BOX Q1 2026 Earnings Call Transcript

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Provided by Quartr
May 27, 2025

Key Takeaways

  • Box reported Q1 revenue up 4% year-over-year (5% in constant currency), RPO growth of 21%, and a 27% increase in billings, delivering 25.3% operating margin and EPS of $0.30, $0.04 above guidance.
  • Strong traction for Enterprise Advanced saw large customers—such as a leading university hospital, an investment advisory firm, and a financial services company—upgrading and migrating from on-prem systems to leverage AI-driven content workflows.
  • Box expanded its AI ecosystem with major AI agent updates and integrations, including partnerships with Microsoft 365 Copilot, IBM Watson X Orchestrate, Google Agent Spaces, Salesforce AgentForce, Slack AI, Zoom AI Companion, and a ChatGPT deep research integration.
  • The company raised full-year FY26 revenue guidance by $10 million to $1.165 billion–$1.17 billion (≈7% growth) with billings growth of ~9%, gross margin around 81%, and non-GAAP EPS of $1.22–$1.26, while noting macroeconomic uncertainty.
  • Q2 billings are forecast to be roughly flat year-over-year and management incorporated added prudence into the back-half outlook due to potential IT spending headwinds in a dynamic macro environment.
AI Generated. May Contain Errors.
Earnings Conference Call
BOX Q1 2026
00:00 / 00:00

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Operator

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Box, Inc. First Quarter Fiscal twenty twenty six Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. And I would now like to turn the conference over to Cynthia Hiponia, Vice President, Investor Relations. Please go ahead.

Cynthia Hiponia
Cynthia Hiponia
Vice President, Investor Relations at Box

Good afternoon, and welcome to Box's first quarter fiscal twenty twenty six earnings conference call. I am Cynthia Hiponia, Vice President, Investor Relations. On the call today, we have Erin Levy, 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 be available for replay on our Investor Relations website at boxinvestorrelations.com.

Cynthia Hiponia
Cynthia Hiponia
Vice President, Investor Relations at Box

Our webcast will be audio only. However, supplemental slides are now available for download from our website. On this call, we will be making forward looking statements, including our second quarter and full year 2026 financial guidance and our expectations regarding our financial performance for fiscal twenty twenty six 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 and deferred tax expenses 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 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 file with the SEC, including our most recent annual report on Form 10 ks for information on risks and uncertainties that may cause actual results to differ materially from statements made on this earnings call.

Cynthia Hiponia
Cynthia Hiponia
Vice President, Investor Relations at Box

These forward looking statements are being made as of today, 05/27/2025, 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 our 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 can find additional disclosures regarding these non GAAP measures, including reconciliations with comparable GAAP results, in our earnings press release and in the 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.

Cynthia Hiponia
Cynthia Hiponia
Vice President, Investor Relations at Box

Thank you. And with that, let me turn the call over to Aaron.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Thank you, Cynthia, and thank you all for joining the call today. We had a strong start to FY 2026 with results reflecting continued growth in customer demand for Box AI. In Q1, our revenue grew 4% year over year or 5% in constant currency, RPO grew 21% year over year and we saw strong outperformance on billings. We delivered operating margins of 25.3% and EPS of $0.30 $04 above our guidance. Following the launch of Enterprise Advanced late in q four, in q one, we saw strong momentum in customer adoption as enterprises look to Box to help them transform their AI driven workflows around content.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Examples include a leading university hospital upgraded to enterprise advance and significantly expanded their box seats. Currently, content is siloed across the organization, and they aim to make box their single source of truth while unlocking value through Box apps and AI driven metadata extraction. An investment advisory firm who has already been leveraging the Box AI API for metadata extraction upgraded to enterprise advanced to expand their use of diverse AI models through the Box AI Studio. They also plan to use Box apps dashboards to manage and organize critical business information more strategically and leverage DocGen to further streamline operations. A financial services firm and a new Box customer purchased Enterprise Advanced to modernize and secure their critical business data by moving from an outdated on prem system to Box.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Looking to improve their control over sensitive content for personally identifiable information, enhance their user experience, and optimize their retention strategy, they needed a scalable compliant platform supporting loan origination, HR, and legal functions. In the first quarter, I had the opportunity to meet with well over 100 customers, and it's incredibly clear that there is a fundamental shift in what business will look like in an AI first world. In fact, tomorrow, we are releasing our first state of AI in the enterprise survey, where we recently surveyed over 1,300 IT leaders across a range of industries and geographies. More than half of the respondents expect to see transformation from AI in the next two years, and nearly 90% are already using AI agents in some capacity. And many of the top desired use cases for AI are around working with documents and unstructured data.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

What's clear is that as companies increasingly go AI first, they are beginning to rethink how they can take advantage of their enterprise content from their contracts and invoices to their research data and marketing assets. For years, the value of this content has been limited to only what humans can do with this information, which means most companies have never been able to truly tap into the full value of this information. But in a world of AI and AI agents, this finally becomes possible. Inside all of this information are the answers to a company's next product breakthrough, their customer upsell opportunities, how they can hire amazing new talent, or optimize their supply chains. AI agents make this all possible.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

