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Box Inc.'s Growth Accelerates

By Daniel Sparks - Aug 29, 2018 at 6:43PM

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An overview of Box's second quarter shows improving fundamentals.

Though shares of cloud storage provider Box (BOX 1.33%) tumbled after the company's second-quarter earnings release due to a slight miss on management's third-quarter guidance, there were actually some notable trends in Box's second-quarter results. The record quarter featured an accelerating revenue growth rate, improvements in free cash outflow and operating margin, and more.

Here's a close look at some of the most important insights from the quarter.

A diagram of three laptops connected to a cloud

Image source: Getty Images.

The raw numbers

Metric

Q2 Fiscal 2019

Q2 Fiscal 2018

Change

Revenue

$148.2 million

$122.9 million

21%

Non-GAAP EPS

($0.05)

($0.11)

N/A

Paying customers

87,000

76,000

14.5%

Data source: Box's earnings releases for quarters shown.

Box's first-quarter revenue increased 21% year over year to $148 million. This growth was fueled by a 14.5% year-over-year increase in paying customers and strong attach rates for add-on products. Notably, Box's 21% revenue growth was an acceleration from its 20% revenue growth in Q1. 

For some context, this growth is still slower than Dropbox's (DBX 2.62%) 27% year-over-year growth in its most recently reported quarter, despite Dropbox's much higher quarterly revenue of $339.2 million.

Demonstrating how increased scale is helping Box's fundamentals improve, the company's net loss narrowed from $39.3 million in the year-ago quarter to $38.3 million. Box's non-GAAP net loss improved from $15.2 million to $7.4 million, translating to a third-quarter non-GAAP loss per share of $0.05.

Highlights

  • Box's customer churn during the period remained low, at 4.5%, highlighting the company's resilience amid rising competition from Dropbox and other competitors.
  • Box's customer retention rate, which is equal to the percentage of total account value retained from existing customers and includes customer value expansion, was a "best-in-class" 108%, the company said.
  • Customers who had $5,000 or more in total account value 12 months ago saw an average increase in total account value of 12% year over year.
  • Box's non-GAAP operating margin improved to negative 4% when measured by Box's recently adopted ASC Topic 606 revenue recognition standards, or negative 6% based on last year's standards. This is up from negative 12% in the year-ago quarter.
  • Free cash flow was negative $10.3 million, up from negative $15 million in the year-ago quarter.

What now

While Box's second-quarter results were solid, management's weaker-than-expected outlook for Q3 seems to have worried some investors. Guidance for $154 million to $155 million in revenue implies 19.1% to 19.9% year-over-year growth, signaling a deceleration in revenue growth. In addition, management's guidance for a non-GAAP loss per share between ($0.08) and ($0.07) represents a wider loss sequentially.

Despite the Street's negative response to the quarter, Box CEO Aaron Levie is optimistic about the company's future, saying:

Our approach to providing a single, neutral platform for cloud content management with enterprise-grade security and powerful workflow capabilities positions us to help the world's largest and most regulated enterprises digitize their workplace and business processes.

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Stocks Mentioned

Box, Inc. Stock Quote
Box, Inc.
BOX
$27.37 (1.33%) $0.36
Dropbox Stock Quote
Dropbox
DBX
$20.33 (2.62%) $0.52

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