10-Q 1 box-10q_20151031.htm 10-Q box-10q_20151031.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                    

Commission File Number 001-36805

 

Box, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-2714444

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

900 Jefferson Ave.

Redwood City, California 94063

(Address of principal executive offices and Zip Code)

(877) 729-4269

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  ¨    NO   x

As of November 30, 2015, the number of shares of the registrant’s Class A common stock outstanding was 40,999,565 and the number of shares of the registrant’s Class B common stock outstanding was 82,461,456.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

PART I – FINANCIAL INFORMATION

  

Page

Item 1.

 

Financial Statements (Unaudited)

  

 

 

 

Condensed Consolidated Balance Sheets as of October 31, 2015 and January 31, 2015

 

4

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 31, 2015 and 2014

 

5

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended October 31, 2015 and 2014

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended October 31, 2015 and 2014

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

26

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

41

Item 4.

 

Controls and Procedures

  

41

 

 

 

PART II – OTHER INFORMATION

  

 

Item 1.

 

Legal Proceedings

  

42

Item 1A.

 

Risk Factors

  

43

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

61

Item 6.

 

Exhibits

 

61

 

 

Signatures

  

62

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

·

our ability to maintain an adequate rate of revenue and billings growth;

 

·

our business plan and our ability to effectively manage our growth;

 

·

costs associated with defending intellectual property infringement and other claims;

 

·

our ability to attract and retain end-customers;

 

·

our ability to further penetrate our existing customer base;

 

·

our ability to displace existing products in established markets;

 

·

our ability to expand our leadership position in enterprise content management and collaboration solutions;

 

·

our ability to timely and effectively scale and adapt our existing technology;

 

·

our ability to innovate new products and bring them to market in a timely manner;

 

·

our ability to expand internationally;

 

·

the effects of increased competition in our market and our ability to compete effectively;

 

·

the effects of seasonal trends on our operating results;

 

·

our future financial performance, including expectations regarding our revenue, cost of revenue, operating expenses, retention rate, ability to generate positive cash flow, and ability to achieve our long-term margin objectives;

 

·

our expectations concerning relationships with third parties;

 

·

the attraction and retention of qualified employees and key personnel;

 

·

our ability to maintain, protect and enhance our brand and intellectual property; and

 

·

future acquisitions of or investments in complementary companies, products, services or technologies and our ability to successfully integrate such companies or assets.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

 

 

3


 

PART I — FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

BOX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

 

October 31,

 

 

January 31,

 

 

2015

 

 

2015

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

189,695

 

 

$

330,436

 

Marketable securities

 

25,204

 

 

 

 

Accounts receivable, net of allowance of $3,815 and $3,858

 

64,368

 

 

 

54,174

 

Prepaid expenses, restricted cash and other current assets

 

21,656

 

 

 

12,132

 

Deferred commissions

 

9,606

 

 

 

9,487

 

Total current assets

 

310,529

 

 

 

406,229

 

Property and equipment, net

 

113,543

 

 

 

58,446

 

Intangible assets, net

 

5,365

 

 

 

6,343

 

Goodwill

 

14,301

 

 

 

11,242

 

Restricted cash

 

28,332

 

 

 

3,367

 

Other long-term assets

 

7,916

 

 

 

7,039

 

Total assets

$

479,986

 

 

$

492,666

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

28,906

 

 

$

17,486

 

Accrued compensation and benefits

 

20,166

 

 

 

20,486

 

Accrued expenses and other current liabilities

 

30,587

 

 

 

16,862

 

Capital lease obligations, current

 

2,894

 

 

 

625

 

Deferred revenue

 

128,589

 

 

 

107,893

 

Deferred rent

 

663

 

 

 

2,701

 

Total current liabilities

 

211,805

 

 

 

166,053

 

Debt, non-current

 

40,000

 

 

 

40,000

 

Capital lease obligations, non-current

 

4,696

 

