BOX, INC. 2027 Q2 Earnings Call

Good afternoon, and welcome to Box's second quarter fiscal 2027 earnings conference call. I'm Cynthia Hiponia, Vice President, Investor Relations. On the call today, we have Aaron Levie, Box Co-founder and CEO, and Dylan Smith, Box 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 IR website. Supplemental slides are now available on the website. On this call, we will be making forward-looking statements, including our third quarter and full fiscal year 2027 financial guidance and our expectations regarding our financial performance for fiscal 2027 and future periods, including 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.

Our expectations regarding the size of our market opportunity, including the growing opportunity driven by the increasing role of unstructured data and AI agents in the enterprise, our planned investments, future product offerings, go-to-market initiatives and growth strategies, the timing and market adoption of, and benefits from our new products, solutions, and pricing models. Our ability to address enterprise challenges, including enabling organizations to automate critical workflows and deliver value for our customers. The benefits from our deepening partnerships with leading AI labs, hyperscalers, and systems integrators, and our capital allocation strategies, including potential repurchase of our common stock and future share count reductions. 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 that we file 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, August 25, 2026, 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, and 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 the supplemental slides, which can be found on the investor relations page of our website. Unless otherwise indicated, all references to financial measures are on a non-GAAP basis. Finally, please see our earnings deck posted on our IR website for a more detailed look at our Q3 and full year 2027 guidance. Thank you. With that, let me turn the call over to Aaron.

Thanks, Cynthia, and thank you all for joining the call today. Box delivered exceptional second quarter results, continuing the strong momentum we saw in Q1 and led by the rapid customer adoption of Enterprise Advanced. Second quarter revenue exceeded our guidance, growing 9% year-over-year or 11% in constant currency, and produced operating margins of 29%. We drove a net retention rate of 106%, ahead of our expectations of 105%, driven by both price per seat increases and seat expansion. Our Q2 billings growth of 17% year-over-year and RPO growth of 15% year-over-year reflect the success of our strategic investments in both go-to-market and product roadmap in delivering solutions to customers that address their most critical challenges in AI.

Some examples of our Enterprise Advanced wins in the quarter included a leading multinational investment bank that upgraded from Enterprise Plus to Enterprise Advanced, transitioning its legacy file servers to the Box platform. This deployment will expand its license to a wall-to-wall agreement to deliver unstructured data insights across its global banking teams. Next, a major federal agency upgraded from Enterprise Plus to Enterprise Advanced with a 4x seat expansion to replace its legacy contract lifecycle management and collaboration platforms. In partnership with Salesforce, Box will power secure, cloud-based CLM and document management across key legal and research divisions, replacing multiple SaaS vendors. This agency-wide modernization is enabled by Box's FedRAMP High compliance, our secure identity verified e-signatures, and Enterprise Advanced capabilities.

With record Q2 bookings, these wins and many others make it clear that our role in enabling enterprises to get the most out of their enterprise content and transform in the era of AI is becoming increasingly significant. During the second quarter, I spoke with many enterprise technology leaders who highlighted their primary goals and challenges in implementing AI. One of the most common topics is how enterprises can get the right context to AI agents in a secure and governed way, as well as tap into the full value of their unstructured data. To do this, enterprises need a secure platform that can connect all the intelligence and capabilities of AI models to enterprise content and workflows. The world's most advanced super intelligence is only as useful as the underlying enterprise knowledge and corporate information that it has access to.

Instead of companies sitting on millions or hundreds of millions of files that they know very little about, with AI agents, they can now ask questions about this data, mine it all for intelligence, and automate nearly any workflow that involves this enterprise content. This is the intelligent content management platform that we are building. These technology leaders that I'm speaking with are also recognizing that as AI model capabilities advance rapidly across an expanding set of vendors like OpenAI, Google, Anthropic, Meta, xAI, NVIDIA, and more that enterprises will need a model neutral platform that connects their content and workflows to these models and agents securely. With AI costs continuing to rise, the ability to draw the right cost performance mix with any vendor becomes essential.

