currencies, particularly the Japanese yen, and to a lesser extent, the British pound and the euro, may impact our operating results. For example, the Japanese yen, the British pound and the euro have all recently experienced declines in value vis-à-vis the U.S. dollar, which negatively affected our results of operations during the six months ended July 31, 2022 and could continue to negatively impact our results of operations in future periods. We currently manage our exchange rate risk by maintaining offsetting foreign currency assets and liabilities and by minimizing non-U.S. dollar cash balances, but we do not have any other hedging programs in place to limit the risk of exchange rate fluctuation. In the future, we may elect to deploy normal and customary hedging practices designed to more proactively mitigate such exposure. Such practices may not ultimately be available and/or effective at mitigating the foreign currency risk to which we are exposed. If we are unsuccessful in detecting material exposures in a timely manner, any hedging strategies we deploy are not effective, or there are no hedging strategies available for certain exposures that are prudent given the associated risks and the potential mitigation of the underlying exposure achieved, our operating results or financial position could be negatively affected in the future.
If we are unable to maintain and promote our brand, our business and operating results may be harmed.
We believe that maintaining and promoting our brand is critical to expanding our customer base. Maintaining and promoting our brand will depend largely on our ability to continue to provide useful, reliable and innovative services, which we may not do successfully. We may introduce new features, products, services or terms of service that our customers do not like, which may negatively affect our brand and reputation. Additionally, the actions of third parties may affect our brand and reputation if customers do not have a positive experience using third-party apps or other services that are integrated with Box. Maintaining and enhancing our brand may require us to make substantial investments, and these investments may not achieve the desired goals. If we fail to successfully promote and maintain our brand or if we incur excessive expenses in this effort, our business and operating results could be adversely affected.
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We have a history of cumulative losses, and we may not be able to achieve or maintain profitability.
We incurred net losses of $41.5 million, $43.4 million, and $144.3 million in our fiscal years ended January 31, 2022, 2021 and 2020, respectively, and $3.7 million in the six months ended July 31, 2022. As of July 31, 2022, we had an accumulated deficit of $1.4 billion. These losses and accumulated deficit reflect the substantial investments we made to acquire new customers and develop our services. We intend to continue scaling our business to increase our number of users and paying organizations and to meet the increasingly complex needs of our customers. As a result, we cannot assure you that we will achieve profitability in the future or that, if we do become profitable, we will sustain profitability.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly operating results may vary significantly in the future, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, and as a result, may not fully reflect the underlying performance of our business. Factors that may cause fluctuations in our quarterly financial results include, but are not limited to:
Risks Related to Data Privacy and Data Security
Actual or perceived security vulnerabilities in our services or any breaches of our security controls and unauthorized access to our or a customer’s data could harm our business and operating results.
The services we offer involve the storage of large amounts of our and our customers’ sensitive and proprietary information, some of which may be considered personally identifiable. Cyberattacks and other malicious internet-based activity, including ransomware, malware and viruses, continue to increase in frequency and magnitude and we face security threats from malicious third parties that could obtain unauthorized access to, or disrupt, our systems, infrastructure and networks. These threats may come from a variety of sources including nation-state sponsored espionage and hacking activities, industrial espionage, organized crime, sophisticated organizations, hacking groups and individuals and insider threats. These sources can also implement social engineering techniques, such as “phishing” or “smishing” attacks, to induce our partners, users, employees or customers to disclose passwords or
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other sensitive information or take other actions to gain access to our data or our users’ data. Hackers that acquire user account information at other companies can attempt to use that information to compromise the accounts of personnel, or our users’ accounts if an account shares the same sensitive information such as passwords. As we increase our customer base, our brand becomes more widely known and recognized, and our service is used in more heavily regulated industries where there may be a greater concentration of sensitive and protected data, such as healthcare, government, life sciences, and financial services, we have become more of a target for these malicious third parties.
In addition, because Box is configured by administrators and users to select their default settings, the third-party integrations they enable, and their privacy and permissions settings, an administrator or user could intentionally or inadvertently configure settings to share their sensitive data. For example, a Box user can choose to share the content they store in Box with third parties by creating a link that can be customized to be accessible by anyone with the link. While this feature is designed to be used for a variety of legitimate use cases in which a user wishes to share non-sensitive content with a broad or public audience, if a user were to intentionally or inadvertently configure a setting that allowed public access to their sensitive data, that data could be discovered and accessed by an unintended third party.
We cannot guarantee that any security measures that we or third parties on which we rely have implemented will be completely effective against current or future security threats, or that our systems and networks or those of such third parties have not been breached or otherwise compromised, or that they and any software in our or their supply chains do not contain bugs, vulnerabilities, or compromised code that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us or our products or services. Given that our customers manage significant amounts of sensitive and proprietary information on our platform, and many of our customers are in heavily regulated industries where there may be a greater concentration of sensitive and proprietary data, our reputation and market position are particularly sensitive to impacts from actual or perceived security breaches or incidents, security vulnerabilities, or concerns regarding security. If our security measures or those of third parties on which we rely are or are believed to be inadequate or breached or otherwise compromised as a result of third-party action, employee negligence, error or malfeasance, product defects, social engineering techniques, improper user configuration or otherwise, and this results in, or is believed to result in, unauthorized access to or disclosure, modification, misuse, loss, corruption, unavailability, or destruction of our data or our customers’ data, or any other disruption of the confidentiality, integrity or availability of our data or our customers’ data, we could incur significant liability to various parties, including our customers and individuals or organizations whose information is stored by our customers, and our business, reputation or competitive position may be harmed. Techniques used to obtain unauthorized access to, or to sabotage, systems or networks, are constantly evolving and generally are not recognized until launched against a target. Therefore, we may be unable to anticipate these techniques, react in a timely manner, or implement adequate preventive measures, and we may face delays in our detection or remediation of, or other responses to, security breaches and other security-related incidents or vulnerabilities. We have observed increased level of sophistication in the types of techniques, including social engineering techniques, that malicious third parties may use in an attempt to gain access to our or our users’ data. Due to political uncertainty and military actions associated with Russia’s invasion of Ukraine, we and the third parties on which we rely are vulnerable to a heightened risk of cybersecurity attacks, phishing attacks, viruses, malware, ransomware, hacking or similar breaches and incidents from nation-state and affiliated actors, including attacks that could materially disrupt our supply chain and our systems, operations and platform. Additionally, many of our personnel and personnel of the third parties on which we rely work remotely at least part of the time, which imposes additional risks to our business, including increased risk of industrial espionage, theft of assets, phishing, and other cybersecurity attacks, and inadvertent or unauthorized access to or dissemination of sensitive, proprietary, or confidential information. We also expect to incur significant costs in our ongoing efforts to detect and prevent security breaches and other security-related incidents, and in the event of actual or perceived security breaches or other security-related incidents. Additionally, our service providers and other third parties on which we rely may suffer, or be perceived to suffer, data security breaches or other incidents that may compromise data stored or processed for us that may give rise to any of the foregoing.
