Box Inc (BOX) 2015 Q4 法說會逐字稿

Good day and welcome to the Box, Inc. fourth-quarter and FY15 earnings conference call. This call is being recorded, today Wednesday, March 11, 2015.

(Operator Instructions)

It is now my pleasure to turn the floor over to Jennifer Ceran, Vice President of Finance, Treasurer and Investor Relations. You may begin, ma'am.

Thank you.

Good afternoon, everyone, and welcome to Box fourth-quarter and full-year FY15 earnings conference call. On the call today we have Aaron Levie, our CEO; Dan Levin, our COO; and Dylan Smith, our CFO. Following our prepared remarks we will take questions.

Our press release was issued after close of market and is posted on our website where this call is being simultaneously webcast. The webcast replay of this call will be available for the next 90 days on our Company website under the investor relations link, www.boxinvestorrelations.com.

On this call we will be making forward looking statements including our Q1 and FY16 financial guidance and our expectations regarding our financial results, market adoption of our solutions, our market size, our operating leverage, our path to and our expectations regarding achieving profitability, our planned investments, our growth strategies and expected benefits from our new products. These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially.

Please refer to the press release and the risk factors in the documents filed with the SEC, including the prospectus related to our initial public offering, from information on risk and uncertainties that may cause actual results to differ materially from those set forth in such statements. These forward-looking famous are being made as of today and we disclaim any obligation to update or revise the statements. If this call is reviewed after today the information presented during this call may not contain current or accurate information.

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 can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, in our earnings press release and in the related PowerPoint presentation, which can be found on the investor relations page of our website.

And with that, let me hand it over to Aaron.

Thank you, Jenny. Good afternoon, everyone.

Before I kick things off, I wanted to cover one quick topic. A number of news reports have quoted consensus non-GAAP EPS estimates that relied on an incorrect share count. For reference, FactSet, which we believe aggregated an analyst that used the correct share count, calculated consensus non-GAAP EPS at negative $1.99 per share as compared to our actual Q4 result of negative $1.65. Therefore based on FactSet consensus, Box beat by $0.34, so we just wanted to cover that and we can go more into that during the Q&A if that's helpful.

Welcome to our Q4 and full-year earnings results call for FY15. We are glad you can join us for our first earnings call as a public company. When Dylan and I started Box in 2005, our vision was to create a new way for individuals and businesses to securely share, access and collaborate on their information anywhere. Fast-forward 10 years and our mission remains true to where we started, helping people and organizations transform the way they work.

We do this now with over 45,000 customers, including 50% of the Fortune 500, and major brands like Eli Lily, General Electric, The Gap, Viacom, Safeway, eBay, Boston Scientific, and Nationwide. And we're just getting started.

Today we are happy to share that Q4 was a solid close to FY15. While Dylan will go into our detailed financial results shortly, our revenue for the quarter was $62.6 million, up 61% year over year. For the full fiscal year, revenue was $216.4 million, up 74% year over year.

Additionally, we saw our non-GAAP operating margin for the full year narrow to negative 59% as compared to a non-GAAP operating margin of negative 117% for FY14. We are seeing continued benefits of revenue scale and sales and marketing efficiency as we continue to add new customers and grow deployments with our existing ones. We continue to invest aggressively to capture our large market opportunity and capitalize on our competitive position while growing our productivity and efficiency to achieve our long-term margin objectives.

Also in Q4, we added major new businesses to our customer base, including AstraZeneca, [dig me dee] Health, American Family Insurance, Warner Music Group, Kelly-Moore Paint, Canon USA, and Hyundai Automotive. Consistent with our focus on driving customer success we also had expansions within many existing accounts, such as Aetna, Random House, Mars, and Lord and Taylor, to name just a few.

But stepping back a bit, when we look at the industry landscape today, we see a replatforming of information technology from on-premises solutions to cloud and mobile platforms. But this is really just the start. Work today is now more collaborative than ever before, and is being done across multiple continents. Any given project is involving suppliers, clients and partners that are spread across the world.

