Box, Inc. (BOX)

Status Update

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Oct 3, 2019

Hi, everyone. Good afternoon. Thank you so much for joining us here at Boxworks and our Investor Breakout Session. For those of you who don't already know me, my name is Alice Lopatto, and I run Investor Relations here at Box. So before we begin, I'd like to turn your attention to our Safe Harbor statement, which is for our comments that we're making today. All right. Well, with that, I'd like to thank you again for coming and hope you had a chance to turn to our keynote this morning. This is my 5th BoxWorks and I would say that what sets this event apart is our evolving go to market strategy in which we're delivering an end to end cloud content management portfolio. So for the next hour and a half, we'll be going over our go to market initiatives as well as our business model and how we're going to deliver our product portfolio to our customers. So we'll start off by kicking it off with Aaron Levy, our CEO and Co Founder, and we'll have a discussion with our Chief Revenue Officer, Mark Whelan, who joined us in the past couple of months. And we'll conclude the presentation with Dylan Smith, our Co Founder and CFO, who will provide a deep dive into how we're driving profitable growth. So I will also conclude today's session with Q and A with our presenters as well as our COO, Stephanie Carrillo and our Chief Product Officer, Jeetu Patel. So with that, I'd like to go ahead and welcome Aaron to the stage. Thank you, Alice. Great to have everybody here today. Really appreciate everyone taking the time to get an update on our story and our business and where we're going. Just maybe quick survey, just so I have a sense of the context. How many folks, maybe just quick show of hands were able to make it to the keynote this morning just to get okay, awesome. So I'm going to fly through some of the kind of core product updates just so we get everybody who's maybe attending virtually to be on the same page. But obviously, this is a pretty important moment in our organization. What you just saw was a significant set of updates to our product strategy. And we gave the world a little bit of a preview of this last year. So if you remember the keynote last year, we just introduced Shield and the idea that we're going to be driving advanced security. We wanted to make sure customers knew where we were going as a business and as a platform. And we're incredibly proud that today we get to actually bring together the full portfolio of our product to our customers. And you're going to hear a lot from Mark, our new Chief Revenue Officer and Dylan around how this is going to start to impact the business model and why we think this is going to drive some really exciting improvements from both delivering on our CCM value proposition and momentum as well as improved economics and momentum on our path toward driving more operating leverage. So as you know, I'm CEO and Co Founder of Box and really, really exciting again the journey we've been on over the past few years. Our mission at Box is to power how the world works together. We started the company 14 years ago with a really simple idea that has transformed quite considerably in the past few years in particular. And it's really this idea that in the future and when we work from more devices, more locations, more applications, we're going to need a new way to securely manage all of the data and content that we're working with and be able to power our modern business processes. Today, we're super proud and fortunate to be able to work with 95,000 customers and 69% of the Fortune 500. I think what many of you know in this room and beyond is the uniqueness of our business model where we can serve everything from a small team to some of the world's largest enterprises, all in one platform, all with one code base, all in a multi tenant architecture with it, which is again relatively rare amongst the broader ecosystem. And what we get excited about, what we get what we focus on and what makes us most passionate is all of the transformation we're driving across industries. We have organizations like the Met Police in London that's accelerating all of the work that they're doing, which is saving lives, the ability to securely collaborate around mission critical data that needs to be accessed and shared in a highly regulated, highly secure way. And we are incredibly proud of the work that we get to do with non profits or governments like the Med Police. We are excited to work with many leading technology companies, industrial businesses, global manufacturers that are looking to both drive down costs, be able to shut down legacy systems as well as modernize the way that they operate, be able to modernize their supply chains, how they collaborate effectively. So we're incredibly excited to be able to work with companies like Broadcom or Flex and many others that are transforming their supply chains and their collaboration end to end. And one thing that we've talked about quite a bit at this analyst event over the years and certainly broadly more broadly in the market is we're seeing an incredible amount of traction in very regulated industries. Organizations like Morgan Stanley, USAA and many other financial institutions as well as organizations like AstraZeneca or Eli Lilly or Amgen in life sciences. It's when we were first growing in the cloud, it was usually only the non regulated businesses that were adopting the cloud. And actually today, I'd say we're seeing pronounced growth in organizations that are more regulated and care about data security even more than other industries. And this plays directly into our strengths and it plays directly into our product road map and strategy. And so we're at a sort of a flipping point or a turning point where the more you need security, the more you have data regulations, the more you need data privacy globally, that's actually leading to companies more likely to adopt the cloud and modern platforms like Box. And it's actually causing a pretty distinct difference versus legacy platforms or on premises architectures, which obviously plays into our strategy pretty directly. But in so many respects, and it's exciting having been at Box for 14 years and getting to watch the journey, actually how early we are relative to the total size of the opportunity, right? If you think about this year, we guided to somewhere around $690,000,000 in revenue. When you look at the total size of the market and when we add up things like management, collaboration, data security and storage technology, it's about a $45,000,000,000 market. So we're still very, very early in our journey. And as more and more of those dollars move to the cloud, we are an incredible opportunity to go and capture that opportunity. And so what we're focused on is really being well positioned to go lead in this market, what we call cloud content management. And it's really again the total addressable market of content management collaboration and the security around it. It's a $45,000,000,000 market and for the first time and you might hear from Jeetu in the Q and A, who's certainly sort of seen this in different areas previously at EMC and Documentum. I think it's the first time in the market where we're now seeing large amounts of content management and collaboration workloads moving to the cloud. So many of you know that we were the leader in what was sort of kind of a category called EFSS and enterprise file sync and share that obviously drove a lot of growth. But it was in anticipation of the broader content management and collaboration workloads moving to the cloud. And I think we're now in a very, very different period today with those workloads being able to move to the cloud, especially in regulated industries, which is very exciting. We've been driving market leading product delivery. I think what you saw today in today's announcement from a product standpoint, that is a couple of years of innovation, but we were able to do that in a relatively efficient way where we've been very focused on delivering products that are going to help advance our strategy and our market leadership and make sure that these are products that customers are excited to be able to bring into their organization and increase the value proposition of Box. And so we've been able to deliver on that leading platform and you saw from some of the that this is generally recognized across the market as the leading platform in cloud content management. We've also been building an end to end CCM portfolio, and that's like that's our products like Box Shield, Box Relay, and we're packaging up a suite to make it really, really easy for our customers to be able to adopt these technologies. We've had now our add on product strategy for the past 4 or 5 years, starting with governance and platform and some of our other advanced solutions. We're now at a stage where we're hearing from customers, they want to make it easier to be able to pull these products into the organization and make it as frictionless as possible. So suites allow us to rapidly accelerate the adoption of our add on products to our customers, which we know results in higher ACVs, better stickiness, better gross margin from customers. And you're going to hear a little bit about some of the economics that we see from customers with add on products from Dylan in just a few moments. We've been working to build our upper leadership team for this next phase of growth as well as continuing to bring in incredible operators on to the Board of Directors that have an incredible amount of experience in driving these types of businesses, both at scale as well as driving continued profit within large businesses. So we are very much looking forward to the next phase of the business and having the team ready now to be able to go and drive that as well as continuing to find more opportunities to bring in amazing talent from the outside. And then finally, and you're going to hear a lot more about this from Dylan, we're very, very committed to profitable growth with margin expansion and doing this more and more efficiently. We see an incredible opportunity in CCM and the market broadly, but we know that we can capture this in a more and more efficient way over time. And you're going to see some financial updates that we're very excited about to be able