At Box, we're building out the leading intelligent content management platform to help enterprises fully connect the power of AI to their content. Now to deliver on this strategy, at our Content Plus AI Summit in mid May, we announced our biggest set of AI agent updates ever designed to transform how organizations work with their content. We unveiled all new capabilities to support AI agents that can do deep research, search, and enhance data extraction on content securely inbox, and all with a focus on openness and interoperability. Imagine being able to have AI agents that can comb through any amount of your unstructured data, contracts, research documents, marketing assets, film scripts, financial documents, invoices, and more to produce insights or automate work. Box AI agents will enable enterprises to streamline a due diligence process on hundreds or thousands of documents in an m and a transaction, correlate customer trends amongst customer surveys and product research data, or analyze life sciences and medical research documents to generate reports on new drug discovery and development.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

None of this would have been possible even a year ago. But with the cost of AI inference dropping, context windows expanding to support larger datasets, reasoning models handling much more complex tasks, and better understanding of designing agentic workflows, this all of a sudden becomes possible. Next, we believe in a world where AI agents work together to complete tasks across platforms. So this means that an AI agent from Box could work across an enterprise's entire AI stack. In addition to our newly announced Box AI agent for Microsoft three sixty five Copilot and IBM Watson x Orchestrate, Box AI agents are available or in development with Google agent space, Salesforce agent force, Slack AI, ServiceNow AI agent fabric, and the Zoom AI companion.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Developers can also build custom agents that leverage Box content using the Box MCP server, the Google agent SDK, and OpenAI's agents SDK, as well as through their preferred developer and data platforms. Building on these recent announcements, just last week, ChatGPT officially integrated Box as a secure connected data source for their deep research AI agent. Now instead of moving your data around between each platform that you want to work in, you can just work where you want and have the AI agents coordinate together in the background to get the data that you need from Box. This is the future of software in an era of AI. Finally, we will continue to partner with the broader AI model ecosystem to ensure customers have the choice of any model provider they wanna work with.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Just in q one alone, we saw incredible examples of us sitting at the center of this industry, such as the recent NVIDIA GTC keynote from Jensen mentioning Box, Box joining OpenAI as a launch partner for their agent SDK, Meta showcasing Box and IBM support for Lama at their latest AI developer event, Box serving as a day one Grok three API launch partner with xAI, and many more. Being neutral to the AI models means that our customers get instant access to the best that AI has to offer on their content instead of having to keep their data stuck with just one particular AI provider. And this partner momentum will only increase in q two and beyond. Over the coming months, we'll be gearing up for BoxWorks in September, which will include our biggest and most exciting announcements we've ever had on this platform. This is the year of AI agents and the ability to drive automation around any kind of workflow with AI.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

And Box will be building up the leading capabilities to help our customers do this with their enterprise content at scale. We look forward to sharing more in early September at BoxWorks. Now turning to go to market. We're continuing to drive enterprise advanced momentum across segments and geographies. Even after the large number of early adopters we saw in Q4 bring on Enterprise Advanced, we were pleased to see the continued growth in deals in Q1, our seasonally lowest quarter.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

With a strong pipeline continuing to build as customers look to drive intelligent workflows in Box. Additionally, we're continuing to drive pricing improvements in our target 20% to 40% increase range for these enterprise advanced deals. As we've discussed, one of our key initiatives to drive growth is to expand and grow our partner ecosystem, particularly with global and regional system integrators. In q one, we're already seeing solid momentum in customer wins enabled by our partners. After announcing our partnership with DataBank in March, we had a great win with a local government upgrading to enterprise advanced to replace legacy enterprise content management system.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

We also partnered with regional SIs in financial services and life sciences with partner to enable deals to replace legacy systems and automate processes to deliver secure compliance solutions that are well suited for regulated environments. Also in the first quarter, we were excited to announce that we received FedRAMP high authorization, allowing U. S. Government agencies and authorized government contractors the ability to leverage Box's intelligent content management platform for highly sensitive data. Finally, before I turn the call over to Dylan, let me discuss how we at Box are building an AI first company.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

As customer zero, we are driving an AI first culture as we use Box AI to help us move faster, make better decisions, and automate work. Not only will this drive productivity and innovation, going AI first as a company is also important for our strategy of building the leading AI platform for enterprise content. Paul Graham famously gave the start up advice of live in the future and then build what's missing. The idea behind this is that the teams that deeply figure out where the world is going will often see the new opportunities that arise far sooner than others. This is what we're doing at Box.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Across Box, we are seeing Box AI be leveraged to help transform how we work every day. Internally, we use AI powered hubs to help answer customer support questions, onboard new sales reps faster, get HR questions answered instantly, and much more. Boxers can access every leading AI model alongside their content to streamline understanding data, reviewing code, or generating new content for marketing assets or product documentation. Boxers are creating custom AI agents to generate call scripts, create more personalized sales materials, or answer RFPs. And we use AI agents to extract metadata on policy documents to help streamline internal compliance and document management workflows.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

