BOX INC

Note 1. Description of Business and Basis of Presentation

Description of Business

We were incorporated in the state of Washington in April 2005, and were reincorporated in the state of Delaware in March 2008. Box provides a leading cloud content management platform that enables organizations of all sizes to securely manage cloud content while allowing easy, secure access and sharing of this content from anywhere, on any device.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which include the accounts of Box and its wholly owned subsidiaries, have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all of the financial information and footnotes required by GAAP for complete financial statements.

In the opinion of our management, the unaudited condensed consolidated financial statements include all adjustments necessary for the fair presentation of our balance sheets, statements of operations, statements of comprehensive income, statements of convertible preferred stock and stockholders' deficit, and the statements of cash flows for the interim periods, but are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending January 31, 2025. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended January 31, 2024, which was filed with the SEC on March 11, 2024.

Certain prior period amounts reported in our condensed consolidated financial statements have been reclassified to conform to the current year presentation. Such reclassifications did not affect revenue, income from operations, or net income.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make, on an ongoing basis, estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ from these estimates. Such estimates include, but are not limited to, the fair value of acquired intangible assets, the useful lives of intangible assets, the incremental borrowing rate we use to determine our lease liabilities, the valuation allowance of deferred income tax assets, and uncertain tax positions. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Certain Risks and Concentrations

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. Although we deposit our cash with multiple financial institutions, our deposits, at times, may exceed deposit insurance coverage limits.

We sell to a broad range of customers. Our revenue is derived primarily from the United States across a multitude of industries. Accounts receivable are derived from the delivery of our services to customers primarily located in the United States. We accept and settle our accounts receivable using credit cards, electronic payments and checks. A majority of our lower dollar value invoices are settled by credit card on or near the date of the invoice. We do not require collateral from customers to secure accounts receivable. We believe collections of our accounts receivable are probable based on the size, industry diversification, financial condition and past transaction history of our customers. As of April 30, 2024 and January 31, 2024, no single customer accounted for more than 10% of total accounts receivable. No single customer represented over 10% of our revenuefor the three months ended April 30, 2024 and 2023.

We serve our customers and users from public cloud hosting operated by third parties. In order to reduce the risk of down time of our subscription services, we have established relationships with third-party cloud computing and hosting providers in various locations in the United States and abroad. We have internal procedures to restore services in the event of disaster with our cloud providers. Even with these procedures for disaster recovery in place, our cloud services could be significantly interrupted during the implementation of the procedures to restore services.

Geographic Locations

For the three months ended April 30, 2024 and 2023, revenue attributable to customers in the United States was 64% and 66%, respectively. For the three months ended April 30, 2024 and 2023, revenue attributable to customers in Japan was 22% and 21%, respectively.

As of April 30, 2024 and January 31, 2024, substantially all of our property and equipment was located in the United States.

Summary of Significant Accounting Policies

Derivative Instruments and Hedging

We measure derivative instruments at fair value and recognize them as either assets or liabilities on our condensed consolidated balance sheets. We record changes in fair value of derivative instruments designated as cash flow hedges in other comprehensive (loss) income. When the hedged transaction affects earnings, we subsequently reclassify the net derivative gain or loss within other comprehensive (loss) income into the same line as the hedged item on the condensed consolidated statements of operations to offset the changes in the hedged transaction. Derivatives not designated as hedging instruments are adjusted to fair value through interest and other income, net, on our condensed consolidated statements of operations in the period during which changes in fair value occur.

There have been no other material changes to our significant accounting policies and estimates during the three months ended April 30, 2024 from those disclosed in our Form 10-K for the year ended January 31, 2024. Additionally, we have asingle reporting segment and all required segment information can be found in the condensed consolidated financial statements.

Recently Adopted and Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and requires retrospective application to all prior periods presented in the financial statements. We are currently evaluating the impact of the new standard.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires greater disaggregation of tax information in rate reconciliation and income taxes paid by jurisdiction. This ASU is effective for fiscal years beginning after December 15, 2024. We are currently evaluating the impact of this accounting standard update on our income tax disclosures.

Note 2. Revenue

Deferred Revenue

Deferred revenue was $513.6 million and $586.9 million as of April 30, 2024 and January 31, 2024, respectively. During the three months ended April 30, 2024 and 2023, we recognized $226.1 million and $211.0 million of revenue that was included in the deferred revenue balance as of January 31, 2024 and 2023, respectively.

Transaction Price Allocated to the Remaining Performance Obligations

As of April 30, 2024, we had remaining performance obligations from contracts with customers of $1.2 billion. We expect to recognize revenue on 59% of these remaining performance obligations over the next 12 months, with the substantial majority of the remaining balance expected to be recognized within 24 months.

