10-Q 1 box-10q_20180430.htm 10-Q box-10q_20180430.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, 2018

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, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth 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, 2018, the number of shares of the registrant’s Class A common stock outstanding was 131,764,530 and the number of shares of the registrant’s Class B common stock outstanding was 8,383,930.

 

 

 

 


 

TABLE OF CONTENTS

 

 

 

PART I – FINANCIAL INFORMATION

 

Page

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

Condensed Consolidated Balance Sheets as of April 30, 2018 and January 31, 2018

 

5

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2018 and 2017

 

6

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 2018 and 2017

 

7

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2018 and 2017

 

8

 

 

Notes to Condensed Consolidated Financial Statements

 

9

Item 2.

 

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

 

26

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

39

Item 4.

 

Controls and Procedures

 

40

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

41

Item 1A.

 

Risk Factors

 

41

Item 6.

 

Exhibits

 

60

 

 

Signatures

 

62

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

 

our future financial and operating results; including expectations regarding revenues, deferred revenue, billings, gross margins and operating income;

 

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

 

our market opportunity, business plan and ability to effectively manage our growth;

 

our ability to achieve profitability and positive cash flow;

 

our ability to achieve our long-term margin objectives;

 

our expectations regarding our revenue mix;

 

costs associated with defending intellectual property infringement and other claims and the frequency of such 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 management platform;

 

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

 

our ability to innovate new products and features and bring them to market in a timely manner and the expected benefits to customers and potential customers of our products;

 

our investment strategy, including 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;

 

expectations about competition and its effect in our market and our ability to compete;

 

the effects of seasonal trends on our operating results;

 

use of non-GAAP financial measures;

 

our belief regarding the sufficiency of our cash, cash equivalents and our credit facilities to meet our working capital and capital expenditure needs for at least 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;

 

the effects of new policies, taxes and regulations on our business;

 

management’s plans, beliefs and objectives, including the importance of our brand and culture on our business;

 

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.

3


 

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.

 

 

4


 

PART I — FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

BOX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

 

 

April 30,

 

 

January 31,

 

 

 

2018

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

217,116

 

 

$

208,076

 

Accounts receivable, net of allowance of $1,867 and $1,856

 

 

91,025

 

 

 

162,133

 

Prepaid expenses and other current assets

 

 

17,575

 

 

 

11,391

 

Deferred commissions

 

 

15,091

 

 

 

17,589

 

Total current assets

 

 

340,807

 

 

 

399,189

 

Property and equipment, net

 

 

124,518

 

 

 

123,977

 

Intangible assets, net

 

 

10

 

 

 

24

 

Goodwill

 

 

16,293

 

 

 

16,293

 

Restricted cash

 

 

350

 

 

 

350

 

Deferred commissions, non-current

 

 

41,275

 

 

 

8,330

 

Other long-term assets

 

 

5,226

 

 

 

5,403

 

Total assets

 

$

528,479

 

 

$

553,566

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

14,485

 

 

$

17,036

 

Accrued compensation and benefits

 

 

16,488

 

 

 

37,707

 

Accrued expenses and other current liabilities

 

 

22,341

 

 

 

26,198

 

Capital lease obligations

 

 

20,421

 

 

 

18,844

 

Deferred revenue

 

 

264,427

 

 

 

291,902

 

Deferred rent

 

 

2,589

 

 

 

2,280

 

Total current liabilities

 

 

340,751

 

 

 

393,967

 

Debt, non-current

 

 

40,000

 

 

 

40,000

 

Capital lease obligations, non-current

 

 

29,941

 

 

 

26,980

 

Deferred revenue, non-current

 

 

22,522

 

 

 

29,021

 

Deferred rent, non-current

 

 

45,616

 

 

 

45,882

 

Other long-term liabilities

 

 

3,034

 

 

 

2,748

 

Total liabilities

 

 

481,864

 

 

 

538,598

 

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, 2018

 

 

 

 

 

 

Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized; 128,865

   shares (unaudited) and 125,933 shares issued and outstanding as of April 30 and

   January 31, 2018, respectively

 

 

8

 

 

 

7

 

Class B common stock, par value $0.0001 per share; 200,000 shares authorized; 11,110 shares

   (unaudited) and 11,384 shares issued and outstanding as of April 30 and January 31, 2018,

   respectively

 

 

5

 

 

 

6

 

Additional paid-in capital

 

 

1,083,538

 

 

 

1,054,932

 

Treasury stock

 

 

(1,177

)

 

 

(1,177

)

Accumulated other comprehensive income

 

 

164

 

 

 

288

 

Accumulated deficit

 

 

(1,035,923

)

 

 

(1,039,088

)

Total stockholders’ equity

 

 

46,615

 

 

 

14,968

 

Total liabilities and stockholders’ equity

 

$

528,479

 

 

$

553,566

 

 

See notes to condensed consolidated financial statements.

