My name's Lucky Schreiner, Software Analyst here at D.A. Davidson. Very happy to have Dylan Smith, Co-Founder and CFO of Box, here with me. You guys have come off a quarter returning to double-digit growth. Enterprise Advanced is trending really well in the market, highly profitable. A lot to like here, maybe for many potential newer investors, can you level set for them what Box does, how you've expanded into a broader platform, and where you're seeing the most momentum today?
Sure. Maybe starting, very briefly, going way back for the first 10 years or so of our company, we're really more in the, what you might call, enterprise file sync and share. Still very focused on serving the world's largest enterprises, with a deep focus on security, having an open platform, all of those things, much more basic file sharing, file management, how do you just secure your content at scale? Over the next several years, increasingly built out more and more capabilities that look a lot more like a new take on traditional enterprise content management. How do you govern the files? How do you have the advanced security capabilities, workflow, a lot of the things like that, building some of your own apps.
More recently, what's been really exciting is now taking that kind of underlying content platform that we've been building for more than two decades really unlocking a lot of the intelligence that is sitting totally at least at a minimum, underutilized in unstructured content. That's really because the benefits of AI a lot of the capabilities that we've been introducing over the last 18 months, including many which show up in Enterprise Advanced, our highest tier suite that Lucky had mentioned a bit ago. That's now taking things like Box Extract, where you can upload any sort of file pull out effectively the structured data, whatever information's in there. Expiration dates, problematic terms, kind of risky, personally identifiable information, those sorts of things.
You marry that with things like Box Automate, to really build much more powerful workflows replace a lot of those things that kind of traditional content management or maybe a BPO firm was doing, or just was not getting done because the cost to value ratio didn't make any sense. The way that shows up, with Enterprise Advanced, what we're really excited about seeing our customers doing, is really now seeing Box able to power these really high-value key solutions for our customers. If you think about anything that is really repeatable, content-centric type workflows, from contract lifecycle management, digital asset management, client onboarding, a loan origination process, these types of things, now Box can really solve end to end in a much faster, I mean, it's kind of the better, faster, cheaper trifecta versus what companies had been doing traditionally.
Yeah. It's compelling. From an enterprise perspective, macro backdrop, where is the budget coming from? How are you seeing budgets shape up for AI? Everyone's trying to implement it correctly. Are customers having to pull budget from somewhere else to implement AI?
In some cases, That might show up as a, hey, we're going to have more metered headcount growth to be able to fund some of these things. Maybe it is a reduction in outside services spends, like with BPOs, as I was mentioning, where if you were spending $1 million for an army of people to do this manual work, and now you can do it in 10% of the time for a couple of a thousand dollars, that's a pretty easy choice to a lot of the kind of maybe point solutions, or parts of the technology stack that are maybe less relevant in today's world or less valuable. Trade-offs are definitely being made, but I wouldn't say there's been a dramatic shift in terms of how our IT buyers are thinking about at least the spend to Box.
Yeah
I think everyone, especially more recently, is a lot more mindful of the costs, especially if not managed thoughtfully of AI and tokens in particular for some of the coding and other use cases. I'd say things are different than they were one year ago. Our economic buyer, how we describe the overall demand environment, et cetera, has remained very healthy.
Got it. On your Enterprise Advanced tier, that typically comes with a 30%-40% pricing uplift from Enterprise Plus. How durable do you see that moving forward, How often are customers also expanding their seats with you when they upgrade to Enterprise Advanced?
Yeah. We see that as very durable, and since we had launched Enterprise Advanced, have been seeing pricing uplifts, actually at the higher end of that range. Because of just our confidence in and seeing the type of value that customers are really able to get out of Enterprise Advanced, our team has done a great job really being disciplined about that pricing uplift because we know there's the value, and if we do our job and walk customers through that, and even get them kind of testing, and seeing some of these use cases off our lower tier plans, we have the confidence that we'll be able to get that type of uplift on the pure pricing side.
