Good afternoon, and welcome to Box's Third Quarter Fiscal Year 2022 Earnings Conference Call. I'm Cynthia Hiponia, Vice President of Investor Relations. On the call today, we have Aaron Levie, Box Co-Founder and CEO; and Dylan Smith, Box Co-Founder and CFO. Following our prepared remarks, we will take your questions. Today's call is being webcast and will be available for a replay on our Investor Relations website at fox.com/investors. Our webcast will be audio only. However, supplemental slides are now available for download from our website. We'll also post the highlights of today's call on Twitter to handle @boxincir. On this call, we'll be making forward-looking statements, including our Q4 and fiscal '22 financial guidance, our expectations regarding our financial performance for fiscal 2022 and future periods, including our free cash flow, gross margins, operating margins, operating leverage, future profitability and net retention rate, unrecognized revenue, remaining performance obligations and billings, and our expectations regarding the size of our market opportunity, our planned investments and growth strategies; our ability to achieve our long-term revenue and other operating model targets, the timing and market adoption of and benefits from our new products, pricing models and partnerships; the impact of our acquisitions on future Box product offerings; the impact of COVID-19 pandemic on our business and operating results and any potential repurchase of common stock. These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially. Please refer to our earnings press release filed today and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for information on risks and uncertainties that may cause actual results to differ materially from statements made on this earnings call. These forward-looking statements are being made as of today, November 30, 2021, and we disclaim any obligation to update or revise them should they change or seek to be at to date. In addition, during today's call, we will discuss our non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from our GAAP results. You'll find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our earnings press release and in the related PowerPoint presentation, which can be found on the Investor Relations page of our website. Unless otherwise indicated, all references to financial measures are on a non-GAAP basis. With that, let me hand it over to Aaron.

Thanks, Cynthia, and thank you all for joining the call today. We achieved strong third quarter results, marking yet another quarter of delivering both revenue and non-GAAP EPS above our guidance. We produced third quarter revenue growth of 14% year-over-year, a third consecutive quarter of accelerating revenue growth, operating margin of 21% and RPO growth of 25%, which is well in excess of our revenue growth and an important leading indicator of the strength of our business. Our results show the success of our growth strategy, which is aligned with the three major trends that are driving the future of work. These trends are hybrid work styles, the pressures of digital transformation on businesses and the ongoing importance of data security, compliance and privacy. The old way of managing content just doesn't work anymore, and that's where the Content Cloud from Box comes in. With Box, users are more productive, enterprises are more secure, and IT management is simplified and less expensive. Our strong customer metrics are key indicators of the success of our product and platform strategy as more customers are turning to the Box Content Cloud to deliver secure content management and collaboration built for the new way of working. In the third quarter, our net retention rate was 109%, up from 103% in the prior year and up from 106% in the second quarter. We had 97 deals over $100,000, up 56% year-over-year, including a record number of multiproduct suite sales, which now includes our Enterprise Plus plan with 61 Suite deals in Q3 deals over $100,000, up 177% year-over-year. We had a 63% attach rate of Suites over $100,000 in the quarter, up from 35% in Q3 fiscal '21. In North America and EMEA, Suites attach rates were in the mid-70s in Q3. While our Suite…

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. Q3 was a particularly strong quarter for Box across all metrics, marked by accelerating revenue growth, improvements in our net retention rate and record gross and operating profit. Revenue of $224 million was up 14% year-over-year, a third consecutive quarter of accelerating growth and above the high end of our guidance. Customer demand for our expanded Content Cloud offerings and strong sales execution are driving results with $100,000-plus deals up 56% year-over-year and $100,000-plus Suite deals growing 177% from the prior year. As our customers are increasingly adopting products with more advanced capabilities, roughly 30% of our revenue is now attributable to customers who have purchased Suites, a significant increase from the high teens a year ago. We ended Q3 with remaining performance obligations, or RPO, of $948 million, a 25% year-over-year increase and exceeding our revenue growth by a full 11 percentage points. Q3's RPO growth demonstrates the increasing value we're delivering to customers, leading to longer-term agreements to support our customers' content strategies. We expect to recognize more than 60% of our RPO over the next 12 months. Q3 billings of $231 million grew 25% year-over-year and well ahead of our expectations to deliver a Q3 billings growth rate roughly in line with revenue growth. This outcome reflects the continued strong sales execution that we've been seeing in our enterprise and SMB markets. Our net retention rate at the end of Q3 was 109%, up from 106% in Q2 and up significantly from 103% in the year ago period. Strong Suites momentum is accelerating customer traction and adoption driving an improvement in our customer expansion rates and a strong and stable annualized full churn rate of 5%. We are proud of the increase in net retention that…

