BOX

Good afternoon, and welcome to Box's first quarter fiscal 2027 earnings conference call. I'm Cynthia Hiponia, Vice President, Investor Relations. On the call today, we have Aaron Levie, Box Co-Founder and CEO, and Dylan Smith, Box Co-Founder and CFO. Following our prepared remarks, we will take your questions. Today's call is being webcast and will be available for replay on our investor relations website. Supplemental slides are now available on the website.

On this call, we will be making forward-looking statements, including our second quarter and full fiscal year 2027 financial guidance and our expectations regarding our financial performance for fiscal 2027 and future periods, including gross margins, operating margins, operating leverage, future profitability, net retention rates, remaining performance obligations, revenue and billings, and the impact of foreign currency exchange rates, and our expectations regarding the size of our market opportunity, including the growing opportunity driven by the increasing role of unstructured data and AI agents in the enterprise, our planned investments, future product offerings, and growth strategies, the timing and market adoption of and benefits from our new products, solutions, and pricing models.

Our ability to address enterprise challenges, including enabling organizations to automate critical workflows and deliver value for our customers, the benefits from our deepening partnerships with leading AI labs and system integrators, expectations regarding accelerating revenue growth, expanding profitability and long-term shareholder value, and our capital allocation strategies, including potential repurchase of our common stock.

These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially. These statements reflect our best judgment based on factors currently known to us, and actual results or events may differ materially. Please refer to our earnings press release filed today and the risk factors and documents we filed with the SEC, including our most recent 10-Q, for information on risks and uncertainties that may cause actual results to differ materially from statements made on this earnings call. These forward-looking statements are being made as of today, May 26th, 2026, 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 and 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 supplemental slides, which can be found on the IR page of our website. Unless otherwise indicated, all references to financial measures are made on a non-GAAP basis. Finally, please see our earnings deck posted on our IR website for a more detailed look at our Q2 and FY 2027 guidance. Thank you. With that, let me turn the call over to Aaron.

Thanks, Cynthia. Thank you all for joining the call today. We had a very strong start to FY 2027, reflecting continued adoption of our intelligent workflow solutions with Enterprise Advanced and the Box AI platform. In Q1, we delivered our first double-digit year-over-year revenue growth rate in over 12 quarters. Revenue growth of 11% year-over-year, or 10% in constant currency, billings growth of 5% year-over-year, or 13% in constant currency, and operating margins of 28% all exceeded our guidance. Enterprise customers are increasingly adopting Enterprise Advanced, which brings together our most powerful intelligent workflow capabilities, such as the Box Agent, Box Extract, Box Automate, Box Apps, and more. As Enterprise Advanced has been in the market for a full-year, we are very pleased with the customer trends we are seeing. In Q1, our Enterprise Advanced net retention rate was higher than our overall net retention rate of 105%.

Enterprise Advanced also continues to capture a price premium of 30%-40% over Enterprise Plus, demonstrating the recognized value we are bringing to customers. Overall, this quarter continues to prove our unique value to Box customers as they migrate their infrastructure and applications toward an agentic future. Box is increasingly being deployed as the platform for enterprises to securely manage their unstructured data for AI agents and as a platform for automating their critical enterprise workflows. Some examples of our Enterprise Advanced wins in the quarter included a lending and financial services solutions provider upgraded from Enterprise Plus to Enterprise Advanced to centralize and organize the trust and estate-related documents within Box and leverage Box AI to extract key metadata from unstructured legal documents.

With this upgrade, Box becomes the trusted content layer powering their advisor and client-facing workflows, unlocking advanced security, governance, and the full Box AI capability set as they scale. Representing a new logo win in EMEA, a European manufacturing company adopted Enterprise Advanced to securely manage and share critical documents, streamline collaboration between global teams and partners, and reduce friction in complex workflows. That means faster decision-making, improved operational efficiency, and a stronger foundation for innovation. Box will help them move away from fragmented systems toward a more unified, secure content layer, giving them better visibility, governance, and control over their information. Over the past quarter, I've had the distinct pleasure of being able to personally connect with well over 100 enterprises in various industries and geographies.

