Box, Inc. (BOX) Q2 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong financial performance, driven by AI-driven workflows and partnerships, with a positive outlook for revenue and EPS. Despite some vague management responses, the company's focus on AI, strong billings growth, and government sector opportunities are positive indicators. The market is likely to react positively, with a potential stock price increase of 2% to 8%.

Key Financial Performance

Revenue $294 million, up 9% year-over-year (7% in constant currency). Growth driven by customer adoption of Box AI and advanced workflow capabilities.

Operating Margin 28.6%, an improvement year-over-year despite tougher comparisons due to data center equipment sales. Reflects disciplined cost management and efficiency improvements.

EPS (Earnings Per Share) $0.33, $0.02 above the high end of guidance. Reflects strong operational performance and revenue growth.

Remaining Performance Obligations (RPO) $1.5 billion, up 16% year-over-year. Growth driven by Box AI adoption and increased multiyear contract commitments.

Net Retention Rate 103%, up from 102% in Q1 and the year-ago period. Improvement driven by customer upgrades to higher-value plans and net seat growth.

Gross Margin 81.4%, up 40 basis points year-over-year (excluding prior year data center equipment sales). Reflects operational efficiencies.

Free Cash Flow $36 million, up 9% year-over-year. Reflects strong cash generation and disciplined capital allocation.

Cash Flow from Operations $46 million, up 27% year-over-year. Reflects improved operational performance and cash management.

Billings $265 million, up 3% year-over-year (6% in constant currency). Growth driven by Q2 bookings, early renewals, and Box Consulting business performance.

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Operating Highlights

Box AI and Advanced Workflow Capabilities: Continued growth in customer adoption, with revenue growth of 9% (7% in constant currency). Examples include AI-powered metadata extraction and intelligent no-code apps for business processes.

Enterprise Advanced: Strong momentum with nearly doubled deals compared to the prior quarter. Customers are adopting AI-powered solutions for contract management, project planning, and compliance.

New AI Features: Announced updates to Box AI capabilities, including enhanced extract agent and beta launch of MCP server. Integration with AI models like OpenAI's GPT-5 and Anthropic's Claude 4.1.

Partnerships: Collaborations with OpenAI, Anthropic, AWS, Salesforce, and others to integrate Box into broader AI ecosystems. Deloitte announced as a title sponsor for BoxWorks 2025.

Geographic Revenue: Approximately one-third of revenue is generated outside the U.S., with 65% of international revenue from Japan.

Financial Performance: Q2 revenue of $294 million, up 9% year-over-year. Operating margins at 29% and EPS of $0.33, exceeding guidance.

Customer Base: Nearly 2,000 customers paying at least $100,000 annually, with suites customers accounting for 63% of revenue.

Capital Allocation: Repurchased 1.2 million shares for $40 million in Q2, with $112 million remaining in the buyback plan.

AI-First Strategy: Box is transitioning to an AI-first company, equipping employees with AI tools and integrating AI into workflows to enhance productivity.

Leadership Change: Jeff Newsom appointed as Chief Revenue Officer, bringing experience from Google Cloud, Oracle, SAP, and Workday.

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Risk or Challenges

Market Conditions: The company faces challenges from foreign currency exchange rate fluctuations, which have impacted billings and revenue growth. Additionally, macroeconomic conditions could affect customer demand and financial performance.

Competitive Pressures: Box operates in a highly competitive market, particularly in the AI and content management space. The need to continuously innovate and integrate with broader AI ecosystems to remain competitive is critical.

Regulatory Hurdles: The company must ensure compliance with data protection, governance, and security regulations, especially as it handles sensitive enterprise data. Non-compliance could lead to legal and financial repercussions.

Supply Chain Disruptions: No explicit mention of supply chain disruptions was made in the transcript.

Economic Uncertainties: Economic uncertainties, including potential changes in customer spending behavior, could impact the adoption of Box's products and services.

Strategic Execution Risks: The company is undergoing significant transitions, such as the adoption of AI-first strategies and the introduction of new products like Enterprise Advanced. These initiatives require effective execution to avoid operational inefficiencies and missed growth opportunities.

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Guidance & Outlook

Q3 Fiscal 2026 Revenue: Expected to be in the range of $298 million to $299 million, representing approximately 8% year-over-year growth. Includes an expected tailwind from FX of approximately 80 basis points.

Q3 Fiscal 2026 Billings Growth: Anticipated to be approximately 10%, including an expected tailwind from FX of approximately 200 basis points.

Q3 Fiscal 2026 Gross Margin: Expected to be approximately 81%.

Q3 Fiscal 2026 Non-GAAP Operating Margin: Anticipated to be approximately 28%, compared to 29.1% a year ago. Includes a 100 basis point headwind due to the timing of the BoxWorks conference.

Q3 Fiscal 2026 Non-GAAP EPS: Expected to be in the range of $0.31 to $0.32, including an expected tailwind of approximately $0.01 from FX.

