Box Inc. (NYSE: BOX) Q4 2020 Earnings Call Transcript

Box Inc. (NYSE: BOX) Q4 2020 Earnings Conference Call

February 26, 2020

Corporate Participants:

Alice Kousoum Lopatto — Director, Investor Relations

Aaron Levie — Chairman and Chief Executive Officer

Dylan Smith — Chief Financial Officer

Analysts:

Richard Hilliker — Wells Fargo — Analyst

Ittai Kidron — Oppenheimer — Analyst

Matthew Coss — JP Morgan — Analyst

Melissa Franchi — Morgan Stanley — Analyst

Brian Peterson — Raymond James — Analyst

Brett Knoblauch — Berenberg Capital Markets — Analyst

Rishi Jaluria — D.A. Davidson — Analyst

Chad Bennett — Craig-Hallum — Analyst

Terry Kiwala — First Analysis — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Box Incorporated Fourth Quarter Fiscal 2020 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Alice Lopatto, Head of Investor Relations. Thank you. Please go ahead ma’am.

Alice Kousoum Lopatto — Director, Investor Relations

Good afternoon and welcome to Box’s fourth quarter and fiscal 2020 earnings conference call. On the call today we have Aaron Levie, our CEO; and Dylan Smith, our CFO. Following our prepared remarks, we will take questions.

Today’s call is being webcast and will also be available for replay on our Investor Relations website at www.box.com/investors. Our webcast will be audio only, however supplemental slides are now available for download from our website. We’ll also post the highlights of today’s call on Twitter at the handle @boxincir.

On this call we will be making forward-looking statements, including our Q1 and FY ’21 financial guidance and our expectations regarding our financial performance for fiscal 2021 and future periods, timing of and market adoption of our products, our markets and market size, our operating leverage, our expectations regarding maintaining positive free cash flow, gross margins, operating margins future profitability and unrecognized revenue and remaining performance obligations, our planned investments in growth strategies, our ability to achieve our long-term revenue and other operating model targets and expected timing and benefits from our new products, pricing and partnership. These statements reflect our best judgment based on factors currently known to us and actual events or results may differ materially. Please refer to the press release and the risk factors in documents we filed with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for information on risks and uncertainties that may cause actual results to differ materially. These forward-looking statements are being made as of today, February 26, 2020, and we disclaim any obligation to update or revise them, should they change or cease to be up to date.

In addition, during today’s call we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from our GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and in the related PowerPoint presentation, which can be found on the Investor Relations page of our website. Unless otherwise indicated, all references to financial measures are on a non-GAAP basis.

With that, let me hand it over to Aaron.

Aaron Levie — Chairman and Chief Executive Officer

Thanks Alice, and thanks everyone for joining the call today. Before we go into our quarterly results, I’d first like to share a few thoughts about what we accomplished in the business in FY ’20. Overall FY ’20 was a critical year for us in fully building out our multi-product platform to address the broad needs of our nearly 100,000 customers and driving more efficient and profitable growth. In the year, we launched our powerful native workflow solution Box Relay and the most advanced content security technology Box Shield. These two major products as well as hundreds of other platform enhancements we deployed in the year have enabled us to deliver the leading cloud content management platform in the market, with a more comprehensive product portfolio in place, we launched our Enterprise Suites to bring together our advanced capabilities in a single bundled package, and we expanded our integration partnerships with Microsoft, IBM, Splunk, Adobe, Google and many others to enable our customers to experience the full power of Box.

At the same time, in the year, we made meaningful progress toward driving more profitability and leverage through more efficiency and focus across our operations. As mentioned on our last earnings call, we have implemented a more stringent ROI-based approach to all areas of the business, in order to significantly improve our balance between growth and profitability. Overall, our changes to drive greater efficiency are starting to yield positive results and we expect them to have a meaningful impact to our financial performance in FY ’21 and beyond.

Now, switching to the results from the quarter. In Q4, revenue was $183.6 million, up 12% year-over-year above the high end of our guidance. Billings was $281.9 million, up 19% year-over-year. Non-GAAP EPS in Q4 was $0.07 compared to $0.06 a year ago and also above the high end of our guidance, and we delivered on our commitments to achieve our first full year of non-GAAP profitability in fiscal year ’20 with non-GAAP EPS of positive $0.03 versus negative $0.12 a year ago.

We delivered wins and expansions with thousands of customers in Q4, including US Forest Service, Macquarie Bank, ATB Financial, VICE Media, Sekisui House in Japan and many more. We closed a 112 deals greater than $100,000 versus 94 a year ago. 14 deals over $500,000 versus 12 a year ago, and four deals over $1 million versus two a year ago. and more than 80% of our $100,000 plus deals include at least one add-on product. We also delivered a record quarter in add-on product bookings of over 60% year-over-year growth, and we are thrilled to share that Box Shield is already exceeding our expectations growing faster at this point in it’s rollout than any other add-on product in our history.

