BOX - NYSE

Good afternoon. My name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Box Incorporated Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Cynthia Hiponia. Cynthia, you may begin your --

Good afternoon, and welcome to Box's Fourth Quarter and Full Year Fiscal 2024 Earnings Conference Call. I'm Cynthia Hiponia, Vice President, Investor Relations. On the call today, we have Aaron Levie, Box's Co-Founder and CEO; and Dylan Smith, Box's Co-Founder and CFO. Following our prepared remarks, we will take your questions. Today's call is being webcast and will also be available for replay on our Investor Relations website at box.com/investors. Our webcast will be audio-only. However, supplemental slides are now available for download on our website. We'll also post the highlights of today's call on the X platform at the handle @BoxIncIR. On this call, we will be making forward-looking statements, including our first quarter and full year fiscal 2025 financial guidance and our expectations regarding our financial performance for fiscal 2025 and future periods, including our free cash flow, gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance obligations, revenue and billings and the impact of foreign currency exchange rates and our expectations regarding the size of our market opportunity, our planned investments, future product offerings and growth strategies, our ability to achieve our revenue, operating margins, and other operating model targets, the timing and market adoption of and benefits from our new products, pricing models and partnerships, the proceeds from the sale of our data center equipment, our ability to address enterprise challenges and deliver cost savings for our customers, the impact of the macro environment on our business and operating results and our capital allocation strategies including potential repurchase of our common stock. These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially. Please refer to our earnings press release filed today and the risk factors and documents we filed with the SEC, including our most recent quarterly report on Form 10-Q for information on risks and uncertainties that may cause actual results to differ materially from statements made on this earnings call. These forward-looking statements are being made as of today March 5th, 2024, and we disclaim any obligation to update or revise them should they change or cease to be up to-date. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from our GAAP results. You will find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and in related supplemental slides, which can be found on the IR page of our website. Unless otherwise indicated, all references to financial measures are on a non-GAAP basis. With that, let me turn the call over to Aaron.

