Ladies and gentlemen, good afternoon, and thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Box Third Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] Thank you. And I would now like to turn the conference over to Cynthia Hiponia, Vice President of Investor Relations. You may begin.

Good afternoon, and welcome to Box's third quarter fiscal 2025 earnings conference call. I'm Cynthia Hiponia, Vice President, 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 also be available for replay on our Investor Relations website at boxinvestorrelations.com. Our webcast will be audio only. However, supplemental slides are now available for download from our website. On this call, we will be making forward-looking statements, including: our fourth quarter and full-year fiscal 2025 financial guidance and our expectations regarding our financial performance for fiscal 2025 and future periods, including gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance obligations, revenue and billings and the impact of foreign currency exchange rates and deferred tax expenses; and our expectations regarding the size of our market opportunity, our planned investments, future product offerings and growth strategies, our ability to achieve our revenue, operating margins and other operating model targets, the timing and market adoption of and benefits from our new products, pricing models and partnerships, the proceeds from the sale of our data center equipment, our ability to address enterprise challenges and deliver cost savings for our customers, the impact of the macro-environment on our business and operating results and our capital allocation strategies, including potential repurchase of our common stock. These statements reflect our best judgment based on the 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 in documents we file with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for information on the 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, December 3, 2024, and we disclaim any obligation to update or revise them should they change or cease to be up-to-date. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, our GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations and comparable GAAP results in our earnings press release and in the related supplemental slides, which can be found on the IR page of our website. Unless otherwise indicated, all references to financial measures are on a non-GAAP basis. With that, let me turn the call over to Aaron.

Thank you, Cynthia, and thanks, everyone, for joining us today. It has been an exciting period for Box. For the past several quarters, I have talked about our intense focus at Box on embedding AI into our platform to revolutionize our customers' ability to create value from their content. Our strong financial results in Q3 reflects continued growth in customer demand for Box AI. In Q3, our revenue grew 5% year-over-year or 6% in constant-currency and RPO growth of 13% year-over-year. We delivered record gross margin of 82% and our focus on operational discipline drove record operating margin of 29%, up 440 basis points from a year ago. Box AI and Enterprise Plus drove strong customer demand in Q3. Examples of customers who chose Enterprise Plus to gain access to Box AI include one of the largest advertising agency groups in the world expanded their use of Enterprise Plus within the company as they rolled-out Box AI and Hubs company-wide. With Box AI, they are able to summarize documents quickly, sharing valuable insights with clients, and they are able to create hubs for each department of the business to better organize and get value for their critical business data. A U.S. federal agency upgraded to Enterprise Plus to support secure collaboration with Box Shield and to support hubs and AI use cases related to internal and external collaboration around inspections. And an American digital marketing and media company that has been a Box customer for 10 years upgraded to Enterprise Plus, driven by our innovation with Box AI and Hubs. With Hubs/AI, they are now able to provide their sales teams with quick and easy access to resources as well as enable marketing to streamline their content creation process. We had a strong quarter overall and executed well on both…

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us today. Q3 was a strong quarter for Box, with revenue, operating margin and EPS landing at or above the high-end of our guidance. We achieved record gross and operating margins this quarter, which has enabled us to continue making targeted investments in our Intelligent Content Management platform, while also returning capital to shareholders. In Q3, we delivered revenue of $276 million at the high-end of our guidance, up 5% year-over-year and 6% in constant-currency. We now have approximately 1,900 total customers paying us at least $100,000 annually, up 8% year-over-year. Our Q3 Suites attach rate in large deals was 83%, an improvement from 79% in Q3 of last year. Suites customers now represent 59% of our revenue, up considerably from 51% a year ago. As Aaron discussed, launching Enterprise Advanced next month will enable all of our customers to power intelligent content workflows across their businesses. We ended Q3 with remaining performance obligations, or RPO, of $1.3 billion, a 13% year-over-year increase and 14% in constant-currency. Our strong RPO growth was driven by continued improvement in customer contract durations. Consistent with prior quarters, we expect to recognize roughly 60% of our RPO over the next 12 months. Q3 billings of $265 million were up 4% year-over-year and up 3% year-over-year in constant-currency. Q3 billings were impacted by a roughly 100 basis points or $3 million headwind from FX versus our prior expectations. We ended Q3 with a net retention rate of 102%, in-line with our expectations and consistent with our prior quarter. Our annualized full churn rate continues to remain strong and stable at 3%, demonstrating that the full value of Box's platform is driving customer stickiness. We continue to anticipate exiting FY '25 with a net retention rate…