Rather than migrating content and workflows into separate systems to unlock AI's benefits, our intelligent content management platform gives enterprises a single platform where they can swap models or agents on their content at any time securely. Box is at the center of the greatest transformation in how enterprises work, and we are continuing to drive our product and go-to-market strategies to take full advantage of this massive opportunity. Building on our product leadership, in the second quarter, we announced a range of new capabilities that help customers transform the value of their content with AI. We introduced new security capabilities designed to give organizations greater control over AI agents working with their enterprise content.

With new agent guardrails, third-party agent activity oversight, prompt injection detection, agent classification-based access policies, and more, customers will be able to extend Box's enterprise-grade security controls to both Box agents and third-party agents such as Claude, ChatGPT, Gemini, and more. To support our headless initiatives, Box announced new MCP integrations with Anthropic's Claude for Legal, Databricks, Harvey, IBM's watsonx Orchestrate Agent Catalog, Notion custom agents, Slack's Slackbot, and xAI's Grok. Box partnered with Anthropic as a launch partner for Claude's new legal industry solutions using the Box MCP server as the secure governance layer for agentic legal work. New MCP tools now let Claude execute multi-step matter operations directly in Box, copying and uploading files, tagging metadata, and managing collaborator access, turning Claude from a QA chatbot into an active practice agent.

All actions stay governed by the firm's existing Box permissions and ethical walls, avoiding the governance gap of moving sensitive client data into unsanctioned tools. Also, earlier this month, we announced the release of the Box MCP server for Databricks, now available in the Databricks marketplace. This integration lets data analysts, scientists, and engineers combine, connect, and query unstructured content from Box, including their contracts, clinical records, financial assets, and specifications alongside structured sources like CRM and ERP, all without duplicating data or moving it outside of Box's secure governance boundary. This unlocks use cases across industries from healthcare teams spotting care gaps by combining clinical records with referral and billing data, to financial services firms accessing borrow and covenant risk by joining loan documents with banking data.

As we look further into the second half of FY 2027, we're continuing to drive significant innovation across our platform to help enterprises maximize the value of their content in the era of AI. Building on the momentum of Box Automate, Box Extract, and Box Apps, our platform is evolving into a premier agentic workflow automation system designed to streamline critical content processes like client onboarding, contract reviews, brand asset verification, supply chain automation, and thousands of other workflows in an enterprise. Additionally, we're advancing Box Extract to help power complex document extraction needs across a range of industries from financial services to life sciences. Our model neutral agentic harness ensures that customers can both improve the accuracy of this extraction and lower their costs by choosing exactly the right model they need for any document type.

Box is also modernizing its core content management infrastructure with improvements in metadata management, large file support, and file system capabilities. We are paving the way for enterprises to retire legacy on-premises ECM systems and migrate their unstructured data to a secure cloud-native platform where it can be easily accessed by AI. In Q2, we continued to see more and more enterprises look to migrate off these legacy systems in favor of a much more modern AI-driven approach. At Box, we are also optimizing our developer ecosystem to support AI agents working with enterprise content at scale and introducing new tools and improvements such as enhanced Box MCP server support, deeper integrations with leading agents like Claude, ChatGPT, Copilot, and Salesforce Agentforce, and improved context retrieval APIs, which will allow developers to securely connect enterprise content to AI agents.

We are focused on delivering the world's best headless experiences for working with enterprise content securely across any AI agent and monetizing this usage through our AI units and API volume. Finally, all of these innovations are anchored by Box's industry-leading security and compliance foundation. As we recently saw with the OpenAI Hugging Face incident, enterprises will increasingly need platforms that can securely protect their corporate data and ensure that neither humans nor agents can get access to information they shouldn't have access to. As external AI agents interact with enterprise data, Box is implementing robust guardrails, comprehensive audit logs, and real-time security alerts to ensure that content remains protected, governed, and visible at all times. We will continue to deliver industry-leading data protection and governance capabilities to ensure the security of unstructured data in an enterprise.