10-Q 1 box-10q_20150430.htm 10-Q box-10q_20150430.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 April 30, 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.)

4440 El Camino Real

Los Altos, California 94022

(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 May 31, 2015, the number of shares of the registrant’s Class A common stock outstanding was 19,609,457 and the number of shares of the registrant’s Class B common stock outstanding was 101,308,042.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

PART I – FINANCIAL INFORMATION

  

Page

Item 1.

 

Financial Statements (Unaudited)

  

4

 

 

Condensed Consolidated Balance Sheets as of April 30, 2015 and January 31, 2015

 

4

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2015 and 2014

 

5

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 2015 and 2014

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 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

  

24

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

37

Item 4.

 

Controls and Procedures

  

37

 

 

 

PART II – OTHER INFORMATION

  

 

Item 1.

 

Legal Proceedings

  

38

Item 1A.

 

Risk Factors

  

39

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

57

Item 6.

 

Exhibits

 

57

 

 

Signatures

  

58

 

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 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 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.

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)

 

 

April 30,

 

 

January 31,

 

 

2015

 

 

2015

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

179,987

 

 

$

330,436

 

Marketable securities

 

103,989

 

 

 

 

Accounts receivable, net of allowance of $3,945 and $3,858

 

38,551

 

 

 

54,174

 

Prepaid expenses and other current assets

 

39,256

 

 

 

12,132

 

Deferred commissions

 

9,097

 

 

 

9,487

 

Total current assets

 

370,880

 

 

 

406,229

 

Property and equipment, net

 

59,259

 

 

 

58,446

 

Intangible assets, net

 

5,546

 

 

 

6,343

 

Goodwill

 

11,657

 

 

 

11,242

 

Restricted cash

 

28,367

 

 

 

3,367

 

Other long-term assets

 

6,202

 

 

 

7,039

 

Total assets

$

481,911

 

 

$

492,666

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

15,089

 

 

$

17,486

 

Accrued compensation and benefits

 

18,494

 

 

 

20,486

 

Accrued expenses and other current liabilities

 

16,027

 

 

 

16,862

 

Capital lease obligations, current

 

1,172

 

 

 

625

 

Deferred revenue

 

111,545

 

 

 

107,893

 

Deferred rent

 

3,623

 

 

 

2,701

 

Total current liabilities

 

165,950

 

 

 

166,053

 

Debt, non-current

 

40,000

 

 

 

40,000

 

Capital lease obligations, non-current

 

2,139

 

 

 

1,238

 

Deferred revenue, non-current

 

12,656

 

 

 

12,164

 

Deferred rent, non-current

 

28,211

 

 

 

3,890

 

Other long-term liabilities

 

1,966

 

 

 

1,192

 

Total liabilities

 

250,922

 

 

 

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 April 30, 2015 (unaudited)

   and January 31, 2015, respectively

 

 

 

 

 

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

   18,034 shares issued and outstanding as of April 30, 2015 (unaudited); 1,000,000

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

 

2

 

 

 

1

 

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

   102,332 shares issued and outstanding as of April 30, 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)

 

10

 

 

 

11

 

Additional paid-in capital

 

808,891

 

 

 

798,743

 

Treasury stock

 

(1,177

)

 

 

(1,177

)

Accumulated other comprehensive loss

 

(61

)

 

 

(56

)

Accumulated deficit

 

(576,676

)

 

 

(529,393

)

Total stockholders’ equity

 

230,989

 

 

 

268,129

 

Total liabilities and stockholders’ equity

$

481,911

 

 

$

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

 

 

April 30,

 

 

2015

 

 

2014

 

Revenue

$

65,621

 

 

$

45,330

 

Cost of revenue

 

17,153

 

 

 

9,228

 

Gross profit

 

48,468

 

 

 

36,102

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

23,134

 

 

 

14,898

 

Sales and marketing

 

56,495

 

 

 

47,440

 

General and administrative

 

15,472

 

 

 

11,546

 

Total operating expenses

 

95,101

 

 

 

73,884

 

Loss from operations

 

(46,633

)

 

 

(37,782

)

Remeasurement of redeemable convertible preferred stock warrant liability

 

 

 

 

(267

)

Interest expenses, net

 

(514

)

 

 

(405

)