Thank you. [Operator Instructions] And so, we will take our first question from Steve Enders.

Folks, we got accidentally cut-off. So, hi, Steve.

Oh, I apologize. I haven't opened Steve's line yet. Our first question comes from Steve Enders with Citi. Your line is open.

Okay. Great. Thanks. Can everyone hear me?

Yes.

Okay. Perfect. I guess, I just want to start on, I guess, the AI solutions that have come out and just kind of get a better sense for kind of what the earlier - the early feedback has been on the potential contribution for that, and maybe how that maybe changes some of the legacy ECM footprint potentially moving to the cloud? Like, is there a view for the ability to maybe capture some of those legacy use cases out there?

Yes. So there's sort of two big categories right now that we are talking about publicly. The first is the core Box AI interactions that we've already launched with single documents or hubs. So this is where you can really kind of talk to your data for the first time ever, get summarization of information quickly, get insights from leading AI models around your content. So this is a breakthrough capability for end user productivity. It just makes it easier to work with your content and then with hubs, lets you really kind of search across and ask questions of a large amount of data. So that's been the initial catalyst of growth with Enterprise Plus, because those capabilities are included on an unlimited basis for Enterprise Plus. And that's been certainly encouraging customers to double down more, with Box and move from legacy systems. I think the biggest kind of breakthrough in terms of replacing legacy enterprise content management environments will be some of the initial announcements that we had at BoxWorks, where you can begin to extract metadata from your documents using AI. And then once you have that metadata, or structured data in our system, you can begin to automate workflows within Box much more easily and more seamlessly. So being able to, for the first time ever, at really kind of any kind of scale, extract any type of structured data from contracts, or invoices or digital assets or loan agreements - all of that data going into Box's, metadata store. Then lets you either turn those into Box Apps, which gives you custom metadata views, or automated workflows, or even embedding that data into third-party applications, like Salesforce or other systems. So that really kind of goes at the heart of traditional enterprise content management, because you have so many of these environments where customers need to be able to manage their documents in a compliant way. Tied to a workflow and the legacy approaches, to getting the metadata out of those documents, either was through traditional RPA systems, OCR technology, or you had to do a lot of it by hand. So AI really is the first time that we can do that at scale in a much more accelerated fashion. And I think that will drive much more growth of these kind of traditional ECM takeouts.

Okay. Great. That's great to hear. And then maybe shifting gears a little bit just on the billings outlook for Q4. I guess are there any things that we should be keeping in mind as we think about that low single-digit growth rate that we're talking about now for Q4? And I guess, secondarily, as we think about that potentially flowing through into fiscal '26. Can you just kind of help us maybe think about the moving parts there between maybe that low single-digit growth rate you're talking about there, versus the mid-single-digit revenue growth we're at today versus the RPO growth. And more in like the mid-teens range, and how we should kind of think about all that for next year?

Sure. So I would say that the Q4 billings expectations that we have are less a function, of anything unusual that we expect to see this quarter, and more a function of a pretty difficult comparison from a year ago. So as a reminder, Q4 of last year, we delivered 10% constant currency billings growth, which included both strong early renewals and an impact from a couple of multiyear customer prepayments. So that creates a bit of a just challenging side from a comparison point of view, if you think about the overall trajectory both with Q3. And then Q4 is expectations, our expectations for the business really haven't changed over the last few months, and kind of in constant currency, reiterating that billings outlook that we had on our last call. So I feel good that when you look at both the growth in short-term RPO overall RPO growth, with kind of demonstrate the underlying momentum and adjusting for some of those factors a bit better, feel confident in the trajectory that we're on.