What every single one of them have in common is they want the ability to leverage AI to accelerate their product execution, be able to better serve customers, find new market opportunities, produce better campaigns, drive operational efficiency, and more. In these conversations, one of the biggest challenges that comes up is that enterprises need the ability to securely connect AI agents to their most important enterprise context, most of which rests in unstructured data. This unstructured data contains the most valuable information for agents to work with, whether it's key contracts, research materials, HR policies, marketing assets, product roadmap decisions, financial documents, or anything else in the organization. Getting agents to be able to successfully work with this information, process it at scale, and be able to connect to it securely remains one of the biggest challenges for any AI strategy in an organization.

Decades of legacy, fragmented, or on-premises content management infrastructure is holding organizations back from being able to truly get the full value from AI. This is where Box comes in and what we are building with our intelligent content management platform. In a world where there are hundreds of times more agents than people in an enterprise, the importance of getting the right information to agents becomes paramount. Agents need to be securely enabled, tied to a business process, grounded in enterprise information, governed properly, and more. We are building the company and platform that can help our customers transform how they work with their enterprise content in the era of agents. As the role of unstructured data grows in importance due to AI agents, our opportunity and TAM does as well.

In Q1, we had another quarter of great execution on our product roadmap, delivering both the new Box Agent and Box Automate. The Box Agent acts as a unified AI engine across Box, leveraging the latest advanced reasoning models and Box's agentic harness to securely search company files, analyze and synthesize critical data, and generate new content, all while respecting Box's enterprise-grade security governance and permission controls. You can use the Box Agent to transform company content into expertise that any employee can interact with, use the Box Agent to process large amounts of documents, whether it be for an M&A data room or large set of contracts, and generate new content from existing corpus of information, like responding to RFPs or generating sales presentations on the fly.

Next up, in Q1, we announced the general availability of Box Automate, our new workflow automation solution that dynamically routes work across people, Box AI agents, and enterprise systems with end-to-end automation to replace fragmented workflows and unlock enterprise productivity at scale. Customers can deploy custom Box agents across any workflow to create new content-driven processes that completely reimagine how work gets done. Powering use cases like client onboarding, contract intelligence, brand asset approvals, life sciences R&D workflows, and more. This is one of our biggest releases yet and is a core part of the Enterprise Advanced story. Additionally, we expanded MCP app support in the Box MCP server and Box CLI for agents and developers to leverage. We also strengthened important technology partners and continued to expand our ecosystem, including work with NVIDIA NemoClaw and OpenShell, and Box AI agents in ServiceNow AI Agent Fabric.

We were proud to be an early launch partner for leading model and agent platforms such as GPT-5.4 and GPT-5.5, Claude Opus 4.7, the OpenAI Agent SDK 2.0, and Gemini 3.5 Flash, which just recently was released in May. Providing customers with choice across AI models remains a critical part of our differentiation and value proposition so customers can ensure they can take advantage of any leading AI model with their content. Now in Q2 this year and beyond, we are continuing to invest in our innovation that helps organizations accelerate knowledge work, unlock intelligence from content, and transform workflows with AI agents.

We are expanding the capabilities of Box agents to support more sophisticated and longer-running tasks, richer content creation, and greater customization. We are also advancing Box Extract with major improvements designed to simplify extraction template creation, enable more advanced use cases with better evaluation capabilities, and more.

We are also continuing to invest in Box Automate with new enterprise features that help power agent-driven workflows by combining structured deterministic processes with the flexibility of AI agents and connected to the latest new features coming in Box Apps, we are working to deliver complete agentic intelligent workflow solutions for enterprises of all sizes. Next, our long-term focus on security and governance remains a major focus for us. As organizations deploy both Box agents and external agents from systems like Claude Cowork or OpenAI's Codex that interact with Box content, protecting access to information becomes incredibly important. As agents become the largest user of software and data in an enterprise, organizations need robust ways of ensuring agents are only accessing the right data they need to work with, and any risk of malicious use of data or rogue agents must be detected and prevented.

