Box, Inc. (BOX) Earnings Call Transcript & Summary

All right. So good morning, everyone. My name is Ittai Kidron, and I'm a technology analyst at Oppenheimer. And I'm happy to have the management of Box with me today to go over free -- a short presentation one with mainly a discussion on the evolution of the company into a content cloud platform, the opportunity within the e-signature space, where the company has made a recent move. And also progress with suites. So with me today are Aaron, the CEO of the company; and Dylan, the CFO of the company. We'll have a little bit of a back and forth kind of discussion, and they'll go through some slides, and I'll interject with questions. But I want to make sure that everybody here has an opportunity to participate as well. And so through this discussion, I'll be closely watching the chat box. [Operator Instructions] And so with that, Aaron, Dylan, thank you very much for joining us today, and I'll let you get started, Aaron, and we'll make it interactive.

Awesome. Hey, Ittai, I really appreciate you hosting us and really appreciate this opportunity to go through our vision for the content cloud and some of the market forces that we're seeing at the moment around this. So I'll just maybe jump right in, and obviously, feel free to jump in with questions, and then we'll go through a broader Q&A after so just please make sure any investors refer to the safe harbor statement on any of the information that we'll be sharing today, and here is that statement. So overall, our strategy, and I think for those who have been tuning into the call and our earnings call and paying attention to Box, there's sort of 4 big messages that we have for investors right now. One, we're going after an incredibly large market opportunity. It's been a $55 billion market for the combination of legacy content management, data storage, data security and collaboration software that we believe is going to merge into one mega category which is cloud content management. And we are building the leading best-of-breed platform in this market. So a highly differentiated product, the only enterprise-grade multi-tenant cloud platform in this space. Our growth engine is really driven by a repeatable go-to-market model that is built on landing and expanding customers in a very repeatable fashion. And I think many of our recent metrics really, I think, illustrate this. And then we're very focused on driving profitable growth. So certainly, over the past 18 months, that's been a much more in-focus area of prioritization, and we're very excited to be able to continue that going forward. So really trying to drive continued growth and acceleration as well as greater degrees of profitability. And I think over the past few years, those -- the actions that we've taken and the execution that we've driven, I think, is showing up and evidence in our numbers. We are driving growth in margins at scale. Last year, we grew about 11% in top line revenue. And delivered 15% in operating margins. And over the next 3 years, we expect to get to the mid-teens in top line growth, mid- to high teens and then mid-20s in terms of operating margin. And Dylan will also share a little bit more about our plans and strategy around that. So today, Box has over 100,000 paying businesses on the platform. We serve everything from small and midsized, fast-growing technology companies, companies like Spotify or Airbnb or Robinhood that are scaling up rapidly, and they need to secure content management in the cloud. All the way up to some of the world's largest organizations, companies like Amazon and Amgen, Cisco and many other large enterprises that need to be able to work in the cloud and work in a distributed fashion and be able to secure their data from anywhere. So there's not an industry we don't touch. And increasingly, we are getting into more and more important geographies all around the world, and we want to continue to scale this platform even further. There's 3 really big megatrends that we're focused on in Box. So the first is that work is going to be happening anywhere. And I think this is a trend now that every IT organization realizes when we started the company over 15 years ago, we had a very simple vision, make it easy and secure for people to access and share their files from anywhere. That was the fundamental premise of the company. And this remains true today. And obviously, it's now one of the most important it trends around. So first, enable work to happen any device, any location, any time, any time zone, any geography inside of the office, outside the office, that's the future of how we're going to be working together. The second is that every single experience with customers and partners and clients and across the supply chain is going to be digital. And we see so many more digital transactions and digital workflows that revolve around content. We'll get into a couple of those with e-signature in just a second. And then finally, data security is at the core of everything that any IT department has to focus on this has been a focus area of Box as soon as we pivoted in the enterprise 13 years ago and remains really at the core of how we drive our product and how we innovate still today. So one of our fastest -- our fastest-growing product of all-time is Box Shield. And this is one of the biggest drivers of our growth currently is the acceleration of customers needing a more secure way to enable and manage content in the cloud. So everything at work has changed. We're working anywhere. We're digital-first and data security matters to all of our interactions and all of the information that we manage. And at the heart of how we are working at the heart of the change of this work is how we work with our content. So when we go to any enterprise, and we look at how employees are shared with, how customers are transacted with, how partners are onboarded, all of this revolves around content. It could be the new product that a CPG company is building, it could be a new film that a media company is creating. It could be the financial documents that a bank has to ingest from a client all of that is content that is powering our business processes, powering our organizations and the products that we produce. And for the most part, enterprises today are left with a very legacy stack of content management systems for managing these workflows and these processes. So we are in a market that is highly fragmented across multiple areas of technology that we are trying to consolidate into one platform. If you go back to the '90s, you had on-prem file servers and network storage. Obviously, this is still around in a large number of enterprises is a tens of billions of dollars market just for legacy data storage. Then you have the content -- enterprise content management market. This is for really the governance and the life cycle of content. So share points in OpenText and Documentum. These products really kind of ballooned in the 2,000s but really didn't solve the end user needs that enterprises had. Then you had the enterprise file sync and share market, OneDrive, Dropbox, Google Drive great end user products, but not really built for the enterprise, not built to manage and govern and secure and drive the workflows around your content. And so our approach is really to have one platform that solves the complete life cycle of content management. The category that we're building out is this idea of having a cloud content management platform and that's why we are building the content cloud. So we want to power the entire life cycle of content in a single platform. From the moment you ingest your data, whether that's through our APIs or through our end-user interfaces or box shuttle, where we can do mass migration of content into the platform. We then classify and secure data by scanning it with Box Shield to ensure that it can be classified if there's any personal health information or any secure data that is being shared and you need to be able to make sure that's classified as sensitive information to the moment that we have to be able to share and collaborate around content inside and outside of the enterprise to when we have to automate workflows and be able to automate the movement of content, whether that's an onboarding of a client or reviewing of a digital asset or reviewing of a contract, all of that automation to when we have to drive an e-signature on that document and so be able to drive a digital transaction we just acquired SignRequest, one of the leading disruptors in the e-signature space, we're going to be folding that in the Box as Box Sign that we'll be rolling out this summer, to when we have to publish that content teams and departments and outside of the enterprise, and then ultimately, when we have to retain that information for data governance or data privacy requests. And then all of that is built on a platform where we extend those capabilities and the content in Box into any third-party application, whether that's a custom-built app from a customer or a commercial application of one of our partners. So this is the vision for the Content Cloud. And it's really bringing together again multiple different categories into a single platform that then gets integrated and accessed from any application from our customers.