And finally, beyond Box AI, we use AI first coding tools and customer service tools to augment our workforce and drive productivity. Importantly, our principal focus of going AI first is to move faster and be able to deliver better outcomes for our customers. We want to ensure that every boxer is fully equipped to be as productive as possible with AI, which is why we're making it easy to experiment with AI across the company, and we're highlighting the best practices as they emerge and driving as much upscaling of our workforce as possible. And for new employees coming in, we will increasingly look for AI first skills as a part of our hiring criteria. This is the biggest shift in work that we've ever seen in our lifetimes, and we're excited to make sure that Box sits right at the center of it.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

With that, let me turn the call over to Dylan.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

Thanks, Erin. Good afternoon, everyone, and thank you for joining us today. Q1 was a strong start to the year as we exceeded all guidance while also delivering double digit billings and short term RPO growth. These strong results enable us to deliver on our key FY twenty twenty six priorities, investing in our intelligent content management platform and key go to market initiatives, generating consistent operating leverage and executing on a disciplined capital allocation strategy. Q1 revenue of $276,000,000 was up 4% year over year and up 5% in constant currency.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

We now have approximately nineteen forty total customers paying us at least $100,000 annually, up 8% year over year. Suite customers now represent 61% of our revenue, up from 56% a year ago. Our continued suites momentum was driven by early traction with Enterprise Advanced and strong demand for our various AI capabilities. We ended Q1 with remaining performance obligations or RPO of $1,500,000,000 a 21% year over year increase and up 17% in constant currency. Our strong long term RPO growth was driven by continued lengthening in customer contract durations.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

We expect to recognize roughly 55% of our RPO over the next twelve months. Q1 billings of $242,000,000 were up 27% year over year and up 17% in constant currency. This result exceeded our expectations of low to mid teens growth due to strong bookings including a tailwind from early renewals of approximately 400 basis points. FX also provided a tailwind of 700 basis points versus our prior expectations. We ended Q1 with a net retention rate of 102%, up from 101% a year ago and in line with our expectations.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

Our annualized full churn rate remained at 3%, demonstrating the continued stickiness of our platform. We continue to expect our net retention rate to improve to 103% exiting FY '20 '20 '6. We delivered Q1 gross margin of 80.5%, up 30 basis points year over year. As a reminder, in Q1 of last year, our gross margin benefited by approximately 100 basis points due to data center equipment sales in the quarter. Q1 gross profit of $222,000,000 was up 5% year over year, slightly exceeding our revenue growth rate.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

We delivered Q1 operating income of $70,000,000 and operating margin of 25.3% versus 26.6% in the year ago period. Adjusting for the impact of data center equipment sales, the leap year and FX, operating margin would have been up 90 basis points year over year. As a result, we delivered EPS of $0.30 in Q1, zero '4 above the high end of our guidance. This includes a negative impact of $01 from FX and $0.12 from non cash deferred tax expenses. I'll now turn to our cash flow and balance sheet.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

In Q1, we generated free cash flow of $118,000,000 and cash flow from operations of 127,000,000 We ended Q1 with $792,000,000 in cash, cash equivalents, restricted cash and short term investments. In Q1, we repurchased 1,600,000.0 shares for approximately $50,000,000 As of 04/30/2025, we had approximately $152,000,000 of remaining buyback capacity under our current share repurchase plan. We remain committed capital to our shareholders through our ongoing stock repurchase program. With that, let me now turn to our Q2 and FY 2026 guidance. As a reminder, approximately one third of our revenue is generated outside of The U.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

S. With roughly 65% of our international revenue coming from Japan. Before providing guidance, I wanted to remind you of the tax impacts we mentioned on our last call. We continue to expect that the non cash deferred tax expenses will be an incremental non GAAP EPS headwind of $0.52 in FY 2026. For the second quarter of fiscal twenty twenty six, we expect Q2 revenue to be in the range of $290,000,000 to $291,000,000 representing approximately 8% year over year growth at the high end of the range and 6% growth in constant currency.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

We anticipate our Q2 billings to be roughly flat year over year. This includes an expected tailwind from FX of approximately 70 basis points as well as roughly two thirty basis point negative impact from Q1 early renewals. We expect Q2 gross margin to be approximately 81%. We anticipate our Q2 non GAAP operating margin to be approximately 28% versus 28.4% a year ago. Note that this includes the impact of a 70 basis point headwind from data center equipment sales in the year ago period offset by an expected FX tailwind of approximately 80 basis points.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

We expect our Q2 non GAAP EPS to be in the range of $0.3 to $0.31 which includes an expected tailwind of approximately $02 from FX. Weighted average diluted shares are expected to be approximately $150,000,000 For the full fiscal year ending January 30 While our strong Q1 results and Enterprise Advanced momentum give us confidence in our ability to execute, we are mindful of the macroeconomic uncertainty and potential impact to IT spending. While this environment has not had a material impact on our business so far, we want to remain prudent in our outlook for the remainder of fiscal twenty twenty six. We now expect revenue to be in the range of 1,165,000,000.000 to $1,170,000,000 representing a $10,000,000 increase versus our previous guidance and roughly consistent on a constant currency basis. This represents approximately 7% year over year growth or approximately 6% in constant currency.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

