10-Q 1 box-10q_20190430.htm 10-Q box-10q_20190430.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, 2019  

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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, $0.0001 par value per share

 

BOX

 

New York Stock Exchange, Inc.

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 every Interactive Data File required to be submitted 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 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

 

  

  

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, 2019, the number of shares of the registrant’s Class A common stock outstanding was 146,500,516.

 

 


 

 

TABLE OF CONTENTS

 

 

 

PART I – FINANCIAL INFORMATION

 

Page

Item 1.

 

Financial Statements (Unaudited)

 

5

 

 

Condensed Consolidated Balance Sheets as of April 30, 2019 and January 31, 2019

 

5

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2019 and 2018

 

6

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 2019 and 2018

 

7

 

 

Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended April 30, 2019 and 2018

 

8

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2019 and 2018

 

9

 

 

Notes to Condensed Consolidated Financial Statements

 

10

Item 2.

 

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

 

24

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

Item 4.

 

Controls and Procedures

 

38

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

39

Item 1A.

 

Risk Factors

 

39

Item 6.

 

Exhibits

 

59

 

 

Signatures

 

60

 

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, remaining performance obligations, 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 ability to grow our unrecognized revenue and remaining performance obligations;

 

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 data center 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 laws, policies, taxes and regulations on our business;

 

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

3


 

 

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.

 

 

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,

 

 

 

 

2019

 

*

2019

 

**

 

 

(unaudited)

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

231,436

 

 

$

217,518

 

 

Accounts receivable, net of allowance of $2,942 and $2,728

 

 

93,655

 

 

 

175,130

 

 

Prepaid expenses and other current assets

 

 

19,653

 

 

 

14,223

 

 

Deferred commissions

 

 

22,829

 

 

 

21,683

 

 

Total current assets

 

 

367,573

 

 

 

428,554

 

 

Property and equipment, net

 

 

153,049

 

 

 

137,703

 

 

Operating lease right-of-use assets, net

 

 

220,795

 

 

 

 

 

Goodwill

 

 

18,740

 

 

 

18,740

 

 

Restricted cash

 

 

 

 

 

238

 

 

Deferred commissions, non-current

 

 

53,171

 

 

 

53,880

 

 

Other long-term assets

 

 

12,393

 

 

 

11,046

 

 

Total assets

 

$

825,721

 

 

$

650,161

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

12,690

 

 

$

15,431

 

 

Accrued compensation and benefits

 

 

17,498

 

 

 

34,484

 

 

Accrued expenses and other current liabilities

 

 

32,875

 

 

 

31,378

 

 

Finance lease liabilities

 

 

32,064

 

 

 

28,317

 

 

Operating lease liabilities

 

 

36,701

 

 

 

 

 

Deferred revenue

 

 

312,902

 

 

 

353,590

 

 

Total current liabilities

 

 

444,730

 

 

 

463,200

 

 

Debt, non-current

 

 

40,000

 

 

 

40,000

 

 

Finance lease liabilities, non-current

 

 

53,407

 

 

 

44,597

 

 

Operating lease liabilities, non-current

 

 

232,810

 

 

 

 

 

Deferred revenue, non-current

 

 

17,543

 

 

 

21,451

 

 

Other long-term liabilities

 

 

6,693

 

 

 

49,508

 

 

Total liabilities

 

 

795,183

 

 

 

618,756

 

 

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, 2019

 

 

 

 

 

 

 

Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized; 146,497

   shares (unaudited) and 144,311 shares issued and outstanding as of April 30 and

   January 31, 2019, respectively

 

 

15

 

 

 

14

 

 

Additional paid-in capital

 

 

1,202,315

 

 

 

1,166,443

 

 

Treasury stock

 

 

(1,177

)

 

 

(1,177

)

 

Accumulated other comprehensive income

 

 

111

 

 

 

23

 

 

Accumulated deficit

 

 

(1,170,726

)

 

 

(1,133,898

)

 

Total stockholders’ equity

 

 

30,538

 

 

 

31,405

 

 

Total liabilities and stockholders’ equity

 

$

825,721

 

 