Thanks, Dylan, and thank you again, everyone, for joining us today. We'd also ask that you please save the date on Wednesday, March 16, for our Investor Day 2022. We will be providing more details on this event in the coming weeks, but we look forward to seeing you there. Overall, Q3 marked another significant step forward in the evolution of our Content Cloud strategy. As enterprises are now making increasingly strategic long-term decisions on how to support a remote workforce and digital processes, they need to maintain a high level of security and compliance. Our continued product innovation and our go-to-market initiatives are positioning Box as the leader in the Content Cloud market. Thanks again for joining us this afternoon. Dylan and I would be happy to take your questions. Operator?

Thank you. [Operator Instructions] Your first question comes from the line of Jason Ader from William Blair. Your line is now open.

Yes. Thank you. Hi, guys. I guess on the Q4 commentary on billings. I just -- I'm wondering, is there anything in Q3 that was unusual, kind of early renewals or anything like that, that drove the strength in Q3? Or was that just kind of organic just you felt -- you saw really good bookings in the quarter?

Sure. So there wasn't anything unusual in Q3. We saw the normal volume of run rate early renewals that we've been seeing throughout this year, largely driven by customers looking to adopt our broader capabilities such as Suites. So, it was really the results of very strong execution in the third quarter, which also shows up in some of those metrics like the big deal counts and our RPO growth.

Gotcha. Okay. And then, Aaron, as you think about how this year has progressed and I'm sure you're pleased with how it's progressed. But how is it impacted morale, retention, recruiting, all those sort of soft things that as a CEO, obviously, you focus on?

Yes, thanks and great to connect, Jason. Overall, I mean, we are incredibly excited about the performance this year. We came out with a very clear strategy that this was the year of growth. That was our internal mantra, and it was really building on the past couple of years of strategic evolution in the Company, both on driving accelerated top line performance as well as bottom line efficiency. And I think the morale has been very strong. I mean there's always the volatility that the hybrid work environment and the healthcare crisis presents. But overall, I've been incredibly happy about the strength of our culture and the commitment to world-class execution that we've seen this year. So these results are a testament to that, and we expect to continue to drive this kind of execution going forward.

Thanks very much.

Thank you. Your next question comes from the line of Ittai Kidron of Oppenheimer & Company. Your line is now open.

Hi. This is George Iwanyc stepping in for Ittai. Aaron or Dylan, either one. Can you maybe give us a sense of the strong increase that you've seen in net retention some of the drivers behind that? How much of that is user growth? How much is coming from the Suites momentum in adding new products into the mix?

Sure. So that net retention rate is comprised as a reminder of customer net expansion, which includes both upsells and downsells and a strong and stable 5% full churn rate. So year-to-date, the improvement that we've seen from 102% entering the year to 109% in this most recent quarter is driven primarily by strong expansion within our existing customers and are seeing a pretty healthy mix between the kind of cross-sells and price per seat improvements as well as customers just buying more seats. So, it's a pretty ratable mix across those two. And then also have a little bit of a benefit as we lap the COVID impact that we saw in Q2 and Q3 of last year. So overall, really pleased with the trends that we're seeing, and it really demonstrates the stickiness and the demand for the Suites offering that we've been rolling out and driving traction around.

All right. And following up on that, also you're seeing good traction with larger customers or larger footprints. How do you feel about the room for expansion you have within, let's say, your G2K customer base? Is it still relatively low penetration and you have quite a bit of room to grow there?

Yes. Great to connect. We are seeing that same kind of upside that we've talked about previously in that 6x to 7x range of seat expansion within our overall customer base. We haven't cut it by G2000 to the specifics of your question, but we generally see a significant amount of upside across the Fortune 500 and even our largest customers that we have today. So overall, I feel very strong about the total upside we have within the customer base, both for seat expansion as well as price per seat improvement that will be driven by moving customers into our multiproduct plans.

All right. Thank you.

Thank you. Your next question comes from the line of Brian Peterson of Raymond James. Your line is now open.

Thanks for taking the question and congrats on the really strong quarter, guys. So Aaron, maybe one for you. I know when COVID started, I think, there was a belief that all the trends really work in your favor, but not right away, right? Like I think Zoom was an application that was really adopted. I'm curious what you're hearing in terms of kind of broader market demand for kind of the Content Cloud and how much the improvement we saw in the third quarter was market-driven versus a lot of Box specific dynamics like suites and productivity, et cetera. Any way to kind of parse that out?