We are building on our leadership position in content security with more granular access controls to help enterprises govern how external agents interact with content, safeguards around sensitive data, and improve visibility into potentially concerning agent activity. We are also building on our agent guardrails so we can ensure that enterprises can limit how agents use their organization's content. Finally, given the growing increase in headless software experiences where AI agents interact with enterprise applications and data through APIs rather than traditional user interfaces, we are investing in a best-in-class developer experience so developers and agents can use Box effectively as a file system for AI. This includes faster onboarding, better insights, improved SDKs, new MCP capabilities, and broader support for agentic development. We're also continuing to deepen our partnerships and integrations with leading agent development platforms, including the OpenAI Agents SDK, Claude Agents SDK, LangChain, and many others.

Turning to go to market, we are seeing growing success in the rollout of Enterprise Advanced, which enables enterprises to transform how they work with their content and AI. To deliver the full value of our platform, we are also focused on bringing solutions to market across key verticals like financial services, life sciences, legal, media and entertainment, the public sector, and more. We will continue to drive agentic solutions throughout FY 2027 and beyond with a deep focus on adding value through AI, targeting industry-specific workflows, enabling Box to be leveraged as a headless platform for unstructured data within agents, and strengthening our offerings through partners. Our partner ecosystem remains a major focus for Box as we bring the full value of Box to our customers in their specific industries.

To do this, we're working to ensure that Box is going to market with the leading frontier AI labs, system integrators, and hyperscalers. For instance, in AWS's official announcement on bringing on OpenAI as a model partner, Box was named as a partner with both organizations for agentic document workflows. In the recent Claude for Legal Solutions announcement, Box was one of the key partners highlighted for management of enterprise content across the solution, which built on our previous inclusion in the Claude for Financial Services launch. The system integrator ecosystem also remains a core focus of ours. In Q1, we continued to gain momentum in our partner-led wins with Enterprise Advanced. Working with our partner, VersaFile, we expanded our relationship with a major EMEA-based automotive, engineering, and industrials conglomerate that upgraded from Business Plus to Enterprise Advanced and added seats.

This deal also represented an early Box Solutions win driven by pre-built SAP-oriented integrations. The customer also purchased additional AI units to support extract-driven workflows for business processes such as invoice management, contract life cycle management, and e-signature consolidation, while enabling future use cases like digital asset management. Working with Slalom, a leading North American consumer finance company selected Box for a multi-thousand seat Enterprise Advanced deployment. As part of a larger digital transformation project anchored on the Salesforce Financial Services Cloud, Box is replacing a fragmented legacy stack of document management systems, e-signature, and doc generation tools that had created complex compliance risk and operational drag across its regulated lending workflows. As we look ahead, we believe this is a defining moment for Box.

Enterprise content sits at the center of every enterprise's agentic strategy. Our opportunity is to power how an enterprise connects their content securely to their people, agents, and applications. With the innovation we are delivering across both our headless platform and application layers, combined with our depth in data security, governance, and compliance, we are expanding the market in front of us and deepening the value we provide to customers. We remain focused on execution, disciplined investment, and delivering long-term accelerating growth as we build the leading intelligent content management platform for the agentic era. Let me turn the call over to Dylan.

Thanks, Aaron. Good afternoon, everyone. Q1 was a very strong start to the year, highlighted by record Q1 bookings. We delivered our fourth consecutive quarter of accelerating revenue growth, achieved a double-digit growth rate for the first time since fiscal 2023, exceeded our guidance across all metrics. We have made significant progress against the financial strategy we outlined in March at our Financial Analyst Day, accelerating revenue growth, driving continued Enterprise Advanced momentum, and reducing total shares outstanding by executing our disciplined capital allocation strategy. Q1 revenue of $306 million was up 11% year-over-year and up 10% in constant currency. Customers paying us at least $100,000 annually grew 11% year-over-year. Suites customers now account for 67% of revenue, up from 61% a year ago.

We ended Q1 with remaining performance obligations, or RPO, of $1.6 billion, a 12% year-over-year increase, or 16% in constant currency. Short-term RPO was up 8% year-over-year and up 12% in constant currency. We expect to recognize roughly 55% of our RPO over the next 12 months. Q1 billings of $255 million were up 5% year-over-year or 13% in constant currency. This result exceeded our expectations of low single-digit growth, despite absorbing an FX headwind that was 260 basis points greater than our prior expectations. This outperformance was driven primarily by strong Q1 bookings, fueled by continued momentum from customers upgrading to Enterprise Advanced. Our net retention rate in Q1 was 105%, above our guidance of 104%, and up from 102% in the year-ago period. Our annualized full churn rate remained at 3%.