$

650,161

 

 

 

*

As reported and disclosed under ASC Topic 842

**

As reported and disclosed under ASC Topic 840

 

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,

 

 

 

 

2019

 

*

2018

 

**

Revenue

 

$

162,974

 

 

$

140,507

 

 

Cost of revenue

 

 

48,684

 

 

 

39,068

 

 

Gross profit

 

 

114,290

 

 

 

101,439

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

46,244

 

 

 

38,248

 

 

Sales and marketing

 

 

78,820

 

 

 

76,998

 

 

General and administrative

 

 

24,607

 

 

 

22,053

 

 

Total operating expenses

 

 

149,671

 

 

 

137,299

 

 

Loss from operations

 

 

(35,381

)

 

 

(35,860

)

 

Interest expense, net

 

 

(68

)

 

 

(70

)

 

Other loss, net

 

 

(880

)

 

 

(343

)

 

Loss before provision for income taxes

 

 

(36,329

)

 

 

(36,273

)

 

Provision for income taxes

 

 

499

 

 

 

364

 

 

Net loss

 

$

(36,828

)

 

$

(36,637

)

 

Net loss per share, basic and diluted

 

$

(0.25

)

 

$

(0.26

)

 

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

 

 

145,275

 

 

 

138,524

 

 

 

*

As reported and disclosed under ASC Topic 842

**

As reported and disclosed under ASC Topic 840

 

See notes to condensed consolidated financial statements.

6


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

 

April 30,

 

 

 

 

2019

 

*

2018

 

**

Net loss

 

$

(36,828

)

 

$

(36,637

)

 

Changes in foreign currency translation adjustment***

 

 

88

 

 

 

(124

)

 

Comprehensive loss

 

$

(36,740

)

 

$

(36,761

)

 

 

*

As reported and disclosed under ASC Topic 842

**

As reported and disclosed under ASC Topic 840

***

Tax effect was not material

See notes to condensed consolidated financial statements.

7


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(unaudited)

 

 

 

Three Months Ended April 30, 2019 **

 

 

 

Class A

Common Stock*

 

 

Additional

Paid-In

 

 

Treasury

 

 

Accumulated

Other Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance as of January 31, 2019

 

 

144,311

 

 

$

14

 

 

$

1,166,443

 

 

$

(1,177

)

 

$

23

 

 

$

(1,133,898

)

 

$

31,405

 

Issuance of common stock upon stock

   option exercises

 

 

152

 

 

 

 

 

 

1,213

 

 

 

 

 

 

 

 

 

 

 

 

1,213

 

Stock-based compensation related to

   stock awards

 

 

 

 

 

 

 

 

35,678

 

 

 

 

 

 

 

 

 

 

 

 

35,678

 

Vesting of restricted stock units, net of

   shares withheld for employee payroll

   taxes

 

 

1,205

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Employee payroll taxes withheld

   related to vesting of restricted stock

   units

 

 

 

 

 

 

 

 

(14,624

)

 

 

 

 

 

 

 

 

 

 

 

(14,624

)

Common stock issued under employee

   stock purchase plan

 

 

829

 

 

 

 

 

 

13,605

 

 

 

 

 

 

 

 

 

 

 

 

13,605

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

88

 

 

 

 

 

 

88

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,828

)

 

 

(36,828

)

Balance as of April 30, 2019

 

 

146,497

 

 

$

15

 

 

$

1,202,315

 

 

$

(1,177

)

 

$

111

 

 

$

(1,170,726

)

 

$

30,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended April 30, 2018 ***

 

 

 

Class A and Class B

Common Stock*

 

 

Additional

Paid-In

 

 

Treasury

 

 

Accumulated

Other Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of January 31, 2018

 

 

137,317

 

 

$

13

 

 

$

1,054,932

 

 

$

(1,177

)

 

$

288

 

 

$

(1,039,088

)

 

$

14,968

 

Issuance of common stock upon stock

   option exercises

 

 

631

 

 

 

 

 

 

4,369

 

 

 

 

 

 

 

 

 

 

 

 

4,369

 

