10-Q 1 box-10q_20161031.htm 10-Q box-10q_20161031.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

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

For the quarterly period ended October 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      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      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

 

 (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  

As of November 30, 2016, the number of shares of the registrant’s Class A common stock outstanding was 62,728,247 and the number of shares of the registrant’s Class B common stock outstanding was 66,922,763.

 

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

PART I – FINANCIAL INFORMATION

 

Page

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

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

 

4

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 31, 2016 and 2015

 

5

 

 

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

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended October 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

 

23

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

Item 4.

 

Controls and Procedures

 

39

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

40

Item 1A.

 

Risk Factors

 

40

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 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)

 

 

 

October 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

167,800

 

 

$

185,741

 

Marketable securities

 

 

 

 

 

7,379

 

Accounts receivable, net of allowance of $3,214 and $3,678

 

 

85,995

 

 

 

99,542

 

Prepaid expenses and other current assets

 

 

12,770

 

 

 

14,729

 

Deferred commissions

 

 

10,599

 

 

 

12,603

 

Total current assets

 

 

277,164

 

 

 

319,994

 

Property and equipment, net

 

 

113,379

 

 

 

120,492

 

Intangible assets, net

 

 

975

 

 

 

3,895

 

Goodwill

 

 

16,293

 

 

 

14,301

 

Restricted cash

 

 

27,134

 

 

 

27,952

 

Other long-term assets

 

 

8,427

 

 

 

10,854

 

Total assets

 

$

443,372

 

 

$

497,488

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,926

 

 

$

9,862

 

Accrued compensation and benefits

 

 

19,172

 

 

 

35,631

 

Accrued expenses and other current liabilities

 

 

20,425

 

 

 

31,926

 

Capital lease obligations

 

 

10,769

 

 

 

4,698

 

Deferred revenue

 

 

179,456

 

 

 

168,051

 

Deferred rent

 

 

410

 

 

 

298

 

Total current liabilities

 

 

240,158

 

 

 

250,466

 

Debt, non-current

 

 

40,000

 

 

 

40,000

 

Capital lease obligations, non-current

 

 

14,707

 

 

 

7,316

 

Deferred revenue, non-current

 

 

13,142

 

 

 

18,362

 

Deferred rent, non-current

 

 

44,640

 

 

 

41,674

 

Other long-term liabilities

 

 

1,851

 

 

 

1,769

 

Total liabilities

 

 

354,498

 

 

 

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 October 31, 2016 (unaudited) and January 31, 2016, respectively

 

 

 

 

 

 

Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized, 62,627 shares

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

   and outstanding as of January 31, 2016

 

 

6

 

 

 

4

 

Class B common stock, par value $0.0001 per share; 200,000 shares authorized, 66,937 shares

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

   outstanding as of January 31, 2016;

 

 

7

 

 

 

8

 

Additional paid-in capital

 

 

937,317

 

 

 

871,491

 

Treasury stock

 

 

(1,177

)

 

 

(1,177

)

Accumulated other comprehensive loss

 

 

(28

)

 

 

(84

)

Accumulated deficit

 

 

(847,251

)

 

 

(732,341

)

Total stockholders’ equity

 

 

88,874

 

 

 

137,901

 

Total liabilities and stockholders’ equity

 

$

443,372

 

 

$

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

 

 

Nine Months Ended

 

 

 

October 31,

 

 

October 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue

 

$

102,811

 

 

$

78,651

 

 

$

288,679

 

 

$

217,722

 

Cost of revenue

 

 

27,115

 

 

 

23,630

 

 

 

82,576

 

 

 

61,419

 

Gross profit

 

 

75,696

 

 

 

55,021

 

 

 

206,103

 

 

 

156,303

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

29,652

 

 

 

26,324

 

 

 

84,824

 

 

 

75,911

 

Sales and marketing

 

 

66,796

 

 

 

63,972

 

 

 

186,454

 

 

 

178,927

 

General and administrative

 

 

16,999

 

 

 

19,757

 

 

 

49,087

 

 

 

52,904

 

Total operating expenses

 

 

113,447

 

 

 

110,053

 

 

 

320,365

 

 

 

307,742

 

Loss from operations

 

 

(37,751

)

 

 

(55,032

)

 

 

(114,262

)

 

 

(151,439

)

Interest expense, net

 

 

(222

)

 

 

(30

)

 

 

(587

)

 

 

(773

)

Other (expense) income, net

 

 

(22

)

 

 

165

 

 

 

609

 

 

 

57

 

Loss before provision for income taxes

 

 

(37,995

)

 

 

(54,897

)

 

 

(114,240

)

 

 

(152,155

)

Provision for income taxes

 

 

238

 

 

 

220

 

 

 

670

 

 

 

420

 

Net loss

 

$

(38,233

)

 

$

(55,117

)

 

$

(114,910

)

 

$

(152,575

)

Net loss per common share, basic and diluted

 

$

(0.30

)

 

$

(0.45

)

 

$

(0.91

)

 

$

(1.27

)

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

   and diluted

 

 

128,275

 

 

 

121,796

 

 

 

126,712

 

 

 

120,537

 

 

See notes to condensed consolidated financial statements.