Other income (expense), net

 

(77

)

 

 

7

 

Loss before provision for income taxes

 

(47,224

)

 

 

(38,447

)

Provision for income taxes

 

59

 

 

 

64

 

Net loss

 

(47,283

)

 

 

(38,511

)

Accretion of redeemable convertible preferred stock

 

 

 

 

(43

)

Net loss attributable to common stockholders

$

(47,283

)

 

$

(38,554

)

Net loss per common share attributable to common stockholders, basic and diluted

$

(0.40

)

 

$

(2.81

)

Weighted-average shares used to compute net loss per share attributable to

   common stockholders, basic and diluted

 

119,379

 

 

 

13,734

 

 

See notes to condensed consolidated financial statements.

5


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

 

 

Three Months Ended

 

 

April 30,

 

 

2015

 

 

2014

 

Net loss

$

(47,283

)

 

$

(38,511

)

Other comprehensive income (loss)*:

 

 

 

 

 

 

 

Changes in foreign currency translation adjustment

 

(7

)

 

 

2

 

Net change in unrealized gains on available-for-sale

   investments

 

2

 

 

 

 

Other comprehensive income (loss)

 

(5

)

 

 

2

 

Comprehensive loss

$

(47,288

)

 

$

(38,509

)

 

*

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

 

 

April 30,

 

 

2015

 

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

(47,283

)

 

$

(38,511

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

9,166

 

 

 

5,896

 

Stock-based compensation expense

 

12,715

 

 

 

5,752

 

Amortization of deferred commissions

 

3,606

 

 

 

2,858

 

Remeasurement of redeemable convertible preferred stock warrant liability

 

 

 

 

267

 

Other

 

(2

)

 

 

157

 

Changes in operating assets and liabilities, net of effects of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

 

15,623

 

 

 

10,586

 

Deferred commissions

 

(2,813

)

 

 

(2,789

)

Prepaid expenses, restricted cash and other assets

 

(28,455

)

 

 

(2,283

)

Accounts payable

 

266

 

 

 

1,314

 

Accrued expenses and other liabilities

 

(997

)

 

 

(6,288

)

Deferred rent

 

1,848

 

 

 

695

 

Deferred revenue

 

4,144

 

 

 

(1,122

)

Net cash used in operating activities

 

(32,182

)

 

 

(23,468

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchases of marketable securities

 

(106,319

)

 

 

 

Sales of marketable securities

 

3,140

 

 

 

 

Purchases of property and equipment

 

(9,901

)

 

 

(5,961

)

Acquisitions and purchases of intangible assets, net of cash acquired

 

(200

)

 

 

-

 

Net cash used in investing activities

 

(113,280

)

 

 

(5,961

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Payment of initial public offering costs

 

(1,333

)

 

 

(1,735

)

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

   options

 

796

 

 

 

1,577

 

Employee payroll taxes paid related to net share settlement of restricted stock units

 

(4,215

)

 

 

 

Payments of capital lease obligations

 

(228

)

 

 

 

Net cash used in financing activities

 

(4,980

)

 

 

(158

)

Effect of exchange rate changes on cash and cash equivalents

 

(7

)

 

 

2

 

Net decrease in cash and cash equivalents

 

(150,449

)

 

 

(29,585

)

Cash and cash equivalents, beginning of period

 

330,436

 

 

 

108,851

 

Cash and cash equivalents, end of period

$

179,987

 

 

$

79,266

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid for interest

$

359

 

 

$

206

 

Cash paid for income taxes

 

458

 

 

 

124

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Change in accrued equipment purchases

$

(2,798

)

 

$

9,533

 

Purchases of property and equipment under capital lease

 

1,730

 

 

 

 

Issuance of common stock in connection with acquisitions and purchases of intangible

   assets

 

664

 

 

 

 

Vesting of early exercised stock options and restricted stock

 

40

 

 

 

240

 

Change in unpaid deferred offering costs

 

(1,333

)

 

 

(411

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 officially changed our name from Box.Net, Inc. to Box, Inc. in November 2011. We provide a cloud-based mobile optimized Enterprise Content 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 April 30, 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 months ended April 30, 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 (the “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 April 30, 2015, and our results of operations, including our comprehensive loss, and our cash flows for the three months ended April 30, 2015 and 2014. All adjustments are of a normal recurring nature. The results for the three months ended April 30, 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 Collaboration services, which include routine customer support, and Box Enterprise Key Management (EKM); (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.