Aaron, if I have -- if you go back to one slide where you showed the evolution into Content Cloud, which of those functions on that circle do you think really make the big steps up from enterprise file sync and share to Cloud Content. What are those key capabilities that are missing in that step?

Yes. So from this -- actually, the pure enterprise file sync and share category is actually -- certainly, it's one -- it's the most horizontal category that's ever existed in content, but is also the simplest in terms of data security, workflow, data governance requirements that enterprises have, which is why in most organizations, you still have traditional enterprise content management systems even alongside EFSS technology. And what we're trying to bring together is both of those ideas of how do you have a system of record for the governance of content, for the security of that content, for the workflow automation of that content as well as an amazing end-user experience for collaborating and sharing on those files. And so when you think about how the categories break out, EFSS, the kind of classic file sync and share space is really about sharing and collaborating around files. That's the main focal point of the EFSS category. And while this is where we got our start, very quickly after we launched our platform, we started building out many of the other kind of big pillars of functionality. So things like Box Shield take EFSS way beyond the basics of that storage and sharing capabilities. In fact, with Box Shield, we actually have functionality that even the traditional ECM vendors don't have from a security and compliance standpoint. But then when you get into things like data governance with Box Governance, and so then you're doing document retention and legal holds or document publishing, so being able to publish content to teams and departments and across the enterprise, then you're very squarely in the domain of enterprise content management, and this is what we've been building out again for the past many years.

Got it. Maybe another question here. On the automated side of the equation, integrations. Everyone claims to have integrations, and I don't know that your lease is any different than anyone else's. But help me understand the difference between a deep integration and a not deep integration in what first of all, what is the -- in what way is it different? And what is the -- how is the outcome different in the context of automation?

Yes. So I think there's 2 ways to think about our platform. So one is really just the flow of content using our APIs inside and outside of Box. And so we will have a lot of customers that will use our APIs and because they need to be able to ingest content from an ERP system or an ITSM system or a custom application. And those are pretty straightforward integrations just with our APIs. You could build those in a matter of hours or a day. They're very sticky because we become the system of record for that content that's being produced. But again, it's really leveraging the power of our APIs to be able to do that. Then we have much deeper integrations like how we partner with Salesforce or how we partner with Slack or how we partner with Microsoft Teams, where we're actually embedding, in some cases, parts of our user interface into those third-party applications. So that way, customers have a seamless interoperative experience. And those are situations where we might take multiple engineers at box and actually go and bring those integrations and products to life for our customers. So that's a little bit about the kind of continuum of how we do integrations. And then with Box Relay, which is our workflow automation suite, we've made that all even simpler. So now inside of a user interface with no-code you can also begin to do automations and business processes within Box. So the reason we got into Box Relay and built out a native workflow suite is because we had too many of our customers that were having to go and build scripts or write scripts to be able to drive workflow automation within box. And we felt like you didn't need -- we didn't require our customers to have a developer just to be able to go and produce a workflow or produce some kind of automated process. So we wanted to make sure that we had a user interface to be able to capture those use cases.

Got it. Okay. So there's a trivalent and not so trivial part to this. There's a question from the audience that talks about your architecture. Since the founding of your company in 2005 cloud IT architectures have changed substantially. How have you changed your underlying architecture during this time?

