Pace Quickens Toward Box’s IPO as Q2 Sales Nearly Double
Cloud storage and collaboration firm Box nearly doubled in size and revenue in the last quarter, but it did so as losses deepened, albeit at a slower rate than in earlier periods.
And while the company still doesn’t expect to report a profit in the foreseeable future, it demonstrated a step in the gradual maturing of its business model, which calls for aggressive spending now in order to attract and keep paying customers in the years ahead.
The new disclosure was part of an update to the company’s S-1 IPO filing with the U.S. Securities and Exchange Commission, and shows that Box’s sales rose by 94 percent as of the end of the quarter ended April 30, while its quarterly loss increased by about
11 13 percent versus the year-ago period. The loss would amount to $2.81 per share, versus $3.47 per share a year ago.
The filing is the latest move in the run-up to Box’s debut on the New York Stock Exchange, which is now expected sometime in the fall. Re/code reported last month that its IPO plans were back on track after an initial delay. Earlier today, sources familiar with the company’s situation confirmed a report that it will take a $150 million round of funding led by TPG, the Texas-based private equity firm, and Coatue Management that will help it buy time in order to pick the optimal moment for its offering.
The new filing signals that the pace toward a public offering will now quicken in the coming weeks. Last month sources told Re/code that Box hoped to complete its offering before Labor Day. Now a debut in September or October appears more likely, sources familiar with the company’s plans say.
For the quarter ended April 30, Box reported a $38.5 million loss on revenue of $45.3 million. That compares with a net loss of $34 million on sales of $23.4 million last year.
Along with its sales and the loss on its bottom line, Box’s operational costs rose. The company reported combined marketing and administrative costs of more than $59 million for the quarter, which works out to about $19.7 million a month. That’s up from $17.8 million as of Jan. 31. Research and development costs also rose during the period, from $9.5 million a year ago to $15 million.
But those costs as a percentage of sales fell in the quarter. R&D costs, for example, amounted to 33 percent of revenue, down from 40 percent a year ago. Administrative costs were 25 percent of sales, down from 35 percent. Marketing costs, consisting mostly of the cost of carrying users who don’t pay for the service, amounted to 105 percent of revenue, essentially meaning that the company spent $1.05 for every dollar in revenue. But that figure was lower in the quarter than the $1.46 spent on marketing for every dollar in revenue a year ago, and $1.38 as of the end of January.
Also proving that recent rumors about impending layoffs were false, Box practically doubled the size of its workforce to 1,016 as of the end of the quarter, up from 689 from a year ago. But it has added only 44 employees since January, when it reported a total headcount of 972. Hiring was most aggressive in Box’s sales and marketing operations, where it added a total of 90 new employees.
The company exited the quarter with about $79.3 million in cash on its balance sheet, down from nearly $109 million as of the end of January. (The figure that doesn’t include the new capital from TPG and Coatue.) That translates to a negative cash flow of about $9.9 million per month.
Another important figure worth noting: Box had almost $89 million in deferred revenue, owing to its subscription-based business model. Considered a key metric at cloud software companies like Salesforce.com and Workday, deferred revenue is an indicator of revenue that has yet to be booked but which under accounting rules can only be recognized every quarter.
Box finished the quarter with 39,000 paying corporate customers and 27 million individual users. That’s an improvement over the end of 2013, when Box had 23 million individual users and 34,000 paying customers. It said about eight percent of its individual users, or about 2.1 million, had paid accounts, up from about 1.6 million at the end of last year.
The share ownership table doesn’t reflect the new investment from TPG, but the round valued Box at about $2.4 billion, up from its earlier implied valuation of about $2 billion. The company’s biggest shareholder is the venture firm Draper Fisher Jurvetson, which has about 25 percent of the equity. U.S. Venture Partners has about 13 percent. General Atlantic, the private equity firm, had about 8.5 percent. Coatue Management, has about 3.3 percent. CEO Aaron Levie has 4.1 percent.
One key development announced after the quarter closed was that Box landed industrial giant GE as a paying corporate customer. The filing doesn’t mention the deal.
In an interview with Re/code earlier this year, Levie outlined a plan to boost Box’s sales efforts through third-party companies known as channel resellers and to increase efforts to attract business in several industries through customized offerings.
The March 24 public disclosure of Box’s S-1 filing landed shortly after a significant drop in the shares of publicly traded cloud software companies. The decline in the sector, which wiped away nearly a third of the group’s value, derailed Box’s debut, which had been initially anticipated in April.