We now expect a tailwind of approximately 120 basis points from FX. We expect our FY twenty twenty six billings growth to be approximately 9% including a tailwind of approximately three forty basis points from FX. We expect FY twenty twenty six gross margin to be approximately 81%. When adjusting for the impact from data center equipment sales last year, which also flows through to operating margin, this represents a year over year improvement of 40 basis points. We expect our FY 2026 non GAAP operating margin to be approximately 28% including a tailwind of approximately 40 basis points from FX.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

As we look at the linearity of operating margin in the second half of the year, please note that our annual customer conference BoxWorks has moved from Q4 to Q3 shifting approximately $3,000,000 in expenses into Q3. We now expect FY 2026 non GAAP EPS to be in the range of $1.22 to $1.26 including an expected tailwind of approximately zero seven dollars from FX. This represents an increase of $0.9 or $02 on a constant currency basis. Weighted average diluted shares are expected to be approximately 151,000,000. FY 2026 is off to a strong start driven by continued growth in customer demand for Box AI.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

As we outlined at Financial Analyst Day, we are in the early innings of a once in a generation opportunity that will revolutionize how AI can transform content in the enterprise. We will continue to invest in our intelligent content management platform and key go to market initiatives to execute against this opportunity and we remain firmly committed to driving meaningful long term improvements in our financial profile from top to bottom. With that, Erin and I will be happy to take your questions. Operator?

Operator

Thank you. We will now begin the question and answer session. Your first question comes from George Kurosawa with Citi. Please go ahead.

Cynthia Hiponia
Cynthia Hiponia
Vice President, Investor Relations at Box

Actually, operator pardon me, George. Yes. One quick correction, Dylan. Go ahead.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

Just wanted to note, for our Q1 results, for EPS, that was, that had included a benefit of zero one dollars from FX, whereas I had mentioned that as a $01 negative impact. So it was actually a $01 tailwind due to FX in the quarter.

Cynthia Hiponia
Cynthia Hiponia
Vice President, Investor Relations at Box

Great. Thank you. George, you can go ahead with your question.

George Kurosawa
George Kurosawa
Equity Research Analyst at Citi

Okay. Great. Thanks for taking the question, Naman. For Steve, maybe just to touch on the demand picture, kind of the topic of the quarter. It sounds like you're not seeing much in the business, but maybe there's a little bit incrementally baked into the guide.

George Kurosawa
George Kurosawa
Equity Research Analyst at Citi

If you could just talk about how customer conversations have been and then help us frame what kind of incremental prudence you've baked into the the guidance.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Yeah. So, overall, very, healthy, robust customer conversations. As you saw in the Q1 results, we're very happy with the Q1 performance, seeing strong momentum coming into Q2. The AI kind of first strategy that we've laid out for customers, I think, is resonating. All of our customer conversations are either starting with or or at at some at some point in the conversation turning into, really AI oriented conversations around how companies can get the most out of their unstructured data, automate workflows, bring intelligence to their content.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

So so a lot of momentum on that front. And, and then overall, we wanted to just be prudent with the overall environment. Obviously, it's a dynamic macro, and, and so, you know, just trying to balance all those factors right now.

George Kurosawa
George Kurosawa
Equity Research Analyst at Citi

Okay. Great. That's helpful. And then maybe just a follow-up. You know, a question we're getting is, you know, billings and RPO growth really strong, 17% quarter on quarter.

George Kurosawa
George Kurosawa
Equity Research Analyst at Citi

You know, you guys are guiding to 6% for constant currency revenue growth. If could just kind of help us bridge the gap there. It sounds like maybe there was a little timing in Q1. Just anything else we should keep in mind there?

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

Yes. So really, primarily comes down to the timing. And we had even called out heading into the quarter that we did expect to see somewhat of a unique dynamic in the billings growth rate between Q1 and Q2, but with the first half and second half being relatively consistent. And then we saw that even a little bit more pronounced because of that early renewal dynamic. So we called that out.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

And in terms of the impact, we saw about $7,000,000 in early renewals included in that benefit to Q1 billings. That represents the roughly 400 basis point impact that I mentioned. That's what that $7,000,000 is. And about $6,000,000 of that comes straight out of Q2. So basically making that Q1 to Q2 impact a little bit more pronounced.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

And then in terms of the HAPS overall, can now see that we expect a little bit more strength in the first half because some of those dynamics as well as that incremental conservatism that we mentioned related to the macroeconomic environment. So no big change relative to our original expectations other than the early renewal dynamics between the first and the second quarter.

George Kurosawa
George Kurosawa
Equity Research Analyst at Citi

Super helpful color. Thanks for taking the questions.

Operator

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

Jason Ader
Co-Group Head - Technology, Media & Communications at William Blair

Yes, thank you. Good afternoon, guys. I just want to ask about seats. I think you called out a customer where there was good seat growth. Can you just comment overall on what you're seeing out of seat growth and even some down if there's any down sell or how that has trended for some of your customers? Thank you.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

Yes. So overall, the trends that we're seeing and the dynamic between seat growth and then pricing improvements have been pretty consistent with what we've seen over the last several quarters where seats are growing on a net basis, but pretty minor contribution to growth. Most of that customer expansion is being driven by pricing increases. And we've seen that continue and expect to see the same, especially with the impact of Enterprise Advanced and the healthy pricing uplift that we see as customers upsell into that suite. And so that's really the dynamic that we've been seeing pretty consistent over the past few quarters.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

And but but there's a lot that we're doing, especially with a lot of these new enterprise advanced and AI driven use cases that we do think open up some new opportunities to expand across departments.

