Nothing really. Just running. Oh, okay. I need a better story though. All right. Yeah. We good to go? That was. Okay. Yeah, I think so. Okay. Great. Thanks for joining. My name is Josh Baer, software analyst at Morgan Stanley. We have the Box co-founders, CEO Aaron Levie, and CFO Dylan Smith. Thank you for joining us. Thanks for having us. Some research disclosures. For important disclosures, please see the Morgan Stanley Research Disclosures website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Thanks again for joining us today for the conversation. A lot of interesting topics to cover. Wanted to start with macro, and really hoping, Aaron, you could sort of summarize what you're seeing as far as current demand trends and, also what assumptions are embedded in outlook for FY 2024. Sure. Maybe I'll cover the general kind of, you know, qualitatively on the macro front, and then Dylan can talk about how that gets embedded into the fiscal plan. I think, you know, we called this out on the Q3 earnings call that we were starting to see, you know, some of the macro and especially FX headwinds start to flow into the business. We were, you know, starting to see some situations where, you know, IT buying behavior, you know, was coming in with a bit more of just financial pressure. We obviously saw more of that in Q4. But it was more of a kind of a consistent trend, but just the numbers in Q4 end up being bigger, as you can imagine for, you know, from a seasonality standpoint. In general, I think the tone is, you know, the critical priorities of digital transformation remain front and center for every single IT buyer. You know, talked to dozens of CIOs throughout the quarter in Q4, and if you kind of look at it from a qualitative standpoint, they're investing in, you know, how do they enable their teams to be more productive, how do they move more to the cloud, how do they retire legacy infrastructure. Those conversations are driving. Data security kind of, you know, fundamental as well. You know, I think we saw a lot of, you know, healthy signal of just general appetite for, you know, for our Content Cloud platform with the added, kinda counterpressure of IT buyers just have you know, fewer dollars on a kinda from a growth standpoint, than they maybe would have a year ago. The way that shows up is, you know, maybe they have to sequence out their priorities a little bit differently than what we thought from a pipeline standpoint a few, you know, maybe a quarter or two prior, or their company is sorta growing its headcount less quickly, which obviously then, you know, equates to fewer seats, as those companies, you know, begin to buy SaaS products. When we kinda look at that's, you know, ultimately what impacted the Q4 outcome, and we certainly embedded that same set of trends into this fiscal year. That's kinda how we're seeing things so far. You know, as we talk to our peers and as we look at the kinda broader SaaS landscape, I think it seems like a pretty consistent trend that we're seeing from most folks. Great. wanted to ask about one metric that we watch closely, the net retention rate. It ticked down to 108% as expected, and now you're expecting it to move to 106%. On the one hand, I think you covered some of the dynamics that are, you know, pressuring that slightly. On the other hand, you know, what gives you confidence that it holds at 106%? As a reminder, there are three components in our net retention rate. The first is seat expansion. The second is the impact of pricing. Then the third is that full churn rate, which is netted against those expansion rates to deliver the 108% net retention that we just reported. As we think about, you know, how the macro's impacting the various components of that, we're really seeing all of the impact on the seat growth. Right again, as headcounts growth expectations, budgets are seeing more pressure, that's what's been most impacted, whereas we're seeing, you know, a lot of stability and strength continue on the pricing side, which is up 5% year-over-year, as well as on the full churn rate, which actually came down by a point year-over-year, to be 3% annualized. You know, as we think about the expectations for the coming year, we're really baking that in, to Aaron's point, expecting these macro challenges to persist, if not get incrementally worse, through the course of the year. One of the things that also gives us confidence in the net retention rate is, we've been moving more and more of our customers into suites, who have, stronger net retention rates. That should help offset some of the economic pressure, from this environment. Great. Wanted to dig in on suites. From the customer's perspective, could you lay out the value proposition of, you know, moving over to suites, particularly Enterprise Plus? Sure. The value proposition is, you know, quite strong. Previously, and I think everybody, you know, in this room knows, we had a core product and then multiple add-on products, and the sales motion was just becoming, you know, quite inefficient and, you know, overly complicated for our customers. The moment they wanted a security product, we had to sell them the Shield add-on, the moment they wanted a workflow, we had to sell the Relay add-on. Our suites really just brought that together as a bundle. From an economic standpoint, you know, there's meaningful savings when you, when you buy into the suite. Frankly, at this point in our go-to-market motion, you know, it's almost negligible the new deals we bring in, that are just like sort of one or two kind of pure add-ons. It really is the suite sale is our sales motion. Economics are fantastic