That is an incredibly well-timed question. So for the next slide. We -- I'll just go through our architecture very briefly and give you a little bit of sense of both the modularity of our platform and the scalability of it. So first of all, I think the question was probably deeper down the stack. But the core of our platform is a very scalable cloud-native global infrastructure. So we have both our own data centers, and we are moving more rapidly to the public cloud. And we have public cloud partners that we've leveraged for over a decade for additional scalability fault tolerance and things like international points of presence in data storage. So that's our cloud infrastructure. So if you think about recently, Salesforce announced this technology called Hyperforce, that's actually very similar to how we've been running our platform for the past many years. So it's a multi-cloud architecture, where there's a software layer that manages multiple infrastructures all around the globe from different cloud vendors. So that's our scalable global infrastructure. The great thing is that customers never have to worry about it. So we deliver our product as a SaaS service to the customer. Even though on the back end, we are managing different infrastructure providers based on price, location, performance, and so we have a software abstraction layer that handles that. And that's something that we've just gotten better at over the past decade more and more. So our customers never have to worry about data storage. They don't have to manage their network, we handle all of that for them. Then as you move up the stack, we have a layer of security and compliance that is really unmatched in the market. So data permissions, security scanning, data classifications, threat detection, auditability, data governance, all of that is what is sort of built on our core platform and all of the kind of security and compliance use cases that you would need to manage content in the cloud. And then we have a content services layer, things like file folders, metadata, sharing, collaboration, workflow, e-signatures, et cetera. Here's what's so unique about the Box platform, though, relative to many of our other more traditional competitors. Each of these capabilities is a module or a service on our core platform. So it's delivered in a services-oriented architecture, where there's an individual set of APIs, those are built in a common -- with a common language and a common architecture. And so every time we build a feature, so when we got into the workflow space, that was just one engineering team at Box building workflow functionality built on top of our core platform. So this means that we can get into entire new markets at a much faster pace than what you could have in a legacy model because all we have to build is one of the feature stacks because we get to leverage our identity, our security, our storage, our permissions, our compliance from the core platform. And so we can enter markets that maybe there are existing companies that have hundreds of engineers trying to solve a problem. And we can enter that market with a fraction of the investment because we've already built up a lot of the scalability of that infrastructure and investment in other areas of the platform. And then finally, our APIs then extend this functionality into a wide array of integration. So we have 1,500 partners that we work with. And then we work with a number of -- we let our customers use our APIs via our SDKs and through custom development, to be able to integrate Box into their line of business systems into third party applications, into employee experiences. So we extend all of this functionality into our third-party and customer ecosystem of developers. So that's a little bit of how the architecture has evolved.

Got it. Makes sense. Going back then to the circle of capabilities that you highlighted before, if you and I would talk 2 or 3 years down the road, in what way is this slide any different? Where do we go from here?

Yes. I think we both see opportunities for additional kind of spokes as it were or modules. I'll give you some examples. So -- and then there are some areas where we're just going to go deeper in each of these areas. But in terms of additional expansion areas, I think we are -- there's a lot more we can be doing in terms of how do you get more value and extract more intelligence from the content in Box. So we have Box Skills, which is an AI automation use case, which really kind of ties to our automation. But we don't do enough today around insights and analytics around your content. We're very excited about that space. So I would see us be doing -- I was just doing more in that market. I think you're going to see us go deeper in a number of these -- in these pillars. So in data security, frankly, we're still just scratching the surface of what's possible around securing your content in the cloud, both in terms of all the different locations people are working from now and the new workflows people have around collaborating on their content. I think there's going to be new use cases at the line of business level. So when you think about things like digital asset management or contract collaboration or sales enablement each of these are use cases that are fundamentally around how content manifests in a business process. And so we want to make sure that we can bring our product together to deliver that for customers in a very repeatable and a robust fashion. So I think in every one of these pillars, you're going to have more continued innovation, obviously, done in a very thoughtful and disciplined way. This is why we're building out Poland as an engineering site globally, so we can continue to invest aggressively in R&D while still driving our operating margin improvements. And then, of course, we're also going to be very thoughtful and disciplined about M&A. So with -- very similar to how we drove the SignRequest acquisition, we will occasionally take moments where we want to bring in a technology that we think is going to help accelerate our road map.

Excellent. Right. Moving on to the next thing, e-signature.

Great. Sorry. Yes, sorry.

No, no. Go ahead. Next one, yes.