5


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 31,

 

 

October 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

 

$

(38,233

)

 

$

(55,117

)

 

$

(114,910

)

 

$

(152,575

)

Other comprehensive (loss) income*:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in foreign currency translation adjustment

 

 

(12

)

 

 

13

 

 

 

53

 

 

 

(15

)

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

   investments

 

 

 

 

 

4

 

 

 

3

 

 

 

(3

)

Other comprehensive (loss) income*:

 

 

(12

)

 

 

17

 

 

 

56

 

 

 

(18

)

Comprehensive loss

 

$

(38,245

)

 

$

(55,100

)

 

$

(114,854

)

 

$

(152,593

)

 

*

Tax effect was not material

See notes to condensed consolidated financial statements.

6


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 31,

 

 

October 31,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(38,233

)

 

$

(55,117

)

 

$

(114,910

)

 

$

(152,575

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,710

 

 

 

9,936

 

 

 

31,515

 

 

 

28,967

 

Stock-based compensation expense

 

 

19,917

 

 

 

15,404

 

 

 

55,070

 

 

 

42,847

 

Amortization of deferred commissions

 

 

4,251

 

 

 

3,974

 

 

 

13,627

 

 

 

11,502

 

Other

 

 

13

 

 

 

457

 

 

 

96

 

 

 

557

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(10,825

)

 

 

(10,321

)

 

 

13,547

 

 

 

(10,194

)

Deferred commissions

 

 

(3,667

)

 

 

(3,729

)

 

 

(10,073

)

 

 

(11,896

)

Prepaid expenses and other assets, current and noncurrent

 

 

1,670

 

 

 

1,565

 

 

 

4,107

 

 

 

(25,547

)

Accounts payable

 

 

2,353

 

 

 

(6,989

)

 

 

2,069

 

 

 

1,879

 

Accrued expenses and other liabilities

 

 

(1,036

)

 

 

(937

)

 

 

(20,250

)

 

 

626

 

Deferred rent

 

 

424

 

 

 

17,616

 

 

 

3,078

 

 

 

21,558

 

Deferred revenue

 

 

9,594

 

 

 

10,798

 

 

 

6,185

 

 

 

21,090

 

Net cash used in operating activities

 

 

(6,829

)

 

 

(17,343

)

 

 

(15,939

)

 

 

(71,186

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

 

 

 

 

 

 

 

 

 

(112,521

)

Sales of marketable securities

 

 

 

 

 

63,062

 

 

 

240

 

 

 

66,911

 

Maturities of marketable securities

 

 

 

 

 

13,492

 

 

 

7,057

 

 

 

20,145

 

Purchases of property and equipment

 

 

(1,892

)

 

 

(19,998

)

 

 

(13,639

)

 

 

(47,842

)

Proceeds from sale of property and equipment

 

 

8

 

 

 

 

 

 

84

 

 

 

 

Acquisitions and purchases of intangible assets, net of cash acquired

 

 

 

 

 

(53

)

 

 

 

 

 

(271

)

Net cash (used in) provided by investing activities

 

 

(1,884

)

 

 

56,503

 

 

 

(6,258

)

 

 

(73,578

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of initial public offering costs

 

 

 

 

 

 

 

 

 

 

 

(2,172

)

Payment of borrowing costs

 

 

 

 

 

 

 

 

(93

)

 

 

 

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

   exercised stock options

 

 

3,388

 

 

 

2,734

 

 

 

7,603

 

 

 

5,148

 

Proceeds from issuances of common stock under employee stock

   purchase plan

 

 

6,710

 

 

 

10,282

 

 

 

15,726

 

 

 

10,282

 

Employee payroll taxes paid related to net share settlement of

   restricted stock units

 

 

(4,726

)

 

 

(2,105

)

 

 

(13,594

)

 

 

(8,292

)

Payments of capital lease obligations

 

 

(2,178

)

 

 

(508

)

 

 

(5,439

)

 

 

(928

)