 

 

1,238

 

Deferred revenue, non-current

 

12,558

 

 

 

12,164

 

Deferred rent, non-current

 

37,301

 

 

 

3,890

 

Other long-term liabilities

 

1,739

 

 

 

1,192

 

Total liabilities

 

308,099

 

 

 

224,537

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, par value $0.0001 per share; 100,000 shares authorized,

   no shares issued and outstanding as of October 31, 2015 (unaudited)

   and January 31, 2015, respectively

 

 

 

 

 

Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized,

   40,165 shares issued and outstanding as of October 31, 2015 (unaudited); 1,000,000

   shares authorized, 14,455 shares issued and outstanding as of January 31, 2015

 

4

 

 

 

1

 

Class B common stock, par value $0.0001 per share; 200,000 shares authorized,

   83,233 shares issued and outstanding as of October 31, 2015 (unaudited); 200,000

   shares authorized, 105,200 shares issued and outstanding as of January 31, 2015

   (including common stock subject to repurchase, see Note 10)

 

8

 

 

 

11

 

Additional paid-in capital

 

855,094

 

 

 

798,743

 

Treasury stock

 

(1,177

)

 

 

(1,177

)

Accumulated other comprehensive loss

 

(74

)

 

 

(56

)

Accumulated deficit

 

(681,968

)

 

 

(529,393

)

Total stockholders’ equity

 

171,887

 

 

 

268,129

 

Total liabilities and stockholders’ equity

$

479,986

 

 

$

492,666

 

See notes to condensed consolidated financial statements.

4


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

October 31,

 

 

October 31,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

$

78,651

 

 

$

57,048

 

 

$

217,722

 

 

$

153,801

 

Cost of revenue

 

23,630

 

 

 

12,518

 

 

 

61,419

 

 

 

32,579

 

Gross profit

 

55,021

 

 

 

44,530

 

 

 

156,303

 

 

 

121,222

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

26,324

 

 

 

17,172

 

 

 

75,911

 

 

 

48,415

 

Sales and marketing

 

63,972

 

 

 

55,257

 

 

 

178,927

 

 

 

152,354

 

General and administrative

 

19,757

 

 

 

16,855

 

 

 

52,904

 

 

 

41,276

 

Total operating expenses

 

110,053

 

 

 

89,284

 

 

 

307,742

 

 

 

242,045

 

Loss from operations

 

(55,032

)

 

 

(44,754

)

 

 

(151,439

)

 

 

(120,823

)

Remeasurement of redeemable convertible preferred stock warrant

   liability

 

 

 

 

(54

)

 

 

 

 

 

140

 

Interest expenses, net

 

(30

)

 

 

(663

)

 

 

(773

)

 

 

(1,450

)

Other income, net

 

165

 

 

 

105

 

 

 

57

 

 

 

41

 

Loss before provision (benefit) for income taxes

 

(54,897

)

 

 

(45,366

)

 

 

(152,155

)

 

 

(122,092

)

Provision (benefit) for income taxes

 

220

 

 

 

55

 

 

 

420

 

 

 

(598

)

Net loss

 

(55,117

)

 

 

(45,421

)

 

 

(152,575

)

 

 

(121,494

)

Accretion of redeemable convertible preferred stock

 

 

 

 

(5,743

)

 

 

 

 

 

(7,577

)

Net loss attributable to common stockholders

$

(55,117

)

 

$

(51,164

)

 

$

(152,575

)

 

$

(129,071

)

Net loss per common share attributable to common stockholders,

   basic and diluted

$

(0.45

)

 

$

(3.40

)

 

$

(1.27

)

 

$

(8.94

)

Weighted-average shares used to compute net loss per share

   attributable to common stockholders, basic and diluted

 

121,796

 

 

 

15,041

 

 

 

120,537

 

 

 

14,444

 

 

See notes to condensed consolidated financial statements.

