Good afternoon. My name is Abby. I will be your conference operator today. At this time, I would like to welcome everyone to the Box, Inc. fourth quarter and fiscal 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Cynthia Hiponia, Vice President of Investor Relations, you may begin your conference.
Good afternoon and welcome to Box's fourth quarter and full year fiscal 2023 earnings conference call. I'm Cynthia Hiponia, Vice President, Investor Relations. On the call today, we have Aaron Levie, Box Co-founder and CEO, and Dylan Smith, Box's Co-founder and CFO. Following our prepared remarks, we will take your questions. Today's call is being webcast and will also be available for replay on our investor relations website at www.box.com/investors. Our webcast will be audio only. However, supplemental slides are now available for download from our website. We'll also post the highlights of today's calls on Twitter at the handle, @BoxIncIR.
On this call, we will be making forward-looking statements including our Q1 and full year fiscal 2024 financial guidance and our expectations regarding our financial performance for fiscal 2024, fiscal 2025, and future periods, including free cash flow, gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance obligations, revenue and billings, and the impact of foreign currency exchange rates, and our expectations regarding the size of our market opportunity, our planned investments, future product offerings, headcount targets, and growth strategies, our ability to achieve long-term revenue, operating margins, and other operating model targets, the timing and market adoption of and benefits from our new products, pricing models, and partnerships, our ability to address enterprise challenges and deliver cost savings for our customers, the impact of the macro environment on our business and operating results, and our capital allocation strategies, including potential repurchase of our common stock.
These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially. Please refer to our earnings press release filed today and the risk factors in documents we file with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for information on risks and uncertainties that may cause actual results to differ materially from statements made on this earnings call. These forward-looking statements are being made as of today, 1 March 2023, and we disclaim any obligation to update or revise them should they change or cease to be up to date. In addition, today's call, we will be discussing non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.
You will find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and in the related PowerPoint presentation, which can be found on our investor relations page of our website. Unless otherwise indicated, all references to financial measures are on a non-GAAP basis. With that, let me hand it over to Aaron.
Thanks, Cynthia. Thank you all for joining the call today. We had a strong year at Box, exceeding a $1 billion annual revenue run rate on a quarterly basis and delivering a healthy balance of revenue growth and increased profitability. For the full year, we achieved 13% annual revenue growth. Our operational excellence drove significant margin expansion as we achieved 23% non-GAAP operating margins, up more than 330 basis points from 20% a year ago. Our continued execution and our sharp focus on profitability allowed us to deliver on our revenue growth plus free cash flow margin target of 37%, a 400 basis point improvement from last year's outcome of 33%.
We delivered these results in the midst of a challenging macro environment. Our ability to execute on delivering bottom line performance, even with a slowing demand environment, is a testament to the strategies we put in place several years ago to lower our cost structure while still investing for long-term, durable revenue growth. Turning to Q4, we achieved revenue growth of 10% year-over-year while delivering record quarterly operating margins, gross margins, and EPS. As expected, our Q4 net retention rate was down year-over-year, impacted by pressure from customers' lower headcount growth and greater budget scrutiny on internal transformation initiatives. In some cases, these dynamics impacted our customers' IT decisions and priorities across their business. This dynamic included some deals pushing out or deals getting incrementally smaller than anticipated, leading also to a softening in billings as we exited FY23.
Even with this added macro pressure, our platform remains top of mind and extremely relevant for customers as they look to secure their most important data, drive up productivity, or retire legacy IT systems and simplify their IT stack. Examples of Box delivering this value to our customers in Q4 include a global logistics company that upgraded to Enterprise Plus through a six-figure deal to leverage Shield governance and Sign and the unlimited Salesforce and Sign integrations. With Box's additional security and e-signature capabilities, the company expects to see significant cost savings while improving employee productivity by eliminating the need for multiple solutions. The medical research center that purchased Enterprise Plus in Q4 will be retiring their legacy ShareFile environment as well as other systems to reduce cost and complexity while increasing their security posture with Box.
This move also sets up Box for additional expansion when a new research facility opens next year. As I continue to speak with CIOs and CEOs in a wide range of industries, their digital transformation imperatives remain focused on enabling productivity across their business, especially in a hybrid work environment. They're working to optimize their spend and simplify their IT stack as they move more to the cloud, and most importantly, ensure they're dealing with a number of challenges in data security and compliance, ranging from ransomware threats to data leak challenges. At the center of these challenges is how enterprises work with their content. Fragmented content architectures have led to greater security risks, lower productivity due to complex tools and limited ability to automate anything, and too many overlapping or legacy solutions with significant IT management overhead.