We now expect our net retention rate to be 105% exiting FY 2027. We delivered Q1 gross margin of 81.5%, up 100 basis points from the year ago period. Operating income of $85 million resulted in operating margin expansion of 240 basis points from the year ago period to 27.7%, or 28.1% in constant currency. This was above our guidance of 27.5%. In Q1, we delivered EPS of $0.37, which was above our guidance of $0.36. Turning to our cash flow and balance sheet. In Q1, we generated record free cash flow of $128 million and cash flow from operations of $140 million, up 8% and 10% year-over-year, respectively. We ended Q1 with $479 million in cash equivalents, restricted cash, and short-term investments. In March, we announced a $500 million expansion of our share repurchase program.

We repurchased 4.8 million shares in Q1 for approximately $114 million. As of April 30th, 2026, we had approximately $445 million of remaining buyback capacity under our current share repurchase plan. With that, let me now turn to our Q2 and updated FY 2027 guidance. For the second quarter of fiscal 2027, we expect Q2 revenue to be approximately $319 million, representing approximately 9% year-over-year growth or 10% growth in constant currency. This includes an expected headwind of approximately 170 basis points from FX. We anticipate our Q2 billings growth to land in the low double digits, which includes an expected tailwind from FX of approximately 140 basis points. We expect Q2 gross margin to be in the range of 81%-81.5%. We anticipate our Q2 operating margin to be approximately 28.5%, which includes an expected headwind from FX of 100 basis points.

We expect our Q2 EPS to be approximately $0.39, which includes an expected headwind from FX of approximately $0.03. Weighted average diluted shares are expected to be approximately 139 million. For the full fiscal year ending January 31st, 2027, we are raising our revenue expectations for the full-year by $5 million to approximately $1.28 billion, representing 9% year-over-year growth or 10% in constant currency. This includes an expected FX headwind of approximately 90 basis points, 30 basis points higher than our prior expectations. Adjusting for currency movements, this represents an increase of approximately $8.5 million versus our prior guidance. We expect our FY 2027 billings growth to be roughly in line with revenue growth. This includes an expected headwind of approximately 150 basis points from FX, 50 basis points higher than our prior expectations.

We expect FY 2027 gross margin to be in the range of 81%-81.5%. We expect our FY 2027 operating margin to be approximately 28%, or 28.7% in constant currency. We now expect FY 2027 EPS of approximately $1.56, or $1.64 in constant currency. This represents an increase of approximately $0.06 when normalizing for currency movements versus our previous expectations. Weighted average diluted shares are expected to be approximately 139 million, a reduction of 2 million shares versus our prior expectations. Our return to double-digit revenue growth, underpinned by Enterprise Advanced momentum and an improving net retention rate, reflects the growing demand we're seeing in the market for our AI-powered solutions. In Q1, we continued to build on our strong market position, launching powerful new capabilities such as our Box Agent and Box Automate.

At the same time, our go-to-market investments are translating into increased partner-led deal momentum and encouraging early traction with Box Solutions. As we look ahead, we remain confident in the opportunity in front of us and committed to investing with discipline to drive accelerating revenue growth, expanding profitability, and long-term shareholder value. With that, Aaron and I will be happy to take your questions. Operator?

At this time, if you would like yo ask a question, press star then the number one on your telephone keypad. To withdraw your question, simply press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Steve Enders with Citi. Please go ahead.

Okay, great. Thanks for taking the questions this afternoon. I guess maybe just to start on what you're actually seeing from agentic AI adoption within your customers, and I guess as you look at the more sophisticated customers that you have, just where are we in terms of their adoption curve and how that's translating to how that's changing, I guess, their usage of Box moving forward as a result of that?