5


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2018

 

 

2017

 

Revenue

 

$

140,507

 

 

$

117,222

 

Cost of revenue

 

 

39,068

 

 

 

32,723

 

Gross profit

 

 

101,439

 

 

 

84,499

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

38,248

 

 

 

33,534

 

Sales and marketing

 

 

76,998

 

 

 

70,663

 

General and administrative

 

 

22,053

 

 

 

20,281

 

Total operating expenses

 

 

137,299

 

 

 

124,478

 

Loss from operations

 

 

(35,860

)

 

 

(39,979

)

Interest expense, net

 

 

(70

)

 

 

(279

)

Other (loss) income, net

 

 

(343

)

 

 

16

 

Loss before provision (benefit) for income taxes

 

 

(36,273

)

 

 

(40,242

)

Provision (benefit) for income taxes

 

 

364

 

 

 

(156

)

Net loss

 

$

(36,637

)

 

$

(40,086

)

Net loss per common share, basic and diluted

 

$

(0.26

)

 

$

(0.30

)

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

   basic and diluted

 

 

138,524

 

 

 

131,469

 

 

See notes to condensed consolidated financial statements.

6


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2018

 

 

2017

 

Net loss

 

$

(36,637

)

 

$

(40,086

)

Other comprehensive (loss) income*:

 

 

 

 

 

 

 

 

Changes in foreign currency translation adjustment

 

 

(124

)

 

 

29

 

Other comprehensive (loss) income*:

 

 

(124

)

 

 

29

 

Comprehensive loss

 

$

(36,761

)

 

$

(40,057

)

 

*

Tax effect was not material

See notes to condensed consolidated financial statements.

7


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

April 30,

 

 

 

2018

 

 

2017 (as adjusted)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(36,637

)

 

$

(40,086

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

11,395

 

 

 

9,572

 

Stock-based compensation expense

 

 

26,613

 

 

 

22,946

 

Amortization of deferred commissions

 

 

3,675

 

 

 

4,990

 

Other

 

 

(21

)

 

 

22

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

71,690

 

 

 

37,346

 

Deferred commissions

 

 

(4,716

)

 

 

(2,784

)

Prepaid expenses and other assets

 

 

(5,200

)

 

 

(2,541

)

Accounts payable

 

 

475

 

 

 

7,182

 

Accrued expenses and other liabilities

 

 

(24,717

)

 

 

(10,967

)

Deferred rent

 

 

43

 

 

 

530

 

Deferred revenue

 

 

(24,160

)

 

 

(17,669

)

Net cash provided by operating activities

 

 

18,440

 

 

 

8,541

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(4,040

)

 

 

(784

)

Proceeds from sale of property and equipment

 

 

1

 

 

 

27

 

Net cash used in investing activities

 

 

(4,039

)

 

 

(757

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

3,362

 

 

 

2,456

 

Proceeds from issuances of common stock under employee stock purchase plan

 

 

11,846

 

 

 

8,881

 

Employee payroll taxes paid related to net share settlement of restricted

   stock units

 

 

(13,295

)

 

 

(9,114

)

Payments of capital lease obligations

 

 

(7,150

)

 

 

(3,736

)

Net cash used in financing activities

 

 

(5,237

)

 

 

(1,513

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(124

)

 

 

29

 

Net increase in cash, cash equivalents, and restricted cash

 

 

9,040

 

 

 

6,300

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

208,426

 

 

 

204,172

 

Cash, cash equivalents, and restricted cash, end of period

 

$

217,466

 

 

$

210,472

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for interest, net of amounts capitalized

 

$

585

 

 

$

423

 

Cash paid for income taxes, net of tax refunds

 

 

861

 

 

 

545

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Change in accrued equipment purchases

 

$

(2,568

)

 

$

(1,164

)

Purchases of property and equipment under capital lease

 

 

10,056

 

 

 

9,709

 

Change in unpaid tax related to capital lease

 

 

85

 

 

 

235

 

Timing of settlement of stock options exercise

 

 

1,007

 

 

 

 

CASH, CASH EQUIVALENT AND RESTRICTED CASH INFORMATION:

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

208,076

 

 

$

177,391

 

Restricted cash, beginning of period

 

 

350

 

 

 

26,781

 

Cash, cash equivalents, and restricted cash, beginning of period

 

$

208,426

 

 

$

204,172

 

Cash and cash equivalents, end of period

 

$

217,116

 

 

$

183,691

 

Restricted cash, end of period

 

 

350

 

 

 

26,781

 

Cash, cash equivalents, and restricted cash, end of period

 

$

217,466

 

 

$

210,472

 

 

See notes to condensed consolidated financial statements.