Our customer contracts often include (i) specific obligations that we maintain the availability of the customer’s data through our service and that we secure customer content against unauthorized access or loss, and (ii) provisions whereby we indemnify our customers for third-party claims asserted against them that result from our failure to maintain the availability of their content or securing the same from unauthorized access or loss. While our customer contracts generally contain limitations on our liability in connection with these obligations and indemnities, if an actual or perceived security breach or incident occurs, the market perception of the effectiveness of our security measures could be harmed, we could be subject to indemnity or damage claims in certain customer contracts, and we could lose future sales and customers, any of which could harm our business and operating results. Furthermore, while our errors and omissions insurance policies include liability coverage for certain of these matters, if we experience a security breach or other incident, we could be subject to indemnity claims or other damages that exceed our insurance coverage. We also cannot be certain that our insurance coverage will be adequate for data handling or data security liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the
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occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
Privacy concerns and laws or other regulations may reduce the effectiveness of our services and harm our business.
Users can use our services to store identifying information or information that otherwise is considered personal information. Federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use and disclosure of personal information obtained from consumers, businesses and other individuals and entities. Data protection, privacy, consumer protection, cybersecurity and other laws and regulations, particularly in Europe, are often more restrictive than those in the United States. The costs of compliance with, and other burdens imposed by, such laws, policies and regulations that apply to our business or our customers’ businesses may limit the use and adoption of our services and reduce overall demand for them.
These laws and regulations, which may be enforceable by private parties and/or governmental entities, are constantly evolving and can be subject to significant change. A number of new laws coming into effect and/or proposals pending before federal, state and foreign legislative and regulatory bodies could affect our business. For example, the European Commission enacted the General Data Protection Regulation (GDPR), which imposed significant obligations on companies regarding the handling of personal data and penalties for noncompliance of up to the greater of 20 million euros or four percent of a company’s global revenue. Further, local data protection authorities in Europe may adopt regulations and/or guidance more stringent than the GDPR, which may impose additional compliance costs or other burdens that impact our business. In 2020, the Court of Justice of the European Union (CJEU) invalidated the EU-US Privacy Shield framework, and imposed additional obligations on companies when relying on model contractual clauses approved by the European Commission (EC) to transfer personal data from the EU to the U.S. On September 8, 2020, the Swiss Federal Data Protection and Information Commissioner invalidated the Swiss-U.S. Privacy Shield in light of the CJEU’s decision. These developments or other developments relating to cross-border data transfer may result in the EC, European Data Protection board and/or other regulators applying differing standards for, and requiring ad hoc verification of, transfers of personal data from the European Economic Area (EEA), Switzerland, or the United Kingdom (UK) to the U.S. On June 4, 2021, the EC published new standard contractual clauses (SCCs) that are required to be implemented by companies relying on the SCCs as a basis for cross-border transfers of personal data. These or other developments relating to cross-border data transfer required us to issue additional policies, update our data transfer agreements with applicable customers and third party service providers and assess our practices. This CJEU decision that invalidated the EU-US Privacy Shield framework and/or other legal challenges relating to cross-border data transfers may serve as a basis for challenges to our personal data handling practices, or those of our customers, and may otherwise adversely impact our business, financial condition and operating results.
Brexit has created uncertainty around data protection issues and could lead to further legislative and regulatory changes. For example, the UK Data Protection Act of 2018 substantially mirrors the EU GDPR in the UK and was the subject of statutory amendments that further aligned it with the GDPR in 2019. In June 2021, the EC announced a decision that the UK is an “adequate country” to which personal data could be exported from the EEA, but this decision must be renewed and may face challenges in the future, creating uncertainty regarding transfers of personal data to the UK from the EEA. It remains unclear how UK data protection laws or regulations will develop, and how data transfers to and from the United Kingdom will be regulated, over time. In 2022, the Information Commissioner’s Office (ICO) issued the UK SCCs as a valid data transfer mechanism for cross border data transfers from the UK to third countries. While the ICO adopted a transition period for implementing the UK SCCs and we have updated our data transfer agreements accordingly, additional guidance or changes to UK cross border data transfers and/or overall UK data protection laws and/or guidance could occur, which may require us to change our policies, practices and engage in additional contractual negotiations. Such legislative and regulatory changes may result in increased costs of compliance and limitations on our customers and us.
In 2018, the State of California enacted the California Consumer Privacy Act (CCPA), which became operative on January 1, 2020. The CCPA requires covered companies to, among other things, provide new disclosures to California consumers and afford such consumers new abilities to opt-out of certain sales of personal information. Additionally, a new privacy law, the California Privacy Rights Act (CPRA), was approved by California voters in November 2020 and will amend and expand the CCPA. The CPRA’s substantive provisions will become effective on January 1, 2023, and the newly formed California Privacy Protection Agency began its rulemaking process to adopt proposed regulations to implement the new law in July 2022. Thus far, the proposed regulations are in draft form and are subject to further revisions, which may potentially result in further uncertainty and require us to incur additional costs and expenses. Further, similar privacy legislation has been proposed and/or enacted in other states and at the federal level. Aspects of the interpretation and enforcement of the CCPA, CPRA and other enacted and proposed federal and state laws remain unclear. We cannot fully predict the impact of these laws on our business or operations, but they may require us to modify our data processing practices and policies and incur substantial costs and expenses in an effort to comply.
In addition, some countries are considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services. If we are unable to develop and offer services that meet our legal duties or
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help our customers meet their obligations under the laws or regulations relating to privacy, data protection, or information security, we may become subject to significant fines and penalties, which would harm our business.
