10-Q 1 box-10q_20170430.htm 10-Q box-10q_20170430.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 April 30, 2017

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 small reporting company)

  

Small reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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 May 31, 2017, the number of shares of the registrant’s Class A common stock outstanding was 80,348,904 and the number of shares of the registrant’s Class B common stock outstanding was 52,449,596.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

PART I – FINANCIAL INFORMATION

 

Page

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

Condensed Consolidated Balance Sheets as of April 30, 2017 and January 31, 2017

 

4

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2017 and 2016

 

5

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 2017 and 2016

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2017 and 2016

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

 

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

 

21

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

34

Item 4.

 

Controls and Procedures

 

35

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

36

Item 1A.

 

Risk Factors

 

36

Item 6.

 

Exhibits

 

54

 

 

Signatures

 

55

 

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 expectations regarding our retention rate;

 

our ability to displace existing products in established markets;

 

our ability to expand our leadership position as a cloud 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 belief regarding the sufficiency of our cash, cash equivalents and our credit facilities to meet our working capital and capital expenditure needs for the next 12 months;

 

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)

 

 

 

April 30,

 

 

January 31,

 

 

 

2017

 

 

2017

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

183,691

 

 

$

177,391

 

Accounts receivable, net of allowance of $2,189 and $3,346

 

 

82,767

 

 

 

120,113

 

Prepaid expenses and other current assets

 

 

14,836

 

 

 

10,826

 

Deferred commissions

 

 

12,776

 

 

 

13,771

 

Total current assets

 

 

294,070

 

 

 

322,101

 

Property and equipment, net

 

 

117,568

 

 

 

117,176

 

Intangible assets, net

 

 

140

 

 

 

543

 

Goodwill

 

 

16,293

 

 

 

16,293

 

Restricted cash

 

 

26,781

 

 

 

26,781

 

Other long-term assets

 

 

9,023

 

 

 

10,780

 

Total assets

 

$

463,875

 

 

$

493,674

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

13,829

 

 

$

6,658

 

Accrued compensation and benefits

 

 

16,329

 

 

 

30,415

 

Accrued expenses and other current liabilities

 

 

20,034

 

 

 

17,713

 

Capital lease obligations

 

 

15,663

 

 

 

13,748

 

Deferred revenue

 

 

208,615

 

 

 

228,656

 

Deferred rent

 

 

1,084

 

 

 

751

 

Total current liabilities

 

 

275,554

 

 

 

297,941

 

Debt, non-current

 

 

40,000

 

 

 

40,000

 

Capital lease obligations, non-current

 

 

24,644

 

 

 

21,697

 

Deferred revenue, non-current

 

 

15,700

 

 

 

13,328

 

Deferred rent, non-current

 

 

45,329

 

 

 

44,207

 

Other long-term liabilities

 

 

2,804

 

 

 

1,769

 

Total liabilities

 

 

404,031

 

 

 

418,942

 

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 April 30 (unaudited) and January 31, 2017

 

 

 

 

 

 

Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized; 77,966 shares

  (unaudited) and 67,831 shares issued and outstanding as of April 30 and January 31, 2017,

  respectively

 

 

8

 

 

 

7

 

Class B common stock, par value $0.0001 per share; 200,000 shares authorized; 54,807 shares

  (unaudited) and 62,780 shares issued and outstanding as of April 30 and January 31, 2017,

  respectively

 

 

5

 

 

 

6

 

Additional paid-in capital

 

 

985,313

 

 

 

960,144

 

Treasury stock

 

 

(1,177

)

 

 

(1,177

)

Accumulated other comprehensive loss

 

 

(91

)

 

 

(120

)

Accumulated deficit

 

 

(924,214

)

 

 

(884,128

)

Total stockholders’ equity

 

 

59,844

 

 

 

74,732

 

Total liabilities and stockholders’ equity

 

$

463,875

 

 

$

493,674

 

 

 

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,

 

 

 

2017

 

 

2016

 

Revenue

 

$

117,222

 

 

$

90,155

 

Cost of revenue

 

 

32,723

 

 

 

27,859

 

Gross profit

 

 

84,499

 

 

 

62,296

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

33,534

 

 

 

26,907

 

Sales and marketing

 

 

70,663

 

 

 

59,472

 

General and administrative

 

 

20,281

 

 

 

14,509

 

Total operating expenses

 

 

124,478

 

 

 

100,888

 

Loss from operations

 

 

(39,979

)

 

 

(38,592

)

Interest expense, net

 

 

(279

)

 

 

(176

)

Other income, net

 

 

16

 

 

 

441

 

Loss before provision for income taxes

 

 

(40,242

)

 

 

(38,327

)

(Benefit) provision for income taxes

 

 

(156

)

 

 

248

 

Net loss

 

$

(40,086

)

 

$

(38,575

)

Net loss per common share, basic and diluted

 

$

(0.30

)

 

$

(0.31

)

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

 

 

131,469

 

 

 

124,932

 

 

See notes to condensed consolidated financial statements.