5


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

October 31,

 

 

October 31,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net loss

$

(55,117

)

 

$

(45,421

)

 

$

(152,575

)

 

$

(121,494

)

Other comprehensive loss*:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in foreign currency translation adjustment

 

13

 

 

 

(16

)

 

 

(15

)

 

 

(21

)

Net change in unrealized gains on available-for-sale

   investments

 

4

 

 

 

 

 

 

(3

)

 

 

 

Other comprehensive loss

 

17

 

 

 

(16

)

 

 

(18

)

 

 

(21

)

Comprehensive loss

$

(55,100

)

 

$

(45,437

)

 

$

(152,593

)

 

$

(121,515

)

 

*

Tax effect was not material

See notes to condensed consolidated financial statements.

6


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

October 31,

 

 

October 31,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(55,117

)

 

$

(45,421

)

 

$

(152,575

)

 

$

(121,494

)

Adjustments to reconcile net loss to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

9,936

 

 

 

7,623

 

 

 

28,967

 

 

 

19,952

 

Stock-based compensation expense

 

15,404

 

 

 

8,513

 

 

 

42,847

 

 

 

22,344

 

Amortization of deferred commissions

 

3,974

 

 

 

3,005

 

 

 

11,502

 

 

 

8,837

 

Remeasurement of redeemable convertible preferred stock

   warrant liability

 

 

 

 

54

 

 

 

 

 

 

(140

)

Release of deferred tax valuation allowance

 

 

 

 

 

 

 

 

 

 

(825

)

Other

 

457

 

 

 

113

 

 

 

557

 

 

 

426

 

Changes in operating assets and liabilities, net of effects of

   acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(10,321

)

 

 

(3,762

)

 

 

(10,194

)

 

 

2,796

 

Deferred commissions

 

(3,729

)

 

 

(3,737

)

 

 

(11,896

)

 

 

(9,686

)

Prepaid expenses, restricted cash and other assets

 

1,565

 

 

 

2,020

 

 

 

(25,547

)

 

 

(2,508

)

Accounts payable

 

(6,989

)

 

 

1,537

 

 

 

1,879

 

 

 

2,255

 

Accrued expenses and other liabilities

 

(937

)

 

 

2,627

 

 

 

626

 

 

 

(3,907

)

Deferred rent

 

17,616

 

 

 

(221

)

 

 

21,558

 

 

 

2,031

 

Deferred revenue

 

10,798

 

 

 

8,086

 

 

 

21,090

 

 

 

10,608

 

Net cash used in operating activities

 

(17,343

)

 

 

(19,563

)

 

 

(71,186

)

 

 

(69,311

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

 

 

 

 

 

(112,521

)

 

 

 

Sales of marketable securities

 

63,062

 

 

 

 

 

 

66,911

 

 

 

 

Maturities of marketable securities

 

13,492

 

 

 

 

 

 

20,145

 

 

 

 

Purchases of property and equipment

 

(19,998

)

 

 

(7,510

)

 

 

(47,842

)

 

 

(29,764

)

Acquisitions and purchases of intangible assets, net of cash acquired

 

(53

)

 

 

(100

)

 

 

(271

)

 

 

(202

)

Net cash provided by (used in) investing activities

 

56,503

 

 

 

(7,610

)

 

 

(73,578

)

 

 

(29,966

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of initial public offering costs

 

 

 

 

 

 

 

(2,172

)

 

 

(2,748

)

Proceeds from borrowings, net of borrowing costs

 

 

 

 

 

 

 

 

 

 

12,000

 

Principal payments on borrowings

 

 

 

 

(6,000

)

 

 

 

 

 

(6,000

)

Proceeds from issuance of redeemable convertible preferred stock,

   net of issuance costs

 

 

 

 

(5

)

 

 

 

 

 

149,614

 

Proceeds from exercise of stock options, net of repurchases of early

   exercised stock options

 

2,734

 

 

 

746

 