Further, our Enterprise Suite continue to be successful in making it easier for new and existing customers to adopt the full power of Box. For example, a multinational technology company who has been a customer since 2016 renewed their contract in Q4 with $100,000 plus Box Suite deal. Through this expansion, they will add Box Core licenses and extend Box Relay, Shield and Platform to their entire Box instance. The deployment of these add-on products will bolster security of their most sensitive information, further integrate their IT applications and infrastructure. A North American financial services company purchased the Suite in the six figure deal to reduce cost by becoming completely paperless, improve operational efficiency, manage enterprise risk and create an engaging digital client experience portal for clients and agents to collaborate in by leveraging the Box Platform and Box Shield. And finally, an international information technology company purchased a six figure Suite deal that will extend its use of Core Box to Box Governance, Platform and Relay for its entire organization including employees in 150 countries.

Over the past few years, we’ve been methodically building out the category-defining cloud content management platform, focused on our three key differentiators. Frictionless security and compliance, secure external and internal collaboration and workflow and world-class integrations and APIs that extend the value of Box Platform to every application. We are glad to say that we met a significant milestone in that journey by being named the cloud content management leader by all three major analyst firms, Gartner, Forrester and IDC. We remain excited by the size of the market we’re going after and we’re in the best position to go after the tens of billions of dollars spent every year on content management collaboration and security around content as it moves to the cloud. And these trends driving enterprises to move the cloud are only accelerating. Every enterprise is going through significant digital transformation to better serve customers and employees. Content is growing exponentially. More apps are being deployed over time. Collaboration is becoming more cross-enterprise and cyber security threats and compliance challenges proved difficult to overcome.

The legacy approach to managing, securing, governing, storing and driving workflows on content no longer works and basic file sharing tools can solve the problems that enterprises are dealing with. We’re building the only platform that can truly disrupt how companies work with their content, and our pace of innovation is only increasing as we scale. For example, in Q4, we launched automated classification within Box Relay, our workflow product. This capability enables organizations to automatically secure content right when it’s created by incorporating security classifications into automated workflows. Together Box Relay and Shield now enable organizations to integrate content security in an easy and consistent way that feels natural in the flow of work.

Also in Q4, we expanded our partnership with Zoom to power secure content management for video collaboration. The all-new Zoom integration for Box allows users to easily share Box content and Zoom enabling easy collaboration on files without having to leave the Zoom app. We now provide a single secure content layer for more than 1,400 applications including Office 365 and Microsoft teams, Slack, G Suite and Apple’s iWork, just to name a few.

Finally earlier this month, we launched a new Box Shield in Splunk integration first announced at BoxWorks. Now with the new Shield in Splunk integration security teams using Shield can leverage the benefits of Splunk’s cloud-based monitoring and the ability to investigate several security incidents such as data exfiltration, insider threats and anomalous behavior. To defend against increasingly sophisticated risks, organizations need a best-in-class security stack that works well together and that is what we’re delivering.

We’re thrilled with the product delivery we saw in FY ’20 and FY ’21 is setting up to be a banner year for innovation at Box. Throughout FY ’21, we will be delivering significant innovation by expanding our security and compliance offerings with more intelligent solutions, expanding our workflow and collaboration capabilities and continuing to embed into the world’s leading SaaS applications and build out our platform APIs.

Now, looking ahead to FY ’21. As we laid out at Investor Day in October, we are focused on driving a greater balance of growth and profitability as we scale. For the full year, we are targeting a combination of revenue growth and free cash flow margin of at least 25%. We are committed to achieving this goal and have already implemented several initiatives to drive growth and achieve greater profitability. To drive efficient and consistent revenue growth, we will continue to execute on our multi-product strategy and drive more efficiency in our go-to-market motion. We are going after one of the largest markets in SaaS, and our strategy is to focus on growing existing accounts by continuing to drive product adoption and seat expansion as well as efficiently driving new logo acquisition in key markets for growth. Just within our customer base today, we have billions of revenue opportunity by selling more seats and products.

We are continuing to optimize our go-to-market motion for scale, including better aligning compensation and incentives to drive higher renewals and expanding customers by selling suites and add-on products. Further to drive higher productivity levels across sales, in the past few months, we have shifted investments from lower performing segments and regions to higher productivity segments in the business.

Next to drive greater profitability, as we discussed in our last call, we are focused on three key initiatives: First, is optimizing workforce expenses by further optimizing headcount investments and our location strategy. Second, is improving gross margins through our public cloud strategy and more efficient infrastructure utilization across our platform. And third is taking an ROI-based approach to all areas of spend, including greater cost discipline across the business. We are already executing on all three of these areas and we see more opportunity ahead to drive even greater efficiency, improving the combination of revenue growth and free cash flow margin of at least 25% in FY ’21 to at least 35% in FY ’23. Dylan will provide more detail on these efforts shortly.

Before I conclude, I want to take a moment to share with you the progress we’ve made in building and maintaining an unparalleled culture at Box. Box’s the first and foremost on the amazing talent of our Boxers and this continues to be a key driver of our evolution. Together with the Box community, our Board and leadership team have been dedicated to cultivating an open inclusive and collaborative environment where employees can do their best work. Just last week we were recognized for the second year in a row as one of Fortune Magazine’s top 100 places to work, and just as we are focused on continuing to bring on world-class talent in the business as we did last year we are also continuing to build out a world-class board. We’ve added three seasoned operators as directors in the past couple of years and we will continue to evolve the Board as we shape the company for the future. While there’s more work to be done, we are focused on delivering long-term healthy growth rates and to drive significantly more profitability in our business going forward. We have made tremendous progress in this past year in laying the foundation to achieve major near-term milestones for FY ’21.