Yes. I don't think we'd be able to kind of quantify the two components as much as to say the execution you're seeing is a result of literally a couple of years of evolving both the strategy, the go-to-market model. We've talked a lot about our land and expand motion really being focused on simplifying and driving a much more repeatable sales motion to our customers. So that's now fully baked into the Company. Our product suites, which now includes Enterprise Plus, has been a sort of further multiplier and force multiplier of that trend. And then our product road map of being able to double down in data security and compliance, our eSignature solution, have all been incredibly effective from a product evolution standpoint as well. So that's obviously the execution side that has gotten us to where we are today. And then it certainly is helped by the fact that customers are thinking a lot more about their long-term digital transformation and IT strategies. Last year, we noted that there was more of a triage mode that some customers were in. They may be needed sort of rapid seat expansion within their accounts. But this year, we've seen a lot more methodical long-term strategic planning around IT architectures and where content management fits in to those architectures, and that has led to just much more strategic conversations with customers. And I think that is shown in our big deal metrics. So 97 deals over $100,000, up 56% year-over-year, we see as a tremendous stat and really highlight the strength of the platform and the market environment that we're in.

Great. I appreciate the color, Aaron. And maybe just a follow-up to an earlier question. Obviously, I think the billings and the RPO numbers were better than we expected. I just want to make sure that didn't pull forward any demand from the fourth quarter. Typically, that's the seasonally strongest quarter for new business. So are you seeing the pipeline build and commensurate with the strong trends in the third quarter? Just curious to get some color on that. Thanks, guys.

Sure. So as we've shared previously, our billings results can be variable on a quarterly basis. So we've seen strong billings growth throughout the year. And for the full year, we continue to expect to deliver billings growth higher than our revenue growth at roughly 15%. As mentioned, there are a couple of items, both foreign exchange rates and then a payment duration change from annual to semiannual in one of our largest customers, which combined account for a cumulative one-time downward impact to the billings growth in Q4. And we also have a somewhat tougher comparison in Q4, which is last year when we generated the highest billings growth for that year. But overall, again, this isn't impacted by any sort of unusual volume of pull forwards or any softening in the strong underlying momentum that we're seeing in the business and really the combination of some of those more cosmetic factors. And then again, based on the factors that do tend to impact billings in any given quarter, as always, we want to be conservative with the expectations that we set.

Good to hear. Thanks, Dylan.

Thank you. Your next question comes from the line of Chad Bennett from Craig-Hallum Capital. Your line is now open.

Nice job on the quarter, guys. So I guess in trying to kind of understand better, and I think a couple of people have asked this question in different ways, but mean the $100,000 deal count was up significantly in the quarter. And we've talked about Suites, I think, going on almost a couple of years now it seems like that's really obviously accelerating or becoming more real, I should say now. But is there a way to think about -- I know people have asked us in the past, whether it's Suites or now Enterprise Plus that's within the Suites, is there any way to look at the cohorts that have adopted Suites and say I know it's embedded in net expansion, but a lot of things are kind of what the uplift has been for Suite adoption and enterprise plans and so forth, just as a whole or as a cohort over the last couple of years?

Sure. So this is Dylan. I can take that. I would say that as we think about the overall impact of customer economics when they begin to adopt our Suites, -- from a pure pricing standpoint, we tend to see a rough doubling versus what customers tend to pay for just the core Box service. So it's a significant impact and positive impact on everything from average contract values, price per seat and the net retention rate and gross margins. I would say that from a longer-term cohort view, it's probably a bit early to see how Suite plays out as -- especially with enterprise plus we've just introduced that to the market a few months ago. But I would say that when our customers begin to adopt our more advanced capabilities, that are much stickier. We do tend to see much higher net retention rates, which is a big part of what's driving the improvement that we've seen this year. And when you compare customers who have adopted our add-on products, including Suites versus those who haven't, those customers have net retention rates of about 20 points higher than our customers who are just using the core Box service. And part of this mix shift and that impact is what gives us the confidence that we've shared in terms of the longer-term growth and the overall strength in net retention.

Got it. And then, Dylan, just as of today, just again, referring to the significant growth in the $100,000 deals, what percentage of the revenue base now is paying you north of $100,000 a year in business?

Yes. So I would say it's incrementing up from the last time that we reported this, although it hasn't changed materially. So you can think about kind of 60% to 65% of our total revenue is now attributable to our six-figure plus customers.