 

 

5,148

 

 

 

2,851

 

Proceeds from issuances of common stock under employee stock purchase plan

 

10,282

 

 

 

 

 

 

10,282

 

 

 

 

Employee payroll taxes paid related to net share settlement of

   restricted stock units

 

(2,105

)

 

 

 

 

 

(8,292

)

 

 

 

Payments of capital lease obligations

 

(508

)

 

 

 

 

 

(928

)

 

 

 

Net cash provided by (used in) financing activities

 

10,403

 

 

 

(5,259

)

 

 

4,038

 

 

 

155,717

 

Effect of exchange rate changes on cash and cash equivalents

 

13

 

 

 

(16

)

 

 

(15

)

 

 

(21

)

Net increase (decrease) in cash and cash equivalents

 

49,576

 

 

 

(32,448

)

 

 

(140,741

)

 

 

56,419

 

Cash and cash equivalents, beginning of period

 

140,119

 

 

 

197,718

 

 

 

330,436

 

 

 

108,851

 

Cash and cash equivalents, end of period

$

189,695

 

 

$

165,270

 

 

$

189,695

 

 

$

165,270

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

$

297

 

 

$

351

 

 

$

949

 

 

$

699

 

Cash paid for income taxes, net of tax refunds

 

132

 

 

 

50

 

 

 

832

 

 

 

157

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretion of redeemable convertible preferred shares

$

 

 

$

5,743

 

 

$

 

 

$

7,577

 

Change in accrued equipment purchases

 

19,075

 

 

 

5,946

 

 

 

24,723

 

 

 

5,553

 

Purchases of property and equipment under capital lease

 

3,307

 

 

 

 

 

 

7,372

 

 

 

 

Issuance of common stock in connection with acquisitions and

   purchases of intangible assets

 

 

 

 

 

 

 

6,108

 

 

 

4,305

 

Change in unpaid deferred offering costs

 

 

 

 

32

 

 

 

(2,172

)

 

 

(1,227

)

 

See notes to condensed consolidated financial statements.

 

 

7


 

BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1. Description of Business and Basis of Presentation

Description of Business

We were incorporated in the state of Washington in April 2005, and were reincorporated in the state of Delaware in March 2008. We changed our name from Box.Net, Inc. to Box, Inc. in November 2011. We provide a cloud-based mobile optimized enterprise content management and collaboration platform that enables organizations of all sizes to easily and securely manage their content from anywhere, and collaborate internally and externally.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of October 31, 2015 and the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive loss and the condensed consolidated statements of cash flows for the three and nine months ended October 31, 2015 and 2014, respectively, are unaudited. The condensed consolidated balance sheet data as of January 31, 2015 was derived from the audited consolidated financial statements that are included in our Form 10-K for the fiscal year ended January 31, 2015, which was filed with the Securities and Exchange Commission (SEC) on March 30, 2015. The accompanying statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our fiscal 2015 Form 10-K.

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information. Accordingly, they do not include all of the financial information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of our management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in the Form 10-K, and include all adjustments necessary for the fair presentation of our balance sheet as of October 31, 2015, and our results of operations, including our comprehensive loss, and our cash flows for the three and nine months ended October 31, 2015 and 2014. All adjustments are of a normal recurring nature. The results for the three and nine months ended October 31, 2015 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending January 31, 2016.

Prior Period Reclassifications

Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

 

 

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make, on an ongoing basis, estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ from these estimates. Such estimates include, but are not limited to, the determination of the allowance for accounts receivable, fair value of acquired intangible assets and goodwill, useful lives of acquired intangible assets and property and equipment, best estimate of selling price included in multiple-deliverable revenue arrangements, fair values of stock-based awards, legal contingencies, and the provision for income taxes, including related reserves, among others. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Revenue Recognition

We derive our revenue from three sources: (1) subscription revenue, which is comprised of subscription fees from customers utilizing our cloud-based enterprise content management and collaboration services and other subscription-based services, which all include routine customer support; (2) revenue from customers purchasing our premier support package; and (3) revenue from professional services such as implementing best practice use cases, project management and implementation consulting services.