Thanks, Cynthia, and thank you all for joining the call today. Our fiscal Q4 results were in line with or above our guidance as we continue to see signs of stabilization in IT budgets in several of our core markets. We achieved revenue of $263 million, up 2% year-over-year, or 4% in constant currency. Operating margins of 26.7% were above our guidance and EPS of $0.42 was $0.03 above the high end of our guidance. In fiscal 2024, we surpassed a $1 billion in annual revenue, with operating margins of 24.7%, up 160 basis points from 23.1% a year ago. And despite the macroeconomic pressures on IT budgets, which persisted throughout FY'24, we are pleased with our ability to deliver margin expansion, reflecting our execution of the strategies we put in place to lower our cost structure while still investing for long-term durable revenue growth. In FY'24, we continued to bring advancements in our category-defining content cloud platform to the market. We launched Box AI in beta, a new suite of capabilities that natively integrate advanced AI models into the Box Content Cloud. We unveiled Box Hubs integrated with Box AI, which transforms how companies securely curate and publish content and knowledge across their enterprise. And we also made significant product enhancements in security and compliance, collaboration and workflow, while also further strengthening our ecosystem of partner integrations. As I reflect on the year ahead, it's clear we have an incredibly large opportunity in front of us. At Box, our mission is to power how the world works together, and the way work happens is changing more than ever before. We know that companies are looking to digitize and automate their businesses by modernizing and simplifying workflows, streamlining collaboration, and connecting their apps together. They are looking to leverage the power of AI to generate new insights, automate their processes, and supercharge productivity. And it's critical that they protect their most important data by detecting and preventing threats, avoiding ransomware, and meeting compliance requirements. At the heart of these trends is how companies work with their most important content. And while unstructured data like contracts, marketing assets, financial documents, and other content represents 90% of all enterprise data. Most enterprises continue to be burdened by massive legacy and siloed environments for managing this content. And with the recent acceleration of advances in AI, it's nearly impossible to get the full value of content when it's fragmented across the ECM systems, legacy storage infrastructure, and point solutions. For years, Box has enabled powerful ways to securely collaborate and manage enterprise content at scale. But today we enter a new chapter as a company, and we expect FY'25 to represent the most significant set of product expansion and evolution we have had as a company. With the combination of AI, our workflow automation capabilities, and our advanced metadata-driven views, we can fundamentally transform how companies run their most important processes. Just in January, we announced the acquisition of Crooze, a leading provider of no-code enterprise content management applications built on the Box platform. For years, Crooze has leveraged Box's APIs to enable advanced enterprise content management and workflow use cases like contract lifecycle management, digital asset management, and controlled documents in regulated industries and more. We were thrilled to team up with Crooze, and we will be rapidly integrating and leveraging the company's no-code app builder and metadata capabilities to help customers' buildout custom interfaces and workflows for working with their most important content. Combined with Box's upcoming workflow automation improvements, including the expected launch of Forms and Doc Gen this year, Box will be able to power end-to-end critical business processes natively without customers having to do any custom development. And with the acquisition of Crooze, Box will extend into new use cases within our current customers as well as enabling us to rip and replace legacy ECM solutions. Importantly, these business processes are radically enriched with the power of Box AI. An age-old problem in content management is how companies can apply structure to their unstructured data. For instance, extracting key variables from an invoice or a contract or labeling critical data inside of a digital asset like an architecture diagram or a product image. With Box AI, we are now able to automatically label and apply metadata on content at scale, doing the work that took humans minutes or hours, performing these tasks now in seconds for a fraction of the cost. By having AI intelligently process documents and content, you can automate tasks and workflows that would have been cost-prohibitive or near impossible to do previously. In FY'25, we expect to dramatically advance our Box AI efforts by incorporating new AI models in the Box, building new capabilities to help enterprises customize AI for their business workflow needs, enabling customers to ask questions of content in Box Hubs, and leveraging Box AI more extensively throughout our platform APIs. Not only will Box AI continue to be highly differentiated due to our overall security, compliance, and governance on Box. Our platform-neutral approach means that we can leverage tens of billions of dollars in R&D happening across tech by integrating with advanced AI models from various AI vendors to provide the best user experience for Box customers. Consistent with this open approach, today we announced a new integration with Microsoft Azure OpenAI. The expanded collaboration brings Box and Microsoft's enterprise-grade standards for security, privacy, and compliance to AI, so customers can realize the benefits of this ground-breaking technology. We also announced that Box AI is generally available to customers on Enterprise Plus plans starting today. Since rolling out Box AI in beta to Enterprise Plus customers in November, we have seen a number of existing customers upgrade to Enterprise Plus to gain access to Box AI. Customer examples in Q4 include a leading construction company, which expanded in Q4 to access Box AI as they are looking to extract the value from their unstructured content in Box. Applying metadata at scale, monitoring trends and contracts, managing agreements, and also improving their security posture with metadata based classification controls. An American multinational technology company upgraded to Enterprise Plus with a six-figure upsell to bring enterprise-grade AI to all of their employees. With access to Box AI, powered by the most advanced large language models, this organization can leverage AI for new use cases or keeping their content secure and compliant. Finally, one of the country's leading medical support organizations upgraded to Enterprise Plus to use Box AI to securely curate new content, summarize vast amounts of data, and quickly analyze it to report out to clinics that they support. Now going beyond AI this year to help our customers protect their most important data, our focus remains on building the leading way to protect and govern the full content lifecycle in the enterprise. In the year ahead, we plan to advance our security offerings to deliver improved threat detection and data recovery from ransomware attacks, power more advanced governance workflows, deliver native archiving solutions, achieve FedRAMP high compliance, and deliver deeper integrations with security vendors like CrowdStrike. Next, our flexible and interoperable platform remains a major differentiator for Box. And with our open APIs, we aim to continue to connect with every enterprise app that our customers use, from Microsoft Teams and Slack to Salesforce and ServiceNow and IBM and many more. And help our customers leverage our APIs to power their own applications and workflows. Now, turning to go-to-market, we continue to enable new and existing customers to recognize the full value of the Box platform with increased adoption of our multiproduct offerings in Q4. Suites represented 81% of deals over $100,000, up from 72% a year ago. We saw continued solid suites attach rates in large deals across all geographies. In Q4, customer expansions and wins with Enterprise Plus included a financial consulting firm who purchased Box with a six-figure Enterprise Plus deal. They will leverage Box as their core enterprise content management platform across the entire firm to enable their business to go fully digital while also eliminating spend on legacy agency management solutions. Next, a top international law firm purchased Box to power how they work internally and with external parties. This organization was looking for a new document management solution that provided security, ease of use, integration support, and regional data storage, which led them to Box. As we look ahead to FY'25 and beyond, and as we enter this new chapter as a platform to power intelligent workflows around content, we will leverage our go-to-market motion to bring new solutions to customers, add new pricing models and packages to drive further upsell and extend our platform to a deeper set of partners and system integrators to deliver our more advanced solutions to customers and drive further growth. Further, we plan to ignite more demand gen and pipeline development programs to reach even more customers and prospects, doubling down in key verticals, such as financial services, life sciences, healthcare, and the public sector, honing our focus on key international markets and more. We are focused on taking advantage of the market opportunity in front of us and these focused go-to-market investments and initiatives are being made to accelerate the future revenue growth of Box. As you can tell, we are incredibly excited about the innovation we will be delivering to our category-defining content cloud platform in FY'25. Our robust product roadmap combined with our investments in strategic go-to-market initiatives positions us well for the megatrends that are driving IT decisions and for when a more normalized IT spending environment returns. We will be providing more detail on our growth strategy during our upcoming Financial Analyst Day on March 19th. We could not be prouder of how the company continues to execute on the initiatives to drive continued leverage in our cost structure and drive efficiencies across our business, while also setting ourselves up to drive accelerated revenue growth. Dylan will be detailing our progress in his comments, but the resiliency of our financial model has been a strategic differentiator for us as we continue to invest in long-term durable revenue growth. As the way work gets done is changing more than ever, Box is well-positioned to capitalize on these megatrends and power the full lifecycle of content in the enterprise. With that, I'll hand it over to Dylan.