5


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

Net loss

 

$

(40,086

)

 

$

(38,575

)

Other comprehensive income*:

 

 

 

 

 

 

 

 

Changes in foreign currency translation adjustment

 

 

29

 

 

 

114

 

Net change in unrealized gain on available-for-sale investments

 

 

 

 

 

2

 

Other comprehensive income*:

 

 

29

 

 

 

116

 

Comprehensive loss

 

$

(40,057

)

 

$

(38,459

)

 

*

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,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(40,086

)

 

$

(38,575

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

9,572

 

 

 

12,084

 

Stock-based compensation expense

 

 

22,946

 

 

 

16,089

 

Amortization of deferred commissions

 

 

4,990

 

 

 

4,771

 

Other

 

 

22

 

 

 

108

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

37,346

 

 

 

41,927

 

Deferred commissions

 

 

(2,784

)

 

 

(2,257

)

Prepaid expenses and other assets, current and noncurrent

 

 

(2,541

)

 

 

(227

)

Accounts payable

 

 

7,182

 

 

 

266

 

Accrued expenses and other liabilities

 

 

(10,967

)

 

 

(26,698

)

Deferred rent

 

 

530

 

 

 

2,510

 

Deferred revenue

 

 

(17,669

)

 

 

(14,229

)

Net cash provided by (used in) operating activities

 

 

8,541

 

 

 

(4,231

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Maturities of marketable securities

 

 

 

 

 

6,586

 

Purchases of property and equipment

 

 

(784

)

 

 

(10,976

)

Proceeds from sale of property and equipment

 

 

27

 

 

 

4

 

Net cash used in investing activities

 

 

(757

)

 

 

(4,386

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payment of borrowing costs

 

 

 

 

 

(93

)

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

   exercised stock options

 

 

2,456

 

 

 

2,246

 

Proceeds from issuances of common stock under employee stock purchase plan

 

 

8,881

 

 

 

9,016

 

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

 

 

(9,114

)

 

 

(4,768

)

Payments of capital lease obligations

 

 

(3,736

)

 

 

(949

)

Net cash (used in) provided by financing activities

 

 

(1,513

)

 

 

5,452

 

Effect of exchange rate changes on cash and cash equivalents

 

 

29

 

 

 

114

 

Net increase (decrease) in cash and cash equivalents

 

 

6,300

 

 

 

(3,051

)

Cash and cash equivalents, beginning of period

 

 

177,391

 

 

 

185,741

 

Cash and cash equivalents, end of period

 

$

183,691

 

 

$

182,690

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for interest, net of amounts capitalized

 

$

423

 

 

$

233

 

Cash paid for income taxes, net of tax refunds

 

 

545

 

 

 

118

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND

   FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Change in accrued equipment purchases

 

$

(1,164

)

 

$

(12,844

)

Purchases of property and equipment under capital lease

 

 

9,709

 

 

 

4,348

 

Change in unpaid tax related to capital lease

 

 

235

 

 

 

(198

)

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

 

 

 

 

 

461

 

Vesting of early exercised stock options and restricted stock

 

 

 

 

 

11

 

 

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 a leading cloud content management platform that enables organizations of all sizes to securely manage cloud 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 April 30, 2017 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, 2017 and 2016, respectively, are unaudited. The condensed consolidated balance sheet data as of January 31, 2017 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, 2017 (the “Form 10-K”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2017. 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 three months ended April 30, 2017 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 April 30, 2017, and our results of operations, including our comprehensive loss, and our cash flows for the three months ended April 30, 2017 and 2016. All adjustments are of a normal recurring nature. The results for the three months ended April 30, 2017 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending January 31, 2018.