Net cash provided by financing activities

 

 

3,194

 

 

 

10,403

 

 

 

4,203

 

 

 

4,038

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(12

)

 

 

13

 

 

 

53

 

 

 

(15

)

Net (decrease) increase in cash and cash equivalents

 

 

(5,531

)

 

 

49,576

 

 

 

(17,941

)

 

 

(140,741

)

Cash and cash equivalents, beginning of period

 

 

173,331

 

 

 

140,119

 

 

 

185,741

 

 

 

330,436

 

Cash and cash equivalents, end of period

 

$

167,800

 

 

$

189,695

 

 

$

167,800

 

 

$

189,695

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest, net of amounts capitalized

 

$

50

 

 

$

297

 

 

$

838

 

 

$

949

 

Cash paid for income taxes, net of tax refunds

 

 

95

 

 

 

132

 

 

 

211

 

 

 

832

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND

   FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in accrued equipment purchases

 

$

3,647

 

 

$

19,075

 

 

$

(11,377

)

 

$

24,723

 

Purchases of property and equipment under capital lease

 

 

8,390

 

 

 

3,307

 

 

 

18,300

 

 

 

7,372

 

Change in unpaid tax related to capital lease

 

 

522

 

 

 

 

 

 

952

 

 

 

 

Vesting of early exercised stock options and restricted stock

 

 

 

 

 

 

 

 

11

 

 

 

 

Issuance of common stock in connection with acquisitions and

   purchases of intangible assets

 

 

1,011

 

 

 

 

 

 

1,011

 

 

 

6,108

 

Change in unpaid deferred offering costs

 

 

 

 

 

 

 

 

 

 

 

(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 October 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 nine months ended October 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 changes to our critical accounting policies and estimates during the nine months ended October 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 October 31, 2016, and our results of operations, including our comprehensive loss, and our cash flows for the three and nine months ended October 31, 2016 and 2015. All adjustments are of a normal recurring nature. The results for the three and nine months ended October 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.

In accordance our Company’s property and equipment policy, we review the estimated useful lives of our fixed assets on an ongoing basis. The most recent review indicated that the actual lives of certain data center assets not acquired under capital leases were longer than previously estimated useful lives used for depreciation purposes in our financial statements. As a result, effective September 1, 2016, we changed the estimated useful lives of certain data center assets not acquired under capital leases to better reflect the estimated periods during which these assets will remain in service. The estimated useful lives of these assets previously depreciated for three years have now been increased to four years. The effect of this change in estimate in the current period to net income and earnings per share was not material.

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.

8


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

We sell to a broad range of customers. Our revenue is derived substantially from the United States across a multitude of industries. Accounts receivable are derived from the delivery of our services to customers primarily located in the United States. We accept and settle our accounts receivable using credit cards, electronic payments and checks. A majority of our lower dollar value invoices are settled by credit card on or near the date of the invoice. We do not require collateral from customers to secure accounts receivable. We maintain an allowance for accounts receivable based upon the expected collectability, which takes into consideration specific customer creditworthiness and current economic trends. We believe collections of our accounts receivable are reasonably assured based on the size, industry diversification, financial condition and past transaction history of our customers. As of October 31, 2016 only one customer accounted for more than 10% of total accounts receivable. As of 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 nine months ended October 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 81% for the three months ended October 31, 2016 and 2015, respectively, and 83% and 80% for the nine months ended October 31, 2016 and 2015, respectively. No other country outside of the United States comprised 10% or greater of our revenue for any of the periods presented.

Substantially all of our net assets are located in the United States. As of October 31, 2016 and January 31, 2016, property and equipment located in the United States was 99.6% 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.

9


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

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 August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows- Classification of Certain Cash Receipts and Cash Payment. ASU 2016-15 provides guidance on the classification of eight cash flow issues in order to reduce diversity in practice. The new standard is effective for us beginning February 1, 2018 with early adoption permitted. We are currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses. ASU 2016-13 replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, we will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. 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.

 

 

10


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 October 31, 2016, we had no marketable securities in our investment portfolio.

