Summary
Box narrowed its losses sharply in the fiscal 2021 second quarter even as revenue growth stayed in the low teens. Revenue for the quarter ended July 31, 2020 was $192.29 million, up 11.4% from $172.55 million in the prior-year quarter. Gross profit rose 15.4% to $136.96 million, and gross margin improved to 71.2% from 68.8%, a gain of 2.4 percentage points. The operating loss narrowed to $7.51 million from $36.28 million, and operating margin improved to -3.9% from -21.0%. Net loss was $7.66 million, or $0.05 per diluted share, compared with a net loss of $36.23 million, or $0.25 per diluted share, a year earlier. The improvement came from the cost side, not from a revenue inflection.
Cash generation was the standout. Operating cash flow was $32.32 million for the quarter, a swing from negative $4.68 million a year earlier, and $94.24 million for the six months ended July 31, 2020 against $20.81 million in the prior-year period. Free cash flow, which Box defines as operating cash flow less purchases of property and equipment, principal payments of finance lease liabilities and capitalized internal-use software costs, was $13.3 million in the quarter and $53.2 million for the six months, compared with negative $19.0 million and negative $5.5 million a year earlier. Capital expenditures rose to $2.67 million in the quarter from $1.55 million. Deferred revenue ended the period at $364.90 million, up 10.3% from a year earlier, and remaining performance obligations were $726.70 million, up 13.5%. Billings for the quarter were $188.8 million, which Box reported as a 9% growth rate.
Most of the margin gain traces back to sales and marketing. That line fell to $67.76 million from $80.41 million, partly because headcount in the function dropped to 813 from 947 after a restructuring, and partly because travel-related costs fell $4.0 million and marketing expenses fell $1.6 million amid the COVID-19 pandemic. Research and development expense was $50.12 million and general and administrative expense was $26.60 million, while cost of revenue was $55.33 million. Stock-based compensation totaled $37.56 million in the quarter, which keeps GAAP and non-GAAP results far apart. Non-GAAP operating income was $30.05 million, against $0.53 million a year earlier. Non-GAAP net income was $29.91 million, or $0.18 per diluted share.
Customer metrics were steady. Box reported 74.0 million registered users as of July 31, 2020, of which 20% were paying users, and more than 100,000 paying organizations. The count of paying organizations rose 5% from July 31, 2019. Net retention rate was 106% as of July 31, 2020, up from 105% a year earlier. Management did not give revenue or earnings guidance for the next quarter. Its expense outlook covers the full fiscal year ending January 31, 2021 and longer horizons. Cost of revenue should increase in dollars but decrease slightly as a percentage of revenue for that fiscal year. Sales and marketing expenses should keep decreasing as a percentage of revenue over time. Research and development expenses should increase in dollars but remain relatively stable as a percentage of revenue, and general and administrative expenses should increase in dollars but decrease as a percentage of revenue. Box also said it does not expect to be profitable in the near future.
Two things temper the story. Interest expense, net rose to $1.77 million in the quarter from $0.34 million, driven by finance leases for data center facilities and lower interest income. The company also carries $736.9 million of total contractual obligations, including $226.0 million of purchase obligations tied mostly to infrastructure services and IT software, and it flagged the uncertain severity and duration of the COVID-19 pandemic as an ongoing risk to customers, business partners and employees.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $192.3M | $183.6M | +4.8% | $172.5M | +11.4% |
| Gross profit | $137.0M | $129.6M | +5.7% | $118.7M | +15.4% |
| Gross margin | 71.2% | 70.6% | +0.6 pp | 68.8% | +2.4 pp |
| Research & development | $50.1M | $53.1M | -5.6% | $49.7M | +0.8% |
| Sales & marketing | $67.8M | $72.8M | -6.9% | $80.4M | -15.7% |
| General & administrative | $26.6M | $27.9M | -4.8% | $24.9M | +7.0% |
| Total operating expenses | $144.5M | $153.8M | -6.1% | $155.0M | -6.8% |
| Operating income (loss) | -$7.5M | -$24.2M | +69.0% | -$36.3M | +79.3% |
| Operating margin | -3.9% | -13.2% | +9.3 pp | -21.0% | +17.1 pp |
| Net income (loss) | -$7.7M | -$25.6M | +70.0% | -$36.2M | +78.9% |
| Net margin | -4.0% | -13.9% | +9.9 pp | -21.0% | +17.0 pp |
| Net retention rate | 106.0% | — | — | — | — |
Risks
The continuing COVID-19 pandemic may disrupt sales and marketing, extend customer sales cycles, reduce demand and renewal rates, especially in the small business segment, and impair receivables collection. MD&A says the extent and magnitude of the impact cannot be predicted at this time.
Box has a history of cumulative losses and does not expect to be profitable for the near future; it reported a net loss of $33.2 million for the six months ended July 31, 2020 and continues to invest in sales, marketing, product development and infrastructure.
The cloud content management market is intensely competitive with Microsoft, Google, Open Text and Dropbox, and some competitors offer products at lower prices or for free, creating pricing pressure that could reduce sales and margins.
Sales efforts increasingly target enterprise and highly regulated customers, which can require greater education, customization and support, lengthen sales cycles, increase costs and delay revenue recognition; COVID-19 also limits in-person customer meetings.
The business depends on customer renewals and expansion, and the risk factor states net retention rate has decreased over time and may continue to decrease; it was approximately 106% as of July 31, 2020 and 105% as of July 31, 2019.
Privacy and data protection laws are expanding, including GDPR penalties of up to the greater of 20 million euros or 4% of global revenue, the July 16, 2020 CJEU invalidation of the EU-US Privacy Shield, the CCPA that became operative on January 1, 2020, and the CPRA on the November 3, 2020 California ballot.
Box stores large amounts of sensitive customer content, and actual or perceived security vulnerabilities or breaches could lead to significant liability, indemnity claims, lost customers and reputational damage; the filing notes threats from nation-state and other actors.
The service relies on third-party data center and cloud hosting facilities, and the filing says Box has never performed a full live failover and has experienced outages, including in September 2019 when a perimeter network configuration change temporarily made all Box services unavailable.
Future success depends on hiring, retaining and motivating highly skilled personnel, including co-founder and CEO Aaron Levie, and competition for such talent is intense particularly in the San Francisco Bay Area.
Sales to government entities involve competitive, expensive and time-consuming procurement, certification requirements and budget cycles; COVID-19 budget shortfalls may cause governments and municipalities to delay or reduce technology spending.
Adverse economic conditions or uncertainty, including from COVID-19, could cause customers to delay or reduce IT spending, lengthen sales cycles, reduce subscription duration and value and increase price competition.
The industry is marked by rapid technological change, and failure to launch new products or enhancements such as Box Shield, Box KeySafe, Box Governance, Box Relay and Box Platform on time or with market acceptance could impair revenue growth.
SaaS KPIs
All quarters →Billings Growth Rate
Paying Organizations
Remaining Performance Obligations Growth Rate
Net Retention Rate (period end)
Registered Users
Remaining Performance Obligations (period end)
Paying Organizations Growth (YoY)
Summary, forecast, risks and KPIs are extracted from BOX INC's SEC filings for Q2 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.