10-Q 1 box-10q_20160731.htm 10-Q box-10q_20160731.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

x

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

For the quarterly period ended July 31, 2016

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

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨ (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 August 31, 2016, the number of shares of the registrant’s Class A common stock outstanding was 53,826,455 and the number of shares of the registrant’s Class B common stock outstanding was 73,941,755.

 

 

 


 

TABLE OF CONTENTS

 

 

 

PART I – FINANCIAL INFORMATION

  

Page

Item 1.

 

Financial Statements (Unaudited)

  

 

 

 

Condensed Consolidated Balance Sheets as of July 31, 2016 and January 31, 2016

 

4

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2016 and 2015

 

5

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended July 31, 2016 and 2015

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended July 31, 2016 and 2015

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

 

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

  

22

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

  

56

Item 6.

 

Exhibits

 

56

 

 

Signatures

  

57

 

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 and our expectations regarding such growth;

 

·

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

 

·

our ability to achieve profitability and positive cash flow;

 

·

our ability to achieve our long-term margin objectives;

 

·

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 as an enterprise content platform;

 

·

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 plans to further invest in our business, including investment in research and development, sales and marketing, our datacenter infrastructure and our professional services organization, and our ability to effectively manage such investments;

 

·

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;

 

·

our ability to attract and retain qualified employees and key personnel;

 

·

our ability to realize the anticipated benefits of our partnerships with third parties;

 

·

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)

 

 

 

July 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

173,331

 

 

$

185,741

 

Marketable securities

 

 

 

 

 

7,379

 

Accounts receivable, net of allowance of $3,146 and $3,678

 

 

75,170

 

 

 

99,542

 

Prepaid expenses and other current assets

 

 

13,770

 

 

 

14,729

 

Deferred commissions

 

 

10,591

 

 

 

12,603

 

Total current assets

 

 

272,862

 

 

 

319,994

 

Property and equipment, net

 

 

107,093

 

 

 

120,492

 

Intangible assets, net

 

 

1,520

 

 

 

3,895

 

Goodwill

 

 

14,301

 

 

 

14,301

 

Restricted cash

 

 

27,128

 

 

 

27,952

 

Other long-term assets

 

 

9,248

 

 

 

10,854

 

Total assets

 

$

432,152

 

 

$

497,488

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,557

 

 

$

9,862

 

Accrued compensation and benefits

 

 

21,089

 

 

 

35,631

 

Accrued expenses and other current liabilities

 

 

14,418

 

 

 

31,926

 

Capital lease obligations

 

 

8,077

 

 

 

4,698

 

Deferred revenue

 

 

166,377

 

 

 

168,051

 

Deferred rent

 

 

186

 

 

 

298

 

Total current liabilities

 

 

217,704

 

 

 

250,466

 

Debt, non-current

 

 

40,000

 

 

 

40,000

 

Capital lease obligations, non-current

 

 

10,747

 

 

 

7,316

 

Deferred revenue, non-current

 

 

16,627

 

 

 

18,362

 

Deferred rent, non-current

 

 

44,440

 

 

 

41,674

 

Other long-term liabilities

 

 

1,815

 

 

 

1,769

 

Total liabilities

 

 

331,333

 

 

 

359,587

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, par value $0.0001 per share; 100,000 shares authorized, no shares issued and

   outstanding as of July 31, 2016 (unaudited) and January 31, 2016, respectively

 

 

 

 

 

 

Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized, 53,697 shares

   issued and outstanding as of July 31, 2016; 1,000,000 shares authorized, 42,266 shares issued and

   outstanding as of January 31, 2016

 

 

5

 

 

 

4

 

Class B common stock, par value $0.0001 per share; 200,000 shares authorized, 73,967 shares

   issued and outstanding as of July 31, 2016; 200,000 shares authorized, 81,855 shares issued and

   outstanding as of January 31, 2016;

 

 

7

 

 

 

8

 

Additional paid-in capital

 

 

911,018

 

 

 

871,491

 

Treasury stock

 

 

(1,177

)

 

 

(1,177

)

Accumulated other comprehensive loss

 

 

(16

)

 

 

(84

)

Accumulated deficit

 

 

(809,018

)

 

 

(732,341

)

Total stockholders’ equity

 

 

100,819

 

 

 

137,901

 

Total liabilities and stockholders’ equity

 

$

432,152

 

 

$

497,488

 

 

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

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue

 

$

95,713

 

 