Jason Ader
Co-Group Head - Technology, Media & Communications at William Blair

Okay. So just to be clear, it sounds like price is going to be a bigger driver of growth, let's call it, over the next several quarters than seats. And if so, what do you think you guys need to do What do need to see, I guess, on the seat side for you to be able to say, okay. We're starting to see an inflection on on seat growth.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

Yeah. So that's exactly right in terms of what we're baking in to our expectations for this year with pricing and driving the lion's share of that expansion. And then on the Seat side, a lot we're doing again around kind of the use cases that we're pushing that Enterprise Advanced enables as well as with new logos and some of the go to market investments that we've called out as a way to reach kind of new customers and grow the overall seat base from there. And then certainly as that dynamic evolves, we'll be sure to provide updates in terms of what we're seeing in the business. And then I'd also note and as we've called out in the past, that seat growth and that net seat growth tends to be more closely correlated with the economic environment, whereas in good and bad we continue to see steady and strong pricing improvements that seat dynamic is a little bit more sensitive to the overall macroeconomic environment.

Jason Ader
Co-Group Head - Technology, Media & Communications at William Blair

Very helpful. Thank you. And

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

and I would just note that, you know, overall to to Dylan's point, obviously, advanced is the the primary focus, which which is both driving the price proceed increase as well as expanded use cases. So we feel pretty comfortable at the momentum and overall spot that we're in.

Operator

Your next question comes from the line of Michael Funk with Bank of America. Please go ahead.

Michael Funk
Michael Funk
SVP at Bank of America

One follow-up on the earlier renewals. You called out earlier 400 basis points of help in the quarter. Can you remind us what you're expecting during the quarter? And then also, what are you doing to catalyze early renewals?

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

Yes. So for early renewals, the biggest driver, that we saw in q one, was really around, the adoption of customers looking to adopt our AI capabilities, both with Enterprise Plus and now more and more with Enterprise Advanced, even though we're early days. So that was the majority of those Enterprise Advanced sales that we saw in the first quarter were customers early renewing, you know, looking to move and and bring on those capabilities sooner than their their scheduled renewal date.

Michael Funk
Michael Funk
SVP at Bank of America

And then on on AI, you mentioned earlier in the call cost of AI inferencing dropping, and that and that's helpful. So maybe maybe two questions there. You know, first, how should we think about cost of AI and compute impacting margin? You made some margin expectation comments earlier. And then as you land with customers with AI, is it still primarily, smaller seat counts or customers still doing smaller use case testing?

Michael Funk
Michael Funk
SVP at Bank of America

Is there wider deployment? Really, just wanna know where are we in the spectrum of adoption with AI as a as they adopt your product?

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Yeah. So, two the two parts of that. So on the AI inference side, we've just been very happy about, the rate of, like for like AI model improvements that we're seeing from a cost standpoint, And that can show up in two ways. The first is that you can take an existing use case, and it might just on a one to one basis be cheaper on on a kind of a, you know, pretty regular basis every kind of six to twelve months at a minimum. The alternative is is that you get a new capability unlock because you can you either get you know, the base model just is is getting much better, or you can use an existing model and do multiple passes through the model for better accuracy, or more complex use cases.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

So depending on the use case, we have some things that that quite literally just immediately get cheaper for us and then other use cases where we start to unlock more powerful capabilities. Both of those are driven by inference prices going down, which, which which I think we've all we've all kind of collectively seen. And and that trend is alive and well right now, which is which is fantastic to see. And then on the rollouts, you know, it's a it's a broad mix. We have a couple benefits in our platform.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

So we've given, we we've made Box AI for for sort of base use cases, querying documents, asking questions of data, generating, you know, summaries of of content. That that's now an included capability in all of our business plans on above. Customers really have an easy way to start to to try, you know, AI, deploy it for for really kind of core end user productivity use cases. And then we've got multiple upsell vectors either for your entire enterprise instance, to be upgraded with enterprise advanced, and we sort of talked about the early strong momentum we're seeing there or AI unit volume consumption, for more, either, you know, complex use cases or much more kind of high volume use cases. So so you can already start to try it, you know, quite easily by just using some of the included functionality.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

And then we've got, again, multiple upsell paths that we're driving customers through. So I think we've landed on a, a very strategic pricing model for our customers that they've been, you know, quite happy about. We've, we've we've generally had very, very strong positive interactions with customers on that upsell motion because it's very logical. Enterprise Advanced unlocks a whole new set of features, as well as, kind of core AI use cases.

Michael Funk
Michael Funk
SVP at Bank of America

And then just to clarify the first question, the the price performance, are they largely offsetting, you would say, margin neutral from rolling out AI, or is one, greater factor than the other?