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

·

there is persuasive evidence of an arrangement;

8


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

·

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. Professional services and premier support services revenues were not material for all periods presented.

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 U.S. across a multitude of industries. Accounts receivable are derived from the delivery of our services to customers primarily located in the U.S. 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 April 30, 2015, we had one reseller who accounted for 14% of total accounts receivable. As of 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 months ended April 30, 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 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

For the three months ended April 30, 2015 and 2014, revenue attributed to the United States was approximately 80%, and no other country outside of the United States comprised 10% or greater of our revenue.

Substantially all of our net assets are located in the United States. As of April 30, 2015 and January 31, 2015, property and equipment located in the United States was approximately 98%.

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.

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.

10


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 investments, 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 investments 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 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 May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value Per Share (or Its Equivalent), which amends ASC 820, Fair Value Measurement. The standard removes the requirement to categorize within the fair value hierarchy investments for which fair value is measured using the net asset value per share practical expedient and removes certain related disclosure requirements. The standard will be effective for our fiscal year beginning February 1, 2016. We do not expect the standard to 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 our fiscal year beginning February 1, 2017. We are currently in the process of assessing the adoption methodology, which allows the amendment to be applied retrospectively to each prior period presented, or with the cumulative effect recognized as of the date of initial application. We are also 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 and liabilities measured at fair value on a recurring basis as of April 30, 2015 and January 31, 2015, using the above input categories (in thousands):

 

 

 

April 30, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate paper

 

 

 

 

$

21,695

 

 

 

 

 

$

21,695

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate paper

 

 

 

 

 

40,810

 

 

 

 

 

 

40,810

 

U.S. government agency obligations

 

 

 

 

 

20,295

 

 

 

 

 

 

20,295

 

Corporate debt securities

 

 

 

 

 

15,515

 

 

 

 

 

 

15,515

 

Asset-backed securities

 

 

 

 

 

15,334

 

 

 

 

 

 

15,334

 

U.S. government obligations

 

 

 

 

 

12,035

 

 

 

 

 

 

12,035

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

 

 

 

27,165

 

 

 

 

 

 

27,165

 

Money market funds

 

 

1,202

 

 

 

 

 

 

 

 

 

1,202

 

Total assets measured at fair value

 

$

1,202

 

 

$

152,849

 

 

$

 

 

$

154,051

 

 

 

 

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

 

 

 

12


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Note 4. Marketable Securities

We held no cash equivalents and marketable securities as of January 31, 2015. The following is a summary of our cash equivalents and marketable securities as of April 30, 2015 (in thousands).

 

 

 

April 30, 2015

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Cost

 

 

Gain

 

 

Loss

 

 

Fair Value

 

Corporate paper

 

$

62,496

 

 

$

10

 

 

$

(1

)

 

$

62,505

 

U.S. government agency obligations

 

 

20,295

 

 

 

1

 

 

 

(1

)

 

 

20,295

 

Corporate debt securities

 

 

15,518

 

 

 

4

 

 

 

(7

)

 

 

15,515

 

Asset-backed securities

 

 

15,335

 

 

 

1

 

 

 

(2

)

 

 

15,334

 

U.S. government obligations

 

 

12,037

 

 

 

 

 

 

(2

)

 

 

12,035

 

 

 

$

125,681

 

 

$

16

 

 

$

(13

)

 

$

125,684

 

Included in cash and cash equivalents

 

$

21,692

 

 

$

3

 

 

$

 

 

$

21,695

 

Included in marketable investments

 

$

103,989

 

 

$

13

 

 

$

(13

)

 

$

103,989

 

 

None of our marketable securities had been in an unrealized loss position for greater than 12 months as of April 30, 2015. Based on our evaluation of available evidence we concluded that the gross unrealized losses on our marketable securities as of April 30, 2015, are temporary in nature.

The amortized cost and estimated fair value of our cash equivalents and marketable securities as of April 30, 2015 are shown below by contractual maturity (in thousands).

