Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definition of “large accelerated ~~filer”,~~filer,” “accelerated ~~filer”,~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

As of November ~~30, 2017,~~29, 2019, the number of shares of the registrant’s Class A common stock outstanding was ~~120,976,520 and the number of shares of the registrant’s Class B common stock outstanding~~ ~~was 15,165,697.~~

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

	October 31,			January 31,			October 31,				January 31,
	2017			2017			2019			*	2019			**
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	172,857		$	177,391		$	200,890			$	217,518
Accounts receivable, net of allowance of $1,909 and $3,346		95,868			120,113
Accounts receivable, net of allowance of $4,141 and $2,728								108,393				175,130
Prepaid expenses and other current assets		13,915			10,826			18,559				14,223
Deferred commissions		13,331			13,771			27,249				21,683
Total current assets		295,971			322,101			355,091				428,554
Property and equipment, net		118,278			117,176			189,865				137,703
Intangible assets, net		63			543
Operating lease right-of-use assets, net								203,926				—
Goodwill		16,293			16,293			18,740				18,740
Restricted cash		26,543			26,781			—				238
Deferred commissions, non-current								56,525				53,880
Other long-term assets		9,621			10,780			19,771				11,046
Total assets	$	466,769		$	493,674		$	843,918			$	650,161
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,334		$	6,658		$	15,543			$	15,431
Accrued compensation and benefits		22,098			30,415			18,718				34,484
Accrued expenses and other current liabilities		18,074			17,713			31,229				31,378
Capital lease obligations		18,071			13,748
Finance lease liabilities								49,306				28,317
Operating lease liabilities								40,335				—
Deferred revenue		225,194			228,656			312,375				353,590
Deferred rent		2,147			751
Total current liabilities		296,918			297,941			467,506				463,200
Debt, non-current		40,000			40,000			40,000				40,000
Capital lease obligations, non-current		26,667			21,697
Finance lease liabilities, non-current								82,637				44,597
Operating lease liabilities, non-current								213,369				—
Deferred revenue, non-current		27,812			13,328			13,272				21,451
Deferred rent, non-current		45,943			44,207
Other long-term liabilities		3,129			1,769			6,359				49,508
Total liabilities		440,469			418,942			823,143				618,756
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, par value $0.0001 per share; 100,000 shares authorized, no shares issued and outstanding as of October 31 (unaudited) and January 31, 2017		—			—
Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized; 118,867 shares (unaudited) and 67,831 shares issued and outstanding as of October 31 and January 31, 2017, respectively		8			7
Class B common stock, par value $0.0001 per share; 200,000 shares authorized; 17,223 shares (unaudited) and 62,780 shares issued and outstanding as of October 31 and January 31, 2017, respectively		5			6
Preferred stock, par value $0.0001 per share; 100,000 shares authorized, 0 shares issued and outstanding as of October 31 (unaudited) and January 31, 2019								—				—
Class A common stock, par value $0.0001 per share; 1,000,000 shares authorized; 149,478 shares (unaudited) and 144,311 shares issued and outstanding as of October 31 and January 31, 2019, respectively								15				14
Additional paid-in capital		1,033,917			960,144			1,269,904				1,166,443
Treasury stock		(1,177	)		(1,177	)		(1,177	)			(1,177	)
Accumulated other comprehensive loss		(30	)		(120	)
Accumulated other comprehensive (loss) income								(111	)			23
Accumulated deficit		(1,006,423	)		(884,128	)		(1,247,856	)			(1,133,898	)
Total stockholders’ equity		26,300			74,732			20,775				31,405
Total liabilities and stockholders’ equity	$	466,769		$	493,674		$	843,918			$	650,161

	Three Months Ended						Nine Months Ended						Three Months Ended								Nine Months Ended
	October 31,						October 31,						October 31,								October 31,
	2017			2016			2017			2016			2019			*	2018			**	2019			*	2018			**
Revenue	$	129,304		$	102,811		$	369,467		$	288,679		$	177,156			$	155,944			$	512,679			$	444,673
Cost of revenue		34,471			27,115			99,972			82,576			56,302				44,724				158,858				126,397
Gross profit		94,833			75,696			269,495			206,103			120,854				111,220				353,821				318,276
Operating expenses:
Research and development		34,812			29,652			102,388			84,824			50,652				42,310				146,589				122,388
Sales and marketing		81,670			66,796			225,604			186,454			82,939				84,490				242,164				238,472
General and administrative		20,910			16,999			63,037			49,087			26,496				23,884				75,959				69,959
Total operating expenses		137,392			113,447			391,029			320,365			160,087				150,684				464,712				430,819
Loss from operations		(42,559	)		(37,751	)		(121,534	)		(114,262	)		(39,233	)			(39,464	)			(110,891	)			(112,543	)
Interest expense, net		(287	)		(222	)		(802	)		(587	)		(738	)			(47	)			(1,141	)			(208	)
Other income (expense), net		277			(22	)		560			609
Other loss, net														(653	)			(321	)			(840	)			(1,243	)
Loss before provision for income taxes		(42,569	)		(37,995	)		(121,776	)		(114,240	)		(40,624	)			(39,832	)			(112,872	)			(113,994	)
Provision for income taxes		355			238			519			670			272				364				1,086				924
Net loss	$	(42,924	)	$	(38,233	)	$	(122,295	)	$	(114,910	)	$	(40,896	)		$	(40,196	)		$	(113,958	)		$	(114,918	)
Net loss per common share, basic and diluted	$	(0.32	)	$	(0.30	)	$	(0.92	)	$	(0.91	)
Net loss per share, basic and diluted													$	(0.28	)		$	(0.28	)		$	(0.78	)		$	(0.82	)
Weighted-average shares used to compute net loss per share, basic and diluted		134,636			128,275			133,044			126,712			148,555				142,366				146,997				140,559


	Class A Common Stock				Additional Paid-In			Treasury			Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Capital			Stock			Income (Loss)			Deficit			Equity*
Balance as of January 31, 2019		144,311	$	14	$	1,166,443		$	(1,177	)	$	23		$	(1,133,898	)	$	31,405
Issuance of common stock upon stock option exercises		152		—		1,213			—			—			—			1,213
Stock-based compensation related to stock awards		—		—		35,678			—			—			—			35,678
Vesting of restricted stock units, net of shares withheld for employee payroll taxes		1,205		1		—			—			—			—			1
Employee payroll taxes withheld related to vesting of restricted stock units		—		—		(14,624	)		—			—			—			(14,624	)
Common stock issued under employee stock purchase plan		829		—		13,605			—			—			—			13,605
Other comprehensive income		—		—		—			—			88			—			88
Net loss		—		—		—			—			—			(36,828	)		(36,828	)
Balance as of April 30, 2019		146,497		15		1,202,315			(1,177	)		111			(1,170,726	)		30,538
Issuance of common stock upon stock option exercises		143		—		1,031			—			—			—			1,031
Stock-based compensation related to stock awards		—		—		38,035			—			—			—			38,035
Vesting of restricted stock units, net of shares withheld for employee payroll taxes		1,082		—		—			—			—			—			—
Employee payroll taxes withheld related to vesting of restricted stock units		—		—		(10,940	)		—			—			—			(10,940	)
Other comprehensive loss		—		—		—			—			(164	)		—			(164	)
Net loss		—		—		—			—			—			(36,234	)		(36,234	)
Balance as of July 31, 2019		147,722		15		1,230,441			(1,177	)		(53	)		(1,206,960	)		22,266
Issuance of common stock upon stock option exercises		122		—		764			—			—			—			764
Stock-based compensation related to stock awards		—		—		38,373			—			—			—			38,373
Vesting of restricted stock units, net of shares withheld for employee payroll taxes		989		—		—			—			—			—			—
Employee payroll taxes withheld related to vesting of restricted stock units		—		—		(9,494	)		—			—			—			(9,494	)
Common stock issued under employee stock purchase plan		645		—		9,820			—			—			—			9,820
Other comprehensive loss		—		—		—			—			(58	)		—			(58	)
Net loss		—		—		—			—			—			(40,896	)		(40,896	)
Balance as of October 31, 2019		149,478	$	15	$	1,269,904		$	(1,177	)	$	(111	)	$	(1,247,856	)	$	20,775

	Class A and Class B Common Stock*				Additional Paid-In			Treasury			Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Capital			Stock			Income (Loss)			Deficit			Equity**
Balance as of January 31, 2018		137,317	$	13	$	1,054,932		$	(1,177	)	$	288		$	(1,039,088	)	$	14,968
Issuance of common stock upon stock option exercises		631		—		4,369			—			—			—			4,369
Issuance of common stock in connection with charitable donations		12		—		243			—			—			—			243
Stock-based compensation related to stock awards		—		—		25,443			—			—			—			25,443
Vesting of restricted stock units, net of shares withheld for employee payroll taxes		1,011		—		—			—			—			—			—
Employee payroll taxes withheld related to vesting of restricted stock units		—		—		(13,295	)		—			—			—			(13,295	)
Cumulative effect of ASC Topic 606 adoption		—		—		—			—			—			39,802			39,802
Common stock issued under employee stock purchase plan		1,004		—		11,846			—			—			—			11,846
Other comprehensive loss		—		—		—			—			(124	)		—			(124	)
Net loss		—		—		—			—			—			(36,637	)		(36,637	)
Balance as of April 30, 2018		139,975		13		1,083,538			(1,177	)		164			(1,035,923	)		46,615
Issuance of common stock upon stock option exercises		815		—		8,462			—			—			—			8,462
Issuance of common stock in connection with fiscal year 2019 acquisitions		40		—		1,053			—			—			—			1,053
Stock-based compensation related to stock awards		—		—		29,252			—			—			—			29,252
Vesting of restricted stock units, net of shares withheld for employee payroll taxes		776		1		—			—			—			—			1
Employee payroll taxes withheld related to vesting of restricted stock units		—		—		(12,009	)		—			—			—			(12,009	)
Other comprehensive loss		—		—		—			—			(162	)		—			(162	)
Net loss		—		—		—			—			—			(38,085	)		(38,085	)
Balance as of July 31, 2018		141,606		14		1,110,296			(1,177	)		2			(1,074,008	)		35,127
Issuance of common stock upon stock option exercises		299		—		2,145			—			—			—			2,145
Stock-based compensation related to stock awards		—		—		30,241			—			—			—			30,241
Vesting of restricted stock units, net of shares withheld for employee payroll taxes		869		—		—			—			—			—			—
Employee payroll taxes withheld related to vesting of restricted stock units		—		—		(11,597	)		—			—			—			(11,597	)
Common stock issued under employee stock purchase plan		614		—		10,015			—			—			—			10,015
Other comprehensive loss		—		—		—			—			(89	)		—			(89	)
Net loss		—		—		—			—			—			(40,196	)		(40,196	)
Balance as of October 31, 2018		143,388		14		1,141,100			(1,177	)		(87	)		(1,114,204	)	$	25,646

Three Months Ended

Nine Months Ended

October 31,

October 31,

2017

2016

2017

2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss
$
(42,924
)

$
(38,233
)

$
(122,295
)

$
(114,910
)
Adjustments to reconcile net loss to net cash used in operating
   activities:

Depreciation and amortization

9,913

8,710

29,250

31,515

Stock-based compensation expense

25,523

19,917

72,536

55,070

Amortization of deferred commissions

5,393

4,251

15,751

13,627

Other

(124
)

13

(83
)

96

Changes in operating assets and liabilities:

Accounts receivable, net

12,023

(10,825
)

24,245

13,547

Deferred commissions

(4,616
)

(3,667
)

(13,235
)

(10,073
)
Prepaid expenses, restricted cash and other assets

2,746

1,670

(2,959
)

4,107

Accounts payable

(2,592
)

2,353

4,469

2,069

Accrued expenses and other liabilities

(4,828
)

(1,036
)

(8,721
)

(20,250
)
Deferred rent

1,413

424

3,132

3,078

Deferred revenue

12,167

9,594

11,022

6,185

Net cash provided by (used in) operating activities

14,094

(6,829
)

13,112

(15,939
)
CASH FLOWS FROM INVESTING ACTIVITIES:

Sales of marketable securities

—

—

—

240

Maturities of marketable securities

—

—

—

7,057

Purchases of property and equipment

(3,003
)

(1,892
)

(4,800
)

(13,639
)
Proceeds from sale of property and equipment

2

8

31

84

Net cash used in investing activities

(3,001
)

(1,884
)

(4,769
)

(6,258
)
CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of borrowing costs

—

—

—

(93
)
Proceeds from exercise of stock options, net of repurchases of
   early exercised stock options

4,002

3,388

9,415

7,603

Proceeds from issuances of common stock under employee
   stock purchase plan

8,640

6,710

17,521

15,726

Employee payroll taxes paid related to net share settlement of
   restricted stock units

(11,284
)

(4,726
)

(26,219
)

(13,594
)
Acquisition related contingent consideration

—

—

(991
)

—

Payments of capital lease obligations

(4,781
)

(2,178
)

(12,693
)

(5,439
)
Net cash (used in) provided by financing activities

(3,423
)

3,194

(12,967
)

4,203

Effect of exchange rate changes on cash and cash equivalents

(88
)

(12
)

90

53

Net increase (decrease) in cash and cash equivalents

7,582

(5,531
)

(4,534
)

(17,941
)
Cash and cash equivalents, beginning of period

165,275

173,331

177,391

185,741

Cash and cash equivalents, end of period
$
172,857

$
167,800

$
172,857

$
167,800

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
   INFORMATION:

Cash paid for interest, net of amounts capitalized
$
527

$
50

$
1,416

$
838

Cash paid for income taxes, net of tax refunds

425

95

1,158

211

SUPPLEMENTAL DISCLOSURE OF NONCASH
   INVESTING AND FINANCING ACTIVITIES:

Change in accrued equipment purchases
$
1,714

$
3,647

$
2,604

$
(11,377
)
Purchases of property and equipment under capital lease

6,194

8,390

21,875

18,300

Change in unpaid tax related to capital lease

160

522

595

952

Vesting of early exercised stock options and restricted stock units

—

—

—

11

Issuance of common stock in connection with acquisitions and
   purchases of intangible assets

—

1,011

—

1,011

Timing of settlement of stock options exercise

520

—

520

—

	Three Months Ended								Nine Months Ended
	October 31,								October 31,
	2019			*	2018			**	2019			*	2018			**
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(40,896	)		$	(40,196	)		$	(113,958	)		$	(114,918	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		16,038				11,433				42,102				34,677
Stock-based compensation expense		37,758				31,790				106,925				89,086
Amortization of deferred commissions		6,650				4,516				18,360				12,231
Loss (gain) on disposal of property and equipment		—				586				(2	)			586
Others		7				(18	)			(113	)			(13	)
Changes in operating assets and liabilities:
Accounts receivable, net		9,510				9,065				66,737				57,001
Deferred commissions		(11,617	)			(9,753	)			(26,571	)			(23,057	)
Prepaid expenses and other assets		1,550				350				(3,289	)			(4,583	)
Operating lease right-of-use assets, net		9,007				—				26,445				—
Accounts payable		(7,486	)			959				(4,201	)			(246	)
Accrued expenses and other liabilities		919				(1,640	)			(8,392	)			(16,907	)
Operating lease liabilities		(7,360	)			—				(24,950	)			—
Deferred revenue		(5,187	)			(276	)			(49,394	)			(9,868	)
Net cash provided by operating activities		8,893				6,816				29,699				23,989
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(1,055	)			(5,247	)			(4,221	)			(12,613	)
Capitalized internal-use software costs		(2,469	)			(1,343	)			(6,482	)			(1,343	)
Proceeds from sales of property and equipment		—				1				6				2
Acquisitions		—				—				—				(458	)
Net cash used in investing activities		(3,524	)			(6,589	)			(10,697	)			(14,412	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		764				2,145				3,008				14,976
Proceeds from issuances of common stock under employee stock purchase plan		9,820				10,015				23,425				21,861
Employee payroll taxes paid related to net share settlement of restricted stock units		(9,494	)			(11,596	)			(35,055	)			(36,901	)
Principal payments of finance lease liabilities		(7,055	)			(4,290	)			(26,200	)			(17,192	)
Acquisition related contingent consideration		—				—				(936	)			—
Net cash used in financing activities		(5,965	)			(3,726	)			(35,758	)			(17,256	)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(3	)			(123	)			(110	)			(405	)
Net decrease in cash, cash equivalents, and restricted cash		(599	)			(3,622	)			(16,866	)			(8,084	)
Cash, cash equivalents, and restricted cash, beginning of period		201,489				203,964				217,756				208,426
Cash, cash equivalents, and restricted cash, end of period	$	200,890			$	200,342			$	200,890			$	200,342
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	1,258			$	623			$	3,768			$	1,795
Cash paid for income taxes, net of tax refunds		967				501				2,718				1,493
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrued equipment purchases	$	3,835			$	10,560			$	4,012			$	11,151
Increase in long-lived assets resulting from capitalizing asset retirement costs		—				—				2,717				566
Stock-based compensation capitalized in internal-use software costs		1,188				—				3,626				—
Increase in finance lease liabilities		40,530				9,230				84,950				27,751
Issuance of common stock in connection with acquisitions		—				—				—				1,053
Contingent consideration accruals in connection with acquisitions		—				—				—				936
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH INFORMATION:
Cash and cash equivalents, beginning of period	$	201,489			$	203,726			$	217,518				208,076
Restricted cash, beginning of period		—				238				238				350
Cash, cash equivalents, and restricted cash, beginning of period	$	201,489			$	203,964			$	217,756			$	208,426
Cash and cash equivalents, end of period	$	200,890			$	200,104			$	200,890			$	200,104
Restricted cash, end of period		—				238				—				238
Cash, cash equivalents, and restricted cash, end of period	$	200,890			$	200,342			$	200,890			$	200,342

We were incorporated in the state of Washington in April 2005, and were reincorporated in the state of Delaware in March 2008. We changed our name from Box.Net, Inc. to Box, Inc. in November 2011. Box provides a leading cloud content management platform that enables organizations of all sizes to securely manage cloud content while allowing easy, secure access and sharing of this content from anywhere, on any device.

The accompanying condensed consolidated balance sheet as of October 31, ~~2017~~2019 and the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive loss, the condensed consolidated statements of stockholders’ equity, and the condensed consolidated statements of cash flows for the three and nine months ended October 31, ~~2017~~2019 and ~~2016,~~2018, respectively, are unaudited. The condensed consolidated balance sheet data as of January 31, ~~2017~~2019 was derived from the audited consolidated financial statements that are included in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2017~~2019 (the “Form 10-K”), which was filed with the Securities and Exchange Commission (the “SEC”) on March ~~24, 2017.~~20, 2019. The accompanying statements should be read in conjunction with the audited consolidated financial statements and related notes contained in our Form 10-K. Other than items discussed under Use of Estimates, Recently Adopted Accounting Pronouncements,and Summary of Significant Accounting Policies, there have been no other material changes to our critical accounting policies and estimates during the nine months ended October 31, ~~2017~~2019 from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K.

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the financial information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of our management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in the Form 10-K, and include all adjustments necessary for the fair presentation of our balance sheet as of October 31, ~~2017,~~2019, and our results of operations, including our comprehensive loss, our stockholders’ equity, and our cash flows for the three and nine months ended October 31, ~~2017~~2019 and ~~2016.~~2018. All adjustments are of a normal recurring nature. The results for the three and nine months ended October 31, ~~2017~~2019 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending January 31, ~~2018.~~2020.

Certain prior ~~year balances~~period amounts reported in our condensed consolidated financial statements and notes thereto have been reclassified to conform to the current year presentation. Such reclassifications did not affect total revenues, operating income, or net income.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make, on an ongoing basis, estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ from these estimates. Such estimates include, but are not limited to, the determination of the allowance for accounts receivable, fair value of acquired intangible assets and goodwill, useful lives of acquired intangible assets and property and equipment, ~~best~~timing and costs associated with our asset retirement obligations, the nature and timing of satisfaction of performance obligations, estimate of standalone selling price allocation included in ~~multiple-deliverable revenue arrangements,~~ contracts with multiple performance obligations, the estimated expected benefit period for deferred commissions, the estimated useful life of capitalized internal-use software costs, observable price changes of non-marketable equity securities, the incremental borrowing rate we use to determine our lease liabilities, fair values of stock-based awards, legal contingencies, the valuation of deferred income tax assets, and ~~the provision for income taxes, including related reserves,~~unrecognized tax benefits, among others. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents ~~restricted cash~~ and accounts receivable. Although we deposit our cash with multiple financial institutions, our deposits, at times, may exceed ~~federally insured~~deposit insurance coverage limits.