We know that our Content Cloud is best positioned to help customers solve this challenge. Our platform enables our customers to drive up productivity in their organization, simplify their IT stack, and optimize spend, and protect their most important data from a wide range of threats. We continued to solve these challenges for customers with even more innovation in Q4, such as releasing key enhancements to Box Shield, adding new authentication and verification controls to our platform to provide customers with greater protection against unauthorized account access. We launched the public beta version of Box Canvas, our virtual whiteboarding solution, and we continued to integrate deeply across the SaaS landscape with the delivery of new enhancements to the Box for Salesforce integration on the Salesforce AppExchange. We're just getting started.
As I look forward into FY 2024, we will be going deeper on our three major pillars of differentiation. To help protect our customers' most important data, we will be dramatically enhancing our core security and admin features for all customers, building out further Shield features to support an evolving threat landscape, expanding governance capabilities to support more complex life cycle requirements, and continuing to maintain our high compliance standards.
To help customers drive up productivity with seamless internal and external collaboration and workflows, we will be continuing to improve our core product experiences and usability, focusing on adoption and awareness of products to all users and admins, doubling down on Sign and Relay for advanced workflows, building out our modern collaboration experiences for the hybrid workplace with Notes and Canvas, expanding to help our customers disseminate content to internal and external audiences more easily, enhancing our content insights capabilities to offer richer visibility into what's happening with your content, and more. With our platform, we will continue to focus on connecting content across all our customers' IT systems, making Box the single source of truth for content in the enterprise.
We'll continue to enhance our critical partner integrations like Cisco, Google, IBM, Microsoft, Salesforce, ServiceNow, Zoom, and many others, while also further building out the tools for customers to build applications on Box. We will also be further building out our security ecosystem, driving enhanced partnerships across the wide range of security partners like IBM, Okta, Palo Alto Networks, and Splunk. With our Content Cloud, we have built the defining company that helps enterprises store, secure, automate, collaborate, sign, digitize, analyze, and gain insights from their most important information. We know that our customers' most important data resides in their content. It's their contracts, their movie scripts, their marketing campaigns, critical research reports, project plans, and more. The recent breakthroughs in AI and large language models enable a new universe of use cases that we can also solve for customers.
Building on Box Skills, our framework that applies best-of-breed AI technologies from leading providers to our customers' content in Box, we see all new use cases for enterprises to generate more value from their content when it's in Box. As an example, being able to query Box for the risky clauses of a particular contract, synthesize a research report for key insights or summarization, quickly find the answer to a sales prospect's question from a document, extract key metadata from an invoice without any pre-training, and much more. We expect the digitization of content combined with AI will bring us exciting new product opportunities in the future. Now, turning to go-to-market. We continue to enable more new and existing customers to recognize the full value of the Box platform with increased adoption of our multi-product offerings in Q4.
Enterprise Plus, our latest Suites offering, was over 90% of our Suites sales in large deals, with Suites now representing 72% of deals over $100,000, up from 65% a year ago. We saw continued solid Suites attach rates in large deals across all geographies. Our Q4 customer expansion and new wins with Enterprise Plus include a multinational healthcare company that became an Enterprise Plus customer through a six-figure upsell, enabling them to use Box Zones to meet in-region EU storage compliance requirements, roll out Shield to safeguard their collaboration with partners, and leverage Box's GXP compliance to accelerate validation of complex use cases.
A leading global manufacturer that chose to go wall-to-wall with Box with a six-figure Enterprise Plus deal as well. With Box, they will be able to integrate across their current tools like Microsoft Teams, O365, and RingCentral, and execute some of their most mission-critical business operations, including contract management and R&D, and sales approval workflows, while also fulfilling regulatory compliance requirements. We recently held our global go-to-market kickoff. The team is fully energized to go tackle the opportunity ahead of us. Throughout FY 2024, we plan to continue to focus on ensuring our over 100,000 customers get the most value out of Box and continuing to focus on moving more of the customer base into Enterprise Plus.
Our programs across go-to-market are all about doubling down on our land, adopt, expand, retain motion through our digital engine inside and field sales efforts, working with key strategic system integrators and technology partners, applying more focus to our key international geographies, as well as going deeper in key industries like financial services, life sciences, healthcare, public sector, and more. Finally, over the past year, we have been executing on our strategy to drive long-term sustainable growth while also delivering continued operating margin improvements. As we began to see the impact from the challenging macro, we adapted to the environment and continued to deliver significant gross and operating margin expansion. Even amidst the ongoing macro dynamics, which may pressure top-line results at times, we remain focused on continuing to deliver bottom-line improvements.
We are driving efficiency across the business, making ROI-based decisions across every area of investment from product to go-to-market initiatives, continuing to improve our gross margin by fully moving into the public cloud, and driving operational excellence in everything we do. Our resilient financial model allows us to respond to dynamically to the market environment, which is even more important as we enter into a period of incredible change throughout the world of business and in technology. There has simply never been a more exciting time for what we can now do with content, and our business strategy will ensure that Box is at the very center of how customers work. With that, I'll hand it over to Dylan.
Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. As Aaron stated, FY 2023 was a strong year for Box as we delivered on the three key financial objectives we laid out at the beginning of the year. We accelerated annual revenue growth on a constant currency basis, expanded operating margin significantly, and optimized shareholder returns through a well-executed capital allocation strategy. Additionally, we are very proud of the strong cash flow margin expansion we delivered in FY 2023. In FY 2023, we delivered annual revenue of $991 million, up 13% year-over-year or 17% in constant currency, and in line with our initial full year guidance despite experiencing significantly greater currency and macroeconomic headwinds than we initially anticipated. FY 2023 also marked our first year of achieving GAAP profitability, a significant milestone for us.
We expanded our non-GAAP operating margin by 330 basis points to deliver 23% operating margin, a full percentage point ahead of our initial expectations. We generated $238 million in free cash flow, a 40% increase year-over-year. We achieved our target of delivering revenue growth plus free cash flow margin of 37% in FY23, demonstrating the resiliency of our financial model amidst a challenging macroeconomic environment. Turning to Q4, revenue of $256 million increased 10% year-over-year or 15% in constant currency. We ended Q4 with remaining performance obligations or RPO of $1.2 billion, a 16% year-over-year increase or 21% growth on a constant currency basis, once again growing faster than revenue. We expect to recognize roughly 60% of our RPO over the next twelve months.
Q4 billings of $357 million grew 6% year-over-year or 9% in constant currency. Q4 billings were partially impacted by the early renewals we experienced in the prior quarter and continued scrutiny of larger deals. In Q4, we had approximately 1,650 total customers paying more than $100,000 annually, representing a 16% year-over-year increase. Our Suites attach rate was 72% in deals over $100K, up from 65% in the year ago period. In Q4, we saw consistent attach rates globally. Suites customers now represent roughly 46% of our revenue, up a full 11 points from 35% a year ago, demonstrating that customers are increasingly adopting Suites to support high-value use cases and to reduce cost and complexity for their organizations.
Our net retention rate at the end of Q4 was 108% in line with the expectations we set on our Q3 call. Our annualized full churn rate was 3%, an improvement from 4% in the prior year, demonstrating continued product stickiness with our customers. In FY 2024, we expect full churn to remain at roughly 3%. Our net retention rate to be roughly 106% as we anticipate continued pressure on seat expansion rates due to the macroeconomic climate where certain customers are reducing headcount and lowering IT budgets. We expanded gross margin by 340 basis points year-over-year to 78.5%, driven by continued efficiencies from our infrastructure strategy and the impact of higher price per seat due to strong Suites adoption.
Q4 gross profit of $201 million was up 15% year-over-year, exceeding our revenue growth by a significant 500 basis points, demonstrating the continued leverage in our business model. As I discussed on our last earnings call, we are completing the transition to running fully in the public cloud in FY 2024, and we'll see our redundant public cloud and data center expenses peak during Q1 and Q2. We expect gross margin to be approximately 76% in Q1 and Q2 before improving in the back half of this year. For the full year, we expect gross margin to be roughly 77%, positioning us with an even more efficient underlying cost structure to expand gross margin in the following year. In FY 2023, we achieved our sales force headcount target, growing our sales force by roughly 15% year-over-year.
In FY 2024, we intend to grow our quota-carrying sales force in the mid-single-digit percentage range with a continued focus on our higher-performing geographies and segments. We continue delivering on our commitment to drive profitable growth with a 37% increase in Q4 operating income. Our record 26.0% operating margin was up an exceptional 520 basis points from the 20.8% we delivered in Q4 of last year. We delivered $0.37 of diluted non-GAAP EPS in Q4 above the high end of our guidance and up 54% from $0.24 a year ago, despite a negative impact of $0.05 from currency headwinds. I'll now turn to our cash flow and balance sheet. In Q4, we generated strong free cash flow of $75 million, representing a 124% growth from $33 million in the year ago period.
In Q4, we delivered cash flow from operations of $92 million versus the $49 million in the year ago period. Capital lease payments, which we include in our free cash flow calculation, were $11 million, down from $12 million in Q4 of last year. Let's now turn to our capital allocation strategy. We ended the quarter with $462 million in cash equivalents, restricted cash, and short-term investments. In Q4, we repurchased 300,000 shares for approximately $9 million. For the full year, we repurchased 10.2 million shares for approximately $267 million. As a result, we have reduced our total diluted shares outstanding by more than 3% since last Q4.