to go and drive this. So a huge commitment to driving continued efficiency and improvements, especially in sales productivity. Mark, our new Chief Revenue Officer, will give you a little bit of a taste of that at a high level, but importantly, to emphasize how much this is a focus for us right now. And when we look at this opportunity and we talked about this obviously to our thousands of customers in attendance just a couple of hours ago, The opportunity for Box and the category that we're building out has really never been bigger. There's basically 3 really big trends that are interrelated that are driving our growth today. The first is just this idea that more and more of our business processes are extending outside the enterprise. The vast majority of IT spend historically and even today is on solutions and technology that power processes within the company. But more and more of our work, more and more of our business processes and thus by extension more and more of our data is leaving the boundaries of the four walls of our organization. The data is going to partners, it's going to customers, it's going to our supply chain. And so all of a sudden IT has to start to think about how am I going to power those experiences for my employees, for my teams, for the organization. The second big trend that we're seeing and you're seeing this now with the rise of an all new ecosystem of applications that enterprises are adopting, but we know that teams are demanding intuitive cloud based technology. This includes Office 365 as well as products like Zoom, Atlassian and many other technologies. And so when you think about my processes are extending outside the enterprise, I'm using all these new applications, people are working for more devices, all of a sudden security becomes this unbelievably important problem that you have to tackle around your content. How do I protect? How do I secure? How do I manage my content as it's flowing in and outside my organization? And we know that legacy solutions and even some modern solutions focused on personal storage can't solve the problem. So you, on one hand, have a really big market, about $10,000,000,000 space in legacy enterprise content management systems that are too rigid, too costly. They don't have good user experiences. They're not built in a multi tenant cloud way. So it means that customers can't easily collaborate effectively in and outside of the organization. They can't instantly build applications that can run-in the cloud. So legacy ECM solutions can't solve this problem. And we also know that personal storage tools, whether it's OneDrive or Dropbox or other my access to my files on demand my access to my files on demand, which is a powerful use case. It's obviously one that we know very well, but it can't solve the true business problems and the true challenges that we see from our customers. This is why we've been driving cloud content management. It's an all new architecture and platform for managing, securing, collaborating and driving workflows around content in the cloud. This has been what we've been building out for the past decade plus. It's become a lot more important to make sure the market understands this and sees this over the past couple of years, but it's built on the foundation of the platform that we've been building since we founded the company. And today, we are unmistakably the leader in cloud content management. And there's a couple of different categories that technology analyst firms have used to sort of represent this space and we're still working to make sure that the industry is better and better understood over time. But unmistakably, Box is seen as the most visionary company, the one with the strongest strategy in this category across analyst firms that you would talk to. And it's exciting because we're finally seeing that really there's only a couple of options when companies think about moving to the cloud. So out of a $40,000,000,000 plus market and spend, you really only have a couple of solutions that can truly power the use cases that customers have. And when it comes to having a platform that's open, where frictionless is built in by design and where you want to be able to have seamless workflows, all with one source of truth of content, Box is literally the only solution that can drive this. You'll note that Microsoft appears in a few of these. Oftentimes Microsoft needs 2 products to be able to actually enter one of these market quadrants. So you have to be able to use multiple products from Microsoft to deliver the same value proposition that we have. So with Box, it's one source of truth for content, one platform, one data model, all with an integrated experience for security, compliance, workflow and business process. And so what we're focused on is winning in the CCM market with a very, very unique platform and business model. And again, both Dylan and Mark will lead you through a little bit of some of the ways that we think about our business model and the power of it. But the first is we have to make sure we continue to deliver incredible and exceptional experience for users and IT. That's the again the origin of the company and that's what we're going to continue to drive. We're focused on solving net new business challenges that really have a high degree of security and collaboration tied to them. We're building an open platform and ecosystem. This is the only conference in the world where you will see IBM, Adobe, Zoom, Slack, Splunk, all the CEOs and other members of leadership on stage talking about the future of work, interoperability and platforms. And that's because of our openness and our approach to building an open platform with the broader partner ecosystem. And the idea is really to focus on taking share of new workloads, relegating legacy systems to the corner of the organization or helping customers migrate those technologies. We have a mix of both. Sometimes the spend will be net new in an organization and so it's new business processes. And a lot of times it will be a customer that wants to go and rip out legacy SharePoint other document management systems and be able to move that to the cloud. So we're going to win by both driving new market share and new market gains and growth as well as making sure that we can go and rip out legacy systems. And our focus and what you heard from G2 if you were at the main keynote is really on 3 distinct value propositions in our platform. And this is where we're going to be putting a very focused amount of R and D effort. So, all of our engineering is going to go into continue to build a really reliable, scalable, secure system and then making sure that we continue to deliver product innovation along these three dimensions. And so when you think about YU Enterprises in the face of so many different applications and vendors out there, why are they choosing Box in a continuous way? The first is this deep focus on security and compliance. We're seeing the market security completely transform. The ability to have my security actually coupled with content management and the storage and the management of that data is a brand new proposition and it's letting us go after more and more budget from the traditional security categories like CASB or DLP solutions. So we're actually seeing our ability to go in now capture more budget because of things like Box Shield. The second is seamless internal and external collaboration and workflow. This is obviously a major area of differentiation for Box and you're going to see us continue to invest in this, going forward. And then finally, our open platform. When you look at great use cases like what Morgan Stanley is doing on top of our technology, being able to collaborate securely with their clients, it's because we have an open platform over the past year is an incredibly robust roadmap around driving CCM differentiation. What can we do to make sure that customers can have one platform for a secure content management collaboration and workflow and importantly unlock more budget and more spend from IT organizations as they move more workloads to the cloud. And 2 really big areas of focus that have been on this journey is Box Shield, which is an all new way to drive intelligent and frictionless security in the cloud as well as Box Relay. So Box Shield, again is probably the most significant product announcement that we've done in as many years as I can kind of think about recently, where we are adding an all new vector of both growth and opportunity for our product as well as our differentiation. We've had years years, probably 5 to 7 years where customers have come to us and said, we don't like our existing data loss prevention technology. We don't know what we're supposed to do when people access files in a way that either was accidental or inappropriate because there's drive this. So we took an unbelievable amount of data that we have internally. We have a technology called Box Graph, which understands all the activity and the flow of data in our system. And we said, what if we could build security technology natively in Box, so customers don't have to go and buy bolt on solutions, but they can actually have a native solution built from the ground up in the Box product using our unique view and lens into what's happening with data and make sure that we can actually completely change how customers think about security. So that's what Box Shield is. And this starts on a very long journey of us investing more and more in differentiation around security, compliance, data governance and privacy and more. And so this is really building on our existing leadership position in this space. I think as you look at the broader landscape of the security category, there's a lot of change happening, a lot of changes in flux and we see a huge opportunity where content security is an under exploited opportunity where more and more companies as they move critical intellectual property in and outside of their enterprise, they're going to want native solutions to go and protect that data. So Shield is an add on product that you can purchase separately. However, again, we're really, really focused on getting our customers to be adopting Box Suites. The 2nd major product update is Box Relay. We've obviously talked about this to the market investors for the past few quarters. This is an all new rebuilt native workflow solution and it's all about driving business process around content in and outside your extended enterprise. So how do we make sure that we can help automate and streamline workflows that are happening in Box, but maybe not on an automated way or where we can pull off of either legacy solutions or other systems that customers are working on. And again, what we've heard from customers over and over again is we need an easy way to adopt these technologies. And so that's what you're hearing from us today. We announced updates to our Box Suites. Box Suites will now include Shield in both editions. Our Suites are brand new as of the end of the summer. However, and Dylan will I think highlight this a little bit, we have had the good fortune of being able to do a little bit of beta testing with customers over the past 6 to 9 months. And so you're going to see some examples of customers that already bought what eventually became our suites and what happens from an economic standpoint as we work with them, which is very exciting. So we have 2 suites. 