We sell to a broad range of ~~customers, including resellers.~~customers. Our revenue is derived substantially from the United States across a multitude of industries. Accounts receivable are derived from the delivery of our services to customers primarily located in the United States. We accept and settle our accounts receivable using credit cards, electronic payments and checks. A majority of our lower dollar value invoices are settled by credit card on or near the date of the invoice. We do not require collateral from customers to secure

accounts receivable. We maintain an allowance for doubtful accounts ~~receivable~~ based upon the expected collectability, which takes into consideration specific customer creditworthiness and current economic trends. We believe collections of our accounts receivable are ~~reasonably assured~~probable based on the size, industry diversification, financial condition and past transaction history of our customers. As of October 31, ~~2017,~~2019 and January 31, 2019, one ~~customer,~~reseller, which ~~was~~is also a ~~reseller,~~customer, accounted for more than 10% of total accounts receivable. ~~As of January 31, 2017, two customers,~~One reseller, which ~~were both resellers, accounted for more than~~is also a customer, represented 10% of ~~total accounts receivable. No single customer, including resellers, represented over 10% of~~our revenue for the three and nine months ended October 31, ~~2017~~2019. One reseller, which is also a customer, represented 12% of our revenue for the three and ~~2016.~~nine months ended October 31, 2018.

We serve our customers and users from ~~datacenter~~data center facilities operated by third parties. In order to reduce the risk of down time of our ~~enterprise cloud content~~subscription services, we have established ~~datacenters~~data centers and third-party cloud computing and hosting providers in various locations in the United States and abroad. We have internal procedures to restore services in the event of disaster at any one of our current ~~datacenter~~data center facilities. Even with these procedures for disaster recovery in place, our cloud services could be significantly interrupted during the implementation of the procedures to restore services.

For both the three and nine months ended October 31, ~~2017,~~2019, revenue attributable to customers in the United States ~~and customers outside the United States~~ was ~~79% and 21%, respectively.~~75%. For the three and nine months ended October 31, ~~2016,~~2018, revenue attributable to customers in the United States was 75% and ~~customers outside the United States was 83% and 17%~~76%, respectively. For the three months ended October 31, 2019, revenue attributable to customers in Japan was 10%. No ~~other~~ country outside of the United States comprised 10% or greater of our revenue for any of the other periods presented.

Substantially all of our net assets are located in the United States. As of October 31, ~~2017~~2019 and January 31, ~~2017,~~2019, property and equipment located in the United States was ~~98.7%~~approximately 94% and ~~99.7%~~91%, respectively.

In February 2016, the FASB issued ASU 2016-02, Leases, and since that date has issued several additional accounting standard updates to further clarify certain aspects of ASU 2016-02 and to provide certain practical expedients entities can elect upon adoption (collectively, “ASC Topic 842”). ASC Topic 842 states that for most leases, a lessee would recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term while recognizing expense in a manner similar to legacy guidance ASC Topic 840. We adopted ASC Topic 842, effective February 1, 2019 using the modified retrospective method for leases that existed as of February 1, 2019. The comparative periods presented and disclosed in the year of adoption are based on legacy ASC Topic 840 guidance. We elected the practical expedients which allow us to carry forward our assessment on whether a contract is or contains a lease, our historical lease classification, and our initial direct costs for any leases that expired or existed prior to adoption of ASC Topic 842. In addition, we elected the short-term lease exception and the practical expedient to not separate lease and non-lease components.

Adoption Impact of ASC Topic 842 on the Opening Balance Sheet as of February 1, 2019

In connection with the adoption of ASC Topic 842, we recognized operating lease right-of-use assets and operating lease liabilities on our condensed consolidated balance sheet primarily related to our office and data center facilities of $206.6 million and $255.0 million, respectively, out of which $218.6 million was the non-current portion of operating lease liabilities. The difference between the operating lease right-of-use assets and operating lease liabilities primarily represents the existing deferred rent liability balance as of the adoption date.

Our accounting for finance leases remains substantially unchanged from the legacy ASC Topic 840 except for the impacts of applying the practical expedient to not separate lease and non-lease components. As a result of recognizing the non-lease components as part of our finance leases, we recognized finance lease right-of-use assets and corresponding finance leases liabilities of $5.2 million, out of which $2.9 million represented the non-current portion of the additional finance lease liabilities.

As a sub-lessor, accounting for our subleases is largely unchanged from the legacy ASC Topic 840.

The adoption of ASC Topic 842 did not have a material effect on our condensed consolidated statements of operations and cash flows, however, it did materially increase our assets and liabilities on the condensed consolidated balance sheet. The adoption of ASC Topic 842 resulted in changes to our accounting estimates and accounting policy for leases. Please see Summary of Significant Accounting Policies for a discussion of the updated policy.

Ongoing ASC Topic 842 Financial Statement Impact as of and for the three and nine months ended October 31, 2019

Refer to “Note 4. Balance Sheet Components” and “Note 5.Leases” for the ongoing ASC Topic 842 impact on the condensed consolidated financial statements as of and for the three and nine months ended October 31, 2019.

~~In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows: Restricted Cash~~. ASU 2016-18 requires entities to show the changes in cash, cash equivalents, and restricted cash in the statement of cash flows. Entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. As of October 31, 2017 and January 31, 2017, we had $26.5 million and $26.8 million in restricted cash, respectively. Restricted cash consists of certificates of deposits related to our leases. The new standard is effective for us beginning February 1, 2018, with early adoption permitted. The new standard should be applied using a retrospective transition method to each period presented. We expect the adoption of ASU 2016-18 will have a material impact on our consolidated statement of cash flows and related disclosures due to the release of $26.0 million in restricted cash disclosed under Note 12.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses. ASU 2016-13 replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade receivables, loans, and other financial instruments, we will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The new standard is effective for us beginning February 1, ~~2020 with early adoption permitted.~~2020; we have elected not to adopt the standard earlier. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We are in the process of evaluating appropriate changes to our business processes, systems and controls to support the adoption of the new standard. We are currently evaluating the impact of the provisions of this new standard on our condensed consolidated financial statements.

Except for the ~~FASB issued ASU 2016-02,~~ ~~Leases. ASU 2016-02 requires lessees~~accounting policies for leases and derivative instruments and hedging detailed underSummary of Significant Accounting Policies, there have been no other material changes to ~~put most leases on their balance sheet while recognizing expense~~our critical accounting policies during the nine months ended October 31, 2019 from those disclosed in ~~a manner similar to existing accounting. The new accounting guidance is~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended January 31, 2019.

We adopted ASC Topic 842, effective ~~for us beginning~~ February 1, 2019, with early adoption permitted. We will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. We are currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606, Revenue from Contracts with Customers. The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also provides guidance on the recognition of sales commission costs related to obtaining customer contracts. In addition, the FASB issued subsequent ASUs, which serve to clarify certain aspects of ASU 2014-09. The standard will be effective for us beginning February 1, 2018; we have elected not to adopt the standard earlier. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). We currently anticipate adopting the standard using the modified retrospective ~~method,~~method. The reported results for fiscal year 2020 reflect the application of ASC Topic 842, while the reported results for prior fiscal years are not adjusted and continue to be reported under ASC Topic 840. Refer to Recently Adopted Accounting Pronouncements regarding the adoption impact of ASC Topic 842 in fiscal year 2020.

10We determine whether an arrangement contains a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To determine whether a contract is or contains a lease, we consider all relevant facts and circumstances to assess whether the customer has both of the following:

~~which will result in a cumulative effect adjustment.~~ We ~~have established a cross-functional team to implement the new standard with respect to the recognition of revenue from contracts with customers.~~recognize lease liabilities and right-of-use assets at lease commencement. We ~~have identified, and are in the process of implementing, appropriate changes to our business processes, systems and controls to support recognition and disclosure under the new standard.~~

Based on our ongoing evaluation, we expect this ASU will impact our capitalization and amortization of sales commissions, the timing of our revenue recognition for certain sales contracts, and their related disclosures. We expect a change to the period over which we amortize sales commissions in order to align them to an expected benefit period of five years. We also expect a change to the scope of capitalized sales commissionsmeasure lease liabilities based on the ~~definition~~present value of lease payments over the lease term discounted using the rate implicit in the lease when that rate is readily determinable or our incremental ~~costs~~borrowing rate. We estimate our incremental borrowing rate based on an analysis of ~~obtaining~~publicly traded debt securities of companies with credit and financial profiles similar to our own and adjust our incremental borrowing rate to reflect the corresponding lease term. We do not include in the lease term options to extend or terminate the lease unless it is reasonably certain at commencement that we will exercise any such options. We account for the lease and non-lease components as a ~~contract. While we have not finalized the assessment~~single lease component for all our leases.

We measure right-of-use assets based on the ~~new commissions policy,~~corresponding lease liabilities adjusted for (i) prepayments made to the lessor at or before the commencement date, (ii) initial direct costs we ~~believe~~incur, and (iii) tenant incentives under the ~~new commissions policy will~~lease. We evaluate the recoverability of our right-of-use assets for possible impairment in accordance with our long-lived assets policy. We do not recognize right-of-use assets or lease liabilities for short-term leases, which have a ~~material impact~~lease term of twelve months or less, and recognize the associated lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term.

Operating leases are reflected in operating lease right-of-use assets, operating lease liabilities, and operating lease liabilities, non-current on our condensed consolidated ~~financial statements, resulting~~balance sheets. Finance leases are included in ~~lower commissions~~ property and equipment, net, finance lease liabilities, and finance lease liabilities, non-current on our condensed consolidated balance sheets.

We begin recognizing rent expense when the lessor makes the underlying asset available to us. We recognize rent expense under our operating leases on a straight-line basis. For finance leases, we record interest expense on the lease liability in addition to amortizing the right-of-use asset (generally straight-line) over ~~at least~~ the ~~first twelve-month period post adoption. In addition, we expect a change in the timing of revenue recognition for certain sales contracts due primarily to the removal~~shorter of the ~~current limitation~~lease term or the useful life of the right-of-use asset. Variable lease payments are expensed as incurred and are not included within the lease liabilities and right-of-use assets calculation. We generally recognize sublease income on ~~contingent revenue.~~ a straight-line basis over the sublease term.

We ~~have not yet determined whether the potential impact on revenue will be material to our consolidated~~measure derivative financial ~~statements~~instruments at fair value and ~~related disclosures~~recognize them as ~~future sales contracts up to the date of our adoption still may impact our assessment. We continue to assess the potential impact of this ASU~~either assets or liabilities on our condensed consolidated ~~financial statements and related disclosures and, as such, our preliminary conclusions remain subject to change.~~

~~In January 2017, FASB issued ASU 2017-04,~~ ~~Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment.~~ ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Under current guidance, Step 2 of the goodwill impairment test requires entities to calculate the implied fair value of goodwillbalance sheets. We record changes in ~~the same manner as the amount of goodwill recognized in a business combination by assigning~~ the fair value of ~~a reporting unit to all of~~derivative financial instruments designated as cash flow hedges in other comprehensive income (loss). When the ~~assets and liabilities of~~hedged transaction affects earnings, we subsequently reclassify the ~~reporting unit. The carrying value~~changes in ~~excess of the implied~~ fair value ~~is recognized~~into the same line as ~~goodwill impairment. Under~~ the ~~new standard, goodwill impairment is recognized based~~hedged item on ~~Step 1 of~~ the ~~current guidance, which calculates the carrying value in excess of the reporting unit’s fair value. The new standard is effective for us beginning February 1, 2020, with early adoption permitted.~~

~~We elected to early adopt ASU 2107-04 during the second quarter of fiscal year 2018. The adoption of this ASU had no impact on our~~ condensed consolidated ~~financial statements. We expect that adoption~~statements of ~~this ASU will simplify the evaluation and recording of goodwill impairment charges, if any.~~operations.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payment. ASU 2016-15 provides guidance on the classification of eight~~The cash flow ~~issues in order~~effects related to ~~reduce diversity in practice. As required by ASU 2016-15, contingent consideration payments made soon after a business combination should be classified~~derivative financial instruments designated as cash ~~outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing~~flow hedges are included within operating activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities. The new standard is effective for us beginning February 1, 2018 with early adoption permitted.

~~We elected to early adopt ASU 2016-15 during the second quarter of fiscal year 2018. The new standard requires application using a retrospective transition method. We have evaluated the impact~~ on ~~a quantitative and qualitative basis and concluded it was not material to any of prior periods presented.~~

~~In April 2016, the FASB issued ASU 2016-09,~~ ~~Compensation- Stock Compensation: Improvements to Employee Share-Based Payment Accounting~~. ASU 2016-09 changes the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement. In addition, cash flows related to excess tax benefits will be presented as an operating activity on the cash flow statement. The standard also allows entities to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on the cash flow statement, and provides an accounting policy election to account for forfeitures as they occur.

~~We adopted ASU 2016-09 during the first quarter of fiscal year 2018. As required by the standard, excess tax benefits recognized on stock-based compensation expense were prospectively reflected in~~ our condensed consolidated statements of ~~income~~ cash flows.

Contract assets, which are presented within accounts receivable, were not material as ~~a component~~ of October 31, 2019 and January 31, 2019.

Deferred revenue was $325.6 million and $375.0 million as of October 31, 2019 and January 31, 2019, respectively. During the ~~provision for income taxes rather than on the condensed consolidated balance sheet as a paid-in capital. Included in our net operating loss~~three months ended October 31, 2019 and ~~research~~2018, we recognized $141.5 million and ~~development tax credit carryforwards are approximately $25.2~~$120.1 million of ~~excess tax benefits~~revenuethat was included in the deferred revenue balance as of July 31, 2019 and 2018, respectively. During the nine months ended October 31, 2019 and 2018, we recognized $315.9 million and $252.1 million that was included in the deferred revenue balance as of January 31, 2019 and February 1, 2018, respectively.

As of October 31, 2019, $636.0 million of revenue is expected to be recognized from ~~employee stock option exercises,~~remaining performance obligations for ~~which we have not realized a deferred tax asset since it is fully offset by a valuation allowance, resulting in no impact~~subscription contracts. We expect to our condensed consolidated financial statements including any cumulative effect to accumulated deficit from previously unrecognized excess tax benefits. Our policy has been to classify cash flows related to excess tax benefits asrecognize revenue on 68% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

For both the three and cash payments made on employee’s behalf for withheld shares as part of financing activities, and thus, the adoption of this standard had no effect on our condensed consolidated statements of cash flows. Further, we did not elect an accounting policy changenine months ended October 31, 2019, revenue attributable to ~~record forfeitures as they occur and thus will continue to estimate the number of forfeitures expected to occur. Other amendments~~customers in the ~~guidance did not impact~~United States was 75%. For the three and nine months ended October 31, 2018, revenue attributable to customers in the United States was 75% and 76%, respectively. For the three months ended October 31, 2019, revenue attributable to customers in Japan was 10%. NaN country outside of the United States comprised 10% or greater of our ~~condensed consolidated financial statements.~~revenue for any of the other periods presented.

We define fair value as the exchange price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

We measure restricted cash at fair value on a recurring basis. We classify this asset within Level 1 or Level 2 because they are valued using either quoted market prices for identical assets or inputs other than quoted prices that are directly or indirectly observable in the ~~market, including readily-available pricing sources for~~volatility of the identical underlying security which may not be actively traded. We had restricted cash in the form of certificates of deposits of $26.5 million and $26.8 million as of October 31, 2017 and January 31, 2017, respectively, classified within Level 2.

~~On November 29, 2017, in connection with our entry~~interest rate index, we entered into ~~a new secured credit~~an interest rate swap agreement with Wells Fargo Bank, National Association, ~~(November 2017 Facility),~~effective as of September 5, 2019 (“Swap Agreement”). This agreement, which is designated as a cash flow hedge, has a maturity of five years. Under the Swap Agreement, we ~~utilized an available sublimit for~~have hedged a portion of the ~~issuance~~variable interest payments by effectively fixing our interest payments over the term of ~~$26.0 million~~the agreement. As of October 31, 2019, our interest rate swap had a notional value of $30.0 million.

We classify our interest rate swap hedge agreement within Level 2. As of October 31, 2019, the fair value of the interest rate swap, which is included in ~~letters~~accrued expenses and other current liabilities in our condensed consolidated balance sheet, was not material. For the three and nine months ended October 31, 2019, changes in the fair value of ~~credit and released~~ the ~~restrictions on the corresponding certificates of deposits. Accordingly, we released $26.0 million from restricted cash to cash and cash equivalents. Refer to Note 12 for additional details.~~ derivative financial instrument, which are recorded in other comprehensive loss, were not material.

Prepaid expenses and other current assets consisted of the following (in thousands):

12As of October 31, 2019, the gross carrying amount of property and equipment included $201.7 million of servers and related equipment and $12.4 million of construction in progress acquired under finance leases, and the accumulated depreciation of property and equipment acquired under these finance leases was $84.4 million. As of January 31, 2019, the gross carrying amount of property and equipment included $120.0 million of servers and related equipment and $8.8 million of construction in progress acquired under finance leases, and the accumulated depreciation of property and equipment acquired under these finance leases was $54.5 million.

Depreciation expense related to property and equipment was $15.8 million and $11.4 million for the three months ended October 31, 2019 and 2018, respectively, and $41.7 million and $34.7 million for the nine months ended October 31, 2019 and 2018, respectively. Included in these amounts were depreciation expense for servers and related equipment acquired under finance leases in the amount of $11.7 million and $6.6 million for the three months ended October 31, 2019 and 2018, respectively, and $29.8 million and $19.0 million for the nine months ended October 31, 2019 and 2018, respectively. Construction in progress primarily consists of servers and networking equipment and storage infrastructure being provisioned in our data center facilities. Interest capitalized to property and equipment was not material for the periods presented.

~~Property and equipment,~~Operating lease right-of-use assets, net consisted of the following (in thousands):

We have entered into various non-cancellable operating lease agreements for certain of ~~October 31, 2017, the gross carrying amount~~our offices and data centers with lease periods expiring primarily between fiscal years 2020 and 2029. Certain of ~~property~~these arrangements have free or escalating rent payment provisions and ~~equipment included $65.3 million~~optional renewal or termination clauses. Our operating leases typically include variable lease payments, which are primarily comprised of ~~servers~~common area maintenance and ~~$6.8 million of construction in progress acquired under capital leases,~~utility charges for our offices and ~~the accumulated depreciation of property~~power and ~~equipment acquired under these capital leases was $23.6 million. As of January 31, 2017, the gross carrying amount of property and equipment included $43.2 million of~~network connections for our data centers, that are determined based on actual consumption. Our operating lease agreements do not contain any residual value guarantees, covenants, or other restrictions.

We also entered into various finance lease arrangements to obtain servers and related equipment for our data center operations. These agreements are primarily for four years and ~~$5.6 million~~certain of ~~construction~~these arrangements have optional renewal or termination clauses. The leases are secured by the underlying leased servers and related equipment.

We sublease certain floors of our Redwood City, San Francisco, and London offices. These subleases have terms ranging from 31 to 55 months that will expire at various dates by fiscal year 2023.

The components of lease cost, which were included in ~~progress acquired under capital leases, and the accumulated depreciation of property and equipment acquired under these capital leases was $10.4 million.~~

Depreciation expense related to property and equipment was $9.9 million and $8.2 million for the three months ended October 31, 2017 and 2016, respectively, and $28.8 million and $28.6 million for the nine months ended October 31, 2017 and 2016, respectively. Included in these amounts was depreciation expense for servers acquired under capital leases in the amount of $4.9 million and $2.0 million for the three months ended October 31, 2017 and 2016, respectively, and $13.3 million and $5.0 million for the nine months ended October 31, 2017 and 2016, respectively. ~~Construction in progress primarily consists of servers, networking equipment and storage infrastructure being provisioned~~operating expenses in our ~~datacenter facilities as well as leasehold improvements due to facilities investments.~~ ~~In addition, the amounts of interest capitalized to property and equipment were not material for the three and nine months ended October 31, 2017 and 2016.~~

~~On August 30, 2016, we entered~~ into an agreement to license certain technology and hire certain employees from Wagon Analytics, Inc., a privately-held data analysis company, for a total purchase price of $2.0 million. This agreement has been accounted for as a business combination. The entire purchase price was allocated to goodwill. Goodwill is attributable to ~~future growth and potential enhancement opportunities for our analytics platform. Goodwill is deductible for U.S. income tax purposes. Transaction costs related to this business combination were not material.~~

~~Results of operations for this business combination have been included in our~~condensed consolidated statements of operations, ~~since the acquisition date and~~ were ~~not material. Pro forma results of operations for this business combination have not been presented because they were also not material to the consolidated results of operations.~~as follows (in thousands):

~~There was no goodwill activity~~ ~~for the three and nine months ended October 31, 2017.~~

~~Intangible assets consisted of the following~~Supplemental cash flow information related to leases was as follows (in thousands):

~~Intangible amortization expense~~Supplemental information related to the remaining lease term and discount rate was as follows (in thousands):

As of October 31, 2019, maturities of our operating and finance lease liabilities, which do not ~~material~~include short-term leases and variable lease payments, are as follows (in thousands):

As of October 31, 2019, we had operating leases for two of our data centers that have not yet commenced with aggregated undiscounted future payments of $17.2 million. These operating leases will commence in the later part of fiscal year 2020 and have lease terms ranging from 4 to 5 years and therefore, we did not reflect these on the condensed consolidated balance sheet as of October 31, 2019 and the tables above. We did 0t have any finance leases that have not yet commenced as of October 31, 2019.