And today enterprises face massive compliance hurdles, all-new security risks, and an ever-growing threat landscape. Together these factors are producing a tectonic shift in IT. The entire enterprise software landscape is changing and Box sits at the center of this transition.

Just as Workday moved HR systems to the cloud, salesforce moved CRM, and NetSuite moved ERP, Box is moving content management and collaboration to the cloud. We've now built out the leading enterprise content collaboration platform and we're going after an addressable market that's $25 billion annually and growing.

Box's disruptive technology replaces on-premises and back-end content management software, storage technology, enterprise surge appliances, workflow tools, and more. We take what was once hard to integrate, incredibly expensive and painful for users, and deliver a simple but secure solution for enterprises of all sizes. And businesses today need a secure enterprise platform for their files more than ever.

Over the past few months our largest area of product focus has been to extend our leadership in security with Box Trust, Box Enterprise Key Management, and our recent acquisition of Subspace. Due to the increase in cyber security threats and attacks against major enterprises that we've seen in the news, every large business in the world is investing deeply to secure their information. Security has always been a major focus area for us at Box and it's now of massive importance to our customers, so much so that becoming a significant catalyst driving demand for Box as a solution to secure and protect critical information.

CEOs, CIOs, and boards of directors are increasingly aware of the security risks facing their businesses. And while many regulated industries, such as financial services and healthcare, have always been deeply security conscious, there's a growing understanding that every business needs to care about the protection of its intellectual property and other sensitive information. In this context, CIOs and chief information security officers see incredible value in leveraging Box to secure their IP and content, which ranges from their contracts, financial proposals, product designs, marketing campaigns, medical images, patient data, and other critical information. With Box, businesses get a powerful set of visibility, control, monitoring and security capabilities that we have been investing in for nearly 10 years.

We have reinforced our leadership in cloud security in Q4 with the launch of Box Trust, a network of nearly 20 security partners like IBM, Mobileiron, Airwatch, Palo Alto Networks, and Splunk. These partnerships and corresponding technology integrations keep our customers best-in-class security and visibility into their content on Box.

And with the recent acquisition of Subspace we are continuing to add talent and technology to stay well ahead of the competition. All seven members of the Subspace team will join Box where they will help extend the file control and policy features of Box's platform to any device used to access data, regardless of whether it's a company or personal device. This is a huge paying point for our customers and we are thrilled to have them onboard.

Last month we took our commitment to security to a new level with the introduce of Box Enterprise Key Management, now in beta. Box Enterprise Key Management, or EKM, is a breakthrough in cloud content management. It's designed to give enterprises full control over their encryption keys, while still enabling all the capabilities that make Box delightful to use for individuals.

We expect it will open up opportunities for more adoption with both existing and new Box customers in highly regulated industry. Box EKM will be sold separately to customers as add-on functionality.

In addition to security, we also extended our Box for Industry strategy by introducing Box for Financial Services focused on the unique content need for companies in this large industry. Box for Financial Services combines new security capabilities like watermarking and EKM, governance features like data retention management and FINRA compliance, all to serve customers throughout the financial services ecosystem, like private equity firms, banks and insurance companies. These capabilities, along with our partnerships with Bloomberg Vault, Accenture and Cap Gemini will open up the financial services market to new customers beyond the great names we're already working with, like KKR, Legg Mason, AAA, Northwestern Mutual, and many others.

Our Box for Industry strategy, as a reminder, focuses on developing tailored solutions and partnerships for key vertical markets. Last year we introduced Box for Healthcare, Box for Retail, and Box for Media and Entertainment. This approach allows us to take our technology and go deeper and farther for customers than any horizontal vendor is able to deliver.

With HIPAA compliance and medical image viewing, Box is a leading platform chosen by hospitals and healthcare providers. With PTI compliance and solutions to enable digital asset management and retail store enablement, Box has been growing quickly among retailers. Expect to see far more from our industry strategy later this year.

We also recently signed an important agreement with Microsoft that aligns our focus in driving openness in the enterprise. As an inaugural member of the Microsoft cloud storage partner program, the Box content platform will now support native integrations with both Office for iPad and iPhone, as well as Office Online coming in the near future. These are two powerful new connections with Microsoft Office. It extends the reach of our existing integrations with Office 365 on the desktop and the recently announced integrations with Outlook for iPhone and iPad.