 

 

 

April 30, 2015

 

 

 

Amortized

 

 

Estimated

 

 

 

Cost

 

 

Fair Value

 

Less than one year

 

$

112,196

 

 

$

112,200

 

Due in one to five years

 

 

13,485

 

 

 

13,484

 

 

 

$

125,681

 

 

$

125,684

 

 

Net realized gains and losses from sales of our available-for-sale securities for the three months ended April 30, 2015 were not significant.

 

 

Note 5. Balance Sheet Components

Prepaid Expenses and Other Current Assets

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

 

 

April 30,

 

 

January 31,

 

 

2015

 

 

2015

 

Tenant incentives receivable under our new headquarters

   lease in Redwood City (see Note 8)

$

23,395

 

 

$

 

Other

 

15,861

 

 

 

12,132

 

Total prepaid expenses and other current assets

$

39,256

 

 

$

12,132

 

 

13


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Property and Equipment, Net

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

 

 

April 30,

 

 

January 31,

 

 

2015

 

 

2015

 

Servers

$

86,857

 

 

$

81,068

 

Leasehold improvements

 

13,899

 

 

 

13,400

 

Computer hardware and software

 

9,105

 

 

 

8,724

 

Furniture and fixtures

 

5,334

 

 

 

5,046

 

Construction in progress

 

6,691

 

 

 

4,815

 

Total property and equipment

 

121,886

 

 

 

113,053

 

Less: accumulated depreciation

 

(62,627

)

 

 

(54,607

)

Total property and equipment, net

$

59,259

 

 

$

58,446

 

 

As of April 30, 2015, the gross carrying amount of property and equipment includes $2.4 million of servers and $1.3 million of construction in progress acquired under capital leases, and the accumulated depreciation of property and equipment acquired under these capital leases was $355,000. 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 $8.0 million and $5.2 million for the three months ended April 30, 2015 and 2014, respectively. Included in these amounts was depreciation expense for servers acquired under capital leases in the amount of $214,000 and $0, respectively. Construction in progress primarily consists of servers, networking equipment and storage infrastructure being provisioned in our third party datacenter hosting facilities as well as leasehold improvements. In addition, the amounts of interest capitalized to property and equipment were $6,000 and 89,000 for the three months ended April 30, 2015 and 2014, respectively.

 

 

Note 6. Acquisitions

During the three months ended April 30, 2015, we acquired two 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 acquisition 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

 

415

 

Balance as of April 30, 2015

$

11,657

 

 

14


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Intangible assets consisted of the following (in thousands):

 

 

Weighted

Average Useful

Life (1)

 

Gross Value

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

April 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

2.6

 

years

 

$

11,473

 

 

$

(6,375

)

 

$

5,098

 

Trade name and other

 

6.9

 

years

 

 

1,201

 

 

 

(753

)

 

 

448

 

Intangibles, net

 

 

 

 

 

$

12,674

 

 

$

(7,128

)

 

$

5,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

2.7

 

years

 

$

11,124

 

 

$

(5,268

)

 

$

5,856

 

Trade name and other

 

6.9

 

years

 

 

1,201

 

 

 

(714

)

 

 

487

 

Intangibles, net

 

 

 

 

 

$

12,325

 

 

$

(5,982

)

 

$

6,343

 

 

(1)

From the date of acquisition

Intangible amortization expense was $1.1 million and $695,000 for the three months ended April 30, 2015 and 2014, respectively. Amortization of acquired technology is included in cost of revenue and amortization for trade names is included in general and administrative expenses in the consolidated statements of operations. As of April 30, 2015, expected amortization expense for intangible assets was as follows (in thousands):

 

Years ending January 31:

 

 

 

Remainder of 2016

$

3,401

 

2017

 

1,952

 

2018

 

169

 

2019

 

23

 

2020

 

1

 

 

$

5,546

 

 

 

Note 8. Commitments and Contingencies

Letters of Credit

As of April 30, 2015 and January 31, 2015, we had letters of credit in the amount of $27.0 million in connection with our facility leases. These letters of credit mature at various dates through December 1, 2018. As of April 30, 2015 and January 31, 2015, certain letters of credit are collateralized by certificates of deposit held by us in the amount of $27.0 million and $2.0 million, respectively. Refer to Note 9 for additional details.