On top of that, for some of these really high volume use cases, incremental AI Units being sold in addition to the Enterprise Advanced upgrade, and in a little more than a third of cases, customers are also expanding seats. To your question, Lucky, because Enterprise Advanced is now opening up use cases where maybe before for going back to some of the solutions I was talking about for the legal team or the marketing team, maybe the enterprise content management solutions that they had in place previously were good enough. Now with these newer capabilities, customers are saying, "Okay, I absolutely need my entire legal team to be on Box because it's our new contract lifecycle management solution," as just one example. It's really the new use cases that we're enabling and unlocking with Enterprise Advanced that is driving that seat expansion.
Yeah. It's a big debate today in software, the trajectory of seats. You brought up the consumption pricing. How do you feel like Box is positioned from a monetization standpoint, and are there cases where you've seen really nice agentic consumption adoption and seat growth at the same time? Are those mutually exclusive, or maybe what are some of the dynamics there you see with customers?
Yeah. Today we're seeing them go hand in hand. Certainly very mindful of and getting pulled into the debate on is the seat model dead? Are we going to lose a lot of knowledge worker jobs? We feel actually, and what we're seeing in our customers in a lot of cases, is actually AI is enabling those workers to be a lot more productive. There's certainly going to be an impact and roles are changing already, and I think that will continue. We are not seeing that in our customers today. Whenever there is any sort of layoff that's going to make the news. When you look across our enterprise customer base, the vast majority that has no relevance to us. We're seeing these opportunities, et cetera, and rolling out agents.
We see in most cases, companies both starting to think about or introduce agents, as a kind of complement, supplement, whatever you want to call it, to the workforce. Not a significant change in terms of the core knowledge workers either. In terms of our positioning, really fortunate that again, that platform that we've been building, that I talked about for the last 20+ years, is just as relevant, if not more relevant and important in a world where you have agents, instead of knowledge workers doing those same tasks.
Not only do you have, from just a volume standpoint, an order of magnitude more agents than humans, but they also don't have the EQ or understanding of what they should or shouldn't have access to, what this person who's in the workflow or who they're sharing content with should or shouldn't have access to. They don't fear a job loss if they're doing something that they know they shouldn't be doing. The security, the permissioning, the compliance, all of those things that have been core differentiators for effectively our entire history, become even more important in a world where you have an order of magnitude more agents doing this work.
On the platform consumption revenue, it makes up about 6% of revenue today. You guided at your Analyst Day that's going to have a 30% growth CAGR, make up 10% of revenue over the next three to five years. Maybe what are some of the assumptions that went into that kind of guidance? What needs to happen for you guys to hit that?
Expect that to be 10% of our revenue three to five years from now, not revenue we generate over the next three to five years, just to clarify. Really think the main driver of that is going to be AI unit consumption. Today our kind of platform business is the consumption volume-based, effectively API calls that might be Box Sign calls or just overall API access. What we're really seeing driving, and what we expect to continue to drive, the vast majority of that growth over the next three to five years is these newer use cases that really are powered by and monetized by AI unit consumption. Effectively our way of abstracting the token and AI usage. We're seeing very healthy demand pipeline for that already.
Talked about and what gives us the confidence in driving that is not only the solutions that we're rolling out and the way that customers are starting to use Box today, but another key growth area for us is really our relationships with System Integrators. That's where they have a lot of these types of use cases that really do rely heavily on consumption and AI Units. We think that'll be a catalyst to that overall platform growth as well, over the next few years.
Yeah. On the long-term guide, you guys had guided to 10%-15% growth. You got into 10% constant currency growth for the next quarter. What are some of the key drivers of that growth outlook and really your recent go-to-market investments with partners, how has that evolved your go-to-market and what additional investments are you making there?
Yeah. If you think about the kind of key drivers of the future growth and where we see the biggest opportunities, first of all, there's kind of, I'd say is moderate improvement in the core growth drivers, right? Seat growth, price per seat, those are both growing at a faster clip than they were a year ago. We expect them to be growing at a slightly faster clip a few years out as well, and largely driven by just the continued momentum of Enterprise Advanced and the impact that has on the business. As exiting this most recent year, that was about 10% of our total revenue attributable to Enterprise Advanced customers. We expect that to be 20% at the end of this year. The majority of our revenue three to five years from now. That's the first driver.