This new agreement enables Box to be used seamlessly alongside of customers' existing investment in Office 365, making our solutions even more attractive to enterprises. This is an incredibly important milestone for Box and enterprise software broadly, ensuring interoperability between key enterprise platforms and the portability of customer data.

Finally, in keeping with this same commitment to openness and supporting all platforms, Box was recently chosen as one of the first mobile partners in Google's new Android for Work program. And of course you will see us continuing to invest significantly in transformative Box experiences for Apple and IOS.

To summarize, Q4 and start of FY16 have been incredibly successful. I enjoyed getting to meet many of our new investors during our IPO process. And while we are now a public company our core mission and focus has not changed. We will continue to focus on extending our leadership in numerous areas, including enterprise security, new and expanded industry solutions, and new capabilities and experiences for end-users that further help us transform the way individuals and organizations work.

Thanks again for your time. Now I'll hand it over to Dylan to review our financial results in more detail. Dylan?

Thanks, Aaron. And good afternoon, everyone.

I would like to join Aaron in welcoming you to our first earnings call as a public company. Before I get started, please note that I will be using a presentation to accompany this call, which you can find on our investor relations website at www.boxinvestorrelations.com.

As Aaron mentioned, we are proud of our strong first quarter as a public company. Let me start with some highlights from our full FY15. Revenue increased 74% year over year to $216 million. Billings were $246 million, up 41% from the prior year.

Non-GAAP operating margin improved by 58 points to negative 59%, compared to negative 117% a year ago. This illustrates how we are scaling our business with increasing efficiency, and we expect this positive trend to continue. Headcount ended with more than 1,150 employees, up roughly 190 versus the year ago. And we ended the year with 170 quota-carrying sales reps.

Let me now move on to our quarterly financial results, starting with revenue. In the fourth quarter Box generated revenue of $62.6 million, up 61% year over year. We continue to see success moving upmarket with our field-based business now representing roughly two-thirds of new sales. More than 90% of our revenue in Q4 was recurring. The majority of our nonrecurring revenue was professional services, which we call Box Consulting.

I will now turn to billings. Fourth-quarter billings were $82 million, representing 33% growth over the same quarter last year. This result was the strongest sequential billings growth that we saw all year, reflecting typical seasonal strength in our fiscal fourth quarter.

For context, the majority of our customers are billed annually, although we do see some variability in billing frequency among monthly, quarterly, annual and multi-year terms. In the fourth quarter of FY15 we saw fewer multi-year deals than in the same quarter a year ago. Applying the same payment terms for this fourth quarter would have generated 37% billings growth year over year.

Turning to deferred revenue we ended the fourth quarter with $120 million, up 33% year over year. We exited the year with a backlog of $134 million, representing committed contracts that had not yet been billed.

Now let's take a look at gross margin. Non-GAAP gross margin came in at 78.9%, down slightly from the prior year as we made significant investments in our data centers to support our growing customer base. The general trend in FY16 should be a slight downward drift, but we fully expect gross margin to remain in the mid to high 70% range as it has for the past three years. This range is consistent with our long-term target model, and reflects the continued pricing stability that we have seen over time.

Next let's move to non-GAAP operating expenses. Sales and marketing as a percentage of revenue decreased 34 points year over year to 83%. We drove this improvement through leverage in our sales model and an increased focus on efficiency in our marketing spend.

We also saw a year-over-year decrease in the relative cost to support our free users to 15% of revenue in the fourth quarter from 20% in the same quarter a year ago. We expect to see continued leverage in sales and marketing as our revenue base grows and as we gain greater sales efficiency.

Research and development as a percentage of revenue decreased 8 points year over year to 23%. As Aaron mentioned, we will continue investing in new features and functionality across security, mobility and industry-specific solutions.

