BOX INC (BOX)

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled “Risk Factors” and in other parts of this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations for the year ended January 31, 2025 compared to the year ended January 31, 2024 is presented below. A discussion regarding our financial condition and results of operations for the year ended January 31, 2024 compared to the year ended January 31, 2023 can be found under Part II, Item 7 of our Annual Report on Form 10-K for the year ended January 31, 2024, filed with the SEC on March 11, 2024, which is available on the SEC’s website at www.sec.gov.

Overview

Box is the leading ICM provider. Box gives organizations a single platform for their unstructured data – which typically represents about 90% of all data within an organization. This data is content – from blueprints to wireframes, videos to documents, proprietary formats to PDFs – and it is the source of an organization’s unique value. The Box ICM platform enables our customers to securely manage the entire content lifecycle, from the moment a file is created or ingested to when it is shared, edited, published, approved, signed, classified, and retained. Box keeps content secure and compliant, while also allowing easy access and sharing of this content from anywhere, on any device – both within the organization and with external partners.

With our SaaS platform, users can work with their content as they need – from secure external collaboration and workspaces to e-signature processes and content workflows – improving employee productivity and accelerating business processes. IT teams can establish a space for compliant content management, and developers can easily create customized portals for white-labeled content collaboration. Administrators have a wide range of security, data protection, and compliance features they can activate to help meet legal and regulatory requirements, internal policies, and industry standards. The Box platform enables a broad range of high-value business use cases and integrates with more than 1,500 leading business applications. With hundreds of file formats and media types supported, Box is compatible with multiple application environments, operating systems, and devices – ensuring that workers can securely access their critical business content whenever and wherever they need it.

We offer our solution to our customers as a subscription-based service, with subscription fees based on the requirements of our customers, including the number of users and functionality deployed. The majority of our customers subscribe to our service through one-year contracts, although we also offer our services for terms ranging from one month to three years or more. We typically invoice our customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments. We recognize revenue as we satisfy our performance obligations. Accordingly, due to our subscription model, we recognize revenue for our subscription services ratably over the term of the contract.

Our objective is to build an enduring business that creates sustainable revenue and earnings growth over the long term. To best achieve this objective, we focus on growing the number of users and paying organizations through direct field sales, direct inside sales, indirect channel sales and through word-of-mouth by individual users, some of whom use our services at no cost. Individual users and organizations can also simply sign up to use our solution on our website. We believe this approach not only helps us build a critical mass of users but also has a viral

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effect within organizations as more of their employees use our service and encourage their IT professionals to deploy our services to a broader user base.

As of January 31, 2025, we had over 100,000 paying organizations, and our solution was offered in 25 languages. We define paying organizations as separate and distinct buying entities, such as a company, an educational or government institution, or a distinct business unit of a large corporation, that have entered into a subscription agreement with us to utilize our services.

Organizations typically purchase our solution in the following ways: (i) employees in one or more small groups within the organization may individually purchase our service; (ii) organizations may purchase IT-sponsored, enterprise-level agreements with deployments for specific, targeted use cases ranging from tens to thousands of user seats; (iii) organizations may purchase IT- sponsored, enterprise-level agreements (ELAs) where the number of user seats sold is intended to accommodate and enable nearly all information workers within the organization in whatever use cases they desire to adopt over the term of the subscription; and (iv) organizations may purchase our Box Platform service to create custom business applications for their internal use and extended ecosystem of customers, suppliers and partners. Customers can choose between an a la carte approach (i.e., by purchasing specific add-on products to complement their Box subscription) or one of our bundled plans, which include multiple add-on products to help accelerate customer time to value.

We intend to continue scaling our organization to meet the increasingly complex needs of our customers. Our sales and customer success teams are organized to efficiently serve organizations ranging from small businesses to the world’s largest global organizations. We have invested in our sales and marketing teams to sell our services around the world, as well as in our development efforts to deliver additional features and capabilities of our cloud services to address our customers’ evolving needs. We also expect to continue to make investments in both our infrastructure to meet the needs of our growing global user base and our professional services organization (Box Consulting) to address the strategic needs of our customers in more complex deployments and to drive broader adoption across a wide array of use cases.

Current Period Highlights

For the years ended January 31, 2025 and 2024, our revenue was $1.090 billion and $1.038 billion, respectively, representing year-over-year growth of 5%, or 7% growth on a constant currency basis. As of January 31, 2025, our remaining performance obligations were $1.466 billion, representing a 12% increase from our remaining performance obligations of $1.305 billion as of January 31, 2024, or 14% growth on a constant currency basis. For the year ended January 31, 2025, our gross profit was $862.0 million, and our gross margin was 79.1%, compared to our gross profit of $777.1 million and our gross margin of 74.9% for the year ended January 31, 2024. For the year ended January 31, 2025, our operating income was $79.6 million and our operating margin was 7.3%, compared to our operating income of $50.8 million and our operating margin of 4.9% for the year ended January 31, 2024. For the year ended January 31, 2025, our net cash provided by operating activities was $332.3 million, an increase of 4% from net cash provided by operating activities of $318.7 million for the year ended January 31, 2024. For the year ended January 31, 2025, our non-GAAP free cash flow was $304.6 million, an increase of 13% from non-GAAP free cash flow of $269.0 million for the year ended January 31, 2024.

Continuous Innovation

During the year ended January 31, 2025, several new products and product enhancements were made generally available or announced, including:

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Box Hubs, our solution that provides simple, customizable portals for individuals and teams to curate and publish content across their enterprise. Box Hubs is available with Box AI, a new set of capabilities that natively integrates advanced AI models into Box’s ICM platform. Using Box AI for Hubs, users can easily find answers to critical questions across multiple documents in Box and generate new content.

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Box AI for Documents and Notes. With Box AI for Documents, users can ask questions about a document to quickly uncover key findings, and with Box AI for Notes, users are able to generate content or refine drafted material.

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Box AI API, our enhanced tool which enables developers to integrate Box AI capabilities into custom applications. We provide users the flexibility to power unique use cases by enabling them to select models from our trusted large language model partners, configure custom AI agents, and refine default prompts for tailored responses.

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AI-powered document processing and metadata extraction. Box acquired the AI-powered, intelligent document processing technology of Alphamoon. The acquisition will further enhance the power of Box AI to automate document-related tasks and extract valuable metadata from critical business content across a variety of industries.

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Introduced a new Suites plan, Enterprise Advanced, to allow our customers to access the full power of the ICM platform. In addition to the current capabilities included in the Enterprise Plus plan, Enterprise Advanced includes the following products:

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Box Apps, our no-code solution that makes it easier to create intelligent applications that manage content-centric business processes throughout the enterprise.

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Box AI Studio, our solution that allows administrators to select their preferred AI model from our list of trusted providers to create tailored Box AI agents, with no coding required.

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Box Doc Gen API, our solution that enables users to dynamically generate documents in custom and third-party applications.

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Box Forms, our solution that enables users to easily design and publish engaging web and mobile forms.

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Box Doc Gen, our solution that enables users to generate custom documents dynamically, directly in Box, using data from different sources or templates.

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Box AI for Metadata, our solution that automates metadata extraction and reduces manual work using Box AI.

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Box Archive, our solution that will provide advanced data preservation with long-term content storage. Box Archive is expected to be generally available in the first half of fiscal year 2026.

Impact of Macroeconomic Factors on Our Business

Our overall performance depends in part on worldwide economic and geopolitical conditions and their impact on customer behavior. Economic conditions, including impacts from inflation, higher interest rates, tariffs, slower growth, the stronger dollar versus foreign currencies, particularly the Japanese Yen, reductions in U.S. federal spending, the ongoing Russia-Ukraine conflict and the ongoing conflict in the Middle East, and other changes in economic conditions, may adversely affect our results of operations and financial performance. During the year ended January 31, 2025, in addition to headwinds from foreign exchange rate trends, we continued to see an impact from additional customer scrutiny being placed on larger deals and lower seat expansion rates due to the challenging macroeconomic environment. As a result, we have experienced, and may continue to experience, increased customer churn and delayed sales cycles, as well as customers and prospective customers reducing budgets for services that we offer. While we believe IT budgets have tightened and some larger deals have required more scrutiny across verticals and geographies, we also believe we are well-positioned to execute through these dynamic times as Box's ICM platform enables enterprises to streamline their businesses, drive up productivity, reduce risk, and lower costs.

Our Business Model

Our business model focuses on maximizing the lifetime value of a customer relationship. We make significant investments in acquiring new customers and believe that we will be able to achieve a positive return on these investments by retaining customers, cross-selling our add-on products and expanding the size of our deployments within our customer base over time. In connection with the acquisition of new customers, we incur and recognize significant upfront costs. These costs include sales and marketing costs associated with acquiring new customers, such as sales commission expenses, substantially all of which are deferred and then amortized over a period of benefit, and marketing costs, which are expensed as incurred. We recognize revenue as we satisfy our performance

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obligations to customers. Accordingly, due to our subscription model, we recognize revenue for our subscription services ratably over the term of the contract.