We establish assets and liabilities for the ~~three months ended October 31, 2017~~present value of estimated future costs to return certain of our leased facilities to their original condition. Such assets are depreciated over the lease period into operating expense, and ~~was $0.5 million for~~ the ~~three months ended October 31, 2016.~~recorded liabilities are accreted to the future value of the estimated restoration costs. For the nine months ended October 31, ~~2017 and 2016, intangible amortization~~2019, we recorded $2.8 million in other long-term liabilities related to the present value of our estimated asset retirement obligation for our headquarters facility. We did 0t have material asset retirement obligations as of January 31, 2019. The accretion expense, which was ~~$0.5 million and $2.9 million, respectively. Amortization of acquired technology is~~ included in ~~cost of revenue and amortization for trade names is included in general and administrative~~operating expenses in ~~the~~our condensed consolidated statements of ~~operations. As of October 31, 2017, expected amortization expense for intangible assets~~operations, was not ~~material.~~material for all periods presented.

As of both October 31, ~~2017~~2019 and January 31, ~~2017,~~2019, we had letters of credit in the aggregate amount of $26.5 million ~~and $26.8 million, respectively,~~ in connection with our operating ~~and capital leases. Letters of credit in connection with our facility~~ leases, ~~are collateralized by certificates of deposits. Refer to Note 2 for additional details.~~

~~On November 29, 2017, in connection with our entry into~~which were primarily issued under the ~~November 2017 Facility, we utilized an~~ available sublimit for the issuance of ~~$26.0 million in~~ letters of credit ~~and released the restrictions on the corresponding certificates of deposits. Refer to~~in conjunction with a secured credit agreement as disclosed in Note ~~12 for additional details.~~

We have entered into various non-cancellable operating lease agreements for certain of our offices and datacenters with lease periods expiring primarily between fiscal years 2018 and 2029. Certain of these arrangements have free or escalating rent payment provisions and optional renewal clauses. We are also committed to pay a portion of the actual operating expenses under certain of these lease agreements. These operating expenses are included in the table below.

We also entered into various capital lease arrangements to obtain servers for our operations. These agreements are typically for three to four years. The leases are secured by the underlying leased servers.

~~As of October 31, 2017, future minimum lease payments under non-cancellable capital and operating leases are as follows (in thousands):~~

We sublease certain floors of our headquarters and one floor of our office in San Francisco. These subleases have terms ranging from 19 to 49 months that will expire between fiscal 2018 and 2021. Non-cancellable sublease proceeds for the years ending January 31, 2018, 2019, 2020 and 2021 of $1.8 million, $5.8 million, $1.9 million and $1.8 million, respectively, are included in the table above.

We establish assets and liabilities for the present value of estimated future costs to return certain of our leased facilities to their original condition. Such assets are depreciated over the lease period into operating expense, and the recorded liabilities are accreted to the future value of the estimated restoration costs. We did not have material asset retirement obligations as of October 31, 2017 and January 31, 2017. In addition, sufficient information did not exist as of October 31, 2017 to reasonably estimate the fair value of asset retirement obligations for the leases on our Tokyo and London offices.

We recognize rent expense under our operating leases on a straight-line basis. Rent expense totaled $8.1 million and $4.7 million, net of sublease income of $1.9 million and $1.8 million for the three months ended October 31, 2017 and 2016, respectively, and rent expense totaled $20.3 million and $13.3 million, net of sublease income of $5.6 million and $5.0 million for the nine months ended October 31, 2017 and 2016, respectively.7.

As of October 31, ~~2017,~~2019, future payments under non-cancellable contractual purchases, which relate primarily to ~~datacenter operations~~infrastructure services and ~~sales~~IT software and ~~marketing activities,~~support services costs, are as follows (in thousands):

During the third quarter of fiscal year 2020, we entered into multiple contracts for infrastructure services and IT software, with terms ranging from 3 to 8 years, which have increased our purchase obligations in comparison to previous reporting periods.

~~In June 2013, Open Text S.A. (Open Text) filed a lawsuit against us~~We are currently involved in, and may in the U.S. District Court, Eastern District of Virginia, alleging that our core cloud software and Box Edit application infringed 12 patents of Open Text. This case was subsequently transferred to the U.S. District Court for the Northern District of California and,future be involved in, February 2015, went to trial. In February 2015, the jury returned a verdict in which it awarded damages in favor of Open Text in a lump sum and fully paid-up royalty in the amount of $4.9 million. Both parties appealed certain aspects of the trial. While we continued to defend the lawsuit vigorously and continued to believe we had valid defense to Open Text’s claims, we considered the issuance of the verdict a recognized subsequent event that provided additional evidence about conditions which existed as of January 31, 2015. Accordingly, as of January 31, 2015, we accrued $4.9 million in relation to the jury award and recorded an expense in the amount of $3.9 million for the year ended January 31, 2015,

in relation to the portion of the jury award attributable to prior periods. The portion of the jury award attributable to future periods was recorded as an asset as of January 31, 2015. This asset was amortized over an estimated useful life of 14 months, and the amortization expense was $0.9 million for the year ended January 31, 2016. In addition, we deemed Open Text’s claim for interest on the jury award amount to be probable and estimable for the first time in July 2015. As such, we accrued additional expenses in the aggregate amount of $0.7 million during the year ended January 31, 2016, in relation to the interest on the jury award amount.

On March 31, 2016, we entered into a Confidential Settlement and Release Agreement with Open Text (the “Settlement Agreement”), which fully settled the lawsuit and resulted in a full dismissal of the case against the Company. In connection with such settlement, we paid $3.75 million in total to Open Text, and our obligation to pay the jury award amount of approximately $4.9 million and all pre- and post-judgment interest was terminated. The parties agreed to drop all appeals pending in connection with the litigation and each agreed to certain standard mutual releases related to the subject matter of the suit. We recorded the settlement payment of $3.75 million, reversed previous related accruals and interest of $5.6 million, and recorded $0.1 million in recurring amortization for the asset, resulting in net income of $1.7 million in our condensed consolidated statement of operations for the three months ended April 30, 2016.

~~In addition to the litigation discussed above, from time to time, we are a party to~~ litigation and subject to claims that arise in the ordinary course of ~~business.~~business, including matters we initiate to defend ourselves or our users by determining the scope, enforceability, and validity of third-party proprietary rights or to establish our proprietary rights. We investigate these claims as they arise and accrue estimates for resolution of legal and other contingencies when losses are probable and estimable. Although the results of litigation and claims cannot be predicted with certainty, we believe there was not at least a reasonable possibility that we had incurred a material loss with respect to such loss contingencies as of October 31, ~~2017.~~2019. Additionally, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors, regardless of the outcome of such litigation.

On June 6, 2019, a purported securities class action was filed in the U.S. District Court for the Northern District of California naming Box and certain of its officers and directors as defendants (the “Securities Class Action”). The complaint purports to bring suit on behalf of shareholders who purchased or otherwise acquired Box’s securities between November 28, 2018 and June 3, 2019. The complaint purports to allege that defendants made false and misleading statements about Box’s business and prospects in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and seeks unspecified compensatory damages, fees, and costs. We believe the claims are without merit and intend to defend against the lawsuit vigorously.

On October 23, 2019, a shareholder derivative complaint was filed in the Superior Court of California, San Mateo County, purportedly on behalf of Box and naming as defendants certain current and former officers and directors. The complaint purports to allege claims for breach of fiduciary duty and unjust enrichment in connection with the same events alleged in the Securities Class Action and seeks, among other relief, unspecified monetary damages, attorneys’ fees, and costs. Because the litigation is in the early stages, we are unable to estimate a reasonably possible loss or range of loss, if any, that may result from this matter.

We believe these claims are without merit and intend to defend against the lawsuits vigorously.

We include service level commitments to our customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that we fail to meet those levels. In addition, our customer contracts often include (i) specific obligations that we maintain the availability of the customer’s data through our service and that we secure customer content against unauthorized access or loss, and (ii) indemnity provisions whereby we indemnify our customers for third-party claims asserted against them that result from our failure to maintain the availability of their content or securing the same from unauthorized access or loss. To date, we have not incurred any material costs as a result of such commitments.

Our arrangements generally include certain provisions for indemnifying customers against liabilities if our products or services infringe a third party’s intellectual property rights. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. To date, we have not incurred any material costs as a result of such obligations and have not accrued any material liabilities related to such obligations in the condensed consolidated financial statements. In addition, we indemnify our officers, directors and certain key employees while they are serving in good faith in their respective capacities. To date, there have been no claims under any indemnification provisions.

~~In December 2015,~~On November 27, 2017, we entered into a secured credit agreement with Wells Fargo Bank, National Association (as amended or otherwise modified from time to time, the “November 2017 Facility”) and in July 2019, we entered into Amendment No. 1 to the November 2017 Facility. Pursuant to the terms of the amendment, among other changes, (i) the maturity date of borrowings under the November 2017 Facility was extended from November 27, 2020 to July 12, 2022; (ii) the revolving commitments were increased from $85.0 million to $100.0 million; (iii) the sublimit for the issuance of letters of credit ~~facility (December 2015 Facility) with a lender~~was increased from $30.0 million to $45.0 million; and (iv) the covenant in the November 2017 Facility that limits the amount of upfinance leases and debt that we can incur to ~~$40.0~~finance the acquisition, construction or improvement of any equipment or capital assets was increased from $100.0 million ~~maturing in December 2017.~~to $200.0 million. The ~~December 2015 Facility was denominated in U.S. dollars and, depending on certain conditions, each borrowing was subject to~~proceeds of the revolving loans may be used for general corporate purposes. The revolving loans accrue interest at a ~~floating interest rate equal to either the~~ prime rate plus a ~~spread~~margin of 0.25% ~~to 2.75%~~ or, at our option, a ~~reserve adjusted~~ LIBOR rate (based on one, three or six-month interest periods) plus a ~~spread~~margin of ~~1.25% to 3.75%~~1.00%. Although no minimum deposit was required for the December 2015 Facility, we were eligible for the lowest interest rate if we maintained at least $40 million in deposits with the lender. In addition, there was an annual fee of 0.2%Interest on the ~~total commitment amount. We drew $40.0 million~~revolving loans is payable quarterly in arrears with respect to loans based on the prime rate and at ~~1.82% (six month~~the end of an interest period in the case of loans based on the LIBOR ~~plus 1.25%)~~rate (or at each three-month interval if the interest period is longer than three months). Borrowings under the ~~December 2015~~November 2017 Facility ~~were~~are collateralized by substantially all of our ~~assets in~~assets. The November 2017 Facility requires us to comply with a maximum leverage ratio and a minimum liquidity requirement. Additionally, the ~~United States. The December 2015~~November 2017 Facility ~~also contained various~~contains customary affirmative and negative covenants, including covenants ~~related~~limiting our, and our subsidiaries’, ability to, among other things, grant liens, incur debt, pay dividends or distributions on the ~~delivery~~capital stock, effect certain mergers, make investments, dispose of ~~financial~~assets and ~~other information,~~enter into transactions with affiliates, in each case subject to customary exceptions for a credit facility of the ~~maintenance~~size and type of ~~quarterly financial covenants, as well as customary limitations on dispositions, mergers or consolidations and other corporate activities.~~the November 2017 Facility. As of October 31, ~~2017,~~2019, the outstanding borrowings under the credit facility were $40.0 million.

In ~~February 2017, we amended~~connection with the ~~December 2015 Facility to extend~~above credit facility, for the ~~maturity date to December 2018. Interest~~three and nine months ended October 31, 2019 and 2018, interest expense, net of capitalized interest costs, ~~for the periods presented is~~was not material. During the same periods, we did not capitalize any interest amounts. Interest expense in connection with the above credit facilities includes interest charges for our line of credit, amortization of issuance costs, and unused commitment fees on our line of credit.

16Effective September 5, 2019, we entered into a Swap Agreement with Wells Fargo Bank, National Association, in order to minimize our interest rate risk exposure due to the volatility of LIBOR. Under the Swap Agreement, we have hedged a portion of the variable interest payments of our debt by effectively fixing our interest payments over the five year term of the agreement. Refer to Note 3 for further details.

~~On November 27, 2017, we terminated the December 2015 Facility and entered into~~ ~~the November 2017 Facility.~~ ~~Refer to Note 12 for additional details.~~

In January 2015, our board of directors adopted the 2015 Equity Incentive Plan ~~(2015 Plan)~~(“2015 Plan”), which became effective prior to the completion of our initial public offering (IPO). A total of 12,200,000 shares of Class A common stock was initially reserved for issuance pursuant to future awards under the 2015 Plan. On the first day of each fiscal year, shares available for issuance are increased based on the provisions of the 2015 Plan. Any shares subject to outstanding awards under our 2006 Equity Incentive Plan ~~(2006 Plan)~~ or 2011 Equity Incentive Plan ~~(2011 Plan)~~ that are cancelled or repurchased subsequent to the 2015 Plan’s effective date are returned to the pool of shares reserved for issuance under the 2015 Plan. Awards granted under the 2015 Plan may be (i) incentive stock options, (ii) nonstatutory stock options, (iii) restricted stock units, (iv) restricted stock awards or (v) stock appreciation rights, as determined by our board of directors at the time of grant. ~~Twenty-five~~Generally, NaN percent of each grant of stock options and restricted stock units ~~generally~~ vest one year from the vesting commencement date and continue to vest (a) in the case of options, 1/48^th48th per month thereafter, and (b) in the case of restricted stock units, 1/16th per quarter thereafter. As of October 31, ~~2017, 16,633,551~~2019, 19,337,104 shares were reserved for future issuance under the 2015 Plan.

In January 2015, our board of directors adopted the 2015 Employee Stock Purchase Plan ~~(2015 ESPP)~~(“2015 ESPP”), which became effective prior to the completion of our IPO. A total of 2,500,000 shares of Class A common stock was initially reserved for issuance under the 2015 ESPP. On the first day of each fiscal year, shares available for issuance are increased based on the provisions of the 2015 ESPP. The 2015 ESPP allows eligible employees to purchase shares of our Class A common stock at a discount of up to 15% through payroll deductions of their eligible compensation, subject to any plan limitations. ~~Except for the initial offering period, the~~The 2015 ESPP provides for 24-month offering periods beginning March 16 and September 16 of each year, and each offering period consists of four six-month purchase periods.

On each purchase date, eligible employees may purchase our stock at a price per share equal to 85% of the lesser of (1) the fair market value of our stock on the offering date or (2) the fair market value of our stock on the purchase date. In the event the price is lower on the last day of any purchase price period, in addition to using that price as the basis for that purchase period, the offering period resets and the new lower price becomes the new offering price for a new 24 month offering period. As of October 31, ~~2017, 2,202,188~~2019, 1,926,616 shares were reserved for future issuance under the 2015 ESPP.

The following table summarizes the stock option activity under the equity incentive plans and related information:

Shares Subject to Options Outstanding

Weighted-Average

Weighted-

Remaining

Average Exercise

Contractual Life

Aggregate

Shares

Price

(Years)

Intrinsic Value

(in thousands)

Balance as of January 31, 2017

12,318,800

$
7.44

6.42

$
119,606

Options granted

1,533,056

17.46

Option exercised

(1,561,172
)

6.36

Options forfeited/cancelled

(852,990
)

15.05

Balance as of October 31, 2017

11,437,694

$
8.37

5.99

$
155,364

Vested and expected to vest as of October 31, 2017

11,330,158

$
8.30

5.97

$
154,675

Exercisable as of October 31, 2017

8,939,286

$
6.36

5.30

$
139,342

	Shares Subject to Options Outstanding					Weighted- Average
				Weighted-		Remaining
				Average Exercise		Contractual Life		Aggregate
	Shares			Price		(Years)		Intrinsic Value
								(in thousands)
Balance as of January 31, 2019		9,096,961		$	9.01		4.97	$	108,731
Options granted		577,082			19.89
Options exercised		(417,245	)		7.21
Options forfeited/cancelled		(60,972	)		18.00
Balance as of October 31, 2019		9,195,826		$	9.71		4.55	$	72,392
Vested and expected to vest as of October 31, 2019		9,119,519		$	9.63		4.51	$	72,389
Exercisable as of October 31, 2019		7,579,160		$	7.60		3.68	$	72,342

The aggregate intrinsic value of options vested and expected to vest and exercisable as of October 31, ~~2017~~2019 is calculated based on the difference between the exercise price and the current fair value of our common stock. The aggregate intrinsic value of exercised

options for the nine months ended October 31, ~~2017~~2019 and ~~2016~~2018 was ~~$18.8~~$4.5 million and ~~$21.5~~$27.5 million, respectively. The aggregate estimated fair value of stock options granted to employees that vested ~~for~~during the nine months ended October 31, ~~2017~~2019 and ~~2016~~2018 was ~~$7.2~~$2.4 million and ~~$12.7~~$5.6 million, respectively. The weighted-average grant date fair value of options granted to employees during the nine months ended October 31, ~~2017~~2019 and ~~2016~~2018 was ~~$7.04~~$8.00 and ~~$5.45~~$8.24 per share, respectively.

As of October 31, ~~2017,~~2019, there was ~~$15.1~~$6.8 million of unrecognized stock-based compensation expense related to outstanding stock options granted to employees that is expected to be recognized over a weighted-average period of ~~2.40~~2.44 years.

To further align our stockholders’ interests with executive officers’ interests, the ~~compensation committee~~Compensation Committee of our board of directors approved and granted ~~475,000~~ performance-based stock options with market-based performance goalsunder the 2015 Plan to certain executive officers~~where vesting is~~ , which are subject to both the achievement of the market-based performance goal established by the Compensation Committee and the continued employment of the ~~participant and~~participant. These performance-based stock options vest only to the ~~achievement of~~extent that both the market-based performance ~~goals established by~~goal and time-based condition are satisfied. The market-based performance goal will be satisfied if, before the ~~compensation committee. Subject to the achievement~~four-year anniversary of the ~~performance goals, 25%~~grant date, the closing price of our Class A common stock is maintained at or above a pre-determined share price for a period of 30 consecutive trading days. The time-based vesting condition will be satisfied over the ~~performance-based options vest~~ following four-year schedule: NaN percent of the option’s time-based vesting condition is satisfied one year from the vesting commencement date and the remaining 1/48^th ~~continue~~48th of the option’s time-based vesting condition is satisfied monthly thereafter, subject to ~~vest~~continued employment through each ~~month thereafter.~~ such date. The total outstanding performance-based stock options granted was 1,375,000 as of October 31, 2019.

The grant date fair value of these awards was determined using a Monte Carlo valuation ~~model. As~~model and the related stock-based compensation expense is recognized based on an accelerated attribution method. Of the total $6.8 million in unrecognized stock-based compensation expense for stock options as of October 31, ~~2017, these~~2019, $4.0 million related to outstanding performance-based stock options with market-based performance goals, ~~were not met. During the nine months ended October 31, 2017, 250,000 performance-based stock options were forfeited in connection with~~which is expected to be recognized over a ~~participant’s resignation~~weighted-average period of ~~employment.~~3.01 years.

The following table summarizes the restricted stock unit activity under the equity incentive plans and related information:

As of October 31, ~~2017,~~2019, there was ~~$196.6~~$304.6 million of unrecognized stock-based compensation expense related to outstanding restricted stock units granted to employees that is expected to be recognized over a weighted-average period of ~~2.91~~2.84 years.

We use performance-based incentives for certain employees, including our named executive officers, to achieve our annual financial and operational objectives, while making progress towards our longer-term strategic and growth goals. Typically, near the beginning of each fiscal year, our Compensation Committee adopts the performance criteria and targets for the incentive compensation plan for that fiscal year, which identifies the plan participants, the performance measures and the associated target levels for each measure, and the potential payouts based on actual performance for the fiscal year.

In the first quarter of fiscal year 2019, our Compensation Committee adopted and approved the performance criteria and targets for fiscal year 2019 under our omnibus Executive Incentive Plan (the “Fiscal 2019 Executive Bonus Plan”). Based on a review of our actual achievement of pre-established corporate financial objectives and additional inputs from our Compensation Committee, the Fiscal 2019 Executive Bonus Plan was determined, settled and paid out in the first quarter of fiscal year 2020 in a mixture of cash and equity compensation.

In the first quarter of fiscal year 2020, our Compensation Committee adopted and approved the performance criteria and targets for fiscal year 2020 under our omnibus Executive Plan (the “Fiscal 2020 Executive Bonus Plan”). The Fiscal 2020 Executive Bonus Plan provides opportunities for 100% equity incentive compensation payouts based on our actual achievement of pre-established corporate financial objectives, subject to review and a final approval by our Compensation Committee. During the nine months ended October 31, 2019, we recognized stock-based compensation expense related to the Fiscal 2020 Executive Bonus Plan in the amount of $2.7 million. The unrecognized compensation expense related to the ungranted and unvested Fiscal 2020 Executive Bonus Plan is $1.8 million, based on the expected performance against the pre-established corporate financial objectives as of October 31, 2019, which is expected to be recognized over a weighted-average period of less than 1 year. The payouts of the Fiscal 2020 Executive Bonus Plan are expected to be made in the form of fully vested restricted stock units in the first quarter of fiscal year 2021. The number of restricted stock units each participant will receive is equal to the dollar value of his or her actual award payment divided by the average closing price of a share of our Class A common stock for the 30-trading day period ending the last trading date before the grant date.