Finally, our general and administrative costs as a percentage of revenue were essentially flat year over year at 24% due to elevated litigation expense related to the OpenText case. As the verdict was returned and the case ended in late February, we see the bulk of the costs related to this matter largely behind us. We expect our G&A spend to improve as a percentage of revenue throughout FY16. Putting this all together, we are pleased that our Q4 operating loss as a percent of revenue improved by 40 points to negative 51% compared to negative 91% for the same quarter last year.

Let me now move on to our cash balance and cash flow. We ended the fourth quarter with $330 million in cash. This includes the proceeds we received from our initial public offering, which raised $187 million net of underwriting fees.

Our operating cash flow was negative $15.6 million, a significant improvement from negative $22.6 million in Q4 of last year. CapEx was just shy of $9 million, driven by investments in our data center infrastructure and facilities to support our expected growth in new and existing customers.

Turning to other Q4 business metrics, we added more than 10,000 paying customers over the past year, to end the fourth quarter with more than 45,000 paying customers. Today, we have more than 50% of the Fortune 500 and more than 22% of the global 2000 as paying customers of Box. We closed 57 deals over $100,000 in annual account value versus 41 a year ago and 48 in the prior quarter. Of those 57 deals, 9 were above $500,000.

At the end of the fourth quarter our annual retention rate was 126%. This is comprised of two components, net expansion and churn. Our net expansion, which is driven by customers purchasing more Box seats, was greater than 30%. Our churn, meaning customers who left Box, continued to improve and was less some 5% on a dollar-weighted basis.

We have been driving improvements in customer stickiness and adoption through our differentiated value proposition, as well as the investments we've made in customer success and Box Consulting. These investments have helped our customers deploy or service for more and more use cases over time. As we've mentioned in the past, we expect our retention rate to decline gradually over time, but remain well above 100% for the foreseeable future.

I will now provide our initial guidance for the first quarter and the full year of FY16. For the first quarter of FY16 we expect revenue to be in the range of $63 million to $64 million, representing year-over-year growth of 39% to 41%. Compared to fourth-quarter results, our guidance reflects the impact of three fewer days in the quarter and a weaker FX outlook.

We expect our non-GAAP operating margin to be negative 56% to negative 58%. The weighted average share count used to calculate non-GAAP net loss per share should be approximately 120 million shares. This number is much higher than our fourth-quarter weighted average share count because the fourth quarter included only four days as we closed our IPO on January 28, 2015.

For full-year FY16 guidance, we expect revenue to be in the range of $281 million to $285 million, representing year-over-year growth of 30% to 32%. We expect non-GAAP operating margin to be negative 50% to negative 52%, representing a year-over-year improvement of 7 to 9 points. As it relates to currency fluctuations, we expect to see revenue headwinds of approximately $3 million at current currency rates compared to a year ago, and the overall impact to be neutral to non-GAAP operating loss.

I would like to remind those on the call that we will be incurring additional CapEx this year as we look to lease a new corporate headquarters in Redwood City, California. To highlight the impact of this initiative on cash flow, we will be moving $25 million into restricted cash as collateral on a letter of credit. This represents an outflow to operating cash flow, which will occur in Q1, and will be reflected on our balance sheet as restricted cash in other assets.

We will also be incurring approximately $35 million in net cash costs throughout the year as we invest in the necessary tenant improvements. We plan to move into our new headquarters this fall.

Taking into account all of the above, we expect are ending FY16 cash balance to be at least $175 million, including restricted cash. We remain committed to achieving our target of becoming free cash flow breakeven within eight quarters. And our cash balance should enable us to achieve that milestone without additional financing.

In closing, we had a great end of the year driven by strong growth in new customer acquisition and continued expansion within our existing customer base, while our customer churn rate continues to improve. Full-year non-GAAP operating margin improved by 58 points year on year as we drove leverage in our operating model.

We announced and rolled out new features and functionality in security, compliance and industry verticals, while also improving our user experience. And yet there is much more that we will be doing in the coming year to make Box more powerful for our customers.

We are excited to embark on our journey with you as we begin our first year as a public company. On behalf of our management team, I would like to take a moment to thank our employees for all of their hard work in building Box. I would also like to thank our customers and partners for making it possible for us to be here today.

With that I would like to open it up for questions. Operator?