We experience a range of profitability with our customers depending in large part upon their current stage. We generally incur higher sales and marketing expenses for new customers and existing customers who are still in an expanding stage. For new customers and for customers who are expanding their use of Box, our associated sales and marketing expenses typically represent a higher portion of revenue for the initial subscription term for new customers or the remaining subscription term for existing customers. For customers who are renewing their Box subscriptions, our associated sales and marketing expenses are significantly less than the revenue we recognize from those customers over the term of the renewed subscription. These differences are primarily driven by the higher compensation we provide to our sales force for new customers and customer subscription expansions compared to the compensation we provide to our sales force for routine subscription renewals by customers. We have experienced, and expect to continue to experience, lower sales and marketing expenses as a percentage of revenue as our existing customer base grows over time and a relatively higher percentage of our revenue is attributable to renewals versus new or expanding Box deployments.

Key Business Metrics

We use the key metrics below for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these key metrics provide meaningful supplemental information regarding our performance. We believe that both management and investors benefit from referring to these key metrics in assessing our performance and when planning, forecasting, and analyzing future periods. These key metrics also facilitate management’s internal comparisons to our historical performance as well as comparisons to certain competitors’ operating results. We believe these key metrics are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by institutional investors and the analyst community to help analyze the health of our business.

Remaining Performance Obligations

Remaining performance obligations (RPO) represent, at a point in time, contracted revenue that has not yet been recognized. RPO consists of deferred revenue and backlog. Backlog is defined as non-cancellable contracts deemed certain to be invoiced and recognized as revenue in future periods. Future invoicing is determined to be certain when we have an executed non-cancellable contract or a significant penalty is due upon cancellation. While Box believes RPO is a leading indicator of revenue as it represents sales activity not yet recognized in revenue, it is not necessarily indicative of future revenue growth as it is influenced by several factors, including seasonality, contract renewal timing, average contract terms and foreign currency exchange rates. Box monitors RPO to manage the business and evaluate performance.

RPO as of January 31, 2025 was $1.466 billion, an increase of 12% from January 31, 2024. The increase in RPO was primarily driven by expansion within existing customers as they broadened their deployment of our product offerings and the conversion to multi-product Suites. The increase in RPO was also driven by the addition of new customers and the timing of customer-driven renewals. RPO growth was impacted by 160 basis points from unfavorable foreign currency exchange rates.

Billings

Billings represent our revenue plus the changes in deferred revenue and contract assets in the period. Billings we record in any particular period primarily reflect subscription renewals and expansion within existing customers plus sales to new customers, and represent amounts invoiced for all of our products and professional services. We typically invoice our customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments. If the customer negotiates to pay the full subscription amount at the beginning of the period, the total subscription amount for the entire term will be reflected in billings. If the customer negotiates to be invoiced annually or more frequently, only the amount billed for such period will be included in billings.

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Billings help investors better understand our sales activity for a particular period, which is not necessarily reflected in our revenue given that we recognize subscription revenue ratably over the contract term. We consider billings a significant performance measure. We monitor billings to manage our business, make planning decisions, evaluate our performance and allocate resources. We believe that billings offer valuable supplemental information regarding the performance of our business and will help investors better understand the sales volumes and performance of our business. We do not consider billings to be a non-GAAP financial measure because it is calculated using exclusively revenue, deferred revenue, and contract assets, all of which are financial measures calculated in accordance with GAAP.

Billings for the year ended January 31, 2025 were $1.110 billion, an increase of 5% from the year ended January 31, 2024. The increase in billings was primarily driven by expansion within existing customers as they broadened their deployment of our product offerings and the conversion to multi-product Suites, the addition of new customers, and the timing of customer-driven renewals. Billings growth was impacted by 110 basis points from unfavorable foreign currency exchange rates.

Our use of billings has certain limitations as an analytical tool and should not be considered in isolation or as a substitute for revenue or an analysis of our results as reported under GAAP. Billings are recognized when invoiced, while the related subscription and premier services revenue is recognized ratably over the contract term as we satisfy a performance obligation. Also, other companies, including companies in our industry, may not use billings, may calculate billings differently, may have different billing frequencies, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of billings as a comparative measure.

Over time, we expect to continue to normalize payment durations. In addition, as we have gained and expect to continue to gain more traction with large enterprise customers, we also anticipate our quarterly billings to increasingly concentrate in the back half of our fiscal year, especially in the fourth quarter.

A calculation of billings starting with revenue, the most directly comparable GAAP financial measure, is presented below (in thousands):

Non-GAAP Free Cash Flow

We define non-GAAP free cash flow as cash flows from operating activities less net capital expenditures (purchases of property and equipment less proceeds from sales of property and equipment), principal payments of finance lease liabilities, capitalized internal-use software costs, and other items that did not or are not expected to require cash settlement and that management considers to be outside of our core business.

Non-GAAP free cash flow for the year ended January 31, 2025 was $304.6 million, representing an increase of 13% from the year ended January 31, 2024. The increase in non-GAAP free cash flow was primarily driven by the reduction in payments of finance lease liabilities due to our migration to the public cloud from our collocated data centers and the increase in cash flows from operating activities, which is described in more detail under Liquidity and Capital Resources below. The increase was partially offset by an increase in capitalized internal-use software costs.

A reconciliation of non-GAAP free cash flow to net cash provided by operating activities, its nearest GAAP equivalent, is presented in the non-GAAP Financial Measures section at the end of Item 7 of this Annual Report on

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Form 10-K. The presentation of non-GAAP free cash flow is also not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity.

Net Retention Rate

Net retention rate is defined as the net percentage of Total Annual Recurring Revenue (Total ARR) retained from existing customers, including expansion. We define Total ARR as the annualized recurring revenue from all active customer contracts at the end of a reporting period. We calculate our net retention rate as of a period end by starting with the Total ARR from customers as of 12 months prior to such period end (Prior Period Total ARR). We then calculate Total ARR from these same customers as of the current period end (Current Period Total ARR). Finally, we divide the Current Period Total ARR by the Prior Period Total ARR to arrive at our net retention rate. In calculating our net retention rate, we include only Total ARR associated with those customers who have subscribed to Box for at least 12 months. We believe our net retention rate is an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain and grow revenue from our customer base. Net retention rate is an operational metric and there is no comparable GAAP financial measure to which we can reconcile this particular key metric.

Our net retention rate was 102%, 101%, and 108% as of January 31, 2025, 2024 and 2023, respectively. Our net retention rate continues to be impacted by heightened budget scrutiny, putting pressure on seat expansion within existing customers and increased partial customer churn. As our customers purchase add-on products or our bundled plans, we tend to realize significantly higher average contract values and stronger net retention rates as compared to customers who only purchase our core product. We believe our go-to-market efforts to deliver a solution selling strategy and our investments in product, customer success, and Box Consulting, including our Box Shuttle migration offering, are significant factors in our customer retention results. As we penetrate customer accounts, we expect our net retention rate to remain above 100% for the foreseeable future.

Components of Results of Operations

Revenue

We derive our revenue primarily from three sources: (1) subscription revenue, which is comprised of subscription fees from customers who have access to our ICM platform including routine customer support; (2) revenue from customers purchasing our premier services package; and (3) revenue from professional services such as implementing best practice use cases, project management and implementation consulting services.

To date, practically all of our revenue has been derived from subscription and premier services. Subscription and premier services revenue are driven primarily by the number of customers, the number of seats sold to each customer and the price of our services.

We recognize revenue as we satisfy our performance obligations. Accordingly, due to our subscription model, we recognize revenue for our subscription and premier services ratably over the contract term. We typically invoice our customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments. Our subscription and premier services contracts are typically non-cancellable and do not contain refund-type provisions. The majority of our customers subscribe to our service through one-year contracts, although we also offer our services for terms ranging between one month to three years or more.

Professional services are generally billed on a fixed price basis, for which revenue is recognized over time based on the proportion performed. Professional services revenue was not material as a percentage of total revenue for all periods presented.

Revenue is presented net of sales and other taxes we collect on behalf of governmental authorities.

Cost of Revenue

Our cost of revenue consists primarily of costs related to providing our subscription services to our paying customers, including employee compensation and related expenses for data center operations, customer support and

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professional services personnel, public cloud hosting costs, depreciation of servers and equipment, security services and other tools, as well as amortization expense associated with acquired technology and capitalized internally developed software. We allocate overhead such as rent, information technology costs and employee benefit costs to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each of the operating expense categories set forth below.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities, information technology costs and employee benefit costs.

Research and Development. Research and development expense consists primarily of employee compensation and related expenses, as well as allocated overhead. Our research and development efforts are focused on scaling our platform, building an ecosystem of best-of-breed applications and platforms, infrastructure, adding enterprise grade features, functionality and enhancements such as workflow automation, intelligent content management capabilities, advanced security, e-signature capability, native visual collaboration and whiteboarding, and artificial intelligence to enhance the ease of use of our intelligent content management platform. We capitalize certain qualifying costs to develop software for internal use incurred during the application development stage.

Sales and Marketing. Sales and marketing expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel-related expenses, as well as allocated overhead. Marketing programs include but are not limited to advertising, events, corporate communications, brand building, and product marketing. Sales and marketing expense also consists of public cloud hosting, data center and customer support costs related to providing our cloud-based services to our free users. We market and sell our intelligent content management services worldwide through our direct sales organization and through indirect distribution channels such as strategic resellers. Our sales and marketing expenses are generally higher for acquiring new or expanding existing customers than for renewals of existing customer subscriptions.