8


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

We recognize revenue when all of the following conditions are met:

 

·

there is persuasive evidence of an arrangement;

 

·

the service has been provided to the customer;

 

·

the collection of fees is reasonably assured; and

 

·

the amount of fees to be paid by the customer is fixed or determinable.

We typically invoice our customers at the beginning of the term, in multiyear, annual, quarterly or monthly installments. Our subscription and support contracts are typically non-cancellable and do not contain refund-type provisions.

In instances where we collect fees in advance of service delivery, revenue under the contract is deferred until we successfully deliver such services.

Subscription revenue is recognized ratably over the period of the subscription beginning once all requirements for revenue recognition have been met, including provisioning the service so that it is available to our customers. Premier support is sold together with the subscription services, and the term of the premier support is generally the same as the related subscription services arrangement. Accordingly, we recognize premier support revenue in the same manner as the associated subscription hosting service. Professional services revenue is recognized as the services are rendered for time and material contracts, and using the proportional performance method over the period the services are performed for fixed price contracts.

We assess collectability based on a number of factors, such as past collection history and creditworthiness of the customer. If management determines collectability is not reasonably assured, we defer revenue recognition until collectability becomes reasonably assured.

Our arrangements can include multiple elements which may consist of some or all of subscription services, premier support and professional services. When multiple-element arrangements exist, we evaluate whether these individual deliverables should be accounted for as separate units of accounting or one single unit of accounting.

In order to treat deliverables in a multiple-element arrangement as separate units of accounting, the delivered item or items must have standalone value upon delivery. A delivered item has standalone value to the customer when either (1) any vendor sells that item separately or (2) the customer could resell that item on a standalone basis. Our subscription services have standalone value as such services are often sold separately. Our premier support services do not have standalone value because we and other vendors do not sell premier support services separately. Our professional services have standalone value because there are other vendors which sell the same professional services separately. For new services, we assess standalone value consistently with the foregoing policy. Accordingly, we consider the separate units of accounting in our multiple deliverable arrangements to be the professional services, subscription services or a combined deliverable comprised of subscription services and premier support services. When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on their relative selling price. Multiple-element arrangement accounting guidance provides a hierarchy to use when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. We have not established VSOE for our subscription services, premier support or professional services due to lack of pricing consistency, the introduction of new services and other factors. We have also concluded that third-party evidence of selling price is not a practical alternative due to differences in our service offerings compared to other parties and the availability of relevant third-party pricing information. Accordingly, we use our best estimate of selling price (BESP) to determine the relative selling price for our subscription, premier support and professional services offerings. For arrangements with multiple deliverables which can be separated into different units of accounting, we allocate the arrangement fee to the separate units of accounting based on our BESP. The amount of arrangement fee allocated is limited by contingent revenue, if any.

We determined BESP by considering our overall pricing objectives and market conditions. Significant pricing practices taken into consideration for our subscription services, which may also include premier support, and professional services, include discounting practices, the size and volume of our transactions, the customer demographic, the geographic area where services are sold, price lists, our go-to-market strategy, historical standalone sales and contract prices. The determination of BESP is made through consultation with and approval by our management, taking into consideration the go-to-market strategy. As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes in relative selling prices.

9


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Certain Risks and Concentrations

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, restricted cash and accounts receivable. Although we deposit our cash with multiple financial institutions, our deposits, at times, may exceed federally insured limits.