We also expect laws, regulations, industry standards and other obligations worldwide relating to privacy, data protection, ransomware and cybersecurity to continue to evolve, and that there will continue to be new, modified, and re-interpreted laws, regulations, standards, and other obligations in these areas. We cannot yet determine the impact such future laws, regulations and standards, or amendments to or re-interpretations of, existing laws and regulations, industry standards, or other obligations may have on us or our business. Moreover, these existing and proposed laws, regulations, standards, and other actual or asserted obligations can be difficult and costly to comply with, delay or impede the development or adoption of our products and services, reduce the overall demand for our products and services, increase our operating costs, require modifications to our policies, practices, or products or services, require significant management time and attention, and slow the pace at which we close (or prevent us from closing) sales transactions. Additionally, any actual or alleged noncompliance with these laws, regulations, standards, or other actual or asserted obligations could result in negative publicity and subject us to investigations and other proceedings by regulatory authorities, claims, demands, and litigation by private entities, or other requested remedies or demands, including demands that we modify or cease existing business practices, and expose us to significant fines, penalties and other damages and liabilities. In addition to the possibility of fines, proceedings, demands, claims, and litigation, we may find it necessary or appropriate to fundamentally change our business activities and practices, including the establishment of in-region data storage or other data processing operations, or modify or cease offering certain products or services, any of which could have an adverse effect on our business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to develop new offerings and features could be limited.
Furthermore, government agencies may seek to access sensitive information that our users upload to Box, or restrict users’ access to Box. Laws and regulations relating to government access and restrictions are evolving, and compliance with such laws and regulations could limit adoption of our services by users and create burdens on our business. Moreover, regulatory investigations into, or other proceedings by regulators or private entities involving, our compliance with privacy-related laws and regulations could increase our costs and divert management attention.
If we are not able to satisfy data protection, security, privacy, and other government- and industry-specific requirements, our growth could be harmed.
There are a number of data protection, security, privacy and other government- and industry-specific requirements, including those that require companies to notify individuals of data security incidents involving certain types of personal data. Security compromises experienced by our competitors, by our customers or by us may lead to public disclosures, which could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, or cause existing customers to elect not to renew their agreements with us. Our customers also expect, and in some instances require, us to meet voluntary certifications or adhere to guidelines or standards established by third parties, to offer particular controls, or otherwise support customer-specific requirements. Although we currently have certain certifications such as AICPA SOC 1, 2 and 3 reports, and ISO/IEC 27001, 27017, and 27018, we may not be successful in continuing to maintain these certifications or in obtaining other certifications or otherwise being able to adhere to or comply with all customer requirements. In addition, some of the industries we serve have industry-specific requirements relating to compliance with certain security and regulatory standards, such as GxP, FedRAMP and StateRAMP, and those required by HIPAA, FINRA, and the HITECH Act. As we expand into new industries and regions, we will likely need to comply with these and other new requirements to compete effectively. We may not always be able to support or comply with all of these customer requirements. If we cannot adequately comply with these requirements, our growth could be adversely impacted, we may face a loss of customers or difficulty attracting new customers in impacted industries, and we could incur significant liability and our reputation and business could be harmed.
Risks Related to Our Technical Operations Infrastructure and Dependence on Third Parties
If we are unable to ensure that our solutions interoperate with operating systems and software applications developed by others, our service may become less competitive, and our operating results may be harmed.
We offer our services across a variety of operating systems and through the internet. We are dependent on the interoperability of our platform with third-party mobile devices, tablets, desktop and mobile operating systems, as well as web browsers that we do not control. Any changes in such systems, devices or web browsers that degrade the functionality of our services or give preferential treatment to competitive services could adversely affect usage of our services and our ability to deliver high quality services. We may not succeed in developing relationships with key participants in the mobile industry or in developing services that operate effectively with these operating systems, networks, infrastructure, devices, web browsers and standards. In the event that our users experience difficulty accessing and using our services, our user growth may be harmed, and our business and operating results could be adversely affected.
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If we fail to effectively manage our technical operations infrastructure, our customers may experience service outages and delays in the deployment of our services, which may adversely affect our business.
We have experienced significant growth in the number of users and the amount of data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet our customers’ needs. We also seek to maintain excess capacity to facilitate the rapid provisioning of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our services. However, the provision of new hosting infrastructure requires significant lead-time. We have experienced, and may in the future experience, website disruptions, incidents of data corruption and loss, service outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, changes to our core services architecture, changes to our infrastructure necessitated by legal and compliance requirements governing the storage and transmission of data, human or software errors, viruses, security attacks, fraud, spikes in customer usage, primary and redundant hardware or connectivity failures, dependent data center and other service provider failures and denial of service issues. Additionally, our ability to properly manage our technical operations infrastructure depends on the reliability of the global supply chain for hardware, network, and platform infrastructure equipment. Significant and unforeseen disruptions to the supply chain may impede our ability to meet our infrastructure capacity requirements. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time, which may harm our reputation and operating results. Furthermore, if we encounter any of these problems in the future, our customers may lose access to important data or experience data corruption or service outages that may subject us to financial penalties, other liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation and our business.
Interruptions or delays in service from our third-party data center hosting facilities and cloud computing and hosting providers could impair the delivery of our services and harm our business.
We currently store and process our customers’ information within multiple third-party data center hosting facilities located in Nevada and, increasingly, in third-party cloud computing and hosting facilities inside and outside of the United States. As we continue to migrate more of our storage and processing operations to cloud computing and hosting facilities operated by third parties, our service will become more susceptible to interruptions or delays that are out of our direct control. Similarly, as part of our disaster recovery arrangements, our production environment and metadata related to our customers’ data is currently replicated in near real time in facilities located in Nevada. In addition, all of our customers’ data is typically replicated on third-party storage platforms located inside and outside of the United States. These facilities may be located in areas prone to natural disasters and may experience events such as earthquakes, floods, fires, power loss, telecommunications failures and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism, cyber-attacks and similar misconduct, including by state-sponsored or otherwise well-funded actors. Any damage to, or failure of, our systems generally, or those of the third-party cloud computing and hosting providers, could result in interruptions in our service, which may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rate and our ability to attract new customers. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. Our business will also be harmed if our customers and potential customers believe our service is unreliable. Despite precautions taken at our third-party data center hosting facilities, the occurrence of disasters, security issues (including an act of terrorism or an armed conflict), certain geopolitical events, labor or trade disputes, or pandemics (such as COVID-19), could lead to a decision to close the facilities without adequate notice or other unanticipated problems that result in lengthy interruptions in our service or cause us to not comply with certification requirements. Even with the disaster recovery arrangements, we have never performed a full live failover of our services and, in an actual disaster, we could learn our recovery arrangements are not sufficient to address all possible scenarios and our service could be interrupted for a longer period than expected. We have encountered issues in the past, and may again in the future, that have caused Box services to be temporarily unavailable. As we migrate from data centers we currently operate to third-party cloud computing and hosting providers, we may move or transfer our data and our customers' data. Despite precautions taken during any of these data center moves and data transfers, any unsuccessful data transfers may impair the delivery of our service and materially and adversely disrupt our operations and our service delivery to our customers, which could result in contractual penalties or damage claims from customers. In addition, changes to our data center infrastructure could occur over a period longer than planned, require greater than expected investment and other internal and external resources and cause us to incur increased costs as we operate multiple data center facilities. It may also take longer than expected to realize the intended benefits from any data center infrastructure migrations and improvements, and disruptions or unexpected costs may continue to occur while we enhance our data center infrastructure.