1 is really aimed at the organization that's really just focused on secure collaboration and productivity in the and that's our digital workplace suite. And then we have a digital business suite, which is about a company going through broader digital transformation. Maybe they want to be able to build custom applications, they want to be able to automate workflows with Box Relay. So we have 2 suites that are optimized for the different kind of personas that we see or the different stages of evolution that we see in our customer base. And again, we don't really see a limit in terms of what percentage of our customers can adopt our Box Suites, but it is very, very early obviously at this stage. But we have a lot of good evidence again based on selling some of these add on products already with governance and platform into the install base. Now with Relay and Shield being in the suites, we know that this is going to be a massive accelerant. And what the suites do in our add on products in general does is really help evolve the value that customers are experiencing from Box and thus the opportunity to help them transform. So if you think about maybe traditionally we've been perceived as a way to securely store share access files, again that's sort of commonly seen as the EFSS category. The really big opportunity is how do you drive intelligent and collaborative business processes across the enterprise. This is where we see examples of life sciences companies completely transforming their clinical research. This is the banks that are transforming the way that they work and collaborate with their clients. So we want to be able to drive a completely new way that companies think about their content, their business processes around that content and move them through this journey and that's what suites ultimately allow them to do. And finally, what we also see is that this helps us our new products like Relay and Shield continue to help us expand the total addressable market. So again, if you think about Box maybe 5 or 7 or 10 years ago, it was really just focused on content collaboration and storage. Then as we made investments in things like platform or governance, we were able to advance our use cases into some of the more modern ECM workloads. And now obviously with Shield, Zones, Data Governance, we can build out and build an even stronger position in data security, governance and compliance. And again, when you look at the megatrends happening in the industry right now with more and more needs around data security and privacy, this is only going to be even more important to our customer base. So incredibly excited about where we are today, and what we've been able to build. We know that we have a lot more work to go and drive. And what you're going to hear from us this afternoon are some really important updates around both how are we going to win in the market, but how are we going to do so with a higher degree of both profitability and efficiency across the organization that we're really excited about. And to really kind of help shape how that's going to happen from a sales perspective and what we're going to be focused on in terms of going out to our customers, helping them adopt add on products, adopt our suites and doing so in a very efficient and productive manner. We have Mark Whaland, our new Chief Revenue Officer, to walk you through that a little bit and then we'll have Dylan Hi, everyone. I'm Mark Whalen, Chief Revenue Officer, month 3 here at Box and I'm thrilled to be here for my first Box works. Really more so than any period of my career, I really feel like I was purpose built for this job. So as a way of background, most recently it was a company called Tanium, a private enterprise security company in the East Bay. Before that I was at Salesforce for 10 years and before that I was at Gartner for 4. And if you think about those three experiences that I have had and how they I think will prepare me to be here at Box, Gartner really learning the way that CIOs think and how to drive our teams to sell at the CIO level. At Salesforce, category creation around SaaS and cloud computing and the whole no software movement and really everything around the operational nature around running a SaaS business at scale. And then at Tania must being now really a security first kind of content, cloud content management company. All those things really come together quite nicely for what we're trying to do here at Box. And to tell you a little bit about my priorities here as we go forward, let's get these slides to advance. I just want to leave my face up there for as long as possible. So first of all, when I was making my evaluation about what I wanted to do next, I looked through it maybe through the same lens that all of you think of Box. And I really was excited when I thought about the market opportunity and the upside potential. If you think about what's been going on in SaaS over the last 20 years, all of the major business applications have or are moving to the cloud. When you think about ERP and of course CRM and HCM, CIOs have been moving all of those workloads to the cloud. And for some reason, content is still handled the same way that it has been for about 20 years. So it's not a question of if it will move to the cloud, it's a matter of when. And I thought that Box is really better positioned than any company out there in the market to change the way that enterprises work with their content. And then secondly, that opportunity to create a category is something that I had the opportunity to do at Salesforce, which was an incredible experience where you really change the way that the market thinks about their problem and get to shape that opinion and then take a leadership position in that space. We're in this unbelievable position now where all the analysts sort of agree with our vision and have put us in a leadership position. And I think that gives us a great platform for us to drive that vision forward in the marketplace. And then the people and the culture is really a necessary ingredient in order to go on a journey like this. And I've just been blown away by the caliber of people that I'm working with here at Box and the interest in driving the business to the next level of performance. In my 2 months of 1 on ones and flying around the world to meet with customers and partners, I'm not meeting any boxers that don't want to do better, that don't want to change and are deeply passionate about our cause, then you really need that in order to drive through this next wave of growth. And then of course, I think a lot of hard yards have been run by the team over the years before I got here to position us for the next stage of growth. And I think we have a great foundation ahead. So to share with you some of my priorities for the go to market organization, it's really around customer expansion, volume and velocity and sales productivity. And I'm going to double click on each one of these briefly. So starting with customer expansion, we are really in a subscription business. And one thing that I learned in my past very clearly is that when you bring on a new customer, we're in a seed and grow business and you sell that deal and then you immediately start reselling the day after the contract is signed. If they sign a 3 year deal, then we have 36 months of selling ahead of us. And we are constantly re earning our customers' business each and every day. And that's not something that's on the shoulders of our support team, our CSMs team, marketing or in sales. It's a whole company effort to do that resale effort. And when we make our customers successful and this has now been proven by all successful SaaS companies, then they in fact expand their seats across their enterprise from maybe a departmental purchase into a wall to wall relationship over time. And then they can upgrade through additions and suites. And so very exciting time here at Box that we now have suites that we can upgrade our customers into. So we've always had the selling motion around extending the seats, but now we've got a material selling motion around moving up into suites and adding great new products like Shield and Relay that you learned about today. And this is really as I mentioned kind of a whole company initiative. So we will see a continued increase in that net expansion rate. And then secondly around volume and velocity, we need to create a much more repeatable set of use cases and selling motions around the world that are focused on the 3 key differentiators that you've now seen a couple of times today. And the sweet spot for us are really those 100 ks deals. One thing you learn in SaaS is that big deals are really, really great and they can be celebrated, but most companies actually start a little bit smaller and they become successful and they grow over time. So whether a customer starts with us at $10,000 or $100,000 or $1,000,000 we want to make them wildly successful, passionately successful and then get them to grow over time because really what you want in SaaS are big accounts. Whatever the deal sizes that they arrive at, we don't just necessarily want big deals. What we really want are big accounts because they are being successful, which makes them want to consume more and more of our technology. And they get more and more successful when they're using Box