Leases

We have entered into various non-cancellable operating lease agreements for certain of our offices and datacenters with lease periods expiring primarily between fiscal years 2016 and 2029. Certain of these arrangements have free or escalating rent payment provisions and optional renewal clauses. We are also committed to pay a portion of the actual operating expenses under certain of these lease agreements. These operating expenses are not included in the table below.  

We also entered into various capital lease arrangements to obtain servers for our operations. These agreements are typically for three years. The leases are secured by the underlying leased servers.

15


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

As of April 30, 2015, future minimum lease payments under non-cancellable capital and operating leases are as follows (in thousands):

 

Years ending January 31:

 

Capital

Leases

 

 

Operating

Leases

 

Remainder of 2016

 

$

951

 

 

$

4,142

 

2017

 

 

1,267

 

 

 

12,191

 

2018

 

 

1,190

 

 

 

17,857

 

2019

 

 

66

 

 

 

19,478

 

2020

 

 

 

 

 

22,172

 

Thereafter

 

 

 

 

 

190,660

 

Total minimum lease payments

 

$

3,474

 

 

$

266,500

 

Less: amount representing interest

 

 

(163

)

 

 

 

 

Present value of minimum lease payments

 

$

3,311

 

 

 

 

 

 

In March and April 2015, we signed subleases for three floors of our new headquarters. The 18 and 36-month subleases expire in fiscal 2018 and 2019, and non-cancellable sublease proceeds of $12.6 million are included in the table above. In addition, because our subtenants will occupy the subleased portions of our new headquarters prior to the related lease commencement date, we will incur contingent rent payments of $5.5 million, which are also included in the table above.

We recognize rent expense under our operating leases on a straight-line basis. Rent expense totaled $3.7 million and $1.4 million, net of sublease income of $246,000 and $437,000 for the three months ended April 30, 2015 and 2014, respectively.

We establish assets and liabilities for the present value of estimated future costs to return certain of our leased facilities to their original condition. Such assets are depreciated over the lease period into operating expense, and the recorded liabilities are accreted to the future value of the estimated restoration costs. As of April 30, 2015 and January 31, 2015, we had such asset retirement obligations in the amount of $138,000 and $135,000, respectively, which are included in other noncurrent liabilities in the consolidated balance sheets.

Purchase Obligations

As of April 30, 2015, future payments under non-cancellable contractual purchases, which relate primarily to datacenter operations and marketing activities, are as follows (in thousands):

 

Years ending January 31:

 

 

 

 

Remainder of 2016

 

$

14,922

 

2017

 

 

11,244

 

2018

 

 

3,083

 

 

 

$

29,249

 

 

Legal Matters

On June 5, 2013, Open Text S.A. (Open Text) filed a lawsuit against us in the U.S. District Court, Eastern District of Virginia, alleging that our core cloud software and Box Edit application infringe 12 patents of Open Text. Open Text sought preliminary and permanent injunctions against infringement, treble damages, and attorneys’ fees. This case was subsequently transferred to the U.S. District Court for the Northern District of California.

On September 13, 2013, Open Text filed a motion for preliminary injunction seeking to enjoin us from providing our Box Edit feature to companies with more than 100 users. On April 9, 2014, the California court denied Open Text’s motion for preliminary injunction, finding that (1) Open Text failed to meet its burden to show irreparable harm, (2) Open Text failed to show a reasonable likelihood of success on the merits of its case, and (3) we have raised a substantial question as to the validity of the patents asserted during the preliminary injunction proceedings.

16


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

On September 19, 2014, in a related action, Open Text S.A. v. Alfresco Software Ltd., et al., Case No. 13-cv-04843-JD, the Court granted the Alfresco Defendants’ motion to dismiss with prejudice the asserted claims of the Dialog Patents, finding the asserted claims of the Dialog Patents patent ineligible under 35 U.S.C. § 101. On January 20, 2015, the Court entered an Order granting our motion for judgment on the pleadings as to the asserted patent claims of the Groupware Patents. The Court found that the asserted patent claims of the Groupware Patents are invalid because they claim non-patentable subject matter. As a result of the Court’s January 20, 2015 order and other pretrial orders, the lawsuit was narrowed to four total claims across the three remaining File Synchronization Patents accusing the Company’s Box Edit feature and Box Android application.