Got it. Perfect. Okay. And then one last, if I could, real quick. Just the customer that the large customer, I should say, that changed their billing duration from annual to semiannual. Is there -- any color behind kind of why they would make that change? It seems like people go the other direction these days. And then I'll hop off.

Sure. No, nothing really to read into there was just something where that customer had some sensitivities around that. But I would note that, that contract and that customer has actually been increasing their annual contract value pretty steadily over time, and they are under a multi-year contract duration even though the payment durations came in a bit or we expect them to come in a bit upon their Q4 renewal. So to your point, that is not something that we regularly see but they did have some unique circumstances that we wanted to accommodate in the spirit of the partnership.

Thank you. Your next question comes from the line of Steve Enders of KeyBanc. Your line is now open.

Great. Just want to touch on what you're seeing on the sales side and how rep productivity has been trending this year. And then on top of that, how you're seeing the current and hiring environment to bring in new reps at this point?

Sure. So we've been really pleased with the improvements that we've seen in sales force productivity really over the last couple of years. As a reminder, last year, that grew by about 13%, primarily driven by our enterprise sales force. And year-to-date, this year, we've seen double-digit improvements in both our enterprise and SMB sellers. And that's really being driven by the traction from our newer products and suites that we've talked about and from our strategy to really focus our go-to-market investments in higher-performing regions and geographies, which is paying off and which is the approach that we'll continue to take going forward. And then in terms of the overall growth in the sales force, we remain on track to grow the size of our sales force in the low teens percentage range this year. And despite a challenging hiring environment that I think we're seeing across the industry, we have been able to steadily grow that sales force towards those targets over the past couple of quarters.

Okay. Perfect. That's great to hear. And then just on Box Sign. It sounded like you called out some pretty solid wins layer in the quarter. Just wondering kind of what -- if these were competitive engagements, what was kind of the biggest differentiator for Box Sign versus maybe some of the other providers out there?

Yes. So as I mentioned, a couple of them were replacing incumbent solutions or at least anticipated to replace incumbent solutions, and in almost all cases, if there's any kind of competitive dynamic with another player. It's really the strength of having the embedded eSignature in Box as our main differentiator. So whether it's the end user interface where within one click, you can then launch into an eSignature process without transferring any files and going through another system or through our APIs, where it's now a first-class API directly in the Box platform, both of these represent very, very seamless ways to get eSignature included in your content that's already in Box. So if you just think about the tens of billions of assets and files that we have within the platform, a significant portion or a meaningful portion of those, those assets are contracts and NDAs and other kinds of documents that are really intended to get signed. And so, we can simplify and streamline those processes with native eSignature capabilities. So, we're really happy that customers are already gravitating towards the solution. This is a very, very large market. So, we certainly wouldn't -- and it's not a goal of ours to be kind of head-to-head competitive with any particular product in the space. It's really about expanding the value of our platform for our customers. It can be able to drive greater seat growth, price per seat improvement as well as higher net retention rates.

Thank you. Your next question comes from the line of Josh Baer from Morgan Stanley. Your line is now open.

Congrats on a good quarter. Aaron, you had a long list of focus areas as far as innovation looking ahead from ransomware to content analytics, I think, and many others. Just wondering what future area or opportunity are you most excited about?

Yes. That's always dangerous. But I would say that there are sort of three big areas that we're doubling down in. And obviously, for any folks that have seen our presentations on our strategy, we're really focused on building out the complete content cloud. So the entire life cycle that content goes through, we want to make sure we have core native capabilities that can support that set of functionality and use case. And so there's three areas in particular that most of that functionality falls into. One is on security and compliance, two is on workflow and collaboration, and then three is really on our platform and our open APIs. So some of the things that I get most excited about when we're looking at our road map, obviously, the advancements in eSignature and all of the capabilities around workflows around eSign, doubling down in data security with Box Shield. We know that the environment around ransomware and threat detection is increasingly important for customers. Compliance and data privacy and governance starts to now fall into that space as well. And then, of course, doubling down in really how customers collaborate and share information, whether that's within Box or within our partner ecosystem. So, I think you'll see us writing multiple market tailwinds all of which are really coming together to help transform how customers think about their content. And content, we believe, is going to increasingly be a strategic part of a customer's IT stack. And we believe that we have the most advanced platform for solving those challenges for customers.