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us. In fiscal 2024, we delivered another year of strong bottom-line improvements while laying the foundation for long-term profitable growth. We generated $1.04 billion in revenue, up 5% year-over-year or 7% in constant currency. FY'24 operating margin was 24.7%, up 160 basis points year-over-year and up 340 basis points in constant currency. We delivered non-GAAP EPS of $1.46, up 22% from $1.20 in the prior year. We also generated $269 million in free cash flow, a 13% year-over-year increase which enabled us to deploy $180 million toward our share repurchase program. As a result, we reduced fully diluted total shares outstanding sequentially in all four quarters of FY'24. As we continue to navigate this challenging macroeconomic environment, we remain focused on delivering higher top-line growth, generating consistent operating margin expansion and executing a disciplined capital allocation strategy. Turning to Q4, we delivered revenue in line with our expectations and operating margin and EPS above our guidance. Q4 revenue was $263 million, up 2% year-over-year or 4% in constant currency. Operating margin of 26.7% was 120 basis points higher than our guidance of 25.5%. EPS of $0.42 was $0.03 above the high end of our guidance and up 14% year-over-year. We ended the year with approximately 1,770 total customers paying us more than $100,000 annually. We continued to see strong demand for our higher-value product offerings. Our Q4 suites attach rate in large deals landed at 81%, up from 72% a year ago. Suites customers now account for 55% of our revenue, a significant improvement from 46% in Q4 of last year and from 51% in Q3. Even in this environment where IT budgets are tighter, enterprises recognize the value that our suites offerings bring to help them simplify, transform and secure their content. We ended Q4 with remaining performance obligations, or RPO, of $1.3 billion, a 5% year-over-year increase or 9% in constant currency. These growth rates were 200 basis points and 500 basis points ahead of our Q4 revenue growth, respectively. This demonstrates both the stronger performance that we delivered in the back half of the year as well as customers' longer-term commitments to Box as a core part of their infrastructure. We expect to recognize roughly 60% of our RPO over the next 12 months. Q4 billings of $379 million were up 6% year-over-year or 10% in constant currency, above our expectations of low to mid-single-digit growth driven by strong early renewals. Our net retention rate at the end of Q4 landed at 101%. While we continued to experience pressure on seat expansion within our customer base, our annualized full churn rate remained stable at 3%, demonstrating the stickiness and value that the Box platform provides. We've also continued to achieve an increase in price per seat year-over-year despite the pressures on IT budgets. As a reminder, our net retention rate is a trailing 12-month metric. Based on the headwinds we experienced in FY'24 that we are now lapping, we expect our net retention rate to bottom out at 101%, exiting FY'25 with a net retention rate in line with or slightly above our Q4 results. Beyond FY'25, as we benefit from the introduction of new product offerings and plan tiers and as seat growth returns to more normalized levels, we expect to achieve a higher net retention rate over time. Q4 gross margin came in at 78.4%, roughly in line with the year-ago period. As a reminder, we fully migrated our infrastructure to the public cloud in Q3. As our on-premises data center expenses wind down over the coming quarters, we expect to deliver additional gross margin expansion over the course of FY'25. We also continue to drive leverage across the business through our lower-cost location strategy and rigorous cost discipline. We now have 300 full-time employees in our engineering center of excellence in Poland, up 21% year-over-year, and in the coming year, the significant majority of our R&D hiring will be in Poland. These initiatives resulted in 26.7% operating margin or 28.0% in constant currency, an improvement from the 26.0% we delivered in Q4 of last year and a testament to our disciplined expense management. As a result, we delivered increased non-GAAP EPS of $0.42 in Q4 or $0.44 on a constant currency basis compared with $0.37 a year ago. I'll now turn to our cash flow and balance sheet. In Q4, we generated free cash flow of $82 million, a 10% increase from $75 million a year ago. We delivered cash flow from operations of $89 million, a 3% decrease from $92 million in the year-ago period. Capital lease payments, which we include in our free cash flow calculation were $4 million, down from $11 million in Q4 of last year. We expect capital lease payments to wind down over the next few quarters as we exit our managed data centers as part of our public cloud migration strategy. Let's now turn to our capital allocation strategy. We ended the quarter with $481 million in cash, cash equivalents, restricted cash, and short-term investments. In