Cloud storage company Box (NYSE:BOX) took a hit on the market after it released its Q2 earnings report on Wednesday, which sent its stock down 4 percent in after-hours trading. Though revenue was up 28 percent year-over-year to $122.9 million, Box ended its two quarter free cash flow positive streak in the second quarter with free cash flow coming in at negative $14.7 million.
Box CEO Aaron Levie assured analysts that the company is going to be free cash flow positive for the rest of the year.
Billings, a metric that reflects contracts signed for future business, grew 31 percent year-over-year to $139.5 million. Earnings per share were a loss of 11 cents per share, compared to analyst expectations of a loss of 13 cents per share.
Levie told analysts that it saw “thousands of new or expanded deployments” in the second quarter, with particularly strong traction in international markets including Japan and EMEA. It now has 76,000 customers, up 74,000 customers from June.
On the product side of things, Box launched Box Drive in June, that has seen “tremendous early demand” and has increased Box engagement among enterprise employees by up to 60 percent, Levie said. Box expects more momentum here as enterprises retire legacy ECM systems.
Most recently Box announced a new image search feature that leverages the Google Cloud Vision API to help enterprise customers wrangle mass amounts of photos. AI is going to be a key area for Box moving forward, Levie said.
“Taking a step back, we believe AI is the most important technology trend since the cloud, and has the potential to completely change the way that we work,” he said. “To leverage the strength of AI in machine learning, technology providers need three key assets; number one, you need a lot of data; number two, you need the ability to be able to use and learn from that data; and number three, you need frequent activity to be able to train your systems at scale. At Box, we are fortunate to have all three, with one of the largest corporate repositories of content in the world. This materially separates Box from traditional on-premises content management and storage providers. In this context, our new integration with Google Vision is just the beginning.”
Beyond Google, Box said its partnership with Microsoft will help drive its investments in artificial intelligence, and provide opportunity for other synergies as well.
“Another exciting milestone that we announced this quarter is our expanded partnership with Microsoft, which signals a fundamental shift in our relationship,” Levie said. “Under the new agreement, Box will use Azure as a strategic public cloud platform and Microsoft sales reps globally will co-sell and be compensated for selling Box offerings that use Azure. The partnership will also enable future integrations between Azure's artificial intelligence and machine learning capabilities, with Box's cloud content management platform, and will eventually expand Box Zones to additional countries, using Azures 40 data centers around the world.”
Levie told analysts that Box is “very-very happy” with how its partnership with Microsoft is coming together.
Levie said, “As we have long seen and continue to share with the market and what we are seeing from customers is Box and Microsoft complement each other in a significant portion of the product area, so whether it's our integration with Office 365, where you can edit documents very easily from Box directly. Things like Azure Active Directory that we use as an identity service provider for our customers. We have overall seen a very-very healthy relationship with Microsoft, but that expanded in June, where we created a partnership, where our customers are going to be able to use Box with Azure for things like storage in international locations, so that increases -- over time, that will increase our Box Zone's footprint to now 40 locations around the world, as well as begin to include new cognitive capabilities from the Azure Stacks, there is a lot of technology they are working on, that can help customers process and better understand their content.”
Other Box products that saw increased adoption in Q2 include Box KeySafe, Zones, Governance and Platform. “This past quarter, 60 percent of our deals of more than $100,000, included at least one of these new products,” Levie said.