$

73,450

 

 

$

185,868

 

 

$

139,071

 

Cost of revenue

 

 

27,602

 

 

 

20,636

 

 

 

55,461

 

 

 

37,789

 

Gross profit

 

 

68,111

 

 

 

52,814

 

 

 

130,407

 

 

 

101,282

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

28,265

 

 

 

26,453

 

 

 

55,172

 

 

 

49,587

 

Sales and marketing

 

 

60,186

 

 

 

58,460

 

 

 

119,658

 

 

 

114,955

 

General and administrative

 

 

17,579

 

 

 

17,675

 

 

 

32,088

 

 

 

33,147

 

Total operating expenses

 

 

106,030

 

 

 

102,588

 

 

 

206,918

 

 

 

197,689

 

Loss from operations

 

 

(37,919

)

 

 

(49,774

)

 

 

(76,511

)

 

 

(96,407

)

Interest expense, net

 

 

(189

)

 

 

(229

)

 

 

(365

)

 

 

(743

)

Other income (expense), net

 

 

190

 

 

 

(31

)

 

 

631

 

 

 

(108

)

Loss before provision for income taxes

 

 

(37,918

)

 

 

(50,034

)

 

 

(76,245

)

 

 

(97,258

)

Provision for income taxes

 

 

184

 

 

 

141

 

 

 

432

 

 

 

200

 

Net loss

 

$

(38,102

)

 

$

(50,175

)

 

$

(76,677

)

 

$

(97,458

)

Net loss per common share, basic and diluted

 

$

(0.30

)

 

$

(0.42

)

 

$

(0.61

)

 

$

(0.81

)

Weighted-average shares used to compute net loss per share, basic and diluted

 

 

126,776

 

 

 

120,399

 

 

 

125,864

 

 

 

119,987

 

 

See notes to condensed consolidated financial statements.

5


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

 

$

(38,102

)

 

$

(50,175

)

 

$

(76,677

)

 

$

(97,458

)

Other comprehensive income (loss)*:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in foreign currency translation adjustment

 

 

(49

)

 

 

(21

)

 

 

65

 

 

 

(28

)

Net change in unrealized gain (loss) on available-for-sale investments

 

 

1

 

 

 

(9

)

 

 

3

 

 

 

(7

)

Other comprehensive income (loss)*:

 

 

(48

)

 

 

(30

)

 

 

68

 

 

 

(35

)

Comprehensive loss

 

$

(38,150

)

 

$

(50,205

)

 

$

(76,609

)

 

$

(97,493

)

 

*

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

 

 

Six Months Ended

 

 

 

July 31,

 

 

July 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(38,102

)

 

$

(50,175

)

 

$

(76,677

)

 

$

(97,458

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

10,721

 

 

 

9,865

 

 

 

22,805

 

 

 

19,031

 

Stock-based compensation expense

 

 

19,064

 

 

 

14,728

 

 

 

35,153

 

 

 

27,443

 

Amortization of deferred commissions

 

 

4,605

 

 

 

3,922

 

 

 

9,376

 

 

 

7,528

 

Other

 

 

(25

)

 

 

102

 

 

 

83

 

 

 

100

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(17,555

)

 

 

(15,496

)

 

 

24,372

 

 

 

127

 

Deferred commissions

 

 

(4,149

)

 

 

(5,354

)

 

 

(6,406

)

 

 

(8,167

)

Prepaid expenses and other assets, current and noncurrent

 

 

2,664

 

 

 

1,343

 

 

 

2,437

 

 

 

(27,112

)

Accounts payable

 

 

(550

)

 

 

8,602

 

 

 

(284

)

 

 

8,868

 

Accrued expenses and other liabilities

 

 

7,484

 

 

 

2,560

 

 

 

(19,214

)

 

 

1,563

 

Deferred rent

 

 

144

 

 

 

2,094

 

 

 

2,654

 

 

 

3,942

 

Deferred revenue

 

 

10,820

 

 

 

6,148

 

 

 

(3,409

)

 

 

10,292

 

Net cash used in operating activities

 

 

(4,879

)

 

 

(21,661

)

 

 

(9,110

)

 

 

(53,843

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

 

 

 

(6,202

)

 

 

 

 

 

(112,521

)

Sales of marketable securities

 

 

240

 

 

 

709

 

 

 

240

 

 

 

3,849

 

Maturities of marketable securities

 

 

471

 

 

 

6,653

 

 

 

7,057

 