Issuance of common stock in

   connection with charitable donations

 

 

12

 

 

 

 

 

 

243

 

 

 

 

 

 

 

 

 

 

 

 

243

 

Stock-based compensation related to

   stock awards

 

 

 

 

 

 

 

 

25,443

 

 

 

 

 

 

 

 

 

 

 

 

25,443

 

Vesting of restricted stock units, net of

   shares withheld for employee payroll

   taxes

 

 

1,011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee payroll taxes withheld

   related to vesting of restricted stock

   units

 

 

 

 

 

 

 

 

(13,295

)

 

 

 

 

 

 

 

 

 

 

 

(13,295

)

Cumulative effect of ASC Topic 606

   adoption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39,802

 

 

 

39,802

 

Common stock issued under employee

   stock purchase plan

 

 

1,004

 

 

 

 

 

 

11,846

 

 

 

 

 

 

 

 

 

 

 

 

11,846

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(124

)

 

 

 

 

 

(124

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,637

)

 

 

(36,637

)

Balance as of April 30, 2018

 

 

139,975

 

 

$

13

 

 

$

1,083,538

 

 

$

(1,177

)

 

$

164

 

 

$

(1,035,923

)

 

$

46,615

 

 

*

On June 14, 2018, all outstanding shares of our Class B common stock automatically converted into the same number of shares of Class A common stock pursuant to the terms of our Amended and Restated Certificate of Incorporation. We do not intend to issue any additional shares of Class B common stock.

**

As reported and disclosed under ASC Topic 842

***

As reported and disclosed under ASC Topic 840

 

See notes to condensed consolidated financial statements.

 

8


 

BOX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

 

April 30,

 

 

 

 

2019

 

*

2018

 

**

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(36,828

)

 

$

(36,637

)

 

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,625

 

 

 

11,395

 

 

Stock-based compensation expense

 

 

32,362

 

 

 

26,613

 

 

Amortization of deferred commissions

 

 

5,639

 

 

 

3,675

 

 

Others

 

 

(147

)

 

 

(21

)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

81,475

 

 

 

71,690

 

 

Deferred commissions

 

 

(6,076

)

 

 

(4,716

)

 

Prepaid expenses and other assets

 

 

(4,382

)

 

 

(5,200

)

 

Operating lease right-of-use assets, net

 

 

8,560

 

 

 

 

 

Accounts payable

 

 

(3,187

)

 

 

475

 

 

Accrued expenses and other liabilities

 

 

(11,827

)

 

 

(24,674

)

 

Operating lease liabilities

 

 

(8,127

)

 

 

 

 

Deferred revenue

 

 

(44,596

)

 

 

(24,160

)

 

Net cash provided by operating activities

 

 

25,491

 

 

 

18,440

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,614

)

 

 

(4,040

)

 

Capitalized internal-use software costs

 

 

(1,286

)

 

 

 

 

Proceeds from sales of property and equipment

 

 

3

 

 

 

1

 

 

Net cash used in investing activities

 

 

(2,897

)

 

 

(4,039

)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

1,199

 

 

 

3,362

 

 

Proceeds from issuances of common stock under employee stock purchase plan

 

 

13,605

 

 

 

11,846

 

 

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

 

 

(14,591

)

 

 

(13,295

)

 

Principal payments of finance lease liabilities

 

 

(9,154

)

 

 

(7,150

)

 

Net cash used in financing activities

 

 

(8,941

)

 

 

(5,237

)

 

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

 

 

27

 

 

 

(124

)

 

Net increase in cash, cash equivalents, and restricted cash

 

 

13,680

 

 

 

9,040

 

 

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

 

 

217,756

 

 

 

208,426

 

 

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

 

$

231,436

 

 

$

217,466

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,152

 

 

$

585

 

 

Cash paid for income taxes, net of tax refunds

 

 

1,444

 

 

 

861

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Accrued equipment purchases

 

$

3,773

 

 

$

4,854

 

 

Increase in long-lived assets resulting from capitalizing asset retirement costs

 

 

2,706

 

 

 

 

 

Stock-based compensation capitalized in internal-use software costs

 