Q4, we repurchased approximately 790,000 shares for approximately $20 million. For the full year of FY'24, we repurchased approximately 6.6 million shares for approximately $180 million or two-thirds of the free cash flow we generated in the fiscal year. As of January 31st, 2024, we had approximately $64 million of remaining buyback capacity under our current share repurchase plan. We remain committed to opportunistically returning capital to our shareholders and our Board of Directors recently authorized an additional 100 million common stock repurchase plan. With that, I would like to turn to our guidance for Q1 and fiscal 2025. As a reminder, approximately one-third of our revenue is generated outside of the US, with roughly 60% of our international revenue coming from Japan. The following guidance includes the expected impacts of FX headwinds, assuming current exchange rates. While we are seeing some pockets of stabilization in most of our markets, our guidance reflects a continued constrained IT budget environment in FY'25. Additionally, as our international businesses are now consistently generating profit, in Q4 we have released the valuation allowance against our deferred tax assets in the UK. And beginning in FY'25, we will now be recognizing non-cash deferred tax expenses on the profits generated in international countries, which will impact our FY'25 GAAP and non-GAAP EPS. We expect this to represent a roughly $0.02 impact to Q1 and $0.06 for the full year. For the first quarter of fiscal 2025, we expect Q1 revenue to be in the range of $261 million to $263 million, representing 4% year-over-year growth or 7% growth on a constant currency basis, both above the growth rate we delivered this past quarter. We expect our Q1 billings growth rate to be in the low single-digit range. This includes an expected headwind from FX of approximately 300 basis points. We expect our Q1 gross margin to be roughly 79%, representing a year-over-year improvement of roughly 100 basis points. We expect our Q1 non-GAAP operating margin to be approximately 25%, which includes an expected negative impact of approximately 200 basis points due to FX. This represents a 220 basis point improvement year-over-year and a 420 basis point improvement in constant currency. We expect our Q1 non-GAAP EPS to be in the range of $0.35 to $0.36, a 13% year-over-year increase at the high end of this range, even as we absorb the deferred tax expenses that I mentioned earlier. Weighted average diluted shares are expected to be approximately $147 million for the full fiscal year ending January 31st, 2025. We anticipate revenue in the range of $1.08 billion to $1.085 billion, representing approximately 5% year-over-year growth at the high end of this range and 6% in constant currency. This includes an expected headwind from FX of roughly 170 basis points and is consistent with our preliminary guidance on a constant currency basis. We expect our FY'25 billings growth rate to be roughly in line with revenue growth on an as-reported basis. We expect FX to have a negative impact of a little more than 50 basis points to billings. We expect our FY'25 gross margin to be roughly 80%, representing a year-over-year improvement of more than 200 basis points. We are stepping up our sales and marketing expenses to drive future growth and we expect our FY'25 non-GAAP operating margin to be approximately 27%, representing a 230 basis point improvement from last year's result of 24.7%. We expect FX to have a negative impact on operating margin of a little more than 100 basis points. This guidance is in line with our preliminary guidance despite an expected incremental headwind from FX. We expect FY'25 non-GAAP EPS to be in the range of $1.53 to $1.57, representing an 8% increase at the high end of this range versus $1.46 in the prior year and includes the $0.06 impact from deferred tax expenses that I noted previously. Weighted-average diluted shares are expected to be approximately 149 million. Finally, we expect our FY'25 revenue growth rate, combined with our FY'25 free cash flow margin, to be in the low 30s on an as-reported basis, and in the mid-30s on a constant currency basis, which includes the combined headwind of a little more than 200 basis points from FX to revenue and billings that I discussed previously. We are encouraged by the stabilization trends we have seen in the last couple of quarters, even in light of the macroeconomic pressures on IT budgets that we saw in FY'24. As Aaron mentioned, we are entering a new chapter to power AI-driven business processes around content and workflows. To take advantage of this opportunity, our focus in FY'25 is laying the foundation for reaccelerating revenue growth by investing in our innovative product roadmap and strategic go-to-market programs, expanding gross and operating margin, and efficiently returning capital to our shareholders. We look forward to providing further details at our virtual Financial Analyst Day on Tuesday, March 19th. With that, Aaron and I will be happy to take your questions. Operator?

