Box (BOX) Down 11.6% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Box (BOX). Shares have lost about 11.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Box due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Box Q2 Revenues Top Estimates, Earnings Match

Box reported second-quarter fiscal 2023 earnings per share of 28 cents, in line with the Zacks Consensus Estimate. The figure jumped 33.3% year over year and 21.7% sequentially.

Total revenues were $246 million, beating the consensus mark by 0.5%. Also, the top line increased 14.7% year over year and 3.2% from the prior quarter’s level.

The growing adoption of Box’s Content Cloud drove the top line. However, unfavorable foreign exchange remained a headwind.

Nevertheless, Box closed 86 deals in the fiscal second quarter. BOX saw a 72% attach rate of its suites owing to increasing demand for multi-product suite offerings. Nearly 40% of revenues were generated from suite sales compared with 28% in the year-ago period.

Strength in customer acquisition and retention drove the results. Box’s net retention rate was 112% at the end of the fiscal second quarter, expanding 600 basis points (bps) from the prior-year fiscal quarter’s end-level.

The remaining performance obligations for the reported quarter were $1.05 billion, up 14% on a year-over-year basis.

Billings and Deferred Revenues

Billings were $235 million for the reported quarter, improving 10% year over year.

Deferred revenues were $458 million in the fiscal second quarter, increasing 9% from the prior fiscal-year quarter’s reading.

Quarter in Detail

Box witnessed several wins and expansions with companies like Apellis Pharmaceuticals, ByteDance, Marriott International, New York Genome Center, Playbill Incorporated and Reddit in the reported quarter.

BOX introduced security enhancements in its core platform to help admins and security teams protect the flow of content inside and outside the organization and across multiple devices.

Box made enhancements for the Salesforce integration so that customers can use it for signature-based processes and workflows in Salesforce.

Box expanded its global network of Box zones with the addition of the France zone, which includes a primary data center in Paris and a secondary in Marseille. With the introduction of the France zone, BOX aims to help French companies and multinational organizations operate in France store their content with maximum security and governance.

The abovementioned initiatives were key takeaways from the fiscal second quarter.

Operating Results

Non-GAAP gross margin was 76.2%, expanding 170 bps from the same-quarter level in the previous year.

Box’s operating expenses of $178 million increased 11.4% year over year. As a percentage of revenues, the figure contracted 214 bps from the year-ago quarter’s level to 72.4%.

On a non-GAAP basis, BOX recorded an operating margin of 21.7%, which expanded 110 bps from the prior-year quarter’s level.

Balance Sheet and Cash Flow

As of Jul 31, 2022, cash and cash equivalents were $348.9 million compared with $391.4 million as of Apr 30, 2022. BOX’s short-term investments amounted to $44.7 million compared with $127.9 million in the previous fiscal quarter.

Accounts receivables amounted to $166.6 million at the end of the fiscal second quarter, which increased from $117.1 million at the prior fiscal-quarter end.

Box generated $28.3 million of cash from operations in the reported quarter, down from $107.7 million in the previous fiscal quarter. Additionally, BOX generated a free cash flow of $18 million in the fiscal second quarter.

In the reported quarter, Box repurchased 4.6 million shares for approximately $118 million.

Guidance

For third-quarter fiscal 2023, Box expects revenues between $250 million and $252 million, suggesting a 13% rise at the high-end of the range from the prior fiscal year’s reported figure.

On a non-GAAP basis, BOX projects earnings per share of 29-30 cents. Non-GAAP operating margin for the fiscal third quarter is expected to be 23%.

For fiscal 2023, Box anticipates revenues between $992 million and $996 million, indicating an increase of 14% from the last fiscal year’s reading at the high-end of the range.

On a non-GAAP basis, BOX raised its guidance for earnings per share from $1.11-$1.15 to $1.13-$1.16. Non-GAAP operating margin for the full fiscal is expected to be 22.5%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -14.29% due to these changes.

VGM Scores

Currently, Box has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Box has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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