 

 

8


 

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, 2018 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, 2018 and 2017, respectively, are unaudited. The condensed consolidated balance sheet data as of January 31, 2018 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, 2018 (the “Form 10-K”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2018. The accompanying statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our Form 10-K. Other than items discussed under Recently Adopted Accounting Pronouncements and Summary of Significant Accounting Policies, there have been no other material changes to our critical accounting policies and estimates during the three months ended April 30, 2018 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, 2018, and our results of operations, including our comprehensive loss, and our cash flows for the three months ended April 30, 2018 and 2017. All adjustments are of a normal recurring nature. The results for the three months ended April 30, 2018 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending January 31, 2019.

Certain prior period amounts reported in our condensed consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation. Such reclassifications did not affect total revenues, operating income or net income.

Use of Estimates

The preparation of condensed 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, estimate of standalone selling price allocation included in contracts with multiple performance obligations, the estimated expected benefit period for deferred commissions, 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

9


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 doubtful accounts 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, 2018 and January 31, 2018, one reseller, which is also a customer, accounted for more than 10% of total accounts receivable. One reseller, which is also a customer, represented over 10% of revenue for the three months ended April 30, 2018. No single customer represented over 10% of revenue for the three months ended April 30, 2017.

We serve our customers and users from datacenter facilities operated by third parties. In order to reduce the risk of down time of our subscription 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

For the three months ended April 30, 2018, revenue attributable to customers in the United States and customers outside the United States was 76% and 24%, respectively. For the three months ended April 30, 2017, revenue attributable to customers in the United States and customers outside the United States was 78% and 22%, 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, 2018 and January 31, 2018, property and equipment located in the United States was 93% and 95%, respectively.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 and its related amendments regarding Accounting Standards Codification Topic 606 (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 incremental costs related to obtaining customer contracts. We adopted ASC Topic 606, effective February 1, 2018, utilizing the modified retrospective method. This approach was applied to contracts that were not completed as of February 1, 2018, and the corresponding incremental costs of obtaining those contracts, which resulted in a cumulative effect adjustment to the opening balance of accumulative deficit at date of adoption. The adoption of this ASU primarily impacts the timing of our revenue recognition for certain sales contracts, the capitalization and amortization of incremental costs of obtaining a contract, and related disclosures. The reported results for fiscal year 2019 reflect the application of ASC Topic 606, while the reported results for fiscal year 2018 are not adjusted and continue to be prepared under ASC Topic 605.

Adoption Impact of ASC Topic 606 on the Opening Balance Sheet as of February 1, 2018

Under ASC Topic 606, there is a change in the timing of revenue recognition for certain sales contracts primarily due to the removal of the contingent revenue limitation pursuant to ASC Topic 605.

Under ASC Topic 606, we capitalize costs based on the definition of incremental costs of obtaining a contract and commence amortization upon the transfer of services to the customer. Such costs are generally amortized over five years, which represents a longer period over which we had previously amortized, in order to align to an estimated expected benefit period under ASC Topic 606. Additionally, the scope of costs capitalized under ASC Topic 606 is significantly broader than the scope prior to ASC Topic 606, resulting in additional costs being capitalized. 

The adoption of ASC Topic 606 had no impact on our cash flows from operations. 