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Well, you know, it it we we've called out that, that we're aiming to, to to, you know, have AI be relatively margin neutral, you know, over the over the at least the medium term, and then, you know, I think it only gets better from there. And so, but there's because we're not directly charging customers on a kind of a per use case basis because some of our core AI functionality is included. It's sort of hard to exactly parse you know, something as margin neutral, without a dedicated kind of, you know, pricing line for it. I would just say overall as a company, we are intending to remain, you know, more or less margin neutral even as we bake in more AI functionality. And the reason that we can do that is because the cost of inference is dropping even as we add more capabilities to our customers.

Michael Funk
Michael Funk
SVP at Bank of America

Thank you so much for the time.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Thank you.

Operator

Your next question comes from the line of Lucky Schreiner with D. A. Davidson. Please go ahead.

Lucky Schreiner
Associate VP, Research Analyst at D.A. Davidson

Thanks for taking my questions, and and congrats on the great quarter. Maybe just, you know, with all the recent platform innovation, and and the rapid advancements across the ecosystem, how is that impacting your ability to win customers migrating away from the from the legacy ECM providers, that typically aren't able to keep pace? Are you noticing an uptick in win rates in those deals early on? And maybe as a follow-up, you know, how have you noticed the improvement maybe in in the box, in the market overall from from customers, just overall customer awareness? Thanks.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Yeah. So, so I I think, you know, great performance on both of those topics. We're seeing more customers elect to move and migrate to modern platforms for driving AI driven workflows on content. We announced this partnership with Databank, as folks remember, in our Financial Analyst Day. That's a great example of a partner who works with a lot of the traditional document management environments out there and really is in a a position to help customers accelerate their move to the cloud, we're seeing great momentum with them as an example.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Similarly, we've had, you know, strong momentum with, folks like Slalom and other system integrators on similar use cases of customers that wanna migrate or modernize their, IT, infrastructure and get content to the cloud to you be able to use AI on that content. So that's the first part. And then on the second part, you know, we, you know, if you just look at q one alone, and I mentioned this in the call, but but just to be redundant, if you if you looked at the announcements of, Claude, 3.7 in q one, Grok three point o, OpenAI's agent SDK, NVIDIA at GTC, and a number of other announcements in q one from the AI ecosystem. Box was included in every single one of those. And then right at the start of the quarter, at the tail end of Q1, LamaCon announcing the work that IBM and Box are doing together to bring Lama four point zero to customers.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

So we have, we are sitting very naturally at the center of so much of the innovation happening in AI right now. And, I think it helps that we're not competing with any of the AI model providers. We are bringing together an ecosystem of all the leading AI to our customers. So we act as a very natural kind of convening point, for these AI models, when customers want to be able to use data on, with any of these, leading platforms. So so I think the momentum is is is building around Box AI as a platform, and that's certainly, you know, starting to show up in our our our brand.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

We're seeing strong enterprise advanced pipeline begin to build. That's effectively all AI driven pipeline in terms of the use cases customers are unlocking. So overall, we're we're really happy with the momentum.

Lucky Schreiner
Associate VP, Research Analyst at D.A. Davidson

Awesome. And then, you know, last question for me. You had a nice diversity of of wins and expansions across, industries. You know, anything to call out? I I think the early renewals were were especially, I guess, impressive to hear given the April volatility, that we all experienced.

Lucky Schreiner
Associate VP, Research Analyst at D.A. Davidson

And so maybe anything to call out in the pipeline from an industry perspective given the macro backdrop, and your recent partner go to market improvements? Thanks.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

I think, from an industry standpoint, no no major shifts. We were continuing to see, you know, strength in in a lot of our the core industries that we we've talked about, especially spaces where the customer is in a regulated environment. Data is mission critical for them. So, you know, one thing that that can't be, underscored enough is as you want to do AI on your data, all of the the the things that we've gotten very good at over nearly two two decades of working in the enterprise become mission critical. So how do I secure my content?

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

How do I make sure it's compliant? How do I ensure that only the right people have access to the data, especially via agent interactions? Our CTO has a great great quote of AI agents can't keep a secret. And so, so you never wanna put your, your security in in the agent, part of the infrastructure. You wanna ensure that data access controls are actually maintaining the security of your of your information.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

And so, you don't wanna be in a position where, where you're trying to pack too much of that intelligence into the model layer. You want to pack that into the data the data plane and the the architecture around that, which is what Box provides customers. So, so that then means that companies in life sciences or banking and, you know, public sector, you know, health care, all of these types of industries that really have sensitive mission critical use cases are able to thoughtfully and safely deploy AI to their their end users.

Lucky Schreiner
Associate VP, Research Analyst at D.A. Davidson

Appreciate the question answering the questions.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Thank you.

Operator

Your next your next question comes from the line of Josh Baer with Morgan Stanley. Please go ahead.