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, including resellers. 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 April 30, 2017, one customer, which was a reseller, accounted for more than 10% of total accounts receivable. As of January 31, 2017,

8


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

two customers, which were both resellers, accounted for more than 10% of total accounts receivable. No single customer, including resellers, represented over 10% of revenue during the three months ended April 30, 2017 and 2016.

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 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 78% and 83% for the three months ended April 30, 2017 and 2016, 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 April 30 and January 31, 2017, property and equipment located in the United States was 99.7%.

Recently Issued Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value is recognized as goodwill impairment. Under the new standard, goodwill impairment is recognized based on Step 1 of the current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective for us beginning February 1, 2020, with early adoption permitted. We do not believe the adoption of ASU 2017-04 will have a material impact on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash. ASU 2016-18 requires entities to show the changes in cash, cash equivalents, and restricted cash in the statement of cash flows. Entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. As of April 30 and January 31, 2017, we had $26.8 million in restricted cash. Restricted cash consists of certificates of deposit related to our leases. The new standard is effective for us beginning February 1, 2018, with early adoption permitted. We do not believe the adoption of ASU 2016-18 will have a material impact on our consolidated financial statements.

In August 2016, the FASB issued 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 do not believe the adoption of ASU 2016-15 will have a material impact 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 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 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 us beginning February 1, 2019 with early adoption permitted. We are currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

9


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 also provides guidance on the recognition of sales commission costs related to obtaining customer contracts. 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, with early adoption permitted. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). We currently anticipate adopting the standard using the modified retrospective method that will result in a cumulative effect adjustment.

 

We have established a cross-functional coordinated implementation team to implement the standard update related to the recognition of revenue from contracts with customers. We have identified, and are in the process of implementing, appropriate changes to our business processes, systems and controls to support recognition and disclosure under the new standard. Based on our ongoing evaluation, we believe the impacts of this ASU will be related to the capitalization and amortization of sales commissions, the timing of revenue recognition for certain sales contracts, and their respective disclosures. We expect there may be a change to the period over which sales commissions will be amortized to align to an estimated customer life and a change to the scope of capitalized sales commissions based on the definition of incremental costs of obtaining a contract. In addition, there may be a change in relation to the timing of revenue recognition for certain sales contracts, due primarily to the removal of the current limitation on contingent revenue. These changes are being evaluated to determine the potential impact to our financial statements and disclosures. We continue to assess all potential impacts of this ASU, so our preliminary conclusions may change.

Recently Adopted Accounting Pronouncements

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 be presented as an operating activity on the cash flow statement. 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. We adopted this ASU during the first quarter of fiscal 2018.

 

As required by the standard, excess tax benefits recognized on stock-based compensation expense were prospectively reflected in our condensed consolidated statements of income as a component of the provision for income taxes rather than on the condensed consolidated balance sheet as a paid-in capital. Included in our net operating loss and research and development tax credit carryforwards are approximately $25.2 million of excess tax benefits from employee stock option exercises, for which we have not realized a deferred tax asset since it is fully offset by a valuation allowance, resulting in no impact to our consolidated financial statements including any cumulative effect to accumulated deficit from previously unrecognized excess tax benefits. Our policy has been to classify cash flows related to excess tax benefits as part of operating activities and cash payments made on employee’s behalf for withheld shares as part of financing activities, and thus, the adoption of this standard had no effect on our condensed consolidated statements of cash flows. Further, we did not elect an accounting policy change to record forfeitures as they occur and thus will continue to estimate the number of forfeitures expected to occur. Other amendments in the guidance did not impact our condensed 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 restricted cash at fair value on a recurring basis. We classify this asset 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. We have restricted cash in the form of certificates of deposits of $26.8 million as of April 30 and January 31, 2017 classified within Level 2.

 

 

Note 3. 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,

 

 

 

2017

 

 

2017

 

Prepaid expenses

 

$

11,029

 

 

$

9,256

 

Other current assets

 

 

3,807

 

 

 

1,570

 

Total prepaid expenses and other current assets

 

$

14,836

 

 

$

10,826

 

 

Property and Equipment, Net

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

 

 

 

April 30,

 

 

January 31,

 

 

 

2017

 

 

2017

 

Servers

 

$

145,081

 

 

$

143,219

 

Leasehold improvements

 

 

64,422

 

 

 

64,379

 

Computer hardware and software

 

 

11,688

 

 

 

11,373

 

Furniture and fixtures

 