Our disciplined equity management approach and location strategy are paying off, enabling us to reduce stock-based compensation as a percentage of revenue by roughly 200 basis points year-over-year in fiscal 2023 despite significant headwinds from foreign exchange rates. We will continue to be prudent in our equity compensation practices. We remain committed to opportunistically returning capital to our shareholders and leveraging our strong balance sheet and increasing free cash flow generation to invest in key growth initiatives to drive long-term sustainable growth. As of the end of Q4, we had approximately $140 million of remaining buyback capacity under our current plan. I would like to turn to our guidance for Q1 and fiscal 2024. We continue to see significant volatility in the FX environment even more recently.
Given our international exposure, particularly in Japan, we expect FX to remain a headwind for us in FY 2024. At current spot rates, we expect a roughly 300 basis point headwind to revenue growth for the full year of FY 2024 on an as-reported basis. Due to the timing of when the dollar strengthened versus other currencies in which we do business over the past year, we expect to experience a 500 basis point headwind in Q1, with the impact becoming smaller throughout the course of the year. With respect to our FY 2024 expectations, we have factored in the current macroeconomic challenges into our guidance, and our current expectations are for this environment to persist throughout FY 2024.
For the first quarter of fiscal 2024, as a reminder, there are three fewer days in Q1 versus Q4, which we estimate creates a sequential headwind of approximately $9 million to revenue and 250 basis points to operating margin versus the fourth quarter of FY 2023. We anticipate revenue of $248 million-$250 million, representing 5% year-over-year growth. This includes an expected FX impact of approximately 500 basis points to our Q1 revenue growth rate. We expect our Q1 billings growth rate to be in the mid-single digit percentage range on an as-reported basis. Including an expected FX impact of approximately 500 basis points. We expect our Q1 RPO growth to once again be slightly higher than our anticipated Q1 revenue and billings growth rates.
We expect our non-GAAP operating margin to be approximately 21%, representing a year-over-year improvement despite an approximately 200 basis point headwind from FX and our temporarily duplicative data center expenses. We expect our non-GAAP EPS to be in the range of $0.26-$0.27, representing a 17% year-over-year increase at the high end of the range, and GAAP EPS to be in the range of -$0.04 to -$0.03. Weighted average basic and diluted shares are expected to be approximately 145 million and 154 million, respectively. Our Q1 GAAP and non-GAAP EPS guidance includes an expected impacts from FX of approximately $0.06. Our Q1 EPS guidance also includes a roughly $0.01 headwind due to a one-time write-off related to real estate consolidation.
For the full fiscal year ending 31st January 2024, we anticipate our FY24 revenue to be in the range of $1.05 billion-$1.06 billion, representing 7% year-over-year growth at the high end of this range or 10% on a constant currency basis. We expect FY24 non-GAAP operating margin of approximately 25%, representing a 190 basis point improvement from last year's result of 23.1%. We expect our FY24 non-GAAP EPS to be in the range of $1.42-$1.48, up from $1.20 in the prior year. Our GAAP EPS is expected to be in the range of $0.17-$0.23.
Weighted average basic and diluted shares are expected to be approximately $145 million and $153 million, respectively. Our FY24 GAAP and non-GAAP EPS guidance includes an expected annual impact from FX of approximately $0.14. Our FY24 billings growth rate is anticipated to be roughly in line with revenue growth on an as-reported basis. We expect FX to have a negative impact of roughly 100 basis points on our FY24 billings growth based on current spot rates. Finally, we expect our FY24 revenue growth rate combined with our increasing FY24 free cash flow margin to be approximately 35% based on today's current spot rates. As a reminder, this includes the combined 400 basis point headwind from FX to revenue and billings we discussed previously.
As we look forward to FY 2024 and beyond, it is important to note that our ability to navigate through a slowing demand environment while expanding profitability is the result of a multi-year strategy we began years ago to lower our cost structure while investing for long-term durable growth. We saw the benefits of these initiatives in our FY 2023 results, and our outlook once again calls for operating margin and free cash flow expansion in FY 2024. While we expect our revenue growth to continue to be pressured by the economic environment, in FY 2025, we expect to deliver a revenue growth plus free cash flow margin of 40%-42% with a greater weighting toward profitability improvements versus our prior expectations. We look forward to providing further details on our long-term financial model at our Annual Financial Analyst Day in NY City on Tuesday, 14th March .
The continued execution of our Content Cloud platform strategy and the discipline and focus of our Boxers will drive a healthy balance of revenue growth and margin expansion in the years to come. With that, Aaron and I will be happy to take your questions. Operator?
At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the question-and-answer roster. Your first question comes from the line of Steve Enders from Citi. Your line is open.
All right, great. Thanks for, thanks for taking the question here. I guess I just wanted to ask a little bit and start on the outlook and how you're thinking about both , 2024 and 2025. You know, I guess within the assumptions that you're seeing currently, I mean, are you expecting for things to get worse here, or is it pretty much as expected? Then can we get a little bit more kind of details on , how much things have changed from a duration and, maybe deal size impact versus, you know, kind of what you're expecting before?