As of October 31, ~~2017,~~2019, there was ~~$8.6~~$21.1 million of unrecognized stock-based compensation expense related to the 2015 ESPP that is expected to be recognized over the remaining term of the respective offering periods. During the first and third quarters of fiscal year 2020, the fair market value of our stock on the purchase date within each quarter (i.e., March 15, 2019 and September 15, 2019) was lower than the fair market value of our stock on certain offering dates. As a result, certain offering periods reset and the new lower price became the new offering price for a new 24 month offering period. These resets resulted in a change in fair value and a corresponding incremental stock-based compensation expense initially totaling $7.2 million and $3.3 million upon the first and third quarter reset, respectively, which are expected to be recognized over the terms of the new offering periods.

The following table summarizes the components of stock-based compensation expense recognized in the condensed consolidated statements of operations (in thousands):

We estimated the fair value of employee stock options and 2015 ESPP purchase rights using a Black-Scholes option pricing model with the following ~~assumptions:~~assumptions.

	Three Months Ended										Nine Months Ended										Three Months Ended													Nine Months Ended
	October 31,										October 31,										October 31,													October 31,
	2017					2016					2017					2016					2019							2018						2019						2018
Employee Stock Options
Expected term (in years)					6.1					6.0		5.5		-	6.1		5.5		-	6.0					N/A							5.8			5.5		-	5.8			5.5		-	5.8
Risk-free interest rate					2.0%		1.3	%	-	1.4%		1.8	%	-	2.1%		1.3	%	-	1.5%					N/A							3.1	%					1.8	%		2.8	%	-	3.1	%
Volatility					39%					40%		38	%	-	40%		40	%	-	43%					N/A							45	%					45	%					45	%
Dividend yield					0%					0%					0%					0%					N/A							0	%					0	%					0	%
Employee Stock Purchase Plan
Expected term (in years)		0.5		-	2.0		0.5		-	2.0		0.5		-	2.0	0.5			-	2.0		0.5		-		2.0			0.5		-	2.0			0.5		-	2.0			0.5		-	2.0
Risk-free interest rate		1.2	%	-	1.4%		0.5	%	-	0.8%		0.9	%	-	1.4%		0.5	%	-	0.9%		1.7	%	-		1.9	%		2.3	%	-	2.8	%		1.7	%	-	2.5	%		2.0	%	-	2.8	%
Volatility		29	%	-	40%		39	%	-	51%		28	%	-	43%		39	%	-	60%		34	%	-		47	%		40	%	-	48	%		34	%	-	55	%		37	%	-	50	%
Dividend yield					0%					0%					0%					0%						0	%					0	%					0	%					0	%

The assumptions used in the Black-Scholes option pricing model were determined as follows:

Fair Value of Common Stock. Prior to our IPO in January 2015, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date. These factors included, but were not limited to, (i) contemporaneous valuations of our common stock performed by unrelated third-party specialists; (ii) the prices for our redeemable convertible preferred stock sold to outside investors; (iii) the rights, preferences and privileges of our redeemable convertible preferred stock relative to our common stock; (iv) the lack of marketability of our common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an IPO or a merger or acquisition, given prevailing market conditions.

~~Subsequent to the completion of our IPO, we~~We use the market closing price for our Class A common stock as reported on the New York Stock Exchange to determine the fair value of our common stock at each grant date.

Expected Term. The expected term represents the period that our share-based awards are expected to be outstanding. The expected term assumptions were determined based on the vesting terms, exercise terms and contractual lives of the options and 2015 ESPP purchase rights.

Expected Volatility. ~~Since we do not have sufficient trading history of our common stock,~~We estimate the expected volatility ~~was derived from~~of the stock option grants and 2015 ESPP purchase rights based on the historical ~~stock volatilities~~volatility of ~~several unrelated public companies within the same industry that we consider to be comparable to~~ our ~~business~~Class A common stock over a period equivalent to the expected term of the stock option grants and 2015 ESPP purchase ~~rights.~~rights, respectively.

Risk-free Interest Rate. The risk-free rate that we use is based on the implied yield available on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the ~~options.~~options and 2015 ESPP purchase rights.

Dividend Yield. We have never declared or paid any cash dividends and do not plan to pay cash dividends in the foreseeable future, and, therefore, use an expected dividend yield of ~~zero.~~0.

On June 14, 2018, all of our outstanding shares of Class B common stock automatically converted into the same number of shares of Class A common stock pursuant to the terms of our Amended and Restated Certificate of Incorporation. NaN additional shares of Class B common stock will be issued following such conversion. The conversion occurred pursuant to Article IV of the Amended and Restated Certificate of Incorporation, which provided that each one share of Class B common stock would convert automatically, without any further action, into one share of Class A common stock on the first trading day falling on or after the date on which the outstanding shares of Class B common stock represent less than 5% of the aggregate number of shares of the then outstanding Class A common stock and Class B common stock. On June 15, 2018, we filed a certificate with the Secretary of State of the State of Delaware effecting the retirement and cancellation of our Class B common stock. This certificate of retirement had the additional effect of eliminating the authorized Class B common stock, thereby reducing the total number of our authorized shares of common stock by 200,000,000.

Our Class A and Class B common stock are referred to as common stock throughout the notes to the financial statements, unless otherwise noted. After June 14, 2018, common stock refers to our Class A common stock.

For periods where there were Class B shares outstanding, we calculate our basic and diluted net loss per share in conformity with the two-class method required for companies with participating securities. Under the two-class method, basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, less shares subject to repurchase. The diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, restricted stock units, shares issuable pursuant to our employee stock purchase plan, ~~repurchasable~~ shares subject to repurchase from early exercised options and unvested restricted stock, and contingently issuable shares are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share as their effect is antidilutive.

The rights, including the liquidation and dividend rights, of the holders of our Class A and Class B common stock are identical, except with respect to voting and conversion. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis. We did not present dilutive net loss per share on an as-if converted basis because the impact was not dilutive.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):

	Three Months Ended October 31,												Three Months Ended October 31,
	2017						2016						2019					2018
	Class A			Class B			Class A			Class B			Class A			Class B		Class A			Class B
Numerator:
Net loss	$	(35,061	)	$	(7,863	)	$	(16,978	)	$	(21,255	)	$	(40,896	)	$	—	$	(40,196	)	$	—

Denominator:
Weighted-average number of shares outstanding—basic and diluted		109,972			24,664			56,964			71,311			148,555			—		142,366			—
Net loss per share—basic and diluted	$	(0.32	)	$	(0.32	)	$	(0.30	)	$	(0.30	)	$	(0.28	)	$	—	$	(0.28	)	$	—

	Nine Months Ended October 31,												Nine Months Ended October 31,
	2017						2016						2019					2018
	Class A			Class B			Class A			Class B			Class A			Class B		Class A			Class B
Numerator:
Net loss	$	(84,998	)	$	(37,297	)	$	(46,036	)	$	(68,874	)	$	(113,958	)	$	—	$	(110,868	)	$	(4,050	)

Denominator:
Weighted-average number of shares outstanding—basic and diluted		92,469			40,575			50,764			75,948			146,997			—		135,605			4,954
Net loss per share—basic and diluted	$	(0.92	)	$	(0.92	)	$	(0.91	)	$	(0.91	)	$	(0.78	)	$	—	$	(0.82	)	$	(0.82	)

The following weighted-average outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because the impact of including them would have been antidilutive (in thousands):

Utilization of the net operating loss carryforwards and credits may be subject to substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

We evaluate tax positions for recognition using a more-likely-than-not recognition threshold, and those tax positions eligible for recognition are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon the effective settlement with a taxing authority that has full knowledge of all relevant information.We believe that we have provided adequate reserves for our income tax uncertainties in all open tax years.

We file tax returns in the ~~United States~~U.S. for federal, California, and other states. All tax years remain open to examination for both federal and state purposes as a result of our net operating loss and credit carryforwards. We began to file foreign tax returns in the United Kingdom starting with the year ended January 31, 2013, in France, Germany and Japan starting with the year ended January 31, 2014, in Canada starting with the year ended January 31, 2015, and in Australia, Sweden, and Netherlands starting with the year ended January 31, 2016. Certain tax years remain open to examination.

We believe that we have provided adequate reserves for our income tax uncertainties in all open tax years. We do not expect our gross unrecognized tax benefits to change significantly over the next 12 months.

Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. As such, we have a single reporting segment and operating unit structure. Since we operate in ~~one~~1 operating segment, all required segment information can be found in the condensed consolidated financial statements.

On November 27, 2017, we entered into a secured credit agreement with Wells Fargo Bank, National Association with a maturity date of November 27, 2020 (November 2017 Facility). The November 2017 Facility provides for an $85.0 million revolving credit facility, with a sublimit of $30.0 million available for the issuance of letters of credit. The proceeds of the revolving loans may be used for general corporate purposes. The revolving loans accrue interest at a prime rate plus a margin of 0.25% or, at our option, a LIBOR rate (based on one, three or six-month interest periods) plus a margin of 1.00%. Interest on the revolving loans is payable quarterly in arrears with respect to loans based on the prime rate and at the end of an interest period in the case of loans based on the LIBOR rate (or at each three month interval if the interest period is longer than three months). As of November 29, 2017, there was $40.0 million in revolving loans outstanding and $26.0 million in letters of credit issued under the November 2017 Facility. Borrowings under the November 2017 Facility were collateralized by substantially all of our assets.

The November 2017 Facility requires us to comply with a maximum leverage ratio and a minimum liquidity requirement. Additionally, the November 2017 Facility contains customary affirmative and negative covenants, including covenants limiting our, and our subsidiaries’, ability to, among other things, grant liens, incur debt, pay dividends or distributions on the capital stock, effect certain mergers, make investments, dispose of assets and enter into transactions with affiliates, in each case subject to customary exceptions for a credit facility of the size and type of the November 2017 Facility.

On November 27, 2017, we paid in full all amounts outstanding under the December 2015 Facility, including the outstanding principal balance of $40.0 million, and terminated the December 2015 Facility and all related loan documents and collateral documents, in conjunction with entering into the November 2017 Facility. We were not obligated to pay any early termination penalties as a result of the termination. The related remaining unamortized debt issuance and end of term fees was not material. We disclosed our debt commitment in Contractual Obligations and Commitments within Item 2 to reflect our entry into the November 2017 Facility and our termination of the December 2015 Facility.

On November 29, 2017, the restrictions on our certificates of deposits that collateralized the letters of credit were released as the letters of credit were deemed to be included under the November 2017 Facility sublimit. As such, we released $26.0 million from restricted cash to cash and cash equivalents. We expect the release of this restricted cash will have a material impact on the condensed consolidated balance sheet and consolidated statement of cash flows for the three months and twelve months ending January 31, 2018.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled “Risk Factors” and in other parts of this Quarterly Report on Form 10-Q.

Box provides a leading cloud content management platform that enables organizations of all sizes to securely manage ~~cloud~~their content while allowing easy, secure access and sharing of this content from anywhere, on any device. With our Software-as-a-Service (SaaS) ~~cloud-based~~cloud content management platform, users can collaborate on content both internally and with external parties, automate content-driven business processes, develop custom applications, and implement data protection, security and compliance features to comply with legal and regulatory requirements, internal policies and industry standards and regulations. Box provides a single content platform that accelerates business processes, improves employee productivity and protects an organization’s most valuable data. Our platform enables a broad set of business use cases across ~~an enterprise, across~~enterprises, multiple file formats and media types, and user experiences. Our platform integrates with leading enterprise business applications, and is compatible with multiple application environments, operating systems and devices, ensuring that workers have access to their critical business content whenever and wherever they need it.

~~We were founded~~At our founding, we recognized that content is more accessible, secure and powerful when it is centrally stored, managed, and shared. In 2005, we publicly launched our cloud content management platform, ~~in 2005~~ which we have architected from the ground up, with a simple but powerful idea: to make it incredibly easy for people to securely manage, share and collaborate on their most important content ~~online. In 2006, we introduced a free version~~online. Our cloud content management platform is built to meet the evolving demands of ~~our product in order~~today’s distributed and mobile workforce, and for enterprises that are looking to ~~rapidly grow our user base,~~benefit from the increasing digitization of business. Our cloud content management platform integrates with other cloud-based and we surpassed one million registered users by July 2007. As users began to bring our solution into the workplace, we learned that businesses were eager for a solution to empower user-friendly content sharingenterprise applications and collaboration in a secure, manageable way. Starting in 2007, we began enhancing our platform to serve businesses and large enterprises, which meant expanding our business functionality with features such as our administrative console, identity integration, activity reporting and full-text search. To further satisfy the requirements of IT departments in large organizations, we began to invest heavily in enhancing the security of our platform. Also in 2007, we began to build an enterprise sales team. The continual evolution of our platform features allowed our sales team to sell into increasingly larger organizations. To empowerenables users to work and collaborate on content seamlessly and securely at any time, from anywhere in the world, on any device.

In addition, we built native applications for all major mobile platforms. The introduction of our iPad application in 2010 further accelerated enterprise adoption of our platform. In 2012, we introduced our Box OneCloud platform and our Box Embed framework to encourage developers and independent software vendors (ISVs) to build powerful applications that connect to Box, furthering the reach of the Box service. We continuedcontinue to innovate by expanding our core services and our expanded offerings with a focus on frictionless security and compliance, seamless internal and external collaboration and workflow, and integration with best-of-breed applications. For example, we provide Box Shield, our advanced security offering that helps customers reduce the risk of accidental data leakage and protect their business from insider threats and account compromise; Box Relay, which allows our end users to ~~include~~easily build, manage and track their own workflows; Box Platform, which further enables customers and partners to build enterprise apps using the Box Platform; Box KeySafe, a solution that builds on top of Box’s strong encryption and security capabilities to give customers greater control over the encryption keys used to secure the file contents that are stored with Box; Box Governance, which gives customers a better way to comply with regulatory policies, satisfy e-discovery requests and effectively manage sensitive business information; and Box Zones, which gives global customers the ability to store their data locally in certain ~~regions; Box Platform, which further enables customers and partners to build enterprise apps using the Box Platform; and Box Relay, which~~regions. The increasing success of our add-on products allows our ~~users~~customers to ~~easily build, manage and track their own workflows.~~ realize the full set of Box capabilities of our cloud content management platform.

We ~~continued~~continue to expand our international ~~presence further with the opening~~presence. We moved to our current European headquarters in London’s Tech City in 2017 and a new office in Tokyo in 2018, each of which provide room to grow while keeping us close to our ~~international offices.~~customers.

We offer our solution to our customers as a subscription-based service, with subscription fees based on the requirements of our customers, including the number of users and functionality deployed. The majority of our customers subscribe to our service through one-year contracts, although we also offer our services for terms ranging from one month to three years or more. We typically invoice our customers at the beginning of the term, in multiyear, annual, quarterly or monthly installments. We recognize revenue when, or as we, satisfy a performance obligation. Accordingly, due to our subscription model, we recognize revenue for our subscription and premier services ratably over the term of the ~~subscription period.~~contract.

Our objective is to build an enduring business that creates sustainable revenue and earnings growth over the long term. To best achieve this objective, we focus on growing the number of users and paying organizations through direct field sales, direct inside sales, indirect channel sales and through word-of-mouth by individual users, some of whom use our services at no cost. Individual users and organizations can also simply sign up to use our solution on our website. We believe this approach not only helps us build a critical mass of users but also has a viral effect within organizations as more of their employees use our service and encourage their IT professionals to deploy our services to a broader user base.

We have achieved significant growth in a short period of time. ~~Our user base includes over 57~~As of October 31, 2019, we had 13.2 million registered ~~users.~~users who were paying users who registered as part of a larger enterprise or business account or by using a paid personal account. We define a registered user as a Box account that has been provisioned to a unique user ~~ID.~~identification number. As of October 31, ~~2017,~~2019, we had over ~~17% of our registered users were paying users who register as part of a larger enterprise or business account or by using a personal account. We currently have 80,000~~97,000 paying organizations, and our solution iswas offered in 2224 languages. We define paying organizations as separate and distinct buying entities, such as a company, an educational or government institution, or a distinct business unit of a large corporation, that have entered into a subscription agreement with us to utilize our services.

Organizations typically purchase our solution in the following ways: (i) employees in one or more small groups within the organization may individually purchase our service; (ii) organizations may purchase IT-sponsored, enterprise-level agreements with deployments for specific, targeted use cases ranging from tens to thousands of user seats; (iii) organizations may purchase IT- sponsored, enterprise-level agreements where the number of user seats sold is intended to accommodate and enable nearly all information workers within the organization in whatever use cases they desire to adopt over the term of the subscription; orand (iv) organizations may purchase our Box Platform service to create custom business applications for their internal use and extended ecosystem of customers, suppliers and partners.

We intend to continue scaling our organization to meet the increasingly complex needs of our customers. Our sales and customer success teams are organized to efficiently serve organizations ranging from small businesses to the world’s largest global organizations. We have invested, and expect to continue to invest in our sales and marketing teams to sell our services around the world, as well as in our development efforts to deliver additional features and capabilities of our cloud services to address our customers’ evolving needs. We also expect to continue to make investments in both our infrastructure to meet the needs of our growing global user base ~~both in~~ and ~~outside the United States, and in~~ our professional services organization (Box Consulting) to address the strategic needs of our customers in more complex deployments and to drive broader adoption across a wide array of use cases. As a result of our continuing investments to scale our business in each of these areas, we do not expect to be profitable for the foreseeable future.

For the nine months ended October 31, ~~2017~~2019 and ~~2016,~~2018, our revenue was ~~$369.5~~$512.7 million and ~~$288.7~~$444.7 million, respectively, representing year-over-year growth of ~~28%~~15%, and our net losses were ~~$122.3~~$114.0 million and $114.9 million, respectively. For the nine months ended October 31, ~~2017~~2019 and ~~2016,~~2018, revenue from non-U.S. customers ~~outside the United States~~ represented ~~21%~~25% and ~~17%~~24% of our revenue, respectively. Box is headquartered in Redwood City, California and operates offices ~~across~~throughout the United States, Europe, and Asia.

Our business model focuses on maximizing the lifetime value of a customer relationship. We make significant investments in acquiring new customers and believe that we will be able to achieve a positive return on these investments by retaining customers, cross-selling our ~~newer~~add-on products and expanding the size of our deployments within our customer base over time. In connection with the acquisition of new customers, we incur and recognize significant upfront costs. These costs include sales and marketing costs associated with acquiring new customers, such as sales commission expenses, a ~~significant~~ portion of which ~~is expensed upfront~~are deferred and ~~the remaining portion~~then amortized over a period of ~~which is expensed over the length of the non-cancellable subscription term,~~benefit, and marketing costs, which are expensed as incurred. ~~Due~~We recognize revenue when, or as we, satisfy a performance obligation. Accordingly, due to our subscription model, we recognize revenue for our subscription and premier services ratably over the term of the ~~subscription period, which commences when all of the revenue recognition criteria have been met.~~contract. Although our objective is for each customer to be profitable for us over the duration of our relationship, the costs we incur with respect to any customer relationship, whether a new customer or an expansion within an existing customer, may exceed revenue in earlier periods because we recognize those costs faster than we recognize the associated revenue.

Because of these dynamics, we experience a range of profitability with our customers depending in large part upon ~~what stage of the customer phase they are in.~~their current stage. We generally incur higher sales and marketing expenses for new customers and existing customers who are still in an expanding stage. For new customers, our associated sales and marketing expenses typically exceed the first year revenue we recognize from those customers. For customers who are expanding their use of Box, we incur various associated marketing expenses as well as sales commission expenses, though we typically recognize higher revenue than sales and marketing expenses. For typical customers who are renewing their Box subscriptions, our associated sales and marketing expenses are significantly less than the revenue we recognize from those customers. These differences are primarily driven by the higher compensation we provide to our sales force for new customers and customer subscription expansions compared to the compensation we provide to our sales force for routine subscription renewals by customers. In addition, our sales and marketing expenses, ~~other than the~~even after considering deferred incremental compensation we provide to our sales force, are generally higher for acquiring new customers versus expansions or renewals of existing customer subscriptions. We believe that, over time, as our existing customer base grows and a relatively higher percentage of our revenue is attributable to renewals versus new or expanding Box deployments, we will experience lower associated sales and marketing expenses as a percentage of revenue.

We use the key metrics below for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these key metrics provide meaningful supplemental information regarding our performance. We believe that both management and investors benefit from referring to these key metrics in assessing our performance and when planning, forecasting, and analyzing future periods. These key metrics also facilitate management's internal comparisons to our historical performance as well as comparisons to certain competitors' operating results. We believe these key metrics are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by ~~our~~ institutional investors and the analyst community to help ~~them~~ analyze the health of our business.

Remaining performance obligations (“RPO”) represent, at a point in time, contracted revenue that has not yet been recognized. RPO consists of deferred revenue and backlog, offset by contract assets. Backlog is defined as non-cancellable contracts deemed certain to be invoiced and recognized as revenue in future periods. Future invoicing is determined to be certain when we have an executed non-cancellable contract and invoicing is not dependent on a future event such as the delivery of a specific new product or feature, or the achievement of contractual contingencies. While Box believes RPO is a leading indicator of revenue as it represents sales activity not yet recognized in revenue, it is not necessarily indicative of future revenue growth as it is influenced by several factors, including seasonality, contract renewal timing, average contract terms and foreign currency exchange rates. Box monitors RPO to manage the business and evaluate performance. Although we consider RPO to be a significant performance measure, we do not consider it to be a non-GAAP financial measure given that it is calculated in accordance with GAAP, specifically under ASC Topic 606.