Okay. Cool. Yes. All I was going to mention is just -- so when we think about the sort of legacy markets and a couple of the new markets of content management, there's about a $55 billion market for where content is managed today. And what's interesting, if -- you and I have talked about this a ton. So so I know that we just want it to happen way faster. The interesting thing is that most of these dollars are still in legacy environments and still inside of data centers and still on-prem. And we see that actually as a good thing because it means that we've had time to build the leading Cloud platform, $800 million revenue run rate today. And as more and more of these dollars move to the cloud, we think we're in the best position to be able to capture a disproportionate share of those dollars. So when you think about the $20-plus billion market in network storage, the $6 billion market in enterprise content management, the $10-plus billion market in data security and risk management around content. We believe that the market is going to realize that these can't be different markets. You can't have a customer having to manage their content in one piece of software and then back up that data or that storage in a completely different platform. This really needs to be one architecture and one platform in the Cloud. And so our portfolio today is already addressing about a $55 billion market. Our job is to go and catalyze these dollars and move them into the cloud faster. Some of the reason why that's been slower than we would like is, these are very sticky use cases in these legacy environments. You might have a life sciences company that has a clinical drug trial process. That is running on one of these legacy document management systems. So we want to help our customers accelerate that move to the cloud, get them better, cheaper, faster, more secure functionality and be able to deliver again a more transformational experience. And we are now expanding that TAM even further. So the biggest introduction we've had in the past couple of years since the Box Shield launch is our e-signature offering. Box Sign is going to further expand the total addressable market of Box. Today, e-signature is a couple of billion-dollar market. It is going to be a few billion-dollar market just in the next kind of 1 to 2 years, we believe. And then ultimately, you have a much bigger market beyond that, which is all of the paper-based manual processes, manual transactions that businesses are doing with their customers, with their employees, around compliance. And so the really big opportunity is, obviously, the white space of companies that haven't even adopted e-sign yet. Or the use cases in enterprises that haven't yet been digitized. So we think having the box line offering further addresses our team, and I'll get into the business model in just one second on what Box Sign can do. So we have been in an era recently of expanding our TAM and getting into some key markets. So with Box Shield, we got into the advanced data security classification and threat detection space. Box Shield is our native advanced data security offering within the platform. It is driving a significant amount of growth of our suites business, which is now 45% of our 100,000-plus deals have suites attached. And it is our fastest-growing add-on product in the company's history. So we are seeing a tremendous amount of success with Box Shield. And customers are very, very excited around this because it helps them, again, govern and keep their content secure in a single platform. And Box Sign, again, equally, I think, is having a tremendous amount of pent-up demand. So when we surveyed our customers last year, what we heard overwhelmingly was they were looking for the ability to have native e-signature capabilities built into Box. When we ask our customers, what is the #1 feature that you would like to see from Box, e-sign was ranked higher than any other feature as a net new offering that we could go create for our customers. And the reason for this actually makes a ton of sense. We already are the platform where the customer is managing their contracts or the HR records or the compliance documents. And customers, in some cases, felt like they are spending too much money on other e-sign vendors. to be able to get some of those broader use cases around e-signature or they still haven't yet adopted an e-signature solution for a number of their use cases, and they were looking for a vendor to have a more integrated offering and so that's why we decided to get in the space in a much more accelerated fashion through an acquisition. We are rapidly integrating the technology, and we expect this to be available by summer. And we're taking a very disruptive approach to the business model here. So Box Sign will be available in all of our business plan subscriptions and there will be different levels of functionality by tier of plan that the customer has. So if you have our business addition, you'll get some set of functionality from Box Sign, call that the good functionality. If you have our enterprise edition, you'll get even more features in workflow, and that will be the better functionality. And then if you're a suites customer, you'll have even additional features and additional API usage as well as integrations with other software. So we are simultaneously going to ensure that Box Sign gets used by the majority of our customer base. This will help us go wider within customer accounts. It will help us get even stickier with our current customers. And we will be able to separately monetize the higher end-use cases where Box Sign would be embedded into a third-party application or a custom application from a client so we are both going to monetize Box Sign through those higher-end plans that we sell as well as ensure that we get broad adoption by including it in all of our business subscriptions. So it's a very unique kind of business model disruption in this space.

Got it. Okay. I got a bunch of questions here on this one. Well, DocuSign has been around for many, many years. So your capabilities and feature wise, it's very robust. How robust is your e-signature capability or how robust will it be come summertime when you release it?

Yes. So the -- we specifically acquired the company that we did because of its robust enterprise features. So we looked at probably 20-plus technologies in the market. This company happened to be 100% focused on the enterprise space. They have everything from federal government clients in the U.S. to European organization. So they were sort of used to a broad array of high degree of scrutiny from customers, high degree of compliance requirements. Workflow functionality, template features. So we wanted to make sure that we acquired a company that would dramatically accelerate our entry into the enterprise use cases. And so we feel very confident in this being a competitive offering. Now we still have a very aggressive road map. There has been -- there are some companies that have been at this for a decade or more. And we know that there'll be more features we have to build-out. But certainly, by this summer, the base offering of Box Sign will be available. It will support a large array of Box -- of e-signature use cases, and we're super excited to be able to offer that to customers.

Got it. Why don't you go a little bit into the logic of making that capability available in all your price tiers and not in, let's say, the most -- only -- the most expensive price tier. Help me think about that?