Yeah, thanks. This is Aaron. I think I'll maybe just first comment on the general way that we think about the outlook, and then Dylan can hop in on the second part. We wanna be appropriately prudent , just given the trends that we see in the market. I think that's reflected in our FY 2024 outlook, and our initial commentary on FY 2025 around the kind of rebalancing a little bit more to profitability though, with a still a meaningful improvement on the rule of basis.
I think, you know, without sort of getting too much into the dynamics that we expect to see in the macro, I think what we, what we are trying to do is, again, drive a prudent set of expectations around what we see, particularly from a top-line standpoint, and then obviously make up as much of that delta in the form of bottom-line improvements. For this year again, it's sort of a somewhat of a continuation of what we, what we saw in Q4, and just putting the right level of conservatism into the plan. Yeah.
To address kind of what we're seeing in some of these customer deals, you asked about durations, where we have seen a continued lengthening in contract duration. Customers are continuing to make, and more regularly making, long-term commitments with Box. That's one of the big drivers of the very strong backlog growth, that we saw of 24%, and fueling a lot of the strength in the RPO growth as well. Deal cycles overall have remained relatively stable.
What we have seen, talking about the average contract values, as we mentioned on our last call, this environment is leading to a pressure on deal sizes for certain customers as they might elect to go with a smaller initial deal, but the overall customer economics have remained very strong, and price per seat is actually up about 5% on a year-over-year basis.
Okay. Okay. That's, no, that's very helpful context there. I guess maybe as we think about, the deal environment again and the execution that you're using from sales reps, I guess any kind of further details that you can provide on , how they perform versus the expectations and how you're thinking about, you know, productivity rates kind of moving forward given, I think you called out mid-single digit kind of investments on the sales side there?
Sure, yeah. I'll cover again some of the color commentary from the quarter, and then if Dylan wants to build on some of the productivity piece. But, you know, it's an interesting environment because, you know, if you look across the biggest deals, across the period, they really do come from a wide range of industries. You know, tech, life sciences, healthcare, public sector. So I think, there's sort of broad-based participation across industry, across segment. And there's just sort of this overlay of, whatever the percentage, you know, may be of budget pressure, which means that a deal that would have been X, is maybe now 0.9X.
In some cases, you might have a situation where a company's not growing their headcount as quickly. Obviously, that's gonna put pressure on the total seat count that we would get from a normal expected upsell from that customer. Overall, I think an environment where we saw performance across the business, but just at a, you know, moderately muted level from maybe the expectations we would've had six months prior or whatnot. I think we're flowing through some of that prudence into the plan this year.
As, as you'd expect, these macroeconomic dynamics do have a direct impact and provide some headwinds to the sales force productivity. While we, you know, aren't expecting the environment to get better through the course of FY 2024, as a reminder, because of the ramp times that we see in our sales force, typically about six months for our SMB reps, nine-twelve months to become fully ramped, on the enterprise side, the hiring that there will be, you know, more metered this year, about 5%, kind of mid-single digit range versus 15%, that really shows up in capacity for the following year in FY 2025.
Really thinking about building, that durable, longer term growth, despite some of the challenges that we're seeing this year.
Okay. Perfect. Thanks for, thanks for taking the questions.
Your next question comes from the line of George Iwanyc from Oppenheimer. Your line is open.
Thank you for taking my question. You know, maybe building on the overall environment, Aaron, can you give us some perspective on what you're seeing in Japan and EU with respect to deal engagement, you know, and, you know, channel support?
Yeah. Taking Japan first, you know, still a very kind of healthy environment for us. Great kind of channel support. Overall, you know, we're we've gotten a lot better participation rate, for instance, on our Suites deals in Japan, so we're very happy about that. You know, that number could still come up more over time, but we're just happy with the momentum there. I called this out on the last earnings call, but I was in Japan in Q3. You know, just a lot of great kind of customer interactions, lot of upsell potential from that customer base, as well as a bunch of new logos that we'd see in the mix as well.
Very happy with the Japan performance. Again, all things considered with some of these macro dynamics. EMEA, less of a channel centric approach there, just picking up on your question specifically. Overall, you know, working across a range of industries and segments within EMEA, you know, driving that execution with, again, that, you know, slight added element of the macro environment still being in the mix. That's how I'd kind of characterize it.
You know, maybe looking at your, you know, net expansion rate, the 180% that you had in the fourth quarter, you know, how are you know, accounting for that for the coming year? Do you expect relatively stable expansion, or are you pulling back expectations a bit from the fourth quarter level?