Trial commenced on February 2, 2015. On February 13, 2015, the jury returned a verdict, finding the asserted claims of the File Synchronization patents infringed and were not invalid. The jury awarded damages in favor of Open Text in a lump sum and fully paid-up royalty in the amount of $4.9 million. The Court found no willful infringement of the asserted claims and foreclosed Open Text’s request for a permanent injunction since the jury returned a lump-sum award. On February 19, 2015, Open Text filed a notice of appeal to the United States Court of Appeals for the Federal Circuit from the Court’s Order granting our motion for judgment of invalidity of the Groupware Patents. On March 9, 2015, Open Text filed a first amended notice of appeal from additional orders by the Court.

While we intend to continue to defend the lawsuit vigorously and continue to believe we have valid defense to Open Text’s claims, we considered the issuance of the verdict a recognized subsequent event that provided additional evidence about conditions that existed as of January 31, 2015. Accordingly, we accrued a liability in the amount of $4.9 million for the settlement payment as of January 31, 2015, and recorded an expense in the amount of $3.9 million for the year ended January 31, 2015, in relation to the portion of the settlement amount attributable to prior periods. The portion of the settlement amount attributable to future periods is recorded as an asset as of January 31, 2015. This asset is being amortized over an estimated useful life of 14 months, and the amortization expense was $186,000 for the three months ended April 30, 2015.

In addition to the litigation discussed above, from time to time, we are a party to litigation and subject to claims that arise in the ordinary course of business. We investigate these claims as they arise, and accrue estimates for resolution of litigation and other contingencies when losses are probable and estimable. Although the results of litigation and claims cannot be predicted with certainty, we believe there was not at least a reasonable possibility that we had incurred a material loss with respect to such loss contingencies as of April 30, 2015 for which a reserve was not already established.

Indemnification

We include service level commitments to our customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that we fail to meet those levels. In addition, our customer contracts often include (i) specific obligations that we maintain the availability of the customer’s data through our service and that we secure customer content against unauthorized access or loss, and (ii) indemnity provisions whereby we indemnify our customers for third-party claims asserted against them that result from our failure to maintain the availability of their content or securing the same from unauthorized access or loss. To date, we have not incurred any material costs as a result of such commitments.

Our arrangements generally include certain provisions for indemnifying customers against liabilities if our products or services infringe a third party’s intellectual property rights. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. To date, we have not incurred any material costs as a result of such obligations and have not accrued any liabilities related to such obligations in the consolidated financial statements. In addition, we indemnify our officers, directors and certain key employees while they are serving in good faith in their respective capacities. To date, there have been no claims under any indemnification provisions.

 

 

17


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Note 9. Debt

Line of Credit

In August 2013, we entered into a two-year $100.0 million secured revolving credit facility. The credit facility is denominated in U.S. dollars and, depending on certain conditions, each borrowing is subject to a floating interest rate equal to the London Interbank Offer Rate (LIBOR) plus 3.0% or the Alternate Base Rate (ABR) plus 2.0%. In addition, there is a commitment fee of 0.5% on outstanding unused commitment amount. At closing, we drew $34.0 million at 3.4% (six month LIBOR plus 3.0%) which we used to repay previous loans, as well as for other general corporate purposes. In July 2014, we drew an additional $12.0 million under the credit facility at 3.3% (six month LIBOR plus 3.0%). In September 2014, we paid down $6.0 million and amended the credit facility to reduce our borrowing capacity from $100.0 million to $75.0 million and extend the facility through August 2016. Concurrently and in conjunction with the execution of our new headquarters lease in September 2014, letters of credit in the aggregate amount of $25.0 million were issued under the credit facility. These letters of credit were subject to interest at 3.25% per annum.

In March 2015, we amended the credit facility to reduce our borrowing capacity to $60.0 million as of April 2015, and to increase certain limitations on the amount of capital asset and real estate related obligations we may incur. In connection with this amendment, the letters of credit under the credit facility were cancelled, and a new letter of credit in the amount of $25.0 million was issued by a party not affiliated with the line of credit, which was secured by a certificate of deposit in the same amount. As of April 30, 2015, the outstanding borrowings under the credit facility were $40.0 million, and our remaining borrowing capacity under the credit facility was $20.0 million.