10


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The following table summarizes the adjustments made to account on the condensed consolidated balance sheet as of February 1, 2018 as a result of applying the modified retrospective method to adopt ASC Topic 606 (in thousands):

 

 

 

As Reported

 

 

Adjustments

 

 

As Adjusted

 

 

 

January 31, 2018

 

 

Revenue Recognition

 

 

Incremental Costs of Obtaining a Contract

 

 

February 1, 2018

 

Accounts receivable *

 

$

162,133

 

 

$

582

 

 

 

 

 

 

$

162,715

 

Deferred commission

 

 

17,589

 

 

 

 

 

 

$

(3,449

)

 

 

14,140

 

Deferred commission, non-current **

 

 

8,330

 

 

 

 

 

 

 

32,855

 

 

 

41,185

 

Deferred revenue

 

 

291,902

 

 

 

(8,483

)

 

 

 

 

 

 

283,419

 

Deferred revenue, non-current

 

 

29,021

 

 

 

(1,331

)

 

 

 

 

 

 

27,690

 

Accumulated deficit

 

 

(1,039,088

)

 

 

10,396

 

 

 

29,406

 

 

 

(999,286

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Contract assets are reported as part of accounts receivable upon our adoption of ASC Topic 606.

 

** As of January 31, 2018, deferred commission, non-current was reported as part of other long-term assets. The condensed consolidated balance sheet as of January 31, 2018 was reclassified to conform to the current period presentation.

 

The decrease of deferred revenue and increase to deferred commissions as of February 1, 2018 resulted in additional deferred tax liabilities that reduced our net deferred tax asset position. The net deferred tax assets in the jurisdictions impacted by the adoption of ASC Topic 606 were fully reserved and, accordingly, this impact was offset by a corresponding reduction to the valuation allowance with no resulting net impact to our net assets or accumulated deficit.

In addition, the adoption of the ASC Topic 606 resulted in changes to our accounting estimates and policies for revenue recognition, deferred commissions, deferred revenue, and accounts receivable and related allowance. Please see Summary of Significant Accounting Policies for a discussion of our updated policies.

Ongoing ASC Topic 606 Financial Statement Impact as of and for the three months ended April 30, 2018

Refer to “Note 2. Revenue” for the ongoing ASC Topic 606 impact on the condensed consolidated financial statement line items as of and for the three months ended April 30, 2018.

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. We adopted ASU 2016-18, effective February 1, 2018, utilizing the retrospective transition method to each period presented. The adoption of ASU 2016-18 had a material impact on our prior period consolidated statements of cash flows. We revised the prior period cash flow from operating activities, beginning cash and cash equivalents balance, and ending cash and cash equivalents balance to reflect the change in presentation of restricted cash. The cash flows from operating activities for fiscal year 2018 and fiscal year 2017 have been adjusted to $35.4 million and negative $2.4 million, as compared to the previously recorded $61.8 million and negative $1.2 million, respectively. Note that out of the $26.4 million decrease of cash flows from operating activities for fiscal year 2018 due to the adoption of this ASU, we had previously excluded the impact of the $25.0 million release of restricted cash for Non-GAAP purposes. For the three months ended April 30, 2018 and 2017, the adoption of ASU 2016-18 did not have a material impact on our condensed consolidated statements of cash flows, other than the change in presentation. As of April 30, 2018 and January 31, 2018, we had $0.4 million in restricted cash.

11


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, and its related amendments in February 2018, ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires entities to measure equity instruments at fair value and recognize any changes in fair value within the statement of operations. We adopted ASU 2016-01 and 2018-03 effective February 1, 2018 on a prospective basis for our privately held strategic equity securities without readily determinable fair values. We elected the measurement alternative to record these investments at cost and to adjust for impairments and observable price changes with a same or similar security from the same issuer within the statement of operations. We assess our strategic investments portfolio quarterly for impairment. If the investment is considered to be other-than-temporarily impaired, we will record the investment at fair value by recognizing an impairment through the statement of operations and establishing a new carrying value for the investment. For the three months ended April 30, 2018, there was no adjustment for impairment or observable price change on the $0.1 million carrying value, which was included in other long-term assets on the condensed consolidated balance sheet.

In addition, the adoption of the ASU 2016-01 and 2018-03 resulted in changes to our accounting policies for fair value of financial instruments. Please see Summary of Significant Accounting Policies for a discussion of our updated policies.

In October 2016, the FASB issued ASU 2016-16 related to the accounting for income tax effects on intra-entity asset transfers of assets other than inventory. The new guidance requires reporting entities to recognize tax expense from the sale of assets when the transfer occurs, even though the pre-tax effects of the transaction are eliminated in consolidation. We adopted ASU 2016-16 in the first quarter of fiscal year 2019 on a modified retrospective basis. The adoption did not result in a material impact on our condensed consolidated financial statements. 