Our services are becoming increasingly mission-critical for our customers and if these services fail to perform properly or if we are unable to scale our services to meet our customers’ needs, our reputation could be adversely affected, our market share could decline and we could be subject to liability claims.
Our services are becoming increasingly mission-critical to our customers’ business operations, as well as their ability to comply with legal requirements, regulations, and standards such as GxP, FINRA, HIPAA, FedRAMP and StateRAMP. These services and offerings are inherently complex and may contain material defects or errors that could cause interruptions in the availability of our services, as well as user error, which could result in loss or delayed market acceptance and sales, breach of contract or warranty claims, issuance of sales credits or refunds for prepaid amounts related to unused subscription services, loss of customers, diversion of
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development and customer service resources, and harm to our reputation. The costs incurred in correcting any material defects or errors might be substantial and could adversely affect our operating results. Further, our errors and omissions insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our insurance may not cover all claims made against us and defending a lawsuit, regardless of its merit, could be costly and divert management’s attention. Because of the large amount of data that we collect and manage, it is possible that hardware failures, software errors, errors in our systems, or by third-party service providers, user errors, or internet outages could result in significant data loss or corruption. Furthermore, the availability or performance of our services could be adversely affected by a number of factors, including customers’ inability to access the internet, the failure of our network or software systems, security breaches or variability in customer traffic for our services. We have been, and in the future may be, required to issue credits or refunds for prepaid amounts related to unused services or otherwise be liable to our customers for damages they may incur resulting from some of these events.
Furthermore, we will need to ensure that our services can scale to meet the needs of our customers, particularly as we continue to focus on larger enterprise customers. If we are not able to provide our services at the scale required by our customers, potential customers may not adopt our solution and existing customers may not renew their agreements with us.
We rely on third parties for certain financial and operational services essential to our ability to manage our business. A failure or disruption in these services could materially and adversely affect our ability to manage our business effectively.
We rely on third parties for certain essential financial and operational services. We receive many of these services on a subscription basis from various software-as-a-service companies that are smaller and have shorter operating histories than traditional software vendors. Moreover, these vendors provide their services to us via a cloud-based model instead of software that is installed on our premises. We depend upon these vendors to provide us with services that are always available and are free of errors or defects that could cause disruptions in our business processes, and any failure by these vendors to do so, or any disruptions in networks or the availability of the internet, would adversely affect our ability to operate and manage our operations.
We employ third-party software for use in or with our services, and the inability to maintain licenses to this software, or errors in the software, could result in increased costs, or reduced service levels, which would adversely affect our business.
Our services incorporate certain third-party software obtained under open source licenses or licenses from other companies. We anticipate that we will continue to rely on such third-party software and development tools in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of the software used in our services with new third-party software may require significant work and require substantial investment of our time and resources. Also, to the extent that our services depend upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our services, delay the introduction of new services, result in a failure of our services, and injure our reputation. Our use of additional or alternative third-party software would require us to enter into additional license agreements with third parties. If we are unable to maintain licenses to software necessary to operate our business, or if third-party software that we use contains errors or defects, our costs may increase, or the services we provide may be harmed, which would adversely affect our business.
Our growth depends in part on the success of our strategic relationships with third parties.
In order to grow our business, we anticipate that we will continue to depend on our relationships with third parties, such as alliance partners, resellers, distributors, system integrators and developers. For example, we have entered into agreements with partners such as Adobe, Google, IBM, Macnica Networks, Microsoft, Mitsui Knowledge Industry, Palo Alto Networks, Salesforce, ServiceNow and Zoom to market, resell, integrate with or endorse our services. Identifying partners and resellers, and negotiating and documenting relationships with them, requires significant time and resources.
We also depend on our ecosystem of system integrators, partners and developers to create applications that will integrate with our platform or permit us to integrate with their product offerings. This presents certain risks to our business, including:
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In addition, our competitors may be effective in providing incentives to third parties to favor their products or services, or to prevent or reduce subscriptions to our services. In some cases, we also compete directly with our partners’ product offerings, and if these partners stop reselling or endorsing our services or impede our ability to integrate our services with their products, our business and operating results could be adversely affected. Moreover, competitor acquisitions of our partners could result in a decrease in the number of current and potential customers, as our partners may no longer facilitate the adoption of our services by potential customers.
If we are unsuccessful in establishing or maintaining our relationships with third parties, or realizing the anticipated benefits from such partnerships, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results may suffer. Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our services or increased revenue.
Our business is subject to the risks of natural disasters, pandemics and other catastrophic events that could disrupt our business operations and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
The occurrence of any catastrophic event, including a pandemic (such as COVID-19), earthquake, fire, flood, tsunami, or other weather event, power loss, telecommunications failure, software or hardware malfunctions, cyber-attack, war, or terrorist attack, could result in lengthy interruptions in our service. Our corporate headquarters is located in the San Francisco Bay Area, a region known for seismic activity. Our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster. In addition, pandemics, acts of terrorism or war could cause disruptions to the internet or the economy as a whole, which could have a significant impact on our business and operating results. If our or our partners’ business continuity and disaster recovery arrangements prove to be inadequate, our services could be interrupted. Our partners, suppliers, and customers are also subject to the risk of catastrophic events. In those events, our ability to deliver our services in a timely manner, as well as the demand for our services, may be adversely impacted by factors outside our control. If our systems were to fail or be negatively impacted as a result of a natural disaster, pandemic or other catastrophic event, our ability to deliver our services to our customers would be impaired, we could lose critical data, our reputation could suffer and we could be subject to contractual penalties.
If we overestimate or underestimate our data center capacity requirements, our operating results could be adversely affected.