We sell to a broad range of customers. Our revenue is derived substantially from the United States across a multitude of industries. Accounts receivable are derived from the delivery of our services to customers primarily located in the United States. We accept and settle our accounts receivable using credit cards, electronic payments and checks. A majority of our lower dollar value invoices are settled by credit card on or near the date of the invoice. We do not require collateral from customers to secure accounts receivable. We maintain an allowance for accounts receivable based upon the expected collectability, which takes into consideration specific customer creditworthiness and current economic trends. We believe collections of our accounts receivable are reasonably assured based on the size, industry diversification, financial condition and past transaction history of our customers. As of October 31, 2015 and January 31, 2015, no single customer accounted for more than 10% of total accounts receivable. No single customer represented over 10% of revenue during the three and nine months ended October 31, 2015 and 2014.

We serve our customers and users from datacenter facilities operated by third parties. In order to reduce the risk of down time of our enterprise cloud content management services, we have established datacenters in various locations in the United States. We have internal procedures to restore services in the event of disaster at any one of our current datacenter facilities. Even with these procedures for disaster recovery in place, our cloud services could be significantly interrupted during the implementation of the procedures to restore services.

Geographic Locations

Revenue attributed to the United States was 81% and 80% for the three months ended October 31, 2015 and 2014, respectively, and 80% for the nine months ended October 31, 2015 and 2014. No other country outside of the United States comprised 10% or greater of our revenue for all periods presented.

Substantially all of our net assets are located in the United States. As of October 31, 2015 and January 31, 2015, property and equipment located in the United States was 99% and 98%, respectively.

Foreign Currency Translation and Transactions

The functional currency of our principal foreign subsidiaries is generally the U.S. dollar. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars for those entities that do not have U.S. dollars as their functional currency are recorded as part of a separate component of the consolidated statements of comprehensive loss. Foreign currency transaction gains and losses are included in the consolidated statements of operations for the period. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the average exchange rate during the period. Equity transactions are translated using historical exchange rates. Translation adjustments at the balance sheet dates were not material. Transaction gains and losses recognized were not material for all periods presented.

Restricted Cash

Restricted cash is comprised of certificates of deposit and money market funds related to our credit card processing and leases.

Marketable Securities

Our marketable securities consisted of corporate paper, U.S. government agency obligations, corporate debt securities, asset-backed securities and U.S. government obligations. We classify our marketable securities as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. We may sell these securities at any time for use in current operations or for other purposes, such as consideration for acquisitions, even if they have not yet reached maturity. As a result, we classify our marketable securities, including securities with maturities beyond twelve months, as current assets in the accompanying consolidated balance sheets. All marketable securities are recorded at their estimated fair value. Unrealized gains and losses for available-for-sale securities are recorded in other comprehensive income (loss). We evaluate our marketable securities to assess whether those with unrealized loss positions are other than temporarily impaired. We consider impairments to be other than temporary if they are related

10


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. Realized gains and losses and declines in value deemed to be other than temporary are determined based on the specific identification method and are reported in other income (expense), net in the consolidated statements of operations.

Recent Accounting Pronouncement

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which eliminates the requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. The standard requires to classify all deferred tax assets and liabilities as noncurrent. We plan to adopt this standard beginning February 1, 2017, and do not believe that this adoption will have a material impact on our consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement to restate prior period financial statements for measurement period adjustments. The standard requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. We plan to adopt this standard beginning February 1, 2016, and do not believe that this adoption will have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606, Revenue from Contracts with Customers. The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will be effective for us beginning February 1, 2019, at which time we may adopt the new standard under either the full retrospective method or the modified retrospective method. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and have not determined whether the effect will be material.

 

 

Note 3. Fair Value Measurements

We define fair value as the exchange price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

 

·

Level 1—Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

 

·

Level 2—Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices which are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

 

·

Level 3—Unobservable inputs which are supported by little or no market activity and which are significant to the fair value of the assets or liabilities. These inputs are based on our own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.

We measure our marketable securities and restricted cash at fair value on a recurring basis. We classify our marketable securities and restricted cash within Level 1 or Level 2 because they are valued using either quoted market prices for identical assets or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded.