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires lessees to record most leases on their balance sheet while recognizing expense in a manner similar to current lease accounting guidance. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The new accounting guidance is effective for us beginning February 1, 2019, with early adoption permitted under the modified retrospective method. We are in the process of implementing changes to its systems, processes and controls, in conjunction with its review of existing lease agreements, in order to adopt the new standard in its first quarter of fiscal 2020. We expect that substantially all of our operating leases designated in “Note 6. Commitments and Contingencies” will be reported on the consolidated balance sheets upon adoption.

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 for annual periods beginning after February 1, 2019, and interim periods therein. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of this new standard on our consolidated financial statements.

Summary of Significant Accounting Policies

Except for the accounting policies for revenue recognition, deferred commissions, deferred revenue, accounts receivable and related allowance, and fair value of financial instruments detailed under Summary of Significant Accounting Policies, there have been no other material changes to our critical accounting policies and estimates during the three months ended April 30, 2018 from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended January 31, 2018.

Revenue Recognition

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

12


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Revenue is recognized when control of these services are transferred to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those services.

We determine revenue recognition through the following steps:

 

Identification of the contract, or contracts, with a customer

 

Identification of the performance obligations in the contract

 

Determination of the transaction price

 

Allocation of the transaction price to the performance obligations in the contract

 

Recognition of revenue when, or as we, satisfy a performance obligation

Subscription and Premier Services Revenues

Subscription and premier services revenue is generally recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer.

We typically invoice our customers at the beginning of the term, in multiyear, annual, quarterly or monthly installments. Our subscription and premier services contracts generally range from one to three years in length, are typically non-cancellable and do not contain refund-type provisions. Revenue is presented net of sales and other taxes we collect on behalf of governmental authorities.

Professional Services

Professional services are generally billed on a fixed price basis, for which revenue is recognized over time based on the proportion performed.

Contracts with Multiple Performance Obligations

Our contracts can include multiple performance obligations which may consist of some or all of subscription services, premier services, and professional services. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration discounting practices, the size and volume of our transactions, the customer demographic, the geographic area where services are sold, price lists, our go-to-market strategy, historical standalone sales and contract prices.

Deferred Commissions

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new contracts are deferred and then amortized on a straight-line basis over a period of benefit that we have estimated to be five years. We determined the period of benefit by taking into consideration our customer contracts, our technology and other factors. Sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period. Amortization expense is included in sales and marketing expenses on the condensed consolidated statements of operations.

We apply the practical expedient in ASC Topic 606 to expense costs as incurred for sales commissions when the amortization period would have been one year or less.

Deferred Revenue

Deferred revenue consists of billings and payments received in advance of revenue recognition generated by our subscription services, premier services, and professional services described above. Topic 606 introduced the concept of contract liabilities, which is substantially similar to deferred revenue under previous accounting guidance.

13


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Accounts Receivable and Related Allowance

Accounts receivable are recorded at the invoiced amounts and do not bear interest. We maintain an allowance for estimated losses inherent in our accounts receivable portfolio. We assess the collectability of the accounts by taking into consideration the aging of our trade receivables, historical experience, and management judgment. We write off trade receivables against the allowance when management determines a balance is uncollectible and no longer intends to actively pursue collection of the receivable. We record a contract asset when revenue is recognized in advance of invoicing. Contract assets are presented within accounts receivable on the condensed consolidated balance sheets.

Fair Value of Financial Instruments

Our financial assets and financial liabilities which may include cash equivalents, marketable securities, and restricted cash, are measured and recorded at fair value on a recurring basis.

Non-marketable equity securities include our privately held strategic equity securities without readily determinable fair values. We record these privately held strategic equity securities without readily determinable fair values using a measurement alternative which measures the securities at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes with a same or similar security from the same issuer. Our non-marketable equity securities are recorded at fair value only if an impairment or observable price adjustment is recognized in the current period. If an observable price adjustment or impairment is recognized on our non-marketable equity securities, we classify these assets as Level 3 within the fair value hierarchy based on the nature of the fair value inputs.

Our other current financial assets have fair values which approximate their carrying value due to their short-term maturities.

Note 2. Revenue

Impact of ASC Topic 606 on Condensed Consolidated Financial Statement Line Items

The adoption of ASC Topic 606 impacted revenue recognition and incremental costs of obtaining a contract on our condensed consolidated balance sheet and statement of operations for the three months ended April 30, 2018. In addition, there were offsetting shifts in cash flows throughout net loss and various changes in operating assets and liabilities, which resulted in no impact on the total cash provided by operating activities. Refer to Note 1 for a description of the primary impacts resulting from the adoption of ASC Topic 606. 

