HITS

Box saw strong demand for its Box Skills artificial intelligence (AI) framework and continued to “make great progress” on its “two major objectives” in the first quarter (ended April 30), according to CEO and chairman Aaron Levie.

The major objectives he was referring to are “innovating in cloud content management to power how companies work and run in the digital age and advancing our global go-to-market efforts so we can reach more enterprises around the world and make them wildly successful with Box,” he said May 30 on an earnings call.

Box’s neutral and open platform architecture enables it to “partner strategically with a wide range of technology partners and leverage their advanced innovation,” he said, adding: “Nowhere is this more important than in the application of AI and machine learning with Box Skills.”

Box Skills allows customers to “mix-and-match different AI capabilities from a variety of our partners like IBM, Google and Microsoft to ensure that they get the most value from their content when it’s in Box,” he said. As one example, a video file can be “automatically transcribed and augmented with indexing and sentiment analysis simultaneously with each skill coming from a different partner,” he noted.

Box Skills demand “has been strong as we have hundreds of customers signed up for the beta,” he pointed out, adding the company is also in a private beta for Box Skills kits that enable third parties and Box customers to develop their own custom skills to power specific business processes. Box Skills were introduced at the company’s BoxWorks 2017 conference.

The company is seeing “solid traction of customers moving more and more of their information into Box and obviously the power of that gets even more considerable when we think about AI, machine learning and being able to extract more insights from that information,” so customers can start to “automate the kinds of things that previously were very manual in nature,” he went on to say. As examples, he noted that customers can use AI to tag or classify images, detect text inside of a video or inside of an image and extract metadata fields from a document.

“Once the information is in Box, once we have all the functionality to secure it and manage it, now we want to be able to deliver more and more insights and intelligence on top of that content and that’s where obviously our focus is with Box Skills and the broader AI and machine learning efforts we have,” he said.

The company didn’t specify how much of its revenue is coming from AI. “We’re not kind of calling out what the number is at this stage, but we wouldn’t consider it to be immediate revenue uplift as a discrete sort of line item,” Levie told analysts during the Q&A.

He added: “We think AI is going to be very akin to sort of security or mobile in the future, which is it’s so core to why you would move to the cloud and re-imagine your business processes, and how it gets monetized obviously is going to be based on how much you’re using AI directly. But ultimately it is the reason you end up moving your information en masse to Box and our Box platform.”

Levie also pointed out that Box, “for the past couple of quarters now,” has been having conversations related to the General Data Protection Regulation (GDPR) that started being implemented May 25 in Europe. Box has seen “good awareness and traction on the sales front because of that,” he said, adding: “We think it’s going to cause customers to have to reevaluate their existing or legacy IT architectures. And, in general, when you zoom out for GDPR into just the broad set of cybersecurity region-specific regulatory as well as global privacy and industry-specific compliance requirements, all of these things act as tailwinds for causing customers to need to modernize their architecture.”

He went on to say: “We think this sets us up really nicely where the more the customers need to build a modern IT architecture for managing, securing and ensuring the compliance around their content, the more that’s going to inevitably lead customers to moving to cloud content management and Box specifically. So, we’re really excited about that. And we’re going to continue to invest aggressively in all areas around cybersecurity protection for our customers, compliance features and enhanced data privacy functionality of which Box Governance and other capabilities help our customers with pretty significantly.”

Box Q1 revenue grew 20% to $140.5 million from $117.2 million a year ago. Its loss narrowed to $36.6 million (26 cents a share) from $40.1 million (30 cents a share). The company grew its paying customer base to more than 85,000 businesses in the quarter, including new or expanded deployments with organizations including the city of Philadelphia, Hitachi High Technologies, Mitsubishi Motors Corporation and Pokémon, Box said.

The company’s results topped the consensus analyst forecast for Q1. Box “performed well in the quarter and continued to see end market strength,” MUFG Securities Americas analyst Stephen Bersey said in a research note. The company has “cultivated a strong channel and partner network; partners including IBM and Fujitsu helped drive the company’s solid large deal performance,” he said, noting Fujitsu has been a “material driver behind the company’s strong Japan performance.”

Box’s relationships with key industry players have given it “added distribution leverage” and “we expect the company will continue to grow these relationships,” he said. Box has also “done a solid job of launching new, value-add” products and has a “significant amount of room to grow attach rates and expand add-on usage within existing deployments,” he said.