With that, I’ll hand it over to Dylan.

Dylan Smith — Chief Financial Officer

Thanks, Aaron. Good afternoon everyone and thank you for joining us today. In the fourth quarter, we continued to demonstrate momentum in our cloud content management strategy, exceeding the high end of our ranges for top and bottom line guidance. For the full year of FY ’20 we delivered on our commitment to generate our first year of non-GAAP profitability. As Aaron mentioned, in FY ’21, we remain committed to achieving at least 25% of combined revenue growth plus free cash flow margin. In particular, we plan to significantly improve our profitability this year delivering non-GAAP operating margin of 9% to 10% versus our prior target of 8%, and up from 1% in FY ’20.

As we continue to drive cost discipline and leverage throughout FY ’21, we expect to exit the year with Q4 operating margin in the low teens. To accomplish this, we’ll continue to focus on profitability improvements in three key areas. First, we are optimizing our workforce expenses by eliminating non-strategic roles, reducing headcount in lower performing geographies and hiring in more productive or lower cost locations. As a result we exit Q4 with 60 fewer employees than we had at the end of Q3. Second, we’re improving gross margin by optimizing our data center footprint and other costs to deliver our service. We’re on track to complete our data center migration in the coming months with the majority of duplicative costs now behind us. We’ve also renegotiated key contracts to reduce our public cloud cost structure. Finally our R&D organization is working on several projects to drive further efficiencies in delivering our service to customers. Third, we’re driving cost discipline across the business by continuing to take a more rigorous ROI-based approach to all spending. For example, we’ve been rationalizing our marketing programs and events, reducing our outside consulting spend, streamlining T&E and leveraging systems and automation to drive efficiencies as we scale.

Let’s now move on to our quarterly results. We delivered revenue of $183.6 million in Q4, up 12% year-over-year and above the high end of our guidance. 25% of our Q4 revenue came from regions outside of the United States, driven by continued strength in Japan, which now accounts for more than 10% of global revenue. Our remaining performance obligations or RPO represent non cancellable contracts that we expect to recognize as revenue in future periods. This metric consists of deferred revenue and backlog offset by contract assets. We ended Q4 with RPO at $767.8 million, up 12% year-over-year. We expect to recognize approximately 65% of this RPO over the next 12 months.

Fourth quarter billings came in at $281.9 million, representing 19% calculated and 18% duration adjusted billings growth year-over-year. In Q4, a handful of large customers, originally set to renew in Q1 decided to expand their Box footprint by purchasing additional products and fees. These early renewals and expansion drove roughly $10 million of additional billings in Q4 that would have normally been build in Q1 of FY ’21. Even adjusting for this impact, in Q4, we would have achieved our strongest billings growth for any quarter in FY ’20. For the full year of FY ’21, after adjusting for the previously mentioned early renewals, we expect billings growth to track roughly in line with revenue growth.

As Aaron mentioned, we’re seeing increasing momentum in customers adopting our cloud content management portfolio driven by the recent introductions of Box Relay, Box Shield and Suites. Total add-on product bookings in Q4 were up more than 60% year-on-year with add-on products now representing 17% of our total recurring revenue. We’re also seeing continued improvement in closing large deals. In Q4, we closed 112 deals worth more than $100,000 versus 94 a year ago, up 19% year-over-year. Additionally, we closed 14 deals over $500,000 versus 12 a year ago and four deals over $1 million versus two a year ago.

Turning to margins. Non-GAAP gross margin came in at 71.5% versus 73.5% a year ago, an improvement from our Q3 gross margin of 70.7%. As we’ve mentioned previously, throughout FY ’20 the migration of our data center footprint to more scalable, lower-cost regions involve temporary higher costs as we supported duplicative data centers. We expect Q1 gross margin to be roughly in line with Q4 of FY ’20 and we expect FY ’21 gross margin to be in the range of 72% to 73%. As we consolidate our data center footprint and benefit from the other optimizations we’ve discussed, we expect this upward trend to continue in future years, landing at roughly 75% by FY ’23.

Q4 was another successful quarter of driving leverage across the business as we continue to scale and focus on our cost and productivity initiatives. Sales and marketing expenses in the quarter were $64.9 million, representing 35% of revenue, down from 39% in the prior year. In the coming year, we will focus on achieving more consistent execution, while driving higher efficiency by selling our broader product offerings to existing customers. In combination with the headcount reductions, we already made in non-strategic roles and low-performing regions, in FY ’21, we expect to decrease sales and marketing expenses in absolute dollars, generating at least 6 points of leverage year-over-year as a percentage of revenue.

We’re entering FY ’21 with quota carrying sales reps up 2% year-over-year. Note that we expect quota carrying sales headcount to remain roughly flat over the course of the next year with a greater proportion of these reps in high-performing regions. This provides us with sufficient sales capacity to deliver against our FY ’21 growth targets.

Research and development expenses were $35.2 million or 19% of revenue, up from 18% last year as we significantly enhanced our cloud content management product offerings, including the continued development of Box Shield and Box Relay. In FY ’21, we will continue to enhance these products features and capabilities to further differentiate our platform, while also executing on software efficiency projects to improve our gross margin. As such in FY ’21, we expect R&D to remain roughly flat year-over-year as a percentage of revenue.