 

 

6,653

 

Purchases of property and equipment

 

 

(771

)

 

 

(17,943

)

 

 

(11,747

)

 

 

(27,844

)

Proceeds from sale of property and equipment

 

 

72

 

 

 

 

 

 

76

 

 

 

 

Acquisitions and purchases of intangible assets, net of cash acquired

 

 

 

 

 

(18

)

 

 

 

 

 

(218

)

Net cash provided by (used in) investing activities

 

 

12

 

 

 

(16,801

)

 

 

(4,374

)

 

 

(130,081

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of initial public offering costs

 

 

 

 

 

(839

)

 

 

 

 

 

(2,172

)

Payment of borrowing costs

 

 

 

 

 

 

 

 

(93

)

 

 

 

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

 

 

1,969

 

 

 

1,618

 

 

 

4,215

 

 

 

2,414

 

Proceeds from issuances of common stock under employee stock purchase plan

 

 

 

 

 

 

 

 

9,016

 

 

 

 

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

 

 

(4,100

)

 

 

(1,972

)

 

 

(8,868

)

 

 

(6,187

)

Payments of capital lease obligations

 

 

(2,312

)

 

 

(192

)

 

 

(3,261

)

 

 

(420

)

Net cash provided by (used in) financing activities

 

 

(4,443

)

 

 

(1,385

)

 

 

1,009

 

 

 

(6,365

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(49

)

 

 

(21

)

 

 

65

 

 

 

(28

)

Net decrease in cash and cash equivalents

 

 

(9,359

)

 

 

(39,868

)

 

 

(12,410

)

 

 

(190,317

)

Cash and cash equivalents, beginning of period

 

 

182,690

 

 

 

179,987

 

 

 

185,741

 

 

 

330,436

 

Cash and cash equivalents, end of period

 

$

173,331

 

 

$

140,119

 

 

$

173,331

 

 

$

140,119

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest, net of amounts capitalized

 

$

555

 

 

$

293

 

 

$

788

 

 

$

652

 

Net cash paid (received) for income taxes, net of tax refunds

 

 

(2

)

 

 

242

 

 

 

116

 

 

 

700

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND

   FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in accrued equipment purchases

 

$

(2,180

)

 

$

8,446

 

 

$

(15,024

)

 

$

5,648

 

Purchases of property and equipment under capital lease

 

 

5,562

 

 

 

2,335

 

 

 

9,910

 

 

 

4,065

 

Change in unpaid tax related to capital lease

 

 

628

 

 

 

 

 

 

430

 

 

 

 

Change in unpaid taxes related to net share settlement of restricted stocks

 

 

(461

)

 

 

 

 

 

 

 

 

 

Vesting of early exercised stock options and restricted stock

 

 

 

 

 

40

 

 

 

11

 

 

 

80

 

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

 

 

 

 

 

5,444

 

 

 

 

 

 

6,108

 

Change in unpaid deferred offering costs

 

 

 

 

 

(839

)

 

 

 

 

 

(2,172

)

 

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. Box provides an enterprise content platform that enables organizations of all sizes to securely manage enterprise content while allowing easy, secure access and sharing of this content from anywhere, on any device.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of July 31, 2016 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 six months ended July 31, 2016 and 2015, respectively, are unaudited. The condensed consolidated balance sheet data as of January 31, 2016 was derived from the audited consolidated financial statements that are included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2016 {the “Form 10-K”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2016. The accompanying statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our Form 10-K. There have been no material changes to our critical accounting policies and estimates during the six months ended July 31, 2016 from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 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 July 31, 2016, and our results of operations, including our comprehensive loss, and our cash flows for the three and six months ended July 31, 2016 and 2015. All adjustments are of a normal recurring nature. The results for the three and six months ended July 31, 2016 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending January 31, 2017.

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.

Certain Risks and Concentrations

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, 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 July 31,

8


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

2016 and January 31, 2016, no single customer accounted for more than 10% of total accounts receivable. No single customer represented over 10% of revenue during the three and six months ended July 31, 2016 and 2015.

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 and third-party cloud computing and hosting providers in various locations in the United States and abroad. 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 83% and 80% for the three months ended July 31, 2016 and 2015, respectively, and for the six months ended July 31, 2016 and 2015, respectively. 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 July 31, 2016 and January 31, 2016, property and equipment located in the United States was 99.5% and 99.3%, respectively.