The following tables set forth the fair value of our financial assets measured at fair value on a recurring basis as of October 31 and January 31, 2016, using the above input categories (in thousands):

 

 

 

October 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

 

 

$

27,134

 

 

$

 

 

$

27,134

 

Total assets measured at fair value

 

$

 

 

$

27,134

 

 

$

 

 

$

27,134

 

 

 

 

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

 

 

 

11


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Note 3. Balance Sheet Components

Prepaid Expenses and Other Current Assets

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

 

 

 

October 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

Prepaid expenses

 

$

8,948

 

 

$

8,410

 

Tenant incentives receivable under our headquarters

   lease in Redwood City

 

 

 

 

3,024

 

Other current assets

 

 

3,822

 

 

 

3,295

 

Total prepaid expenses and other current assets

 

$

12,770

 

 

$

14,729

 

 

Property and Equipment, Net

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

 

 

 

October 31,

 

 

January 31,

 

 

 

2016

 

 

2016

 

Servers

 

$

124,335

 

 

$

111,015

 

Leasehold improvements

 

 

64,115

 

 

 

68,082

 

Computer hardware and software

 

 

10,922

 

 

 

11,009

 

Furniture and fixtures

 

 

12,750

 

 

 

12,485

 

Construction in progress

 

 

15,905

 

 

 

4,808

 

Total property and equipment

 

 

228,027

 

 

 

207,399

 

Less: accumulated depreciation

 

 

(114,648

)

 

 

(86,907

)

Total property and equipment, net

 

$

113,379

 

 

$

120,492

 

 

As of October 31, 2016, the gross carrying amount of property and equipment included $24.6 million of servers and $9.9 million of construction in progress acquired under capital leases, and the accumulated depreciation of property and equipment acquired under these capital leases was $7.4 million. As of January 31, 2016, the gross carrying amount of property and equipment included $13.9 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 $8.2 million and $8.5 million for the three months ended October 31, 2016 and 2015, respectively, and $28.6 million and $24.8 million for the nine months ended October 31, 2016 and 2015, respectively. Included in these amounts was depreciation expense for servers acquired under capital leases in the amount of $2.0 million and $0.5 million for the three months ended October 31, 2016 and 2015, respectively, and $5.0 million and $1.1 million for the nine months ended October 31, 2016 and 2015, respectively. Construction in progress primarily consists of servers, networking equipment and storage infrastructure being provisioned in our datacenter facilities as well as leasehold improvements. In addition, the amounts of interest capitalized to property and equipment were not material for the three and nine months ended October 31, 2016 and 2015.     

 

 

Note 4. Acquisitions

Wagon Analytics, Inc.

On August 30, 2016, we entered into an agreement to license certain technology and hire certain employees from Wagon Analytics, Inc., a privately-held data analysis company, for a total purchase price of $2.0 million. This agreement has been accounted for as a business combination. The entire purchase price was allocated to goodwill. Goodwill is attributable to future growth and potential enhancement opportunities for our analytics platform. Goodwill is deductible for U.S. income tax purposes. Transaction costs related to this business combination were not material.

12


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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

Verold, Inc.

On May 4, 2015, for a total purchase price of $5.4 million, 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 not material.

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 not material.

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

 

 

Note 5. Goodwill and Intangible Assets

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

 

Balance as of January 31, 2016

 

$

14,301

 

Goodwill acquired

 

 

1,992

 

Balance as of October 31, 2016

 

$

16,293

 

 

Intangible assets consisted of the following (in thousands):

 

 

 

Weighted

Average Useful

Life (1)

 

Gross Value

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

October 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

 

2.5

 

years

 

$

14,273

 

 

$

(13,515

)

 

$

758

 

Trade name and other

 

 

6.9

 

years

 

 

1,201

 

 

 

(984

)

 

 

217

 

Intangibles, net

 

 

 

 

 

 

$

15,474

 

 

$

(14,499

)

 

$

975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

13


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Intangible amortization expense was $0.5 million and $1.5 million for the three months ended October 31, 2016 and 2015, respectively, and $2.9 million and $4.1 million for the nine months ended October 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 October 31, 2016, expected amortization expense for intangible assets was as follows (in thousands):

 

Years ending January 31:

 

 

 

 

Remainder of 2017

 

$

432

 

2018

 

 

519

 

2019

 

 

23

 

2020

 

 

1

 

2021 and thereafter

 

 

 

 

 

$

975

 

 

 

Note 6. Commitments and Contingencies

Letters of Credit

As of October 31, 2016 and January 31, 2016, we had letters of credit in the aggregate amount of $27.1 million and $27.0 million, respectively, in connection with our operating and capital leases. These letters of credit are collateralized by certificates of deposit held by us in the amount of $27.1 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 to four years. The leases are secured by the underlying leased servers.

As of October 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

 

$

2,975

 

 

$

4,975

 

2018

 

 

10,937

 

 

 

21,979

 

2019

 

 

8,618

 

 

 

25,264

 

2020

 

 

3,020

 

 

 

29,334

 

2021

 

 

665

 

 

 

29,076