(Operator Instructions)

Philip Winslow, Credit Suisse.

Thanks, and congratulations on a great first quarter out of the box. Just have two questions here and then just also one housekeeping item. You talked about, obviously, the full churn rate being sub 5% and continued improvement. But if I look at the upsell, that remains strong, as well. If you could provide us more color there, the trends you're seeing and any change versus previous quarters or previous years.

And then, also, on the large deal metrics, obviously those are strong, as well. Just what are the larger customers that you're talking with discussing, Aaron? And when you think about the next sell or the upsell, what's the rate and pace of those, because obviously the large deal momentum is quite strong.

And then just have one housekeeping follow-up once you're done with those.

I will take that first one, Phil.

Some of the trends that we are seeing with respect to our retention rate, as you mentioned we've seen continued improvement and now looking at sub 5% churn year on year. That's being driven by a couple things, the first of which is, as we built out our Box Consulting practice and continued to invest in customer success, especially for larger enterprises, we are seeing much faster adoption and much greater stickiness within those large customer environments, which is leading to a lot of the improvements in the retention rate.

And some of it is also just a function of where we are increasingly focused as a business. We tend to see greater retention, as well as greater expansion in our largest customers. And over time we have continued to sell, relative to the SMB space, more and more of our sales are coming in through the enterprise. So, it's partially an apples-to-apples improvement in some of the things we're doing to drive adoption and stickiness, and partially a mix shift.

This is Aaron.

On the big deals, I think the biggest trend that we've seen over the past two to four quarters is really around CIOs deciding and recognizing that they need to be able to have an enterprise-wide solution for content management and collaboration. If you go back two or three years we were largely sold as a departmental tool, really to an IT director for some department. And now it is becoming much more of an enterprise-wide conversation.

So, if you look at General Electric, if you look at Eli Lilly, AstraZeneca, Schneider Electric that has nearly 100,000 users on Box, these are really becoming enterprise-wide deployments, because that's how we can improve the security of content and improve the productivity of the organization. And we're just seeing the customer base begin to shift to recognize that. You will see more of those large deals increasing and that will be an important trend that we will keep track of and share with you.

Got it. Then just a quick housekeeping on the income statement here. What was the professional services revenue this quarter? And also if you do have the cost of that as well as the COGS, that would be great, just to break out.

Sure. The professional services revenue was in the mid single digits. And we're running that business at slightly positive operating margin. So, we do see lower margins in our subscription business but that is generating a slightly positive contribution.

Thanks.

Keith Weiss, Morgan Stanley.

Thank you, for taking the question. Two questions for me.

One on the top line. Can you talk to us, give us some color on -- there's a lot of improvements coming to the platform. You're talking about the Box Trust and the encryption keys. Can you talk to us about how that is impacting the top line? Is it through just expansion in the number of users? Any pricing impact on it? How should we think about those improvements flowing through into top-line performance, would be question number one.

And then question number two, maybe more for Dylan, in terms of operating margins, you had a really better-than-expected performance in Q4, with, I think, it was negative 51% operating margins. But it looks like there's not much improvement from that rate throughout FY16. Can you talk to us about why we don't see more improvement from where we were in Q4 and FY16, and talk us through again of how we get to breakeven in eight quarters out.

I'll take the first part, Keith. Our new technology, both the acquisition of Subspace, our Enterprise Key Management technology, which allows customers to manage their own encryption keys, watermarking, data retention, a bunch of the services that go into financial services but can be used in other industries; what they really represent is the ability to go both deeper in existing customers. So, in some cases where we would have a partial deployment but now we can actually capture more of that enterprise data and thus sell more enterprise seats.

But it also drives some of the top-line performance because we can reach customers that we wouldn't have otherwise been able to sell to -- deeply regulated enterprises, which are naturally going to be larger customers, which have larger IT budgets. We see our focus on industries and our focus on security really working in tandem to be able to drive up the contract value in the upper parts of the segment that we are going after.