Yeah. For the coming year, we expect that net retention rates to be roughly 106%. We do expect to have a very strong and stable 3% full churn rate. That seat expansion that we had called out earlier, we do expect that to put some downward pressure driven by the economic environment, which is really what impacts the net retention rate going forward.
Operator, next question.
Your next question comes from the line of Josh Baer from Morgan Stanley. Your line is open.
Great. Thanks for the question. Hoping that you could just help bridge the gap between the 15% constant currency billings growth from this year and the 10% constant currency revenue growth for next year.
Sure. There are a handful of factors that can create a delta between the two on a quarterly basis. Especially, you know, things like, you know, early renewal volumes can fuel billings. We had called out there was a large multi-year prepay in Q3 that, you know, fueled billings this past year at kind of a disproportionate amount and things like that.
You know, part of it is also just thinking through, you know, we saw, you know, prior to the some of the economic environments dynamics kicking in in the first half of the year, saw, you know, stronger billings outcomes on that side as well, you know, kind of adjusting for those unusual factors that don't flow into revenue. You know, while the two are fairly closely correlated, if you look at deferred revenue growth ending the year in constant currency, was 10%, and that's, you know, tends to be a more closely aligned to the following year's revenue growth.
Okay. That's helpful. wanted to ask in regard to the step down in some of those rule of targets, I mean, I guess FY 2024 may be a little bit more straightforward given the revenue growth guide, the macro, and FX. Just wondering if you could add some more context for what that's saying about FY 2025 stepping down. Just thinking through, you know, growth prospects that might be more positive in FY 2025 off of a lower FY 2024. Are you sort of incorporating macro into FY 2025? Really just wondering if there's other changes, sort of beyond macro that's embedded in that rule of change for FY 2025.
Great, great question, and I'll kind of get and kick off and then let maybe Dylan build. You know, as we're navigating this environment, I think, and as everybody, I think, is talking to other teams on this, you know, it's always dangerous to sort of get into a position where you're guessing when a macro is going to, you know, change for the better. We're trying to, you know, sort of not be in a position where we're, you know, largely baking in too many assumptions on that front, as opposed to really putting out a framework that says, you know, you know, there's obviously a range of revenue growth rate outcomes.
A lot of that will be seen this year in terms of what billings look like and what, you know, what we see on the RPO front throughout FY 2024, that obviously flows into 2025. As a result of that, you know, we think that the operating margin rate and then thus free cash flow margin will be kind of functional somewhat to, you know, to the outcome on the revenue side. We wanted to just call out that that was, you know, gonna be, you know, really in that kind of 40-plus range, 40-42, with a greater weighting on the profitability front. Just calling that out from, you know, some prior, you know, models that have been out there.
We, we still think that that's gonna be a pretty meaningful uplift on a rule of basis, obviously getting us above the 40 mark. That's the kind of, you know, current expectation we're trying to lay out.
Yeah. Just to build on that a bit in terms of how it all works together is, as we had mentioned, we are expecting to see a pretty challenging macroeconomic environment throughout the duration of FY 24, and it's really that performance and the bookings in this coming year that's gonna drive the revenue for FY 25. That's kinda how it fits together is we are expecting that revenue pressure to persist in FY 25 versus what our expectations had been a year ago. To reiterate what Aaron had said, we are expecting to deliver a greater profitability than our prior expectations.
We'll get into a lot more of the details, into the dynamics and how we're thinking about, the years ahead, in just a couple weeks at our Analyst Day.
Great. Thank you.
Cool. Thanks.
Your next question comes from the line of Rich Hilliker from Credit Suisse. Your line is open.
Hi, guys. Thanks for taking my question. Dylan, I was wondering if you can just go through the trajectory of gross margin as we think about the coming year. I think you gave us some comments last quarter, but I thought it might be helpful to just hit on those again to make sure we're on the same page as we progress through the year and maybe where the exit rate looks like.
Sure. We're expecting our gross margins, driven by, you know, combination of the kinda peak duplicative, data center expenses, as well as FX impacts, to be lower in the first half of the year, about 76%, and then in the back half to be in the high 70s. Kind of, 77%, for the full year, next year. Exiting in that high 70s range, we do expect to deliver higher gross margins, you know, in the kinda upper 70s, as we move into the following year. Really all about that trajectory heading into FY25 is where you'll really see the impact of the data center migration.
Awesome. That's really helpful. Last one on my side, was wondering if you can give us any comments or maybe, you know, we can also talk about it at the Analyst Day, but your sense of where multi-year bookings start to shake out, you know, how that's looking for the coming year and, you know, basically how that's trended would be really helpful.