Yes. So we believe this is a market that is actually still very early in the adoption cycle. When we surveyed our customers, the majority of customers said they were only using e-signature solutions for a portion of their employee base, and they would like to see a vendor to be able to offer this in a more cost-effective manner to a wider set of employees. So when we looked at the opportunity to bring e-signature solutions at scale to our customer base, we felt like this was the most disruptive approach to be able to do that. If you look at our list pricing on our website, we have list pricing ranging from $15 per user per month for our business edition and our suites that go all the way up to $50-plus in terms of the list pricing. So we don't feel like there's a gap in ability to monetize functionality in any of those pricing tiers. What we want to do is to have additional levels of functionality that we can use to move customers up tiers and drive wider seat adoption. So we took a specific approach with Box Sign that we think might be representative of future product innovations where we want to give customers more value, encourage them to go wider and be able to go deeper with their advanced use cases.

To be clear, you're not going to raise the prices of your suites, meaning this is just going to be a subscription drive to people to get into the more expensive existing suites as they are currently priced?

Yes. This is -- we are -- if you just think about it just last quarter, for our $100,000-plus deals, we did 45% of the net new $100,000-plus deals of suites. The vast majority of our customer base still does not have a suite. So we, right now, are very focused on giving more value in our pricing plans. because as we move customers up each pricing tier, we see the price per seat improve. So right now, the focus is move customers up pricing tiers, move customers up into our multi-product suites. We are not short on additional ways to monetize from that perspective.

Got it. If you -- out of a curiosity, I'm sure some of your clients have already given you some feedback following your announcements since their feedback is the one that led you to look for a solution. For this gap. Do you get a sense of how pervasive business is going to be with customers and and in what way? And how should I think about it, it actually expanding your user base?

Yes. This is an area where I was actually positively surprised on the amount of kind of pent-up interest there was. The day that we announced I must have had maybe 20 or so CIO e-mails come back to me, saying, this is incredibly exciting, the most exciting thing that you guys have launched. I'm looking forward to learning more because we're at a renewal event with another vendor, and we would love to learn more about this product capability. So I think there's a tremendous amount of use cases where customers today either feel like they might be overpaying for another solution or they just haven't adopted something for the broad set of employees in their organization. I was talking to a customer in advance of us making acquisition just to continue to vet the use cases. And that customer said, listen, I only have e-signature today license for a narrow portion of my population, the legal team, maybe the HR team, but there's still use cases that everybody runs into. And I don't have a good enterprise-wide solution because of the pricing dynamics in this market. And so with Box, if, for $10 or $20 per user per month, whatever you're paying us in that -- from a volume standpoint, if we can now double the value you're getting for those dollars spent, we just know that, that will drive greater stickiness, greater upsell and then ultimately, more value for our customers.

Got it. And as far as the summer availability, how much of this is just kind of bringing this on board versus tying it more deeply into automation tools and other parts of your platform?

I think -- so first of all, Box Sign will work with any of our existing security features and governance features. And so it automatically supports that set of value. In terms of tying the more relay workflows and driving more automation and extensive API use cases, certainly, we'll be continuing to incrementally improve that. But it will be launching with many of the native aspects of Box on Day 1.

Got it. Okay. And then lastly, before moving to the next topic. You mentioned that this was the most requested capability that was kind of missing on our platform. Would you care to open up the Kimono a little bit and tell us what was the second and third?

I'll make it conceptual. So we -- I don't want to ask my entire road map right now. But basically, what was very exciting for us in terms of the strategic position that we sit in was I think right around the middle of the tail end of last year, customers started coming to us with really a different kind of conversation. Really around what was the future of work going to be, not just the near term, okay, my employee base is remote, and I just need to solve this triage issue. It was much more of a conversation about what are the next 3 to 5 years going to look like? And how do I enable the management of all the artifacts, all the content that gets produced in this new world, where some people are on remote meetings, some people are in the office. Sometimes we're collaborating with a customer. Sometimes we have to collaborate across the supply chain. How do we bring all of that together? All of the content around those use cases. So we started hearing about more use cases around things like content publishing. How do I better distribute content to my partner ecosystem or my internal employees in a remote environment, being able to get everybody on the same page is incredibly important. How do I manage all of the unstructured content around mission-critical projects and all the documentation from engineering projects and marketing campaigns. And so there's a whole bunch of use cases that really because of the future of work being distributed, being both remote and in office, all of that is going to produce content, and customers are looking for better ways to organize and manage and secure and collaborate around that content. So we believe that we can play an even bigger role in where the future of work is going based on these megatrends happening in the enterprise.

Awesome. Moving on.