11


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The following tables set forth the fair value of our financial assets measured at fair value on a recurring basis as of October 31, 2015 and January 31, 2015, using the above input categories (in thousands):

 

 

 

October 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate paper

 

$

 

 

$

3,095

 

 

$

 

 

$

3,095

 

Corporate debt securities

 

 

 

 

 

15,867

 

 

 

 

 

 

15,867

 

Asset-backed securities

 

 

 

 

 

6,242

 

 

 

 

 

 

6,242

 

Prepaid expenses, restricted cash and other current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

 

 

 

750

 

 

 

 

 

 

750

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

 

 

 

27,128

 

 

 

 

 

 

27,128

 

Money market funds

 

 

1,204

 

 

 

 

 

 

 

 

 

1,204

 

Total assets measured at fair value

 

$

1,204

 

 

$

53,082

 

 

$

 

 

$

54,286

 

 

 

 

January 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

 

 

$

3,367

 

 

$

 

 

$

3,367

 

Total assets measured at fair value

 

$

 

 

$

3,367

 

 

$

 

 

$

3,367

 

 

 

Note 4. Marketable Securities

We held no marketable securities as of January 31, 2015. The following is a summary of our marketable securities as of October 31, 2015 (in thousands).

 

 

 

October 31, 2015

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Cost

 

 

Gain

 

 

Loss

 

 

Fair Value

 

Corporate paper

 

$

3,094

 

 

$

1

 

 

 

 

 

$

3,095

 

Corporate debt securities

 

 

15,869

 

 

 

2

 

 

 

(4

)

 

 

15,867

 

Asset-backed securities

 

 

6,244

 

 

 

 

 

 

(2

)

 

 

6,242

 

 

 

$

25,207

 

 

$

3

 

 

$

(6

)

 

$

25,204

 

 

None of our marketable securities had been in an unrealized loss position for greater than 12 months as of October 31, 2015. Based on our evaluation of available evidence we concluded that the gross unrealized losses on our marketable securities as of October 31, 2015, are temporary in nature.

The amortized cost and estimated fair value of our marketable securities as of October 31, 2015 are shown below by contractual maturity (in thousands).

 

 

 

October 31, 2015

 

 

 

Amortized

 

 

Estimated

 

 

 

Cost

 

 

Fair Value

 

Less than one year

 

$

19,351

 

 

$

19,350

 

Due in one to five years

 

 

5,856

 

 

 

5,854

 

 

 

$

25,207

 

 

$

25,204

 

 

Net realized gains and losses from sales of our available-for-sale securities for the three and nine months ended October 31, 2015 were not significant.

 

12


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

Note 5. Balance Sheet Components

Prepaid Expenses, Restricted Cash and Other Current Assets

Prepaid expenses, restricted cash and other current assets consisted of the following (in thousands):

 

 

October 31,

 

 

January 31,

 

 

2015

 

 

2015

 

Tenant incentives receivable under our new headquarters

   lease in Redwood City (see Note 8)

$

9,815

 

 

$

 

Restricted cash and other

 

11,841

 

 

 

12,132

 

Total prepaid expenses, restricted cash and other current assets

$

21,656

 

 

$

12,132

 

 

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

 

October 31,

 

 

January 31,

 

 

2015

 

 

2015

 

Servers

$

103,861

 

 

$

81,068

 

Leasehold improvements

 

15,107

 

 

 

13,400

 

Computer hardware and software

 

10,529

 

 

 

8,724

 

Furniture and fixtures

 

5,500

 

 

 

5,046

 

Construction in progress

 

57,993

 

 

 

4,815

 

Total property and equipment

 

192,990

 

 

 

113,053

 

Less: accumulated depreciation

 

(79,447

)

 

 

(54,607

)

Total property and equipment, net

$

113,543

 

 

$

58,446

 

 

As of October 31, 2015, the gross carrying amount of property and equipment includes $7.9 million of servers and $1.5 million of construction in progress acquired under capital leases, and the accumulated depreciation of property and equipment acquired under these capital leases was $1.3 million. As of January 31, 2015, the gross carrying amount of property and equipment includes $1.9 million of servers and $69,000 of construction in progress acquired under capital leases, and the accumulated depreciation of property and equipment acquired under these capital leases was $140,000.