General and Administrative. General and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, recruiting, information systems, enterprise security, compliance, fees for external professional services and cloud-based enterprise systems, as well as allocated overhead. External professional services fees are primarily comprised of outside legal, accounting, audit and outsourcing services.

Interest Income

Interest income consists primarily of interest earned on our cash and cash equivalents and short-term investments. We have historically invested our cash and cash equivalents in overnight deposits, certificates of deposit, money market funds, U.S. treasury securities and non-U.S. government issued securities.

Interest Expense

Interest expense consists primarily of interest charges for our line of credit and convertible senior notes, interest expense related to finance leases, and the amortization of issuance costs of our convertible senior notes.

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Other Expense, Net

Other expense, net consists of gains and losses from foreign currency transactions and other income and expense. Other expense, net consists primarily of induced conversion expense related to our 2026 Convertible Notes.

(Benefit from) Provision for Income Taxes

(Benefit from) provision for income taxes consists primarily of state and foreign income taxes payable and, as applicable, changes in our deferred taxes, related valuation allowance positions and uncertain tax positions.

Results of Operations

The following tables set forth our results of operations for the periods presented (in thousands, except per share data):

(1)
Includes stock-based compensation expense as follows:

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Comparison of the Years Ended January 31, 2025 and 2024

Revenue

The $52.4 million, or 5%, increase in revenue during the year ended January 31, 2025 was primarily driven by seat growth in existing customers, continued strong attach rates of our multi-product Suites offerings, particularly Enterprise Plus, and strong growth in Japan. For the year ended January 31, 2025, our Suites attach rate was 85% in deals over $100,000, an increase from 78% for the year ended January 31, 2024. The increase was partially offset by the weakening of foreign currency exchange rates, which negatively impacted our revenue growth rate by 210 basis points, and customers partially churning their deployment with Box.

Cost of Revenue

The $32.5 million, or 12%, decrease in cost of revenue during the year ended January 31, 2025 was primarily due to decreases of $27.3 million in depreciation expense and $20.1 million in bandwidth and data center related expense due to the completion of our migration to the public cloud from our collocated data centers. Additionally, there was an increase of $4.3 million in gains related to the sale of data center assets and decreases of $1.1 million in consulting services, $1.0 million in subscription software contract expense, and $0.9 million in workforce reorganization costs, which were incurred in the prior year. This decrease was partially offset by an increase of $25.0 million in public cloud infrastructure costs, driven by our migration to the public cloud from our collocated data centers. Cost of revenue as a percentage of revenue decreased 420 basis points year-over-year.

Over time, we expect our cost of revenue to increase in absolute dollars but decrease as a percentage of revenue as we invest in public cloud hosting service optimization.

Research and Development

The $16.1 million, or 6%, increase in research and development expense during the year ended January 31, 2025 was primarily due to increases of $15.5 million and $11.1 million in employee related costs and stock-based compensation expense, respectively, driven by a 22% increase in headcount. The increased employee headcount and related costs are driven by the growth in lower cost regions. This increase was partially offset by an increase of $12.1 million in capitalized internally developed software costs. Research and development expenses as a percentage of revenue remained flat year-over-year.

We expect our research and development expenses to increase in absolute dollars but decrease as a percentage of revenue over time as we continue to make significant improvements to our product offerings and services and increase headcount in lower cost regions.

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Sales and Marketing

The $31.5 million, or 9%, increase in sales and marketing expense during the year ended January 31, 2025 was primarily due to increases of $13.0 million and $9.7 million in employee related costs and stock-based compensation expense, respectively, driven by a 7% increase in headcount, and $9.6 million in marketing expenses, driven by increased costs related to marketing events. Sales and marketing expenses as a percentage of revenue increased 100 basis points year-over-year.

We expect to continue to invest in capturing our large market opportunity globally and capitalize on our competitive position with a continued focus on our profitability objectives. We expect our sales and marketing expenses to increase in absolute dollars but decrease as a percentage of revenue over time as our existing customer base grows and a relatively higher percentage of our revenue is attributable to renewals versus new or expanding Box deployments and as we continue to focus on improving sales productivity.

General and Administrative

The $8.4 million, or 7%, increase in general and administrative expense during the year ended January 31, 2025 was primarily due to increases of $4.8 million and $3.3 million in employee related costs and stock-based compensation expense, respectively, driven by a 9% increase in headcount. General and administrative expense as a percentage of revenue increased 100 basis points year-over-year.

We expect our general and administrative expenses to increase in absolute dollars but decrease as a percentage of revenue over time as we benefit from greater operational scale and efficiency.

Interest Income

The $5.0 million increase during the year ended January 31, 2025 was primarily due to an increase of $5.0 million in interest income on cash and cash equivalents and short-term investments due to higher cash and short-term investment balances.

Interest Expense

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The $2.2 million increase during the year ended January 31, 2025 was primarily due to an increase of $2.9 million in interest expense related to the Convertible Notes, particularly the 2029 Convertible Notes, which bear interest at a rate of 1.50% per year. This increase was partially offset by a decrease of $0.8 million in interest expense related to our finance leases.

Other Expense, Net

The $9.1 million increase in other expense, net during the year ended January 31, 2025 was primarily due to the convertible debt inducement expense of $10.1 million. This increase was partially offset by a decrease of $1.4 million in foreign currency losses.

(Benefit from) Provision for Income Taxes

We monitor the realizability of our deferred tax assets taking into account all relevant factors at each reporting period. As of January 31, 2025, we concluded that it is more likely than not that our U.S. federal and state deferred tax assets are realizable, with the exception of California. We released $201.2 million of our valuation allowance associated with the U.S. federal and state deferred tax assets. Approximately $177.6 million of the total valuation allowance release was related to deferred tax assets to be realized in the future years and the remainder benefited us during the year ended January 31, 2025. As of January 31, 2025, we maintained our valuation allowance associated with the California state deferred tax assets.

The $93.0 million increase during the year ended January 31, 2025 was primarily due to a $102.4 million increase from the $177.6 million net benefit from the release of the U.S. federal and state valuation allowance, which exceeded the prior year's net benefit from the release of the U.K. valuation allowance of $75.2 million. This was partially offset by an increase of $10.0 million in foreign tax expense as a result of increased profitability.

Liquidity and Capital Resources

As of January 31, 2025, we had cash and cash equivalents, restricted cash, and short-term investments of $724.4 million. During the year ended January 31, 2025, we generated operating cash flow of $332.3 million. Since our inception, we have financed our operations primarily through equity financing, cash generated from operations and debt financing. We believe our existing cash, cash equivalents, and short-term investments, together with our credit facility, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and beyond. Our long-term capital requirements will depend on many factors including our growth rate, subscription renewal activity, billing frequency, public cloud obligations, repayment or refinancing of our debt obligations, settlement of our convertible senior notes and convertible preferred stock, the timing and extent of spending to support development efforts, the expansion of international activities, the introduction of new and enhanced service offerings, and the continuing market acceptance of our services. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

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Cash Flows

For the years ended January 31, 2025, 2024, and 2023, our cash flows were as follows (in thousands):

Operating Activities

For the year ended January 31, 2025, cash provided by operating activities was $332.3 million. The primary factors affecting our operating cash flow during this period were our net income of $244.6 million, stock-based compensation of $219.0 million, amortization of deferred commissions of $52.6 million, depreciation and amortization of our property and equipment, capitalized software, and intangible assets of $22.1 million, and induced conversion expense of $10.1 million, partially offset by $171.2 million in deferred income taxes. Cash provided by operating activities during the year ended January 31, 2025 was further adjusted by net cash outflows of $42.8 million due to changes in our operating assets and liabilities.

The primary drivers for the changes in operating assets and liabilities include a $52.3 million increase in deferred commissions resulting from capitalization of incremental commissions paid to our sales force, a $28.1 million decrease in operating lease liabilities due to recurring lease payments, and a $14.5 million increase in accounts receivable primarily due to timing of our cash collections. These cash outflows were partially offset by a $27.7 million increase in deferred revenue, and a $23.3 million decrease in operating right-of-use assets due to amortization.

Investing Activities

Cash used in investing activities of $23.2 million for the year ended January 31, 2025 was primarily driven by $121.3 million in purchases of short-term investments, $27.6 million in capitalized internal-use software costs, $3.5 million in cash paid for an acquisition, and $2.6 million of fixed asset purchases. These cash outflows were partially offset by $123.5 million in maturities and sales of short-term investments and $8.4 million in proceeds from sales of property.

Financing Activities

Cash used in financing activities of $62.4 million for the year ended January 31, 2025 was primarily driven by $211.1 million in repurchases of our common stock, $191.7 million paid for the partial repurchase of the 2026 Convertible Notes, $79.3 million of employee payroll taxes paid related to net share settlement of stock awards, $52.5 million for the purchase of capped calls related to the 2029 Convertible Notes, $30.0 million principal payments on the revolving loan facility, and $15.0 million of dividend payments to preferred stockholders. These cash outflows were partially offset by $447.8 million in proceeds from the issuance of the 2029 Convertible Notes, net of issuance costs, $30.3 million in proceeds from the settlement of capped calls related to the 2026 Convertible Notes, $25.9 million from issuances of common stock under our employee equity plans, and $19.1 million proceeds from exercise of stock options.