Thank you. [Operator Instructions] Your first question comes from the line of Josh Baer from Morgan Stanley. Please go ahead.

Excellent. Thanks for the question. Wanted to ask about the acquisition of Crooze. Very interesting, getting into the no-code app development space. How significantly are you expecting to invest there? Really compete in that market versus maybe more limited around use cases centered on content. And then is a good way to think about that acquisition sort of thinking about what you did with the e-signature acquisition, kind of evolving into Box sign. Thanks.

Yeah, thanks. So really, really great and important point to clarify. So Crooze is 100% focused on no-code application and sort of custom interface development for content-centric workflows. So we are going to remain squarely focused on the content market. But when you think about the kind of workflows and business processes that enterprises have around content, you have digital asset management, invoice processing, contract lifecycle management, GxP-compliant controlled document management. And so there is hundreds or if not thousands of use cases that enterprises have around content-driven workflows. And traditionally, we've really kind of had our customers have to go build those workflows and the interfaces around those workflows off of Box. And so you had to do custom app development in some other kind of platform environment. The Crooze, as an independent company and as a start-up, really kind of proved out the use case of all of these types of use cases being built out on the Box platform in a no-code environment. So we got really excited about being able to bring them onboard. And what we're doing now is integrating their technology natively into Box. And in the coming kind of quarters, within this fiscal year, we anticipate having a new product that we'll be releasing built on the Crooze technology, that we'll be obviously sharing much more about throughout the year. And that technology and product will let our customers then in a very native fashion, go and create these types of interfaces and custom applications on top of Box. And so we've seen from their customer base so far is again, anything from there's major players in the commercial real estate market that use Crooze for commercial real estate lease portals. There is customers that are using it as their core portal for any kind of contract management. And so these are the kind of use cases that will now be natively built in the Box environment. From a monetization standpoint, right now, we have continued the business model that Crooze had previously, which is really kind of selling these Crooze implementations on a per-customer basis for the number of users or seats that our customer needs. And we will continue that while we integrate the technology. And then we'll be really kind of driving Crooze as an upsell vehicle within our customer base. So unlike Box Sign, where we included the core of Box Sign in all of our plans, we won't be doing that with the Crooze technology. We will be using this as an additional monetization lever, both in our sort of bundled pricing model, but as well as standalone capabilities as well. So we're really excited about what this could do from a monetization standpoint. And we'll be sharing a little bit more at the Financial Analyst Day in a couple of weeks around the strategy here.

Really helpful, Aaron. And just anything to call out as far as impact to revenue or expenses this year from Crooze? Thanks.

Yeah, so everything is sort know built into the model that we just laid out. We will be investing in the team certainly to go build out this technology. But given our philosophy around how we make R&D decisions, that will certainly be prioritized, but within the cost of envelope that we've already laid out. So, no changes on that front. And then from a kind of a revenue growth standpoint, this is really the year of building out the technology into Box and we expect it to provide a tailwind more in that medium and long-term from a pure growth rate standpoint. But overall, if you sort of step back and say, strategically what's happening, why is Crooze very important? It's really that combination of the no-code application development that Crooze brings with metadata views, plus the combination of AI and what we're doing in workflow. And together, I think, you see a real kind of new chapter in our -- what our product can deliver for customers, letting them go expand use cases into more of these enterprise content management spaces, as well as rip and replace legacy ECM solutions. So there is a nice kind of combined effect there, that we're going to be able to drive.

Great. Thanks.

Your next question comes from the line of Pinjalim Bora from JPMorgan. Please go ahead.

Hey, thanks for taking the questions. Congrats on the quarter. Aaron, what have you seen so far with respect to kind of adoption of Box AI? Maybe in terms of volume of queries that you're seeing within those users that are playing around or have adopted Box AI. Has that been tracking your assumptions? And have you seen instances where Box is coexisting with kind of other horizontal co-pilots at this point?

Yeah. So I'll address a few of the pieces in there. So first of all, obviously, as everybody knows, we just released Box AI in beta in Q4 and today is literally the day of GA. So it really was some of the more, let's say, leaning in early adopter type customers that were adopting it for the past quarter. We were looking at a lot of the usage patterns, seeing their use cases. The first set of use cases were sort of dominated by the core functionality we have today, which is summarizing documents quickly, extracting information from documents as a user is sort of reading that. So some powerful kind of end-user productivity use cases. But quickly we got feedback that probably the biggest areas of excitement, and these are things that we've been working on, is one the ability to ask multiple documents a question. So that's the multi-document kind of analysis functionality that we're working on, that will be embedded in our hubs product. For customers that have Box AI in their Enterprise Plus plan, they'll be able to ask questions inside of a hub of any number of documents. And so think about this use case of having a knowledge base where your sales materials are in that knowledge base or your HR materials are in a knowledge base, or any kind of equity research data. You can then set up these knowledge bases or hubs, make them available to employees or customers or anybody outside the enterprise, and then you can ask questions of all of your data. And so for those familiar on the call, that's effectively kind of a rag-as-a-service type approach that we're going to be delivering right out of the Box for our customers. So collect any amount of data, put that into a hub, and then you can ask questions inside that hub. So it's going to be a really powerful kind of end-user productivity, business productivity use case. And then secondarily, and as I mentioned on this call, probably the big breakthrough kind of to some extent, TAM expanding use case is really the ability to structure our unstructured data. And so the ability to take a contract or an invoice or a digital asset and use AI to look at that information and pull out the appropriate metadata from that content. That aligns with our Crooze use case, obviously very directly. And so we have a number of customers right now, that are in our early beta program leveraging our metadata extraction capabilities through our API. One such example that's incredibly powerful is a loan processing company where they have loan submissions coming in. They need AI to be able to very quickly read bank statement uploads from that client and then ensure that they're associating documents with the appropriate components in their sales force record. And being able to completely automate that process is saving them a ton of time and letting them go and actually issue even more business and loans. And so when you think about that combination of Salesforce plus Box plus Box AI, you start to get to a really powerful solutions that we can now deliver to our customers. And so this is going to get us more into even things like the intelligent document processing space. And again, we'll talk a bit more at Financial Analyst Day on what we're going to be doing here. But using AI to automatically structure unstructured data is probably the kind of core breakthrough use case that our customers are most excited about, as well as the broad productivity capabilities. And then finally with the other kind of copilot and ChatGPTs, our focus remains make sure that we're integrated with any of the AI products that our customers are using. So we're continuing to work through even better ways to integrate with the kind of copilot or assistant products. But we really see those as more just pure individual end-user productivity, which is fantastic and a great use case for content. But we're going to be directly going after more of the business process type use cases.