Joshua Baer
Joshua Baer
Executive Director - Software Equity Research Analyst at Morgan Stanley

Thanks for the question. Congrats on a great quarter. Aaron, I was hoping you could talk a little bit more about platform revenue. Sure, it's still early days for AI unit consumption, but was hoping you could comment a little more on early traction as well as anything else driving that platform revenue. And and, yeah, just thinking about the targets to grow that approximately 30%, looking ahead and and how we're tracking to that goal.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Yeah. So so overall, you know, still very, very early in the AI unit adoption. Obviously, this just became available to to customers, in the past quarter. So so we're in the very early days of, of what that volume looks like. The deals, you know, are, you know, kind of a pretty wide spectrum of deal sizes, so it's still in the kind of lumpy territory.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

So we're we're not at a kind of normalized point. But, in terms of the kinds of customers and the use cases, you know, just as we as we kind of think about industries and and scan use cases, we have everything from, legal industry. We have public sector. We have universities. We have, financial services, you know, players, advisers, so really across the continuum.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

And the the most common use case right now, just based on what where the functionality is most robust, is I have a set of data, and I wanna be able to run an AI agent, or many AI agents across all that data to do some form of data extraction, data parsing on my content. And so that can be looking through contracts to pull out, you know, critical details from contracts, taking bank statements to, you know, read and validate the information in the bank statement. You know, some customers are doing, the the the very early phases of image extraction where you give the the AI model. It could be, you know, handwritten content or, images from a, from a construction site, and be able to label all that data. So, so we're we're seeing kind of healthy healthy early adoption.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

This is gonna be a a continued focus of ours, and we expect it to be a healthy contributor to our overall top line over the coming quarters and years.

Joshua Baer
Joshua Baer
Executive Director - Software Equity Research Analyst at Morgan Stanley

Great. Very clear. Dylan, I was hoping you could just comment on early renewals. Appreciate all the color in q one. I'm really just wondering when you guide and, like, thinking about q two, do you embed like, what's the assumption?

Joshua Baer
Joshua Baer
Executive Director - Software Equity Research Analyst at Morgan Stanley

Is it just for on time renewals? Just thinking about, early renewals contributed in Q4 as well in a positive way. Just wondering if it's a trend, if it's something that can continue to benefit and what assumptions you have in guidance?

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

Sure. So we do assume that there is some volume of early renewals. And because we don't have perfect line of sight into those, we tend to be fairly conservative. And to your point, that has been an area of outperformance a few times over the past year or two. So we do assume that we're going to have some early renewals, but not at the same rate as we saw over the past couple of quarters, especially because some of those were just customers who were looking to get into enterprise advanced as quickly as possible.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

Some of our most loyal customers who've been more familiar with that, but certainly optimistic that we'll continue to see higher than historical volumes of those early renewals. And to the extent that becomes more consistent trends, then we would update those assumptions around early renewal volume as it relates to our guidance as well.

George Kurosawa
George Kurosawa
Equity Research Analyst at Citi

Great. Thanks.

Operator

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

Pinjalim Bora
Pinjalim Bora
Executive Director - Equity Research at JP Morgan

Great. One question for Aaron, I have a follow-up for Dylan. Aaron, as Box kind of integrates with different AI partners, OpenAI, Deep Research and others, how do you make sure that the engagement with some of these external AI vendors versus you keeping the engagement within the Box platform? Because Box was also thinking of coming out with deep research. Right now, you can actually do deep research with OpenAI.

Pinjalim Bora
Pinjalim Bora
Executive Director - Equity Research at JP Morgan

So how do you think of that bifurcation? How are you monetizing the people who are doing deep research on Box through OpenAI, for instance, and and that's gonna proliferate beyond OpenAI and some other other AI partners.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Yeah. Great great question. Something we think, you know, quite a bit about and spend a lot of time on. I you know, there's a just to get Phil to talk for for five seconds, there there's there's, you know, gonna be this question for for years and years, I think, in AI, around kind of which which layer of the stack do you occupy and and, you know, what's everybody's role in this. And we we sort of are gonna occupy two parts of the stack.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

So, you know, if there's, two to three or four layers going down to the infrastructure, we're in two to three we're in about two of them, which is, we're we're in the the software plane, for, for for the end user interaction And then we're in the the the data kind of platform, you know, plane as well as a as an API, either agentic APIs or or regular APIs. And we want to basically, have both of those execute as fast as possible and and as much in tandem as possible, because, we are not going to be you know, no single company is gonna decide where all of a user does its work. It's just not possible. And, and, Bill Joy had this famous quote, you know, thirty five years ago or whatever that said there's more developers outside of Sun than inside of Sun.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

And so or more smart smart developers with the implication being, like, you just have to let a thousand flowers bloom. You do not wanna be in a position where you're trying to to, you know, kinda king make any particular experience or platform or use case. There's just simply too much innovation happening. And so, you know, kinda similarly, your data is gonna your your data is gonna eventually need to flow to wherever the work is getting done. And no one platform will be able to control where that work is getting done because the Internet's too large.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Companies have too many different use cases they wanna go and solve. So because of that, our focus is ensuring that we can agentically bring information to wherever the user is doing their work. So there's, like, no game theory where you could ever kinda contemplate, closing off access to a particular platform simply because the the users wanna be able to do the work where they want. And so so given that, we we kind of flip it and we say, okay. So then we should be everywhere and ensure that the customer never has to make a a sort of a a a, you know, kind of a core decision about where their content can be managed, by virtue of where they want users doing work.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