Debt

In September 2024, we issued $460.0 million aggregate principal amount of 1.50% convertible senior notes due September 15, 2029. The 2029 Convertible Notes are senior unsecured obligations and bear interest at a rate of 1.50% per year payable semiannually in arrears on March 15 and September 15 of each year, beginning on March 15, 2025. Each $1,000 principal amount of the 2029 Convertible Notes will be convertible into 23.0102 shares of our Class A common stock, which is equivalent to a conversion price of approximately $43.46 per share, subject to adjustment upon the occurrence of specified events. Upon conversion, we will satisfy our conversion obligation by paying cash up to the aggregate principal amount of the 2029 Convertible Notes to be converted and we will pay or

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deliver, as the case may be, the conversion premium in cash, shares of common stock or a combination of cash and shares of common stock, at our election.

In January 2021, we issued $345.0 million aggregate principal amount of 0.00% convertible senior notes due January 15, 2026. The 2026 Convertible Notes are senior unsecured obligations and do not bear regular interest. Each $1,000 principal amount of the 2026 Convertible Notes is convertible into 38.7962 shares of our Class A common stock, which is equivalent to a conversion price of approximately $25.78 per share, subject to adjustment upon the occurrence of specified events. We have made an irrevocable election to settle the principal portion of the 2026 Convertible Notes only in cash. Accordingly, upon conversion, we will pay the principal in cash and we will pay or deliver, as the case may be, the conversion premium in cash, shares of common stock or a combination of cash and shares of common stock, at our election.

In September 2024, using proceeds from the issuance of the 2029 Convertible Notes, we entered into separate and privately negotiated transactions with certain holders of the 2026 Convertible Notes to repurchase $140.0 million aggregate principal amount of the 2026 Convertible Notes.

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 with a $45.0 million sublimit for the issuance of letters of credit. In September 2024, we paid down our $30.0 million debt outstanding and had no outstanding debt as of January 31, 2025. In December 2024, we entered into Amendment No. 1 to the June 2023 Facility to decrease the revolving commitments from $150.0 million to $75.0 million and maintain the $45.0 million letter of credit sublimit.

Refer to Note 9 in Part II, Item 8 of this Annual Report on Form 10-K for detailed descriptions of the Convertible Notes and the June 2023 Facility.

Series A Convertible Preferred Stock

On April 7, 2021 we entered into an Investment Agreement with KKR and certain other investors relating to the issuance and sale of 500,000 shares of our Series A Convertible Preferred Stock, par value of $0.0001 per share, for an aggregate purchase price of $500 million, or $1,000 per share (the “Issuance”). Refer to Note 10 in Part II, Item 8 of this Annual Report on Form 10-K for a detailed description of our Series A Convertible Preferred Stock.

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. During the year ended January 31, 2025, we repurchased 7.6 million shares at a weighted average price of $27.90 per share for a total amount of $211.5 million. As of January 31, 2025, $52.0 million remained authorized and available for additional repurchases.

On March 4, 2025, we announced that our Board of Directors authorized an expansion of the share repurchase plan. Under this expansion, an additional $150 million of our class A common stock may be repurchased in open market transactions through March 3, 2026.

Off-Balance Sheet Arrangements

Through January 31, 2025, we did not have any relationships with unconsolidated entities that have, or are reasonably likely to have, a material effect on our financial statements.

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Contractual Obligations and Commitments

Our principal commitments consist of (i) obligations under operating leases for office spaces, (ii) purchase obligations not recognized on the consolidated balance sheet as of January 31, 2025, which relate primarily to public cloud hosting services and IT software and support services, and (iii) debt, including obligations under our June 2023 Facility and Convertible Notes. For more information regarding our obligations for leases, purchase agreements, and debt, refer to Notes 6, 8, and 9, respectively, in Part II, Item 8 of this Annual Report on Form 10-K.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the temporary differences between the financial statement and tax basis of assets and liabilities using the enacted tax rates in effect for the years in which the differences are expected to reverse.

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts we believe are more likely than not to be realized. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character, within the carry-back or carry-forward periods available under the applicable tax law. In assessing our need for a valuation allowance, we consider available evidence, including past operating results, expirations or limitations of tax attributes, estimated future taxable income, and the feasibility of tax planning strategies. Our judgment regarding future estimates may change due to many factors, including future market conditions and the ability to successfully execute our business plans and tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our provision for income taxes would increase or decrease in the period in which the assessment is changed. A release of a valuation allowance would result in the recognition of certain deferred tax assets and material income tax benefit in the period of release. As of January 31, 2025, we evaluated all negative and positive evidence and determined that the U.S. federal and state deferred tax assets, with the exception of California, are more likely than not to be realizable resulting in an income tax benefit of $201.2 million. As of January 31, 2025, we maintained our valuation allowance associated with the California state deferred tax assets. As of January 31, 2024, we evaluated all negative and positive evidence and determined that the U.K. deferred tax assets are more likely than not to be realizable resulting in an income tax benefit of $79.1 million. Refer to Note 13 in Part II, Item 8 of this Annual Report on Form 10-K for more information.

Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Significant judgment is required in determining the technical merits of an uncertain tax position, such as taking into account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities.

Recently Adopted and Issued Accounting Pronouncements

Refer to Note 2 in Part II, Item 8 of this Annual Report on Form 10-K regarding the effect of recently adopted and issued accounting pronouncements on our financial statements.

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Non-GAAP Financial Measures

Regulation S-K Item 10(e), “Use of Non-GAAP Financial Measures in Commission Filings,” defines and prescribes the conditions for use of non-GAAP financial information. Our measure of non-GAAP free cash flow (as defined above) meets the definition of a non-GAAP financial measure.

We use non-GAAP financial measures and our key metrics for financial and operational decision-making (including for purposes of determining variable compensation of members of management and other employees) and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures and key metrics provide meaningful supplemental information regarding our performance by excluding certain expenses that may not be indicative of our recurring core business operating results. We believe that both management and investors benefit from referring to these non-GAAP financial measures and key metrics in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures and key metrics also facilitate management’s internal comparisons to our historical performance as well as comparisons to our competitors’ operating results. We believe these non-GAAP financial measures and key metrics are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

Non-GAAP operating income and non-GAAP operating margin

We define non-GAAP operating income as GAAP operating income excluding expenses related to stock-based compensation, acquired intangible assets amortization, and as applicable, other special items. Non-GAAP operating margin is defined as non-GAAP operating income divided by revenue. Although stock-based compensation is an important aspect of the compensation of our employees and executives, determining the fair value of certain of the stock-based instruments we utilize involves estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. Management also views amortization of acquired intangible assets, such as the amortization of the cost associated with an acquired company’s developed technology and trade names, as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are continually evaluated for impairment, amortization of the cost of purchased intangibles is a static expense that is not typically affected by operations during any particular period. We also exclude the following expenses as they are considered by management to be special items outside of our core operating results: (1) fees related to shareholder activism, (2) expenses related to certain litigation, (3) expenses associated with a non-recurring workforce reorganization, consisting primarily of severance and other personnel-related costs, and (4) expenses related to acquisitions.

Non-GAAP net income attributable to common stockholders and non-GAAP net income per share attributable to common stockholders

We define non-GAAP net income attributable to common stockholders as GAAP net income attributable to common stockholders excluding expenses related to stock-based compensation, acquired intangible assets amortization, amortization of debt issuance costs, the income tax benefit from the release of a valuation allowance on deferred tax assets, induced conversion of convertible notes, undistributed earnings attributable to preferred stockholders, and as applicable, other special items as described in the preceding paragraph. We define non-GAAP net income per share attributable to common stockholders as non-GAAP net income attributable to common stockholders divided by the weighted-average outstanding shares.

Non-GAAP Free Cash Flow

We define non-GAAP free cash flow as cash flows from operating activities less net capital expenditures (purchases of property and equipment less proceeds from sales of property and equipment), principal payments of finance lease liabilities, capitalized internal-use software costs, and other items that did not or are not expected to require cash settlement and that management considers to be outside of our core business. We specifically identify adjusting items in our reconciliation of GAAP to non-GAAP financial measures. We consider non-GAAP free cash

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flow to be a profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can possibly be used for investing in our business and strengthening ​the​ balance sheet, but it is not intended to represent the residual cash flow available for discretionary expenditures. The presentation of non-GAAP free cash flow is also not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity.

Limitations on the use of non-GAAP financial measures

A limitation of our non-GAAP financial measures is that they do not have uniform definitions. Our definitions will likely differ from the definitions used by other companies, including peer companies, and therefore comparability may be limited. Thus, our non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

We compensate for these limitations by reconciling non-GAAP financial measures to the most comparable GAAP financial measures. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view our non-GAAP financial measures in conjunction with the most comparable GAAP financial measures.

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Our reconciliation of the GAAP to non-GAAP financial measures for years ended January 31, 2025, 2024 and 2023 are as follows (in thousands, except per share data and percentages):

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled “Risk Factors” and in other parts of this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operations for the year ended January 31, 2024 compared to the year ended January 31, 2023 is presented below. A discussion regarding our financial condition and results of operations for the year ended January 31, 2023 compared to the year ended January 31, 2022 can be found under Part II, Item 7 of our Annual Report on Form 10-K for the year ended January 31, 2023, filed with the SEC on March 13, 2023, which is available on the SEC’s website at www.sec.gov.