We continuously evaluate our short- and long-term data center capacity requirements to ensure adequate capacity for new and existing customers while minimizing unnecessary excess capacity costs. If we overestimate the demand for our cloud content management services and therefore secure excess data center capacity, our operating margins could be reduced. If we underestimate our data center capacity requirements or if we are unable to meet our contractual minimum commitments, we may not be able to service the expanding needs of customers and may be required to limit new customer acquisition or provide credits or refunds to existing customers, which would impair our revenue growth and harm our operating results. Furthermore, regardless of our ability to appropriately manage our data center capacity requirements, only a small percentage of our customers currently use Box to organize all of their internal files, and an increase in the number of organizations, in particular large businesses and enterprises, that use our service as a larger component of their content storage requirements, could result in lower gross and operating margins or otherwise have an adverse impact on our financial condition and operating results.
Changes in laws and regulations related to the internet or changes in the internet infrastructure itself, or disruption in access to the internet or critical services on which the internet depends, may diminish the demand for our services, and could have a negative impact on our business.
The future success of our business depends upon the continued use and availability of the internet as a primary medium for commerce, communication and business services. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the internet as a commercial medium. The adoption of any laws or regulations that adversely affect the growth, popularity or use of the internet, including laws or practices limiting internet neutrality, could decrease the demand for, or the usage of, our services, increase our cost of doing business, adversely affect our operating results, and require us to modify our services in order to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-related commerce or communications generally, or result in reductions in the demand for internet-based services such as ours.
In addition, the use of the internet and, in particular, the cloud as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost,
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ease of use, accessibility, and quality of service. The performance of the internet and its acceptance as a business tool have been adversely affected by “viruses,” “worms,” “denial of service attacks” and similar malicious activity. The internet has also experienced a variety of outages, disruptions and other delays as a result of this malicious activity targeted at critical internet infrastructure. These service disruptions could diminish the overall attractiveness to existing and potential customers of services that depend on the internet and could cause demand for our services to suffer.
Risks Related to Employees and Managing Our Growth
We depend on our key employees and other highly skilled personnel to grow and operate our business, and if we are unable to hire, retain and motivate our personnel, we may not be able to grow effectively.
Our future success depends upon our continued ability to identify, hire, develop, motivate and retain highly skilled personnel, representing diverse backgrounds, experiences, and skill sets, including senior management, engineers, designers, product managers, sales representatives, and customer support representatives. Identifying, recruiting, training and integrating qualified individuals will require significant time, expense and attention. In addition to hiring new employees, we must continue to focus on retaining our best employees, and fostering a diverse and inclusive work environment that enables all of our employees to prosper. Competition for highly skilled personnel is intense, particularly in the San Francisco Bay Area, where our headquarters is located. Moreover, our ability to attract and hire personnel may be materially adversely affected by changes to immigration laws or the availability of work visas. We may need to invest significant amounts of cash and equity to attract and retain new employees, and we may never realize returns on these investments. If we are not able to effectively add and retain employees, our ability to achieve our strategic objectives will be adversely impacted, and our business will be harmed.
Our success is also dependent upon contributions from our executive officers and other key employees and, in particular, Aaron Levie, our co-founder and Chief Executive Officer. There may be changes in our senior management team that could disrupt our business. The loss of one or more of our executive officers or key employees, or the failure of our senior management team to work together effectively and execute our plans and strategies, could harm our business.
Failure to adequately expand and optimize our direct sales force and successfully maintain our online sales experience could impede our growth.
We will need to continue to optimize our sales infrastructure in order to grow our customer base and business. As a result of the COVID-19 pandemic, we have temporarily curtailed most business-related travel, which may negatively impact our ability to recruit and train our sales force. Our business may be adversely affected if our efforts to expand and train our direct sales force do not generate a corresponding increase in revenue. If we are unable to hire, develop and retain talented sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not realize the intended benefits of this investment or increase our revenue.
We maintain our Box website to efficiently service our high volume, low dollar customer transactions and certain customer inquiries. Our goal is to continue to evolve this online experience so it effectively serves the increasing and changing needs of our growing customer base. If we are unable to maintain an effective online solution to meet the future needs of our online customers and to eliminate fraudulent transactions occurring in this channel, we could see reduced online sales volumes as well as a decrease in our sales efficiency, which could adversely affect our results of operations.
Any acquisitions and investments we make could disrupt our business and harm our financial condition and operating results.
We have acquired, and may in the future acquire, other companies, employee teams, or technologies to complement or expand our services and grow our business. For example, in February 2021 we acquired SignRequest. We may not be able to successfully complete or integrate identified acquisitions. Moreover, we may not successfully evaluate or utilize the acquired technology or personnel, or accurately forecast the financial impact of an acquisition. The risks we face in connection with acquisitions include:
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Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, incremental operating expenses or the write-off of goodwill, any of which could harm our financial condition or operating results.
Our company culture has contributed to our success, and if we cannot maintain this culture, we could lose the innovation, creativity and teamwork fostered by our culture, and our business may be harmed.
We believe that our culture has been and will continue to be a key contributor to our success. We expect to continue to hire additional employees as we expand our business. As our organization expands globally and as employees’ workplace expectations develop, we may find it increasingly difficult to maintain the beneficial aspects of our corporate culture globally. These difficulties may be further amplified by our transition to a hybrid workforce and other workforce actions taken in response to the COVID-19 pandemic. If we do not continue to develop our company culture or maintain our core values as we grow and evolve both in the United States and abroad, we may be unable to foster the innovation, creativity and teamwork we believe we need to support our growth.
Risks Related to Our Intellectual Property
We may be sued by third parties for alleged infringement of their proprietary rights.
There is considerable patent and other intellectual property development activity in our industry. Our success depends on developing or licensing our own intellectual property and not infringing upon the valid intellectual property rights of others. Our competitors, as well as a number of other entities, including non-practicing entities, and individuals, may own or claim to own intellectual property relating to our industry.
From time to time, third parties have claimed, and in the future may claim, that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. We may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify services, or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time consuming and divert the attention of our management and key personnel from our business operations. During the course of any litigation, we may make announcements regarding the results of hearings and motions, and other interim developments. If securities analysts or investors regard these announcements as negative, the market price of our Class A common stock may decline.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and brand.
Our success and ability to compete depend in part on our intellectual property. We primarily rely on copyright, patent, trade secret and trademark laws, trade secret protection and confidentiality or license agreements with our employees, customers, partners
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and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate. We may not be able to obtain any further patents, and our pending applications may not lead to the issuance of patents. We may also have to expend significant resources to obtain additional patents as we expand our international operations.