RPO increased 5% in the nine months ended October 31, 2019 over the nine months ended October 31, 2018. The increase in RPO was primarily driven by the addition of new customers, expansion within existing customers as they broadened their deployment of our product offerings, and strong attach rates of add-on products.

Billings represent our revenue plus the ~~change~~changes in deferred revenue and contract assets in the period. Billings we record in any particular period primarily reflect ~~sales to new customers plus~~ subscription renewals and expansion within existing customers plus sales to new customers, and represent amounts invoiced for all of our products and professional services. We typically invoice our customers at the beginning of the term, in multiyear, annual, quarterly or monthly installments. If the customer ~~elects~~negotiates to pay the full subscription amount at the beginning of the period, the total subscription amount for the entire term will be reflected in billings. If the customer ~~elects~~negotiates to be invoiced annually or more frequently, only the amount billed for such period will be included in billings.

~~We believe that billings~~Billings help investors better understand our sales activity for a particular period, which is not necessarily reflected in our revenue given that we recognize subscription revenue ratably over the ~~subscription~~contract term. We consider billings a significant performance ~~measure and after adjusting for any shifts in relative payment frequencies, a leading indicator of future revenue.~~measure. We monitor billings to manage our business, make planning decisions, evaluate our performance and allocate resources. We believe that billings offer valuable supplemental information regarding the performance of our business and will help investors better understand the sales volumes and performance of our business. Although we consider billings to be a significant performance measure, we do not consider it to be a non-GAAP financial measure given that it is calculated using exclusively revenue, ~~and~~ deferred revenue, ~~both~~and contract assets, all of which are financial measures calculated in accordance with GAAP.

Billings increased ~~29%~~6% in the nine months ended October 31, ~~2017~~2019 over the nine months ended October 31, ~~2016.~~2018. The increase in billings was primarily driven by the addition of new customers, ~~with larger initial deployments,~~ expansion ~~of the number of users~~ within existing customers as they broadened their deployment of our product offerings, and anstrong attach rates of add-on products, offset by a non-recurring enhanced developer ~~access~~ fee from one of our ~~resellers.~~ resellers billed in the prior period, the impact of an unusually high volume of customer driven multi-year prepayments in the prior period, and a large customer reducing its use cases in the current period.

Our use of billings has ~~the following~~certain limitations as an analytical tool and should not be considered in isolation or as a substitute for revenue or an analysis of our results as reported under GAAP. Billings are recognized when invoiced, while the related subscription and premier services revenue is recognized ratably over the contract term ~~of the subscription~~when, or ~~premier support services. When~~as we, ~~invoice customers more frequently than their subscription period, amounts not yet invoiced will not be reflected in deferred revenue or billings.~~satisfy a performance obligation. Also, other companies, including companies in our industry, may not use billings, may calculate billings differently, may have different billing frequencies, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of billings as a comparative measure.

~~For the remainder of fiscal year 2018,~~Over time, we expect ~~normalized~~to continue to normalize payment durations. ~~We expect our billings growth and revenue growth to correlate with one another which will mitigate fluctuations in billings not correlated to future revenue~~. In addition, as we have gained and expect to continue to gain more traction with large enterprise customers, we also anticipate our quarterly billings to increasingly concentrate in the back half of our fiscal year, especially in the fourth quarter.

A calculation of billings starting with revenue, the most directly comparable GAAP financial measure, is presented below (in thousands):

We define free cash flow as cash ~~from~~flows from operating activities less purchases of property and equipment, principal payments of ~~capital~~finance lease ~~obligations,~~liabilities, capitalized internal-use software costs, and other items that did not or are not expected to require cash settlement and ~~which~~that management considers to be outside ~~of~~of our core business. We specifically identify ~~other~~ adjusting ~~items~~items in ~~our~~our reconciliation of GAAP to non-GAAP ~~financial~~financial measures. ~~Historically, these items have included restricted cash used to guarantee significant letters of credit for our Redwood City headquarters.~~ We consider free cash flow to be a profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can possibly be used for investing in our business and strengthening ~~the~~the balance sheet; but it is not intended to represent the residual cash flow available for discretionary expenditures. A reconciliation of free cash flow to net cash ~~used in~~provided by operating activities, its nearest GAAP equivalent, is presented in the non-GAAP Financial Measures section of this report. The presentation of free cash flow is also not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity.

~~Free cash flow for~~ For both the nine months ended October 31, ~~2017 was negative $4.4 million, an improvement of $30.6 million as compared to~~ ~~the nine months ended~~ ~~October 31, 2016. The increase in~~2019 and 2018, free cash flow was primarily driven by an increase in cash provided by operations of $29.1 million and a decrease in capital expenditures of $8.8 million, partially offset by an increase in capital lease obligation payments of $7.3negative $7.2 million. The primary factors affecting the increase in cash flow from operating activities include the changes in our operating assets and liabilities of $19.3 million and improvement of our net loss adjusted for non-cash charges by $9.8 million. The decrease in capital expenditures was primarily due to a reduction in capital expenditures related to the completion of our new Redwood City headquarters, partially offset by our facilities investments in Austin, Tokyo and London. As we continue to invest in our data center operations, we expect capital lease obligations to increase in the foreseeable future. Improvement in our working capital management process and the completion of our Redwood City headquarters have driven significant improvements in free cash flow.

Retention rate is defined as the net percentage of Total Account Value (TAV) retained from existing customers, including expansion. We calculate our retention rate as of a period end by starting with the ~~annual contract value (ACV)~~TAV from customers with contract value of $5,000 or more as of 12 months prior to such period end (Prior Period ~~ACV)~~TAV) and a subscription term of at least 12 months. We then calculate ~~ACV~~TAV from these same customers as of the current period end (Current Period ~~ACV)~~TAV). Finally, we divide the ~~aggregate~~ Current Period ~~ACV for the trailing 12 month period~~TAV by the ~~aggregate~~ Prior Period ~~ACV for the trailing 12 month period~~TAV to arrive at our retention rate. We believe our retention rate is an important metric that provides insight into the long-term value of our subscription agreements and our ability to retain and grow revenue from our customer base. We focus on contracts that have a value of $5,000 or more because, over time, these customers give us the best indicator for the growth of our business and the potential for incremental business as they renew and expand their deployments, and contracts with these customers represented a substantial majority of our revenue for the nine months ended October 31, ~~2017.~~2019. Retention rate is an operational metric and there is no comparable GAAP financial measure to which we can reconcile this particular key metric.

Our retention rate was approximately ~~112%~~105% and ~~115%~~108% as of October 31, ~~2017~~2019 and ~~2016,~~2018, respectively. The calculation of our retention rate reflects both net user expansion and the loss of customers who do not renew their subscriptions with us, which was below 5% of the Prior Period ~~ACV.~~TAV. Our strong retention rates ~~consistently exceeded 100% and~~ were primarily attributable to ~~an increase~~strong seat growth in ~~user expansion.~~existing customers and strong attach rates of add-on products. As our customers purchase add-on products, we tend to realize significantly higher average contract values and stronger retention rates as compared to customers who only purchase our core product. We believe our go-to-market efforts to deliver a solution selling strategy and our investments in product, Customer Success, and Box Consulting ~~are driving~~have been a significant factor in our strong customer retention results. Our retention rate is higher in customers who have purchased at least one add-on product. As we penetrate customer accounts, we expect ~~our rate of growth in expansion to trend down over time but~~ our retention rate to remain above 100% for the foreseeable future.

We derive our revenue primarily from three sources: (1) subscription revenue, which is comprised of subscription fees from customers ~~utilizing~~who have access to our cloud content management platform and other subscription-based services, which all include routine customer support; (2) revenue from customers purchasing our premier ~~support~~services package; and (3) revenue from professional services such as implementing best practice use cases, project management and implementation consulting services.

To date, practically all of our revenue has been derived from subscription and premier ~~support~~ services. Subscription and premier ~~support~~services revenue isare driven primarily by the number of customers, the number of seats sold to each customer and the price of our services.

~~Subscription~~We recognize revenue when, or as we, satisfy a performance obligation. Accordingly, due to our subscription model, we recognize revenue for our subscription and premier ~~support revenue is recognized~~services ratably over the contract ~~term~~term. We typically invoice our customers at the beginning ~~on the later~~ of the ~~date the service is provisioned to the customer and the date all other revenue recognition criteria have been met.~~term, in multiyear, annual, quarterly or monthly installments. Our subscription and ~~support~~premier services contracts are typically non-cancellable and do not contain refund-type provisions. The majority of our customers subscribe to our service through one-year contracts, although we also offer our services for terms ranging between one month to three years or more. We typically invoice our customers at the beginning of the term, in multiyear, annual, quarterly or monthly installments. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the invoice period. Amounts that have not been invoiced are not reflected in deferred revenue.

Professional services are generally billed on a fixed price basis, for which revenue is recognized asover time based on the ~~services are rendered for time and material contracts, and using the proportional performance method over the period the services are performed for fixed price contracts.~~proportion performed. Professional services revenue was not material as a percentage of total revenue for all periods presented.

Revenue is presented net of sales and other taxes we collect on behalf of governmental authorities.

Our cost of revenue consists primarily of costs related to providing our ~~cloud content management~~subscription services to our paying customers, including employee compensation and related expenses for ~~datacenter~~data center operations, customer support and professional services personnel, payments to outside ~~infrastructure~~technology service providers, depreciation of servers and equipment, security services and other tools, as well as amortization ofexpense associated with acquired ~~technology.~~technology and capitalized internal-use software. We allocate overhead such as rent, information technology costs and employee benefit costs to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each of the operating expense categories set forth below. WeAs part of our hybrid cloud infrastructure strategy, we are in the process of migrating our primary data centers by the middle of fiscal year 2021 to significantly lower cost regions in order to continue to optimize infrastructure efficiency and to support the growth in our paying customers. During the migration, we will be incurring increased overall costs as we pay for multiple data centers and, therefore, we expect our cost of revenue as a percentage of revenue to remain relatively stable in the near future. Upon the completion of this migration, we expect our cost of revenue to increase in dollars ~~and may increase~~but trend downwards as a percentage of revenue as we continue to ~~invest~~drive efficiencies in our ~~datacenter operations and customer support~~infrastructure to support the growth of our business, our customer base, as well as our international expansion.

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities, information technology costs and employee benefit costs.

Research and Development.Research and development expense consists primarily of employee compensation and related expenses, as well as allocated overhead. Our research and development efforts are focused on scaling our platform, building an ecosystem of best of breed applications and platforms, adding enterprise grade features, functionality and enhancements such as workflow automation, intelligent content management capabilities, and advanced security ~~and enhancing~~to enhance the ease of use of our ~~cloud-based~~cloud content management services. We capitalize certain qualifying costs to develop software for internal use incurred during the application development stage. We expect our research and development expense to increase in dollars but ~~decrease~~remain stable as a percentage of revenue over time, even as we continue to ~~invest in~~make significant enhancements to our ~~future products~~cloud content management product offerings and ~~services.~~services and develop new technologies.

Sales and Marketing.Sales and marketing expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel-related expenses, as well as allocated overhead. Marketing programs include but are not limited to advertising, events, corporate communications, brand building, and product marketing. Sales and marketing expense also consists of ~~datacenter~~data center and customer support costs related to providing our cloud-based services to our free users. We market and sell our ~~cloud-based~~cloud content management services worldwide through our direct sales organization and through indirect distribution channels such as strategic resellers. We expect our sales and marketing expense to continue to increase in dollars but decrease as a percentage of revenue over time as our existing customer base grows and a relatively higher percentage of our revenue is attributable to renewals versus new or expanding Box deployments, and as we ~~increase~~improve sales productivity from our solution selling strategy and simplifying our product offerings while optimizing the size of our sales and marketing organization to capture strong demand globally and expand our international presence.

General and Administrative.General and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources, recruiting, information systems, ~~and~~security, compliance, fees for external professional services and cloud based enterprise systems, as well as allocated overhead. External professional services fees are

primarily comprised of outside legal, ~~litigation,~~ accounting, ~~temporary services,~~ audit and outsourcing services. We expect our general and administrative expense to increase in dollars but to decrease as a percentage of revenue over time ~~due to increasing~~as we benefit from even greater operational ~~excellence and scale.~~efficiency.

Interest expense, net consists of interest expense and interest income. Interest expense consists primarily of interest charges for our line of credit and interest rate swap agreement, interest expense related to finance leases, unused commitment fees on our ~~letters~~line of credit, the amortization of capitalized debt issuance costs, and ~~capital leases.~~fees on our letters of credit. Interest income consists primarily of interest earned on our cash and cash ~~equivalents, and restricted cash.~~equivalents. We have historically invested our cash and cash equivalents in overnight deposits, certificates of deposit, money market funds, and short term, investment-grade corporate debt, marketable securities and asset backed securities.

Other income ~~(loss),~~loss, net consists primarily of gains and losses from foreign currency transactions and other income ~~(expense).~~and expense.

Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and state income taxes in the United States and, as applicable, changes in our deferred taxes and related valuation allowance positions and uncertain tax positions.

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue:

Three Months Ended

Nine Months Ended

October 31,

October 31,

2017

2016

2017

2016

(in thousands)

(in thousands)

Revenue

$
129,304

$
102,811

$
369,467

$
288,679

Cost of revenue(1)(2)

34,471

27,115

99,972

82,576

Gross profit

94,833

75,696

269,495

206,103

Operating expenses:

Research and development(2)

34,812

29,652

102,388

84,824

Sales and marketing(2)

81,670

66,796

225,604

186,454

General and administrative(1)(2)

20,910

16,999

63,037

49,087

Total operating expenses

137,392

113,447

391,029

320,365

Loss from operations

(42,559
)

(37,751
)

(121,534
)

(114,262
)

Interest expense, net

(287
)

(222
)

(802
)

(587
)

Other income (loss), net

277

(22
)

560

609

Loss before provision for income taxes

(42,569
)

(37,995
)

(121,776
)

(114,240
)

Provision for income taxes

355

238

519

670

Net loss

$
(42,924
)

$
(38,233
)

$
(122,295
)

$
(114,910
)

Net loss per common share, basic and diluted

$
(0.32
)

$
(0.30
)

$
(0.92
)

$
(0.91
)

Weighted-average shares used to compute net loss
    per share, basic and diluted

134,636

128,275

133,044

126,712

(1)     Includes intangible assets amortization as follows:

Three Months Ended

Nine Months Ended

October 31,

October 31,

2017

2016

2017

2016

(in thousands)

(in thousands)

Cost of revenue

$
—

$
506

$
365

$
2,804

General and administrative

39

39

116

116

Total intangible assets amortization

$
39

$
545

$
481

$
2,920

(2)     Includes stock-based compensation expense as follows:

Three Months Ended

Nine Months Ended

October 31,

October 31,

2017

2016

2017

2016

(in thousands)

(in thousands)

Cost of revenue

$
2,814

$
1,986

$
7,945

$
5,328

Research and development

9,705

7,730

28,419

21,602

Sales and marketing

8,208

6,744

23,882

18,390

General and administrative

4,796

3,457

12,290

9,750

Total stock-based compensation

$
25,523

$
19,917

$
72,536

$
55,070

	Three Months Ended						Nine Months Ended
	October 31,						October 31,
	2019			2018			2019			2018
	(in thousands)						(in thousands)
Revenue	$	177,156		$	155,944		$	512,679		$	444,673
Cost of revenue (2)		56,302			44,724			158,858			126,397
Gross profit		120,854			111,220			353,821			318,276
Operating expenses:
Research and development (2)		50,652			42,310			146,589			122,388
Sales and marketing (1)(2)		82,939			84,490			242,164			238,472
General and administrative (1)(2)		26,496			23,884			75,959			69,959
Total operating expenses		160,087			150,684			464,712			430,819
Loss from operations		(39,233	)		(39,464	)		(110,891	)		(112,543	)
Interest expense, net		(738	)		(47	)		(1,141	)		(208	)
Other loss, net		(653	)		(321	)		(840	)		(1,243	)
Loss before provision for income taxes		(40,624	)		(39,832	)		(112,872	)		(113,994	)
Provision for income taxes		272			364			1,086			924
Net loss	$	(40,896	)	$	(40,196	)	$	(113,958	)	$	(114,918	)
Net loss per share, basic and diluted	$	(0.28	)	$	(0.28	)	$	(0.78	)	$	(0.82	)
Weighted-average shares used to compute net loss per share, basic and diluted		148,555			142,366			146,997			140,559

	Three Months Ended								Nine Months Ended								Three Months Ended								Nine Months Ended
	October 31,								October 31,								October 31,								October 31,
	2017				2016				2017				2016				2019				2018				2019				2018
Percentage of Revenue:
Revenue		100		%		100		%		100		%		100		%		100		%		100		%		100		%		100		%
Cost of revenue(1)(2)		27				26				27				29
Cost of revenue (2)																		32				29				31				28
Gross profit		73				74				73				71				68				71				69				72
Operating expenses:
Research and development(2)		27				29				28				29
Sales and marketing(2)		63				65				61				65
General and administrative(1)(2)		16				17				17				17
Research and development (2)																		28				27				29				27
Sales and marketing (1)(2)																		47				54				47				54
General and administrative (1)(2)																		15				15				15				16
Total operating expenses		106				111				106				111				90				96				91				97
Loss from operations		(33	)			(37	)			(33	)			(40	)			(22	)			(25	)			(22	)			(25	)
Interest expense, net		—				—				—				—				(1	)			—				—				—
Other income (loss), net		—				—				—				—
Other loss, net																		—				—				—				(1	)
Loss before provision for income taxes		(33	)			(37	)			(33	)			(40	)			(23	)			(25	)			(22	)			(26	)
Provision for income taxes		—				—				—				—				—				—				—				—
Net loss		(33	)	%		(37	)	%		(33	)	%		(40	)	%		(23	)	%		(25	)	%		(22	)	%		(26	)	%

~~Revenue was $129.3 million for the three months ended October 31, 2017, compared to $102.8 million for the three months ended October 31, 2016, representing an increase of $26.5 million, or 26%.~~ The increase in revenue was primarily driven by an increase in subscription services. The increase in subscription services was primarily due to the addition of new customers, as the number of paying organizations increased by ~~16%~~8% from October 31, ~~2016~~2018 to ~~2017, as well as increased sales~~October 31, 2019, and strong attach rates of add-on products, which strengthened our ~~additional product offerings.~~price per seat. Also, in this period, ~~there were~~we experienced strong renewals from, and expansion within, existing customers as they broadened their deployment of our product offerings, as reflected in our retention rate of ~~112%~~105% as of October 31, ~~2017.~~

The increase in absolute dollars was ~~$34.5~~primarily due to a net increase of $4.5 million ~~or 27%~~in depreciation primarily related to additional data center equipment and an increase of ~~revenue, for~~$3.1 million in rent primarily related to the ~~three months ended October 31, 2017, compared~~expansion of data centers and our temporary occupancy of redundant colocation facilities as we are migrating our data center footprint to ~~$27.1~~lower cost regions. In addition, there was an increase of $1.1 million ~~or 26% of revenue, for the three months ended October 31, 2016, representing~~in employee and related costs primarily driven by an increase in headcount, an increase of ~~$7.4~~$0.8 million ~~or 27%~~in stock-based compensation expense primarily driven by equity grants to existing and new employees, and an increase of $1.1 million in allocated overhead costs attributable mainly to increased facilities and IT software and support services costs. Cost of revenue as a percentage of revenue increased three points year-over-year. As part of our hybrid cloud infrastructure strategy, we are in the process of migrating our primary data centers by the middle of fiscal year 2021 to significantly lower cost regions in order to continue to optimize infrastructure efficiency and to support the growth in our paying customers. During the migration, we will be incurring increased overall costs as we pay for multiple data centers and, therefore, we expect our cost of revenue as a percentage of revenue to increase slightly in the fiscal year ending January 31, 2020.

The increase in absolute dollars was primarily due to an increase of ~~$2.0~~$5.8 million in ~~rent~~stock-based compensation expense primarily ~~related~~driven by equity grants to ~~the expansion of~~existing and new ~~data centers, a net increase of $1.9 million in depreciation primarily related to the purchase of additional data center equipment,~~ employees and an increase of ~~$1.3~~$3.2 million in employee and related costs primarily driven by ~~the increase in headcount from 227 as of October 31, 2016 to 258 as of October 31, 2017,~~ ~~an increase of $0.8 million in stock-based compensation expense primarily driven by~~ an increase in equity grants, and an increase in investments for our growing paid users. The increase was partially offset by a decrease of $1.0 million in datacenter service costs due to further optimizations in infrastructure costs and a $0.5 million decrease in the amortization of certain intangible assets that reached the end of their estimated useful lives. Cost of revenue as a percentage of revenue increased 1 point year-over-year primarily due to our continued investments in our data center infrastructure to support our expected revenue growth in paying customers and new products.