Overview

Box is the Content Cloud: a secure and intelligent content platform. Box gives organizations a single platform for their unstructured data – which typically represents about 90% of all data within an organization. This data is content – from blueprints to wireframes, videos to documents, proprietary formats to PDFs – and it is the source of an organization’s unique value. The Box Content Cloud enables our customers, to securely manage the entire content lifecycle, from the moment a file is created or ingested to when it is shared, edited, published, approved, signed, classified, and retained. Box keeps content secure and compliant, while also allowing easy access and sharing of this content from anywhere, on any device – both within the organization and with external partners.

With our SaaS platform, users can work with their content as they need – from secure external collaboration and workspaces, to e-signature processes and content workflows – improving employee productivity and accelerating business processes. IT teams can establish a space for compliant content management, and developers can easily create customized portals for white-labeled content collaboration. Administrators have a plethora of security, data protection, and compliance features they can activate to provide users with a better way to meet legal and regulatory requirements, internal policies, and industry standards and regulations. The Box platform enables a broad range of high-value business use cases – and integrates with more than 1,500 leading business applications. With hundreds of file formats and media types supported, Box is compatible with multiple application environments, operating systems, and devices – ensuring that workers can securely access their critical business content whenever and wherever they need it.

In addition, we continue to innovate by expanding our core services and offerings. We recently announced Box Hubs to surface curated content quickly and securely through intelligent portals. Box Hubs will be available with Box AI, a new set of capabilities announced last quarter, to natively integrate advanced AI models. Using Box Hubs with Box AI, customers can easily get answers to critical questions about their content in Box, and create content using their enterprise data. Moreover, Box Canvas, our natively integrated, interactive virtual whiteboarding tool, is now available to all customers. We also currently provide the following offerings: Box Sign, which enables customers with secure, seamless e-signatures right where their content lives in Box; Box Shield, our advanced security offering that helps customers reduce the risk of accidental content leakage and protect their business from insider threats and account compromise, as well as threat detection, response, and recovery for potential malware incidents, including ransomware; Box Relay, which allows our end users to easily build, manage, track, and automate workflows with no coding necessary; Box Zones, which gives global customers the ability to store their content locally in certain regions; Box KeySafe, a solution that builds on top of Box’s strong encryption and security capabilities to give customers greater control over the encryption keys used to secure the file contents that are stored with Box; Box Platform, which further enables customers and partners to build enterprise applications using our open APIs and developer tools; Box Governance, which gives customers a better way to comply with regulatory policies, help satisfy e-discovery requests and effectively manage sensitive business information throughout its lifecycle; Box Notes, our native content authoring tool which enables users to seamlessly share and collaborate in real time; and Box Shuttle, which allows for easy, affordable, self-service content migration directly from the admin console from more than ten source systems, into Box. In addition, with Box Consulting, organizations can access

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professional services for critical topics like implementation, technology and application development, and change management and user training. The increasing traction of these product innovations allows our customers to realize the full set of capabilities of our Content Cloud.

We offer our solution to our customers as a subscription-based service, with subscription fees based on the requirements of our customers, including the number of users and functionality deployed. The majority of our customers subscribe to our service through one-year contracts, although we also offer our services for terms ranging from one month to three years or more. We typically invoice our customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments. We recognize revenue as we satisfy our performance obligations. Accordingly, due to our subscription model, we recognize revenue for our subscription services ratably over the term of the contract.

Our objective is to build an enduring business that creates sustainable revenue and earnings growth over the long term. To best achieve this objective, we focus on growing the number of users and paying organizations through direct field sales, direct inside sales, indirect channel sales and through word-of-mouth by individual users, some of whom use our services at no cost. Individual users and organizations can also simply sign up to use our solution on our website. We believe this approach not only helps us build a critical mass of users but also has a viral effect within organizations as more of their employees use our service and encourage their IT professionals to deploy our services to a broader user base.

As of January 31, 2024, we had over 100,000 paying organizations, and our solution was offered in 25 languages. We define paying organizations as separate and distinct buying entities, such as a company, an educational or government institution, or a distinct business unit of a large corporation, that have entered into a subscription agreement with us to utilize our services.

Organizations typically purchase our solution in the following ways: (i) employees in one or more small groups within the organization may individually purchase our service; (ii) organizations may purchase IT-sponsored, enterprise-level agreements with deployments for specific, targeted use cases ranging from tens to thousands of user seats; (iii) organizations may purchase IT- sponsored, enterprise-level agreements (ELAs) where the number of user seats sold is intended to accommodate and enable nearly all information workers within the organization in whatever use cases they desire to adopt over the term of the subscription; and (iv) organizations may purchase our Box Platform service to create custom business applications for their internal use and extended ecosystem of customers, suppliers and partners. Customers can choose between an a la carte approach (i.e., by purchasing specific add-on products to complement their Box subscription) or one of our bundled Enterprise Plus plan, which include multiple add-on products to help accelerate customer time to value.

We intend to continue scaling our organization to meet the increasingly complex needs of our customers. Our sales and customer success teams are organized to efficiently serve organizations ranging from small businesses to the world’s largest global organizations. We have invested in our sales and marketing teams to sell our services around the world, as well as in our development efforts to deliver additional features and capabilities of our cloud services to address our customers’ evolving needs. We also expect to continue to make investments in both our infrastructure to meet the needs of our growing global user base and our professional services organization (Box Consulting) to address the strategic needs of our customers in more complex deployments and to drive broader adoption across a wide array of use cases.

Current Period Highlights

For the years ended January 31, 2024 and 2023, our revenue was $1.038 billion and $0.991 billion, respectively, representing year-over-year growth of 5%, or 7% growth on a constant currency basis. As of January 31, 2024, our remaining performance obligations were $1.305 billion, representing a 5% increase from our remaining performance obligations of $1.245 billion as of January 31, 2023, or 9% growth on a constant currency basis. For the year ended January 31, 2024, our gross profit was $777.1 million, and our gross margin was 74.9%, compared to our gross profit of $738.3 million and our gross margin of 74.5% for the year ended January 31, 2023. For the year ended January 31, 2024, our operating income was $50.8 million and our operating margin was 4.9%, compared to our operating income of $36.8 million and our operating margin of 3.7% for the year ended January 31, 2023. For the year ended January 31, 2024, our net cash provided by operating activities was $318.7 million, an

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increase of 7% from net cash provided by operating activities of $298.0 million for the year ended January 31, 2023. For the year ended January 31, 2024, our non-GAAP free cash flow was $269.0 million, an increase of 13% from non-GAAP free cash flow of $238.4 million for the year ended January 31, 2023.

Continuous Innovation

During the fiscal year ended January 31, 2024, several new products and product enhancements were made generally available or announced, including:

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Box AI for Documents and Notes – a new set of capabilities, powered by advanced AI models natively integrated in the Box platform, enhancing how users work in Box. Box AI will accelerate productivity in Box. With Box AI for Documents, users can ask questions about a document, generate insights from a report, or summarize a presentation. With Box AI for Notes, users can create content from scratch or refine drafted information.

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Box Hubs – intelligent portals to surface curated content quickly and securely. We expect Box Hubs will soon be available with Box AI, so customers can easily query multiple documents that are organized in a Hub and quickly get answers to critical questions. All content published in a Hub will retain Box’s enterprise-grade security, governance, and compliance capabilities, so that content in a Hub is only made available to its intended audience.

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Box Canvas – a Box-native visual collaboration and whiteboarding tool. Box Canvas includes unlimited Canvases for every plan as well as an easy-to-use, feature-rich toolset that enables users to ideate, brainstorm and collaborate visually directly in Box.

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Box Shield Enhancements – Addresses potential threats stemming from prohibited geographic regions by empowering administrators to automatically block detected threats, reducing response time and significantly reducing the burden to the administrator.

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Zero Trust Administrative Security – Added new protections to secure administrators against attack, including mandatory multi-factor authentication (MFA) checks for certain critical or high-risk actions, such as enabling or disabling MFA for their organization.

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Box + CrowdStrike – Expanded our endpoint protection by integrating with the CrowdStrike Falcon solution. Available soon, this integration enables Box Shield to ingest CrowdStrike’s Zero Trust Assessment (ZTA) score and take remediating action automatically. The ZTA score assesses over 100 factors of device security to ensure that only secure, trusted devices are allowed access to Box.

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No-Code Business Application Builder – Box acquired Crooze, a leading provider of no-code enterprise content management applications built on the Box platform, in December 2023. Crooze technology brings a no-code business process application builder, an extensive set of metadata tools, customizable dashboard views, and content automation — to our secure, intelligent Content Cloud. With Crooze, customers can quickly address key business process use cases, including managing contracts, document libraries and digital assets. We expect to soon have Crooze technology integrated natively into the Box Content Cloud to help our customers power content experiences and workflows.

•
Enhancements to Box Sign – Added support for 21 CFR Part 11 compliance, ability to specify recipient groups for faster time-to-signature, customizable signature request expiration dates, dropdown menus, radio buttons, and signer attachment fields, ability for senders to prefill fields and toggle them as read-only fields, keyboard shortcuts and commands, ability to embed signing experience within custom applications, reusable template APIs, webhook support to detect bounced email IDs, and pre-built third-party integrations with Workato and Slack Workflow Builder.