Our general and administrative costs were $18.8 million or 10% of revenue, a reduction of 1 percentage point from a year ago. We expect to drive continued leverage in G&A through greater operating discipline and automation as we scale. For FY ’21, we expect G&A spending as a percentage of revenue to decrease by roughly 1 percentage point. Total Q4 operating expenses represented 64% of revenue compared to 68% a year ago. So despite the temporary 2% reduction in gross margin, we were able to drive our Q4 non-GAAP operating margin to a 2 percentage point improvement year-over-year, coming in at 7% versus 5% a year ago.

Non-GAAP EPS came in at $0.07 compared with $0.06 a year ago and above the high end of our guidance. The cost discipline initiatives that Aaron and I discussed are already well underway, which will show up more fully in our bottom line results throughout FY ’21. In Q4, our full churn rate was 4% on an annualized basis, stable versus Q3. We ended Q4 with an annualized net retention rate of 104% down from 105% last quarter. These calculations exclude customers paying us less than $5,000 who currently represent roughly 10% of our recurring revenue.

Going forward, we will be including all customers and our churn and net retention calculations, both of which will be year-over-year measures. GIven our increased focused on driving an efficient Land and Expand go-to-market motion, we’re seeing large enterprise customers start with sub $5,000 deployments and expand significantly over time. This new methodoloty will provide a more comprehensive view of how existing customers contribute to our overall revenue growth. Under this new methodology, our Q4 full churn rate was just over 5% on an annualized basis and our net retention in Q4 was still 104%. As we lap the impact of the single large customer reduction we saw in the first quarter of last year, we expect to see an improvement in our net retention rate beginning in Q1 of this year. With respect to pricing trends. Once again, we saw an improvement in our price per seat on a year-over-year basis reflecting the strong customer uptake of our add-on products. We now have 13.6 million paid users.

Let me now move on to our balance sheet and cash flow. We ended the quarter with $195.6 million in cash, cash equivalents and restricted cash. Cash flow from operations was $15.0 million in Q4 compared to $31.3 million a year ago. This was impacted by the prepayment to a public cloud provider that we mentioned on our last earnings call, customer payments that we had expected to collect in Q4 which we ultimately collected in February, an elevated capital lease payments associated with our data center migration. Collectively these three factors amounted to a roughly $18 million impact. As a result free cash flow in the fourth quarter was essentially zero compared to positive $21.0 million a year ago.

In Q4, total capex was $1.2 million versus $2.2 million a year ago. Capital lease payments, which we factor into our free cash flow calculation were $12.3 million versus $6.7 million a year ago as we invested in equipment related to our data center migration project. Combined, capex and capital lease payments were 7% of revenue. We expect capex and capital lease payments combined to be roughly 8% of revenue in Q1 and 7% to 8% of revenue for the full year of FY ’21.

With that, let’s now turn to our guidance. For the full year of fiscal 2021, we expect revenue to be in the range of $771 million to $777 million, representing approximately 11% to 12% year-over-year growth. We expect our FY ’21 non-GAAP EPS to be in the range of $0.38 to $0.44 on approximately 160 million diluted shares. Our GAAP EPS is expected to be in the range of negative $0.78 to negative $0.71 on approximately 154 million shares. For the first quarter of fiscal 2021, we are setting revenue guidance in the range of $183 million to $184 million, representing approximately 12% to 13% year-over-year growth. We expect our non-GAAP EPS to be in the range of $0.04 to $0.06 and for our GAAP EPS to be in the range of negative $0.25 to negative $0.23 on approximately 157 million and 151 million shares respectively.

In summary, we’re pleased with the progress we made this past year in building out our cloud content management product portfolio while optimizing our go-to-market motions to drive more predictable and profitable growth. We’re committed to achieving at least 25% in the combination of revenue growth plus free cash flow margin in FY ’21 and at least 35% in FY ’23. We’re confident that this year’s plan sets the stage to drive further profitability improvements in the years to come as we continue building on our leadership position for the long-term.

With that, I would like to open it up for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Phil Winslow from Wells Fargo. Your line is open.

Richard Hilliker — Wells Fargo — Analyst

Hi guys, this is Rich Hilliker on for Phil. Congrats on a strong finish to the year. Just a quick one for Dylan and one for Aaron. So, first regarding guidance for Dylan, at your Analyst Day and you guys mentioned it a few times on this call, you guided fiscal ’21 to a combined 25% of revenue growth plus free cash flow margin. With equal contributions before, and so you would kind of, I guess attributed that to a little bit of prudence because it was a slight downtick from then 2020 guidance. And while we’re glad to see the fiscal ’20 revenue was better than expected, we noticed that fiscal ’21 guidance implies a slight downtick from there? So I guess kind of same question as we posed at Analyst Day, kind of curious if you could help us understand what drove this change despite the strong billings and deferred revenue to end the year?

So — and I guess also to add on to that, curious whether the possibility for reacceleration is still on the table. Just given that you increased your operating margin guidance as well. Thanks.