 

12,941

 

 

 

12,824

 

Construction in progress

 

 

9,039

 

 

 

5,882

 

Total property and equipment

 

 

243,171

 

 

 

237,677

 

Less: accumulated depreciation

 

 

(125,603

)

 

 

(120,501

)

Total property and equipment, net

 

$

117,568

 

 

$

117,176

 

 

As of April 30, 2017, the gross carrying amount of property and equipment included $50.5 million of servers and $8.4 million of construction in progress acquired under capital leases, and the accumulated depreciation of property and equipment acquired under these capital leases was $14.3 million. As of January 31, 2017, the gross carrying amount of property and equipment included $43.2

11


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

million of servers and related equipment and $5.6 million of construction in progress acquired under capital leases, and the accumulated depreciation of property and equipment acquired under these capital leases was $10.4 million.

Depreciation expense related to property and equipment was $9.2 million and $10.6 million for the three months ended April 30, 2017 and 2016, respectively. Included in these amounts was depreciation expense for servers acquired under capital leases in the amount of $3.8 million and $1.3 million for the three months ended April 30, 2017 and 2016, 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 months ended April 30, 2017 and 2016.     

 

 

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.

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.

 

 

Note 5. Goodwill and Intangible Assets

There was no goodwill activity during the three months ended April 30, 2017.   

 

 

Intangible assets consisted of the following (in thousands):

 

 

 

Weighted

Average Useful

Life (1)

 

Gross Value

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

April 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

 

2.5

 

years

 

$

14,273

 

 

$

(14,273

)

 

$

 

Trade name and other

 

 

6.9

 

years

 

 

1,201

 

 

 

(1,061

)

 

 

140

 

Intangibles, net

 

 

 

 

 

 

$

15,474

 

 

$

(15,334

)

 

$

140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

 

2.5

 

years

 

$

14,273

 

 

$

(13,908

)

 

$

365

 

Trade name and other

 

 

6.9

 

years

 

 

1,201

 

 

 

(1,023

)

 

 

178

 

Intangibles, net

 

 

 

 

 

 

$

15,474

 

 

$

(14,931

)

 

$

543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

From the date of acquisition

12


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Intangible amortization expense was $0.4 million and $1.5 million for the three months ended April 30, 2017 and 2016, 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, 2017, expected amortization expense for intangible assets was as follows (in thousands):

 

Years ending January 31:

 

 

 

 

Remainder of 2018

 

$

116

 

2019

 

 

23

 

2020

 

 

1

 

 

 

$

140

 

 

 

Note 6. Commitments and Contingencies

Letters of Credit

As of April 30 and January 31, 2017, we had letters of credit in the aggregate amount of $26.8 million in connection with our operating and capital leases. Letters of credit in connection with our facility leases are collateralized by certificates of deposit. Refer to Note 7 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 2018 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 April 30, 2017, 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 2018

 

$

12,603

 

 

$

16,964

 

2019

 

 

14,327

 

 

 

26,672

 

2020

 

 

8,828

 

 

 

30,803

 

2021

 

 

5,584

 

 

 

30,626

 

2022

 

 

302

 

 

 

27,966

 

Thereafter

 

 

 

 

 

146,592

 

Total minimum lease payments

 

$

41,644

 

 

$

279,623

 

Less: amount representing interest

 

 

(1,337

)

 

 

 

 

Present value of minimum lease payments

 

$

40,307

 

 

 

 

 

 

We sublease certain floors of our headquarters and one floor of our office in San Francisco. These subleases have terms ranging from 19 to 49 months that will expire between fiscal 2018 and 2021. Non-cancellable sublease proceeds for the years ending January 31, 2018, 2019, 2020 and 2021 of $5.7 million, $5.8 million, $1.9 million and $1.7 million, respectively, are included in the table above.

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. We did not have material asset retirement obligations as of April 30, 2017 and

13


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

January 31, 2017. In addition, sufficient information did not exist as of April 30, 2017 to reasonably estimate the fair value of asset retirement obligations for a Tokyo, Japan lease signed in April 2017.

We recognize rent expense under our operating leases on a straight-line basis. Rent expense totaled $5.3 million and $4.4 million, net of sublease income of $1.9 million and $1.6 million for the three months ended April 30, 2017 and 2016, respectively.