The following tables present the amount by which each condensed consolidated financial statement line item is affected as of and for the three months ended April 30, 2018 by ASC Topic 606 (in thousands, except per share data):

 

 

 

April 30, 2018

 

 

 

As Reported

 

 

Balances without adoption of  ASC Topic 606

 

 

Effect of Change Higher/(Lower)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable *

 

$

91,025

 

 

$

90,829

 

 

$

196

 

Deferred commissions

 

 

15,091

 

 

 

15,512

 

 

 

(421

)

Deferred commissions, non-current

 

 

41,275

 

 

 

7,208

 

 

 

34,067

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

 

264,427

 

 

 

270,834

 

 

 

(6,407

)

Deferred revenue, non-current

 

 

22,522

 

 

 

23,569

 

 

 

(1,047

)

Accumulated deficit

 

 

(1,035,923

)

 

 

(1,077,219

)

 

 

41,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Contract assets are reported as part of accounts receivable upon our adoption of ASC Topic 606.

 

 

14


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

 

Three Months Ended April 30, 2018

 

 

 

As Reported

 

 

Balances without adoption of  ASC Topic 606

 

 

Effect of Change Higher/(Lower)

 

Revenue

 

$

140,507

 

 

$

143,253

 

 

$

(2,746

)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

76,998

 

 

 

81,238

 

 

 

(4,240

)

Loss from operations

 

 

(35,860

)

 

 

(37,354

)

 

 

1,494

 

Net loss

 

 

(36,637

)

 

 

(38,131

)

 

 

1,494

 

Net loss per common share, basic and diluted *

 

$

(0.26

)

 

$

(0.28

)

 

$

0.01

 

Weighted-average shares used to compute net loss

   per share, basic and diluted

 

 

138,524

 

 

 

138,524

 

 

 

138,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Due to rounding, numbers presented may not add up precisely to totals provided.

 

 

 

Three Months Ended April 30, 2018

 

 

As Reported

 

 

Balances without adoption of  ASC Topic 606

 

 

Effect of Change Higher/(Lower)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(36,637

)

 

$

(38,131

)

 

$

1,494

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Amortization of deferred commissions

 

3,675

 

 

 

5,962

 

 

 

(2,287

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

71,690

 

 

 

71,304

 

 

 

386

 

Deferred commissions

 

(4,716

)

 

 

(2,763

)

 

 

(1,953

)

Deferred revenue

 

(24,160

)

 

 

(26,520

)

 

 

2,360

 

Net cash provided by operating activities

 

18,440

 

 

 

18,440

 

 

 

 

 

Contract Assets

Contract assets, which are presented within accounts receivable, were $0.2 million as of April 30, 2018.

Deferred revenue was $286.9 million as of April 30, 2018. $110.9 million of revenue was recognized during the three months ended April 30, 2018, that was included in the deferred revenue balances at the beginning of the same period.

Transaction Price Allocated to the Remaining Performance Obligations

As of April 30, 2018, approximately $547.9 million of revenue is expected to be recognized from remaining performance obligations for subscription contracts. We expect to recognize revenue on 69% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

15


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Note 3. Fair Value Measurements

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

 

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

 

Level 2—Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that 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 that are supported by little or no market activity and that 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 that 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 had restricted cash in the form of certificates of deposits of $0.4 million related to our leases as of April 30, 2018 and January 31, 2018, which was classified within Level 2.

Note 4. 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,

 

 

 

2018

 

 

2018

 

Prepaid expenses

 

$

13,388

 

 

$

8,494

 

Other current assets

 

 

4,187

 

 

 

2,897

 

Total prepaid expenses and other current assets

 

$

17,575

 

 

$

11,391

 

Property and Equipment, Net

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

 

 

 

April 30,

 

 

January 31,

 

 

 

2018

 

 

2018

 

Servers

 

$

179,490

 

 

$

170,422

 

Leasehold improvements

 

 

72,976

 

 

 

72,599

 

Computer hardware and software

 

 

14,999

 

 

 

14,558

 

Furniture and fixtures

 

 

14,487

 

 

 

14,254

 

Construction in progress

 

 

9,052

 

 

 

7,348

 

Total property and equipment

 

 

291,004

 

 

 

279,181

 

Less: accumulated depreciation

 

 

(166,486

)

 

 

(155,204

)

Total property and equipment, net

 

$

124,518

 

 

$

123,977

 

16


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

As of April 30, 2018, the gross carrying amount of property and equipment included $84.6 million of servers and $4.4 million of construction in progress acquired under capital leases, and the accumulated depreciation of property and equipment acquired under these capital leases was $35.0 million. As of January 31, 2018, the gross carrying amount of property and equipment included $74.7 million of servers and related equipment and $3.7 million of construction in progress acquired under capital leases, and the accumulated depreciation of property and equipment acquired under these capital leases was $29.1 million.

