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Box fights back - reports strong Q1 and raises guidance

Derek du Preez Profile picture for user ddpreez May 28, 2021
It has been a tough year for content management vendor Box, as it faces scrutiny from activist investor Starboard Value.

Aaron Levie Box CEO in screengrab from Zoom call 2020-06
(Screengrab from Zoom call)

Box is fighting to make a comeback as it reported better than expected earnings for Q1 of this year and raised its full year guidance. The content cloud vendor has had a difficult year, as it trails some of its closest competitors, and as the leadership faces intense scrutiny from activist investor Starboard Value. 

Speaking to analysts this week, CEO Aaron Levie said: 

With the strong momentum we're driving, we are confident in our ability to achieve accelerated growth and higher operating margin now and in the years ahead. 

The general mood from Levie was one of resolve, as he seeks to quash further aggravation from Starboard. The activist investor, which bought a 7.7% stake in Box a couple of years ago, earlier this month sent a damning letter to the firm - claiming that it is making poor executive decisions and is underperforming. 

Box responded at the time saying that it had gone above and beyond to accommodate Starboard, including the addition of several new board members that were approved by the investor. 

As such, the decent set of results this week is good timing for Levie and Box as they seek to move forward from a difficult year. The Q1 numbers are as follows: 

  • Revenue of $202.4 Million, Up 10% year-over-year

  • Free cash flow of $75.9 Million, up $36.0 Million year-over-year

  • FY22 revenue guidance to $845 to $853 Million (up from $840 to $848 million)

Levie added: 

We're also confident that we have the right team and Board of Directors to take full advantage of this opportunity and drive significant shareholder value going forward.

Aligning with the market trends

As noted above, despite the COVID-19 pandemic shifting companies to distributed work and enterprises having increased digital content needs, Box hasn't performed as strongly as some of its competitors. However, Levie is adamant that the company is in a good position to take advantage of the trends currently being seen in the market. 

The CEO broke it down into three core components, of which Box is focusing its strategy on. The first is the future of work and hybrid work environments. Levie said: 

In a recent Gartner study, more than 80% of company leaders surveyed said they plan to allow employees to continue working remotely at least some of the time. Even as offices open back up, traditional physical boundaries will continue to blur and enterprises will need to empower collaboration both internally amongst virtual and distributed teams, and externally with partners, customers and suppliers to get work done from anywhere.

Secondly, Box is looking to take advantage of an increased drive to digital-first and cloud. Levie added: 

Customer and partner interaction will increasingly be executed digitally from the onboarding of employees to automating workflows with partners. These workflows must function using multiple cloud-based applications, access to content in a single unified platform across a multi-cloud environment is critical to ensure productivity and business success.

And finally, data security, compliance and privacy are front of mind. Levie said: 

Governments across the world are enacting new data privacy requirements and as recent cyber attacks, such as the SolarWinds and Colonial Pipeline events have shown, cybersecurity threats are affecting all enterprises, and creating significant business disruption. Content integrity is an absolute requirement. Content is the lifeblood of a company and any breach that threatens the security of content can cause irreversible damage to the enterprise.

And it seems that this focus is resonating with customers in 2021 thus far, as Box saw a 48% year-over-year growth in enterprise deals worth more than $100,000. Levie also said that the company's multi-product suite sales are gaining strength and he anticipates that this will continue in the future. Levie said: 

Our platform offers more critical functionality designed for the multi-cloud hybrid work environment in a seamless secure user experience than any other solution in the market today. We are building the leading Content Cloud for enterprises. Our strategy is to power, automate and integrate the complete content lifecycle. From the moment content is created through the entire content workflow in a single platform that enables our customers to thrive in a work from anywhere, digital first, highly insecure world.

Our Content Cloud moves beyond legacy content management systems by automating workflows between cloud-based applications, through integrations with the apps our customers are using to get their work done, like Salesforce and Microsoft Teams. 

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