for the customer if you kinda did a comparison of how much they would spend on those add-on products. Then for us, obviously, it's a much more efficient sales motion. You talked about efficiency, you talked about pricing and net retention as it relates to suites. What else does it do for you from an economic perspective, thinking about margins, deal size, and other impacts? Yeah. Really we see positive impacts on our suites customers across the board, top to bottom. In addition to what you mentioned, Josh, we also see even above and beyond the pricing uplift, much larger average contract values as suite customers tend to really understand, buy into the full value of the platform, so they're buying a multiple of the number of seats as well. Average contract values are much higher than even the rough doubling that we tend to see on price per seat versus customers just using the basic service. That higher pricing also flows through into higher gross margins as well. Really it's everything from, you know, pricing and average contract values to all the components of net retention, both seat expansion as well as stronger retention rates, and stronger and higher gross margins as well. That's great. We've seen this benefit. I guess, like the question is how much more room is there to go? Any context for, well, the answer to that question, think about the mix of suites right now and where that can go. Sure. So right now, suites customers represent about 46% of our total revenue. That's up from 35% a year ago. When we think about the total addressable market for suites, that's really applicable for virtually all of our customers other than the smallest, kinda self-serve online customers, which make up about 10%, a little less than 10% of our business. Still, you know, kinda roughly halfway into where we see the potential of suites and a lot of room to run there. Then on top of that, you can think about similar to the way that we introduced Enterprise Plus, a higher tier, higher price suite a little less than two years ago. Over time, as we continue to build more functionality into the product, you can think about us and expect us to introduce, higher price, higher tier suites as well to take even those Enterprise Plus customers, and add another, upsell vector over time. That's great. Let's talk about AI a little bit. Why not? We've been hearing a lot about it, obviously. Can you talk a little bit about your thoughts? What opportunities does it open up for Box? Yeah. We were pretty early in the kind of, you know, maybe the past decade's AI wave. We have a Skills product, which basically lets customers, through our API, connect to any third-party AI model. The use case there is, you know, customer uploads an image, and they wanna be able to tag that image. They wanna send that to a computer vision AI model from Google or Amazon or whatnot. That was our Skills technology. The big challenge with Skills, less skill, but more the prior wave of AI, was that you needed a model specific to almost every use case you had in the enterprise. If somebody came in and they wanted to do architecture diagrams, they really needed a model that was finely tuned for architecture diagrams. If somebody wanted to come in and do contract analysis, they needed a model that was finely tuned for contract analysis. The big breakthrough recently, you know, it goes back a few years, but really the past three months, is OpenAI's, you know, kinda latest sort of GPT-3x, so that could be 3.5 all the way to 4. These large language models basically can cover a much more generalized set of use cases. The power of that is that a customer could come with a set of documents or files that, you know, really kind of required no pre-training. It could be contracts, it could be research reports, it could be memos, and the AI models now at this point understand and can synthesize really a very broad set of content. That's really compelling for us, and it's actually in the acronym itself, large language model, where do you see a lot of language? You see a lot of language in documents. The breakthrough is the ability to start to structure unstructured data in a way that was never possible before. For us, these use cases could range from data classification. Customer says, "I want to classify my most important movie scripts," if they're in Hollywood. Previously, again, it would've been a sort of pre-trained exercise that would've been, you know, relatively prohibitive for most companies to go do, and now you could do it, you know, with a couple lines of text. You kinda look at the range of use cases from data security and data protection, all the way to kind of end user productivity, where you could begin to sort of ask a system to summarize information or pull out key insights or be able to have a better way of discovering or searching data. Those are all the potential use cases. One thing that we're somewhat cautious of, sort of, you know, thinking through what the economics of this type of technology are. The first thing to keep in mind is obviously the underlying GPUs are pretty expensive to run a lot of these use cases. We're trying to figure out where the cost curves go of this industry in terms of, you know, how much can you kind of add a, you know, pricing on top of that. Then ultimately, what becomes kinda table stakes inside of software versus where can you know, get additional pricing power. Some of these things are kind of the big unknowns of AI right now. We are unbelievably excited because it unlocks a tremendous amount of value of all of this unstructured data inside of Box. We have tens of billions of, you know, documents