Purchase Obligations

As of April 30, 2017, future payments under non-cancellable contractual purchases, which relate primarily to datacenter operations and sales and marketing activities, are as follows (in thousands):

 

Years ending January 31:

 

 

 

 

Remainder of 2018

 

$

7,653

 

2019

 

 

16,887

 

2020

 

 

15,000

 

 

 

$

39,540

 

 

          Legal Matters

In June 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 infringed 12 patents of Open Text. This case was subsequently transferred to the U.S. District Court for the Northern District of California and, in February 2015, went to trial. In February 2015, the jury returned a verdict in which it awarded damages in favor of Open Text in a lump sum and fully paid-up royalty in the amount of $4.9 million. Both parties appealed certain aspects of the trial. While we continued to defend the lawsuit vigorously and continued to believe we had valid defense to Open Text’s claims, we considered the issuance of the verdict a recognized subsequent event that provided additional evidence about conditions which existed as of January 31, 2015. Accordingly, as of January 31, 2015, we accrued $4.9 million in relation to the jury award 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 jury award attributable to prior periods. The portion of the jury award attributable to future periods was recorded as an asset as of January 31, 2015. This asset was amortized over an estimated useful life of 14 months, and the amortization expense was $0.9 million for the year ended January 31, 2016. In addition, we deemed Open Text’s claim for interest on the jury award amount to be probable and estimable for the first time in July 2015. As such, we accrued additional expenses in the aggregate amount of $0.7 million during the year ended January 31, 2016, in relation to the interest on the jury award amount.

On March 31, 2016, we entered into a Confidential Settlement and Release Agreement with Open Text (the “Settlement Agreement”), which fully settled the lawsuit and resulted in a full dismissal of the case against the Company. In connection with such settlement, we paid $3.75 million in total to Open Text, and our obligation to pay the jury award amount of approximately $4.9 million and all pre- and post-judgment interest was terminated. The parties agreed to drop all appeals pending in connection with the litigation and each agreed to certain standard mutual releases related to the subject matter of the suit. We recorded the settlement payment of $3.75 million, reversed previous related accruals and interest of $5.6 million, and recorded $0.1 million in recurring amortization for the asset, resulting in net income of $1.7 million in our condensed consolidated statement of operations for the three months ended April 30, 2016.    

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 legal 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, 2017.

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.

14


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 material 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.

 

 

Note 7. Debt

Line of Credit

In December 2015, we entered into a revolving credit facility (December 2015 Facility) with a lender in the amount of up to $40.0 million maturing in December 2017. The December 2015 Facility is denominated in U.S. dollars and, depending on certain conditions, each borrowing is subject to a floating interest rate equal to either the prime rate plus a spread of 0.25% to 2.75% or a reserve adjusted LIBOR rate (based on one, three or six-month interest periods) plus a spread of 1.25% to 3.75%. Although no minimum deposit is required for the December 2015 Facility, we are eligible for the lowest interest rate if we maintain at least $40 million in deposits with the lender.  In addition, there is an annual fee of 0.2% on the total commitment amount. We drew $40.0 million at 1.82% (six month LIBOR plus 1.25%). Borrowings under the December 2015 Facility are collateralized by substantially all of our assets in the United States. It also contains various covenants, including covenants related to the delivery of financial and other information, the maintenance of quarterly financial covenants, as well as customary limitations on dispositions, mergers or consolidations and other corporate activities. As of April 30, 2017, we were in compliance with all financial covenants. In February 2017, we amended the December 2015 Facility to extend the maturity date to December 2018.

In connection with the December 2015 Facility, we incurred interest expense, net of capitalized interest costs, of $0.2 million both during the three months ended April 30, 2017 and 2016. Interest expense also includes amortization of issuance costs, commitment fees and fees on letters of credit which are recognized over the related term of the borrowing.

 

 

Note 8. 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. On the first day of each fiscal year, shares available for issuance are increased based on the provisions of the 2015 Plan. 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 are 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, 2017, 17,404,178 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 (2015 ESPP), 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. On the first day of each fiscal year, shares available for issuance are increased based on the provisions of the 2015 ESPP. The 2015 ESPP allows eligible employees to purchase shares of our Class A common stock at a discount of up to 15% through payroll deductions 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 consists of four six-month purchase periods.

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. In the event the price is lower on the last day of any purchase price period, in addition to using that price as the basis for that purchase period, the offering

15


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

period resets and the new lower price becomes the new offering price for a new 24 month offering period. As of April 30, 2017, 2,969,790 shares were reserved for future issuance under the 2015 ESPP.