•
Enhancements to Integrations – Added Box for Microsoft Office desktop co-authoring to customers in Microsoft’s Semi-Annual Channel for Office 365 updates, Box for Microsoft Teams enhancements so users can edit Box Notes and Microsoft Office files on Box directly in Teams, and new Box Embed

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tools for Salesforce, Slack, and Teams for users to access their Box content and Box native tools like Notes and Canvas directly where they are working.

Impact of Macroeconomic Factors on Our Business

Our overall performance depends in part on worldwide economic and geopolitical conditions and their impact on customer behavior. Worsening economic conditions, including impacts from inflation, higher interest rates, slower growth, the stronger dollar versus foreign currencies, particularly the Japanese Yen, the ongoing Hamas-Israel and Russia-Ukraine conflicts and other changes in economic conditions, may adversely affect our results of operations and financial performance. During the fiscal year ended January 31, 2024, in addition to headwinds from foreign exchange rate trends, we continued to see an impact from additional customer scrutiny being placed on larger deals and lower seat expansion rates due to the challenging macroeconomic environment. As a result, we have experienced, and may continue to experience, increased customer churn and delayed sales cycles, as well as customers and prospective customers reducing budgets related to services that we offer. While we believe IT budgets have tightened and some larger deals have required more scrutiny across verticals and geographies, we also believe we are well-positioned to execute through these dynamic times as the Box Content Cloud enables enterprises to streamline their businesses, drive up productivity, reduce risk, and lower costs.

Our Business Model

Our business model focuses on maximizing the lifetime value of a customer relationship. We make significant investments in acquiring new customers and believe that we will be able to achieve a positive return on these investments by retaining customers, cross-selling our add-on products and expanding the size of our deployments within our customer base over time. In connection with the acquisition of new customers, we incur and recognize significant upfront costs. These costs include sales and marketing costs associated with acquiring new customers, such as sales commission expenses, substantially all of which are deferred and then amortized over a period of benefit, and marketing costs, which are expensed as incurred. We recognize revenue as we satisfy our performance obligations to customers. Accordingly, due to our subscription model, we recognize revenue for our subscription services ratably over the term of the contract.

We experience a range of profitability with our customers depending in large part upon their current stage. We generally incur higher sales and marketing expenses for new customers and existing customers who are still in an expanding stage. For new customers and for customers who are expanding their use of Box, our associated sales and marketing expenses typically represent a higher portion of revenue for the initial subscription term for new customers or the remaining subscription term for existing customers. For customers who are renewing their Box subscriptions, our associated sales and marketing expenses are significantly less than the revenue we recognize from those customers over the term of the renewed subscription. These differences are primarily driven by the higher compensation we provide to our sales force for new customers and customer subscription expansions compared to the compensation we provide to our sales force for routine subscription renewals by customers. We have experienced, and expect to continue to experience, lower sales and marketing expenses as a percentage of revenue as our existing customer base grows over time and a relatively higher percentage of our revenue is attributable to renewals versus new or expanding Box deployments.

Key Business Metrics

We use the key metrics below for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these key metrics provide meaningful supplemental information regarding our performance. We believe that both management and investors benefit from referring to these key metrics in assessing our performance and when planning, forecasting, and analyzing future periods. These key metrics also facilitate management’s internal comparisons to our historical performance as well as comparisons to certain competitors’ operating results. We believe these key metrics are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by institutional investors and the analyst community to help analyze the health of our business.

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Remaining Performance Obligations

Remaining performance obligations (RPO) represent, at a point in time, contracted revenue that has not yet been recognized. RPO consists of deferred revenue and backlog. Backlog is defined as non-cancellable contracts deemed certain to be invoiced and recognized as revenue in future periods. Future invoicing is determined to be certain when we have an executed non-cancellable contract or a significant penalty is due upon cancellation. While Box believes RPO is a leading indicator of revenue as it represents sales activity not yet recognized in revenue, it is not necessarily indicative of future revenue growth as it is influenced by several factors, including seasonality, contract renewal timing, average contract terms and foreign currency exchange rates. Box monitors RPO to manage the business and evaluate performance.

RPO as of January 31, 2024 was $1.305 billion, an increase of 5% from January 31, 2023. The increase in RPO was primarily driven by expansion within existing customers as they broadened their deployment of our product offerings and the conversion to multi-product Suites. The increase in RPO was also driven by the addition of new customers and the timing of customer-driven renewals. RPO growth was partially offset by a negative impact of 240 basis points from foreign currency exchange rates.

Billings

Billings represent our revenue plus the changes in deferred revenue and contract assets in the period. Billings we record in any particular period primarily reflect subscription renewals and expansion within existing customers plus sales to new customers, and represent amounts invoiced for all of our products and professional services. We typically invoice our customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments. If the customer negotiates to pay the full subscription amount at the beginning of the period, the total subscription amount for the entire term will be reflected in billings. If the customer negotiates to be invoiced annually or more frequently, only the amount billed for such period will be included in billings.

Billings help investors better understand our sales activity for a particular period, which is not necessarily reflected in our revenue given that we recognize subscription revenue ratably over the contract term. We consider billings a significant performance measure. We monitor billings to manage our business, make planning decisions, evaluate our performance and allocate resources. We believe that billings offer valuable supplemental information regarding the performance of our business and will help investors better understand the sales volumes and performance of our business. We do not consider billings to be a non-GAAP financial measure because it is calculated using exclusively revenue, deferred revenue, and contract assets, all of which are financial measures calculated in accordance with GAAP.

Billings for the year ended January 31, 2024 were $1.057 billion, an increase of 3% from the year ended January 31, 2023. The increase in billings was primarily driven by expansion within existing customers as they broadened their deployment of our product offerings through the conversion to multi-product Suites, the addition of new customers, and the timing of customer-driven renewals. Billings growth was partially offset by a negative impact of 240 basis points from foreign currency exchange rates.

Our use of billings has certain limitations as an analytical tool and should not be considered in isolation or as a substitute for revenue or an analysis of our results as reported under GAAP. Billings are recognized when invoiced, while the related subscription and premier services revenue is recognized ratably over the contract term as we satisfy a performance obligation. Also, other companies, including companies in our industry, may not use billings, may calculate billings differently, may have different billing frequencies, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of billings as a comparative measure.

Over time, we expect to continue to normalize payment durations. In addition, as we have gained and expect to continue to gain more traction with large enterprise customers, we also anticipate our quarterly billings to increasingly concentrate in the back half of our fiscal year, especially in the fourth quarter.

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A calculation of billings starting with revenue, the most directly comparable GAAP financial measure, is presented below (in thousands):

Non-GAAP Free Cash Flow

We define non-GAAP free cash flow as cash flows from operating activities less purchases of property and equipment, principal payments of finance lease liabilities, capitalized internal-use software costs, and other items that did not or are not expected to require cash settlement and that management considers to be outside of our core business.

Net cash provided by operating activities for the year ended January 31, 2024 was $318.7 million, representing an increase of 7% from the year ended January 31, 2023. Non-GAAP free cash flow for the year ended January 31, 2024 was $269.0 million, representing an increase of 13% from the year ended January 31, 2023.

A reconciliation of non-GAAP free cash flow to net cash provided by operating activities, its nearest GAAP equivalent, is presented in the non-GAAP Financial Measures section at the end of Item 7 of this Annual Report on Form 10-K. The presentation of non-GAAP free cash flow is also not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity.

Net Retention Rate

Net retention rate is defined as the net percentage of Total Annual Recurring Revenue (Total ARR) retained from existing customers, including expansion. We define Total ARR as the annualized recurring revenue from all active customer contracts at the end of a reporting period. We calculate our net retention rate as of a period end by starting with the Total ARR from customers as of 12 months prior to such period end (Prior Period Total ARR). We then calculate Total ARR from these same customers as of the current period end (Current Period Total ARR). Finally, we divide the Current Period Total ARR by the Prior Period Total ARR to arrive at our net retention rate. In calculating our net retention rate, we include only Total ARR associated with those customers who have subscribed to Box for at least 12 months. We believe our net retention rate is an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain and grow revenue from our customer base. Net retention rate is an operational metric and there is no comparable GAAP financial measure to which we can reconcile this particular key metric.

Our net retention rate was 101%, 108%, and 111% as of January 31, 2024, 2023 and 2022, respectively. The decline in our net retention rate as of January 31, 2024 was primarily attributable to heightened budget scrutiny putting pressure on seat expansion within existing customers and increased customer churn. As our customers purchase add-on products or our bundled Enterprise Plus plan, we tend to realize significantly higher average contract values and stronger net retention rates as compared to customers who only purchase our core product. We believe our go-to-market efforts to deliver a solution selling strategy and our investments in product, customer success, and Box Consulting, including our Box Shuttle migration offering, have been significant factors in our customer retention results. As we penetrate customer accounts, we expect our net retention rate to remain above 100% for the foreseeable future.

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Components of Results of Operations

Revenue

We derive our revenue primarily from three sources: (1) subscription revenue, which is comprised of subscription fees from customers who have access to our content cloud platform including routine customer support; (2) revenue from customers purchasing our premier services package; and (3) revenue from professional services such as implementing best practice use cases, project management and implementation consulting services.

To date, practically all of our revenue has been derived from subscription and premier services. Subscription and premier services revenue are driven primarily by the number of customers, the number of seats sold to each customer and the price of our services.