In order to protect our intellectual property rights, we may spend significant resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and may result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Accordingly, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Our failure to secure, protect and enforce our intellectual property rights could materially adversely affect our brand and adversely impact our business.
Our services contain open source software, and we license some of our software through open source projects, which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative impact on our business.
We use open source software in our services and will use open source software in the future. In addition, we regularly contribute software source code to open source projects under open source licenses or release internal software projects under open source licenses, and anticipate doing so in the future. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our services. Additionally, from time to time third parties may claim ownership of, or demand release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seek to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to make our software source code freely available, purchase a costly license or cease offering the implicated services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source code may contain bugs or other defects and open source licensors generally do not provide warranties or controls on the functionality or origin of software. Additionally, because any software source code we contribute to open source projects is publicly available, our ability to protect our intellectual property rights with respect to such software source code may be limited or lost entirely, and we cannot prevent our competitors or others from using such contributed software source code. Any of these risks could be difficult to eliminate or manage and could have a negative effect on our business, financial condition and operating results.
Risks Related to Our Financial Position and Need for Additional Capital
We may require additional capital to support our operations or the growth of our business, and we cannot be certain that this capital will be available on reasonable terms when required, or at all.
On occasion, we may need additional financing for a variety of reasons, including operating or growing our business, responding to business opportunities, undertaking acquisitions, funding stock repurchases, or repaying our convertible senior notes. For example, in May 2021, we issued and sold 500,000 shares of our Series A Convertible Preferred Stock for an aggregate purchase price of $500 million. Our ability to obtain additional financing, if and when required, will depend on investor and lender demand, our operating performance, the condition of the capital markets and other factors. We cannot guarantee that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our Class A common stock, and our existing stockholders may experience dilution. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support the operation or growth of our business could be significantly impaired and our operating results may be harmed. Rising interest rates may reduce our access to equity-linked or debt capital and increase our cost of borrowings, which could adversely impact our business, operating results and financial position.
Financing agreements we are party to or may become party to may contain operating and financial covenants that restrict our business and financing activities.
Our senior credit facility contains certain operating and financial restrictions and covenants that may restrict our and our subsidiaries’ ability to, among other things, incur indebtedness, grant liens on our assets, make loans or investments, consummate certain merger and consolidation transactions, dispose of assets, incur contractual obligations and commitments and enter into affiliate transactions, subject in each case to customary exceptions. We are also required to comply with a maximum senior secured leverage ratio, a maximum total leverage ratio and a minimum interest coverage ratio. These restrictions and covenants, as well as those contained in any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in,
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expand or otherwise pursue our business activities and strategies. Our ability to comply with these covenants may be affected by events beyond our control, and breaches of these covenants could result in a default under the senior credit facility and any future financial agreements that we may enter into and under other arrangements containing cross-default provisions. If not waived, defaults could cause our outstanding indebtedness under our senior credit facility and any future financing agreements that we may enter into to become immediately due and payable, and permit our lenders to terminate their lending commitments and to foreclose upon any collateral securing such indebtedness.
Risks Related to Financial, Accounting, Tax and Other Legal Matters
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act and the listing standards of the New York Stock Exchange (NYSE). We have expended, and anticipate that we will continue to expend, significant resources to comply with these rules and regulations.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business, including increased complexity resulting from our international expansion. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Additionally, to the extent that we acquire other businesses, the acquired company may not have a sufficiently robust system of internal controls and we may uncover new deficiencies. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of management reports and independent registered public accounting firm audits of our internal control over financial reporting that we are required to include in our periodic reports that we file with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.
Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results, and cause a decline in the market price of our Class A common stock.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States are subject to interpretation by the FASB, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. These or other changes in accounting principles could adversely affect our financial results. Any difficulties in implementing these pronouncements could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.
Tax laws or regulations could be enacted or changed and existing tax laws or regulations could be applied to us or to our customers in a manner that could increase the costs of our services and adversely impact our business.
The application of federal, state, local and international tax laws to services provided electronically is unclear and continuously evolving. Income, sales, use, value added or other tax laws, statutes, rules, regulations or ordinances could be enacted or amended at any time, such as the Tax Cuts and Jobs Act in the United States, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the internet. These enactments or amendments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and ultimately result in a negative impact on our operating results and cash flows.
In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted or applied adversely to us, possibly with retroactive effect, which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties, as well as interest for past amounts. If we are unsuccessful in collecting such taxes due from our customers, we could be held liable for such costs, thereby adversely impacting our operating results and cash flows.
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We may be subject to additional tax liabilities resulting from changes in our provision for income taxes or an adverse tax ruling
Judgment is required in determining our worldwide provision for income taxes. These determinations are highly complex and require detailed analysis of the available information and applicable statutes and regulatory materials. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical tax practices, provisions and accruals. If we receive an adverse ruling as a result of an audit, or we unilaterally determine that we have misinterpreted provisions of the tax regulations to which we are subject, there could be a material effect on our tax provision, net loss or cash flows in the period or periods for which that determination is made. In addition, liabilities associated with taxes are often subject to an extended or indefinite statute of limitations period. Therefore, we may be subject to additional tax liability (including penalties and interest) for a particular year for extended periods of time.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of January 31, 2022, we had U.S. federal net operating loss carryforwards of approximately $700.2 million, state net operating loss carryforwards of approximately $571.2 million, and foreign net operating loss carryforwards of approximately $313.0 million. Under Sections 382 and 383 of Internal Revenue Code of 1986, as amended (the "Code"), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. If we experience ownership changes as a result of future transactions in our stock, then we may be further limited in our ability to use our net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn. Any such limitations on the ability to use our net operating loss carryforwards and other tax assets could adversely impact our business, financial condition and operating results.
We are subject to governmental export controls that could impair our ability to compete in international markets due to licensing requirements and economic sanctions programs that subject us to liability if we are not in full compliance with applicable laws.
Certain of our services are subject to export controls, including the U.S. Department of Commerce’s Export Administration Regulations and various economic and trade sanction regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. The provision of our products and services must comply with these laws. The U.S. export control laws and U.S. economic sanctions laws include prohibitions on the sale or supply of certain products and services to U.S. embargoed or sanctioned countries, governments, persons and entities and also require authorization for the export of encryption items. In addition, various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our services or could limit our customers’ ability to implement our services in those countries.