Dylan Smith — Chief Financial Officer

Sure. So we set our guidance in a way that we expect to meet or exceed and overall that dynamic in terms of how we’re thinking about the balance between both growth and profitability as well as the commitment that we laid out at Analyst Day haven’t changed. What we don’t provide free cash flow margin guidance, the high end of our revenue and operating margin guidance ranges are consistent with that commitment to deliver 25% in the combination of revenue growth and free cash flow margin, and I’d note that we typically expect to see annual free cash flow margin come in a few percentage points higher than operating margin, due largely to the cash impact of the difference between billings and revenue. And this year, we should have a fairly normalized cash flow dynamic as well.

And in terms of the overall kind of growth, we are seeing our growth rate stabilizing and very focused on maintaining healthy growth rates in the future. Really driving and focused on more consistent execution, especially now that we have broader product offerings and we have reallocated a lot of our go-to-market resources from lower performing regions to invest in our higher-performing regions. That combined with our focus on driving expansion from within our existing customer base, which is also more efficient type of sale are the types of things that give us confidence in the overall growth rate.

Richard Hilliker — Wells Fargo — Analyst

Okay, great. That’s helpful. And then one for Aaron just to close up here. In the press release you guys had talked about and a little bit on the call, you talked about how the enterprise suite adoption was strong and you saw some record business from add-on products, particularly Shield. I was wondering if you could talk a little bit more about Shield’s impact on Suite adoption and maybe even Suites impact or Shield’s impact on Suite adoption relative to Relay. Thanks.

Aaron Levie — Chairman and Chief Executive Officer

Yes. Thank you for the question. So Shield is definitely a one of the core catalysts for Suite adoption, primarily because it’s a completely horizontal product that really every industry is facing challenges around data security. And one of the, kind of key phenomenon that happens as you move content from an on-premises environment to the cloud is the architecture of securing that content fundamentally changes, you can’t really have bolt-on security technologies that you manage yourself in your data center. And so it really becomes the cloud providers responsibility for ensuring the security of your content. So that’s created this massive opportunity for us to deliver more innovation around content security and that’s obviously what Shield is focused on. And so that’s broadening the — probably the budget pool and the wallet share that we can go after within customers in a very again horizontal way that there is working across all sides of customers in all industries.

So I think — and then maybe the only other point is there is obviously a lot of momentum built up coming into Q4 around Shield, so that is — that was one of the big drivers of Shield driving a lot of the Suite adoption. And then to your second point on Relay. We’re very happy with the Relay, our performance thus far. It’s probably less quantifiable as a catalyst to Suites as Shield is, but it is driving a lot of fantastic use cases I guess deeper into the workflow of our customers. So you can imagine how important it is to embed much more deeply into their business processes, whether that’s customer onboarding, HR onboarding, document review and approval, digital asset approvals and so it will ultimately make Box far stickier over time, which is what we’re really excited about.

Operator

Your next question comes from the line of Ittai Kidron from Oppenheimer. Your line is open.

Ittai Kidron — Oppenheimer — Analyst

Thanks. He really killed my name. Ittai here. Congrats guys on a great quarter and great to see all the initiatives that you work so hard on for long, for this long finally pay some dividends. Aaron, I did want to ask you about the Suites adoption and especially, more in the context of how — what is the mandate for sales? Is it focussed more on sell Shield and Relay or try to push-to-suite for us. Help me understand the path that the sales are mandated to walk through? And then Dylan on the 112, 100K deals, can you tell us how many of them are Suite deals?

Aaron Levie — Chairman and Chief Executive Officer

Yes. Thanks Ittail. So on the first part of the question, we are — we have differentiated some of our incentives toward our add-on product strategy. That doesn’t pretty good differentiate suites versus add-on products, because we want to make sure we’re doing what is in the best interest of the customer and where they are in their journey with Box. That being said, the sales motion itself is vastly more efficient when our sales reps are selling Suite. And so, very organically, we’re seeing that push toward Suite selling with again that compensation differentiation still being there because it’s driving our add-on product growth. So we’re seeing plenty of uptake across the sales force. It obviously is still an evolving part of our sales motion just because we have thousands of transactions a quarter, and we have to make sure that this is really entering into each of those conversations. But overall, we’re happy with the early adoption that we’re seeing across our sales force going into customers and we have additional programs that were driving that will only increase that in the near term.

Operator

Your next question comes from the line of Mike Murphy from JP — Mark Murphy, my apologies, from JP Morgan. Your line is open.

Matthew Coss — JP Morgan — Analyst

Hi, good afternoon. This is Matt Coss on behalf of Mark Murphy. Thanks for taking our questions. Aaron you just said the sales motion is vastly more efficient when reps are selling suites. How do you feel that your sales reps are tracking towards that 15% sales productivity improvement goal? And then in addition to incentivizing reps to add — to sell add-on products, what other changes have you made or steps have been taken to get confident that you’ll get to this 15% sales productivity improvement goal?

Aaron Levie — Chairman and Chief Executive Officer

Yes. So we have a handful of levers and Dylan can build on this. Certainly but the kind of big focus area, first is that pricing and packaging evolution. So making sure that our reps are able to sell at a higher average contract value that drives obviously productivity rates pretty, pretty considerably. So that’s really about suites and to Ittai’s prior question we are seeing a growing population of those $100,000 plus deals that do include suites. Obviously it is really only the first quarter where suites were out there, so — with Shield and so that’s, that’s going to be a growing percentage. So, the first is on ACV increases. The second is on on significant focus on sales enablement and productivity improvements on just driving that repeatable sales motion that we’ve talked about a bunch, how do we get a consistent land and expand motion, where more and more of our reps are participating every single month of every single quarter, driving up-sells and cross-sells of our products into the customer base.