And to speak to the trajectory of our operating margin and path to profitability, we spend a lot of time focusing and striking the right balance between growth and profitability. And when we look at the size of our opportunity and some of the successes we're seeing in a lot of our early efforts, we expect to be continuing pretty aggressively, both in research and development, but also in a lot of our broader go-to-market initiatives, and would expect to actually add and grow our sales headcounts more in the coming year than we did in the past year, again based on the opportunity we are looking at.

We feel confident that we can get to sustainable positive cash flow without raising additional funds. And part of this is, and we look at the predictability, the visibility we have into future billings and future revenue, both because of the way we derive that revenue and also because of our less than 5% customer churn. We feel really good about the plan we have in place.

And part of it is that also, as we scale, the spread between our billings and our revenue is going to increase, which is a greater impact on cash flow. So, on balance, this is why we feel very comfortable with our commitment to achieving positive free cash flow moving into our FY18 two years from now.

Excellent, thank you very much.

Mark Murphy, JPMorgan.

Thank you very much for taking my questions.

I wanted to dig into the Enterprise Key Management technology. I had noticed that it is a patent-pending solution. Given Box's well-known leadership in security and compliance, I was wondering if you could walk us through the ways in which the EKM offering might further differentiate Box relative to Microsoft or Google or Dropbox or any other competitors. And what type of adoption rate do you expect over time, because I think you were mentioning that as a separately priced add-on?

Yes, it is a separately priced add-on because of the both operational complicity of the technology and it's a premium service that we can offer our customers. The way that we designed Box EKM was really to solve the issue of controlling encryption keys but without impairing or compromising the core value proposition of Box, which is all about being able to easily access files from anywhere, being able to share in and outside of the organization. Traditional approaches to that type of technology where customers could legally manage the encryption key tend to compromise the user experience in some material way.

So, what has happened is a lot of customers have had to then mostly stay with on-premises technology or hybrid solutions if you're in large financial services organizations, energy companies, healthcare institutions, or even the federal government. And what Box EKM will allow for is those customers to be able to satisfy the, again, legal control of the encryption key issue but maintain all of the value of Box.

We aren't modeling from a revenue standpoint in terms of sharing what that looks like, but you can expect this to be an important driver of our deals in larger institutions, and especially regulated enterprises, which is where Box has, as you mentioned, already a leadership position and now further differentiation. So, we expect this to help us be more competitive than ever before against the players that you named.

Thank you.

Aaron, as well, do you have any updated thoughts on the Company's data center infrastructure? As the Company is scaling here quite rapidly in terms of both revenue and users, what do you think is the optimal number of data centers, and also the geographic locations for the data centers, maybe a couple of years down the road?

Today we operate out of three data centers and we work with cloud providers for additional fault tolerance and redundancy. We have to make sure that our data center strategy, both for locations and scale, is commensurate with the customer footprint that we have. That will lead to us investing in more data center space, both locations and in the existing data centers that we are in, over time. You'll see certainly some of those investments happen this year. But we just have to grow commensurate with our customer base.

In the not-immediate near term but a little bit farther out, we will be investing in international data centers. So, that would become a way of working better with international customers. So, this will continue to be an area that we invest in.

Okay, great.

And then, also for Dylan, I wanted to ask you in terms of headcount, in hiring, is there anything you can tell us in terms of the year-end goal for total headcount and also for quota-carrying headcount? I believe you had mentioned that you may hire at a faster pace in terms of quota-carriers this year. Is there anything more you can tell us or maybe put some numbers behind it?

Sure. I would say that we would expect our headcount in the coming year, both in terms of numbers and percentage growth, to be somewhat higher than it was in FY15. In terms of the relative growth, would plan to grow our research and development, our engineering team headcount fastest out of all the different areas that we are investing in. And as it relates to your question around sales headcount, could expect to grow our quota-carrying sales rep count in the 20%-something range in the coming year.

Okay.

Then one last one, if I may. In terms of the breakout between subscription revenue and professional services revenue, are you expecting to provide more detail on that in the 10-Q, or are you going to essentially speak to that qualitatively in terms of more than 90% subscription revenue, as some of the SaaS companies do?