The next one really is around some of the partners and that ecosystem. Not only the System Integrators, but seeing, and very excited about the opportunity that we have with marketplaces as well. If you think about the hyperscalers and the way that Box is increasingly driving these workloads, a lot of incentive to build those partnerships. Very excited in particular about our relationship with Amazon and AWS, and think that can provide some lift.
There's the platform component that, again, as talked about, expect that to be growing at a much faster clip than our core business, and to make up about 10% of our revenue in that timeframe as well. You put those things together and add on the fact that, for example, we have less than 10% of our revenue coming from all of EMEA. In some of our international markets, if we can get growth at more levels and penetration more commensurate with enterprise software spend, think that can be an area of upside in the model as well.
I wanted to follow up on the legacy displacement opportunity, especially with partners. You guys have a big opportunity there, just given a lot of these solutions are expensive, hard to maintain. Enterprises are looking for AI capabilities. Maybe how does that pipeline look to be shaping up today? How are partners helping you with that process?
I'd say still early days in the minority of the deals that we're getting in, but certainly healthier and a bigger component of our business than it has been at any point in the past. As if you think about just the ways, if you're trying to get all the benefits of AI that we've been talking about, that the world's been talking about, it's nearly impossible to do that, if not literally impossible, technically, when you have that data sitting in a bunch of fragmented/siloed on-premises content stores, right? If you have them sitting in a data center on just those servers or in a combination of Documentum and OpenText and FileNet and wherever else, that's just not going to be accessible to AI, much less in a single platform where you get the compliance, the security, and the overall management of that.
We are seeing that as a catalyst. I think that's one of the big reasons that, going back a couple of years ago, as AI was starting to really take off, these partners were seeing the writing on the wall and hearing about that writing from their customers. They're saying, "Hey, this thing's been in place for 20, maybe literally 30 years, but I need to modernize the way I think about content."
It's becoming a much more strategic area, whereas before it was kind of like a, "All right, I get that that's not optimal, but I'll deal with that after XYZ." Now it's becoming a critical blocker. The number of times you hear something to the effect of, "I don't have an AI problem, like I have access to the tools. The technology's good enough. I have a data problem. You can't access the data at all, and so help me solve that. That's going to be a huge effort, I think, for System Integrators, and that's where Box and those relationships become so critical.
Yeah. What's the catalyst for that? Is it catalyzed by new model releases where customers want to, at best, implement those capabilities, or is it more just upon renewal and this is a slow burn here?
I'd say more the latter. It's not necessarily any individual model, as no model is going to be able to access those things, and get anything meaningful out of a fragmented set of solutions. Certainly, the more that there is competition and competing models from various providers, that is a catalyst, and a tailwind for Box's business because both the way that we provide access, and in a lot of cases early access to all of those models. Whereas with other providers, or if you're going direct to an LLM, you're going to have just access to their models.
With Box, it's all the same to us whether a customer is using XYZ model, and we can work with them, and we have the data for more than 100,000 customers to know what types of models work well for what types of use cases, and they can test it themselves also. What we can also do, going back to the cost side, that is increasingly top of mind for customers is, if you think about it, an amazing company, amazing partner, Anthropic is not going to care that Opus or now Fable is maybe more expensive or more overpowered than a customer needs for a certain use case because they make more money, right?
We want to make sure a customer's getting the best outcome and the highest ROI on their spend. We can use, and we do use, we call intelligent model swapping. We can work with customers, and make sure that they are using AI as effectively, as efficiently as possible. I think that's going to be an even more important differentiator. That's really where the newer models, especially more expensive models and the diversity of models, becomes a tailwind. As it relates to the enterprise content management providers, again, it's not really the number of models, it's just do you want to use AI to get insights out of your content? Okay. You probably need a system that's accessible to these models.
Yeah. Maybe following up on that, like you said, you have really strong partnerships with all the frontier model providers. You give early access. Are customers starting to get that? What's the awareness on the enterprise side of that differentiation you spoke to, and how are you guys maybe leaning into that on a marketing perspective?
I would say it's certainly something that's appreciated, a selling point that matters for customers. I wouldn't say that most customers are like, "Okay, I know that model X is best for this, model Y is best for that, model Z is best for this, I need these three models, I'm going to tell my team to use it for that," this, that, and the other. I think they're still figuring that part out.