 

1,000

 

 

 

 

 

Increase in finance lease liabilities

 

 

21,414

 

 

 

10,056

 

 

Timing of settlement of stock options exercise

 

 

14

 

 

 

1,007

 

 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH INFORMATION:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$

217,518

 

 

$

208,076

 

 

Restricted cash, beginning of period

 

 

238

 

 

 

350

 

 

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

 

$

217,756

 

 

$

208,426

 

 

Cash and cash equivalents, end of period

 

$

231,436

 

 

$

217,116

 

 

Restricted cash, end of period

 

 

 

 

 

350

 

 

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

 

$

231,436

 

 

$

217,466

 

 

 

*

As reported and disclosed under ASC Topic 842

**

As reported and disclosed under ASC Topic 840

 

 

See notes to condensed consolidated financial statements.

 

 

9


 

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, 2019 and the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive loss, the condensed consolidated statements of stockholders’ equity, and the condensed consolidated statements of cash flows for the three months ended April 30, 2019 and 2018, respectively, are unaudited. The condensed consolidated balance sheet data as of January 31, 2019 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, 2019 (the “Form 10-K”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 20, 2019. 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 Use of Estimates, 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, 2019 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, 2019, our stockholders’ equity, our results of operations, including our comprehensive loss, and our cash flows for the three months ended April 30, 2019 and 2018. All adjustments are of a normal recurring nature. The results for the three months ended April 30, 2019 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending January 31, 2020.

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, timing and costs associated with our asset retirement obligations, the nature and timing of satisfaction of performance obligations, estimate of standalone selling price allocation included in contracts with multiple performance obligations, the estimated expected benefit period for deferred commissions, the estimated useful life of capitalized internal-use software costs, observable price changes of non-marketable equity securities, the incremental borrowing rate we use to determine our lease liabilities, fair values of stock-based awards, legal contingencies, the valuation of deferred income tax assets, and unrecognized tax benefits, 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 and accounts receivable. Although we deposit our cash with multiple financial institutions, our deposits, at times, may exceed deposit insurance coverage limits.

10


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

We sell to a broad range of customers. Our revenue is derived substantially from the United States across a multitude of industries. Accounts receivable are derived from the delivery of our services to customers primarily located in the United States. We accept and settle our accounts receivable using credit cards, electronic payments and checks. A majority of our lower dollar value invoices are settled by credit card on or near the date of the invoice. We do not require collateral from customers to secure accounts receivable. We maintain an allowance for 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 probable based on the size, industry diversification, financial condition and past transaction history of our customers. As of April 30, 2019 and January 31, 2019, one reseller, which is also a customer, accounted for more than 10% of total accounts receivable. One reseller, which is also a customer, represented 10% and 11% of our revenue for the three months ended April 30, 2019 and 2018, respectively.

We serve our customers and users from data center facilities operated by third parties. In order to reduce the risk of down time of our subscription services, we have established data centers 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 data center 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, 2019 and 2018, revenue attributable to customers in the United States was 76%. No 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, 2019 and January 31, 2019, property and equipment located in the United States was approximately 92% and 91%, respectively.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, and since that date has issued several additional accounting standard updates to further clarify certain aspects of ASU 2016-02 and to provide certain practical expedients entities can elect upon adoption (collectively, “ASC Topic 842”). ASC Topic 842 states that for most leases, a lessee would recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term while recognizing expense in a manner similar to legacy guidance ASC Topic 840. We adopted ASC Topic 842, effective February 1, 2019 using the modified retrospective method for leases that existed as of February 1, 2019. The comparative periods presented and disclosed in the year of adoption are based on legacy ASC Topic 840 guidance. We elected the practical expedients which allow us to carry forward our assessment on whether a contract is or contains a lease, our historical lease classification, and our initial direct costs for any leases that expired or existed prior to adoption of ASC Topic 842. In addition, we elected the short-term lease exception and the practical expedient to not separate lease and non-lease components.