We recognize revenue as we satisfy our performance obligations. Accordingly, due to our subscription model, we recognize revenue for our subscription and premier services ratably over the contract term. We typically invoice our customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments. Our subscription and premier services contracts are typically non-cancellable and do not contain refund-type provisions. The majority of our customers subscribe to our service through one-year contracts, although we also offer our services for terms ranging between one month to three years or more.

Professional services are generally billed on a fixed price basis, for which revenue is recognized over time based on the proportion performed. Professional services revenue was not material as a percentage of total revenue for all periods presented.

Revenue is presented net of sales and other taxes we collect on behalf of governmental authorities.

Cost of Revenue

Our cost of revenue consists primarily of costs related to providing our subscription services to our paying customers, including employee compensation and related expenses for data center operations, customer support and professional services personnel, public cloud hosting costs, depreciation of servers and equipment, security services and other tools, as well as amortization expense associated with acquired technology and capitalized internally developed software. We allocate overhead such as rent, information technology costs and employee benefit costs to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each of the operating expense categories set forth below.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities, information technology costs and employee benefit costs.

Research and Development. Research and development expense consists primarily of employee compensation and related expenses, as well as allocated overhead. Our research and development efforts are focused on scaling our platform, building an ecosystem of best-of-breed applications and platforms, infrastructure, adding enterprise grade features, functionality and enhancements such as workflow automation, intelligent content management capabilities, advanced security, e-signature capability, native visual collaboration and whiteboarding, and artificial intelligence to enhance the ease of use of our cloud content management services. We capitalize certain qualifying costs to develop software for internal use incurred during the application development stage.

Sales and Marketing. Sales and marketing expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel-related expenses, as well as allocated overhead. Marketing programs include but are not limited to advertising, events, corporate communications, brand building, and product marketing. Sales and marketing expense also consists of public cloud hosting, data center and customer support costs related to providing our cloud-based services to our free users. We market and sell our cloud content management services worldwide through our direct sales organization and through indirect distribution channels such as strategic resellers. Our sales and marketing expenses are generally higher for acquiring new or expanding existing customers than for renewals of existing customer subscriptions.

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General and Administrative. General and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, recruiting, information systems, enterprise security, compliance, fees for external professional services and cloud-based enterprise systems, as well as allocated overhead. External professional services fees are primarily comprised of outside legal, accounting, audit and outsourcing services.

Interest and Other Income (Expense), Net

Interest and other income (expense), net consists of interest expense, interest income, gains and losses from foreign currency transactions, and other income and expense. Interest expense consists primarily of interest charges for our line of credit and interest rate swap agreement, interest expense related to finance leases, and the amortization of issuance costs of our convertible senior notes. Interest income consists primarily of interest earned on our cash and cash equivalents and short-term investments. We have historically invested our cash and cash equivalents in overnight deposits, certificates of deposit, money market funds, U.S. treasury securities and non-U.S. government issued securities.

(Benefit from) Provision for Income Taxes

(Benefit from) provision for income taxes consists primarily of state and foreign income taxes and, as applicable, changes in our deferred taxes, related valuation allowance positions and uncertain tax positions.

Results of Operations

The following tables set forth our results of operations for the periods presented (in thousands, except per share data):

(1)
Includes stock-based compensation expense as follows:

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Comparison of the Years Ended January 31, 2024 and 2023

Revenue

The $46.9 million, or 5%, increase during the fiscal year was primarily driven by seat growth in existing customers, continued strong attach rates of our multi-product Suites offerings, particularly Enterprise Plus, and strong growth in Japan. For the year ended January 31, 2024, our Suites attach rate was 78% in deals over $100,000, an increase from 72% for the year ended January 31, 2023. The increase was partially offset by the weakening of foreign currency exchange rates, which negatively impacted our revenue growth rate by 260 basis points, and customers partially churning their deployment with Box.

Cost of Revenue

The $8.1 million, or 3%, increase during the fiscal year was primarily due to increases of $32.2 million in public cloud hosting costs, driven by our migration to the public cloud from our collocated data centers, and $1.3 million in stock-based compensation costs. This increase was partially offset by decreases of $17.4 million in depreciation expense and $7.9 million in bandwidth and data center related expense due to the completion of our migration to the public cloud from our collocated data centers. Cost of revenue as a percentage of revenue decreased 40 basis points year-over-year.

Over time, we expect our cost of revenue to increase in absolute dollars but decrease as a percentage of revenue as we invest in public cloud hosting service optimization.

Research and Development

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The $5.2 million, or 2%, increase during the fiscal year was primarily due to increases of $6.9 million and $5.0 million in allocated overhead costs and employee related costs, respectively, driven by a 4% increase in headcount, $3.8 million in stock-based compensation expense, and $1.2 million in subscription software contract expenses. The increased employee headcount and related costs are driven by the growth in lower cost regions. This increase was partially offset by an increase of $9.9 million in capitalized internally developed software costs and a decrease of $1.8 million in public cloud hosting costs. Research and development expenses as a percentage of revenue decreased 60 basis points year-over-year.

We expect our research and development expenses to increase in absolute dollars but decrease as a percentage of revenue over time as we continue to make significant improvements to our content cloud product offerings and services and shift research and development to lower cost regions.

Sales and Marketing

The $17.2 million, or 5%, increase during the fiscal year was primarily due to increases of $7.4 million in stock-based compensation expense and $3.2 million and $1.6 million in allocated overhead costs and employee related costs, respectively, driven by a 1% increase in headcount. Additionally, there were increases of $2.9 million in marketing expenses, driven by increased costs related to marketing events, and $0.6 million in commission expenses. Sales and marketing expenses as a percentage of revenue increased 20 basis points year-over-year.

We expect to continue to invest in capturing our large market opportunity globally and capitalize on our competitive position with a continued focus on our profitability objectives. We expect our sales and marketing expenses to increase in absolute dollars but decrease as a percentage of revenue over time as our existing customer base grows and a relatively higher percentage of our revenue is attributable to renewals versus new or expanding Box deployments and as we continue to focus on improving sales productivity.

General and Administrative

The $2.4 million, or 2%, increase during the fiscal year was primarily due to increases of $3.2 million in stock-based compensation expense and $1.7 million in subscription software contract expenses. This was partially offset by decreases of $1.3 million in outside agency and consulting services, $0.8 million in legal services, and an increase of $0.4 million in capitalized software costs. General and administrative expense as a percentage of revenue decreased 40 basis points year-over-year.

We expect our general and administrative expenses to increase in absolute dollars but decrease as a percentage of revenue over time as we benefit from greater operational scale and efficiency.

Interest and Other Income (Expense), Net

* Percentage change not meaningful.

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The $14.3 million increase during the fiscal year was primarily due to an increase of $12.8 million in interest income from our certificates of deposit, money market funds, and short-term investments due to a higher interest rate environment and a decrease of $1.3 million in interest expense related to our finance leases.

(Benefit from) Provision for Income Taxes

* Percentage change not meaningful.

We monitor the realizability of our deferred tax assets taking into account all relevant factors at each reporting period. As of January 31, 2024, we concluded that it is more likely than not that our UK deferred tax assets are realizable. We released $79.1 million of our valuation allowance associated with the UK deferred tax assets. Approximately $75.2 million of the total valuation allowance release was related to deferred tax assets to be realized in the future years and the remainder benefited us during the year ended January 31, 2024. We continue to maintain a valuation allowance against our U.S. federal and state deferred tax assets. Given our current U.S. earnings and anticipated future earnings, we believe there is a reasonable possibility in the foreseeable future that sufficient positive evidence of sustained U.S. profitability may become available to allow us to reach a conclusion that the U.S. valuation allowance will no longer be needed.

The $74.1 million increase during the fiscal year was primarily due to a $79.1 million one-time benefit from the release of a valuation allowance on deferred tax assets, partially offset by an increase of $2.4 million in foreign current tax expense, $2.2 million in foreign non-cash deferred tax expense, and $0.5 million in state income tax expense as a result of increased profitability.

Liquidity and Capital Resources

As of January 31, 2024, we had cash and cash equivalents, restricted cash, and short-term investments of $481.2 million. During the year ended January 31, 2024, we generated operating cash flow of $318.7 million. Since our inception, we have financed our operations primarily through equity financing, cash generated from operations and debt financing. We believe our existing cash, cash equivalents and short-term investments, together with our credit facility, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and beyond. Our long-term capital requirements will depend on many factors including our growth rate, subscription renewal activity, billing frequency, public cloud obligations, repayment or refinancing of our debt obligations, settlement of our convertible senior notes and convertible preferred stock, the timing and extent of spending to support development efforts, the expansion of international activities, the introduction of new and enhanced service offerings, and the continuing market acceptance of our services. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

Cash Flows

For the years ended January 31, 2024, 2023, and 2022, our cash flows were as follows (in thousands):

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Operating Activities

For the year ended January 31, 2024, cash provided by operating activities was $318.7 million. The primary factors affecting our operating cash flows during this period were our net income of $129.0 million, stock-based compensation of $198.8 million, amortization of deferred commissions of $54.2 million, and depreciation and amortization of our property and equipment and capitalized software of $51.2 million, partially offset by a non-cash income tax benefit from the release of a valuation allowance on deferred tax assets of $75.2 million. Cash provided by operating activities during the year ended January 31, 2024 was further adjusted by net cash outflows of $41.8 million due to changes in our operating assets and liabilities.