Cool. So just to wrap things up, and this actually, I think, better even clarifies the prior point I was making. So I mentioned 45% of our $100,000-plus deals have Box Suites in them, but only 15% of our total TAV is Box Suites today. And that's just because we just launched Suites only 6 quarters ago. So right now, the focus is how do we move as many of our customers into Suites or our multiproduct plans as possible. And we want to aggressively drive that, which is, again, mean that we don't necessarily need more suites or higher prices in our suites. What we want is more things that will catalyze customers to move up-market and move into these advanced plans. So we're very, very exciting -- excited about what Boxin will do that trajectory as well as further innovation that we have this year. And then finally, you can just get a good sense of the ramp-up of some of our add-on products, Box Shield, Box Relay. Box Shield hitting 60% of our 100,000 dollar plus deals being a real breakout success over the past couple of years. So we're very excited about the Shield traction there's no reason, frankly, why this can't be in 80% or 90% of our deals going forward. And similarly, Suites should be in the vast, vast, vast majority of our 100,000-plus transactions as well in the future. So we're very excited about the trajectory we're seeing. And as you know, with these kind of things, a lot of it is internally just in your sales motion, your go-to-market motion, how do you make sure everybody is selling in the same repeatable way, and we're very happy about the uptick that we've seen on that front. So -- sorry.

Yes. Can you talk about the gap though, the conceptually the gap between Suites and Shield. Why would someone take Shield and not Suites? What is it that they -- for lack of a better word, don't care about in Suites that doesn't make them take that step up?

Yes. It's often more about -- there might be a more specific buyer that we've aligned budget with. And so if you were to do a Shield transaction outside of having a Suite, that might mean that what we've done is we've sold to the CISO very effectively, but we don't necessarily -- we haven't necessarily brought other use cases to that customer that the Suite represents because the Suite has many other add-on features. So I would say that to some extent, we've almost hedged our bet on that sales process. So we have the CISO onboard, and we might have budget coming together for Box Shield. And if we can get other use cases from that customer, then that's where the Suite will make economic sense, but at least the Shield lets us get in the door. So we're pretty happy about these results. Obviously, we'd like the absolute numbers to be way higher in general. But this delta or this gap would be fairly expected and I think it's -- we're certainly comfortable with that.

What's the prevalence of Suites in deals under $100,000?

Yes. So this is -- just because of the sheer volume of customers in that segment and especially online customers that just have kind of more based use cases sometimes. It's lower, but this is certainly how more and more of our newer sales are being done with customers across all of our segments.

Got it. And then when you talk about CISO, does that mean that, I guess, at this point, for you to get to $100,000 deal per customer, a CISO has to be involved. It sounds like somewhere in the process, meaning it's unlikely that you'll get to that level unless the security team is in it as well. Fair?

I think more and more, that is the case. I don't necessarily know that $100,000 is that cut off. Sometimes maybe $250,000 or $500,000 for a very large enterprise. Sometimes $100,000 might just represent a departmental deal. That a line of business is purchasing with support from the IT organization, but not always with the full sort of enterprise IT organization behind that. But certainly, our sales motion is to try and get to the CISO, to the CIO, and to the line of business, champion and sponsor and bring all those constituents together. That's how we do our much bigger platform deals whenever we have a large transaction.

Got it. And maybe if we could go back to the Suites slide. I guess when I look into this, you have 2 Suites here in the next slide, we talked about how Relay and Shield are the 2 most prominent in $100,000 deals. Is there a road for a third Suite that just includes field and relay, and that's -- I'd call it the Suite light. I don't know how do you call it that helps that adoption right even further. I don't know. Help me think about the logic of these 2 combos and why shouldn't there be a third couple there?

Yes. I think we're always kind of going back and forth on different ways to break out the functionality. We have some contemplation of -- is there maybe a new plan that brings together these add-on products in a packaged way that also sort of exists in a more linear upsell fashion. So I'd say there's really good arguments for a bunch of different way ways to cut this. The key thing that we care about and the most important thing is make it as easy as possible for all of our customers to get into our add-on products and not have a sort of piecemeal approach to the licensing motion, and that's the most important factor that we care about.

Got it. Okay. Moving on.

Cool. And I'll hand it over to Dylan for a few of the financial updates.

So this chart highlights how the revenue attributable to various types of customers has trended over the past couple of years. Customers who adopted at least one add-on product, now account for 59% of our revenue. That's up from 52% a year ago. And within that, fueled by the Suites momentum that Aaron has been highlighting, we now have 36% of our revenue coming from customers who've adopted multiple products, and that 36% is up from 24% a year ago. And the dotted portion of this top section, the customers who have adopted multiple products really demonstrates that the majority of that 36% is coming from customers who are initially using less robust capabilities and then driven by the progress we've been making in cross-selling our newer products and suites into existing customers. That's what's really fueling the kind of outsized growth in that part of our customer base. . And the reason this matters so much is that our, what we call core plus customers. So customers who have adopted at least one add-on product had significantly better economics than our core-only customers from much larger contract values to higher pricing and margins to net retention rates that are about 20 points higher than customers who are just using our basic service. So as we continue to drive the shift, that will create tailwinds, both toward net retention rate and our overall customer economics.

Dylan, how does the retention rate change from one add on to two? Does that change as well materially or not as much?

It does. So it's not as pronounced of a shift, but the trends in terms of seeing everything from those higher pricing, bigger deals, and stronger retention and expansion rates is even more pronounced when you get into that kind of core 2 plus add-ons category.

Got it. And when you say this has totally cap value, but just in plain English, is this revenue? Or will this fall in cap value?