Research and development expenses were $34.8 million, or 27% of revenue, for the three months ended October 31, 2017, compared to $29.7 million, or 29% of revenue, for the three months ended October 31, 2016, representing an increase of $5.2 million, or 17%. The increase in absolute dollars was primarily due to an increase of $3.3 million in employee and related costs primarily driven by the increase in headcount from 304 employees as of October 31, 2016 to 333 employees as of October 31, 2017, and an increase of $2.0 million in stock-based compensation expense primarily driven by the increase in equity grants. Despite an increase in absolute dollars spent, research and development expense as a percentage of revenue decreased 2 points year-over-year. While we continued to invest in our product and service offerings and develop new products, we were able to do so at a lower percentage of revenue year-over-year as our revenue growth outpaced our research and development spending.

Sales and marketing expenses were $81.7 million, or 63% of revenue, for the three months ended October 31, 2017, compared to $66.8 million, or 65% of revenue, for the three months ended October 31, 2016, representing an increase of $14.9 million, or 22%. The increase in absolute dollars was primarily due to an increase of $7.7 million in employee and related costs and an increase of $1.5 million in stock-based compensation expense primarily driven by the increase in headcount from 659 employees as of October 31, 2016 to 859 employees as of October 31, 2017.headcount. In addition, there was an increase of ~~$3.0~~ $1.5 million in allocated costs attributable mainly to increased facilities and ~~infrastructure costs, an increase of $2.1 million in~~ ~~marketing expenses in connection with our annual user conference (BoxWorks 2017), investments in marketing technology~~IT software and ~~demand generation~~, ~~and an increase of $1.6 million in commission expenses~~. support services costs. The increase in ~~sales~~research and ~~marketing~~development expenses was partially offset by a ~~$1.5~~$1.8 million increase in capitalized internal-use software costs associated with the development of additional significant features and functionality to our products during the same period. Research and development expenses as a percentage of revenue increased one point year-over-year. We continue to invest in enhancements of our product and services, develop new products, and further differentiate our offerings. We expect our research and development expenses to increase in dollars but remain relatively stable as a percentage of revenue over time, even as we continue to make significant enhancements to our cloud content management product offerings and services, including expanding our advanced security, intelligence, and workflow automation capabilities.

The decrease in ~~datacenter~~absolute dollars was primarily due to a decrease of $1.3 million in marketing expenses for media and ~~customer support costs to support our free users.~~marketing events. Sales and marketing expenses as a percentage of revenue decreased 2seven points year-over-year asdue to our focus on driving greater efficiency from our solution selling strategy and simplifying our product offerings.

Our sales and marketing expenses are generally higher for acquiring new customers than for expansions or renewals of existing customer ~~subscriptions,~~subscriptions. We expect to continue to invest to capture our large market opportunity globally and ~~a decrease in cost to support~~capitalize on our ~~free users.~~competitive position with continued focus on our long-term margin objectives. Over time, as our existing customer base grows and a

relatively higher percentage of our revenue is attributable to renewals versus new or expanding Box deployments and as we continue to focus on improving sales productivity from our solution selling strategy and simplifying our product offerings, we expect that sales and marketing expenses will continue to decrease as a percentage of revenue. We continue to invest aggressively to capture our large market opportunity and capitalize on our competitive position, while growing our sales and marketing efficiency to achieve our long-term margin objectives.

General and administrative expenses were $20.9 million, or 16% of revenue, for the three months ended October 31, 2017, compared to $17.0 million, or 17% of revenue, for the three months ended October 31, 2016, representing an increase of $3.9 million, or 23%. The increase in absolute dollars was primarily due to an increase of ~~$2.3~~$1.3 million in employee and related costs primarily driven by an increase in headcount and an increase of ~~$1.3~~$1.0 million in stock-based compensation expense primarily driven by ~~the~~equity grants to existing and new employees. General and administrative expense as a percentage of revenue remained flat year-over-year. We expect our general and administrative expense to increase in ~~headcount~~dollars but to decrease as a percentage of revenue over time as we benefit from ~~220 employees as of October 31, 2016 to 276 employees as of October 31, 2017. In addition, there was a $0.7 million~~even greater operational efficiency.

The increase in ~~enterprise subscription software.~~interest expense, net is primarily due to an increase in interest expense related to finance leases provisioned for our data center facilities, partially offset by an increase in interest income from our certificates of deposit and money market funds.

The increase in other loss, net was primarily due to foreign currency gains and losses.

~~Revenue was $369.5 million for the nine months ended October 31, 2017, compared to $288.7 million for the nine months ended October 31, 2016, representing an increase of $80.8 million, or 28%.~~ The increase in revenue was primarily driven by an increase in subscription services. The increase in subscription services was primarily due to the addition of new customers, as the number of paying organizations increased by ~~16%~~8% from October 31, ~~2016~~2018 to ~~2017.~~October 31, 2019, and strong attach rates of add-on products, which strengthened our price per seat. Also, in this period, ~~there were~~we experienced strong renewals from, and expansion within, existing customers as they broadened their deployment of our product offerings, as reflected in our retention rate of ~~112%~~105% as of October 31, ~~2017.~~2019.

Cost of revenue was $100.0 million, or 27% of revenue, for the nine months ended October 31, 2017, compared to $82.6 million, or 29% of revenue, for the nine months ended October 31, 2016, representing an increase of $17.4 million, or 21%. The increase in absolute dollars was primarily due to an increase of ~~$5.0~~$9.8 million in rent primarily related to the expansion of ~~new~~ data centers and our temporary occupancy of redundant colocation facilities as we are migrating our data center footprint to lower cost regions and a net increase of $7.9 million in depreciation primarily related to additional data center equipment. In addition, there was an increase of $4.0 million in employee and related costs primarily driven by an increase in headcount, an increase of ~~$2.6~~$2.1 million in stock-based compensation expense primarily driven by ~~the increase in headcount from 227 as of October 31, 2016 to 258 as of October 31, 2017, and~~ ~~an increase in~~ equity grants to existing and new employees, and an increase of ~~$2.0~~$2.6 million in ~~employee~~allocated overhead costs attributable mainly to increased facilities and ~~related~~IT software and support services costs~~, an increase~~. Cost of ~~$1.8 million in~~ ~~outside agency consulting and contractor services, an increase~~revenue as a percentage of ~~$1.4 million in datacenter service costs~~, ~~and an increase in investments for~~revenue increased three points year-over-year. As part of our ~~growing paid users. The increase was partially offset by a $2.4 million decrease~~hybrid cloud infrastructure strategy, we are in the ~~amortization~~process of ~~certain intangible assets that reached~~migrating our primary data centers by the ~~end~~middle of ~~their estimated useful. Despite an increase~~fiscal year 2021 to significantly lower cost regions in ~~absolute dollars,~~order to continue to optimize infrastructure efficiency and to support the growth in our paying customers. During the migration, we will be incurring increased overall costs as we pay for multiple data centers and, therefore, we expect our cost of revenue as a percentage of revenue ~~decreased 2 points year-over-year. While we continued~~ to ~~invest~~increase slightly in ~~our data center infrastructure~~ ~~to support our expected growth in paying customers and new products,~~ ~~we were able to do so at a lower percentage of revenue year-over-year as our revenue growth outpaced our data center infrastructure spending.~~

Research and development expenses were $102.4 million, or 28% of revenue, for the nine months ended October 31, 2017, compared to $84.8 million, or 29% of revenue, for the nine months ended October 31, 2016, representing an increase of $17.6 million, or 21%. Development

The increase in absolute dollars was primarily due to an increase of ~~$9.5 million in employee and related costs and an increase of $6.8~~$14.9 million in stock-based compensation expense primarily driven by ~~the increase in headcount from 304~~equity grants to existing and new employees ~~as of October 31, 2016 to 333 employees as of October 31, 2017,~~ and an increase of $13.4 million in ~~equity grants.~~employee and related costs primarily driven by an increase in headcount. In addition, there was an increase of ~~$1.5~~$4.1 million in ~~outside agency consulting~~allocated costs attributable mainly to increased facilities and ~~contractor~~IT software and support services ~~related to enhancements of our products and development of new products. Despite an~~costs. The increase in ~~absolute dollars spent,~~ research and development ~~expense~~expenses was partially offset by an $8.1 million increase in capitalized internal-use software costs associated with the development of additional significant features and functionality to our products during the same period. Research and development expenses as a percentage of revenue ~~decreased 1 point~~increased two points year-over-year. ~~While we continued~~We continue to invest in enhancements of our product and ~~service offerings and~~services, develop new products, ~~we were able to do so at a lower percentage of revenue year-over-year as~~and further differentiate our ~~revenue growth outpaced~~offerings. We expect our research and development ~~spending~~.expenses to increase in dollars but remain relatively stable as a percentage of revenue over time, even as we continue to make significant enhancements to our cloud content management product offerings and services, including expanding our advanced security, intelligence, and workflow automation capabilities.

Sales and marketing expenses were $225.6 million, or 61% of revenue, for the nine months ended October 31, 2017, compared to $186.5 million, or 65% of revenue, for the nine months ended October 31, 2016, representing an increase of $39.2 million, or 21%. The increase in absolute dollars was primarily due to an increase of ~~$20.6~~$4.7 million in ~~employee and related~~commission costs ~~and an increase of $5.5 million in stock-based compensation~~ primarily driven by ~~the increase in headcount from 659 employees as of October 31, 2016 to 859 employees as of October 31, 2017. In addition, there was an increase of $6.1~~ ~~million in allocated costs attributable mainly to~~ increased ~~facilities and infrastructure costs,~~ an increase of $5.0 million in commission expenses, an increase of $4.2 million in marketing expenses related to our annual user conference (BoxWorks 2017), investments in marketing technology and demand generation,sales and an increase of $1.5 million in ~~travel-related~~employee and related costs. primarily driven by an increase in headcount. The increase in sales and marketing expenses was partially offset by a ~~$5.8~~$2.8 million decrease in ~~datacenter~~marketing expenses for media and ~~customer support costs to support our free users.~~marketing events. Sales and marketing expenses as a percentage of revenue decreased 4seven points ~~year over year primarily~~year-over-year due to ~~improved marketing~~our focus on driving greater efficiency asfrom our solution selling strategy and simplifying our product offerings and a decrease in cost to support our free users.

Our sales and marketing expenses are generally higher for acquiring new customers ~~versus~~than for expansions or renewals of existing customer ~~subscriptions,~~subscriptions. We expect to continue to invest to capture our large market opportunity globally and ~~a decrease in cost to support~~capitalize on our ~~free users.~~competitive position with continued focus on our long-term margin objectives. Over time, as our existing customer base grows and a relatively higher percentage of our revenue is attributable to renewals ~~rather than~~versus new or expanding Box deployments and as we continue to focus on improving sales productivity from our solution selling strategy and simplifying our product offerings, we expect that sales and marketing expenses will continue to decrease as a percentage of revenue. We continue to invest aggressively to capture our large market opportunity and capitalize on our competitive position, while growing our sales and marketing efficiency to achieve our long-term margin objectives.

General and administrative expenses were $63.0 million, or 17% of revenue, for the nine months ended October 31, 2017, compared to $49.1 million, or 17% of revenue, for the nine months ended October 31, 2016, representing an increase of $14.0 million, or 28%. The increase in absolute dollars was primarily due to an increase of ~~$5.3~~$5.5 million in employee and related costs primarily driven by an increase in headcount and an increase of ~~$2.5~~$3.6 million in stock-based compensation expense primarily driven by ~~the~~equity grants to existing and new employees. The increase in ~~headcount from 220 employees as of October 31, 2016 to 276 employees as of October 31, 2017, an increase of $4.2~~general and administrative expenses was partially offset by a $2.2 million decrease in outside agency and contractor ~~costs as we further invest in our systems, processes and infrastructure, and~~costs. Despite an increase ~~of $1.6 million~~ in ~~enterprise subscription software. In addition,~~absolute dollars, general and administrative expense ~~for the nine months ended October 31, 2016 includes~~ as a percentage of revenue decreased one point year-over-year as we continued to benefit from greater operational efficiency and scale. We expect our general and administrative expense to increase in dollars but to decrease as a percentage of ~~$1.7 million recorded in connection with the settlement agreement reached with Open Text~~.revenue over time as we benefit from even greater operational efficiency.

The increase in interest expense, net is primarily due to an increase in interest expense related to finance leases provisioned for our data center facilities, partially offset by an increase in interest income from our certificates of deposit and money market funds.

The decrease in other loss, net was primarily due to foreign currency gains and losses.

As of October 31, ~~2017,~~2019, we had cash and cash equivalents of ~~$172.9 million.~~$200.9 million; we did not have any restricted cash. Our cash and cash equivalents are comprised primarily of overnight cash ~~deposits.~~deposits, certificates of deposit, and money market funds. Since our inception, we have financed our operations primarily through equity, cash generated from sales and, to a lesser extent, debt financing. We believe our existing cash and cash equivalents, together with our finance leases and credit facilities, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, subscription renewal activity, billing frequency, data center expansions, the timing and extent of spending to support development efforts, the expansion of sales and marketing and international operation activities, the introduction of new and enhanced services offerings, and the continuing market acceptance of our services. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.

~~In December 2015,~~On November 27, 2017, we entered into a secured credit agreement with Wells Fargo Bank, National Association (as amended or otherwise modified from time to time, the “November 2017 Facility”) and on July 12, 2019, we entered into Amendment No.1 to the November 2017 Facility. Pursuant to the terms of the amendment, among other changes, (i) the maturity date of borrowings under the November 2017 Facility was extended from November 27, 2020 to July 12, 2022; (ii) the revolving commitments were increased from $85.0 million to $100.0 million; (iii) the sublimit for the issuance of letters of credit ~~facility (December 2015 Facility), which provided for a revolving loan facility~~was increased from $30.0 million to $45.0 million; and (iv) the covenant in the November 2017 Facility that limits the amount of upfinance leases and debt that we can incur to ~~$40.0~~finance the acquisition, construction or improvement of any equipment or capital assets was increased from $100.0 million ~~maturing in December 2017. In February 2017, we amended~~to $200.0 million. The proceeds of the ~~December 2015 Facility to extend the maturity date to December 2018.~~revolving loans may be used for general corporate purposes. The ~~December 2015 Facility was denominated in U.S. dollars and, depending on certain conditions, each borrowing was subject to~~revolving loans accrue interest at a ~~floating interest rate equal to either the~~ prime rate plus a ~~spread~~margin of 0.25% ~~to 2.75%~~ or, at our option, a ~~reserve adjusted~~ LIBOR rate (based on one, three or six-month interest periods) plus a ~~spread~~margin of ~~1.25% to 3.75%~~1.00%. Although no minimum deposit was required for the December 2015 Facility, we were eligible for the lowest interest rate if we maintained at least $40 million in deposits with the lender. In addition, there was an annual fee of 0.2%Interest on the ~~total commitment amount. At closing, we drew $40.0 million~~revolving loans is payable quarterly in arrears with respect to loans based on the prime rate and at ~~1.82% (six month~~the end of an interest period in the case of loans based on the LIBOR ~~plus 1.25%)~~rate (or at each three-month interval if the interest period is longer than three months). Borrowings under the ~~December 2015~~November 2017 Facility ~~were~~are collateralized by substantially all of our ~~assets in~~assets. The November 2017 Facility requires us to comply with a maximum leverage ratio and a minimum liquidity requirement. Additionally, the ~~United States. The December 2015~~November 2017 Facility ~~also contained various~~contains customary affirmative and negative covenants, including covenants ~~related~~limiting our, and our subsidiaries’, ability to, among other things, grant liens, incur debt, pay dividends or distributions on the ~~delivery~~capital stock, effect certain mergers, make investments, dispose of ~~financial~~assets and ~~other information,~~enter into transactions with affiliates, in each case subject to customary exceptions for a credit facility of the ~~maintenance~~size and type of ~~quarterly financial covenants, as well as customary limitations on dispositions, mergers or consolidations and other corporate activities.~~

~~On November 27, 2017, we terminated the December 2015 Facility and entered into~~ the November 2017 Facility. ~~Refer to Note 12 within Item 1 for additional details.~~

For the nine months ended October 31, ~~2017,~~2019, cash provided by operating activities was ~~$13.1~~$29.7 million. The primary ~~factor~~factors affecting our operating cash flows during this period ~~was~~were our net loss of ~~$122.3~~$114.0 million, ~~partially~~ offset by non-cash charges of ~~$117.5 million and changes in our operating assets and liabilities of $17.9 million. Non-cash charges consisted primarily of $72.5~~$106.9 million for stock-based compensation, ~~$29.3~~$42.1 million for depreciation and amortization of our property and equipment, ~~and intangible assets, and $15.7~~$18.4 million for amortization of deferred ~~commissions.~~commissions, and net cash outflows of $23.6 million provided by changes in our operating assets and liabilities.

The primary drivers for the changes in operating assets and liabilities include a ~~$24.3~~$66.7 million decrease in accounts receivable that was primarily due to the seasonality of our billings and relative timing of our cash collections, a $49.4 million decrease in deferred revenue that was primarily due to ~~increased efforts~~seasonality in ~~cash collections,~~ our sales cycle which is concentrated in the back half of our fiscal year, predominantly in the last quarter, a ~~$13.2~~$26.6 million increase in deferred commissions primarily due to new and expanded deployments with paying customers ~~in the nine months ended October 31, 2017, an $11.0 million increase in deferred revenue, and~~during this period, a ~~$4.2~~$26.4 million decrease in ~~accounts payable,~~ operating lease right-of-use assets, a $25.0 million decrease in operating lease liabilities, and a $8.4 million decrease in accrued expenses and other liabilities primarily attributable to timing of compensation and benefits payments and timing of invoice ~~payments, which include payments related to our investment in international expansion for the nine months ended October 31, 2017.~~payments.

Cash used in investing activities of ~~$4.8~~$10.7 million for the nine months ended October 31, ~~2017~~2019 was primarily due to ~~capital expenditures~~$6.5 million of capitalized internal-use software costs associated with the development of additional significant features and functionality to our products. In addition, included in ~~connection with~~cash used in investing activities was $4.2 million of fixed asset purchases to support our increased ~~headcount and facilities investments in Austin, London, and Tokyo.~~headcount.

Cash used in financing activities of ~~$13.0~~$35.8 million for the nine months ended October 31, ~~2017~~2019 was primarily due to ~~$26.2~~$35.1 million of employee payroll taxes paid related to net share settlement of restricted stock units reflecting the amount of equity grants vested and ~~$12.7~~the valuation of our share price, $26.2 million of principal payments of ~~capital~~finance lease ~~obligations,~~liabilities, and $0.9 million of contingent consideration payments in connection with business combinations in fiscal year 2019, partially offset by ~~$17.5~~$23.4 million of proceeds from issuances of common stock under the 2015 ESPP and ~~$9.4~~$3.0 million of proceeds from the exercise of stock options.

The following table summarizes our contractual obligations and commitments as of October 31, ~~2017:~~2019:

Through October 31, ~~2017,~~2019, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

~~There~~Except for items discussed under Use of Estimates, Recently Adopted Accounting Pronouncements,and Summary of Significant Accounting Policiesunder Part I, Item 1. Financial Statements—Note 1, there have been no material changes to our critical accounting policies and estimates during the nine months ended October 31, ~~2017~~2019 from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended January 31, ~~2017.~~2019.

Refer to Part I, Item 1. Financial Statements—Note 1 for information regarding the effect of new accounting pronouncements on our financial statements.

Regulation S-K Item 10(e), “Use of Non-GAAP Financial Measures in Commission Filings,” defines and prescribes the conditions for use of non-GAAP financial information. Our measures of non-GAAP operating ~~loss,~~income (loss), non-GAAP operating margin, non-GAAP net ~~loss,~~income (loss), non-GAAP net ~~loss~~income (loss) per share, and free cash flow (collectively, the non-GAAP financial measures) each meet the definition of a non-GAAP financial measure.

We use these non-GAAP financial measures and our key metrics for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures and key metrics provide meaningful supplemental information regarding our performance by excluding certain expenses that may not be indicative of our recurring core business operating results. We believe that both management and investors benefit from referring to these non-GAAP financial measures and key metrics in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures and key metrics also facilitate ~~management's~~management’s internal comparisons to our historical performance as well as comparisons to our ~~competitors'~~competitors’ operating results. We believe these non-GAAP financial measures and key metrics are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

We define non-GAAP operating ~~loss~~income (loss) as operating loss excluding expenses related to stock-based compensation (“SBC”), intangible assets amortization, and as applicable, other special items. ~~We specifically identify other adjusting items in our reconciliation of GAAP to Non-GAAP financial measures.~~ Non-GAAP operating margin is defined as non-GAAP operating ~~loss~~income (loss) divided by revenue. ~~Similarly, the same items are also excluded from the calculation of non-GAAP operating margins.~~ Although ~~stock-based compensation~~SBC is an important aspect of the compensation of ~~Box’s~~our employees and executives, determining the fair value of certain of the stock-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock options, which is an element of our ongoing stock-based compensation expense, is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. For restricted ~~share~~stock unit awards, the amount of stock-based compensation expenses is not reflective of the value ultimately received by the grant recipients. Management believes it is useful to exclude ~~stock-based compensation~~SBC in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. Management also views amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company’s ~~research~~developed technology and ~~development efforts,~~ trade names, ~~and customer relationships,~~ as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are continually evaluated for impairment, amortization of the cost of ~~acquired intangible assets~~purchased intangibles is a static expense, one that is not typically affected by operations during any particular period. We further exclude ~~legal settlement~~expenses related to shareholder activism, which include directly applicable third party advisory and professional service fees, as well as expenses related ~~costs~~to certain litigation, because they are considered by management to be special items outside of our core operating results. There are no expenses related to litigation excluded from non-GAAP operating income (loss) in any of the periods presented.