Yeah. Got it. One quick one for Dylan. Billings growth in constant currency was very strong coming above your guide. RPO seems like has accelerated both of those billings growth and RPO and constant currency seems like is running ahead of your revenue guide for the year. Maybe talk about the early renewal, how much was that of the influence for billings? And more broadly, do you see the 6% growth for this year as kind of a trough level going forward?

Yeah. So I would say, first to write that for both what we delivered in Q4 on our expectations for RPO, at least for next year, we do expect those to track ahead of revenue. And I think a lot of that, especially the kind of Q4 performance, in addition with the early renewal tailwinds that I'll address in a bit, is really due to the fact that we did see, especially in the back part of the year, a stronger performance overall, a stabilization and just much better execution. And so while the environment remains challenging, that is what gives us confidence as we talked about the stability, but calling kind of future improvements and some of those metrics in various top-line areas, including the net retention rate. As it relates to the early renewals piece for Q4, that had an impact of a couple of points to the growth rate. So even adjusting for that would have still been ahead of our expectations both on a reported basis and in constant currency. And as we mentioned, FX was a little bit more of a headwind, about a point more than we had expected going into the quarter. So overall, just a kind of stronger quarter in Q4 than we had seen earlier in the year, which is great to see.

Got it. Thank you.

Your next question comes from the line of Steve Enders from Citi. Please go ahead.

Okay, great. Thanks for taking the questions here. Maybe just to follow up on the last comments there about just kind of what you are seeing in the macro and deal environment. It sounds maybe this was pretty consistent with what you saw last quarter from some of the stabilization trends. But I guess, maybe as we -- just want to clarify that. And then also as we think about the outlook, I guess, what is kind of being assumed in terms of further stabilization or return to some improvement and how that's beginning to impact some of the net retention bottoming that you're calling out here?

Sure. So we'd certainly describe the overall environment in Q4, as you mentioned, as pretty stable with Q3. So there are some incremental signs of life and improvement and some customers leaning in a little bit more and getting excited about things like AI in particular. But the reality is it remains a pretty challenging environment. Wouldn't say that has really turned a corner based on what we're seeing. What I would say is that our execution in Q4 was stronger than in Q3. So as just one example, we called out in Q3 that there were some larger deals in Japan that we had been expecting to close that didn't ultimately close in Q3. We ended up closing just a very strong quarter overall, including those deals, and they had a very strong Q4 for us. We saw continued strength and great performance from the public sector in the US. And so there definitely, I'd say, within the business areas of improvement, which led to overall just a stronger outcome versus the prior quarters this year, but would describe the overall environment as fairly stable with what we saw in Q3. And then if you looked at FY'25 and how we're thinking about that, we are kind of assuming more of the same, that this environment remains challenging. And so we are not kind of baking in any sort of macroeconomic recovery into our expectations for FY'25. And really where we see the expected improvement in many of those top-line metrics, and you mentioned net retention rate is that we're now lapping some of the more challenging periods that we had, especially those that are trailing 12-month metrics like revenue growth, like net retention, where as you move through the year. And with that stability, we expect those metrics to kind of bottom out at those Q4 levels. And then for net retention, which you asked about in particular, you expect to end the year either at those levels or slightly above depending on how that shapes up over the course of the year.

Okay. Got you. No, that's helpful context. And then maybe on suites in particular, I think maybe heard less this call around the Enterprise Plus tier, the higher tiered solution this year. So, I guess, any maybe changes in how you're thinking about the tiering moving forward or how you're thinking about some of the adoption of those higher price plans?

Yeah, I did kind of call it out very briefly in my prepared remarks that we will be introducing a higher tier plan. So no change in that strategy. We'll add more color at our Financial Analyst Day around again kind of the contours of that plan. And again, the only reason we're not being super precise yet is just because we don't want to get ahead of our customers too much on that and we want to make sure that we're talking about it more generally when it's fully available. But you can get the sense that we will have additional higher tier functionality that will include some degree of higher tier AI functionality, some of this more advanced kind of workflow and content management features with Crooze, as well as other capabilities. So stay tuned and we'll share more at Financial Analyst Day.

Thanks. Perfect. Great to hear and looking forward to the event in a couple of weeks.

Yeah. Thanks.

Your next question comes from the line of John Messina from Raymond James. Please go ahead.

