Though shares of cloud storage provider Box (NYSE: BOX) tumbled after the company's second-quarter earnings release due to a slight miss on management's third-quarter guidance, there were actually some notable trends in Box's second-quarter results. The record quarter featured an accelerating revenue growth rate, improvements in free cash outflow and operating margin, and more.
Here's a close look at some of the most important insights from the quarter.
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The raw numbers
Q2 Fiscal 2019
Q2 Fiscal 2018
Data source: Box's earnings releases for quarters shown.
Box's first-quarter revenue increased 21% year over year to $148 million. This growth was fueled by a 14.5% year-over-year increase in paying customers and strong attach rates for add-on products. Notably, Box's 21% revenue growth was an acceleration from its 20% revenue growth in Q1.
For some context, this growth is still slower than Dropbox 's (NASDAQ: DBX) 27% year-over-year growth in its most recently reported quarter, despite Dropbox's much higher quarterly revenue of $339.2 million.
Demonstrating how increased scale is helping Box's fundamentals improve, the company's net loss narrowed from $39.3 million in the year-ago quarter to $38.3 million. Box's non-GAAP net loss improved from $15.2 million to $7.4 million, translating to a third-quarter non-GAAP loss per share of $0.05.
- Box's customer churn during the period remained low, at 4.5%, highlighting the company's resilience amid rising competition from Dropbox and other competitors.
- Box's customer retention rate, which is equal to the percentage of total account value retained from existing customers and includes customer value expansion, was a "best-in-class" 108%, the company said.
- Customers who had $5,000 or more in total account value 12 months ago saw an average increase in total account value of 12% year over year.
- Box's non-GAAP operating margin improved to negative 4% when measured by Box's recently adopted ASC Topic 606 revenue recognition standards, or negative 6% based on last year's standards. This is up from negative 12% in the year-ago quarter.
- Free cash flow was negative $10.3 million, up from negative $15 million in the year-ago quarter.
While Box's second-quarter results were solid, management's weaker-than-expected outlook for Q3 seems to have worried some investors. Guidance for $154 million to $155 million in revenue implies 19.1% to 19.9% year-over-year growth, signaling a deceleration in revenue growth. In addition, management's guidance for a non-GAAP loss per share between ($0.08) and ($0.07) represents a wider loss sequentially.
Despite the Street's negative response to the quarter, Box CEO Aaron Levie is optimistic about the company's future, saying:
Our approach to providing a single, neutral platform for cloud content management with enterprise-grade security and powerful workflow capabilities positions us to help the world's largest and most regulated enterprises digitize their workplace and business processes.
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