and unstructured files. So the breakthrough is 100% obvious to us, the big question is sort of: How do you commercialize it? How do you productize this in a very scalable way that we can impact the most number of customers? To Dylan's point, you know, as you imagine kinda plan types over time, one could theorize that that would be another area where you'd have additional functionality and there might be additional upsell vectors as some of these products get introduced. Still on the one hand, very early, but on the other hand, something that we're very prepared for architecturally because of our early work in Box Skills. Great. That's a great opportunity, exciting opportunity. I guess one follow-up is in regards to Microsoft. You've partnered with Microsoft, you have close integration, also competitive at times. Does Microsoft's relationship with OpenAI kinda increase the intensity of competition from Microsoft when thinking about- Yeah. I actually almost flip it. It actually is a boon for us. You know, can't get into, obviously, all the dynamics of the OpenAI Microsoft relationship, but one should just generally assume that OpenAI as an organization is looking for the most amount of developer activity as possible, and Azure just happens to be their compute partner, obviously, you know, with an investment relationship there. The two of those organizations are highly motivated to get as many developers to use their APIs as possible. That's the foundational business model of OpenAI. For us, you know, you have the choice of going directly to OpenAI, you have the choice of going to Azure. We've got great relationships on both fronts with those organizations. The really exciting thing about our position is that we're gonna be Switzerland, and so we have the advantage of, you know, you can imagine there's a company in Mountain View that is incredibly motivated to make sure that there's not just one, you know, leading AI provider. Over time, as there's more competition at the AI model space, we think that actually over time means that the models themselves are relatively commoditized, probably eventually converges with the cost of compute. What you want as a, as an enterprise is you don't wanna be locked into one particular model provider, because there's gonna be leapfrogging that happens in different spaces, in different sub-domains. By being able to work with Box, you're gonna be able to have the choice of working with models from wherever it comes from. Our ability to play a Switzerland role, which is what we already do in terms of our integration strategy with things like Salesforce or ServiceNow or Slack or Zoom, that will also apply to the AI space as well. I think one of the big architectural questions that enterprises are gonna face is, how do you make sure you don't get locked into just a path-dependent approach to how you leverage AI, but you have some flexibility and you can have a future-proof architecture? That's what we're gonna be providing customers from a content standpoint. One other point, just again, this is more conceptual, you know, in terms of why you would want a Content Cloud as an enterprise. If you look at the data fragmentation that enterprises deal with today, you know, they have got content in OpenText and Documentum and in network file shares, in DocuSign, in workflow providers and collaboration tools. All of a sudden, you know, we have this AI wave, company wants to be able to go query their data. Well, how do you query your data when it's across N number of systems? Becomes very, very complicated. Both it's extremely expensive, but also the permissions and the access controls that will then feed into AI make that very difficult. You can't have any situation where somebody can query data and then get a result that they shouldn't have access to. Being able to get your data in a format that can be managed and secured and be privacy-oriented, is gonna be one of the big kind of new frontiers for unstructured data, and that's what the Box platform and the Content Cloud, essentially solves for our customers. We think Switzerland being highly permissioned, enterprise-grade, is gonna be a strong advantage we have. Very helpful. You kinda covered some of your competitors in the competitive landscape, but from the AI lens, just wanted to ask, Aaron, more broadly what you're seeing in the competitive environment. You've made comments about an easing competitive landscape. Does that still hold true? What are you seeing out there? Yeah. What that's referencing when we talk about easing competitive landscape is when we're in deals, today, our differentiation is meaningfully higher than it was, you know, five years ago, let's say. You know, five years ago, we would go to an organization, the conversation would be, "You need, you know, secure internal, external collaboration. We have got better security, we have a better end user experience, and we've got open APIs." You know, that got us to let's say, you know, half a billion in revenue. Now at this point, you know, our ability to go into an organization and talk about, we're gonna retire, you know, multiple legacy systems. We're gonna consolidate spend, from various, you know, kind of content-adjacent use cases, whether that's workflow, e-signature, collaboration tools. We're gonna be a much more sort of meaningful partner because we can tie to a broader set of digital transformation initiatives. Our differentiation has gone up meaningfully. The single biggest threat that is always looming out there for any SaaS provider is sort of the big incumbents. I think versus the big incumbents, we are much more complementary and