Multi-year bookings. We don't tend to see, you know, a very high volume at all in terms of multi-year prepayments. From a contract duration standpoint, it's increasingly the norm, especially for enterprise customers, that they're signing up for multi-year commitments with Box, typically three years, but billed annually. We don't incentivize either customers or our sales force to sign multi-year prepaid deals. You know, we don't see those very often. We do see them from time to time, such as the one that we called out in Q3, where a large customer elected to do that for, you know, dynamics on their end. We don't expect that to change in the coming year.
I would say the trend of seeing, it being the standard that customers are signing, multi-year agreements prepaid annually is what we continue to expect. Don't expect multi-year prepayments to be much of a factor in the coming year.
Okay. Thank you so much.
Mm-hmm.
Your next question comes from the line of Noah Herman from JPMorgan. Your line is open.
Hey, hey, guys. Thanks for taking our questions. Just, you know, any other, you know, incremental color you could provide on the global go-to-market kickoff you briefly mentioned, just to get a better sense of some of the key go-to-market initiatives heading into this year? Just a quick follow-up. Thank you.
Sure. Yeah. We'll definitely kind of expose a little bit more on the overall go-to-market strategy at our Analyst Day. Yeah, the kickoff was super strong. We had our whole global set of go-to-market, as well as the broader Boxer population, kind of tune in and attend. You know, I think it's really all about aligning our go-to-market organization to the biggest trends and conversation that we're seeing with customers right now. When I talk to CIOs and CEOs and the broader team does, you know, we tend to, you know, still see that these digital transformation initiatives are still very much kind of front and center in every organization.
Every CIO and CEO is looking at, you know, how do they drive productivity, in particular in this kind of hybrid work environment, and with, you know, kind of a greater degree of automation or AI. We're seeing, you know, customers, really, really focused on how do they get more leverage for their IT spend, and so how do they simplify their IT stack, how do they make sure they have more integrated platforms. And then finally, just data security remains very front and center for all of our customers. The kickoff, it's all about, you know, how do we align that set of conversations with our message and our strategy, as we take that to our customers.
A lot of effort around how do we drive our Enterprise Plus deal motion, so getting more and more customers into our Enterprise Plus package. We have, you know, kind of great internal initiatives around new logo generation, in particular in larger enterprise segments, so we've been seeing a lot of great success there. You know, how do we continue to drive the greatest amount of adoption on our product, whether that's, you know, kind of, you know, the core foundation product or even some of the newer initiatives that we've had and newer products.
Really kind of a lot of the just, you know, kind of blocking and tackling and enablement of our go-to-market teams, but making sure that our message and our strategy is very tuned and very aligned to what we're seeing with customer conversations right now.
Got it. That's really helpful. Then, you know, it was touched on this a little bit briefly, but, you know, how can you sort of use large language models to really drive value for customers, and should we expect something in the near term? Thanks.
Yeah, thanks. Obviously a topic I'm personally very excited about. Can't get into any timing at the moment, or else, obviously a bunch of teams internally will kind of, you know, freak out. What I would say is, you know, the general way to think about it is, you know, if you take something like ChatGPT, that's learned, you know, basically all of the words across all of the internet, and it ends up being this incredibly helpful assistant, you know, using the language it's learned from everything. Well, one of the amazing use cases is, well, what if you could prompt that kind of model with existing data?
Obviously we happen to help customers manage tens of billions of files and, in particular, a large amount of documents, and we think there's a lot of potential for what happens when you can begin to synthesize the information in those documents and, you know, I called out a couple examples in the, in the prepared remarks, but, you know, if you can summarize content or be able to probe it for important insights, or be able to generate content in the future. We think there's a wide range of use cases that are gonna be very relevant for enterprises, and we think we're highly differentiated because of our focus on data security, on privacy, on compliance.
We can really kind of work with customers to ensure that when we bring AI to their content, it's done in a way that keeps their data extremely private. The other major differentiator we have is we can play really the role of a neutral platform or a Switzerland approach, where, you know, I think there's gonna be a lot of leapfrogging of model advancements between OpenAI and Microsoft and Google and Amazon and maybe other vendors. Our ability to offer a range of technologies to customers, we think puts us in a very advantageous position over the long run as customers think about having a future-proof architecture. We're very excited. It's extremely kind of early, at least in this new wave.
It's one that we're very prepared for because of our efforts around Box Skills. You know, stay tuned as we expose more about our plans here.
Operator, next question.
Your next question comes from the line of Rishi Jaluria from RBC Capital Markets. Your line is open.
Hi, this is Richard Poland on for Rishi Jaluria. Thanks for taking my question. Just kind of given the expectation around retention rates coming down a couple more points, can you help us kind of bridge where some of that contraction is coming from? Is it mostly on the seat side, or do you kind of, are you expecting to bake in some, slower overall kind of upsell and cross-sell with the Suites motion?