for those key differentiators, when they're using us for security and governance, when they're using us for internal and external collaboration, and when they're using us in an integrated fashion across their application stack. That's really the sweet spot for us. And when we do that, we will drive more of these 100 ks deals. So you will see an increase in the 100 ks plus deals and those 100 ks plus deals solve a lot of issues for us because they become big deals over time and they really become the fuel for revenue growth in the future. And then lastly, we're putting a great effort into sales productivity. All SaaS companies hire, hire, hire. But when you have the time to hire new reps, the time to onboard and bring them to success and then driving higher levels of productivity per rep in the sales organization, you really need high levels of productivity, both how much do you get out of each rep as they're on the ramping cycle and once they reach fully ramped and also the participation rate, how many reps across the organization are contributing at any level at all, if it's 25% or 50% or 75%. So we're putting huge investments into driving a higher volume of deals and that is, that is you know the first part of that is by really doing a better job of selling into our installed base. And then putting big investments into sales enablement as we change our selling motion to cloud content management, which is much more of a both IT and line of business selling motion. We're doing a great deal of training there. We're making big investments into training our sales leaders, so that if you go to any box office anywhere in the world, those frontline sales managers, which is really where the rubber meets the road in a sales organization, are managing the pipeline and the forecast and the way they're coaching and developing their people in the same exact way in every single office. This is something that I learned when I was at Salesforce. And then, lastly, more of a focus on performance management and importantly, we've updated our hiring rubric, because really the class of sellers that we need to hire today and that we are hiring today and are the ones that are the top performers are really of a different kind of a caliber than perhaps the ones that we built the company on 10 15 years ago. So those changes are all being made right now and we'll see much improved performance on a per headcount basis as we go forward. And with that, I'll hand over to Dylan. Thank you, Mark. Great. So as you've heard from Aaron and Mark today, we've made substantial progress evolving our product and business capabilities over the past year. We've now built the foundation to deliver much more profitable growth going forward from our market leading product to our blue chip customer base to an experienced leadership team and making a handful updates there that is now fully in place and Now I'm going to walk through how everything we've talked about today flows through to our business model. We'll also share some of what we're seeing in the numbers that gives us the confidence that we're well positioned to capitalize on the market opportunity in front of us. But first, wanted to make it very clear that over the next 3 years, we're going to be delivering significant improvements in our financial profile. We're taking a disciplined approach both to streamlining our current costs and to drive more profitable growth going forward. And as a result, you can expect to see us more than double the combination of our revenue growth rate and free cash flow margin over the next few years from about 16% to at least 35% for the full year of fiscal 2023. And next year in fiscal 2021, you can expect to see a roughly 9% or at least 9 percentage point improvements to 25% plus. And of that 25%, we expect to see roughly half of that coming from revenue growth and the other half coming from free cash flow margin. So given the seasonality in our business, our performance in the back half of this year and Q4 in particular is going to be a key driver of future revenue growth. But regardless of that H2 outcome, we're committed to achieving this 25% plus target next year. So for the agenda for the next 25 or so minutes, going to walk through everything that Aaron and Mark teed up. So first, we're going to look at how our customer base is evolving as customers are increasingly adopting our cloud content management product portfolio. Then we're going to dive into the business model implications of this from contract values to net retention rate to overall margins. After that, we'll share some of the trends that we're seeing in sales productivity and overall sales and marketing efficiency, as well as our plans to improve both. And then finally, we'll discuss some of the specific areas of focus where we expect to drive additional leverage and efficiency in the model and how we expect this to show up in our financials. This year as we've talked about, we've really solidified our product portfolio to support customers realizing the full vision of cloud content management. And our efforts and success there have led to increasing recognition as the market leader in content and collaboration. And this year to recap, we've made meaningful progress in all three pillars of differentiation that Aaron hit on. On the frictionless security and compliance front, we'll be introducing Box Shield later this month. From a seamless internal, external collaboration and workflow point of view, we launched the all new Relay last quarter and we've made a lot of different and built a lot of different high value integrations with the best of breed ISV ecosystem, most recently announcing improved or new or expanded integrations with companies like Splunk, Adobe, IBM, Slack and Microsoft Teams. Again, this breadth of our product portfolio is packaged into suites, which we launched last quarter to deliver holistic solutions and to our customers and to simplify our go to market motion. These suites highlight our full capabilities, differentiation and value and so far we're already seeing very strong demand for these suites. We are seeing strong momentum in the overall bookings and attach rates of new products even prior to Relay Suites and Shields coming online and really impacting the numbers. We continue to see that being led by governance followed by platform as the 2 biggest contributors to our overall bookings from an add on product point of view. I would call out that the attach rate that we're seeing in the new deals that we're booking are fairly consistent between customers buying Box for the first time and when we go in and expand a deployment with an existing customer. And just to get a sense of the trend, you can see that add on products contributed about 28% of our total new bookings in the first half of this year. A year ago that was in the 20% to 25% range and we would expect that in FY 2023, 3 years from now that will be roughly half of our total bookings. And as a result, a growing percentage of our revenue base is now associated with at least one add on product, with about 2 thirds of that total revenue being attached or associated with at least one of these products in our 6 figure deals and above. And this is a really important and encouraging trend as the economics of these customers are significantly better, which we'll cover in just a bit. So here we're going to zoom out and look at our total customer base that's paying at least $5,000 with us annually, right? So that's about 90% of our overall recurring revenue. And we're also breaking out what is coming from customers who have exactly one add on product, which is that middle blue bar as well as those that have at least 2 of our add on products, which is that darker blue bar on top. So collectively, more than 50% of our total account value or kind of revenue run rate is coming from customers who have purchased at least one of those add on products. That compares with less than 30% a couple of years ago. And as we turn forward based on the trends that we're seeing, we'd expect that by the end of next year, roughly 60% of our total revenue or account value is coming from customers who have purchased at least one add on product. And in FY2023, 3 years out, we would expect that to be north of 70%. And one important dynamic to call out here across these categories is that these are often the same customers if you look at how this chart evolves over time. So if you turn back to a year ago, about 25% of what was then in core total account value has since over the last 12 months upgraded into one of those core plus categories. And so this is not different businesses and our challenge and opportunity is migrating as many of these customers to adopting higher value use cases and the associated add on products as quickly as possible, which has huge implications on our overall business model. So to build on the CCM momentum, as Mark discussed, we're going to be very focused on making our existing customers successful, reeducating them, working very closely with them to move along the value spectrum, the business value spectrum that Aaron shared in his presentation. And the data shows that when we do this and these customers adopt additional products, the economics become significantly better really top to bottom. And if we're successful specifically, this should lead to larger deals, healthier expansion and retention rates and improved profitability. So here on this chart, really highlights how important customer expansion is as a driver of our underlying business model and growth. Looking at the breakdown of how our revenue base has scaled over the past decade by customer cohort, each color is a different year in which they signed up. And this goes through the end of our last fiscal year in FY 2019. I would note this is now cutting across 95,000 customers. And within the existing customer base that we have today, we have a multibillion dollar opportunity. So as we focus and increasingly drive these conversations that Mark was getting into, we have plenty of headroom to run both by selling more seats, but importantly increasingly adding add on products. And in particular, if you look at the first column, you see that is the compounded annual growth rate of each of these customer cohorts since they first became Box customers. And then that second column is the same set of customers, but the compounded annual