The primary drivers for the changes in operating assets and liabilities include a $49.3 million decrease in operating lease liabilities due to recurring lease payments, a $44.5 million increase in deferred commissions resulting from capitalization of incremental commissions paid to our sales force, and a $21.9 million increase in accounts receivable primarily due to the timing of our cash collections. This was partially offset by a $35.2 million decrease in operating right-of-use assets due to amortization, a $32.7 million increase in deferred revenue, and a $6.8 million decrease in other assets.

Investing Activities

Cash used in investing activities of $82.8 million for the year ended January 31, 2024 was primarily driven by $169.4 million in purchases of short-term investments that were partially offset by $108.0 million in maturities of short-term investments, $16.6 million in capitalized internally developed software costs, $2.7 million in cash paid for acquisitions, net of cash acquired, and $1.8 million of fixed asset purchases, net of sale proceeds.

Financing Activities

Cash used in financing activities of $272.9 million for the year ended January 31, 2024 was primarily driven by $177.1 million in repurchases of our common stock, $74.7 million of employee payroll taxes paid related to net share settlement of stock awards, $30.2 million of principal payments of finance lease liabilities, and $14.9 million of dividend payments to preferred stockholders. This was partially offset by $28.2 million from issuances of common stock under our employee equity plans.

Debt

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 is convertible into 38.7962 shares of our Class A common stock, which is equivalent to a conversion price of approximately $25.78 per share, subject to adjustment upon the occurrence of specified events. We have made an irrevocable election to settle the principal portion of the Convertible Notes only in cash. Accordingly, upon conversion, we will pay the principal in cash and we will pay or deliver, as the case may be, the conversion premium in cash, shares of common stock or a combination of cash and shares of common stock, at our election.

On November 27, 2017, we entered into a secured credit agreement (as amended or otherwise modified from time to time, the “November 2017 Facility”), which provided for a $65.0 million revolving loan facility with a $45.0 million sublimit for the issuance of letters of credit. On June 30, 2023, we entered into an amended and restated credit agreement (the “June 2023 Facility”) to provide for a $150.0 million revolving loan facility and maintain the $45.0 million letter of credit sublimit.

Refer to Note 9 in Part II, Item 8 of this Annual Report on Form 10-K for detailed descriptions of the Convertible Notes, the November 2017 Facility, and the June 2023 Facility.

Series A Convertible Preferred Stock

On April 7, 2021 we entered into an Investment Agreement with KKR and certain other investors relating to the issuance and sale of 500,000 shares of our Series A Convertible Preferred Stock, par value of $0.0001 per share,

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for an aggregate purchase price of $500 million, or $1,000 per share (the “Issuance”). Refer to Note 10 in Part II, Item 8 of this Annual Report on Form 10-K for a detailed description of our Series A Convertible Preferred Stock.

Share Repurchase Plan

In July 2021, our Board of Directors authorized a share repurchase plan to opportunistically repurchase shares of our outstanding Class A common stock in open market transactions. During the year ended January 31, 2024, we repurchased 6.6 million shares at a weighted average price of $27.01 per share for a total amount of $177.0 million. As of January 31, 2024, $63.7 million remained authorized and available for additional repurchases.

On March 4, 2024, our Board of Directors authorized a $100 million expansion of the share repurchase plan, for an aggregate total authorized repurchase amount of $163.7 million. This expansion provides for share repurchases through March 4, 2025.

Off-Balance Sheet Arrangements

Through January 31, 2024, we did not have any relationships with unconsolidated entities that have, or are reasonably likely to have, a material effect on our financial statements.

Contractual Obligations and Commitments

Our principal commitments consist of (i) obligations under operating leases for office spaces, (ii) purchase obligations not recognized on the consolidated balance sheet as of January 31, 2024, which relate primarily to public cloud hosting services and IT software and support services, and (iii) debt, including obligations under both our June 2023 Facility and Convertible Notes. For more information regarding our obligations for leases, purchase agreements, and debt, refer to Notes 6, 8, and 9, respectively, in Part II, Item 8 of this Annual Report on Form 10-K.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the temporary differences between the financial statement and tax basis of assets and liabilities using the enacted tax rates in effect for the years in which the differences are expected to reverse.

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts we believe are more likely than not to be realized. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character, within the carry-back or carry-forward periods available under the applicable tax law. In assessing our need for a valuation allowance, we consider available evidence, including past operating results, expirations or limitations of tax attributes, estimated future taxable income, and the feasibility of tax planning strategies. Our judgment regarding future estimates may change due to many factors, including future market conditions and the ability to successfully execute our business plans and tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our provision for income taxes would increase or decrease in the period in which the assessment is changed. A release of a valuation allowance would result in the recognition of certain deferred tax assets and material income tax benefit in the period of release. As of January 31, 2024, we evaluated all negative and positive evidence and determined that the UK deferred tax assets are more likely than not to be realizable resulting in an income tax benefit of $79.1 million. Refer to Note 13 in Part II, Item 8 of this Annual Report on Form 10-K for more information.

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Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Significant judgment is required in determining the technical merits of an uncertain tax position, such as taking into account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities.

Recently Adopted and Issued Accounting Pronouncements

Refer to Note 2 in Part II, Item 8 of this Annual Report on Form 10-K regarding the effect of recently adopted and issued accounting pronouncements on our financial statements.

Non-GAAP Financial Measures

Regulation S-K Item 10(e), “Use of Non-GAAP Financial Measures in Commission Filings,” defines and prescribes the conditions for use of non-GAAP financial information. Our measure of non-GAAP free cash flow (as defined above) meets the definition of a non-GAAP financial measure.

We use non-GAAP financial measures and our key metrics for financial and operational decision-making (including for purposes of determining variable compensation of members of management and other employees) and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures and key metrics provide meaningful supplemental information regarding our performance by excluding certain expenses that may not be indicative of our recurring core business operating results. We believe that both management and investors benefit from referring to these non-GAAP financial measures and key metrics in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures and key metrics also facilitate management’s internal comparisons to our historical performance as well as comparisons to our competitors’ operating results. We believe these non-GAAP financial measures and key metrics are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

Non-GAAP operating income (loss) and non-GAAP operating margin

We define non-GAAP operating income (loss) as operating income (loss) excluding expenses related to stock-based compensation (SBC), acquired intangible assets amortization, and as applicable, other special items. Non-GAAP operating margin is defined as non-GAAP operating income (loss) divided by revenue. Although SBC is an important aspect of the compensation of our employees and executives, determining the fair value of certain of the stock-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock options, which is an element of our ongoing stock-based compensation expense, is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. For restricted stock unit awards, the amount of stock-based compensation expenses is not reflective of the value ultimately received by the grant recipients. Management believes it is useful to exclude SBC in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. Management also views amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company’s developed technology and trade names, as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are continually evaluated for impairment, amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any particular period. Furthermore, Box excludes the following expenses as they are considered by management to be special items outside of Box’s core operating results: (1) fees related to shareholder activism, (2) expenses related to certain litigation, (3) expenses associated with a non-recurring workforce reorganization, consisting primarily of severance and other personnel-related costs, and (4) expenses related to acquisitions.

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Non-GAAP net income (loss) attributable to common stockholders and non-GAAP net income (loss) per share attributable to common stockholders

We define non-GAAP net income (loss) attributable to common stockholders as net income (loss) attributable to common stockholders excluding expenses related to stock-based compensation, acquired intangible assets amortization, amortization of debt issuance costs, the income tax benefit from the release of a valuation allowance on deferred tax assets, undistributed earnings attributable to preferred stockholders and as applicable, other special items. We specifically identify other​ adjusting ​items in ​our reconciliation of GAAP to non-GAAP net income (loss) attributable to common stockholders. These items include expenses related to certain litigation and the amortization of the issuance costs associated with our Notes, which are amortized as interest expense, because they are considered by management to be special items outside our core operating results. We define non-GAAP net income (loss) per share attributable to common stockholders as non-GAAP net income (loss) attributable to common stockholders divided by the weighted-average outstanding shares. Similarly, the same adjusting items specified in our reconciliation of GAAP to non-GAAP net income (loss) attributable to common stockholders are also excluded from the calculation of non-GAAP net income (loss) per share attributable to common stockholders.

Non-GAAP Free Cash Flow

We define non-GAAP free cash flow as cash flows from operating activities less purchases of property and equipment, principal payments of finance lease liabilities, capitalized internally developed software costs, and other items that did not or are not expected to require cash settlement and that management considers to be outside of our core business. We specifically identify other adjusting items in our reconciliation of GAAP to non-GAAP financial measures. We consider non-GAAP free cash flow to be a profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can possibly be used for investing in our business and strengthening ​the​ balance sheet; but it is not intended to represent the residual cash flow available for discretionary expenditures. The presentation of non-GAAP free cash flow is also not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity.

Limitations on the use of non-GAAP financial measures

A limitation of our non-GAAP financial measures is that they do not have uniform definitions. Our definitions will likely differ from the definitions used by other companies, including peer companies, and therefore comparability may be limited. Thus, our non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.

We compensate for these limitations by reconciling non-GAAP financial measures to the most comparable GAAP financial measures. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view our non-GAAP financial measures in conjunction with the most comparable GAAP financial measures.

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Our reconciliation of the GAAP to non-GAAP financial measures for years ended January 31, 2024, 2023 and 2022 are as follows (in thousands, except per share data and percentages):