Yeah so I think we're still relatively early in the journey on what we would probably consider to be more advanced agents working with enterprise content. I think the really exciting thing is how much upside that remains ahead of us. Some of the biggest use cases that we're seeing so far are things like our document extraction agent has absolutely become a killer app for us within enterprises that have large amounts of contracts or invoices or financial documents. We're seeing a lot of momentum on our data extraction efforts. Our Box Automate product that just launched at the tail end of Q1 is going to be another mechanism for deploying agents that can do much more advanced work on enterprise content workflows.

Things like client onboarding or RFP workflows or brand asset detection, anything where you want to be able to, in an automatic process, have an agent go and review information, generate new content, extract metadata. So those are some of the kind of big use cases. I think right now it's mostly showing up within the Enterprise Advanced revenue momentum that we're seeing. That's really driving a lot of the accelerated growth that we're seeing. Layered on top of that, we're certainly seeing more platform usage and utilization. Box's APIs will be leveraged more across agents that are outside of Box. Customers leveraging the Box APIs for agentic work they're doing within Claude or within OpenAI, and other platforms. As well as our AI unit monetization, which is now starting to ramp up.

Still, again, the early phases, but seeing good momentum with a lot of the heavy workload use cases like Box Extract, that drives pretty heavy AI unit consumption from customers.

Okay. That's helpful context and great to hear. Maybe on just the guide, it looks like a pretty healthy raise on a constant currency basis. I want to get a better understanding for maybe what's changed in some of the underlying assumptions, how much of this is based off of what you've already booked and seen coming through in 1Q versus maybe something that's still on the come later this year in terms of what you're seeing in the pipeline?

Yeah. Definitely pleased with the underlying momentum that we're seeing in the business. Really what's driving the majority of the increase in our expectations is on the come, but in areas that we have pretty good visibility into now that we see the continued impact and momentum of Enterprise Advanced in particular. Certainly a portion of that increase you can see did already occur in the Q1 timeframe. We flowed that through. The magnitude of the beat, especially when factoring in the FX adjustments, so that $8.5 million increase to our expectations for this year's revenue outcome, is really about just the continued pipeline build and momentum that we're seeing in the business that we're again, really pleased by.

Okay, perfect. Thanks. Taking questions.

Thank you.

Your next question comes from the line of Matt Bullock with Bank of America. Please go ahead.

Oh, hi. Great, thanks for taking the questions. I wanted to ask about net revenue retention. Obviously, that continues to track very well, ahead of expectations. Maybe, Dylan, if you could just unpack the incremental drivers of that upside. You also mentioned the EA net revenue retention is also tracking above the corporate average. I would love if you could speak a little bit more about the drivers of that as well.

Sure. Would say actually that the overall net retention rate, there's the business driver, which actually is directly related to the second part of the question, which is just very healthy momentum and adoption of Enterprise Advanced. That's what's driving, from a mix standpoint, the increase that we've been seeing in net retention rate. If you think of the components of what drives that net retention rate, we've seen an increase

both on the seats and on the pricing side of that expansion. Really what's moved most recently, and has been the case for the past two, three quarters, is around seat expansion. That's just going a click deeper, what's really been driving that. Again, much of that is being driven by Enterprise Advanced, and as that becomes a larger portion of the business and the customer expansion, that rate that's a little bit higher than the overall average is what's bringing up the blended net retention rate to that 105% as well.

Very helpful. If I could sneak one follow-up, that'd be fantastic. Dylan, maybe if you could just unpack the changes to the constant currency margin guidance for the full-year. Anything specifically driving the change?

For operating margin?

For operating margin.

Yeah. We maintained on an as-reported basis, maintained our operating margin expectations of 28%, but on a constant currency basis, up about 20 basis points. Absorbing and offsetting that FX headwinds because the efficiencies that we're driving. There's no single item that is driving that increase. Really just continuing to drive efficiencies across the business. As we continue to see that healthy top-line growth, that's certainly helpful as well. Just really a continuation of a lot of the kind of leverage points and overall operating discipline that we've been driving across the business.

Wonderful. Thank you.

Thank you.

Your next question comes from the line of Taylor McGinnis with UBS. Please go ahead.