Note 3. Fair Value of Financial Instruments

Fair Value Measurements of Assets and Liabilities Measured at Fair Value on a Recurring Basis

We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We define fair value as the exchange price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

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Level 1—Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

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Level 2—Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices which are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

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Level 3—Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. These inputs are based on our own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation.

Financial assets subject to the fair value disclosure requirements are included in the table below. All of our financial assets are classified as Level 1. The estimated fair value of cash equivalents and short-term investments were as follows (in thousands):

(1)As of April 30, 2024 and January 31, 2024, we had a certificate of deposit for a total of $30.0 million with an original maturity of more than three months and less than twelve months that is classified as a short-term investment in our condensed consolidated balance sheet. This certificate of deposit is not included in the table above as it does not meet the definition of a security.

There were no material differences between the estimated fair value and amortized cost of our cash equivalents and short-term investments.

As of April 30, 2024, remaining contractual maturities of our short-term investments were all within one year.

As of April 30, 2024, we do not consider any portion of the unrealized losses to be credit losses.

Fair Value Measurements of Other Financial Instruments

In June 2023, we entered into an amended and restated secured credit agreement (the "June 2023 Facility") to provide for a $150.0 million revolving loan facility. As of April 30, 2024 and January 31, 2024, we had total debt outstanding relating to the June 2023 Facility with a gross carrying amount of $30.0 million. The estimated fair value of the June 2023 Facility, which we have classified as a Level 2 financial instrument, approximates its carrying value.

In January 2021, we issued $345.0 million aggregate principal amount of 0.00% convertible senior notes due January 15, 2026 (the "Convertible Notes"). The fair value of the Convertible Notes is determined using observable market prices. The fair value of the Convertible Notes, which we have classified as a Level 2 instrument, was $398.1 million and $392.1 million as of April 30, 2024 and January 31, 2024, respectively.

During the three months ended April 30, 2024, we entered into foreign currency forward contracts to hedge monetary assets and liabilities denominated in non-functional currencies. These foreign currency forward contracts are recorded at fair value and have maturities of 12 months or less. As of April 30, 2024, we had foreign currency forward contracts not designated as hedging instruments with a total notional value of $73.3 million. Our foreign currency forward contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates. The gross fair value of these foreign currency forward contracts wasnot material as of April 30, 2024. The gains recognizedfor these foreign currency forward contracts werenot material for the three months ended April 30, 2024. As of January 31, 2024, we didnot have foreign currency forward contracts.

Note 4. Leases

We have entered into various non-cancellable operating lease agreements for certain of our offices and data centers with lease periods expiring primarily between fiscal years 2025 and 2034. Certain of these arrangements have free or escalating rent payment provisions and optional renewal or termination clauses. Our operating leases typically include variable lease payments, which are primarily comprised of common area maintenance and utility charges for our offices and power and network connections for our data centers, that are determined based on actual consumption. Our operating lease agreements do not contain any residual value guarantees, covenants, or other restrictions.

Wehave also entered into various finance lease arrangements to obtain servers and related equipment for our data center operations. These agreements are primarily forfour years and certain of these arrangements have optional renewal or termination clauses. The leases are secured by the underlying leased servers and related equipment. During fiscal year 2023, we modified our finance leases to reflect our intent to exercise the purchase options at the end of the term of each finance lease. As of January 31, 2024, there wereno remaining material finance lease liabilities.

We sublease certain floors of our Redwood City and London offices. Our current subleases have total lease terms ranging from 30 to 96 months that will expire at various dates by fiscal year 2026.

The components of lease cost, which were included in operating expenses in our condensed consolidated statements of operations, were as follows (in thousands):

As of April 30, 2024, maturities of our operating lease liabilities, which do not include short-term leases and variable lease payments, are as follows (in thousands):

(1)Non-cancellable sublease proceeds for the years ending January 31, 2025 and 2026 of $3.7 million and $1.0 million, respectively, are not included in the table above.

As of April 30, 2024, we hadone operating lease for an office space that has not yet commenced. This operating lease has aggregated undiscounted future payments of $19.8 million and a lease term ofnine years. This operating lease is planned to commence during fiscal year 2025.

Note 5. Commitments and Contingencies

Letters of Credit

As of April 30, 2024 and January 31, 2024, we had letters of credit in the aggregate amount of $11.4 millionin connection with our operating leases and voluntary disability insurance (VDI) program, which were primarily issued under the available sublimit for the issuance of letters of credit in conjunction with a secured credit agreement as disclosed in Note 6.

