Though shares of cloud storage provider Box (NYSE:BOX) 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 (NASDAQ:DBX) 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.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.