Depreciation expense related to property and equipment was $11.4 million and $9.2 million for the three months ended April 30, 2018 and 2017. Included in these amounts was depreciation expense for servers acquired under capital leases in the amount of $5.9 million and $3.8 million for the three months ended April 30, 2018 and 2017, respectively. Construction in progress primarily consists of servers, networking equipment and storage infrastructure being provisioned in our datacenter facilities as well as leasehold improvements due to facilities investments. In addition, the amounts of interest capitalized to property and equipment were not material for the three months ended April 30, 2018 and 2017.  

Other Long-term Assets

Other long-term assets consisted of the following (in thousands):

 

 

 

April 30,

 

 

January 31,

 

 

 

2018

 

 

2018

 

Deposits, non-current

 

$

2,723

 

 

$

2,934

 

Other assets, non-current

 

 

2,503

 

 

 

2,469

 

Other long-term assets

 

$

5,226

 

 

$

5,403

 

 

Note 5. Goodwill and Intangible Assets

There was no goodwill activity for the three months ended April 30, 2018.

 

 

Intangible assets consisted of the following (in thousands):

 

 

 

Weighted

Average Useful

Life (1)

 

Gross Value

 

 

Accumulated

Amortization

 

 

Net Carrying

Value

 

April 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

 

2.5

 

years

 

$

14,273

 

 

$

(14,273

)

 

$

 

Trade name and other

 

 

6.9

 

years

 

 

1,201

 

 

 

(1,191

)

 

 

10

 

Intangibles, net

 

 

 

 

 

 

$

15,474

 

 

$

(15,464

)

 

$

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technology

 

 

2.5

 

years

 

$

14,273

 

 

$

(14,273

)

 

$

 

Trade name and other

 

 

6.9

 

years

 

 

1,201

 

 

 

(1,177

)

 

 

24

 

Intangibles, net

 

 

 

 

 

 

$

15,474

 

 

$

(15,450

)

 

$

24

 

 

(1)

From the date of acquisition

Intangible amortization expense was not material for the three months ended April 30, 2018 and was $0.4 million for the three months ended April 30, 2017. Amortization of acquired technology is included in cost of revenue and amortization for trade names is included in general and administrative expenses in the condensed consolidated statements of operations. As of April 30, 2018, expected amortization expense for intangible assets was not material.

 

 

17


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Note 6. Commitments and Contingencies

Letters of Credit

As of April 30, 2018 and January 31, 2018, we had letters of credit in the aggregate amount of $26.4 million, in connection with our operating leases, which were primarily issued under the available sublimit of $30.0 million in conjunction with a secured credit agreement entered on November 27, 2017.  Refer to Note 7 for additional details related to the secured credit agreement mentioned.

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 2019 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 included in the table below.  

We also entered into various capital lease arrangements to obtain servers and related equipment for our operations. These agreements typically have an initial term of three to four years. The leases are secured by the underlying leased servers and related equipment.

As of April 30, 2018, 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 2019

 

$

16,634

 

 

$

21,406

 

2020

 

 

16,947

 

 

 

32,763

 

2021

 

 

13,071

 

 

 

35,214

 

2022

 

 

5,333

 

 

 

34,562

 

2023

 

 

202

 

 

 

26,747

 

Thereafter

 

 

 

 

 

140,221

 

Total minimum lease payments

 

$

52,187

 

 

$

290,913

 

Less: amount representing interest

 

 

(1,825

)

 

 

 

 

Present value of minimum lease payments

 

$

50,362

 

 

 

 

 

We sublease certain floors of our headquarters and San Francisco office. These subleases have terms ranging from 19 to 49 months that will expire at various dates by fiscal year 2022. Non-cancellable sublease proceeds for the years ending January 31, 2019, 2020, 2021 and 2022 of $5.5 million, $3.6 million, $2.7 million and $0.6 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, 2018 and January 31, 2018. In addition, sufficient information did not exist as of April 30, 2018 to reasonably estimate the fair value of asset retirement obligations for our Tokyo office.