Prior Period Reclassifications

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

Initial Public Offering

In January 2015 we completed our initial public offering (IPO) in which we issued and sold 14,375,000 shares of Class A common stock, including 1,875,000 shares to cover an over-allotment option, at a public offering price of $14.00 per share. We received net proceeds of $187.2 million after deducting underwriting discounts and commissions of $14.1 million but before deducting offering costs of $5.7 million, of which $2.9 million and $588,000, respectively, was paid in the years ended January 31, 2015 and 2014, and the remaining $2.2 million was paid after January 31, 2015. In addition, in connection with our IPO:

 

·

We authorized a new class of Class A common stock and a new class of Class B common stock.

 

·

All 17,051,820 shares of our then-outstanding common stock were reclassified into an equivalent number of shares of our Class B common stock.

 

·

All 76,238,097 shares of our then-outstanding redeemable convertible preferred stock other than our Series F redeemable convertible preferred stock were converted and reclassified into an equivalent number of shares of our Class B common stock.

 

·

7,500,000 shares of our then-outstanding Series F redeemable convertible preferred stock were converted and reclassified into 11,904,759 shares of our Class B common stock. Included in this amount were incremental shares issued in accordance with the contractual conversion rights of our Series F redeemable convertible preferred stock. The additional shares resulted in a beneficial conversion feature, and we recorded a $2.3 million deemed dividend to Series F redeemable convertible preferred stockholders upon the IPO.

 

·

We issued 85,354 shares of Series A redeemable convertible preferred stock upon the net exercise of our Series A redeemable convertible preferred stock warrant, which occurred immediately prior to the completion of our IPO. These shares were converted and reclassified into an equivalent number of shares of our Class B common stock. As a result, we reclassified our redeemable convertible preferred stock warrant liability balance to additional-paid-in capital upon IPO.

 

·

We reclassified $5.7 million of deferred issuance costs previously recorded in other long-term assets as an offset to the proceeds from our IPO.

 

 

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments- Credit Losses. ASU 2016-13 changes the accounting of credit losses on financial instruments and other commitments. The standard also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets

9


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

with credit deterioration since their origination. The new standard is effective for us beginning February 1, 2020 with early adoption permitted. We are currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

In April 2016, the FASB issued ASU 2016-09, Compensation- Stock Compensation. ASU 2016-09 changes the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement. In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from other income tax cash flows. The standard also allows entities to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the cash flow statement, and provides an accounting policy election to account for forfeitures as they occur. The new standard is effective for us beginning February 1, 2017 with early adoption permitted. We are currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires lessees to put most leases on their balance sheet while recognizing expense in a manner similar to existing accounting. The new accounting guidance is effective for our fiscal year beginning February 1, 2019 and early adoption is permitted. We are currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 is effective for our fiscal year beginning February 1, 2018. Early adoption is permitted only for certain portions of the ASU related to financial liabilities. We are currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, 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. In addition, the FASB issued subsequent ASUs, which serve to clarify certain aspects of ASU 2014-09. The standard will be effective for us beginning February 1, 2018, 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 provisions of this new standard on our consolidated financial statements.

Note 2. 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 marketable securities and restricted cash at fair value on a recurring basis. We classify these assets 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. As of July 31, 2016, we had no marketable securities in our investment portfolio.

10


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 July 31 and January 31, 2016, using the above input categories (in thousands):

 

 

 

July 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

 

 

$

26,968

 

 

$

 

 

$

26,968

 

Money market funds

 

 

160

 

 

 

 

 

 

 

 

 

160

 

Total assets measured at fair value

 

$

160

 

 

$

26,968

 

 

$

 

 

$

27,128

 

 

 

 

January 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

$

 

 

$

5,559

 

 

$

 

 

$

5,559

 

Asset-backed securities

 

 

 

 

 

1,820

 

 

 

 

 

 

1,820

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

 

 

 

26,968

 

 

 

 

 

 

26,968

 

Money market funds

 

 

984

 

 

 

 

 

 

 

 

 

984

 

Total assets measured at fair value

 

$

984

 

 

$

34,347

 

 

$

 

 

$

35,331

 

 

 

Note 3. Balance Sheet Components

Prepaid Expenses and Other Current Assets

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

 

 

 

July 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

Prepaid expenses

 

$

11,032

 

 

$

8,410

 

Tenant incentives receivable under our headquarters

   lease in Redwood City

 

 

 

 

3,024

 

Other current assets

 

 

2,738

 

 