much more kind of partner-oriented than we were just even a few years ago. Customers have the choice of being able to, you know, swap out Box for Microsoft products within Microsoft Teams, so you can be using Teams with Box in the back end for content. We do, you know, the same within Microsoft Office for things like co-authoring of Office files and documents. We plug deeply into, you know, Azure for a variety of use cases. You know, AI becomes yet another area of opportunity for us to partner with Microsoft on. Partnership has only gone up over time. Our differentiation has deepened pretty meaningfully. The only other kind of category would be more of the real kind of pure legacy players, and we see, you know, just a tremendous advantage that we have on a cloud-first multi-tenant SaaS platform. Every feature we build instantly becomes available to all of our customers if they so choose to turn them on. It's a very different architecture than any of the legacy players have. That just remains a strong tailwind for us. Great. Thank you. wanted to flip over to Box Sign. I guess how would you characterize the customer demand right now? What types of conversations are you having? Are you seeing customers switch over from competitors? Is it more, testing out like new workloads? What are you seeing on Box Sign? Yeah. I'd say kind of all the above. We have customers at every stage of the journey. We're in, you know, an increasing number of RFPs, just specific to kind of e-signature use cases, which is exciting to see. That means that customers are, you know, having, you know, sales cycles with us just on e-signature. We wanna make sure that they're buying into the full platform, but it's another kind of on-ramp into the Content Cloud. Some customers have kind of fully standardized on Box Sign and replaced or retired legacy, or not legacy, but alternative e-signature solutions. We're seeing the kind of cost savings play out and the ability to go and actually, you know, bring more value to our customers on that. At the same time, we have a tremendous amount of surface area left that we can go and attack. You know, we kind of got into the product space at exactly the right time. It's a deeply integrated product. You know, the user experience is incredibly simple, in terms of how baked in it is to the product, and then it's just gonna continue to advance rapidly. It's one of the sort of most funded product roadmap areas that we have in the business. Great. Before getting into financials and then, asking, seeing if there's questions in the audience, wanted to ask one on new logos. We've talked a lot about suites and pricing benefit, seat expansion within your base. What about new logos? Is there still an opportunity to add customers, and where is that coming from? Yeah, there absolutely is. What we've seen, even if the environment is fairly stable contribution, between new customers buying Box for the first time, customer expansion. Roughly 20%-25% of our new bookings come from new logos, with the remaining 75%-80% coming from customer expansion. Interestingly, what we're actually selling to those customers, the deal cycles, the suite detach rates are pretty comparable, even for new customers as that as Aaron mentioned, really is the de facto sales motion that we're leading with. Then in terms of, you know, where we see those new logos coming from, you know, we have, you know, untapped opportunity in every market that we serve. We tend to see the greatest contribution from new logos in some of our less developed markets. For example, Japan, which has been growing extremely nicely for us, has a little bit higher of a new logo contribution. We see the same thing in EMEA. You know, relatively consistent across the board in terms of that balance between new logos and customer expansion. Great. Thanks, Dylan. On the last earnings call, you updated your rule of guidance for revenue growth and free cash flow margins. You've expressed that you're leaning a little bit more into the margin and profitability side there. I guess the first question about growth, has anything changed outside of macro? We used to have these, you know, forward-looking targets expecting teens type of growth. If macro improved, is that still on the table or has something else changed? Yeah. I think, you know, in this environment, we always sort of struggle with this element of like, what is the steady state, you know, model, and then what is the one that we need to talk to investors about so, you know, we can make sure that we have, you know, a conservative target out there that, you know, works given the economic climate. We sort of always debate this because the moment you have anything in the latter that assumes a growth accelerant, you're kind of making macro predictions to some extent. We wanted to be, you know, thoughtful about not leaning in too much on, okay, we expect a certain recovery at a certain date, in particular, because it's not even clear that we've gotten through, you know, what this current macro looks like. I think our view is on a steady state basis, you know, we believe in that sort of, yeah, you know, kind of teens growth rate. The issue is sort of just when, you know, are we in that steady state macro environment? I think the market is only larger today than it has been a couple of years ago for Box. Our position and strength in the market is only better. The big question is sort of, you know, when are you at that steady state? We wanna be conservative and thoughtful about the environment that we're in. I will say that, you know, it is, we are being increasingly focused on the bottom line side of the