Box consulting, the nonrecurring component of our revenue, is currently in the mid single digits of revenue, as we mentioned. And we would expect that to trend upward slightly over time as Box Consulting becomes a bigger and more important part of how we work with customers. So, we would expect to give color, especially if there are any material changes, as there is a likelihood of this trending to the high single-digits range over the course of the year. But to the extent there's not that stability or anything specifically that we think is important to mention, we will absolutely give that color.

Okay. And just to clarify, when you say high single-digit range, I want to make sure I'm clear on that. High single digit millions of dollars?

I mean as a percentage of revenue. So, currently that's running in the mid single-digit range as a percentage of revenue and is likely to trend upward over time.

Okay, understood. Thank you very much.

Richard Davis, Canaccord.

Thanks very much.

When you think about verticals and things like that, it seems to me that other than retail a lot of your verticals have complexity or regulations. When you think about new verticals, have do you think about that?

Thanks.

Because of our focus on the enterprise, we can go deeper and farther than most of our competition, so we don't shy away from that complexity. But what we do invest in is making sure that that complexity does not show up to the end user. I think our core differentiation as we go after these enterprises is, by being able to go into a health environment, like Stanford Hospital or M.D. Anderson, where they're used to complex back-end technology, because that was the only way to stay compliant with HIPAA, what we do is we have a solution that ensures their compliance with HIPAA but also gives end users in that environment -- physicians, doctors, researchers -- the ability to interact very easily with their content.

So, whether it's HIPAA for healthcare, PCI in retail and in finance, FINRA compliance within financial services, those are just examples of where we have gone in and make sure we can work with the complexity of that regulatory environment but, again, not have it exposed to users. Over time, as we go more within the federal space or within the government, as you see us go deeper in financial services or go after markets like life sciences even further, you will see us work with the regulatory environment and make sure that we can keep our customers compliant with the different controls that they have to work into their environments.

Got it. So, you're trying to bring order to chaos.

That's the idea. And there's a lot of chaos out there so that increases our value proposition.

Exactly. Thank you.

Jason Maynard, Wells Fargo.

Can we talk a little bit about hiring trends. I would like to just get a little bit more color about how you're thinking about building out and adding incremental headcount. And then maybe some commentary on what it's like competitively for hiring both sales and development talent. Thanks.

This is Dan.

I would say overall the hiring climate in Silicon Valley remains extremely competitive among the select few companies that are at the top of the ecosystem, especially for technical talent. As it relates to any more detail that we may be able to provide on the numbers side of the thing, I'll let Dylan fill that in.

We mentioned the trends that we've been seeing and where we expect to be investing most aggressively. Again, the largest relative growth would be on the technical side by numbers, and gave a sense of the growth that we expect to see on the sales front. And the only other piece of color that might be helpful is would expect to grow our international business, especially on the go-to-market side at a slightly faster clip than our US-based business.

As you add additional headcount and you think about your plan for the next year or so, are there any changes or assumptions that you're making around, let's say, just ramp time for reps? As you go into more verticals do you assume there's any long sales cycle, or does it take reps longer? What are maybe some of the puts and takes around that part of the model as it impacts your forecast?

I think puts and takes are the right way to think about it. There are trends that are driving our sales cycle longer, especially our increased focus on larger customers. Obviously to engage in an enterprise license agreement with a large global organization like General Electric is a time-consuming proposition.

On the other hand, obviously as our sales organization matures, as we have a larger percentage of reps who are fully ramped and have had a year in the saddle, we would expect to see those reps become more efficient and sales cycles in the smaller customers to generally remain pretty consistent.

Great. Thanks for the feedback.

Terry Tillman, Raymond James.

Thanks for taking my questions. Dylan, the first question -- and thanks for the feedback or the detail on the deals over $100,000 and then $500,000 -- but in those larger transactions over $500,000, were there any outlier transactions that were well above $1 million that you could talk about?

No, there weren't any significantly or unusually large transactions that we booked in Q4.

Okay. And it seems like there is going to be folks really eying this billing number each quarter. And I'm glad you gave the normalized perspective on it year over year. But it seems like it's going to be a point of sensitivity going forward.