We wanna make sure that you can manage your content one place and ensure that it works everywhere. From a monetization standpoint, there's a few different ways that gets monetized. Certainly, the end user seat gets monetized. And so to the extent that you have a user on Chatuet asking a deep research question, by definition, they have a have a seat, that is that is sort of processing that. And that's where I get into this idea of AI agents can't manage security.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

The end user still has to have access controls that allow them to access the content that is relevant for that deep research query. So there's no way to there's no way to sort of game the system and sort of have all the data in one end user account and have that show up to multiple, you know, users in ChatGPT. By definition, you need those two things to be aligned to ensure the the the proper security. So so that's how you monetize via seats. And then in this case, Deep Research is using our direct APIs.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

But as more and more use cases emerge where you have a third party system that wants to use an AI agent within Box, where we've announced partnerships with Salesforce AgentForce and Google AgentSpace and IBM, kind of Watson x Orchestrate, as you have those use cases, that will be monetized via our AI unit volume. So as you have more queries going into Box that are agentic in nature, then we'll just charge on a per volume basis for those. So let's say you're inside of agent force inside of Salesforce and you want an AI agent to go extract metadata from documents, we'll monetize that exactly the same way that we would monetize that if the, if that workflow was was driven, you know, directly in the box product, from an end user standpoint. So we we think we've got our bases covered. Obviously, you know, over time, you you might be able to argue, okay.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Well, there might be a slightly different margin depending on the on the modality of the usage. But, overall, we're just massive believers that an open Internet is is is a better one, and and interoperability is is is long term always gonna be better for us because the more places people wanna be able to do work from and the more places they can successfully do that work from, the more the more need they have for an open and interoperable data platform connected to all those systems. So if you just kind of, you know, compare the alternative world where everything get gets closed down and you only have one or two providers, that's actually a a worse world. And and it's the one that we don't think is gonna happen because of how much kind of agent interoperability is starting to emerge. So that's that's a little bit of the philosophy that, we're we're running with.

Pinjalim Bora
Pinjalim Bora
Executive Director - Equity Research at JP Morgan

Makes makes a lot of sense. Thank you for the detail on there. One for Dylan. Dylan, when I look at the billings guide for the year, if I, I did this math pretty quickly, but sounds like pre in the and when you first gave the guidance, was about 7% USD with 30 basis points of tailwind from FX. Now it seems like 9% USD with three forty basis points of FX tailwind.

Pinjalim Bora
Pinjalim Bora
Executive Director - Equity Research at JP Morgan

So it sounds like on a constant currency basis, you're guiding billings down. What am I reading wrong? Because you had very strong Q1 and I understand the early renewals, why would that impact the full year? So is that largely driven by some of the prudence that you're talking about? Maybe talk about the current guidance for the year.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

Yes, that's exactly right. So on that constant currency basis, down about one point. And some of that is just we round as we give guidance on an as reported basis and in round numbers. And then a portion of that is, as we discussed, just that incremental conservatism around the back half. And so that's the exact dynamic.

Dylan Smith
Dylan Smith
Co-Founder & CFO at Box

I think you're doing the math right. But overall, very kind of optimistic about what we're seeing in the business and the trends and how kind of customer conversations are materializing, but did want to be kind of prudent with what we're assuming in the back half of the year.

Pinjalim Bora
Pinjalim Bora
Executive Director - Equity Research at JP Morgan

Got it. Thank you.

Operator

Your next question comes from the line of Brian Peterson with Raymond James. Please go ahead.

Brian Peterson
Brian Peterson
Managing Director at Raymond James Financial

Congrats on the strong start to the year, guys. So I'll keep it to one. I know you answered the questions on industries before, but I know there's been a lot of debate on what's going on in the federal vertical. Anything that you guys would call out in terms of customer trends or pipeline? Any color there? Thanks, guys.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

Yeah. So, you know, still still a bit of a dynamic where I I think we expect, you know, a a degree of of kind of caution on the federal side. We've put a lot of emphasis in our kind of state and local, you know, part of the business in the in in the meantime. FedRAMP High, which obviously we just got certified for, is is clearly gonna be a a sort of a, you know, a net helper to the overall dynamic in the federal side because a lot of the use cases that will continue to get funded, are those out of DOD and and much more kind of highly sensitive use cases. So we're now in a better position to go capture those.

Aaron Levie
Aaron Levie
Co-Founder & CEO at Box

So I would still say dynamic environment, and, but we're happy with FedRAMP High as way to bolster that position, and we're very happy about the kind of overall AI momentum that we're driving.

Brian Peterson
Brian Peterson
Managing Director at Raymond James Financial

Thanks, Erin.

Operator

And that concludes our question and answer session. I will now turn the call back over to Cynthia Hyponia for closing comments.

Cynthia Hiponia
Cynthia Hiponia
Vice President, Investor Relations at Box

Great. Thank you everyone for joining us today and we look forward to updating you again on our next earnings call.

Operator

And this concludes today's conference call. Thank you for your participation and you may now disconnect.

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