Perfect. Thanks for taking the question.

And your next question comes from the line of Brian Peterson. I apologize - yes, Brian Peterson with Raymond James. Your line is open.

All right, thanks guys. I will take the question. Aaron, it's great to hear about the positive early feedback from BoxWorks. I'm curious on how we should be thinking about that as you head into a big business and renewal period in the fourth quarter, you have some products launching in January. Does that change the seasonality of how some customers may be buying or expanding? Obviously, the functionality is much better, but just curious how we should be thinking about that potentially impacting purchases or renewals in the fourth quarter?

Yes. So I'd say maybe two things that we're focused on. One, because obviously, Q4 is really a period where there's been a lot of pipeline built throughout the year. A lot of those deals are going to be Enterprise Plus just given the momentum that we've had with many of these customer conversations. So - that will be certainly the bulk of the revenue, or new bookings that come in, in Q4 will continue to be on Enterprise Plus. Enterprise Advanced gives us another ad back for customers where we have had use cases come up, around more structured metadata extraction, or custom applications and even the archive functionality is. We're having a lot of conversations around. And so to the extent that our sellers can fit those into conversations, and we can ensure that we can get those deals done in Q4. I think we'll see that in a number of cases. But as we've kind of called out Enterprise Advanced is much more of a driver for next year's revenue growth rate. And I think you'll still see most of the focus on Enterprise Plus in Q4. We didn't want to get too much distraction on that. But based on the early signals that we're seeing from customers, there's certainly a lot of energy on Enterprise Advanced. It's absolutely the most amount of value and functionality we've ever packed into a plan at once. So as you'll recall from Enterprise Plus, it was sort of incrementally a build over a multiyear period. And so Enterprise Advanced, really right out of the gate, is going to have just a tremendous amount of advanced capabilities. That really let us go and accelerate the move off of legacy enterprise content management systems, and get into more categories. So again, you'll see some of this in Q4. But really, the focus is going to be for next year's driving your growth.

No, that makes sense. And Dylan, maybe a follow-up for you. The NRR, 102%, the last two quarters, you're guiding for something similar in the fourth quarter. Is it fair to say that we've seen the bottom of that metric? Or any color you could add there? Thanks guys.

Yes. So as we said on our last call, we still expect that to be a bottom out. And then over time, both we see the impact of our newer offerings start to flow through the model. And then at some point, kind of macro headwinds subsiding, both of those should benefit NRR, and then our overall growth rate over time. So, we do expect from this level at the bottom here, to trend gradually upward over time going forward.

Thanks.

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

This is [Jaydon] on for Pinjalim. Thanks for taking the question. With the new SKU, how broadly applicable might it be within your customer base?

Yes. So we're - with the new SKU, there's actually sort of something for everyone at the moment. I think each customer will sort of value the capabilities a little bit differently. So it's sort of hard to peg a particular percentage on the functionality. But between AI Studio for anybody who's really pushing their AI efforts internally, and AI transformation within their enterprise. The AI Studio and the ability to change your models and incorporate them in your workflows more deeply, that's going to be incredibly important. For customers that for years have asked us for contract management or digital asset management or invoice processing or quality management systems, or more advanced document management, the Box Apps functionality is going to really cover all of the bases around that. And then finally, we have a number of advanced security, compliance and governance features with Box Archive and other capabilities that we're working on. So when you kind of take that collection, there will be some customers that want all of that and our - we'll jump right in. Some customers will sort of value one or two of those capabilities as well, and that will be relevant for them. So not calling out a specific percentage, but this plan is certainly intended to be broad-based and really, again, getting our customer base into the future with Intelligent Content Management. Now they'll still take a couple of years to - as that works through the system. But we expect to see really strong outcomes as that even rolls out in the near term. But I think you've seen how these products roll out to work with Enterprise Plus. And again, this is going to be a core focus for us over time.