I do think that there is a lot of, call it fear of model lock-in, and FOMO if they don't have access to certain types of models, because they are getting all these different requests from their employees saying, "Oh, I really want to use X model because I hear it's really great for these use cases." It's challenging, especially because there's just so much excitement and kind of bottoms-up demand, for a CIO to say, "Well, sorry, we just have X," or, "We just have Y, I guess, and not X." You're just going to deal with it because more often than not, that employee's just going to go do it anyway, and maybe put it on their personal credit card or their company credit card. That creates even more concerns.
I think it's definitely something that's top of mind, even if the individual models and their relative strengths and weaknesses, minus maybe looking at a high-level evaluation that a firm might do. I don't think that's as well understood, the differentiation is.
Maybe on that token pricing that you were speaking to earlier, what are you seeing from your customer base with regards to are they overspending on tokens? How do you think token pricing increases or decreases over time will play out, and how does Box benefit from that?
I would say that most companies are probably spending more than they thought they would be six months ago or 12 months ago. Hard to say overspending, because it depends on what sort of ROI they're getting. I think what we are hearing from customers, is they do want to make sure and much more mindful of, and want to make sure they're using the right model for the right job. In a lot of cases, if there's a metadata or a data extraction use case, a customer will say, "Okay, I'm going to test it with this model, that model, and this model. What's the accuracy? What was the cost? What is the optimal setup for me?" It's definitely that kind of token efficiency, and even if you look at a lot of the public evaluations of models, they've recently added another axis, right?
It's not just about how good is this model, it's how good is this model per token or per dollar, or whatever it is. That is definitely part of the conversation. In terms of costs, I think that, in terms of the cost per output, especially done right, if customers know what they're doing, and if they're Box customers who are working with us, I think that will go down. Certainly the newest frontier models are more expensive than anything that came before. I think if not done right or if you're taking just the damn the torpedoes token maxing approach, you're probably going to have a financial problem already, and even more so in the future.
Yeah. A lot of this kind of comes down to customers' creativity and knowledge of how to best use the models. You guys have 250 pre-built use cases in Enterprise Advanced you identified and are going to market with. Are there any kind of focus areas that stand out to you where maybe previously incumbents had some success, but you can now come in and displace them and what are some of the top use cases that customers are doing today?
Yeah. I mentioned some of those solutions actually is where we are seeing the biggest opportunity and early traction. Especially because not just because those are really high value and pretty horizontal use cases, but because in a lot of cases, customers are spending on separate tools and spending hundreds of thousands or millions of dollars for those capabilities that you can do natively within the Box platform. Maybe that was the biggest reason and the last reason that they really couldn't move off of that legacy enterprise content management provider. Again, things like contract lifecycle management, digital asset management, different onboarding processes, client management. Anytime you're exchanging information, getting information, whether that's a wealth management use case, I mentioned the loan origination process use case, things like that's really where things are taking off.
I would say the biggest underlying feature that is really resonating of Enterprise Advanced that's actually a part of all of those use cases is Box Extract, and that ability to really get the critical information out of unstructured content, and take action accordingly. Whether that's routing to the right person, or just how you're organizing that, or giving a specific action to your legal team or sales force. That's really where the power of the platform comes into play.
Yeah. You guys haven't really thought of AI as a sidecar. You have Enterprise Advanced as your most premium tier, but you added all these AI capabilities across all tiers, and I feel like you guys were one of the first to really recognize that's the right approach. Maybe what are some of the benefits you've seen from that so far across your customer base?
Yeah. What we try to do is take a step back and make a really first principles approach and say, "If we were to start Box today, would we have the dumb version and the smart version?" No, you would just be AI-powered content management. That's really what we tried to do in terms of which capabilities we put into each plan. I would say the benefit is really allowing customers and at maybe our lower tier plans, it's more end user focused, but even they can say, "Okay, how can I generate a Box Note for these meeting notes or come up with an agenda very easily?" Say, "Hey, we already have all of our latest marketing collateral. Now could you design a pitch deck or whatever sort of presentation you want using our branding guidelines?" That'll show up.