Purchase Obligations

Our purchase obligations relate primarily to public cloud hosting services and IT software and support services costs and have terms ranging fromtwo toeight years. As of April 30, 2024, future minimum payments under non-cancellable contractual purchases, which were not recognized on our condensed consolidated balance sheet, are as follows, shown in accordance with the payment due date (in thousands):

Legal Matters

From time to time, we are subject to litigation and claims that arise in the ordinary course of business. We investigate litigation and claims as they arise and accrue estimates for resolution of legal and other contingencies when losses are probable and estimable. Although the results of litigation and claims cannot be predicted with certainty, we believe there was not at least a reasonable possibility that we had incurred a material loss with respect to such loss contingencies as of April 30, 2024.

Note 6. Debt

Convertible Senior Notes

In January 2021, we issued $345.0 million aggregate principal amount of 0.00% convertible senior notes due January 15, 2026. The Convertible Notes are senior unsecured obligations and do not bear regular interest. Each $1,000 principal amount of the Convertible Notes will be convertible into 38.7962 shares of our Class A common stock, which is equivalent to a conversion price of approximately $25.78 per share.

There have been no changes to the conversion or redemption terms of the Convertible Notes during the three months ended April 30, 2024 from those disclosed in Item 8. Financial Statements and Supplementary Data in our Form 10-K for the year ended January 31, 2024.

As of April 30, 2024, the conditions allowing holders of the Convertible Notes to convert were not met.

The net carrying amount of the Convertible Notes consisted of the following (in thousands):

Issuance costs are being amortized to interest expense over the term of the Convertible Notes using the effective interest rate method. The effective interest rate used to amortize the issuance costs is 0.56%. For the three months ended April 30, 2024 and 2023, interest expense recognized related to the Convertible Notes was not material.

Capped Calls

In connection with the pricing of the Convertible Notes, we entered into privately negotiated capped call transactions with certain counterparties (the "Capped Calls"). The Capped Calls each have a strike price of approximately $25.80 per share, subject to certain adjustments, which correspond to the initial conversion price of the Convertible Notes. The Capped Calls have initial cap prices of $35.58 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, approximately 13.4 million shares of our Class A common stock. The Capped Calls are generally intended to reduce or offset the potential dilution to our common stock upon any conversion of the Convertible Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The Capped Calls are separate transactions, and not part of the terms of the Convertible Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders’ deficit and are not accounted for as derivatives. The cost of $27.8 million incurred in connection with the Capped Calls was recorded as a reduction to additional paid-in capital.

Line of Credit

On June 30, 2023, we entered into an amended and restated secured credit agreement to provide for a $150.0 million revolving loan facility with a $45.0 million sublimit for the issuance of letters of credit. Pursuant to the terms of the June 2023 Facility, the maturity date of the revolving loan facility is the earlier of (i)June 30, 2028, (ii)October 16, 2025, except to the extent that both of the following conditions are satisfied as of such date: (x) the outstanding principal amount of the Convertible Notes as of such date is not greater than $100.0 million and (y) our liquidity (as determined in accordance with the June 2023 Facility) is greater than or equal to the outstanding principal amount of such Convertible Notes as of such date, and (iii)February 11, 2028, only in the event that any of our Series A Convertible Preferred Stock remains outstanding as of such date. In addition, the June 2023 Facility adopts the Secured Overnight Financing Rate (SOFR) as the interest rate benchmark, with the revolving loans accruing interest at a rate per annum equal to, at our option, (a) an adjusted term SOFR rate (based on one, three, or six-month interest periods) plus a margin ranging from 1.35% to 1.85%, (b) a daily simple SOFR rate plus a margin ranging from 1.35% to 1.85%, or (c) a prime rate plus a margin of 0.35% to 0.85%. The borrowings under the June 2023 Facility are collateralized by substantially all of our assets. The June 2023 Facility requires us to comply with a maximum leverage ratio and a minimum liquidity requirement. Additionally, the June 2023 Facility contains customary affirmative and negative covenants.

As of April 30, 2024, we had total debt outstanding with a net carrying amount of $29.6 million and we were in compliance with all financial covenants.

Note 7. Redeemable Convertible Preferred Stock and Stockholders’ Deficit

Series A Convertible Preferred Stock

On April 7, 2021, we entered into an investment agreement with a group of investors led by KKR & Co. Inc. (collectively "KKR") relating to the issuance and sale of 500,000 shares of our Series A Convertible Preferred Stock, par value $0.0001 per share, for an aggregate purchase price of $500 million, or $1,000 per share.

There have been no changes to the terms and conditions of the Series A Preferred Stock for the three months ended April 30, 2024 from those disclosed in Item 8. Financial Statements and Supplementary Data in our Form 10-K for the year ended January 31, 2024.

During the three months ended April 30, 2024, we paid cash dividends to our Series A Preferred Stockholders in the amount of $3.8 million and as of April 30, 2024, we had accrued dividends of $1.2 million on the Series A Preferred Stock. Accrued dividends are recorded against additional paid-in capital due to Box being in an accumulated deficit position.