Yes. So this would be revenue, effectively. So it's basically a snapshot of our recurring revenue at the end of each of these years.

Got it. And so when I look at the quarterly, that has been at a negative 4% CAGR for the last couple of years, I'm guessing the CAGR is really just a reflection of churn. Is that mostly -- is that the right way to think about it?

No. So while the churn rate is certainly higher in core-only versus the other 2 categories. It's actually largely a reflection of the movement that you see in that kind of dotted section which is a lot of those core customers aren't necessarily churning, but they're moving out of the bucket because they're adopting add-on products. And so that really shows, again, going back to that. And that's the same dynamic in the core with one add-on. We are seeing healthy growth in that category, but that's effectively entirely offset by the goodness of moving into more advanced use cases and kind of up that bar chart.

Got it. And is there any statistics that can talk about that can tie the correlation of adding one product to later on, the odds of a one add-on customer becoming into a 2 add-on customer?

Yes. And I would say that we certainly have the trends, and we generally do see kind of a pretty kind of strong propensity once you get into that core-plus-one you're more likely to continue evolving use cases as we do see, it's certainly not binary. And in terms of the Suites at option in particular, as we bettors in the market for a little less than 2 years, don't have as long of a track record of data, but we definitely do see that it's kind of a fundamental shift between customers who are thinking about Box in more basic ways versus recognize the fuller value of the platform. So once you do start to use even one of our add-on products, as a customer, you are much more likely to continue expanding what you're using.

Got it. And so when you say the two add-ons, fair to say the most popular ones, Shield and Relay, are those are the 2 most popular ones?

So in terms of the recent momentum, that is correct. If you look at the total contribution, we do see the strongest contribution from Governance which has been in the market for -- since 2016. And then Platform is a pretty big contributor as well.

Got it. And will the e-signature capability be offered stand-alone as well or just as part of the packages, how would that go?

Yes, the idea would be -- you could think about it conceptually pretty much the same way of -- as you would for Governance or Relay or Shield, which is could buy it as a kind of ad hoc add on. But certainly, the motion that we're driving and the way it positions will hopefully be much more often than not as part of the Suite.

Got it. Okay. There's a question in the audience about, would you consider promoted marketing material or promoted messaging as a way to monetize the free users that you have not shown -- that have not shown inclination to convert to pay? Can you remind us how big is that per user tier right now? And what -- in what way has your interaction with them changed it over the past couple of years?

Yes. So I'd say the way that we think about the free user base is less a kind of a freemium model where you'll hit some sort of limit and then upgrade to a paid plan. And more a way to drive awareness, adoption and just make it easier for paying customers to collaborate with anyone, even if they're not part of that company's instance. And so we certainly do a lot around in product education to sort of drive that and make even our free users aware of some of these services. But it hasn't been a big push as we see them as influential and certainly, obviously, adoption, if you're familiar using the product, that's going to make it a lot more likely that you're going to kind of embrace Box and we see that sort of activity higher for paying customers, but it's not a big part of our go-to-market motion beyond some of the things we're doing in the self-serve part of the business.

\ Got it. And if you could remind me, just 3 years ago, I remember, this was a big drag on your COGS. Gross margin. Free users right now? What kind of a weight are they on your cost of goods sold at this point?

Yes. So actually, the free user expense show up in sales and marketing, but it's less than 2% of our revenue today.

Got it. Awesome. And then another question from the audience. What are your win rates when bidding for $100,000 deals? How has it changed over the last 12 months? Or do you compete against those in those deals? And what are the key attributes of deals when you win or lose?

Yes.

Yes. Go for it, Dylan.

I'll start with some of the numbers. Then Aaron, if you want to get into the some of the dynamics. I would say, while we don't give the specific win rates, those have actually improved over the past year. And we do see, like many of the other parts of the business that I was speaking to or dynamics, much stronger win rates, both for the larger deals as well as for core plus deals. So the win rate of customers who are considering at least one add on is significantly higher. And again, that -- those trends in terms of the actual win rates, the conversion of our pipeline and customer win rates has been improving pretty steadily over the past year plus. And then Aaron, do you want to hit on the dynamics?

Yes. No. I think that covers most of it. Overall, just -- especially with our multiproduct Suite and bundle, we just have a lot of catalysts that help customers move to the cloud faster, better security, better productivity. So we tend to focus on what are the net new use cases and enterprise has around content and collaboration. And then where can we go and find budget and spend for those use cases and help customers retire their legacy infrastructure in the process. So that tends to be the sales motion that we execute.

Got it. Got it. Okay. Dylan, can you talk about some of your hiring plans in the year? You've talked about hiring again at a rate that's passed in your revenue growth. Help me think about the plan here, we -- by the way, we've been monitoring your job listings, I certainly have seen an increase more recently in there. But how far along down the process are you? What are the plans there? And how much of this is upfront versus back-end loaded?