Yeah. Hi, team. Thanks so much for taking my questions. Aaron, maybe first one for you. You talked about a lot of AI innovation that you guys are bringing to market in your prepared remarks. When we think about the growth levers outside of SKU upgrades to advance, any thoughts on when AI credits and MCP access could be more needle moving to numbers or Box spend? I guess, part of the question is just with the broader hiring environment still being fairly muted, curious how your conversations with customers are going on Box spend potential near term, if you are seeing some signs of weaker seat expansion, but if Box is offsetting that potentially with some of this mix shift to usage.

Great question. First of all, I think in the core seat part of the business, trends remain strong. Both the upgrade to Enterprise Advanced and overall seat health. I think some of the broader narrative is sort of not something that is reflected within our customer base and within what we're seeing in the business model. I'd call that out first as just a very positive trend we're seeing on the pure Enterprise Advanced side. As we've talked about, there's sort of two additional growth levers beyond the pure seat and price per seat dynamic with Enterprise Advanced. There's the growth of AI units, which are really the consumption pool of AI tokens that our customers are leveraging across our native agents.

Then there's API monetization that increasingly will happen as agents are deployed external to Box that take advantage of content and documents in Box beyond whatever the seat allocation is provisioned for. Both of those metrics are growing nicely. Sometimes we decide to monetize when a customer has some burst capacity, and we go in and ensure that they're sort of right-sized for their deployment. Then at other times, at the appropriate renewal moment, customers will buy into more API calls, or they'll buy into more AI units. So some of that will lag some of the usage, and some of that will come at the moment that the usage is happening, depending on what we're doing with that customer.

Overall, both of those metrics are already driving top-line revenue, and I think that will continue to provide a nice, healthy component of the revenue over the near, medium, and long run. I think we're firing on all cylinders from a monetization standpoint right now with, again, very clear vectors of upside as you get more of the consumption model that we're commercializing.

Awesome. Thanks, Aaron. Dylan, one for you. Could you comment on the billings outperformance in 1Q? It was really strong, and it looks like the guide assumes a continued low double-digit constant currency growth in the first half. When I look at the guide for the second half, if I ran my math right, it looks like it implies something closer to high single-digits. Any shift, I guess, in renewals from second half into first half or anything to keep in mind there, or is this just a function of prudence as we move throughout the year?

Sure. Would say that the Q1 outperformance was really just driven by a lot of the underlying strength and bookings momentum that we saw in the business. Nothing unusual in terms of early renewals or payment durations or any of those types of factors. That was really responsible for the upside. You're right that the H1 billings expectations for that growth rate versus H2. H1's a little bit higher, but they are pretty close to each other. We are expecting to see the momentum that we are seeing continue, if not pick up. That delta is really just a function of comparing largely actuals and the near-term expectations to the back half. Really just being prudent as we always want to make sure that we're setting expectations that we're confident in meeting or exceeding.

Congrats on the quarter, guys. Thanks so much.

Thank you.

Your next question comes from the line of Lucky Schreiner with D.A. Davidson. Please go ahead.

Great. Thanks for taking my questions. Maybe a quick follow-up on some of the agent and AI questions that have been asked. Curious how customers are maybe balancing their AI budgets, and as they scale their AI usage and the consumption pricing, have you seen any instances of maybe token optimization and enterprises trying to introduce better cost controls? Maybe in general, how would you characterize the urgency in customer conversations today with regards to ramping AI adoption and trying to maximize productivity?

Maybe in reverse, I think the urgency is quite high for the overall execution of agentic strategies within enterprises right now. I'm in just a tremendous amount of customer conversations at the moment, and every week talking to probably half a dozen to a dozen customers, depending on the week and if we're hosting events. The trends are unbelievably consistent across industry, across geography, across sides of business, which is everybody has seen the amazing capabilities of things like coding agents kind of take off within their engineering organizations. Most companies have either deployed or are in the midst of deploying some kind of chat agent strategy. Now the big kind of open area is, okay, well, how do I get the gains of these kind of coding agents, but in the rest of knowledge work?