growth rate over just the last couple of years. The dynamic here is that, the our older customer cohorts, so really anybody, who joined prior to FY 2016 are growing at a much slower clip today, right. That's in the mid single digit range, whereas the more recent customers who have joined Box when they had a better sense of in our product roadmap was further along are not just expanding more quickly, but are much more likely to be buying additional add on products as well. So again, that is just why we're so focused on making sure we go back in to some of those older for for their business is on average less sophisticated than some of the more recent customer cohorts. So this land and expand dynamic is most powerful in our largest customers, with healthy growth in customer counts across all three of the large deal categories that we talk about. And while the increase in these types of deals and the growth we're seeing in these customers is much more regularly coming from the sale of add on products. The type of customers we're selling to hasn't significantly changed over the last couple of years. We're continuing to see strength in the financial services space that we called out last year. And we are now starting to see some pretty strong momentum in the public sector as well. And then just in terms of thinking about the size of these customers overall and the impact, if you look at those 975 6 figure customers, which includes the kind of customers in the larger categories as well, they now represent 60% of our total revenue. And turning to the $1,000,000 customers there on the right, you can see that we've seen pretty healthy growth over the past couple of years, the count up about 35% over that time period. And at the same time, we've grown the ACV of those customers by about 35% over the past couple of years. And so going from about $1,700,000 to about $2,300,000 on average. So the total account value embedded in our largest customers, those $1,000,000 plus customers, has gone up by about 80% over the past couple of years. And of those 72 customers, I think an important piece tying back to the nature of land and expand where we see the most success and where customers see the most success is that about 40% of those customers who are paying at least $1,000,000 today never had a single transaction that was at least $1,000,000 We're getting there and building that through steady growth over time, hitting singles and doubles. And we do expect to see that suites in many cases can help accelerate some of these conversations, but we are much more focused on driving success really in the sweet spot of the predictable, much more likely to close use cases and then building from there. And that maps very closely to what we've seen historically where we've been most successful. So here we'll look at a couple of specific examples of land and expand at work in $1,000,000 plus customers. As you can see, generating pretty steady consistent growth over time. Both of them pretty old customers signing up many years ago and using corebox even after we had started to introduce products generally saw a couple to a few years of just using core box. And then for both in the past year have upgraded to adopt our more broader set of capabilities, basically buying effectively on top what is the digital workplace suite even before it was officially available. And on bottom, the digital business suite, including all of governance platform relay zones, but not shield, which is also in there. And the latter kind of highlights roughly what we see and would expect to see in terms of the impact on a price per seat basis when customers adopt the full breadth of product capabilities that we have today. So if you strip out a Box platform, which is not sold on a per seat basis, that customer was paying about $800,000 a year. And then upon adoption of the full digital business suite, grew that to about 1,600,000 dollars just over doubling on a price per seat basis using the same number of users. So as a reminder, here you're looking at the pricing trends that we've seen on a per seat basis over the past several years continues to be trending positively and for many of the same dynamics. So first, just as a reminder, we tend to see the largest volume of bookings, particularly large deals in the Q4, which is why you see a little bit of an up and down as we tend to give volume discounting for those larger deals and so the back half is a little bit lower because of Q4. And a year ago we talked about the trends we've been seeing that at that point average price per seat had gone up by about 30% over the prior 2 years, driven by both the impact of add on products from both a pricing as well as an attach rate point of view and uplift even in the core seat price. A year later today, we're seeing the exact same trends play out. You can see continuing to increase in a pretty solid outcome in the first half of this year. And again seeing increases both from add on products as well as a bit of an uplift from the core seat pricing. And so just the way this is really important and why this matters so much for the business model as well is our goal isn't just to deliver growth, it's to deliver profitable growth. And as we'll see in a bit, when customers adopt our add on products, they tend to have higher gross margins because the gross margins of virtually all of our add on products are significantly higher than the core margins as there isn't really cost to serve associated with that. It's just software that is already built and doesn't really add to what it takes to serve those customers. So we have said it many times and now we'll look at the numbers here. But what you're looking at is effectively a comparison of the economics across customers who have purchased just core only Box, although we do include customers who are using Box Zones in that category, because that doesn't fundamentally drive any different use cases. It's more of a data residency play. And then look at the economics of customers who have purchased exactly one add on product and 2 or more add on products. And so you're looking at a snapshot in time as of the end of our most recent quarter, so on July 31. And the only metric where that's different is for the net retention rate as that is a trailing 12 month metric, so over the course of the last year. And so going top to bottom in terms of where the numbers are, from a total account value standpoint that maps directly to the slide that we were looking at earlier, although this does include a little bit of a broader set of customers. But kind of big picture is about half of our revenue is in those one of those latter two categories. If you look at average contract value, again, see really a step function increase when you go from a single product to at least one of the add on products, because when you're using those add on products, the use cases and the value you're getting tend to be a lot broader as well. So that's correlated pretty closely with a significantly higher number of seats in those accounts as well. And then I would note that we would not over time expect to see that big of a difference between the average customer ARR in the 2 plus add on category and 1 add on, for example, as we start to broaden the customers and increase the number of customers who are using multiple products, especially with suites, we would expect that number to likely come down, although the total account value should increase pretty significantly over time. And so if we continue along, you have the net retention rate, which again you see a pretty stark difference between customers who are only using core box versus at least one of the add ons and just gets better and stickier with more add on products. In terms of a trend standpoint, we are seeing a bit of a decline in the core only net retention rate, primarily being driven by lower expansion. But that also is the part of the market where if there is going to be any pricing pressure competitive concerns, it's going to be much, much more likely to be in that set of customers. And then the net retention rate in the other two categories has been pretty stable over time for as long as we've had enough data around these products. And then the gross margin again because of the much higher kind of margin profile and even higher core seat price that we get from our customers, you see that customers who are using at least one of our add ons are higher than the 70%. And then finally a metric that is not on here, but it's pretty important in the broader context of our model is our win rates, right? Because we're much more differentiated when customers are using or considering at least one add on product, the win rates for our core only opportunities are a little less than 50%, whereas the win rates for 1 or 2 plus add ons combined are about 2 thirds, right? And so that when you're winning a higher percentage of deals, that's just a natural kind of tailwind for overall sales productivity and efficiency. And so again, the kind of big picture is we see significant differences across the board in the economics of our customer base depending on how they're using Box. And this analysis is critical to understand why we're so encouraged by our strategy and the progress we're making because if we believe that we will continue to convert these customers from core to adopt a more advanced capabilities and the metrics broadly hold, that's going to result in a much, much stronger financial profile over time. So now moving on to the go to market side where as Mark discussed, that engine is poised to capitalize on all of these trends and product capabilities as well. And the core focus areas are really going to be around our existing customer reeducation and expansion, driving volume and velocity and consistency as well as overall sales productivity improvements. So here we're looking at a regional view of sales productivity trends over the past 3 years, full fiscal years, ordered by the biggest contributors to our bookings to the lowest contributor to our bookings, cut into those 4 categories. As a note, this is our blended productivity outcome of ramped and ramping reps. So if you add up that rep count shown there at the bottom of the slide, that sums up to about 300 exactly 300, which is how many reps we entered FY 2020 with. I would also note that this is a pure bookings calculation. So it's