Adoption Impact of ASC Topic 842 on the Opening Balance Sheet as of February 1, 2019

In connection with the adoption of ASC Topic 842, we recognized operating lease right-of-use assets and operating lease liabilities on our condensed consolidated balance sheet primarily related to our office and data center facilities of $206.6 million and $255.0 million, respectively, out of which $218.6 million was the non-current portion of operating lease liabilities. The difference between the operating lease right-of-use assets and operating lease liabilities primarily represents the existing deferred rent liability balance as of the adoption date.

Our accounting for finance leases remains substantially unchanged from the legacy ASC Topic 840 except for the impacts of applying the practical expedient to not separate lease and non-lease components. As a result of recognizing the non-lease components as part of our finance leases, we recognized finance lease right-of-use assets and corresponding finance leases liabilities of $5.2 million, out of which $2.9 million represented the non-current portion of the additional finance lease liabilities.

As a sub-lessor, accounting for our subleases is largely unchanged from the legacy ASC Topic 840.

11


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The adoption of ASC Topic 842 did not have a material effect on our condensed consolidated statements of operations and cash flows, however, it did materially increase our assets and liabilities on the condensed consolidated balance sheet. The adoption of ASC Topic 842 resulted in changes to our accounting estimates and accounting policy for leases. Please see Summary of Significant Accounting Policies for a discussion of the updated policy.

Ongoing ASC Topic 842 Financial Statement Impact as of and for the three months ended April 30, 2019

Refer to “Note 4. Balance Sheet Components” and “Note 5. Leases” for the ongoing ASC Topic 842 impact on the condensed consolidated financial statements as of and for the three months ended April 30, 2019. 

Recently Issued Accounting Pronouncements

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; we have elected not to adopt the standard earlier. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We are in the process of evaluating appropriate changes to our business processes, systems and controls to support the adoption of the new standard. We are currently evaluating the impact of the provisions of this new standard on our condensed consolidated financial statements.

Summary of Significant Accounting Policies

Except for the accounting policy for leases detailed under Summary of Significant Accounting Policies, there has been no other material changes to our critical accounting policies during the three months ended April 30, 2019 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, 2019.

Leases

We adopted ASC Topic 842, effective February 1, 2019, using the modified retrospective method. The reported results for fiscal year 2020 reflect the application of ASC Topic 842, while the reported results for prior fiscal years are not adjusted and continue to be reported under ASC Topic 840. Refer to Recently Adopted Accounting Pronouncements regarding the adoption impact of ASC Topic 842 in fiscal year 2020.

We determine whether an arrangement contains a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To determine whether a contract is or contains a lease, we consider all relevant facts and circumstances to assess whether the customer has both of the following:

 

The right to obtain substantially all of the economic benefits from use of the identified asset

 

The right to direct the use of the identified asset

We recognize lease liabilities and right-of-use assets at lease commencement. We measure lease liabilities based on the present value of lease payments over the lease term discounted using the rate implicit in the lease when that rate is readily determinable or our incremental borrowing rate. We estimate our incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to our own and adjust our incremental borrowing rate to reflect the corresponding lease term. We do not include in the lease term options to extend or terminate the lease unless it is reasonably certain that we will exercise any such options at commencement. We account for the lease and non-lease components as a single lease component for all our leases.

12


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

We measure right-of-use assets based on the corresponding lease liabilities adjusted for (i) prepayments made to the lessor at or before the commencement date, (ii) initial direct costs we incur, and (iii) tenant incentives under the lease. We evaluate the recoverability of our right-of-use assets for possible impairment in accordance with our long-lived assets policy. We do not recognize right-of-use assets or lease liabilities for short-term leases, which have a lease term of twelve months or less and recognize the associated lease payments in the condensed consolidated statement of operations on a straight-line basis over the lease term.

Operating leases are reflected in operating lease right-of-use assets, operating lease liabilities, and operating lease liabilities, non-current on our condensed consolidated balance sheets. Finance leases are included in property and equipment, net, finance lease liabilities, and finance lease liabilities, non-current on our condensed consolidated balance sheets.