Although we take precautions to prevent our services from being provided in violation of such laws, our solutions may have been in the past, and could in the future be, provided inadvertently in violation of such laws, despite the precautions we take. If we fail to comply with these laws, we and our employees could be subject to civil or criminal penalties, including the possible loss of export privileges, monetary penalties, and, in extreme cases, imprisonment of responsible employees for knowing and willful violations of these laws. We may also be adversely affected through penalties, reputational harm, loss of access to certain markets, or otherwise.
Changes in tariffs, sanctions, international treaties, export/import laws and other trade restrictions or trade disputes may delay the introduction and sale of our services in international markets, prevent our customers with international operations from deploying our services or, in some cases, prevent the export or import of our services to certain countries, governments, persons or entities altogether. Any change in export or import regulations, economic sanctions or related laws, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our services, or in our decreased ability to export or sell our services to existing or potential customers with international operations. Any decrease in the use of our services or limitation on our ability to export or sell our services would likely adversely affect our business, financial condition and operating results.
Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences.
We are subject to the Foreign Corrupt Practices Act (FCPA), the U.K. Bribery Act and other anti-corruption, anti-bribery and anti-money laundering laws in various jurisdictions both domestic and abroad. In addition to our own sales force, we also leverage third parties to sell our products and services and conduct our business abroad. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held
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liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners, and agents, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with such laws, we cannot assure you that our employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held responsible. Any violation of the FCPA or other applicable anti-bribery, anti-corruption, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, operating results and prospects.
Risks Related to Ownership of Our Class A Common Stock
Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws include provisions:
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents certain stockholders holding more than 15% of the voting power of our outstanding capital stock from engaging in certain business combinations without approval of the holders of at least two-thirds of the voting power of our outstanding capital stock not held by such stockholder.
Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock, and could also affect the price that some investors are willing to pay for our Class A common stock.
The market price of our Class A common stock has been and may continue to be volatile, and you could lose all or part of your investment.
The market price of our Class A common stock has been and may continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control and may not be related to our operating performance. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q, factors that could cause fluctuations in the market price of our Class A common stock include the following:
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In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. Any future securities litigation could result in substantial costs and a diversion of our management’s attention and resources.
Servicing our future debt may require a significant amount of cash, and we may not have sufficient cash flow from our business to settle conversions of our convertible senior notes in cash, repay the convertible senior notes at maturity, or repurchase the convertible senior notes as required following a fundamental change.
In January 2021, we issued $345.0 million aggregate principal amount of convertible senior notes (the “Notes”). Prior to October 15, 2025, the Notes are convertible at the option of the holders only under certain conditions or upon occurrence of certain events. We have made an irrevocable election to settle the principal of the Notes in cash upon any conversion of the Notes. As a result, if holders of the Notes elect to convert their Notes, we will be required to make cash payments in respect of the Notes being converted. Holders of the Notes also have the right to require us to repurchase all or a portion of their Notes upon the occurrence of a fundamental change (as defined in the indenture governing the Notes) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest, if any. If the Notes have not previously been converted or repurchased, we will be required to repay the outstanding principal amount of the Notes, plus accrued and unpaid special interest, if any, in cash at maturity. The Notes are scheduled to mature on January 15, 2026.
Our ability to make required cash payments in connection with conversions of the Notes, repurchase the Notes in the event of a fundamental change, or to repay or refinance the Notes at maturity will depend on market conditions and our past and expected future performance, which is subject to economic, financial, competitive, and other factors beyond our control. We also may not use the cash proceeds we raised through the issuance of the Notes in an optimally productive and profitable manner. Since inception, our business has generated net losses, and we may continue to incur significant losses. As a result, we may not have enough available cash or be able to obtain financing, or financing at acceptable terms, at the time we are required to repurchase or repay the Notes or pay cash with respect to Notes being converted.
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In addition, our ability to repurchase or pay cash upon conversion or at maturity of the Notes may be limited by law or regulatory authority. Our failure to repurchase Notes following a fundamental change or to pay cash upon conversion or at maturity of the Notes as required by the indenture would constitute a default under such indenture. A default under the indenture or the fundamental change itself could also lead to a default under our senior credit facility, our other outstanding indebtedness, or agreements governing our future indebtedness and could have a material adverse effect on our business, results of operations, and financial condition. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or to pay cash upon conversion or at maturity of the Notes.
The capped call transactions we entered into in connection with the issuance of the Notes may affect the value of our Class A common stock.
In connection with the issuance of the Notes, we entered into capped call transactions with various counterparties. The capped call transactions cover, subject to customary adjustments, the number of shares of our Class A common stock initially underlying the Notes. The capped call transactions are expected generally to reduce or offset the potential dilution to our Class A common stock upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price.
From time to time, the counterparties to the capped call transactions or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our Class A common stock and/or purchasing or selling our Class A common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes. This activity could also cause or prevent an increase or a decrease in the market price of our Class A common stock or the Notes.
We are subject to counterparty risk with respect to the capped call transactions.
The counterparties to the capped call transactions that we entered into are financial institutions, and we will be subject to the risk that one or more of the counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the capped call transactions. Our exposure to the credit risk of the counterparties will not be secured by any collateral.
Global economic conditions have in the past resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a counterparty to one or more capped call transactions becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under such transaction. Our exposure will depend on many factors but, generally, our exposure will increase if the market price or the volatility of our Class A common stock increases. In addition, upon a default or other failure to perform, or a termination of obligations, by a counterparty, the counterparty may fail to deliver the consideration required to be delivered to us under the capped call transactions and we may experience more dilution than we currently anticipate with respect to our Class A common stock. We can provide no assurances as to the financial stability or viability of the counterparties.
Our business could be negatively affected as a result of actions of activist shareholders.
We value constructive input from investors and regularly engage in dialogue with our shareholders regarding strategy and performance. Our board of directors and management team are committed to acting in the best interests of all of our shareholders.
Responding to actions by activist shareholders could be costly and time-consuming, disrupt our operations and divert the attention of management and our employees. For example, we were recently engaged in a proxy contest with an activist shareholder that was very costly and diverted a significant amount of time from our board of directors and management. Additionally, perceived uncertainties as to our future direction as a result of shareholder activism or changes to the composition of our board of directors may lead to the perception of a change in the direction of our business or other instability, which may be exploited by our competitors and/or other activist shareholders and cause concern to our current or potential customers, employees, investors, strategic partners and other constituencies, which could result in lost sales and the loss of business opportunities and make it more difficult to attract and retain qualified personnel and business partners. If customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us, then our business, financial condition and operating results would be adversely affected. In addition, our share price could experience periods of increased volatility as a result of shareholder activism.