How do I accelerate the productivity of my sales organization or of my finance team, or of the legal organization for client onboarding and contract review processes, or research and development in life sciences or manufacturing? In all of those areas, everybody kind of wants those same gains of the coding agents, but they're quickly met with this challenge of, well, to get those gains, you need to have your actual workflows and your data look a lot closer to how engineers have always worked, which is your data's in the same place, you have access to it all in an efficient way, you have the right kind of tooling to get your agents access to that information.

All of those kinds of challenges kind of show up pretty quickly because a customer says, "I want to get these gains with AI, but my data's in some legacy on-premises system. I can't easily connect it to agents. My provider doesn't have an MCP support. My data's fragmented across a variety of systems, so I don't have the right access controls for people or agents to get access to that information." That's kind of the contour of the conversation right now, which is why we're in so many conversations, again, across industry and across sides of the company, because everybody's realizing they have to go ahead and solve that problem if they're going to deploy agents at scale in their organization. We're having an unbelievable amount of customer conversations. This is why we're on the road with our Content AI Summits.

Box First coming up this fall. We just had our Content AI virtual summit last week with major product announcements. Demand is strong, pipeline is building, the conversations are fantastic, the momentum is absolutely building there. Customers do realize they have to go in through this journey, and there is change management, there is new technology they have to deploy, and that is going to take them some amount of time, which puts us in a great position because they are going to need partners to help them bridge from all of these amazing AI innovations that they're seeing in the market to being able to actually deploy this in their own environment. That's the second part of your question. On the first part on tokenomics and overall kind of token budgeting dynamics, this is also a major theme.

Every dinner we host with CIOs, and we do this every one to two weeks, pretty much, somewhere in the country, the token budgeting conversation has absolutely taken over as one of the most important topics for CIOs, and there's a variety of factors kind of at play right now. One thing that we strategically have as an advantage is you're going to see the value of having a neutral layer that you have between your data and the ultimate AI consumption, because what you want to be able to do is swap in and out of different model providers or different harnesses or different agents based on whatever the type of performance gains you're getting based on the different cost profile you have of your workload.

You don't want to have your data kind of stuck with one vendor that's going to sort of try and keep your workloads going down a particular path. You want to be able to have some flexibility of which agents can you use, which models do you choose based on the workload. That puts our layer of the stack in effectively a premium position for the customer, because what happens is we can go in, and this is where we're seeing with our relationships with customers, we can go in and say, "Okay, we can actually lower your cost on document extraction by choosing a different AI model that will get you the same amount of performance but at a lower cost," and that's something that's incredibly attractive to them. Lo and behold, that's dramatically more revenue than we were getting from that same customer before.

It's all revenue upside for us, we then play a strategic role for that customer because we can route their workloads to different AI models based on their use case. That's going to be the value of the AI model neutral layer in the enterprise. It's also the importance of having your own AI harness where we can route those workloads depending on, again, what the right sort of price quality mix is. I think as token budgeting becomes a bigger topic, you're going to see more value accrue to the layer that can really kind of swap out models for different workloads based on what the customer's trying to solve. We think that's a great position to be in.

That's great to hear. Maybe a quick question for Dylan as well. Last quarter, you called out strength in the commercial segment. Did that continue this quarter? Any nuances between commercial and enterprise adoption and potential impacts to linearity in this quarter?

No. We saw pretty consistent trends and healthy execution and demand in most of the markets that we operate in globally. That holds true for continued strength and consistent strong performance in the commercial business really globally as well. That's been one of the bright spots and drivers of some of the green shoots we're seeing in EMEA. Our U.S. commercial business and our Japan commercial business are also both humming pretty nicely right now.

Great. Appreciate you taking my questions.

Your next question comes from the line of Josh Baer with Morgan Stanley. Please go ahead.

Thanks for the question and congrats on the double-digit growth. I wanted to ask sort of a follow-up on the different layers that you play in, and really is it important to win the UI? I'm wondering just given enterprises using ChatGPT, Copilot, Gemini, all the agentic front ends, is it important to defend Box's position there? Understanding the role that Box can still play around governing and accessing, securing the underlying content, but just curious on your thoughts there around positioning and value capture for the UI layer.