There's a lot of power, even just in those end user use cases around content creation, validation, access to information. Really where we've seen a lot of the benefits in that tiered approach is giving some of those more advanced capabilities and offering AI Units for our Enterprise Plus tier. I think that's really where you get a taste of our more advanced capabilities, and kind of sets the stage for an upsell to Enterprise Advanced. Frankly, in this environment, and especially if you're wrestling with, "Okay, how am I going to afford all of the demand that I'm paying for these LLMs?" A 40% uplift is not trivial, giving customers the ability to test some of those use cases effectively do a proof of concept, even without all of the capabilities of Enterprise Advanced, has been really critical in those conversations as well.
Yeah. Maybe if we split that, you've seen in terms of retention, net new versus expansions, you've seen your net retention steadily tick up here in recent quarters. At your Analyst Day, your CRO, Jeff, was really focused on driving net new logo growth. Maybe what are you seeing on the expansion and net new side and how those two pipelines are shaping up, and any changes you're making on the go-to-market side or in terms of the sales hiring process with that?
Yeah. I would say that there are some things, what we've seen driving the growth and the net retention rate, well, by definition, the net retention rate, really what's been driving the growth that we've seen more of the improvement recently has been around kind of seat expansion and pricing uploads within our install base. Net new is kind of growing at a healthy rate, that new logo growth, but hasn't seen as much of an increase historically. We do see a big opportunity and why Jeff highlighted it, our CRO, is because of the types of kind of investments we're making on the go-to-market side, especially going back to some of those partners, right?
When you have SIs who can extend the reach of our sales force, when you've marketplaces where before maybe a customer recognized the value of Box, but it was just really challenging to fund that sort of purchase. Okay, now I can use my AWS credits to do that. We think those are our opportunities on the partner side, as well as some of those kind of different markets that we've made some investments in where I think there's a lot of potential.
I think those are probably the two biggest drivers of the new logo growth. Just getting the message, and I think with the capabilities of Enterprise Advanced, customers where maybe their existing content was not a strategic priority for the IT leadership team, or other solutions they'd cobbled together were working well enough. I do think there's been a big change there, which is why we're more confident in new logos driving more of that growth going forward.
On that investment theme, I've got the CFO here. You guys are very profitable. You're guiding to further profitability. AI is a rapidly changing space, though, and you've got to invest a lot to keep up with the technology change. Maybe what are your top investment priorities today, and how do you maintain your market leadership position?
I would say, kind of going back, some of it is in those new I would say the biggest incremental spend, if you think about what's the growth and where we're putting our dollars to work this year, mostly focused on the go-to-market side. Also investing in the innovation of our platform on the R&D side, but there, because of AI, we've been seeing such kind of phenomenal productivity gains that we're able to accelerate innovation. If you look at the pace of what we've released and are releasing, can do that without as commensurate of an increase in the expenses, especially when you think about the way we've been scaling up our engineering center of excellence in Poland. Really on the go-to-market side, and there it is, some of the partnership investments, just growing the sales force.
I think now you get much more of an opportunity around that consultative approach. I know there's been a lot of talk about FDEs, Forward Deployed Engineers. We actually already have done a lot of that stuff on the consulting side. For us, it's like, okay, now there's a name, and it seems to be cool, but that's something that's been a core part of the motion that we are seeing more demand for to really implement these use cases successfully. It really is, other than the investments we're making in the partnership ecosystem, a lot of it is really just scaling out the existing functions to be able to address the demand that we're seeing.
On that more technical sales process, Enterprise Advanced is already 10% of your revenue today. It doesn't seem like it's lengthened sales cycles. How have you maybe been able to manage that dynamic of a more technical sale?
I would say that a lot of it is, even before Enterprise Advanced and leading up to it, this had been the plan for many years. We've been selling suites and things where the integrations with other platforms and the technical capabilities were already important. A lot of it has just been really, and I think really pleased with the way that Jeff and Olivia, our COO, and others have gotten ahead of that sales enablement. That kind of profile of rep who's successful and can do this sort of both solutions-oriented platform sale, but who's technical has been really critical.