Great, thanks. And do we know anything incremental about pricing yet?

Yes. So we do expect to achieve somewhere between a 20% to 40% uplift for E-Advanced relative to where Enterprise Plus is priced, on kind of a like-for-like volume basis. So certainly not yet generally available. But based on the conversations we've been having with customers, some of that early feedback and the analysis we've done, that's where we expect to land. And then over time, we'll share more in terms of what we're seeing in the market.

Thanks for taking the questions.

And your next question comes from the line of Josh Baer with Morgan Stanley. Your line is open.

Thanks for the question. So the list of new products and capabilities quite compelling from a platform perspective, very dynamic like transformational period of time. I guess, Aaron, wondering what are you most excited about, specifically from the business impact or opportunity perspective? And then a follow-up for Dylan, like based on Aaron's answer, how do you map that over to the financial impact? And does that align with what could have the most impact on the model? Thanks.

I feel like I want to give a new answer just to throw Dylan off. But I will - a little bit of it is redundant to what I just kind of spoke about in the prepared remarks. But I think the best way to think about it is, Box has really since we started the company, the core foundational capability set was secure collaboration, content management, end user productivity. Super powerful, obviously got us to $1 billion plus in revenue. And then the moment you wanted really advanced customization, we have a set of really powerful APIs that you can embed into your applications and your workflows, and that's incredibly powerful and that will remain a major driver for us going forward. But we had this CASM in between those two things, which is customers coming to us and say, I don't want to just manage my documents inside of folders. And have to go kind of peruse those folders or search through those folders for a contract management workflow, or I have 1 million digital assets for a marketing campaign, and all of my retail stores. I don't want to just have to go and click through all of those folders and places to find the content that I'm looking for, or an invoice process where you have hundreds or thousands of documents coming in. People don't want to have to just go and work through that in a manual way. And so unfortunately, we've had this sort of dichotomy where we have a really simple end user application or really powerful APIs, but that requires time and customization. With Box Apps and the reason we acquired Crooze was we said, well, wait a second, if you look at, let's say, Salesforce with Force.com and then the app…

Yes. And then in terms of impact on the model, I think I'm going to share Aaron's excitement didn't throw me off too much on that. But I think the answer, is there's really no single component just as today, we talk about impact of suites and Enterprise Plus versus - or rather than any single component. So I would say that it's really just about the overall impact. I mean, certainly, based on the expectations that we laid out. We do expect this to be a key contributor, and kind of reason that we're confident in seeing a higher growth rate over time, as well as just as we've seen with Enterprise Plus the opportunity to further improve our customer economics, both in terms of the stickiness and with the higher price, flowing through to the bottom line. And so, do you expect it from a business point of view, to be probably the biggest driver of the overall growth that we expect to see in the coming years, but it's hard to parse out what Aaron is most excited about and map that directly to a specific growth number.

Yes. Let me just say one more thing just kind of a fun anecdote. We studied the customers that had leveraged Crooze and the metrics and KPIs on these customers were just incredibly powerful, as compared to any other kind of cohort we have. So the retention rate of these customers, their overall ACVs. So these were customers prior to Box owning the technology that we're embedding Box even more deeply into their business processes. Because the Crooze technology let them construct these custom dashboards and workflows and metadata views. And so, now we're very excited about the ability to now bring this out to all of our customers at a very different scale, and level of seamlessness. So that's what Enterprise Advanced is all about.

Great. Thank you.

And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the conference back over to Cynthia Hiponia for closing remarks.

Thank you, operator. Thank you, everyone, for joining us here today, and we look forward to chatting with you again, on our next earnings call.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.