Depreciation expense related to property and equipment was $8.5 million and $6.6 million for the three months ended October 31, 2015 and 2014, respectively, and $24.8 million and $17.4 million for the nine months ended October 31, 2015 and 2014, respectively. Included in these amounts was depreciation expense for servers acquired under capital leases in the amount of $517,000 and $1.1 million for the three and nine months ended October 31, 2015, respectively. We held no property and equipment under capital lease during the three and nine months ended October 31, 2014. Construction in progress primarily consists of leasehold improvements related to our new Redwood City headquarters and other facilities, as well as servers, networking equipment and storage infrastructure being provisioned in our third party datacenter hosting facilities. In addition, the amounts of interest capitalized to property and equipment were $291,000 and $51,000 for the three months ended October 31, 2015 and 2014, respectively, and $389,000 and $278,000 for the nine months ended October 31, 2015 and 2014, respectively.

 

 

Note 6. Acquisitions

Verold, Inc.

On May 4, 2015, for a total purchase price of $5.4 million (in our common stock), we acquired certain assets of, and hired certain employees from, Verold Inc., a privately-held technology company which has built a cloud-based 3D model viewer and editor. The acquisition has been accounted for as a business combination. Of the $5.4 million, $2.8 million was attributed to developed technology and $2.6 million to goodwill. Developed technology is being amortized on a straight-line basis over an estimated useful life of two years. Goodwill is primarily attributable to the enhancement of the Box user experience and the value of acquired personnel. Goodwill is deductible for U.S. income tax purposes. Transaction costs related to this acquisition were immaterial.

13


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Results of operations for this acquisition have been included in our consolidated statements of operations since the acquisition date and were not material. Pro forma results of operations for this acquisition have not been presented because they were also not material to the consolidated results of operations.

Other Acquisitions

During the nine months ended October 31, 2015, we purchased and licensed certain assets of two other companies for an aggregate purchase price of $764,000. We accounted for these transactions as business combinations. In allocating the purchase consideration based on estimated fair values, we recorded $349,000 of developed technology and $415,000 of goodwill. Goodwill for these acquisitions is deductible for U.S. income tax purposes. Developed technology is being amortized on a straight-line basis over an estimated useful life of two years. These acquisitions are expected to enhance our Box service by leveraging the acquired companies’ technologies, along with gaining access to their key talent. Aggregate transaction costs related to these acquisitions were immaterial.

Results of operations for these acquisitions have been included in our consolidated statements of operations since the acquisition dates and were not material. Pro forma results of operations for these acquisitions have not been presented because they were also not material to the consolidated results of operations.

 

 

Note 7. Goodwill and Intangible Assets

Goodwill activity is reflected in the following table (in thousands):

 

Balance as of January 31, 2015

$

11,242

 

Goodwill acquired—Verold

 

2,644

 

Goodwill acquired—Other

 

415

 

Balance as of October 31, 2015

$

14,301

 

 

Intangible assets consisted of the following (in thousands):

 

 

Weighted

Average Useful

Life (1)

 

Gross Value

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

October 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

2.5

 

years

 

$

14,273

 

 

$

(9,279

)

 

$

4,994

 

Trade name and other

 

6.9

 

years

 

 

1,201

 

 

 

(830

)

 

 

371

 

Intangibles, net

 

 

 

 

 

$

15,474

 

 

$

(10,109

)

 

$

5,365

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

2.7

 

years

 

$

11,124

 

 

$

(5,268

)

 

$

5,856

 

Trade name and other

 

6.9

 

years

 

 

1,201