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

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

Remaining

 

 

 

 

 

 

 

 

 

 

 

Average Exercise

 

 

Contractual Life

 

 

Aggregate

 

 

 

Shares

 

 

Price

 

 

(Years)

 

 

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance as of January 31, 2017

 

 

12,318,800

 

 

$

7.44

 

 

 

 

 

 

 

 

 

Options granted

 

 

1,030,000

 

 

 

16.67

 

 

 

 

 

 

 

 

 

Option exercised

 

 

(531,910

)

 

 

4.62

 

 

 

 

 

 

 

 

 

Options forfeited/cancelled

 

 

(65,575

)

 

 

15.15

 

 

 

 

 

 

 

 

 

Balance as of April 30, 2017

 

 

12,751,315

 

 

$

8.27

 

 

 

6.50

 

 

$

115,138

 

Vested and expected to vest as of April 30, 2017

 

 

12,600,593

 

 

$

8.19

 

 

 

6.47

 

 

$

114,682

 

Exercisable as of April 30, 2017

 

 

9,160,781

 

 

$

5.91

 

 

 

5.68

 

 

$

104,276

 

 

 

The aggregate intrinsic value of options vested and expected to vest and exercisable as of April 30, 2017 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, 2017 and 2016 was $6.6 million and $11.9 million, respectively. The aggregate estimated fair value of stock options granted to employees that vested during the three months ended April 30, 2017 and 2016 was $2.6 million and $5.7 million, respectively.  The weighted-average grant date fair value of options granted to employees during the three months ended April 30, 2017 and 2016 was $6.74 and $5.25 per share, respectively.

As of April 30, 2017, there was $20.3 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 2.77 years.

In April 2017, the Compensation Committee of our Board of Directors approved and granted 475,000 performance-based stock options under the 2015 Plan to certain executive officers where vesting is subject to both the continued employment of the participant and the achievement of market based performance goals established by the Compensation Committee. Subject to the achievement of the performance goals, the performance-based options vest 25% one year from the vesting commencement date and 1/48th per month thereafter. The grant date fair value of these awards was determined using a Monte Carlo valuation model. The aggregate fair value of $3.1 million is being recognized as compensation expense over the service period and will not be reversed if the market condition is not met.

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, 2017

 

 

11,822,316

 

 

$

14.67

 

Granted

 

 

3,782,656

 

 

 

16.69

 

Vested, net of shares withheld for employee

   payroll taxes

 

 

(792,847

)

 

 

13.43

 

Forfeited/cancelled, including shares withheld for

   employee payroll taxes

 

 

(837,932

)

 

 

14.11

 

Unvested balance - April 30, 2017

 

 

13,974,193

 

 

$

15.32

 

 

16


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

As of April 30, 2017, there was $193.8 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 2.98 years.

Restricted Stock Awards

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, 2017

 

 

5,842

 

 

$

11.86

 

Vested, net of shares withheld for employee

   payroll taxes

 

 

(2,968

)

 

 

17.67

 

Forfeited/cancelled, including shares withheld for

   employee payroll taxes

 

 

 

 

 

 

Unvested balance - April 30, 2017

 

 

2,874

 

 

$

5.85

 

 

.

As of April 30, 2017, unrecognized stock-based compensation expense related to outstanding restricted stock granted to employees that is expected to be recognized over a remaining weighted-average period of about a month was immaterial.

In addition, in connection with our fiscal 2015 acquisitions, we issued 344,667 shares of restricted stock awards with a weighted-average grant date fair value of $12.96 per share. These restricted stock awards were separately authorized by our board of directors, and did not reduce the number of shares available for future issuance under our equity incentive plans.

As of April 30, 2017, there was $0.5 million of unrecognized stock-based compensation expense related to outstanding restricted stock awards granted outside of the equity incentive plans that is expected to be recognized over a weighted-average period of 0.48 year. In addition, there were 145,737 unvested shares as of April 30, 2017.

          2015 ESPP

As of April 30, 2017, there was $9.6 million of unrecognized stock-based compensation expense related to the 2015 ESPP that is expected to be recognized over the remaining term of the respective offering periods.