We define non-GAAP net ~~loss~~income (loss) as net loss excluding expenses related to stock-based compensation, intangible assets amortization and as applicable, other special items. We specifically identify other adjusting items in our reconciliation of GAAP to non-GAAP ~~financial measures.~~ ~~We define non-GAAP~~ net ~~loss per share as non-GAAP net loss divided by the weighted average outstanding shares. We exclude~~income (loss). These items include expenses related to certain litigation because they are considered by management to be special items outside our core operating results. We define non-GAAP net income (loss) per share as non-GAAP net income (loss) divided by the weighted-average outstanding shares. Similarly, the same adjusting items specified in our reconciliation of GAAP to non-GAAP net income (loss) are also excluded from the calculation of non-GAAP net income (loss) per share.

be outside of our core business. We specifically identify other adjusting items in our reconciliation of GAAP to non-GAAP financial measures. ~~Historically, these items have included restricted cash used to guarantee significant letters of credit for our Redwood City headquarters.~~ We consider free cash flow to be a profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can possibly be used for investing in our business and strengthening ~~the~~the balance ~~sheet,~~sheet; but it is not intended to represent the residual cash flow available for discretionary expenditures. A reconciliation of free cash flow to net cash ~~used in~~provided by operating activities, its nearest GAAP equivalent, is presented below.The presentation of free cash flow is also not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity.

A limitation of our non-GAAP financial measures is that they do not have uniform definitions. Our definitions will likely differ from the definitions used by other companies, including peer companies, and therefore comparability may be limited. Thus, our non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP. Additionally, in the case of stock-based compensation expense, if we did not pay a portion of compensation in the form of stock-based compensation expense, the cash salary expense included in costs of revenue and operating expenses would be higher which would affect our cash position.

We compensate for these limitations by reconciling non-GAAP financial measures to the most comparable GAAP financial measures. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view our non-GAAP financial measures in conjunction with the most comparable GAAP financial measures.

Our reconciliation of the non-GAAP financial measures for the three and nine months ended October 31, ~~2017~~2019 and ~~2016~~2018 are as follows (in thousands, except per share data and percentages):

	Three Months Ended								Nine Months Ended								Three Months Ended								Nine Months Ended
	October 31,								October 31,								October 31,								October 31,
	2017				2016				2017				2016				2019				2018				2019				2018
GAAP operating loss	$	(42,559	)		$	(37,751	)		$	(121,534	)		$	(114,262	)		$	(39,233	)		$	(39,464	)		$	(110,891	)		$	(112,543	)
Stock-based compensation		25,523				19,917				72,536				55,070				37,758				31,790				106,925				89,086
Intangible assets amortization		39				545				481				2,920				—				—				—				24
Expenses related to a legal verdict(1)		—				—				—				(1,664	)
Fees related to shareholder activism																		955				—				955				—
Non-GAAP operating loss	$	(16,997	)		$	(17,289	)		$	(48,517	)		$	(57,936	)		$	(520	)		$	(7,674	)		$	(3,011	)		$	(23,433	)

GAAP operating margin		(33	)	%		(37	)	%		(33	)	%		(40	)	%		(22	)	%		(25	)	%		(22	)	%		(25	)	%
Stock-based compensation		20				19				20				19				21				20				21				20
Intangible assets amortization		—				1				—				1				—				—				—				—
Expenses related to a legal verdict(1)		—				—				—				(1	)
Fees related to shareholder activism																		1				—				—				—
Non-GAAP operating margin		(13	)	%		(17	)	%		(13	)	%		(21	)	%		—		%		(5	)	%		(1	)	%		(5	)	%


GAAP net loss	$	(42,924	)		$	(38,233	)		$	(122,295	)		$	(114,910	)		$	(40,896	)		$	(40,196	)		$	(113,958	)		$	(114,918	)
Stock-based compensation		25,523				19,917				72,536				55,070				37,758				31,790				106,925				89,086
Intangible assets amortization		39				545				481				2,920				—				—				—				24
Expenses related to a legal verdict(1)		—				—				—				(1,664	)
Fees related to shareholder activism																		955				—				955				—
Non-GAAP net loss	$	(17,362	)		$	(17,771	)		$	(49,278	)		$	(58,584	)		$	(2,183	)		$	(8,406	)		$	(6,078	)		$	(25,808	)

GAAP net loss per share, basic and diluted	$	(0.32	)		$	(0.30	)		$	(0.92	)		$	(0.91	)		$	(0.28	)		$	(0.28	)		$	(0.78	)		$	(0.82	)
Stock-based compensation		0.19				0.16				0.55				0.43				0.26				0.22				0.73				0.64
Intangible assets amortization		—				—				—				0.02				—				—				—				—
Expenses related to a legal verdict(1)		—				—				—				—
Fees related to shareholder activism																		0.01				—				0.01				—
Non-GAAP net loss per share, basic and diluted	$	(0.13	)		$	(0.14	)		$	(0.37	)		$	(0.46	)		$	(0.01	)		$	(0.06	)		$	(0.04	)		$	(0.18	)
Weighted-average shares outstanding, basic and diluted		134,636				128,275				133,044				126,712				148,555				142,366				146,997				140,559

GAAP net cash provided by (used in) operating activities	$	14,094			$	(6,829	)		$	13,112			$	(15,939	)
Net cash provided by operating activities																	$	8,893			$	6,816			$	29,699			$	23,989
Purchases of property and equipment		(3,003	)			(1,892	)			(4,800	)			(13,639	)			(1,055	)			(5,247	)			(4,221	)			(12,613	)
Payments of capital lease obligations		(4,781	)			(2,178	)			(12,693	)			(5,439	)
Principal payments of finance lease liabilities																		(7,055	)			(4,290	)			(26,200	)			(17,192	)
Capitalized internal-use software costs																		(2,469	)			(1,343	)			(6,482	)			(1,343	)
Free cash flow	$	6,310			$	(10,899	)		$	(4,381	)		$	(35,017	)		$	(1,686	)		$	(4,064	)		$	(7,204	)		$	(7,159	)
Net cash used in investing activities	$	(3,001	)		$	(1,884	)		$	(4,769	)		$	(6,258	)		$	(3,524	)		$	(6,589	)		$	(10,697	)		$	(14,412	)
Net cash (used in) provided by financing activities	$	(3,423	)		$	3,194			$	(12,967	)		$	4,203
Net cash used in financing activities																	$	(5,965	)		$	(3,726	)		$	(35,758	)		$	(17,256	)

We had cash and cash equivalents ~~and restricted cash~~ of ~~$172.9~~$200.9 million as of October 31, ~~2017.~~ 2019; we did not have any restricted cash. Our cash ~~equivalents~~ and ~~restricted~~ cash equivalents primarily consist of overnight deposits, ~~and~~ certificates of ~~deposits. All restricted cash is recorded at its estimated fair value.~~deposit, and money market funds. We do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates and we do not enter into investments for trading or speculative purposes.

In December 2015, we entered into a revolving credit facility (December 2015 Facility) in the amount of up to $40.0 million, which was originally scheduled to mature in December 2017. The December 2015 Facility was denominated in U.S. dollars and, depending on certain conditions, each borrowing was subject to a floating interest rate equal to either the prime rate plus a spread of 0.25% to 2.75% or a reserve adjusted LIBOR rate (based on one, three or six-month interest periods) plus a spread of 1.25% to 3.75%. Although no minimum deposit was required for the December 2015 Facility, we were eligible for the lowest interest rate if we

~~maintained at least $40 million in deposits with the lender. In February 2017, we amended the December 2015 Facility to extend the maturity date to December 2018.~~

Interest rate risk also reflects our exposure to movements in interest rates associated with the ~~December 2015~~November 2017 Facility. As of October 31, ~~2017,~~2019, we had total debt outstanding with a carrying amount of ~~$40~~$40.0 million which approximates fair value. ~~A hypothetical 10% increase or decrease in interest rates of October 31, 2017 would not have a material impact on the fair value of our outstanding debt.~~

~~On November 27, 2017, we terminated the December 2015 Facility and entered into the November 2017 Facility.~~ The revolving loans accrue interest at a prime rate plus a margin of 0.25% or, at our option, a LIBOR rate (based on one, three or six-month interest periods) plus a margin of 1.00%. As of November 29, 2017, there was $40.0 million in revolving loans outstanding and $26.0 million in letters of credit issued under the November 2017 Facility. Refer to Note 12 within Item 1 for additional details. A hypothetical 10% increase or decrease in interest ~~rate~~rates as of October 31, 2019 under the November 2017 Facility would not have a material impact on the fair value of our outstanding debt.

Effective September 5, 2019, we entered into a Swap Agreement with Wells Fargo Bank, National Association, in order to minimize our interest rate risk exposure due to the volatility of LIBOR. Under the Swap Agreement, we have hedged a portion of the variable interest payments of our debt by effectively fixing our interest payments over the five year term of the agreement. As of October 31, 2019, our interest rate swap had a notional value of $30.0 million.

Our sales contracts are denominated predominantly in U.S. dollars. We support sales contracts denominated in 1617 foreign currencies and consequently, our customer billings denominated in foreign currencies are subject to foreign currency exchange risk. 11 of the 1617 currencies are only offered at this time through our online sales experience and are required to be settled by credit cards; accordingly, our foreign currency exposure on these transactions is limited only to ordinary credit card settlement timeframes. A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, which are also subject to fluctuations due to changes in foreign currency exchange rates. Our international subsidiaries maintain certain asset and liability balances that are denominated in foreign currencies. Additionally, fluctuations in foreign currency exchange rates can result in fluctuations in our total assets, liabilities, and cash flows and may cause us to recognize transaction gains and losses in our statement of ~~operations.~~operations impacting our revenue and operating expenses. To date we have managed our foreign currency risk by maintaining offsetting assets and liabilities and minimizing ~~non-USD~~non-U.S. dollar cash balances, and have not entered into derivatives or hedging transactions as our exposure to foreign currency exchange rates has not been material to our historical operating results; however, we may do so in the future if our exposure to foreign currency should become more significant. ~~There were no significant foreign exchange gains or losses in~~For the nine months ended October 31, ~~2017~~2019 and ~~2016.~~2018, we incurred $0.8 million and $1.3 million in foreign exchange losses, respectively.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ~~(Exchange Act)~~(the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we are a party to litigation and subject to claims that arise in the ordinary course of business. We investigate these claims as they arise and accrue estimates for resolution of legal and other contingencies when losses are probable and estimable. Although the results of litigation and claims cannot be predicted with certainty, we believe there was not at least a reasonable possibility that we had incurred a material loss with respect to such loss contingencies as of October 31, ~~2017.~~2019.

On June 6, 2019, a purported securities class action was filed in the U.S. District Court for the Northern District of California naming Box and certain of its officers and directors as defendants. The complaint purports to bring suit on behalf of shareholders who purchased or otherwise acquired Box’s securities between November 28, 2018 and June 3, 2019. The complaint purports to allege that defendants made false and misleading statements about Box’s business and prospects in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and seeks unspecified compensatory damages, fees, and costs. We believe the claims are without merit and intend to defend against the lawsuit vigorously.

On October 23, 2019, a shareholder derivative complaint was filed in the Superior Court of California, San Mateo County, purportedly on behalf of Box and naming as defendants certain current and former officers and directors. The complaint purports to allege claims for breach of fiduciary duty and unjust enrichment in connection with the same events alleged in the purported securities class action described in the preceding paragraph and seeks, among other relief, unspecified monetary damages, attorneys’ fees, and costs.

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes, before making a decision to invest in our Class A common stock. If any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.

We have a history of cumulative losses, and we do not expect to be profitable for the foreseeable future.

We have incurred significant losses in each period since our inception in 2005. We incurred net losses of ~~$151.8~~$134.6 million, ~~$202.9~~$155.0 million and ~~$168.2~~$151.8 million in our fiscal years ended January 31, 2019, 2018 and 2017, ~~2016 and 2015,~~ respectively, and ~~$122.3~~$114.0 million in the nine months ended October 31, ~~2017.~~2019. As of October 31, ~~2017,~~2019, we had an accumulated deficit of ~~1.0~~$1.2 billion. These losses and accumulated deficit reflect the substantial investments we made to acquire new customers and develop our services. We intend to continue scaling our business to increase our number of users and paying organizations and to meet the increasingly complex needs of our customers. We have invested, and expect to continue to invest, in our sales and marketing organizations to sell our services around the world and in our product development organization to deliver additional features and capabilities of our cloud services to address our customers’ evolving needs. We also expect to continue to make significant investments in our infrastructure and in our professional service organization as we focus on customer success. As a result of our continuing investments to scale our business in each of these areas, we do not expect to be profitable for the foreseeable future. Furthermore, to the extent we are successful in increasing our customer base, we will also incur increased losses due to upfront costs associated with acquiring new customers, particularly as a result of the limited free trial version of our service, and the nature of subscription revenue, which is generally recognized ratably over the term of the subscription period, which is typically one year, although we also offer our services for terms ranging from one month to three years or more. We cannot assure you that we will achieve profitability in the future or that, if we do become profitable, we will sustain profitability.

~~We have a limited operating history, which makes it difficult to predict our future operating results.~~

We were incorporated and introduced our first service in 2005. As a result of our limited operating history, our ability to accurately forecast our future operating results is limited and subject to a number of uncertainties. We have encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein. If our assumptions regarding these risks and uncertainties (which we use to plan our business) are incorrect or change due to changes in our markets, or if we do not address these risks and uncertainties successfully, our operating and financial results could differ materially from our expectations, and our business could suffer.

The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed.

The market for cloud content management services is fragmented, rapidly evolving and highly competitive, with relatively low barriers to entry for certain applications and services. Many of our competitors and potential competitors are larger and have greater ~~name~~brand recognition, substantially longer operating histories, larger marketing budgets and significantly greater resources than we do. Our primary competitors in the cloud content management market include, but are not limited to, Microsoft and Open Text (Documentum). In the enterprise file sync and share market, our primary competitors include, but are not limited to, Microsoft, Google ~~Dropbox,~~ and, ~~Open Text (including Documentum).~~to a lesser extent, Dropbox. With the introduction of new technologies and market entrants, we expect competition to

continue to intensify in the future. If we fail to compete effectively, our business will be harmed. Some of our principal competitors offer their products or services at a lower price or for free, which has resulted in pricing pressures on our business. If we are unable to achieve our target pricing levels, our operating results would be negatively impacted. In addition, pricing pressures and increased competition generally could result in reduced sales, lower

margins, losses or the failure of our services to achieve or maintain widespread market acceptance, any of which could harm our business.

Many of our competitors are able to devote greater resources to the development, promotion and sale of their products or services. In addition, many of our competitors have established marketing relationships and major distribution agreements with channel partners, consultants, system integrators and resellers. Moreover, many software vendors could bundle products or offer them at lower prices as part of a broader product sale or enterprise license arrangement. Some competitors may offer products or services that address one or a number of business execution functions at lower prices or with greater depth than our services. ~~As a result, our~~Our competitors may be able to respond more quickly and effectively to new or changing opportunities, technologies, standards or customer requirements. Furthermore, some potential customers, particularly large enterprises, may elect to develop their own internal solutions. For any of these reasons, we may not be able to compete successfully against our current and future competitors.

If the market for cloud-based enterprise ~~service~~services declines or develops more slowly than we expect, our business could be adversely affected.

The market for cloud-based enterprise services is not as mature as the on-premise enterprise software market, and it is uncertain whether a cloud-based service like ours will achieve and sustain high levels of customer demand and market acceptance. Because we derive, and expect to continue to derive, substantially all of our revenue and cash flows from sales of our cloud content management ~~and collaboration solution,~~solutions, our success will depend to a substantial extent on the widespread adoption of cloud computing in general and of cloud-based content ~~collaboration~~management services in particular. Many organizations have invested substantial personnel and financial resources to integrate traditional enterprise software into their organizations and, therefore, may be reluctant or unwilling to migrate to a cloud-based model for storing, accessing, sharing and managing their content. It is difficult to predict customer adoption rates and demand for our services, the future growth rate and size of the cloud computing market or the entry of competitive services. The expansion of the cloud content management ~~and collaboration~~ market depends on a number of factors, including the cost, performance and perceived value associated with cloud computing, as well as the ability of companies that provide cloud-based services to address security and privacy concerns. If we or other providers of cloud-based services experience security incidents, loss or corruption of customer data, disruptions in delivery of services, network outages, disruptions in the availability of the internet or other problems, the market for cloud-based services as a whole, including our services, may be negatively affected. If cloud-based services do not achieve widespread adoption, or there is a reduction in demand for cloud-based services caused by a lack of customer acceptance, technological challenges, weakening economic or political conditions, security or privacy concerns, competing technologies and products, decreases in corporate spending or otherwise, it could result in decreased revenue, harm our growth rates, and adversely affect our business and operating results.

We have experienced rapid growth. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or adequately address competitive challenges.

We have experienced ~~a period of~~ rapid growth in our operations, employee headcount, and the size of our customer base. You should not consider our recent growth as indicative of our future performance. However, we anticipate that we will continue to expand our operations and employee headcount in the near term, including internationally. This growth has placed, and future growth will place, a significant strain on our management, administrative, operational and financial infrastructure. Our success will depend in part on our ability to manage this growth effectively. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls, as well as our reporting systems and procedures. Failure to effectively manage our growth could result in difficulty or delays in deploying customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties. Any of these difficulties could adversely impact our business performance and operating results.

Our business depends substantially on customers renewing their subscriptions with us and expanding their use of our services. Any decline in our customer renewals or failure to convince our customers to broaden their use of our services would harm our future operating results.

In order for us to maintain or improve our operating results, it is important that our customers renew their subscriptions with us when their existing subscription term expires. Our customers have no obligation to renew their subscriptions upon expiration, and we cannot assure you that customers will renew subscriptions at the same or higher level of service, if at all. Although our retention rate remains high, it has decreased over time, and may continue to decrease in the future, as some of our customers ~~have elected~~elect not to renew their subscriptions with ~~us.~~us or to decrease the scope of their deployments. For example, our retention rate was approximately 105% as of October 31, 2019, compared to 108% as of October 31, 2018.

Our retention rate may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction or dissatisfaction with our services, the effectiveness of our customer support services, the performance of our partners and resellers, our pricing, the prices of competing products or services, mergers and acquisitions affecting our customer base, the effects of global economic conditions or reductions in our customers’ spending levels. If our customers do not renew their subscriptions, purchase

fewer seats, renew them on less favorable terms or fail to purchase new product offerings, our revenue may decline, and we may not realize improved operating results from our customer base.

In addition, the growth of our business depends in part on our customers expanding their use of our services. The use of our cloud content management platform often expands within an organization as new users are added or as additional services are purchased by or for other departments within an organization. Further, as we have introduced new services throughout our operating history, our existing customers have constituted a significant portion of the users of such services. If we are unable to encourage our customers to broaden their use of our services, our operating results may be adversely affected.

If we are not able to successfully launch new products and services, or provide ~~successful~~ enhancements ~~new features and~~or modifications to our existing products and services, our business could be adversely affected.

Our industry is marked by rapid technological developments and new and enhanced applications and services. If we are unable to provide enhancements and new features for our existing services or offer new services that achieve market acceptance or that keep pace with rapid technological developments, our business could be adversely affected. For example, we ~~have introduced Box Relay, a tool that allows users to create custom workflows,~~provide Box Platform, which allows our customers to leverage Box’s powerful content services within their own custom ~~applications,~~applications; Box KeySafe, a solution that builds on top of Box’s strong encryption and security capabilities to give customers greater control over the encryption keys used to secure the file contents that are stored with ~~Box,~~Box; Box Zones, which gives global customers the ability to store their data locally in certain ~~regions, Box Accelerator, which improves upload speeds for our global customers, and~~regions; Box Governance, which gives customers a better way to comply with regulatory policies, satisfy e-discovery requests and effectively manage sensitive business ~~information.~~information; and Box Skills, which enables customers to leverage a variety of machine learning tools to accelerate their business processes and help extract meaning from customers unstructured content. Earlier this year, we launched the all new Box Relay, which provides our customers with powerful workflow automation tools to improve business processes. In addition, in October 2019 we launched Box Shield, a set of new content security controls and intelligent threat detection capabilities that enables enterprises to secure and protect their most valuable intellectual property and help prevent accidental data leakage, detect potential access misuse and proactively identify potential security threats. The success of any new products and services, enhancements, ~~new features~~ or modifications to existing products and services depends on several factors, including the timely completion, introduction and market acceptance of such enhancements, ~~features~~integrations, products or services. Failure in this regard may significantly impair our revenue ~~growth.~~growth and our future financial results. In addition, because our services are designed to operate on a variety of systems, we will need to continuously modify and enhance our services to keep pace with changes in internet-related hardware, mobile operating systems such as iOS and Android, and other software, communication, browser and database technologies. We may not be successful in either developing these modifications and enhancements or in bringing them to market in a timely fashion. Furthermore, modifications to existing platforms or technologies will increase our research and development expenses. Any failure of our services to operate effectively with existing or future network platforms and technologies could reduce the demand for our services, result in customer dissatisfaction and adversely affect our business.