And then I think the third dynamic is really around a mix of performance management as well as shifting investment into higher productivity segments of the business, where we do see greater performance of the average rep. And so, those are in — again the segments that we’ve — I think called out previously. But where we know that we still have dramatic addressable market that we can go and reach, and we see high productivity rates and so moving more of our dollars into those segments. The combination of those various levers drive that 15% productivity improvement that we called out in Analyst Day.

Matthew Coss — JP Morgan — Analyst

Great. And then it looks like the sequential growth in short-term RPO. In this Q4, it’s a lot better than it was in the last Q4. Is there any reason behind that in addition to early renewals that you saw?

Aaron Levie — Chairman and Chief Executive Officer

INo. As we had noted and expected, we did see a higher volume of multi-year renewals, not necessarily payments, but longer contracts and large customers coming up in Q4. We successfully executed those which helps RPO recover to more normalized levels as we had set the expectation for. And then on top of that pretty pleased with the overall volume of new deals including customer expansion that we saw in the quarter, which had a benefit to RPO as well.

Matthew Coss — JP Morgan — Analyst

Thank you, both.

Operator

Your next question comes from the line of Melissa Franchi from Morgan Stanley. Your line is open.

Melissa Franchi — Morgan Stanley — Analyst

Great. Thanks for taking my question. I wanted to dig into Box Relay and just wondering if you’re seeing any meaningful change in adoption since you all came out with a new updated version of Box Relay last year?

Aaron Levie — Chairman and Chief Executive Officer

Yes. Thanks Melissa. So definitely, seeing a pretty healthy uptake also in part because its now included in in our Suite bundle that we are driving. So you’re just getting multiple ways that customers can go an adopt Relay. And so it’s now in the hands of vastly more customers at the end of Q4 than it was just even in Q2 of that year — of last year. The use cases are probably the part that is — are exceeding our expectations. We — we’ve been really, really satisfied with the breadth of types of use cases where customers have either a paper-based process or they have a legacy process from a legacy document management system or they’re using e-mail or other tools to be able to drive workflows that are really about moving content through a business process. And so this can be anything from when you need to on-board a new client at a bank, when you need to be able to review any type of documentation or any kind of contracts before they have to get signed by a customer, any type of digital asset process.

So we’re seeing a really broad set of use cases. And we’ve made sure that Relay can be adopted horizontally across our entire customer base as easily as possible. So it’s price for the entire company to use, which means that we’re going to see more and more organic adoption once customers end up purchasing it and turn it on for their organization. So very happy about Relay. It has definitely delivered on the goal that we had, which was having a native workflow solution that would let us rapidly innovate on the product and make sure that it was much more embedded into our core user experience. So that that part is also been — that pieces have been proven out, which is really important to our strategy around embedding more into business process over time as opposed to just being used for collaboration or file sharing.

Melissa Franchi — Morgan Stanley — Analyst

Okay. Thanks for the color. And then a quick one for Dylan. I’m wondering if you can comment on what you’re seeing in terms of ASPs? So it sounds like you’re starting to see some early Suite adoption, but if we’re just thinking about the core product, on a like to-like basis, what are you seeing in terms of ASP trends?

Dylan Smith — Chief Financial Officer

Yes. So, as mentioned, we did see our price per seat ASP improving year-on-year and that’s been a consistent trend that we’ve see now for more than a year. That — as mentioned is now being primarily driven by the impact of add-on products and even more so, now that we have suites more regularly being adopted by customers. We are seeing from a core seat price, a little bit of an uptick as well over time. So we’ve been able to maintain the value of the core offering, even as we sell these larger deals and capture the upside from the impact of the add-on products.

Melissa Franchi — Morgan Stanley — Analyst

Great. Thank you very much.

Operator

Your next question comes from the line of Brian Peterson from Raymond James. Your line is open.

Brian Peterson — Raymond James — Analyst

Thank you and congrats on a really strong billings number this quarter, gentlemen. But just maybe one for you Aaron. So on the R&D side, we’ve seen a lot of products launched since the IPO. I’m just curious, what is the cadence of new products that we should expect going forward? Or is the platform, the portfolio broad enough to where we’re really going to be focused on maybe improvements to what you’ve already announced today?

Aaron Levie — Chairman and Chief Executive Officer

Yes. Thanks Brian. I think that’s spot on, so probably in the past four or five years just purely coincidental with the kind of post-IPO time frame, we have broadened out the product portfolio in a pretty methodical and I think rigorous way. We had really started the company has a secure file sharing collaboration tool focused on enterprises. We expanded with advanced data security with things like Keysafe and our permissions model. Then right around the IPO time or just a little bit before we launched our real first add-on product, which is our governance module then expanded our platform, then obviously skills. And then this year has been a dramatic increase with workflow and really now Shield for really advanced security.

