Box released its Q1 2023 earnings this week, which saw the enterprise content management vendor continue to gain momentum with enterprise buyers and its multi-product strategy firmly take hold. The results are a vindication for the leadership of the company, which fought off a shareholder challenge by activist investor Starboard Value LP last year.
The company also raised its guidance for the full fiscal year, as it nears a $1 billion annual run rate.
CEO Aaron Levie took the opportunity to point to Box’s product development strategy over the past two years, which my colleague Phil Wainewright has previously highlighted as key to its success - or as he puts it, ‘solving the hard problems over the long run’.
In Q1, we continued to execute on our product roadmap as we address a $74 billion market opportunity. We announced Box Canvas, our native virtual whiteboarding and visual collaboration solution, while also launching significant product enhancements with Box sign, Workflow with Box Relay and security and compliance with Box Shield. We deepened integrations across several of our key technology partners and we expanded our customer relationships while continuing to add new customer logos.
The success of our platform strategy is shown in our strong customer metrics as customers are leveraging our Content Cloud platform to transform their businesses and power new ways of working.
In the first quarter, our net retention rate was 111%, up from 103% in the prior year, driven by strong customer expansion rate. And for our large deals over $100,000, we had 60 new deals, and we had a 73% attach rate of suites, up from a 49% attach rate in Q1 of fiscal ‘22. We continue to see healthy attach rates in the U.S. and EMEA with improvements of our attach rates in Japan.
The key figures for Q1 are as follows:
Revenue for the first quarter of fiscal year 2023 was $238.4 million, an 18% increase from revenue for the first quarter of fiscal year 2022 of $202.4 million. Revenue growth includes a negative impact of 2 percentage points from FX.
Billings for the first quarter of fiscal year 2023 were $172.2 million, an 8% increase from billings for the first quarter of fiscal year 2022 of $159.4 million. Billings growth includes a negative impact of 9 percentage points from FX.
GAAP operating income in the first quarter of fiscal year 2023 was $0.6 million, or 0.3% of revenue. This compares to a GAAP operating loss of $10.3 million, or 5.1% of revenue, in the first quarter of fiscal year 2022.
Box’s full year guidance has now been raised, edging closer to that $1 billion mark, with Chief Financial Officer Dylan Smith saying:
As a result of our strong Q1 results and despite the impact of FX headwinds, we are raising the midpoint of our revenue range and raising our operating margin guidance and EPS guidance for the full fiscal year.
We now expect FY ‘23 revenue to be in the range of $992 million to $996 million, up 14% year-over-year at the high end of this range. Including the impact from FX headwinds we anticipated when we gave our initial FY ‘23 guidance, we now estimate the full currency headwinds to FY ‘23 revenue growth to be approximately 3 percentage points.
During Q1 Box said that it delivered wins or expansions with leading organizations such as BBC Studios, Penguin Random House, Polpharma Biologics, Signant Health, and The Hospital for Sick Children.
Levie said that Box is well placed to take advantage of the macro trends occurring in the buyers market. He explained:
Our strong Q1 fiscal results and customer metrics underscore that our growth strategy is working and that we are aligned to the key trends that are driving the future of work. Companies today are dealing with a more and more distributed and hybrid workplace as they implement the digital transformation of their business processes and face increasing security challenges across the organization.
Our Content Cloud addresses these trends by building out capabilities to power the full life cycle of content in a single platform. As we continue to double down on these product capabilities and investments, we will add more value to our customers and expand Box’s TAM.
Levie was also keen to outline Box’s ambitions for its recently announced Canvas product, which diginomica looked into last month. Levie said:
With the prevalence of remote and hybrid work now a permanent part of nearly every business, the ability to seamlessly collaborate on any type of content is critical. Over the past couple of years, we have seen a huge increase in companies looking to collaborate on visual content from product design, storyboards and project plans to flow charts, diagrams and more.
Box Canvas is an intuitive visual collaboration and whiteboarding experience that powers free form collaboration while leveraging all of the strength of the security, governance and compliance built directly into Box.
With Box Canvas officially launching later this year, it will be included across all of our product plans, adding even more value and enabling our customers to benefit from Box in new use cases across their organizations.
Box is also hoping that it’s broad platform approach will convince buyers to consolidate away from disparate solutions in use. Levie added:
With products like Box Canvas, Box Sign and Box Notes delivered as included capabilities in Box’s core subscriptions and bundles, customers benefit from getting new value from Box instantly. Especially as companies look to consolidate IT spend from various point solutions, Box remains in a strong position to help retire disparate e-signature technologies, collaboration tools, enterprise content management systems and much more. It’s a win-win that drives ROI for our customers as well as providing additional upside as customers move up to higher tier plans for more features.
Since our launch of Box Sign this fall, we have announced major new enhanced capabilities, integrations and developer tools to power even more advanced signature-based processes, helping customers move more of their transactions to the Content Cloud.
We are pleased with the momentum we are seeing in customer adoption and use of Box Sign. First quarter customers include a global legal services provider that moved to Box with a 6-figure deal in order to provide its network of lawyers who work on the most sensitive matters with secure internal and external content collaboration along with Box Sign for secure and affordable e-signature options for boilerplate agreements.
Looking forward to the full year, Levie said that this will be Box’s “biggest innovation year ever”, where it will continue to focus on its three core pillars of: frictionless security and compliance, seamless collaboration and workflow, and an open platform that’s integrated across a variety of applications. The strategy is very much now a platform one. Levie said:
We will continue to build products that reinforce each other, powering the full lifecycle of content and empowering our customers to save money by retiring other tools. Above all, we will ensure that our customers derive more and more value from Box as they move more of their data onto our platform. This is a virtuous flywheel that drives our business model and we are only in the early innings of what’s possible.
Our strength in business momentum is a result of a number of initiatives that we have undertaken to scale our land and expand go-to-market motion. These have included optimized pricing and packaging with our latest multi-product offering, Enterprise Plus.
In Q1, Enterprise Plus accounted for more than 80% of our multi-product suite deals, a remarkable achievement since the launch of EPlus in July of last year and a much quicker ramp than we saw when we launched our first suites.
Sometimes playing the long game and resisting the need to satisfy investors every single quarter pays off. The leadership at Box seem to have understood that and it seems that it is on a good track for a period of sustainable growth.