We recognize rent expense under our operating leases on a straight-line basis. Rent expense totaled $8.3 million and $5.3 million, net of sublease income of $1.9 million for both the three months ended April 30, 2018 and 2017.

18


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Purchase Obligations

As of April 30, 2018, 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 2019

 

$

22,281

 

2020

 

 

35,345

 

2021

 

 

4,242

 

2022

 

 

272

 

 

 

$

62,140

 

 

Legal Matters

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, 2018.

Indemnification

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

Our arrangements generally include certain provisions for indemnifying customers against liabilities if our products or services infringe a third party’s intellectual property rights. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. To date, we have not incurred any material costs as a result of such obligations and have not accrued any material liabilities related to such obligations on the condensed 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), which provided for a revolving loan facility in the amount of up to $40.0 million originally maturing in December 2017. In February 2017, we amended the December 2015 Facility to extend the maturity date to December 2018.

The December 2015 Facility was denominated in U.S. dollars and, depending on certain conditions, each borrowing was 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 was required for the December 2015 Facility, we were eligible for the lowest interest rate if we maintained at least $40 million in deposits with the lender.  In addition, there was 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 were collateralized by substantially all of our assets in the United States. The December 2015 Facility also contained 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. In February 2017, we amended the December 2015 Facility to extend the maturity date to December 2018. Interest expense, net of capitalized interest costs, for the periods presented is not material.

19


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

On November 27, 2017, we paid in full all amounts outstanding under the December 2015 Facility, including the outstanding principal balance of $40.0 million, and terminated the December 2015 Facility and all related loan and collateral documents, in conjunction with entering into a secured credit agreement (November 2017 Facility) with a different lender with a maturity date of November 27, 2020.

The November 2017 Facility provides for an $85.0 million revolving credit facility, with a sublimit of $30.0 million available for the issuance of letters of credit. The proceeds of the revolving loans may be used for general corporate purposes. The revolving loans accrue interest at a prime rate plus a margin of 0.25% or, at our option, a LIBOR rate (based on one, three or six-month interest periods) plus a margin of 1.00%.  Interest on the revolving loans is payable quarterly in arrears with respect to loans based on the prime rate and at the end of an interest period in the case of loans based on the LIBOR rate (or at each three-month interval if the interest period is longer than three months).  Borrowings under the November 2017 Facility are collateralized by substantially all of our assets. The November 2017 Facility requires us to comply with a maximum leverage ratio and a minimum liquidity requirement.  Additionally, the November 2017 Facility contains customary affirmative and negative covenants, including covenants limiting our, and our subsidiaries’, ability to, among other things, grant liens, incur debt, pay dividends or distributions on the capital stock, effect certain mergers, make investments, dispose of assets and enter into transactions with affiliates, in each case subject to customary exceptions for a credit facility of the size and type of the November 2017 Facility.

On November 29, 2017, the restrictions on our certificates of deposits that previously collateralized existing letters of credit were released as the letters of credit were included under the November 2017 Facility letter of credit sublimit. As such, we released $26.1 million from restricted cash to cash and cash equivalents. Refer to Note 6 for additional details on the letters of credit and Note 3 for additional details on restricted cash in the form of certificates of deposits.

As of April 30, 2018, we were in compliance with all financial covenants.

In connection with the above credit facilities, we incurred interest expense, net of capitalized interest costs, of $0.3 million and $0.2 million for the three months ended April 30, 2018 and 2017, respectively. During the same periods, the amounts of interest capitalized were not material. Interest expense in connection with the above credit facilities may include interest charges for our line of credit, amortization of issuance costs, and unused commitment fees on our line of credit.

 

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. Twenty-five percent of each grant of stock options and restricted stock units generally vest one year from the vesting commencement date and continue to vest (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, 2018, 19,511,725 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. 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.

20


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

On each purchase date, eligible employees may 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 period resets and the new lower price becomes the new offering price for a new 24 month offering period. As of April 30, 2018, 2,571,580 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, 2018

 

 

10,843,120

 

 

$

8.32

 

 

 

5.74

 

 

$

150,922

 

Options granted

 

 

650,000

 

 

 

20.28

 

 

 

 

 

 

 

 

 

Option exercised

 

 

(631,210

)

 

 

6.92

 

 

 

 

 

 

 

 

 

Options forfeited/cancelled

 

 

(283,185

)

 

 

13.67

 

 

 

 

 

 

 

 

 

Balance as of April 30, 2018

 

 

10,578,725