Borrowings under the credit facility are collateralized by substantially all of our assets. The credit facility also contains various covenants, including covenants related to the delivery of financial and other information, the maintenance of quarterly financial covenants, material adverse effects, as well as limitations on dispositions, mergers or consolidations and other corporate activities. As of April 30, 2015, we were in compliance with all financial covenants.

In connection with the credit facility, we incurred interest expense of $620,000 and $523,000 during the three months ended April 30, 2015 and 2014, respectively. During the same periods, we capitalized $6,000 and $89,000 of interest costs. Interest expense also includes amortization of issuance costs, unused commitment fees and fees on letters of credit which are recognized over the related term of the borrowing.

 

 

Note 10. Stock-Based Compensation

2015 Equity Incentive Plan

In January 2015, our board of directors adopted the 2015 Equity Incentive Plan (2015 Plan), which became effective prior to the completion of our initial public offering (IPO). A total of 12,200,000 shares of Class A common stock was initially reserved for issuance pursuant to future awards under the 2015 Plan. Additionally, any shares subject to outstanding awards under our 2006 Equity Incentive Plan (2006 Plan) or 2011 Equity Incentive Plan (2011 Plan) that are cancelled or repurchased subsequent to the 2015 Plan’s effective date will be returned to the pool of shares reserved for issuance under the 2015 Plan. Awards granted under the 2015 Plan may be (i) incentive stock options, (ii) nonstatutory stock options, (iii) restricted stock units, (iv) restricted stock awards or (v) stock appreciation rights, as determined by our board of directors at the time of grant. Options and restricted stock units generally vest 25% one year from the vesting commencement date and (a) in the case of options, 1/48th per month thereafter, and (b) in the case of restricted stock units, 1/16th per quarter thereafter.  As of April 30, 2015, 16,331,626 shares were reserved for future issuance under the 2015 Plan.

2015 Employee Stock Purchase Plan

In January 2015, our board of directors adopted the 2015 Employee Stock Purchase Plan, which became effective prior to the completion of our IPO. A total of 2,500,000 shares of Class A common stock was initially reserved for issuance under the 2015 ESPP. The 2015 ESPP allows eligible employees to purchase shares of our Class A common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. Except for the initial offering period, the 2015 ESPP provides for 24-month offering periods beginning March 16 and September 16 of each year, and each offering period will consist of four six-month purchase periods. The initial offering period began January 23, 2015, and will end on March 15, 2017.

18


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

On each purchase date, eligible employees will purchase our stock at a price per share equal to 85% of the lesser of (1) the fair market value of our stock on the offering date or (2) the fair market value of our stock on the purchase date. As of April 30, 2015, 3,696,550 shares were reserved for future issuance under the 2015 ESPP.

Early Exercises of Stock Options

Prior to our IPO, certain employees and directors exercised stock options prior to vesting with the approval of our board of directors. The unvested shares are subject to a repurchase right held by us at the original purchase price. Early exercises of options are not deemed to be substantive exercises for accounting purposes, and accordingly, amounts received for early exercises are initially recorded in other liabilities and are reclassified to common stock and additional paid-in capital as the underlying shares vest. As of April 30, 2015 and January 31, 2015, we had $98,000 and $286,000, respectively, in liabilities and 67,499 and 113,541 unvested shares subject to repurchase related to early exercises of stock options.

Stock Options

The following table summarizes the stock option activity under the equity incentive plans and related information:

 

 

 

Shares Subject to Options Outstanding

 

 

Weighted-Average

 

 

 

 

 

 

 

Shares Subject to

 

 

Weighted-

 

 

Remaining

 

 

 

 

 

 

 

Outstanding

 

 

Average Exercise

 

 

Contractual Life

 

 

Aggregate

 

 

 

Options

 

 

Price

 

 

(Years)

 

 

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance as of January 31, 2015

 

 

17,465,571

 

 

$

5.67

 

 

 

7.80

 

 

$

229,713

 

Options granted

 

 

342,980

 

 

 

17.54

 

 

 

 

 

 

 

 

 

Option exercised

 

 

(350,096

)

 

 

3.09

 

 

 

 

 

 

 

 

 

Options forfeited/cancelled

 

 

(563,225

)

 

 

6.92

 

 