What we also do is, through verticalizing a lot of the different teams that we have, whether it's the sales engineers, the Box Consulting folks, the AEs themselves, can get really familiar with the specific core processes of a life sciences customer or of a financial services customer. That breaks down into it's not just financial services. It might be insurance or wealth management or investment banking or whatever. That helps as well, where you can kind of make sure that you understand the types of systems that are in place, those types of use cases that are really repeatable, high value. That's been pretty helpful in terms of streamlining some of those conversations as well.
Yeah. I do want to give some time for investor questions, if anyone has a question for Dylan here. Otherwise, I can keep going. I've got plenty of questions. Maybe on how you think about capital return to shareholders. You guys have repurchased a lot of shares. What's the updated view moving forward, especially as you have so much free cash flow generation?
Yeah. I would say, philosophically, pretty consistent approach with what you've seen from us over the past few years. Expecting to kind of leverage the majority, significant majority of our free cash flow generation to return capital to shareholders through share repurchases. Also, want to make sure that we have the dry powder for M&A to accelerate our product roadmap. You've seen that from us as well. The calculus does change a little bit with AI in that, the kind of build by calculus, just because we can organically develop things at a much faster clip than we could a couple of years ago.
I think because of that and just the confidence in that kind of teens type free cash flow growth rate over the coming years, we are confident that we'll be able to continue reducing total shares outstanding steadily and pretty significantly over a multiyear period.
Yeah. You stole my next question. You guys have previously acquired Alphamoon and Crooze, some successful tech tuck-ins. Like you said, the product roadmap is accelerating so much with GenAI that it does change the build versus buy calculus. That being said, it feels like software valuations are pretty depressed here. I guess, how do you think about M&A moving forward?
I would say we think about it, again, in the same way but it's just like the pullback at times. The challenge is some of the things where a company, if they are doing something that is truly unique, and have amazing talent, that's probably going to be reflected in the price tag. While, yes, I think software technology valuations, software valuations broadly, may be oversold and are fairly depressed in both public and private markets. A lot of the kind of things that are going to add the most value to the Box platform are not quite as depressed. That's kind of the irony of things. We are still being very active in exploring those things on both the talent and technology side.
The types of deals that we've done historically, whether it's half a dozen to several dozen engineers, pre-revenue to a few million dollars of revenue, tends to be the sweet spot for us. Not because of necessarily even the price tag, but because we are so focused on making sure that acquisitions can be quickly and natively integrated into our core platform. We don't want to have a bolt-on strategy and this completely orthogonal product that happens to be in a similar space, but it's a different architecture, it's a different model, whatever else, which is why we focus on those areas, and you can continue to expect that from us in the future.
Yeah. We're almost at time. I'll close with in 2025, you said it was the most exciting year ahead for Box. As we think about 2026, what gets you most excited moving forward, and what do you look forward to over the next two to three years?
Yeah. I would say it's really the same types of things that were so exciting last year, but frankly, a lot more real. I think then it was just like, oh my God, we're seeing all this potential. We know what's coming down the pipe and the type of opportunity we have. I think at that time, we had just released Enterprise Advanced maybe three months prior or something like that, and we're seeing all this sort of demand, these types of entirely new use cases, and a massively increased amount of value that our customers were seeing in the Box platform. Now, fast-forward a year and change, and customers have actually deployed those solutions. We've rolled out even more powerful capabilities to extend that, like with Box Automate, Box Apps, et cetera.
I think what's just really exciting is seeing the way that we can completely transform and, I think, enable customers around AI. Again, I said it, mentioned it briefly before, customers, when you think about what is getting in the way of being able to kind of rethink and create all of these really, really cool use cases, and do new work with AI, it's not the technology, right? There are probably very few customers who are like, "Thank God Fable came out. Opus just wasn't getting the job done." Right? There's nothing, I think I'm probably using AI in more specific ways than most knowledge workers, even though I'm not an engineer, but Opus does everything I need. Right? Fable's like, that's not the problem. It's the data, and it's the change management.
Now I think we've gotten a lot further in that journey, we're really seeing customers actually deploy some of these solutions that got us so excited a year ago. I think in the year ahead, that is what's most exciting, is just seeing the way that all plays out when you can string together all these capabilities to really transform the way that people are getting work done.
Yeah. Great answer. Dylan, appreciate it. Thanks for coming.
Yeah. Really appreciate the time.