Yeah. We've talked about and shared this a little bit over the past couple of quarters. We emphatically, and I can't underscore this more, we emphatically are both agnostic and endorse every possible use case of content at the agent and application layer above us. This has been core in our ethos really since the first few, honestly, weeks of launching Box. We very quickly realized one of the biggest value propositions we would have and one of the biggest differentiators was you could store your content in one place but access it from anywhere. We were integrating with external service providers within truly the first couple of months of launching the business. That has been just in our DNA since day one.

Agents to us represent a force multiplier of that value proposition because what you're going to do is you're going to have all these new endpoints where people want to be able to go and send off a task to an agent. You go to Claude Cowork and you say, "Hey, can you go and summarize the past 50 contracts that I've signed?" Or you go to ChatGPT, and you build an agent that has all of your sales materials, and you say, "Can you answer this question about this customer that I'm in front of?" Every single one of those are going to be agentic workflows where our APIs will be consumed most likely an order of magnitude or more than what people ever did with their data.

The importance of that is that actually then having a system that can securely manage that information, govern who has access to it, get auditability of what agents have done with every single step along the way of what that agent ended up seeing, what files they looked at, what context retrieval they executed, being able to log and report and govern and retain any of those kind of critical actions. That actually, that value is going to go up in an enterprise as you have agents doing way more with our content than people. I would actually argue that we don't want to fight for the UI layer. We want to fight for the best possible level of integrations and APIs across all of those agentic systems.

The UI gets used as much as knowledge workers want to be able to go and directly interact with their content or interact with the Box Agent. We feel very comfortable that these are highly complementary interactions. The usage of Box across every surface that we can think of is only going up, even in a world of agents, because the more you have agents doing things with your content, the more you're also going to need to go and look at the content directly within Box or go and collaborate on it with other people. None of this is at all in kind of contention for that usage pattern. We want all the endpoints to grow.

Very clear. Thanks, Aaron.

Your next question comes from the line of Brian Peterson with Raymond James. Please go ahead.

Thanks, and congrats on the strong quarter. I'll keep it to one. Given the strength that you're seeing in the pipeline, double-digit growth, are there any thoughts of leaning in a little bit more aggressively, either in the go-to-market or the product side? How are you guys thinking about incremental M&A opportunities? Thanks, guys.

We're honestly incredibly excited about the growth prospects right now, and we do spend a decent amount of time figuring out as we have over-performance in the business what things we should be doubling down in, where are we seeing investment areas that we believe would have near and medium-term return profiles. I would say already that is sort of happening within the budgeting process as you're seeing these results play out. Maybe to point to some areas that we're really focused on. As I mentioned, our vertical strategy is taking on a lot of focus right now because the way that you're going to translate AI to most enterprises is through some vertical lens.

AI, at the end of the day, the customer is really kind of bringing in an external service effectively as software, and the way that you've always procured services is through some form of an industry orientation, because you want that service provider to understand your business. The way that AI will get used in life sciences will be different than financial services, which will be different yet again than legal or media and entertainment or many other industries. Verticalization of the go-to-market efforts is increasing, and that's something we're investing in. We're certainly investing across the system integrator and kind of hyperscaler ecosystems. We see a lot of upside in how we work with partners. We were quite excited by the AWS announcement with OpenAI.

We obviously have a lot of customers that leverage Box with the OpenAI models and giving them choice of being able to deploy those on Bedrock, and have that route through the Box platform, or connect to agents that the customer has deployed on Bedrock is another kind of growth vector for us. We can now co-sell with Amazon through the AWS Marketplace. We think that's going to be some meaningful upside over the, again, kind of medium and long run. We're definitely doubling down on key go-to-market areas. In R&D, we do think that there's some efficiency as we continue to scale up, but we are making sure that we are staffing the R&D efforts appropriately for the kind of roadmap we are delivering, which is an expanded roadmap and delivering far more innovation to our customers.

I'd say that go-to-market incrementally is getting more of the investment, just given the nature of how customer-centric we have to be right now with deploying AI in these environments.

Thanks, Aaron.

That concludes our question and answer session. I will now turn the call back over to Cynthia Hiponia for closing remarks.

Great. Thank you, Tiffany. Thank you everyone for joining us this afternoon, and we look forward to updating you on our next quarterly earnings call.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.