The holders of Series A Convertible Preferred Stock are entitled to vote on an as-converted to Class A common stock basis and have rights to approve certain actions. Additionally, KKR may exercise influence over us through their ability to designate a member of our board of directors.
In May 2021, we issued 500,000 shares of our Series A Convertible Preferred Stock to a group of investors led by KKR & Co. Inc. (“KKR,” and such group of investors, the “Investors”). The holders of our Series A Convertible Preferred Stock are generally
56
entitled to vote with the holders of our Class A common stock on all matters submitted for a vote of holders of shares of Class A common stock (voting together with the holders of shares of Class A common stock as one class) on an as-converted basis.
Pursuant to that certain Investment Agreement dated April 7, 2021, by and among Box, Inc. and Powell Investors III L.P., KKR-Milton Credit Holdings L.P., KKR-NYC Credit C L.P., Tailored Opportunistic Credit Fund, and CPS Holdings (US) L.P. (the “Investment Agreement”), KKR has the right to designate one candidate for nomination for election to our board of directors for so long as KKR and its permitted transferees maintain minimum aggregate holdings of our stock as described in further detail in the Investment Agreement. Notwithstanding the fact that all directors are subject to fiduciary duties to us and to applicable law, the interests of the KKR director designee may differ from the interests of our security holders as a whole or of our other directors.
Additionally, the consent of the holders of a majority of the outstanding shares of Series A Convertible Preferred Stock is required in order for us to take certain actions, including issuances of securities that are senior to, or equal in priority with, the Series A Convertible Preferred Stock, and payments of special dividends in excess of an agreed upon amount.
As a result, the holders of Series A Convertible Preferred Stock may in the future have the ability to influence the outcome of certain matters affecting our governance and capitalization.
The issuance of shares of our Series A Convertible Preferred Stock reduces the relative voting power of holders of our Class A common stock, and the conversion of those shares into shares of our Class A common stock would dilute the ownership of Class A common stockholders and may adversely affect the market price of our Class A common stock.
The holders of our Series A Convertible Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our Class A common stock on all matters submitted to a vote of the holders of our Class A common stock, which reduces the relative voting power of the holders of our Class A common stock. In addition, the conversion of our Series A Convertible Preferred Stock into Class A common stock would dilute the ownership interest of existing holders of our Class A common stock, and any conversion of the Series A Convertible Preferred Stock would increase the number of shares of our Class A common stock available for public trading, which could adversely affect prevailing market prices of our Class A common stock.
Our Series A Convertible Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to the rights of, our Class A common stockholders, which could adversely affect our liquidity and financial condition.
The holders of our Series A Convertible Preferred Stock have the right to receive a payment on account of the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of our business before any payment may be made to holders of any other class or series of capital stock. In addition, dividends on the Series A Convertible Preferred Stock accrue and are cumulative at the rate of 3.0% per annum, compounding quarterly, and paid-in-kind or paid in cash, at our election.
The holders of our Series A Convertible Preferred Stock also have certain redemption rights, including the right to require us to repurchase all or any portion of the Series A Convertible Preferred Stock at any time following the seventh anniversary of the original issuance date, at 100% of the liquidation preference thereof plus all accrued but unpaid dividends. In addition, upon prior written notice of certain change of control events, the shares of the Series A Convertible Preferred Stock will automatically be redeemed by us for a repurchase price equal to the greater of (i) the value of the shares of Series A Convertible Preferred Stock as converted into Class A common stock at the then-current conversion price and (ii) an amount in cash equal to 100% of the then-current liquidation preference thereof plus all accrued but unpaid dividends. In the case of clause (ii) above, we will also be required to pay the holders of our Series A Convertible Preferred Stock a “make-whole” premium consisting of dividends that would have otherwise accrued from the effective date of such change of control through the fifth anniversary of the original issuance date.
These dividend and share repurchase obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of our Series A Convertible Preferred Stock could also limit our ability to obtain additional financing, which could have an adverse effect on our financial condition. The preferential rights could also result in divergent interests between the holders of our Series A Convertible Preferred Stock and holders of our Class A common stock.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, our market or our competitors, or if they adversely change their recommendations regarding our Class A common stock, the market price of our Class A common stock and trading volume could decline.
The trading market for our Class A common stock is influenced, to some extent, by the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. If any of the analysts who cover us adversely change their recommendations regarding our Class A common stock or provide more favorable recommendations about our competitors, the market price of our Class A common stock would likely decline. If any of the analysts who cover us cease coverage of our company
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or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price of our Class A common stock or trading volume to decline.
We do not expect to declare any dividends to holders of our Class A common stock in the foreseeable future.
We do not anticipate declaring any cash dividends to holders of our Class A common stock in the foreseeable future. Consequently, investors may need to rely on sales of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase shares of our Class A common stock.
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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Share repurchase activity during the three months ended July 31, 2022 was as follows (in thousands, except per share data):
|
|
Total Number of |
|
|
Average Price |
|
|
Total Number of |
|
|
Approximate Dollar |
|
||||
May 1, 2022 to May 31, 2022 |
|
|
1,541 |
|
|
$ |
26.84 |
|
|
|
1,541 |
|
|
$ |
106,341 |
|
June 1, 2022 to June 30, 2022 |
|
|
2,230 |
|
|
$ |
24.72 |
|
|
|
2,230 |
|
|
$ |
51,206 |
|
July 1, 2022 to July 31, 2022 |
|
|
815 |
|
|
$ |
26.82 |
|
|
|
815 |
|
|
$ |
29,345 |
|
Total |
|
|
4,586 |
|
|
|
|
|
|
4,586 |
|
|
|
|
||
Items 3, 4 and 5 are not applicable and have been omitted.
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Item 6. EXHIBITS
The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
EXHIBIT INDEX
Exhibit |
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|
|
Incorporated by Reference |
||||||
Number |
|
Exhibit Description |
|
Form |
|
File No. |
|
Exhibit |
|
Filing Date |
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Schema Linkbase Document. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Definition Linkbase Document. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Calculation Linkbase Document. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Labels Linkbase Document. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Presentation Linkbase Document. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
|
|
|
|
|
* The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Box, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 31, 2022
|
BOX, INC. |
||
|
|
|
|
|
By: |
|
/s/ Aaron Levie |
|
|
|
Aaron Levie |
|
|
|
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
By: |
|
/s/ Dylan Smith |
|
|
|
Dylan Smith |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
61