We begin recognizing rent expense when the lessor makes the underlying asset available to us. We recognize rent expense under our operating leases on a straight-line basis. For finance leases, we record interest expense on the lease liability in addition to amortizing the right-of-use asset (generally straight-line) over the shorter of the lease term or the useful life of the right-of-use asset. Variable lease payments are expensed as incurred and are not included within the lease liabilities and right-of-use assets calculation. We generally recognize sublease income on a straight-line basis over the sublease term.

Note 2. Revenue

Contract Assets

Contract assets, which are presented within accounts receivable, were not material as of April 30, 2019 and January 31, 2019.

Deferred Revenue

Deferred revenue was $330.4 million and $375.0 million as of April 30, 2019 and January 31, 2019, respectively. During the three months ended April 30, 2019 and 2018, we recognized $134.4 million and $110.9 million of revenue that was included in the deferred revenue balance as of January 31, 2019 and 2018, respectively.

Transaction Price Allocated to the Remaining Performance Obligations

As of April 30, 2019, approximately $637.4 million of revenue is expected to be recognized from remaining performance obligations for subscription contracts. We expect to recognize revenue on 66% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

Disaggregation of Revenues

For the three months ended April 30, 2019 and 2018, revenue attributable to customers in the United States was 76%. No country outside of the United States comprised 10% or greater of our revenue for any of the periods presented.  

Note 3. Fair Value Measurements

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

 

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

 

Level 2—Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices which are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

 

Level 3—Unobservable inputs that are supported by little or no market activity and 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.

13


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

We measure our 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. As of April 30, 2019, we do not have any restricted cash. As of January 31, 2019, our restricted cash was not material and was in the form of certificates of deposit related to our leases, 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,

 

 

 

2019

 

 

2019

 

Prepaid expenses

 

$

16,094

 

 

$

10,986

 

Other current assets

 

 

3,559

 

 

 

3,237

 

Total prepaid expenses and other current assets

 

$

19,653

 

 

$

14,223

 

 

Property and Equipment, Net

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

 

 

 

April 30,

 

 

January 31,

 

 

 

2019

 

 

2019

 

Servers and related equipment

 

$

236,915

 

 

$

215,626

 

Leasehold improvements

 

 

79,853

 

 

 

76,888

 

Computer hardware and software

 

 

21,209

 

 

 

20,614

 

Furniture and fixtures

 

 

13,656

 

 

 

13,661

 

Construction in progress

 

 

12,830

 

 

 

9,737

 

Total property and equipment

 

 

364,463

 

 

 

336,526

 

Less: accumulated depreciation

 

 

(211,414

)

 

 

(198,823

)

Total property and equipment, net

 

$

153,049

 

 

$

137,703

 

 

As of April 30, 2019, the gross carrying amount of property and equipment included $141.5 million of servers and related equipment and $9.0 million of construction in progress acquired under finance leases, and the accumulated depreciation of property and equipment acquired under these finance leases was $62.9 million. As of January 31, 2019, the gross carrying amount of property and equipment included $120.0 million of servers and related equipment and $8.8 million of construction in progress acquired under finance leases, and the accumulated depreciation of property and equipment acquired under these finance leases was $54.5 million.

Depreciation expense related to property and equipment was $12.6 million and $11.4 million for the three months ended April 30, 2019 and 2018, respectively. Included in these amounts were depreciation expense for servers and related equipment acquired under finance leases in the amount of $8.6 million and $5.9 million for the same respective period. Construction in progress primarily consists of servers and networking equipment and storage infrastructure being provisioned in our data center facilities. We did not capitalize any interest amounts to property and equipment for the periods presented.