Hi, thanks for taking the question. This is John on for Brian. Just another one on Box AI. I realized it just went GA today. But I'm curious as it was in beta, how AI has impacted the pipeline for suites adoption, just any additional color we can get there?

Yeah, so we saw a pretty healthy number of customers that elected to move into Enterprise Plus, where Box AI was one of the biggest or bigger -- biggest contributing factors of that decision. So kind of across a wide range of sectors, size of companies, where again they wanted to have AI on their content for again being able to ask content questions, summarize information, be able to access multi-document AI as hubs becomes available, as well as our APIs. And because of our pricing model that we chose, you have to upgrade into Enterprise Plus to have access to that technology. So we saw that as a healthy contributor to the upsell motion. And we -- now with the product being in GA, we expect that just to continue throughout this year. And as we get a sense for even higher tier functionality that customers are looking for, whether those are higher performance models, the ability to kind of customize the AI in your enterprise, whether that's custom prompts or being able to create custom sort of kind of almost AI agents or use cases in your enterprise. That will be additional -- that will create additional ways that we can monetize in a higher tier plan from here as well.

Great. That's great color there. And then just on suites adoption overall, I think you've spoken to being on track to hit 65% of revenue by 2026. Is that still the right way of thinking about the cadence of adoption or has AI kind of accelerated that? And then how should we think about maybe the long-term, what suites can contribute to revenue? Thank you.

Yeah. So would say, that for -- and for a bit of context and going back, we would describe the suites momentum and penetration overall as certainly ahead of our expectations when we launched those suites. And even just about a year ago, pulled in the timeframe in which we expected to have the majority of our revenue coming from suites by a full year to the end of this year. And then, as you saw, we now have at the end of the year 55% of our revenue. So once again, kind of ahead of our expectations. And that's really being driven by combination of just the way that Enterprise Plus is resonating overall with the customer base as well as in Q4. And the reason for the big sequential step up was a few larger customers who had one to two products who were really convinced of the value of our full platform. So they upsold into E+. So kind of combination of the way new customers are being sold off the bat, as well as existing customers continuing to move over. And then so, overall I would say that, certainly the trend have been ahead of our expectations. We'll provide more commentary in terms of the forward longer-term expectations in just a couple of weeks at Analyst Day. But it is safe to assume that overall kind of the rate and pace of how we expect that to move in the market is faster than we expected a year ago or two years ago.

Thank you very much.

Your next question comes from the line of Rich Hilliker from UBS. Please go ahead.

Hi. Thanks for taking my question. On your prepared remarks, I think you highlighted a construction and a healthcare deal. I was wondering if maybe for my first question, if you could talk a little about your vertical strategy moving forward or any change to that sort of appetite? Thanks.

Yeah, there's a couple of little cut-offs, but I'll do my best to try and cover the essence of the question. If I don't, let me know. But essentially what we're seeing is, we do extremely well, really wherever there is a large amount of unstructured data in an enterprise, where that data needs to be secured. So it's often a compliance or a security kind of driven workflow. There is a lot of collaboration on that data, so it needs to flow between systems or between kind of internal or external parties. And so that aligns very well to many of the most regulated industries out there. So public sector, financial services, healthcare, life sciences, some often in kind of global manufacturing. So we want to put even more emphasis on some of these key verticals in the year and years ahead. Not obviously to in any kind of reduction in other verticals, but how do we really double down in some of these key spaces. AI, as an example, has a lot of great additional use cases when you go and mine through all of the unstructured data that those industries work with. So take for instance in the healthcare or life sciences, just being able to again automate or drive workflows in a pharma process or in banking for client on-boarding and wealth management services. So really, wherever there's a large amount of unstructured data or content, and you want to be able to process that, secure it, manage it, govern it, that's really what our platform is well aligned for and well aligned to. And that's where we're going to be kind of further doubling down in that vertical strategy.

Great. Thanks. I'll leave it there. Appreciate it.

Cool. Thanks.

Your next question comes from the line of Jason Ader from William Blair. Please go ahead.

Hi. This is Sebastien Naji on for Jason. Thanks for taking the question. Just one from me, really around competition. Aaron, I'm curious to hear how you think AI impacts the competitive landscape for ECM. Could we see increased pressure from vendors like a Google or Microsoft, who are maybe paying more attention to their historically limited FSS offerings? Now that there's a whole new universe of things you can do with that data, once you apply AI to it, there just seems to be a bunch of new ways that those guys can monetize this FSS data, especially given their leadership with AI, and that could push them to be more competitive with Box over the long-run. How do you respond to that?