Full Fiscal Year 2026 Revenue: Raised expectations to $1.170 billion to $1.175 billion, representing approximately 8% year-over-year growth or 7% in constant currency. Includes a tailwind of approximately 90 basis points from FX.

Full Fiscal Year 2026 Billings Growth: Expected to be approximately 9%, including a tailwind of approximately 230 basis points from FX.

Full Fiscal Year 2026 Gross Margin: Expected to be approximately 81%, representing a year-over-year improvement of 40 basis points when adjusted for the impact of data center equipment sales last year.

Full Fiscal Year 2026 Non-GAAP Operating Margin: Expected to be approximately 28%, including a tailwind of approximately 10 basis points from FX.

Full Fiscal Year 2026 Non-GAAP EPS: Expected to be in the range of $1.26 to $1.28, including an expected tailwind of approximately $0.04 from FX.

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Shareholder Return Plan

Share Repurchase Program: In Q2, Box repurchased 1.2 million shares for approximately $40 million. As of July 31, 2025, the company had approximately $112 million of remaining buyback capacity under its current share repurchase plan. Box remains committed to opportunistically returning capital to its shareholders through its ongoing stock repurchase program.

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Key Q&A

Q:How much of the billings should be attributed to Enterprise Advanced, and is the deal environment improving?

A:Dylan Smith explained that it is hard to parse out exactly how much is coming from Enterprise Advanced and Enterprise Plus, as these are core drivers influenced by AI demand. The outperformance in billings was driven by strong bookings, Box consulting professional services, and early renewals, all influenced by AI capabilities in Enterprise Advanced. The deal environment was not a significant factor.

Q:How are the pipeline dynamics and Enterprise Advanced opportunities expanding use cases and deal sizes?

A:Aaron Levie highlighted that Enterprise Advanced deals focus on AI agents and workflow automation, with use cases like data extraction from documents and creating custom AI agents for employees. These capabilities have led to larger deal sizes and expanded use cases, such as contract management, digital asset management, and medical data processing. The 20%-40% price uplift per seat does not fully capture the broader impact of these functionalities.

Q:What is driving net seat growth, and how is Enterprise Advanced contributing?

A:Dylan Smith stated that net seat growth is driven by high-value use cases enabled by Enterprise Advanced and Enterprise Plus, both of which have robust AI capabilities. This has caused a rebound in the net seat growth metric.

Q:How common are straight upgrades to Enterprise Advanced, and what is the pricing uplift?

A:Dylan Smith noted that straight upgrades to Enterprise Advanced result in a rough doubling of pricing compared to core services, with a 20%-40% uplift when moving from Enterprise Plus to Enterprise Advanced. The momentum is strong, especially given the early stage of Enterprise Advanced's rollout.

Q:How much of the 2Q outperformance was related to early renewals, and what is implied in the guidance for the second half?

A:Dylan Smith explained that early renewals contributed a few million dollars to the outperformance, along with strong bookings and consulting services. The guidance for the second half is prudent due to a challenging environment and quarter-to-quarter variability in billings.

Q:What drove the 1% uptick in net retention rate (NRR), and how is it expected to evolve?

A:Dylan Smith attributed the NRR increase from 102% to 103% to seat growth recovery and steady improvements in pricing, especially with premium suite upgrades. Over time, NRR is expected to improve further, aiming for double-digit overall growth.

Q:How are Enterprise Advanced use cases evolving, and what is the broader vision for MCP server?

A:Aaron Levie mentioned that use cases are expanding to include AI agents and workflow automation for unstructured data across various job functions. The MCP server acts as an abstraction layer, allowing AI systems to access data in Box without replicating it, ensuring security and cost efficiency.

Q:What is Box's take on the MIT report about Gen AI pilots failing, and what lessons have been learned?

A:Aaron Levie emphasized that Box's prebuilt AI solutions address many challenges cited in the report, such as enterprise integration and ROI. Box AI focuses on targeted, high-ROI use cases like metadata extraction and workflow automation, avoiding the pitfalls of homegrown AI systems.

Q:What opportunities are there in the federal sector, and how is Box positioned?

A:Aaron Levie stated that Box is focused on IT modernization and AI adoption in the federal government. With FedRAMP High authorization, Box AI is tailored to federal needs, supporting Enterprise Plus and Enterprise Advanced plans.

Q:How does the doubling of Enterprise Advanced deals compare to historical trends, and what is the mix of new versus expansion deals?

A:Aaron Levie clarified that the doubling refers to the number of Enterprise Advanced deals, driven by both new logos and upsells. The focus remains on driving Enterprise Advanced adoption.

Q:Has Box's appetite for M&A changed with the AI platform's success?

A:Aaron Levie stated that Box remains focused on organic development and product-led strategy. M&A would only be considered for areas requiring additional support or time-to-market advantages.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the exact contribution of Enterprise Advanced to billings, citing difficulty in parsing out the data. Additionally, they used vague language when discussing the guidance for the second half, emphasizing prudence without offering concrete details on expected performance.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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