No. It really is primarily on the seat side. You know, fewer seats from an expansion point of view. We've seen as mentioned both very strong and stable retention of seats, as well as the kinda cross-sells, the adoption of Suites and Enterprise Plus in particular. As we had noted, that was up a very strong 11 points year-over-year. Really pleased with the momentum there. That's having a nice impact on the pricing as well. When we think about the net retention rate, that kind of reduction is really coming primarily from seat volumes.
Got it. That's very helpful. If we were just to kind of break apart the demand trends, between the SMB side and the enterprise side of the business, are there kind of any things that you would call out that, you know, are signaling differences between the two? Or is it kind of pretty similar across the business?
Yeah. It's actually been pretty consistent. You know both, across the different segments of the business, as well as industries. You know, for the most part, we've seen just kinda general, you know, softening, related to the macro, but no particular parts of the business that we'd call out that are seeing any kinda outsized pressure.
Got it. Very helpful.
Yeah.
Thank you.
Thanks.
Your next question comes from the line of John Messina from Raymond James. Your line is open.
Hi, thanks for taking my question. This is John on for Brian. I'm just curious, if you could talk about the puts and takes you're seeing as we head into FY 2024 and into FY 2025. 'Cause on one hand, I understand the headcount reductions, but with your expanded platform into areas like Sign and Canvas, I'd imagine you'd be in a prime position to be a beneficiary of vendor consolidation. I'd just love to get some color there.
Yeah. I think that's a great way to kinda think about it, which is on one hand, you know, we've seen, and then Dylan just kind of articulated, you know, if you have a kind of slower headcount growth across various industries that we're more used to faster growth, that kinda creates some normal seat pressure from an expansion standpoint. At the same time, we have a broader value proposition, and I think we've increasingly become more strategic for our customers as a result of things like Sign and Workflow and Canvas and Shield. That's letting us, you know, in some cases, and Dylan noted this, you know, raise, and drive our seat prices up as customers expand into things like Enterprise Plus.
You know, it's a, it's definitely an interesting market because we still see, you know, very, very healthy momentum in a broad set of industries, broad set of segments. You just have that sort of added pressure on, you know, kind of maybe some of the normal seat growth you would see in some segments. Overall, I think the message of consolidation, simplifying your IT architecture, being able to bundle Box in such a way with these add-on products, in a much more streamlined approach, where a customer can go and replace 3 or 5 other technologies, is extremely compelling.
I've been having a number of conversations with customers that now, you know, kinda start the conversation with, "Hey, I'd love to get rid of this legacy document management system or storage infrastructure, or maybe an e-signature tool that is only by use by, you know, one part of the population, and I can fold all of that into Box." That's been definitely an increased conversation in the past couple of quarters that we've seen in light of this macro environment.
Okay, great. That was really helpful color there. Can you guys also talk about linearity in the quarter? I think you guys mentioned more deal scrutiny. I'm curious if it was similar to last quarter focused on larger deals, and I'm also curious if the scrutiny was focused on any particular region. Thank you very much.
Yeah. I'd say that the linearity was fairly similar to what we typically see. You know, we would describe the macro pressure kinda building, you know, over the back half of the year incrementally. But, you know, no significant differences, especially in terms of the inter-quarter linearity that we typically see in a fourth quarter. Then, you know, in terms of the scrutiny, I would say that's kinda same general trend as, you know, kinda overall, you know, macro impacts, which was no, there really weren't any particular areas that saw heightened scrutiny. I think it's just a more cautious IT spending environment kind of across the board.
Thank you. Your next question comes from the line of Nick Mattiacci from Craig-Hallum. Your line is open.
Hi, this is Nick on for Chad Bennett. Thanks for taking our questions. At the Analyst Day last year, you talked about targeting more than 50% of your revenue coming from Suites in FY 2025. With that penetration rate already up to 46% exiting the past year, is there a reason why Suites penetration should level off here as we near the 50% level? Or have your thoughts changed where that penetration rate can go over the next couple of years?
Yeah. That's an area that we have been very pleased with the momentum. Certainly, you know, kinda Suites adoption, where we are at the moment is, you know, ahead of what we had expected a year ago. Certainly from a timing standpoint, you know, we would expect to reach that kind of 50% plus milestone sooner than we thought a year ago, and we'll certainly provide more details, you know, as we get into the longer term thinking at our Analyst Day. In terms of where we see Suites headed, you know, as optimistic as ever that, you know, steady state, the significant majority of our revenue is gonna be coming from Suites customers.
Awesome. Thank you.
This concludes our question and answer session. Ms. Cynthia Hiponia, I turn the call back over to you.
Great. Thank you, operator. Thank you everyone for joining us on the call. We look forward to seeing many of you at our NY Analyst Day on 14th March. We look forward to updating everyone at that time. Have a good day.
This concludes today's conference call. You may now disconnect.