story. I think you will see that be an important, you know, area of rebalance for us. It's a continuation of the past few years of driving increased profitability. That's sort of our focus right now. You know, I think will be as long as this environment persists. Clear. On that increased profitability over the last few years, I think it's been 20% margin or more. What's it gonna take to get that next leg of improvement? Where are there still sources of leverage? We think about, you know, the next, call it, two, three years ahead, really a couple of main areas that we'd call out. The first of which is gross margin expansion. Even though we have improved gross margins over the past few years, the low 70s to an expected 77% this year, we're also gonna wrap up a multi-year journey of transitioning to run fully in the public cloud. Once we get through that, especially the first half of this current year, we expect to see, you know, a good amount of gross margin upside from there. We'll show up in particular in the full-year results next year. That's a big area of opportunity for us. The second kinda big bucket that we'd call out is continued focus on our workforce and location strategy. In particular, you know, continuing to scale up through the significant majority of our hiring, in our engineering center of excellence in Poland, which is not just an engineering site, but that's been the focus. Going from a standing start a few years ago, have about 10% of total employees there, you can expect that to meaningfully increase over time as well. Beyond that just, you know, part of the way that we're just operating the company day-to-day, very focused on cost discipline across the board. You can expect to see, you know, improvements in everything from, you know, outside, you know, services spending, our, you know, real estate footprint, things like that, to get us, you know, the next, you know, several points of, margin expansion. Great. One more from me, and then see if there's any questions in the audience. You mentioned gross margin improvement from here. Can you remind us what's the mix of professional services? Thinking about your overall gross margins, is there anything structural that would prevent you from getting to 80% + when you think about intensity of workloads or anything else? Today, about 97% of our revenue is subscription, the remaining 3%, professional services. If you think about even this year, said we expect in the back half of the year to have roughly 78% gross margins, subscription margins, that's already at about 80%. Structurally, you know, as mentioned, as we build from there, no, there's nothing that would prevent us from being an 80% gross margin company over time. Would say a couple of the biggest levers are just, you know, the efficiencies that we continue to drive, as we kinda execute through the public cloud migration, as well as another tailwind to gross margins that we've seen, contribute pretty steadily over time, is the impact of higher pricing. You know, the faster we get more and more customers into suites, with their corresponding higher gross margins, you know, the faster we can get to that kinda 80% gross margin clip. Great. Any questions? Great. Thanks. You talked earlier about the Content Cloud. Can you just describe how you see the competitive environment for what you see to be the Content Cloud? Yeah. It's interesting, the way that we've certainly defined our strategy and the evolution of our product, we think is quite unique. There's probably not a single product you could buy in the market that has the selection of features that we have in a single architecture. Customers would otherwise have to buy a mix or integrate a mix of solutions together. You would need an e-signature vendor and a workflow vendor and a content management or document management vendor. That, you know, that brings with it just a very, a variety of different categories that you have to spend on. Again, that could be anything from network file share providers or enterprise content management providers, e-signature providers, but there's literally no other platform that has a single architecture powering the full life cycle of content in the way that we've designed Box. That puts us in a good position when we're in, when we're in deals where there's, you know, two or three of those capabilities as a requirement. We're the only one that can basically provide that. Any other questions? Dylan, one more for me on capital allocation. Now mid-20s free cash margin and expanding healthy balance sheet, how should we think about buybacks versus M&A and other capital allocation priorities? Yeah. Would say that, kind of what we had. It's pretty, kind of representative of how we think about capital allocation, at least, you know, for the foreseeable future, just with, you know, larger numbers as our free cash flow is growing at a rate much, you know, more quickly than our revenue growth. Which is to say you can expect us to continue using the majority of our free cash flow generation to return capital to shareholders through share repurchases. You know, as one note, the last year, we've reduced total shares outstanding by more than 3% because of that approach. You can expect that, you know, type of trends, you know, to kinda gradually reduce total shares outstanding over time to continue. We also allocate a portion of our free cash flow generation for very kinda targeted M&A to accelerate our product roadmap. You know, for example, the team that we brought in that within a year became a generally available Box Sign is a great example of that. Perfect. We're out of time. Thank you so much.