the actual new annualized recurring revenue that each of our reps on average in each of these categories signs. And so it excludes other things that might impact things that flow through to the financials such as payment durations or the enhanced developer fee or customer churn as this is just the bookings driven by the sales force. And the good thing is we are seeing bright spots. We know what looks like. Mark mentioned that we've been getting a lot smarter about performance management and kind of revamping our overall hiring profile based on everything we've learned as we've gone through this evolution. But the reality is we haven't driven this and these outcomes consistently and we are not happy with the overall numbers that you're looking at here. And so just to call out one reason that we've discussed in the past and give a little bit of color commentary is EMEA and our emerging markets. So some of the smaller markets that we're building out. Again, because it is a blended look at ramped and ramping reps and you have a much higher percentage of ramping reps in that region, that is a pretty significant headwinds around those productivity numbers for last year. We have seen an improvement and making kind of good progress this year, but still not where we'd like to be. And then of course Japan, which you've also mentioned as a continued driver of strength and growth in our business, has continued to perform extremely well and becoming more and more productive over each of the last few years. So if you think about the levers that we have and why we're so focused on this, the biggest kind of set of things around attainment come down to everything that Mark talked about, right? With the product capabilities and better equipping our reps enabling to sell those capabilities, going deeper with our existing customers where we tend to see higher rate, higher likelihood to close, more efficient sales, repeatability as well as revamping, the kind of regional leadership team, which we've already done, as well as refining the AE profile is one big category and we expect the majority of the kind of focus and benefit to come from. But on the other hand, we do also expect to see a little bit of natural lift because of the dynamics of what that sales force actually looks like and improvements in overall tenure, which drive overall kind of sales capacity and higher quotas without increasing cost. So for example, as we've now ramped up in some of these regions that we've been rebuilding over the past 12, 18 months And as we meter the rate of headcount growth in the sales force, both of those should also increase the firepower that we have, the sales capacity that we have in the fields for the same number of AEs. And combined, that's where we think we'll drive that roughly 15% productivity improvements over the course of the next year. And despite the kind of mixed motion associated with acquiring a net new dollar of new ARR. So landing a new customer and the efficiencies there, you can see that we have brought down that cost as the fully burdened sales and marketing expense. So effectively, all of the bookings toward land over the applicable sales and marketing spend to go out and acquire those dollars. And while the trend is in the right direction, there is much more that we'll be doing to improve sales efficiency, which we'll cover in just a bit. And then completing the picture with the other couple of sales motions, you can see the cost to upsell one of our existing customers there in the middle. As you'd expect, that continues to be more efficient as once we've built out those relationships with our customers, kind of cleared the major security legal compliance hurdles, tends to be a smoother sale and have a higher likelihood of kind of resulting in a one deal. And we've driven a little bit of improvement there, the same $0.05 on a year on year basis. That was about $0.90 on the dollar a year ago, now spend about $0.85 there. And our renewals tend to be a highly efficient sale, right. So in the past, more than 50% of our total sales and marketing spend has been geared toward acquiring or landing new box customers. And that has trended down over time. But with the our growing customer base, our increased focus on expansion and kind of driving a lot of the things we've talked about in those customers, we would expect that trend to continue, which should drive an additional level of efficiency in the overall kind of go to market motions. And putting it all together, if you look at kind of subtitle and what it adds up to is if you take today's economics and factor in all of those fully burdened both sales and marketing expenses as well as cost to serve, a dollar of bookings that we close should result in more than $9 of contribution margin over 10 years. And as this customer base continues to expand and renew and those types of sale become a bigger percentage of our overall kind of sales, we would expect that to drive additional leverage naturally in the model. And so also just kind of last point is we do have enormous future value embedded in today's customer base because of those healthy customer dynamics for especially on the kind of retention side. And then finally, as mentioned, you'll be seeing us do a lot more to kind of balance growth and profitability, deliberately drive kind of costs down in different parts of the business and to see much more of our incremental growth flowing through to the bottom line. And here we're going to dive into some of the specifics of where the key kind of spend ratios have trended as well as where we expect them to go. So here you're looking at sales and marketing spend as a percentage of revenue on that chart on the left. That's over the last 3 years historically where we're tracking for this year fiscal 2020 as well as our expectations for next year in fiscal 2021. The only thing I'd note there, if you look from FY 2018 to 2019 is at the start of FY 2019, we adopted ASC 606. So that creates a created a roughly 3 percentage point tailwind to the numbers. So it kind of overstates that improvement by about 3 percentage points. So continuing to drive pretty steady leverage over the last few years. And lastly, would just say that the sales productivity side is probably the biggest one where we have the opportunity to improve where we didn't make the progress we had hoped over the past year. In a lot of the other areas of the business, we've been pretty pleased with the leverage we've been driving. So we are seeing consistent improvements in the ROI of our different areas of marketing spend. We've streamlined the overall go to markets operation and you would expect some of those things to continue. And then finally, I think the sales productivity and inherent business model pieces are what we had already covered in both Mark's and my prior commentary. And then zooming back out to the overall operating margin, while we do expect the majority of the leverage that we're driving over the next year, I think I'm from sales and marketing. We are making changes to how we operate across the company to accelerate margin expansion. So again, same sort of format with how we're tracking for FY 2020 and our expectations for next year. Again, 606 is a bit of a factor, although it's about a 2% benefit in operating margin over the course of or in FY 2019. And would also note that in FY 2020, we are on track to show this improvement while absorbing a roughly 3 percentage point headwinds because of the duplicative costs and everything associated with the data migration that we're in the midst of. So this year, we're on track to deliver our 1st full year of non GAAP profitability. And next year we expect that to grow to positive 8% operating margins, which is versus the previous commentary that we'd given of 6% to 7%. And then in terms of the biggest areas that we're going to be focused on, workforce strategy is going to be one where we overall headcount expenses to remain roughly flat on a year on year basis. That kind of makes up the majority of our overall spend. And we're also increasingly moving different teams and have in the works more and more of what we do coming out of lower cost locations to drive some savings there. Gross margins, that's the 2nd biggest area of focus in terms of the magnitude of impact over the next few years, lot we're doing there. That first bullet you would expect to see kind of naturally in the model as we get through our data center migration middle of next year. So we do expect that to drive a good amount of improvement over the next few years, but pretty metered next year as we'll still be experiencing those duplicative costs for most of the year. Mention the dynamic where the more successful we are at selling add on products and communicating that value, the more we're going to continue to see strong price per seat outcomes or higher and that will flow through to stronger gross margin and ultimately operating margins. And then many other things in the works around optimizing our infrastructure as we continue to scale and build that out. And then finally, from an operational rigor to drive cost reductions, that's going to be looking across the entire business and really focusing on everything that is directly driving growth. We've made investments in the past to be able to drive automation through systems and a lot of those pieces and you can expect that to continue and drive some leverage. And we are also and you've hopefully seen this year really focusing our product roadmap on what is going to drive the highest ROI, the highest customer impact and that will help us prioritize even more rigorously around what ends up being developed and drive some leverage there over time as well. So going back to the full P and L view, covered most of these looking at the trends over the last couple of years, what we're tracking for this year in FY 2020 based on our guidance and commentary we've given as well as our kind of model for 3 years out. We expect revenue growth at that stage to be in the 12% to 18% range. And we will tune expenses depending on where that is in the range to ensure that we deliver at least 35% in combined revenue growth rate and free cash flow margin. Gross margin, as mentioned, do expect that to trend back upward into the mid-70s for all the reasons that we just discussed. On the sales and marketing line, that's where we expect to