 

 

 

 

 

 

 

Balance as of April 30, 2015

 

 

16,895,230

 

 

$

5.92

 

 

 

7.60

 

 

$

190,236

 

Vested and expected to vest as of April 30, 2015

 

 

16,628,973

 

 

$

5.85

 

 

 

7.58

 

 

$

188,405

 

Exercisable as of April 30, 2015

 

 

8,924,686

 

 

$

3.50

 

 

 

6.98

 

 

$

121,735

 

 

The aggregate intrinsic value of options vested and expected to vest and exercisable as of April 30, 2015 is calculated based on the difference between the exercise price and the current fair value of our common stock. The aggregate intrinsic value of exercised options for the three months ended April 30, 2015 and 2014 was $5.3 million and $11.0 million, respectively.  The aggregate estimated fair value of stock options granted to employees that vested during the three months ended April 30, 2015 and 2014 was $6.1 million and $4.4 million, respectively.  The weighted-average grant date fair value of options granted to employees during the three months ended April 30, 2015 and 2014 was $7.70 and $8.66 per share, respectively.

As of April 30, 2015, there was $34.7 million of unrecognized stock-based compensation expense related to outstanding stock options granted to employees that is expected to be recognized over a weighted-average period of 2.65 years.

Restricted Stock Units

The following table summarizes the restricted stock unit activity under the equity incentive plans and related information:

 

 

 

Number of

 

 

Weighted-

 

 

 

Restricted

 

 

Average

 

 

 

Stock Units

 

 

Grant Date

 

 

 

Outstanding

 

 

Fair Value

 

Unvested balance - January 31, 2015

 

 

4,939,709

 

 

$

15.66

 

Granted

 

 

2,673,044

 

 

 

17.54

 

Vested, net of shares withheld for employee payroll taxes

 

 

(348,962

)

 

 

17.77

 

Forfeited/cancelled, including shares withheld for employee payroll taxes

 

 

(430,831

)

 

 

17.17

 

Unvested balance - April 30, 2015

 

 

6,832,960

 

 

$

16.19

 

 

19


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

As of April 30, 2015, there was $101.1 million of unrecognized stock-based compensation expense related to outstanding restricted stock units granted to employees that is expected to be recognized over a weighted-average period of 3.47 years.

Restricted Stock

The following table summarizes the restricted stock activity under the equity incentive plans and related information:

 

 

 

Number of

 

 

Weighted-

 

 

 

Restricted

 

 

Average

 

 

 

Stock

 

 

Grant Date

 

 

 

Outstanding

 

 

Fair Value

 

Unvested balance - January 31, 2015

 

 

172,661

 

 

$

9.60

 

Granted

 

 

23,364

 

 

 

17.54

 

Vested

 

 

(21,516

)

 

 

14.99

 

Forfeited/cancelled, including shares withheld for employee payroll taxes

 

 

(7,790

)

 

 

17.54

 

Unvested balance - April 30, 2015

 

 

166,719

 

 

$

9.65

 

 

In addition, in connection with our fiscal 2016 acquisitions, we issued 2,500 shares of restricted stock with a weighted-average grant date fair value of $17.54 per share during the three months ended April 30, 2015. This restricted stock was separately authorized by our board of directors, and did not reduce the number of shares available for future issuance under the 2015 Plan. All of these shares were still outstanding as of April 30, 2015.

As of April 30, 2015, there was $4.0 million of unrecognized stock-based compensation expense related to outstanding restricted stock granted to employees that is expected to be recognized over a weighted-average period of 2.19 years.

2015 ESPP and Other

As of April 30, 2015, there was $13.4 million of unrecognized stock-based compensation expense related to our 2015 ESPP that is expected to be recognized over the remaining term of the respective offering periods.

As of April 30, 2015, there was $1.4 million of unrecognized stock-based compensation related to 163,619 shares of contingently issuable common stock for certain bonus awards given in connection with our fiscal 2016 and 2015 acquisitions that is expected to be recognized over a weighted-average period of 2.14 years.

Stock-Based Compensation

The following table summarizes the components of stock-based compensation expense recognized in the consolidated statements of operations (in thousands):

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2015

 

 

2014

 

Cost of revenue

 

$

851

 

 

$

226

 

Research and development