 

3,295

 

Total prepaid expenses and other current assets

 

$

13,770

 

 

$

14,729

 

 

Property and Equipment, Net

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

 

 

 

July 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

Servers

 

$

117,948

 

 

$

111,015

 

Leasehold improvements

 

 

63,930

 

 

 

68,082

 

Computer hardware and software

 

 

10,676

 

 

 

11,009

 

Furniture and fixtures

 

 

12,649

 

 

 

12,485

 

Construction in progress

 

 

8,415

 

 

 

4,808

 

Total property and equipment

 

 

213,618

 

 

 

207,399

 

Less: accumulated depreciation

 

 

(106,525

)

 

 

(86,907

)

Total property and equipment, net

 

$

107,093

 

 

$

120,492

 

 

As of July 31, 2016, the gross carrying amount of property and equipment included $19.4 million of servers and $5.7 million of construction in progress acquired under capital leases, and the accumulated depreciation of property and equipment acquired under these capital leases was $5.4 million. As of January 31, 2016, the gross carrying amount of property and equipment included $13.9

11


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

million of servers and $1.2 million of construction in progress acquired under capital leases, and the accumulated depreciation of property and equipment acquired under these capital leases was $2.4 million.

Depreciation expense related to property and equipment was $9.8 million and $8.4 million for the three months ended July 31, 2016 and 2015, respectively, and $20.4 million and $16.4 million for the six months ended July 31, 2016 and 2015, respectively. Included in these amounts was depreciation expense for servers acquired under capital leases in the amount of $1.6 million and $0.4 million for the three months ended July 31, 2016 and 2015, respectively, and $2.9 million and $0.6 million for the six months ended July 31, 2016 and 2015, 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 immaterial for the three and six months ended July 31, 2016 and 2015.     

 

 

Note 4. 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.

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 fiscal year 2016, we purchased and licensed certain assets of two other companies for an aggregate purchase price of $0.8 million. We accounted for these transactions as business combinations. In allocating the purchase consideration based on estimated fair values, we recorded $0.3 million of developed technology and $0.4 million 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.

 

 

12


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Note 5. Goodwill and Intangible Assets

There was no goodwill activity during the three and six months ended July 31, 2016. 

Intangible assets consisted of the following (in thousands):

 

 

 

Weighted

Average Useful

Life (1)

 

Gross Value

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

July 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

 

2.5

 

years

 

$

14,273

 

 

$

(13,009

)

 

$

1,264

 

Trade name and other

 

 

6.9

 

years

 

 

1,201

 

 

 

(945

)

 

 

256

 

Intangibles, net

 

 

 

 

 

 

$

15,474

 

 

$

(13,954

)

 

$

1,520

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

 

2.5

 

years

 

$

14,273

 

 

$

(10,711

)

 

$

3,562

 

Trade name and other

 

 

6.9

 

years

 

 

1,201

 

 

 

(868

)

 

 

333

 

Intangibles, net

 

 

 

 

 

 

$

15,474

 

 

$

(11,579

)

 

$

3,895

 

 

(1)

From the date of acquisition

Intangible amortization expense was $0.9 million and $1.5 million for the three months ended July 31, 2016 and 2015, respectively, and $2.4 million and $2.7 million for the six months ended July 31, 2016 and 2015, 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 July 31, 2016, expected amortization expense for intangible assets was as follows (in thousands):

 

Years ending January 31:

 

 

 

 

Remainder of 2017

 

$

977

 

2018

 

 

519

 

2019

 

 

23

 

2020

 

 

1

 

2021 and thereafter

 

 

 

 

 

$

1,520

 

 

 

Note 6. Commitments and Contingencies

Letters of Credit

As of July 31, 2016 and January 31, 2016, we had letters of credit in the aggregate amount of $27.0 million in connection with our facility leases. These letters of credit are collateralized by certificates of deposit held by us in the amount of $27.0 million and $27.0 million, respectively. Refer to Note 2 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 2017 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.

13


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

As of July 31, 2016, future minimum lease payments under non-cancellable capital and operating leases are as follows (in thousands):

 

Years ending January 31:

 

Capital

Leases

 

 

Operating

Leases, net of

Sublease Income

 

Remainder of 2017

 

$

4,233

 

 

$

9,565

 

2018

 

 

8,306

 

 

 

22,019

 

2019

 

 

5,987

 

 

 

25,264

 

2020

 

 

819

 

 

 

29,334

 

2021