see the biggest improvements, both next year as well as in the coming years through a combination of all the things that we've done. And then across the business really doing a lot to improve our underlying cost structure and really drive productivity before scaling and that applies beyond just the kind of sales side of things. And so overall, when you look at all those pieces, that results in operating margins of somewhere in the 15% to 20% range in that year, which is relative to the previous target that we put out for roughly the same time period of about 11%. And so again, from a trajectory point of view, we are very focused on kind of driving these improvements in our financial profile and expect to see that combined revenue growth and free cash flow margin improve from where it is today to at least 25%, 30% and then 35% over the next 3 years. And final recap of what we covered today. So as you heard customers are increasingly adopting our CCM product capabilities to solve higher value use cases than they ever have in the past. When they do, the economics of these customers become significantly better. We are not yet where we'd like to be with respect to overall go to market efficiencies, but we have the foundation in place to drive improvements there in the near term. And as a result of all of those things, our financial profile is going to improve significantly over the next 3 years as we continue to focus our efforts on streamline our costs and more profitable growth. So with that, I would like to call up friends and colleagues to the stage. All right. So thanks for going through that update with us. Wanted to make sure that you had some time to ask questions of a good chunk of our leadership team. Everyone, I believe, knows Jeetje Patel, our Chief Product Officer, joined us a few years back and has definitely been in this space and kind of seen the transformations over the years. Steph Kurilla, our Chief Operating Officer. And so wanted to make sure we could open up, talk about obviously anything around the financial model you just saw and we can dive into that, anything that's going on from a product strategy standpoint, so wherever we want to get started. Hi, Rich Hilliger from Wells Fargo. Thanks for the increased color on your growth versus margin framework. That's definitely very helpful. When I look at the guidance for next year and you mentioned that half of the 25% is going to be coming from revenue growth. I think that implies that your revenue growth for 2021 would be in line with or slightly below this year. So I guess I'm kind of wondering, you previously talked about potentially reaccelerating into 2021. So could you maybe walk us through your thoughts on maybe what might have changed and how you're thinking about that whole situation potentially reaccelerating revenue growth? Thanks. Yes. So I would say that we certainly wanted to give a good sense of the framework as, want to provide an overall kind of trajectory and as well as the philosophy of how we think about the balance, and kind of interplay between revenue growth and overall bottom line results and profitability. I would say that this is wanted to be pretty thoughtful about the numbers that we put out at this stage and give an overall sense, which is why I say roughly half, largely because as mentioned, we do have a pretty important couple of quarters coming up and wanted to make sure that we are communicating things that we feel really confident in delivering against. So I would say that we have not seen since our Q1 call and reports since then, our overall view and confidence in the business and everything that would be driving these results has remained either steady or improving based on some of the early reaction and adoption of some of these newer products. So none of that has changed, but really just wanted to be prudent with respect to how we're communicating things at this stage. Eric Supergert, JMP. How are you looking at new logo growth? Is there going to be an expense? Is the focus on the installed base going to be at the expense of new logo growth? And should we be concerned if we see something like that happening? We will take the high level and then Steph or Mark can build. I think that we have as we look at our opportunity of the highest amount of leverage immediately from a growth standpoint, obviously, much of that comes from the installed base, where we know that we're under penetrated both in seats as well as our add on products. Obviously, products like Box Shield or Relay are things that are in such demand from existing customers that we want to make sure we can go and sell those to existing accounts. At the same time, continuing to make sure that we're gaining market share is very important. So I don't think this is at the expense of new logos. I think it's given that we now have so much new product and capabilities to bring to existing customers. We are going to put more emphasis on that in the sales motion and making sure that reps are spending even more time with existing customers and driving upsell, but not at the expense of saying new logos are any less important. But now that we have the new product capabilities, we have way more to go sell the installed base today. Aaron, when you look at suites, can you give us a sense of how broadly applicable it is across your customer base right now? And which elements do you believe will be the biggest catalyst in getting people on there? Is it Shield, Relay? This would be more fun as like a blind survey from the 4 of us, because we have a bunch of internal bets. But I would say the first thing and again Mark or Stefan anecdotes from what you're seeing in the field. I think the exciting thing 1st and foremost is we're seeing actually how broadly applicable suites are. Some of our we've seen examples where we'll have a mid market customer that's paying somewhere between 3x and 5x more than what they would have in a non suite world just because the differentiation is so much more profound for that customer. And so when we see sort of mid market life sciences companies or manufacturers or anybody in the financial services space, we're seeing a lot of great opportunity. And we're only literally 3 months into the GA of suites. I think we could probably all collectively say and disagree, feel free to, but I think Shield is probably going to be the real sort of outsized driver just because we know that security is it's already been so core to our differentiation, but this just takes it to a completely different level. And I think it's going to be a huge catalyst for buying the Suite. And then of course being able to power and embed more deeply into business processes is great for stickiness and differentiation. But would love to if you have any other anecdotes on that? I'll jump in and then Mark can as well since he's been on the road a lot talking to a bunch of our clients. It has enabled us to change the conversation. So as we've moved from EFSS to cloud content management And we've been talking about this for the last 12 months as we were Jeetu and I were looking at add on products and the ability for us to actually go out to clients with just a much deeper story now because we're bringing the best of all of the box together in these suites. The conversations are very different. And so we're really focused on the high value use cases that are very much an integral part of the customer's business and no longer having these conversations about fulsing and share, because we really they're the conversations that are not any value to the client quite candidly nor are they to us. And so the suite has allowed us to actually very quickly elevate and have the right level of discussions across the entire business. So I think Mark mentioned, it's no longer the CIO and those folks in the CISO, but now it's line of business as well. And so this also enabled us to go wider in the organization. Yes, I would agree as well with the comments on Shield. There's this real logical consistency between the simplify the way you work top level message, the core tenants of cloud content management, our differentiators that are really security first and a product like Shield that you can purchase on its own or in a suite. And just after the keynote today, we drink our own champagne in terms of the tools that we use. And I was watching the feed just in the back of the room and sellers on the team are saying that their clients after the keynote were saying how much is Shield and how can I get it? So I think there's definitely going to be strong uptake. That wasn't any form of new guidance by the way. So we just want to make that clear. When other software companies talk about revenue growth and either free cash flow margin or operating margin talking about Row 40%, you guys are talking about Row 35%. What's the is it structurally different about your business that you can't get to 40% cash flow plus revenue growth? Yes, I think maybe I'll just high level and then Dylan build. First of all, 1st and foremost, we do want to emphasize said 35% plus and obviously not missing the point on the 40%, which is obviously very important. Structurally, nothing is different about what we're doing versus the rest of the market. We have made investments over the past few years in things like building out our infrastructure, making sure we had the R and D in place to go and build a very differentiated product. I think we feel very happy about those investments and how they played out. Now we're actually at a point of probably getting more leverage because of those investments. And so I would expect that you should think about us in that type of framework over time. And we want to make steady step function improvements to how we're operating, how we're driving leverage in the business and driving profitable growth. And again, hopefully, you'll see as we showed some percentages in the long term model, a lot of this will sort of be driven by what's the rate of growth in some of those in the next few years and that will ultimately drive I think some of the impact to the 35% plus dynamic that we're seeing in the business. But nothing structurally about the business that doesn't get us there. And I think we're getting even more and more leverage over time as we're looking at the business, especially when you saw some of the gross margin profiles that we're seeing from customers that