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,

 

 

 

2017

 

 

2016

 

Cost of revenue

 

$

2,468

 

 

$

1,512

 

Research and development

 

 

9,160

 

 

 

6,524

 

Sales and marketing

 

 

7,740

 

 

 

5,230

 

General and administrative

 

 

3,578

 

 

 

2,823

 

Total stock-based compensation

 

$

22,946

 

 

$

16,089

 

 

17


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Determination of Fair Value

We estimated the fair value of employee stock options and 2015 ESPP purchase rights using generally a Black-Scholes option pricing model with the following assumptions:

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

Employee Stock Options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected term (in years)

 

 

 

 

 

 

6.0

 

 

 

 

 

 

 

6.0

 

Risk-free interest rate

 

 

2.1

%

-

 

2.4%

 

 

 

 

 

 

 

1.3%

 

Volatility

 

 

39

%

-

 

40%

 

 

 

 

 

 

 

43%

 

Dividend yield

 

 

 

 

 

 

0%

 

 

 

 

 

 

 

0%

 

Employee Stock Purchase Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected term (in years)

 

 

0.5

 

-

 

2.0

 

 

0.5

 

-

 

2.0

 

Risk-free interest rate

 

 

0.9

%

-

 

1.4%

 

 

 

0.5

%

-

 

0.9%

 

Volatility

 

 

28

%

-

 

43%

 

 

 

46

%

-

 

60%

 

Dividend yield

 

 

 

 

 

 

0%

 

 

 

 

 

 

 

0%

 

 

The assumptions used in the Black-Scholes option pricing model were determined as follows:

Fair Value of Common Stock. Prior to our IPO in January 2015, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date. These factors included, but were not limited to, (i) contemporaneous valuations of our common stock performed by unrelated third-party specialists; (ii) the prices for our redeemable convertible preferred stock sold to outside investors; (iii) the rights, preferences and privileges of our redeemable convertible preferred stock relative to our common stock; (iv) the lack of marketability of our common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an IPO or a merger or acquisition, given prevailing market conditions.

Subsequent to the completion of our IPO, we use the market closing price for our Class A common stock as reported on the New York Stock Exchange to determine the fair value of our common stock at each grant date.

Expected Term. The expected term represents the period that our share-based awards are expected to be outstanding. The expected term assumptions were determined based on the vesting terms, exercise terms and contractual lives of the options and 2015 ESPP purchase rights.

Expected Volatility. Since we do not have sufficient trading history of our common stock, the expected volatility was derived from the historical stock volatilities of several unrelated public companies within the same industry that we consider to be comparable to our business over a period equivalent to the expected term of the stock option grants and 2015 ESPP purchase rights.

Risk-free Interest Rate. The risk-free rate that we use is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.

Dividend Yield. We have never declared or paid any cash dividends and do not plan to pay cash dividends in the foreseeable future, and, therefore, use an expected dividend yield of zero.

 

 

Note 9. Net Loss per Share

We calculate our basic and diluted net loss per share in conformity with the two-class method required for companies with participating securities. Under the two-class method, basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, less shares subject to repurchase. The diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, restricted stock units, employee stock purchase plan, repurchasable shares from early exercised options and unvested restricted stock, and contingently issuable shares are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share as their effect is antidilutive.

18


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The rights, including the liquidation and dividend rights, of the holders of our Class A and Class B common stock are identical, except with respect to voting and conversion. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis. We did not present dilutive net loss per share on an as-if converted basis because the impact was not dilutive.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):

 

 

 

Three Months Ended April 30,

 

 

 

2017

 

 

2016

 

 

 

Class A

 

 

Class B

 

 

Class A

 

 

Class B

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(22,061

)

 

$

(18,025

)

 

$

(13,632

)

 

$

(24,943

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding—basic

   and diluted

 

 

72,352

 

 

 

59,117

 

 

 

44,151

 

 

 

80,781

 

Net loss per share—basic and diluted

 

$

(0.30

)

 

$

(0.30

)

 

$

(0.31

)

 

$

(0.31

)

 

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because the impact of including them would have been antidilutive (in thousands):

 

 

 

Three Months Ended April 30,

 

 

 

2017

 

 

2016

 

Options to purchase common stock

 

 

10,534

 

 

 

14,919

 

Restricted stock units

 

 

12,650

 

 

 

8,534

 

Employee stock purchase plan

 

 

2,187

 

 

 

3,133

 

Repurchasable shares from early-exercised options and unvested

   restricted stock