With FX headwinds looking set to deny Box its first billion-dollar fiscal year, the cloud content management company can nevertheless celebrate hitting a billion-dollar run rate for the first time, with Q3 revenue coming in at precisely $250 million. Coming on top of improving margins and the announcement of a new $150 million stock buyback, Wall St welcomed the Q3 results and Box’s stock rose 6.5% in trading yesterday.
That Q3 revenue figure of $250.0 million was up 12% year-over-year, but would have been up 17% if it were not for the soaring value of the US dollar, which hit the one third of revenues that Box brings in from overseas. The company has therefore slightly lowered its full-year revenue guidance to $990-992 million, as the tantalizing prospect of a $1 billion total for the current fiscal year slips further from its grasp. The lower figure also reflects caution over the impact of the wider economic landscape, although the search for cost efficiencies is also helping Box close some deals, as Aaron Levie, CEO of Box, told Wall St analysts:
For all of our customers where there’s more budget scrutiny, they’re looking to vendors that can help them reduce costs or really focus on their most mission critical areas of investment … We can go into a customer, in many cases, help them save millions of dollars on spending on IT, when you look at their infrastructure cost, their content management systems, their security technology. It’s a very, very potent value proposition right now.
At the same time, in some specific sectors and environments, you could have customers not hiring as many people that might mean that maybe our proposal for an ELA or some of the Suite expansion might be on hold, and we have seen that dynamic play out.
Nevertheless, Q3 billings exceeded expectations as some customers brought forward renewals at the same time as expanding their Box product footprint. Levie explained:
We saw a stronger than typical volume of early renewals. Customers that had been set to renew largely in Q4 and then in some cases in future periods — often in conjunction with the upsell, to move into product capabilities — they early renewed their contract in Q3, which pulled forward some of those billings and contributed to the strength that we saw in the quarter.
Suite strategy drives expansion
The company’s suite strategy and continuing take-up of the all-you-can-eat Enterprise Plus license has helped drive expansion within the existing customer base, with 42% of revenue now attributable to suites purchases, up from 31% a year ago. Suites represented 73% of large deals in the quarter, up from 63% a year ago, and 90% of those new deals were for Enterprise Plus, which posts higher renewal rates than the average across the customer base. However there was a reduction in the number of deals worth more than $100,000 annually, with 77 closed in the quarter, 20 fewer than in the same quarter a year ago. But Levie emphasized the importance of being able to offer its security, governance, e-signature and workflow products alongside the core content management proposition:
If I look back two or three years ago … we were a very advanced secure content management and collaboration technology and platform, but that was really just the foundation capabilities for what we now deliver today, which is powering increasingly the full life cycle of content …
When we’re working with customers, being able to highlight the full value of our platform is really getting out of the conversation of one-to-one competition with any particular vendor, because the full value of the platform, I think, is showing up in an increasing way.
He cited several customer examples to highlight the point:
- A global technology company, already a Box customer for more than 10 years, purchased a seven-figure Enterprise Plus ELA in Q3 with a plan to save “millions of dollars each year” by retiring redundant systems and technology.
- A sports marketing and talent management company, also a longtime Box customer, which purchased an Enterprise Plus ELA in Q3 as a prelude to replacing its current e-signature provider with Box Sign while using Box Shield to safeguard sensitive health information and protect against cyber attacks.
- A financial services company and business insurance provider signed a six-figure Enterprise Plus deal in Q3 after a proof-of-concept showed the potential to use Box as the back-end content layer for its entire organization to store and work on sensitive client information, replacing legacy and on-premises systems.
‘Ambitious’ road map
Looking ahead “to the next $1 billion of Box revenue,” Levie pointed to the impact of new product features announced at October’s BoxWorks conference and the recent integration with Zoom that allows meeting recordings to be saved direct to Box. Promising much more to come next year, he added:
We have the most ambitious road map we’ve had as a company.
These will include major enhancements to Box Shield and Governance, new features in Sign, Notes, Canvas and Relay — “laying the groundwork for a major year of workflow innovation” — and enhancements to UX, content publishing and management.
The numbers in brief:
- Q3 revenue was $250.0 million, up 12% year-over-year and 17% on a constant currency basis
- Q3 billings came in at $258.2 million, up 12% year-over-year and 20% on a constant currency basis, while Remaining Performance Obligations (RPO) were $1.1 billion, up 11% year-over-year and 20% on constant currency.
- Q3 GAAP operating income continued the positive tone set in the prior quarter, improving to $13.4 million, or 5.3% of revenue, compared to a GAAP operating loss of $11.1 million, or negative 4.9% of revenue in the year-ago quarter. The non-GAAP equivalent was $60 million, or 24% of revenue, up from $46.4 million, or 20.7%, year-over-year.
- Q3 Net Retention Rate (NRR) was 110%, nudging up 1% from a year ago.
- The company ended the quarter with $403 million in cash, cash equivalents, restricted cash and short-term investments.
- Revenue guidance for the full year was slightly lower in a range of $990-$992 million.
- Non-GAAP operating margin guidance for the full year stayed at around 22.5%, while the guidance for non-GAAP EPS was raised to be in the range of $1.16 to $1.17, up from previous guidance of $1.13 to $1.16.
Box is solidifying its performance on a confident upward trajectory while continuing to improve margins. Onwards to the next billion!