Share Repurchase Plan

Our Board of Directors has authorized a share repurchase plan to opportunistically repurchase shares of our outstanding Class A common stock in open market transactions and on March 4, 2024, our Board of Directors authorized the repurchase of an additional $100 million shares of our Class A common stock. We periodically enter into pre-set trading plans adopted in accordance with Rule 10b5-1 to effect repurchases under our share repurchase plan.

During the three months ended April 30, 2024, we repurchased 1.4 million shares at a weighted average price of $27.10 per share for a total amount of $37.2 million. As of April 30, 2024, $126.4 million remained available for additional repurchases.

Note 8. Stock-Based Compensation

Employee Equity Plans

We currently havetwo employee equity plans that have been adopted by our Board of Directors. These plans, the 2015 Equity Incentive Plan (the "2015 Plan") and the 2015 Employee Stock Purchase Plan (the "2015 ESPP"), are described in more detail in Item 8. Financial Statements and Supplementary Data in our Form 10-K for the year ended January 31, 2024. As of April 30, 2024,27,494,360 shares and 3,298,894 shares were reserved for future issuance under the 2015 Plan and the 2015 ESPP, respectively.

Stock Options

The following table summarizes the stock option activity under the equity incentive plans and related information:

Restricted Stock Units

The following table summarizes the restricted stock unit activity under the equity incentive plans and related information:

As of April 30, 2024, there was $468.8 million of unrecognized stock-based compensation expense related to outstanding restricted stock units granted to employees that is expected to be recognized over a weighted-average period of 2.85 years.

Performance-Based Restricted Stock Units

We use performance-based incentives for certain employees, including our named executive officers, to achieve our annual financial and operational objectives, while making progress towards our longer-term strategic and growth goals. Based on a review of our actual achievement of the pre-established corporate financial objectives and additional inputs from our Compensation Committee, the executive bonus plan for fiscal year 2024 was determined, settled and paid out in the first quarter of fiscal year 2025 in the form of cash and fully vested restricted stock units. During the first quarter of fiscal year 2025, our Compensation Committee also adopted and approved the performance criteria and targets for the executive bonus plan for fiscal year 2025, which is expected to be paid out in the form of cash and fully vested restricted stock units in the first quarter of fiscal year 2026.

During the three months ended April 30, 2024, we recognized stock-based compensation expense related to executive bonus plans in the amount of $4.0 million. The unrecognized compensation expense related to the ungranted and unvested executive bonus plan for fiscal year 2025 is $11.5 million, based on the expected performance against the pre-established corporate financial objectives as of April 30, 2024, which is expected to be recognized over a remaining weighted-average period of less than one year.

2015 ESPP

As of April 30, 2024, there was $12.4 million of unrecognized stock-based compensation expense related to the 2015 ESPP that is expected to be recognized over a weighted-average period of 1.28 years.

Stock-Based Compensation

The following table summarizes the components of stock-based compensation expense recognized in the condensed consolidated statements of operations (in thousands):

Note 9. Net Income per Share Attributable to Common Stockholders

Basic net income per share is computed by dividing net income by the weighted-average number of common stocks outstanding for the period. Diluted net income per share is computed by giving effect to all potential weighted-average dilutive common stock, including stock options, restricted stock units, ESPP, and convertible senior notes.

The following table sets forth the computation of basic and diluted net income per share attributable to common stockholders (in thousands, except per share amounts):

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net income per share for the periods presented because the impact of including them would have been antidilutive (in thousands):

Note 10. Income Taxes

The provision for income taxes was $4.6 million and $2.3 million for the three months ended April 30, 2024 and 2023, respectively. Our income taxes for the three months ended April 30, 2024 and 2023 were primarily due to state income taxes and foreign income taxes.

For the three months ended April 30, 2024, the difference between the U.S. statutory rate and our effective tax rate was primarily due to the valuation allowance on our U.S. deferred tax assets, state income taxes, driven by the capitalization of research and development expenditures, and differing foreign tax rates.

For the three months ended April 30, 2023, the difference between the U.S. statutory rate and our effective tax rate was primarily due to the valuation allowance on our U.S. and U.K. deferred tax assets, state income taxes, driven by the capitalization of research and development expenditures, and differing foreign tax rates.

We evaluate tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information. We believe that we have provided adequate reserves for our income tax uncertainties in all open tax years.

We file tax returns in the U.S. for federal, California, and other states. All tax years remain open to examination for both federal and state purposes as a result of our net operating loss and credit carryforwards. We file tax returns in the United Kingdom (U.K.) and other foreign jurisdictions in which we operate. Tax years ending on January 31,2020 and onwards remain open to examination for the U.K. Certain tax years remain open to examination under the statute of limitations of the respective countries in which our other foreign subsidiaries are located.