Yes. So as you mentioned on our recent earnings call, we expect to grow our sales force in the low teens percentage range this year, and that's based on the strong momentum that we're seeing in demand and sales force productivity. And as we've mentioned, our hiring plans for our sales force are going to be very focused in our higher-performing segments and geographies. As it relates to the revenue growth and that dynamic, would note that we'll be hiring these reps over the course of this year, I do expect it to be a little bit kind of weighted toward the front end of the year. But as it typically takes about 6 months for our commercial AEs to fully ramp, and 9 to 12 months for our enterprise AEs could do so. These additions will have more of an impact on bookings as we start to get to the end of this year and then on next year's revenue growth rather than this year. And so that's on the sales side. And then more broadly, we do expect to grow headcount after staying effectively flat, this past year, but we are going to be leveraging our kind of revamped location strategy to be able to do so a lot more efficiently, most notably we recently set up our first offshore engineering Center of Excellence in Warsaw, Poland and expect to have a little more than 100 folks on the ground there by the end of this year.

Got it. You talked about improving productivity, maybe you can talk about how much of that is just -- is an outcome of math, meaning your revenue growth and you didn't add much to headcount versus from a true process and a standpoint, process training, what have you done internally, you really managed to get more out of the individuals you have currently in your sales organization?

Yes. So it's really the latter. And when we talk about sales force productivity, the way we measure that is the new bookings generated by our sellers over the total number of quota-carrying AEs that we have. So if we're not growing the sales force and not growing the business, that wouldn't show up in productivity as it's a bookings based metric, not a revenue-based metric, and so that sales productivity improvement that we demonstrated this past year, which is up about 13%. And primarily driven by our enterprise sales force, really was a function of RA selling more on a like-for-like basis and did pick up some benefits because we had sort of reallocated resources from lower-performing to higher-performing regions. And as those higher-performing regions continue that high performance, that mix shift did help a bit. But it really was just on average, our sellers selling more versus anything about business model scale.

Got it. Then maybe you can talk about the harvesting element. Clearly, a lot of the -- it sounds like a lot of the productivity comes from the ability to go to an existing customer and be able to upsell them into Suites and the add-ons how far down the road of discovery are you? Because when you look at this slide here, clearly, they're going to be a hard part of your installed base that are just never going to buy the add-ons or the Suites. How far along are you in trying to kind of harvest that field? And how do you think about the balance of harvesting existing customers into Suites and upgrades versus trying to get some new customers going after new customers that are not part of your installed base right now?

Sure. So today, about 70% of our new bookings come from existing customers and the other 30% coming from customers who are buying Box for the first time. And we do have a significant expansion opportunity within our installed base. So as Aaron had mentioned recently, we -- if you look at our paying customers, we have about a 7x steep expansion opportunity within those customers. In addition to the cross-sell opportunity, the one important dynamic I'd note is that those 2 are actually pretty closely related, where it's not one of those things where once we've sort of sold a Suite to a customer, that's going to be their contract value and their footprint for years and years. It's actually that once customers begin to adopt these additional capabilities that not only creates more value for them, but also in a lot of cases, frees our budget to be able to expand their use cases. So we actually see a lot of correlation between customers who are adopting our add-on products and expanding their seat counts.

Got it. Got it. Okay. I guess last one for me, and which is a question that have showed up, I guess, twice now on the Q&A, is that the news of this morning that you all guys are exploring the sale a mid-pressure from some shareholders. Is there any comments that you will like or possibly make here on this news?

Yes. No, as you can imagine, we can't comment on any kind of rumors or speculation. All I would say is, obviously, we're very focused, both as a Board and as a business on driving the best possible upside for shareholders in the near and long term. And that's what we continue to stay committed to, but I can't obviously comment on sort of rumors in the market.

Got it. Maybe, I guess, last one for me. What do you think investors don't really understand or appreciate. I mean you've obviously talked to many investors in recent weeks from your conversations, what stands out to you as something that still is either a disconnect or on appreciating your opportunity?

Well, I think -- first of all, I do think that there's increasingly better understanding. I think it was helpful, our Q4 results, we saw a lot of momentum coming out of the gate in Q4, record billings, record level billings, record $100,000-plus deals, record suites. I think investors are seeing that there's significant and increasing traction in our full vision and that the products are taking off. We feel like we're still just scratching the surface of what the full opportunity is. And then the fact that we put together 15% operating margins last year drove significant bottom line performance, and we have a very clear path to mid-20s operating margin in the next few years. I think it's coming together in a way that investors are certainly better understanding. So ultimately, our job is to go and make sure that everyone understands the vision for having a Content Cloud. Customers, investors, analysts in the broader market, and we're excited to keep on executing on that.

Excellent. Good stuff. Guys, thank you very much for your time. We really appreciate it. It's been very helpful. And for the listeners, if you have any more questions, feel free to reach out to, Elaine Atabak, or myself, and we'll be more than happy to follow-up. Aaron, Dylan. Thank you so much.

Thank you so much for having us.

Really appreciate it.

Any time. Bye-bye

Bye.