Got it. And one on Japan. You highlighted the decline in Suite attach. Think usually, Japan is a highlight. Just wondering any more color there on the cause? Is it a concern like more broadly than the Suite attached was there -- are you kind of saying that there was weakness in that region? Or should we have another takeaway?

No. Yes, just to be incredibly precise, it was a very strong quarter for Japan, including the $100,000-plus deal metrics. Because Japan is so channel-driven, there's some sensitivity of the attach rate of certain new products and efforts that we're driving that relate to the enablement and education of our channel partners. And that's something that we're extremely focused on right now, and we expect that metric to improve in Q4 and beyond. So overall, very strong and healthy demand in Japan, it was just that one kind of metric of attach rate. And in fact, when we even look at the deals that were coming in from Japan, many of the deals had multiple add-on products. They just weren't packaged as a suite. And so it's really a commercial mechanic in that case that we were seeing. But again, we do expect this to improve in Q4 and beyond.

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

Congrats on the quarter. You obviously have very strong 100,000 ads. I wanted to ask how many of these ads that you're seeing are net new lands versus expansions because I heard a number of six-figure transactions that you did. So is that the six figure lands versus expansions into six figure? Is that ratio kind of going higher?

Sure. So I would say the deal count metrics that we disclosed are the new contract value that we add. So for example, if we had a customer paying $80,000 per year and then grew to $130,000, they would not be included with that -- in that metric. So it's just new contract value of at least $100,000 is what is included. And in terms of the proportion of new customers versus expansion, it moves around a bit each quarter, but we tend to see roughly 70% to 75% of both our bookings and six-figure deals coming from existing customers and then the remaining 25% to 30% from net new customers buying Box for the first time.

Got it. One quick follow-up, Dylan, obviously, some of these leading indicators that we see are running ahead of revenue growth. If we look at deferred revenue, RPO, CRPO, I mean, is there a scenario that, that revenue growth could start to catch up to these leading indicators over the next year?

Yes. So as mentioned, we are certainly seeing strong momentum in the business and are focused on continuing to drive as much revenue growth as possible. I would note that strong RPO growth is driven by several factors. So in addition to the strong underlying bookings growth that we're seeing that translates directly into revenue growth, we are continuing to see a higher volume of large multiyear deals, which boosts our backlog and total RPO without necessarily translating directly into forward revenue. And then, we've also seen a significant portion of our smallest customers moving from monthly to annual contracts, which benefits short-term deferred and total RPO. So there are a few kind of more cosmetic and accounting items that are positively impacting our reported RPO growth. But certainly, given the momentum that we're driving, we do see the ability to continue improving our growth rate.

Thank you. Your next question comes from the line of Edward Magi from Berenberg. Your line is now open.

Congrats on another great quarter. Just a few questions for me. We're seeing growth of both RPO and revenue continuing to accelerate here showing perhaps there's plenty left in the tank. You spoke about sales force hiring. Can you dive a little deeper for us into the investments the Company has made into go-to-market and strategy in previous quarters? And how are you just beginning to shine through, perhaps with stronger net retention and new adoption of the platform?

Sure. So I'd say that a lot of the big areas that we're focused on in terms of driving the go-to-market execution, first really starts with the product innovation and the way that's impacted sales force productivity and a lot of the momentum that we're seeing. As you mentioned, a big direct driver of that as well that we kind of tune our plans around is our AE hiring rate. And so, we do expect to continue driving some improvements in sales force productivity even as we grow our sales force, but we are expecting really to continue growing, and we'll give more color into next year's expectations on our Q4 earnings call. And then outside of the actual sales force based on a lot of the improvements we've made to our digital marketing, demand gen channels and just other ways to drive interest in a really efficient way. We have invested in that kind of digital demand generation as well to drive efficiencies and growth in addition to the pure sales force productivity improvements.

Great. That's helpful. And just another one here. Third quarter NRR was 109%, up from 16% last quarter. It continues to show a nice recovery from where it was just last year. Can you discuss how you think about the mix shift of net new versus net expansion in terms of the long-term outlook for growth, perhaps beyond 2023, 2024, 2025?

Sure. So, we'd say that for the foreseeable future, so over that time frame, the next few years, we do expect to see a relatively stable contribution from net new and versus expansion in terms of bookings with the latter, the expansion, as mentioned, making up about 70% to 75% of our new business. And so, that's kind of how I think about that overall growth rate and the contribution going forward as well.

Thank you. There are no further questions at this time. I would now like to turn the call over back to Aaron for closing remarks.

Awesome. Thank you very much for attending this call and really looking forward to chatting with you throughout the quarter and beyond.

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