are leveraging more of our advanced capabilities. I think you could see that obviously in a very significant way driving bottom line performance that built on that. Bill, anything to add? Yes. I might add, I mean, reiterating what Aaron said, but also note that if you look at the overall profile that we laid out, it's probably not too dissimilar from an expense point of view than what many peers have either done as targets for a similar kind of scale. What I would say is that to Aaron's point, strategically, we've been investing because of the new markets that we've been moving into and the kind of depth of and type of innovation we're driving. R and D is a little bit higher than most companies would be at that scale, but we think it's the right thing to do and that we will get leverage to Aaron's point over time. And then the other note I would make is just the reality is today, our overall sales productivity, go to market efficiency, however you measure it, is lower than most of our peers. And we when we're talking about the targets and what we're doing, especially at a specific moment in time and being 35% plus, we want to make sure that it's something that we feel extremely confident in being able to meet or exceed. And if we can make greater improvements, and you're doing all the things that Mark and many of us have talked about, there could be upside, but we want to make sure that we're kind of setting expectations appropriately. Thank you. Matthew Kosz with JPMorgan. Mark, you've laid out the goal of achieving a 15% sales productivity increase here. How does this compare to prior productivity increases at Box or industry standards for sales productivity benchmark, how difficult or easier or medium this goal is going to be? At least certainly from the historical point of view is, I would say that over the past year, productivity has been relatively flat. And then we did see the year prior solid gains in the kind of approaching 10% range from ramp reps. But in that year, we had been investing pretty heavily in our sales force. So our blended rate was more metered. It was positive, but barely so. Over the past the prior couple of years, we had seen pretty kind of solid consistent productivity improvements in the kind of 10% or low teens range. So we did that for a few years running and a lot of that was as we were starting to move into newer markets partly because of the mix of field and commercial sellers. So there's a lot that's going into that. But ultimately, because of the more metered improvements in productivity and even declines in certain places, like if you look at those EMEA numbers, you could double your productivity year on year and still not be up to what we have proven we can do in past years. And so I think there's a lot going on there, but based on everything we see from the raw capacity that we have, the demand that we have, all of those things, we feel like that's a very achievable number for all the different things that we talked about. Related to the first comment about sales and new logos, can you talk about the compensation for the sales teams for new logos versus add ons? And if you're not really growing the sales force, can they be in 2 places at once, selling add ons to existing clients and spending the time on new logos? In my experience, in the old software world, in the client server world, sales organizations were very focused on landing the first deal as big as possible, because then once they ship the CDs, the burden of going live and achieving success was all on the shoulders of the customer. And as you know, the customers struggle and struggle and struggle and they don't want to buy more. In a land and expand SaaS model where the customers realize success much faster, the time to value is much faster. In seed and grow, it's very important that you keep your talented sellers that have the line of business and the IT relationships connected to the accounts. And so it's really a proven model in SaaS that you keep your most talented and skilled sellers on the accounts. And it's been proven by a number of companies, of course, where I worked with Salesforce for 10 years that that's really the path to success is that you constrain territories. People shouldn't have massive territories. They have to have focused territories with a mix of both installs and prospects. And they're measured against delivering success in both of them. So that's been pretty well proven. It doesn't work if you have thousands and thousands of accounts because then they likely won't go do the hard work to open up the new logos. But if you design and carve territories appropriately, you'll get growth out of both cohorts of customers. The other thing I'll add is we've seen a lot of success around certain industries, particularly regulated industries. And so the work that we're doing, for example, in financial services, government or life sciences, there's definitely a little of a viral effect. So where we have some incredible installed base clients that we've either worked with for years or acquired in the last couple of years. And what we've found is, as we've continued to build and go deeper, that sort of cohort of industry clients of watches what everyone else is doing. And so you start to build momentum around some of these segments. And we've definitely been able to capitalize on a lot of that as well. So you're seeing this healthy balance between sort of expanding the footprint, but at the same time bringing on new clients. And just wanted to clarify one thing, that it sounded like you could ask about a mix of both new customers versus focusing on our existing customers, but also we're talking about add ons. So to clarify, we don't differentiate from a compensation standpoint today between the bookings that come from a new customer buying box for the first time and growing an existing customer for all the reasons that Mark highlighted. But we do pay at a higher rate when reps sell those add on products. And that holds whether it is add on bookings to a new customer or an existing customer. What is the issue with the forecasting and guidance setting process? You said you guys consistently missed expectations. And related to that, I remember 2 years ago, you guys gave a $1,000,000,000 target, which you guys have since backtracked. So what gives investor confidence that you're going to naturally hit the target at this time? Yes. So I would say certainly we've been pretty disappointed in a few different cases around the top line expectations that we've set out as a lot of this evolution that we've been talking about has either taken longer than we originally expected or we've seen signs of it working really well when we had hoped, but a lot less consistent globally in certain spots, which has been a drag on the overall growth. We shared some of that just digging into the or looking at some of the specific productivity data. That said, from a bottom line standpoint, both from a longer term milestone, whether it was free cash flow positive, delivering non GAAP profitability or quarter to quarter guidance, we've never failed to meet or exceed any of those expectations we set. We fully control our bottom line and we've shown that we have all the measures in place and the discipline to drive that, whereas it's been certainly more mixed in terms of the top line performance that we can't fully control. And so when we talk about that mix of revenue growth and free cash flow margin, certainly we can't control everything that's in that revenue growth category, but we can control the bottom line. And that is why we talk about that framework as those two measures and our willingness to invest in certain areas or how we think about the overall cost structure and productivity are going to be pretty closely related to how quickly and where we're seeing those improvements versus where we're not. The other thing I'd build and is we also have a very, very different product story today. And this has been in the works now for a year, year and a half. But obviously, the sales force needs something to sell and they need that to be as differentiated as possible in the market and that needs to be able to command a high value proposition in ROI. And so when I look at what our sales motion maybe was or the full sort of portfolio we had to bring into accounts, especially frankly mature existing customers, it looks very, very different today than it did a year ago or 18 months ago or 24 months ago. So there's a as everybody knows, a very tight interrelationship between your sales performance and your product differentiation, your product strategy. We feel very, very confident that the product strategy that is now live that we have sellable to customers today versus what we had a year ago or 2 years ago or 3 years ago is just very different in a very market way. And then the packaging of that has made it much simpler for customers to go and acquire. So while the bottom line performance is controllable and we have a high degree of both confidence and commitment to both the company and investors around the bottom line. We're feeling very again in a much better position today around what our product strategy can go and deliver and then the sales and productivity as a result of that. Will be our final question. Question on the net expansion rate target that you have 106%. I'm trying to understand, you're also going to be upselling selling to existing. So shouldn't that reflect in the expansion rate target? Like I think you're doing about 107 now. So like 106 seems like kind of flat at current level? I can So in our most recent quarter on that metric, we reported 106%. And I think the kind of commitment and what Mark was saying was we're going to improve that rate from here. Well, so all of the things that Mark was talking about were over the next year. So a year from now, what that net retention rate should be or as we get to the latter part of next year. But those are not long term targets and we'll share more on that as appropriate. Cool. Well, thank you so much again for taking the time today. I think we're available if there's any kind of questions offline or whatnot, but we certainly appreciate the time and hopefully the updates make a lot of sense around where we're going and what we're driving as a business. So thank you and we'll see you soon.

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