Yeah. So I think, there is definitely elements where the value of unstructured data and content has gone up as a result of AI, and that's clearly a key point. And that means anybody well prepared to drive innovation on unstructured data should see this as a positive. At the same time, it means that a lot of the legacy solutions, the fragmented architectures, equally are now under greater threat because companies are going to want to get more value out of their content in this new AI-driven world. And so I think that becomes a positive for us within the customer base. And when you take a look at what we've done in the near term as well as what we've laid out from a roadmap standpoint, again the combination of Crooze interfaces for no-code applications, workflow automation, and platform-neutral AI, that can come from any of the vendors that are in the market. That's a pretty potent combination that doesn't exist elsewhere in terms of the names that you just mentioned. So we feel very, very strong about our competitive position and that's being reinforced every day within customer conversations. And then maybe the only kind of note I'd throw out there, one more on the platform-neutral approach, one of the big benefits that we have by not being in the model training game is that we actually want there to be a massive race between all of the tech companies on training and delivering advanced AI models, because we can then enable all of that innovation for our customers. And so when you're a client of Box, you don't have to choose between whether you want the best of Google or the best of Microsoft and OpenAI or the best of Amazon or Anthropic or IBM, you don't have to make that decision about where you move your data to get the value of those capabilities. By having your content in Box, it will work with all of the AI coming from those different vendors. And so this puts us, I think, in a very unique position. There's not really many cloud-based content platforms that are able to be as neutral as we are and certainly at the scale that we're at. So we think that's going to be a huge advantage for us in AI.

Great. Very helpful. Thank you.

Your next question comes from the line of George Iwanyc from Oppenheimer. Please go ahead.

Thank you for taking my questions. With the incremental sales and go-to-market investment you're highlighting for this year, can you give us a sense of where you're prioritizing the additions and how much is going into the direct sales force and how much into the channel and go-to-market efforts?

Yes. So you can think about the majority of that increase in sales and marketing spend going towards scaling programs to generate demand, which have been performing very well for us, especially on the heels of a lot of the optimizations we've made, in field marketing, in our digital channels, we've called out historically and efforts like that, including some investments kind of laying the foundation the scale of the partner and channel ecosystem. And then we will also be investing kind of given the demand trends that we're already seeing in the sales force and kind of growing that at a moderate clip. But you can think about the majority of the dollars being towards just overall demand generation versus kind of disproportionately scaling the sales force. And then you'll hear a lot more about the overall go-to-market strategy as well as details of where we're going to be making some of those investments at our Financial Analyst Day in just a couple of weeks.

And Dylan, maybe can you give us a bit more color on what you're seeing internationally? It sounds like you did catch up in Japan, but with the incremental FX headwinds that you're seeing there, how is the demand pipeline looking?

So it remains very strong. I mean when you talk about those areas that we will be growing based on where we are seeing strong outcomes as well as leading indicators. Japan, particularly the enterprise segment in Japan is absolutely one of those areas. And would note that even with the FX headwinds that we saw, really over the past two years, our Japan business grew the revenue generated by our Japan business grew in the mid-teens over this past year. So continuing to show very strong growth. And that again, is even including those FX headwinds. And then if you talk about international more broadly, I would say no real change in terms of what we're seeing in EMEA. I do think there's an opportunity, especially given some of those investments that we talked about earlier and, in particular, around the channel ecosystem that could really help kind of fuel our reach and ultimately kind of the business that we can generate over there, but would describe EMEA overall as certainly stable but stable at levels that we think are not quite commensurate with the opportunity that we have.

Great. Thank you very much.

Your next question comes from the line of Rishi Jaluria from RBC. Please go ahead.

Wonderful. Thanks guys for taking my question. Just one from me. Just turning back to AI and kind of starting to put some numbers around it. Number one, have you embedded any upside from AI, whether direct or indirect this year in FY'25 guidance? And then not to front run the virtual Analyst Day in a couple of weeks. But as you think about building out your longer-term targets, what are you starting to assume in terms of actual AI revenue as you build out those targets? Thanks.

Yes. So we'll probably maybe answer the second one around the Financial Analyst Day as you have a sense of kind of how we're laying up our continued view on the model. But maybe the -- answering the first question will also kind of tie to that. So we have seen the upsell trends that we have from customers moving into Enterprise Plus with Box AI as an additional catalyst. And we have only about 1/4 of data to look at, but we certainly are able to continue to extrapolate that out into this year and somewhat beyond. We also want to be somewhat conservative around kind of baking that in because there's still variability, it's still an early product. So I would say it's conservative in the sense of we're not expecting any kind of outsized kind of dynamic because of AI, but we are seeing it become a catalyst to drive Enterprise Plus upsells. And then I think that maybe the X factor in all of this would be more platform consumption from AI that isn't particularly embedded. And so that's obviously what we're going to be driving this year, and we'll be talking more about some of the platform consumption dynamics that we want to drive, but we see that as sort of upside in the medium term.

All right. Really helpful. Thank you.

Cool. Thank you.

Thank you. That concludes our question-and-answer session. I will now turn the call back over to Cynthia for closing remarks.

Thank you, everyone, for joining us today. We look forward to hopefully seeing a number of you at our virtual Investor Relations Day. The registration is now live on our IR website, and that is going to be on Tuesday, March 19th. Thank you.