I think when you look at that breadth of capabilities, we have now kind of checked the major boxes that we’re hearing from customers in terms of — to be able to move content to the cloud, to be able to power more use cases, to help extend their use cases with Box, maybe retire legacy network file shares or document management system. So we feel like the core platform is in a much better state at the moment. Really then obviously it’s ever been, and now it’s about going deep within these product areas. So I would say that you’re going to see a lot of innovation in the categories of security and compliance workflow and collaboration and our platform. But it’s not going deep in each of those three pillars, as opposed to the same cadence maybe we’ve been on for new skews, I think we have actually plenty to sell to customers at this point.

What we want to now do is command more value from each of those add-on products, make sure that we can go and solve much deeper customer challenges in security or in workflow or in data governance. And so I think you’re going to see us go deep in these core areas. And then of course on a regular basis as appropriate continue to add more into the portfolio when we think it makes sense. When we think there’s a big opportunity for us to either enter an adjacent category or possibly expand one of our product lines into another space. So that’s a super high level. A lot of innovation, but a lot of about going deep in the pillars that we’ve launched and really now getting the majority of our customer base under these products.

Brian Peterson — Raymond James — Analyst

Understood. Thank you, Aaron. May be Dylan, as we think about selling into the installed base and really focusing on expanding. How does that work from a contract perspective, when they see a significant add-on, does that become coterminous, does the contract date change? Just trying to see if there could be any impact on that to billings as we think about fiscal year ’20 and beyond? Thank you.

Dylan Smith — Chief Financial Officer

Yes. Sure. So, it sometimes depends on the situation and the magnitude of the sales or many times that that contracts or that sale will become coterminus and doesn’t change the renewal date. But in a lot of cases and especially when the expansion is a larger percent relative to what a customer is paying before that expansion, then we will often kind of bring in reset the contract date and that’s exactly the dynamic that we saw in Q4, which was driven by, in particular, a lot of the pull we were seeing from the market with Shield and Suites in particular. So in that example we called out that we drove $10 million of additional Q4 billings from expanding those customers who had been set to renew in Q1. So in those cases we did end up billing them for what would have been billed in Q1, a quarter early, effectively billing them twice in FY ’20, and then their new renewal dates with a new contract would be in Q4 of FY ’21.

So in short, it depends on the situation, and especially if we see pretty consistent execution in volumes here, it shouldn’t have too much of an impact of the overall billings growth rate as it will be embedded into just the overall run rate of business as we’ve seen. But to your point that certainly could create a little bit of variability from a quarterly — quarter-to-quarter basis.

Brian Peterson — Raymond James — Analyst

Got it. Thanks Dylan.

Operator

Your next question comes from the line of Brett Knoblauch from Berenberg Capital Markets. Your line is open.

Brett Knoblauch — Berenberg Capital Markets — Analyst

Hi guys. Thanks for taking my questions. A couple from me. The first is on stock-based comp in your guide, is a relatively large step up for FY ’21. It seems like you guys have been hovering around 20% as a percentage of revenue in your guide and closer to 25%, is there — I guess any meaningful change in incentives that’s really driving that stock-based comp guide?

Dylan Smith — Chief Financial Officer

No. So, wouldn’t — there hasn’t been a change in — on that front in terms of what’s leading to stock-based comp. I would say that while we don’t control all the factors that lead into that, we have been very mindful of the overall dilution and would expect both stock-based comp and that burn rates to trend down steadily over time.

Brett Knoblauch — Berenberg Capital Markets — Analyst

Okay. Thank you. And then maybe just on international, it seems like international is strong in the quarter. I mean you also referenced Japan as a stand out, is there any coronavirus kind of factored into your guidance or maybe how you’re thinking about that?

Aaron Levie — Chairman and Chief Executive Officer

So, at the moment, we haven’t seen an impact in our conversations with customers. So, again, purely anecdotally, it’s not yet showing up. We — we’re obviously in watch and see mode and watching it very carefully. The guidance that we’re providing right now is obviously not factoring in what could certainly happen, but we have no reasonably that this is a risk at the moment. But we’re in watch and see mode I think, like the rest of the IT sector.

Brett Knoblauch — Berenberg Capital Markets — Analyst

Okay. Perfect. Thank you guys.

Operator

Your next question comes from the line of Rishi Jaluria from D.A. Davidson. Your line is open.

Rishi Jaluria — D.A. Davidson — Analyst

Hey guys. Thanks for taking my questions. Nice to see a pretty solid quarter across the board. Dylan I’ve got two questions for you. First, I want to follow-up on the prior question on stock-comp and maybe just a little bit on that. So look, I mean stock-comp, given your growth brings us feel little high right, 21% of revenue, 4.5% dilution in FY ’20. Your guidance tells us about 4.1% dilution in FY ’21 as we see picking up to about 23% of revenue. I mean, I guess what gives you confidence to say that that will come down over time. And then if some of that is going to share from stock-comp to cash comp as have to happen if they’re actually going to bring down the levels of SBC does that potentially create a headwind to your free cash flow margin? And then I’ve got a follow-up.

Dylan Smith — Chief Financial Officer

Sure. So on that, would say that we very intentionally kind of set the equity budgets in the overall and that maps to our overall hiring strategy and expectations for the future is what drives that confidence in the overall trajectory, certainly on the dilution that we more directly control to come down over time. A note to make there is that it’s not necessarily coming from a shift from stock-based comp and the cash comp, but rather some of the other trends related to optimizing our workforce expenses that we had called out earlier. So for example, everything we’re doing around just managing and meeting the overall headcount growth that we’ve talked about will certainly impact that amount of dilution and then also stock-based comp.