Operating Lease Right-of-Use Assets, Net

Operating lease right-of-use assets, net consisted of the following (in thousands):

 

 

 

April 30,

 

 

 

2019

 

Operating lease right-of-use assets

 

$

229,355

 

Less: accumulated amortization

 

 

(8,560

)

Operating lease right-of-use assets, net

 

$

220,795

 

14


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

Other Long-term Assets

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

 

 

 

April 30,

 

 

January 31,

 

 

 

2019

 

 

2019

 

Deposits, non-current

 

$

2,593

 

 

$

2,674

 

Other assets, non-current

 

 

9,800

 

 

 

8,372

 

Other long-term assets

 

$

12,393

 

 

$

11,046

 

 

Internal-Use Software Costs

 

 

 

April 30,

 

 

January 31,

 

 

 

2019

 

 

2019

 

Internal-use software costs, net(1)

 

$

5,773

 

 

$

3,513

 

Capitalized qualifying implementation costs incurred in a hosting arrangement

   that is a service contract, net(2)

 

 

1,617

 

 

 

1,663

 

 

 

(1)

Included in these amounts were $1.8 million and $0.8 million in net capitalized stock-based compensation expense for the respective period.

 

(2)

Net capitalized stock-based compensation expense was not material for the periods presented.

We capitalize qualifying costs to develop software for internal use associated with the development of additional significant features and functionality to our products as part of other long-term assets. The amortization of the capitalized costs was not material for all periods. We have not recorded any material impairment charges during the periods presented.

We capitalize qualifying implementation costs incurred in a hosting arrangement that is a service contract, which is presented as part of our prepaid expenses and other current assets and other long-term assets based on the term of the associated hosting arrangement. The amortization of the capitalized costs was not material for all periods. We have not recorded any related impairment charges during the periods presented.

Note 5. Leases

We have entered into various non-cancellable operating lease agreements for certain of our offices and data centers with lease periods expiring primarily between fiscal years 2020 and 2029. Certain of these arrangements have free or escalating rent payment provisions and optional renewal or termination clauses. Our operating leases typically include variable lease payments, which are primarily comprised of common area maintenance and utility charges for our offices and power and network connections for our data centers, that are determined based on actual consumption. Our operating lease agreements do not contain any residual value guarantees, covenants, or other restrictions.  

We also entered into various finance lease arrangements to obtain servers and related equipment for our data center operations. These agreements are typically for three to four years. The leases are secured by the underlying leased servers and related equipment.

We sublease certain floors of our Redwood City, San Francisco, and London offices. These subleases have terms ranging from 25 to 55 months that will expire at various dates by fiscal year 2023.

The components of lease cost, which were included in operating expenses in our Condensed Consolidated Statement of Operations, were as follows (in thousands):

 

 

 

Three Months Ended

April 30,

2019

 

Finance lease cost:

 

 

 

 

Amortization of finance lease right-of-use assets

 

$

8,623

 

Interest on finance lease liabilities

 

 

685

 

Operating lease cost, gross

 

 

11,791

 

Variable lease cost, gross

 

 

2,868

 

Sublease income

 

 

(2,764

)

Total lease cost(1)

 

$

21,203

 

 

 

(1)

Short-term lease cost for the three months ended April 30, 2019 was not material and is not included in the table above.

15


BOX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Supplemental cash flow information related to leases was as follows (in thousands):

 

 

 

Three Months Ended

April 30,

2019

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

Operating cash flows for operating leases

 

$

11,358

 

Operating cash flows for finance leases

 

 

759

 

Financing cash flows for finance leases

 

 

9,154

 

Right-of-use assets obtained in exchange of lease obligations(1)

 

 

 

 

Operating leases

 

 

229,355

 

Finance leases

 

 

21,414

 

 

 

(1)

Includes the adoption impact of ASC Topic 842 on the opening balance sheet as of February 1, 2019 as disclosed in Note 1.

Supplemental information related to the remaining lease term and discount rate was as follows (in thousands):

 

 

 

Three Months Ended

April 30,

2019

 

Weighted average remaining lease term (in years)

 

 

 

 

Operating leases

 

 

7.22

 

Finance leases

 

 

2.94

 

 

 

 

 

 

Weighted average discount rate

 

 

 

 

Operating leases

 

 

5.39

%

Finance leases

 

 

3.62

%

 

As of April 30, 2019, maturities of our operating and finance lease liabilities, which do not include short-term leases and variable lease payments, are as follows (in thousands):

 

Years ending January 31:

 

Operating Leases (1)

 

 

Finance Leases

 

Remainder of 2020

 

$

37,413

 

 

$

27,061

 

2021

 

 

51,112