And how do we think, then, about the seasonal trend? Are you willing to give something more explicit on looking at deferred revenue for the first fiscal quarter? And how do we think about maybe the shift of more annual invoice business in FY16 so we can at least hopefully get in the neighborhood of right billings assumption?

As mentioned, we do see the typical enterprise software seasonality in our business, so on a relative basis would expect that strength to increase throughout the year. And we will be giving quarterly, as well as annual guidance to get a sense of the growth that we expect.

As noted, our billings is impacted by the payment terms of deals and we would expect those to improve slightly over time, especially as we continue to move up market and sell the larger enterprises. And we will definitely be giving and highlighting on each earnings call what that payment mix looks like, and comparing it to the year-ago period to provide more transparency into the performance of the business.

As we look into the first quarter of FY16, are there any comparable challenges maybe in the prior year in terms of a number of larger multi-year deals, or is there not a tough comp from that perspective in the first quarter?

No, there was not a significant increase or any unusual strength in the payment terms. So, it should be a relatively normal comp from that standpoint.

Okay, thank you. My last question is maybe for Aaron in terms of, it's interesting around Microsoft and the innovation you are doing there in terms of integrating into more of their toolset. I'm curious about just how that relationship is. Is it a coopetition situation or are you seeing them more competitively than in the past? Thank you.

Yes, thanks. Actually our relationship with Microsoft has evolved quite a bit over the past maybe 18 months, specifically around Satya coming in as CEO. For many years Microsoft really had a vertically integrated mindset in terms of the different software that they were building.

So, Windows worked better with Office, which worked better which SharePoint, which worked better with NT Server. And it was very hard to penetrate that environment. So, that led to us being very competitive with them over that timeframe.

I think what Satya has done is, again over the past year to 18 months, even in his prior leadership positions, is really try and drive a new level of openness, where even if Box is going to be competing in a couple of areas like SharePoint or OneDrive for business, for things like Office and Windows and Azure, we actually end up being very complementary to those platforms, and we drive new workloads for Microsoft because of those technologies and our integration with them.

So, I think they just have a much broader and holistic view of the landscape and their products, which leads to us being able to complement them far more on the enterprise. And you've seen that show up with the cloud storage partner program that we were an inaugural member of. If you download Outlook on iPhone or iPod you will see Box show up as an option for managing your files.

You will continue to see these integration points emerge over time, even if we stay competitive and we are competing for some individual use cases. The majority of our large enterprise customers use Box in conjunction with both Office and Office 365, so you'll just continue to see the that trend of us working together going forward.

Thank you.

Ben McFadden, Pacific Crest.

Hello. I am on for Rob Owens. I wanted to ask a question around pricing. What type of conversations are you having with customers around pricing? And are there any features other than security that are allowing you or enabling you to hold pricing?

This is Aaron again.

We have been able to maintain, if not increase, our average selling price over the past couple of years. And, again, the factors that are driving that are the penetration within industries, the focus on differentiated functionality such as our security technology. That lets us hold a premium price.

So, even as the cost of storage has gone down, both in our infrastructure costs as a measure of per gigabit prices and in the broader market, we are able to maintain and, in many cases, increase price because of that premium focus. Certainly as we going into larger enterprises, there's volume pricing that we implement, but overall we believe we consistently see this pricing trend remain in the near future, and then further improvement being driven because of the industry focus and our security technology.

Then on a broader level, it has been a year since you brought in a new head of sales. I wonder if you could just talk about the changes that have taken place over the year and how effective they have been and are there any more changes to come?

Graham Younger ran field operations in sales at SuccessFactors, took them to $1 billion in revenue. He joined our business at the beginning of last year. I think that his focus on making sure that we have an integrated field effort and working with accounts in region in a very concerted way has been a significant change.

So, we've seen a mix shift in our sales reps over the past year. But we continue to also focus on the volume part of our business and making sure that we have an incredible experience for the SMB part of our market. So, you will continue to see him implement, again, more of that push forward, the field going after enterprises in specific industries and as we continue to march up market.

Great, thanks for taking my questions.

Ladies and gentlemen, this does conclude our Q&A session and today's conference call. We appreciate your participation. You may now disconnect your lines. Have a great day.