And then as part of the overall location, a lever that we’re pulling is we are increasingly higher in areas outside of the Bay Area, those roles tend to — and those folks in those places tend to have lower equity requirements, because of where the market is in those locations. So it’s really the combination of the overall way that we expect to grow the company as well as where we’ll be doing so.

Rishi Jaluria — D.A. Davidson — Analyst

Okay. Great. That’s helpful. And then in your prepared remarks you made a lot of references to [Indecipherable] the business as a percent of recurring revenue. Can you just remind us how big is that non-recurring piece of your business and is that all just professional services minus your — from your services fees, if I’m not mistaken, you do recognize ratably? Thanks.

Dylan Smith — Chief Financial Officer

Sorry, you — to clarify, you’re asking about the professional services line item of revenue?

Rishi Jaluria — D.A. Davidson — Analyst

Sorry, I’m asking how much of your revenue is non-recurring directionally and what is that…

Dylan Smith — Chief Financial Officer

Got it.

Rishi Jaluria — D.A. Davidson — Analyst

Implies that, is that just of the non-premier professional service?

Dylan Smith — Chief Financial Officer

Sure. Yes. So it is — it’s been running at about 4% of revenue and virtually all of that is exactly what you noted on the professional — which is professional services. And as just a note that is, that business tends to carry 10% to 20% margins in that 4% of revenue that it applies to. So that creates a three year so percentage points kind of impact on our overall gross margins relative to software gross margins which are higher.

Rishi Jaluria — D.A. Davidson — Analyst

All right. Thank you so much.

Operator

Your next question comes from the line of Chad Bennett from Craig-Hallum. Your line is open.

Chad Bennett — Craig-Hallum — Analyst

Great. Thanks for taking my questions. So in — implied in the revenue guide for this year, is there any way you could at least give us some sense of how much of that comes from net new customers versus cross-sell up-sell or expansion?

Dylan Smith — Chief Financial Officer

Sure. So historically, we’ve been running about two-thirds of new bookings is coming from our existing customer base. And as mentioned because of where we’re focused and now with a broader portfolio, product portfolio to go and cross-sell and up-sell our existing customer base, we do expect that ratio to be a little bit higher, probably north of 70% in terms of what we’re currently expecting and starting to see in the business in terms of the pipeline.

Chad Bennett — Craig-Hallum — Analyst

Got it. And then is there any way to look at the overall base or the paid user base of 13.6 million, I think you indicated. How much of that base has just the single-core product versus add-on products from a penetration standpoint?

Dylan Smith — Chief Financial Officer

Sure. So what would — first note that some of those users are education customers and when we look at the overall revenue while we haven’t given a number of seats who are using — want to — at least one of our add-on products, what I would say is that now more than 50% of our revenue is coming from customers who have purchased at least one of those add-on products. So that trajectory has been pretty steadily increasing and is becoming adopted by more and more of our paying customers and users.

Chad Bennett — Craig-Hallum — Analyst

Got it. That’s good color. And then maybe one last one quick from me. Considering the pretty dramatic expansion in op income and profitability and cash flow for that matter, what is management and/or the Board’s position on the potential for a stock buyback? And then I’ll jump off. Thanks.

Aaron Levie — Chairman and Chief Executive Officer

Yes. I think so, this is Aaron again. We are definitely considering anything on the table from a shareholder value standpoint and so that will certainly be a topic as we drive more free cash flow in the business and cash generation. Obviously, we want to compare that to other levers that we have from a shareholder appreciation standpoint. So, but this will remain a topic that we’ll be talking about.

Chad Bennett — Craig-Hallum — Analyst

Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Terry Kiwala from First Analyst [Phonetic]. Your line is open.

Terry Kiwala — First Analysis — Analyst

Good afternoon. Congratulations on executing this quarter and thanks for taking my question. I just want to ask about this, the new sign deals in the quarter. Just wondering if you could comment for this quarter versus prior quarters, was there any change in the length of time these deals were in the pipeline? And then if there was any regional impact? If there are particular regions from a new business perspective that outperformed. And then any changes in the close rate versus prior quarters? Thanks.

Dylan Smith — Chief Financial Officer

Yes. So we have seen good progress, especially over the last couple of quarters driving repeatability and velocity in our go-to-market motion. So over the last few quarters deal cycles have stabilized, and we’re seeing more predictability and forecast accuracy. So, pretty pleased with the way that’s trending. And that was true in Q4 as well. We are still seeing some different performance levels across various regions, but pretty consistent with the trends that we’ve been calling out throughout the year. So continue to see strength in particular, in Japan, as you mentioned, and continuing to see some challenges in EMEA and some of our emerging markets.

Terry Kiwala — First Analysis — Analyst

Great. Thank you.

Aaron Levie — Chairman and Chief Executive Officer

The only other thing I would because you asked about some of the international progress. We did see some positive momentum also in Australia and Canada, that we’re happy about on the big deal front.

Terry Kiwala — First Analysis — Analyst

Great. Thanks.

Operator

[Operator Closing Remarks]