Actual or perceived security vulnerabilities in our services or any breaches of our security controls and unauthorized access to our or a customer’s data could harm our business and operating results.

The services we offer involve the storage of large amounts of our customers’ sensitive and proprietary information across a broad ~~industry spectrum. Cyber attacks~~spectrum of industries. Additionally, we collect and store certain sensitive and proprietary information in the operation of our business, including trade secrets, employee data, and other confidential data. Cyberattacks and other malicious internet-based activity continue to increase in frequency and in magnitude generally, and cloud-based content collaboration services have been targeted in the past. These increasing threats are being driven by a variety of sources including nation-state sponsored espionage and hacking activities, industrial espionage, organized crime, sophisticated organizations and hacking groups and individuals. These sources can also implement social engineering techniques to induce our partners, users, employees or customers to disclose passwords or other sensitive information or take other actions to gain access to our data or our users’ data. ~~Additionally, hackers~~Hackers that acquire user account information at other companies can attempt to use that information to compromise the accounts of personnel, or our users’ accounts if an account shares the same sensitive information such as passwords. In addition, because the Box service is configured by administrators and users to select their default settings, the third-party integrations they enable, and their privacy and permissions settings, this may lead to an administrator or user intentionally or inadvertently configuring settings to share their sensitive data. For example, a Box user can choose to share the content they store in Box with third-parties by creating a link that can be customized to be accessible by anyone with the link. While this feature is designed to be used for a variety of legitimate use cases in which a user wishes to share non-sensitive content with a broad or public audience, if a user were to intentionally or inadvertently configure a setting that allowed public access to their sensitive data, that data could be discovered and accessed by an unintended third party. As we increase our customer base and our brand becomes more widely known and recognized, and as our service is used in more heavily regulated industries where there may be a greater concentration of sensitive and protected data, such as healthcare, government, life sciences, and financial services, we may become more of a target for these malicious third parties.

If our security measures are or are believed to be inadequate or breached as a result of third-party action, employee negligence, error or malfeasance, product defects, social engineering techniques, improper user configuration or otherwise, and this results in, or is believed to result in, the disruption of the confidentiality, integrity or availability of our data or our customers’ data, we could incur significant liability to various parties, including our customers and to individuals or organizations whose information is being stored by our customers, and our business may suffer and our reputation or competitive position may be damaged. Techniques used to obtain unauthorized access to, or to sabotage, systems or networks, are constantly evolving and generally are not recognized until launched against a target. Therefore, we may be unable to anticipate these techniques, react in a timely manner, or implement adequate preventive ~~measures. In addition,~~measures, and we may face delays in our detection or remediation of, or other responses to, security breaches and other security-related incidents. We also expect to incur significant costs in an effort to detect and prevent security breaches and other security-related incidents, and we may face increased costs and requirements to expend substantial resources in the event of an actual or perceived security breach or other security-related incident. Additionally, our service providers may suffer, or be perceived to suffer, data security breaches or other incidents that may compromise data stored or processed for us that may give rise to any of the foregoing.

Our customer contracts often include (i) specific obligations that we maintain the availability of the customer’s data through our service and that we secure customer content against unauthorized access or loss, and (ii) provisions whereby we indemnify our customers for third-party claims asserted against them that result from our failure to maintain the availability of their content or securing the same from unauthorized access or loss. While our customer contracts contain limitations on our liability in connection with these obligations and indemnities, if an actual or perceived security breach occurs, the market perception of the effectiveness of our security measures could be harmed, we could be subject to indemnity or damage claims in certain customer contracts, and we could lose future sales and customers, any of which could harm our business and operating results. Furthermore, while our errors and omissions insurance policies include liability

coverage for certain of these matters, if we experienced a widespread security breach or other incident that impacted a significant number of our customers to whom we owe ~~these~~ indemnity obligations, we could be subject to indemnity claims or other damages that exceed ~~such~~our insurance coverage. We also cannot be certain that our insurance coverage will be adequate for data handling or data security liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

Our sales to government entities are subject to a number of additional challenges and risks.

We sell to U.S. federal and state and foreign government ~~agencies~~ customers, and we may increase sales to government entities in the future. Sales to government entities are subject to a number of additional challenges and risks. Selling to government entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government certification requirements may change, or we may lose one or more government certifications, and in doing so restrict our ability to sell into the government sector until we have attained revised certifications. Government demand and payment for our products and services are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our solutions. An extended federal government shutdown resulting from budgetary decisions may limit or delay federal government spending on our solutions and adversely affect our revenue. Government entities may also have statutory, contractual or other legal rights to terminate contracts with us for convenience or due to a default, and any such termination may adversely affect our future operating results.

As a substantial portion of our sales efforts are increasingly focused on cloud content management use cases and are targeted at enterprise and highly-regulated customers, our sales ~~cycle~~cycles may become longer and more expensive, we may encounter greater pricing pressure and implementation and customization challenges, and we may have to delay revenue recognition for more complicated transactions, all of which could harm our business and operating results.

As a substantial portion of our sales efforts are increasingly focused on cloud content management use cases and are targeted at enterprise and highly-regulated customers, we face greater costs, longer sales cycles and less predictability in the completion of some of our sales. In this market segment, the customer’s decision to use our services may be an enterprise-wide decision, in which case these types of sales require us to provide greater levels of customer education regarding the uses and benefits of our services, as well as education regarding security, privacy, and data protection laws and regulations, especially for those customers in more heavily regulated industries or those with significant international operations. In addition, larger enterprises may demand more customization, integration and support services, and features. As a result of these factors, these sales opportunities may require us to devote greater sales support and professional services resources to these customers, which could increase our costs, lengthen our sales cycle and leave fewer sales support and professional services resources for other ~~customers. This would potentially require us to delay revenue recognition on some of these transactions until the technical or implementation requirements have been met.~~customers. Professional services may also be performed by a third party or a combination of our own staff and a third party. Our strategy is to work with third parties to increase the breadth of capability and depth of capacity for delivery of these services to our customers. If a customer is not satisfied with the quality or interoperability of our services with their own IT environment, we could incur additional costs to address the situation, which could adversely affect our margins. Moreover, any customer dissatisfaction with our services could damage our ability to encourage broader adoption of our services by that customer. In addition, any negative publicity resulting from such situations, regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective customers.

Privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our services and harm our business.

Users can use our services to store identifying information or information that otherwise is considered personal information. Federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use and disclosure of personal information obtained from consumers and other individuals. Foreign data protection, privacy, consumer protection and other laws and regulations, particularly in Europe, are often more restrictive than those in the United States. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to our business or the businesses of our customers may limit the use and adoption of our services and reduce overall demand for them.

These U.S. federal and state and foreign laws and regulations, which can be enforced by private parties or governmental entities, are constantly evolving and can be subject to significant change. A number of new laws coming into effect and/or proposals pending before federal, state and foreign legislative and regulatory bodies could affect our business. For example, the European Commission has enacted a ~~general data protection regulation~~General Data Protection Regulation (GDPR) that ~~becomes~~became effective in May 2018, ~~and will supersede current~~superseding prior EU data protection legislation, ~~impose~~imposing more stringent EU data protection requirements, and ~~provide~~providing for greater penalties for ~~noncompliance. Additionally, in October 2015,~~noncompliance of up to the ~~European Court~~greater of ~~Justice invalidated~~20 million euros or four percent of a company’s global revenue. The GDPR imposes significant obligations on companies regarding the ~~U.S.-EU Safe Harbor framework that had been in place since 2000, which allowed companies to meet certain European legal requirements for the transfer~~handling of personal data. If we are unable to develop and offer services that meet our legal duties or help our customers meet their obligations under the GDPR or other laws or regulations relating to privacy, data ~~from the European Economic Area~~protection, or information security, we may experience reduced demand for our services and become subject to ~~the United States.~~significant fines and penalties, all of which would harm our business. Although U.S. and EU authorities reached ~~a political~~ agreement ~~on February 2,~~in 2016, regarding a ~~new~~ means for legitimizing personal data transfers from the ~~EEA~~European Economic Area (EEA) to the United States under EU data protection law, the EU-U.S. Privacy Shield, it is facing mounting legal challenges. It is unclear what effect these challenges to the EU-U.S. Privacy Shield will have and whether it or the related Swiss-EU Privacy Shield will continue to function as an appropriate means for us to legitimize personal data transfers from the EEA or Switzerland to the U.S. ~~Similarly, there~~Additionally, in 2018, the State of California enacted the California Consumer Privacy Act (CCPA), that will, among other things, require covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information, when it goes into effect on January 1, 2020. The CCPA has been amended on multiple occasions, and it is the subject of proposed regulations issued by the California Attorney General in October 2019. Aspects of the CCPA and its interpretation and enforcement remain unclear. We cannot fully predict the impact of the CCPA on our business or operations, but it may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. There also have been a number of recent legislative proposals in the United States, at both the federal and state level, that would impose new obligations in areas such as privacy and liability for copyright infringement by third parties. In June 2016, the United Kingdom ~~held a referendum in~~

~~which voters approved an exit from~~voted to leave the European Union, commonly referred to as “Brexit,” which could also lead to further legislative and regulatory ~~changes.~~ ~~In March 2017,~~changes. The UK Data Protection Act that substantially implements the GDPR became law in May 2018. It remains unclear, however, how United Kingdom data protection laws or regulations will develop in the medium to longer term and how data transfers to and from the United Kingdom ~~began the process to leave the EU by April 2019.~~will be regulated. In addition, some countries are considering or have enacted legislation requiring local storage and processing of data that could increase the cost and complexity of delivering our services.

These existing and proposed laws and regulations can be costly to comply with, can delay or impede the development or adoption of our products and services, reduce the overall demand for our products and services, increase our operating costs, require significant management time and attention, slow the pace at which we close (or prevent us from closing) sales transactions. Additionally, any actual or alleged noncompliance with these laws and regulations could result in negative publicity and subject us to investigations, claims or other remedies, including demands that we modify or cease existing business practices, and expose us to significant fines, penalties and other damages.

Furthermore, government agencies may seek to access sensitive information that our users upload to Box, or restrict users’ access to Box. Laws and regulations relating to government access and restrictions are evolving, and compliance with such laws and regulations could limit adoption of our services by users and create burdens on our business. Moreover, regulatory investigations into our compliance with privacy-related laws and regulations could increase our costs and divert management attention.

If we are not able to satisfy data protection, security, privacy, and other government- and industry-specific requirements, our growth could be harmed.

There are a number of data protection, security, privacy and other government- and industry-specific requirements, including those that require companies to notify individuals of data security incidents involving certain types of personal data. Security compromises experienced by our competitors, by our customers or by us may lead to public disclosures, which could harm our reputation, erode customer confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers, or cause existing customers to elect not to renew their agreements with us. In addition, some of the industries we serve have industry-specific requirements relating to compliance with certain security and regulatory standards, such as GxP and FedRAMP, and those required by ~~the~~ HIPAA, FINRA, and the HITECH Act. As we expand into new industry verticals and regions, we will likely need to comply with these and other new requirements to compete effectively. If we cannot adequately comply or if we incur a violation inof one or more of these requirements, our growth could be adversely impacted, and we could incur significant ~~liability.~~liability and our reputation and business could be harmed.

Because we recognize revenue from subscriptions for our services over the term of the subscription, downturns or upturns in new business may not be immediately reflected in our operating results.

We generally recognize revenue from customers ratably over the terms of their subscription agreements, which are typically one year, although we also offer our services for terms ranging from one month to three years or more. As a result, most of the revenue we report in each quarter is the result of subscription agreements entered into during prior quarters. Consequently, a decline in new or renewed subscriptions in any one quarter may not be reflected in our revenue results for that quarter. However, any such decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales, ~~and~~our failure to achieve our internal sales targets, a decline in the market acceptance of our services, ~~and~~or potential ~~changes~~decreases in our retention rate may not be fully reflected in our operating results until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from additional sales must be recognized over the applicable subscription term.

Our platform must integrate with a variety of operating systems and software applications that are developed by others, and if we are unable to ensure that our solutions interoperate with such systems and applications, our service may become less competitive, and our operating results may be harmed.

We offer our services across a variety of operating systems and through the internet. We are dependent on the interoperability of our platform with third-party mobile devices, tablets, desktop and mobile operating systems, as well as web browsers that we do not control. Any changes in such systems, devices or web browsers that degrade the functionality of our services or give preferential treatment to competitive services could adversely affect usage of our services. In order for us to deliver high quality services, it is important that these services work well with a range of operating systems, networks, infrastructure, devices, web browsers and standards that we do not control. In addition, because a substantial number of our users access our services through mobile devices, we are particularly dependent on the interoperability of our services with mobile devices and mobile operating systems. We may not be successful in developing relationships with key participants in the mobile industry or in developing services that operate effectively with these operating systems, networks, infrastructure, devices, web browsers and standards. In the event that it is difficult for our users to access and use our services, our user growth may be harmed, and our business and operating results could be adversely affected.

~~We cannot accurately predict~~If we are unable to attract new ~~subscription~~customers or ~~expansion~~expand deployments with existing customers at rates ~~and the impact these rates may have on~~that are consistent with our expectations, our future revenue and operating ~~results.~~results could be adversely impacted.

In order for us to improve our operating results and continue to grow our business, it is important that we continue to attract new customers and expand deployment of our ~~solution~~solutions and products with existing customers. To the extent we are successful in increasing our customer base, we could incur increased losses because costs associated with new customers are generally incurred up front, while revenue is recognized ratably over the term of our subscription services. Alternatively, to the extent we are unsuccessful in increasing our customer base, we could also incur increased losses as costs associated with marketing programs and new products intended to attract new customers would not be offset by incremental revenue and cash flow. Furthermore, if our customers do not expand their deployment of our services or purchase new products from us, our revenue may grow more slowly than we expect. All of these factors ~~can~~could negatively impact our future revenue and operating results.

Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.

Our quarterly operating results, including the levels of our revenue, billings, gross margin, profitability, cash flow, ~~and~~ deferred revenue, unrecognized revenue and remaining performance obligations, may vary significantly in the future, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control and, as a result, may not fully reflect the underlying performance of our business. Fluctuations in quarterly results may negatively impact the value of our Class A common stock. Factors that may cause fluctuations in our quarterly financial results include, but are not limited to:

~~One of our marketing strategies is to offer a limited free version of our service, and we may not be able to realize the benefits of this strategy.~~

We offer a limited version of our service to users free of charge in order to promote additional usage, brand and product awareness, and adoption. Some users never convert from a free version to a paid version of our service. Our marketing strategy also depends in part on persuading users who use the free version of our service to convince decision-makers to purchase and deploy our

service within their organizations. To the extent that these users do not become, or do not lead others to become, paying customers, we will not realize the intended benefits of this marketing strategy, and our ability to grow our business and revenue may be harmed.

If we fail to effectively manage our technical operations infrastructure, our customers may experience service outages and delays in the deployment of our services, which may adversely affect our business.

We have experienced significant growth in the number of users and the amount of data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provisioning of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our services. However, the provision of new hosting infrastructure requires significant lead-time. We have experienced, and may in the future experience, website disruptions, incidents of data corruption, service outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, changes to our core services architecture, changes to our infrastructure necessitated by legal and compliance requirements governing the storage and transmission of data, human or software errors, viruses, security attacks, fraud, spikes in customer usage, primary and redundant hardware or connectivity failures, dependent data center and other service provider failures and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time, which may harm our reputation and operating results. Furthermore, if we ~~do not accurately predict our infrastructure requirements,~~encounter any of these problems in the future, our customers may lose access to important data or experience data corruption or service outages that may subject us to financial penalties, other liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation and our business.

Interruptions or delays in service from our third-party ~~datacenter~~data center hosting facilities and cloud computing and hosting providers could impair the delivery of our services and harm our business.

We currently store and process our customers’ information within ~~three~~multiple third-party ~~datacenter~~data center hosting facilities located in ~~Northern California~~Las Vegas, Nevada and in third-party cloud computing and hosting facilities inside and outside of the United States. As part of our current disaster recovery arrangements, our production environment and metadata related to our customers’ data is currently replicated in near real time in a facility located in Las Vegas, Nevada. In addition, all of our customers’ data is typically replicated on a third-party storage platform located inside and outside of the United States. These facilities may be located in areas prone to natural disasters and may experience events such as earthquakes, floods, fires, power loss, telecommunications failures and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism, cyber-attacks and similar misconduct. Any damage to, or failure of, our systems generally, or those of the third-party cloud computing and hosting providers, could result in interruptions in our service. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rate and our ability to attract new customers. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. Our business will also be harmed if our customers and potential customers believe our service is unreliable. Despite precautions taken at these facilities, the occurrence of a natural disaster, an act of terrorism, an armed conflict, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions in our service or cause us to not comply with certification requirements. Even with the disaster recovery arrangements, we have never performed a full live failover of our services and, in an actual disaster, we could learn our recovery arrangements are not sufficient to address all possible scenarios and our service could be interrupted for a longer period than expected. For example, in September 2019, a modification to a perimeter network configuration caused an internal routing problem which led to all Box services being temporarily unavailable. As we continue to add ~~datacenters,~~data centers, increase our dependence on third-party cloud computing and hosting providers, and add capacity in our existing ~~datacenters,~~data centers, we may move or transfer our data and our customers’ data. In particular, as part of our hybrid cloud infrastructure strategy, we intend to migrate our primary data centers in fiscal year 2020 to significantly lower cost regions in order to continue to optimize infrastructure efficiency and to support the growth in our paying customers. While this migration was substantially completed by the end of the third quarter of fiscal year 2020, additional migration activities continue. Despite precautions taken during ~~this process,~~any of these data center moves and data transfers, any unsuccessful data transfers may impair the delivery of our ~~service. Further,~~service and could materially and adversely disrupt our operations and our service delivery to our customers, which could result in contractual penalties or damage claims from customers. In addition, changes to our data center infrastructure could occur over a period longer than planned, could require greater than expected investment and other internal and external resources and could cause us to incur increased costs as we operate multiple data center facilities. It may also take longer to realize the intended favorable benefits from any data center infrastructure migrations and improvements than expected, and disruptions or unexpected costs may continue to ~~grow and scale~~occur while we enhance our business to meet the needs of our customers, additional burdens may be placed on our hosting and computing facilities. In particular, a rapid expansion of our business could cause our network or systems to fail.data center infrastructure.

If we overestimate or underestimate our data center capacity requirements, our operating results could be adversely affected.

Only a small percentage of our customers that are organizations currently use our service as a way to organize all of their internal files. In particular, larger organizations and enterprises typically use our service to connect people and their most important information so that they are able to get work done more efficiently. However, over time, we may experience an increase in customers that look to Box as their complete cloud content ~~storage~~management solution. The costs associated with leasing and maintaining our data centers already constitute a significant portion of our capital and operating expenses. We continuously evaluate our short- and long-term data center capacity requirements to ensure adequate capacity for new and existing customers while minimizing unnecessary excess capacity costs. If we overestimate the demand for our cloud content management ~~service~~services and therefore secure excess data center capacity, or if we are unable to meet our contractual minimum commitments, our operating margins could be reduced. If we underestimate our data center capacity requirements, we may not be able to service the expanding needs of new and existing customers and may be required to limit new customer acquisition, which would impair our revenue growth. Furthermore, regardless of our ability to appropriately

manage our data center capacity requirements, an increase in the number of organizations, in particular large businesses and enterprises, that use our service as a larger component of their content storage requirements, could result in lower gross and operating margins or otherwise have an adverse impact on our financial condition and operating results.

We depend on highly skilled personnel to grow and operate our business, and if we are unable to hire, retain and motivate our personnel, we may not be able to grow effectively.

Our future success depends upon our continued ability to identify, hire, develop, motivate and retain highly skilled personnel, representing diverse backgrounds, experiences, and skill sets, including senior management, engineers, designers, product managers, sales representatives, and customer support representatives. Our ability to execute efficiently is dependent upon contributions from our employees, including our senior management team and, in particular, Aaron Levie, our co-founder, Chairman and Chief Executive Officer. In addition, occasionally, there may be changes in our senior management team that may be disruptive to our business. For example, ~~Stephanie Carullo~~we recently ~~joined us~~announced the appointment of Mark Wayland as our Chief ~~Operating~~Revenue Officer. If our senior management team,

including any new hires that we may make, fails to work together effectively and to execute on our plans and strategies on a timely basis, our business could be harmed.

Our growth strategy also depends on our ability to expand our organization with highly skilled personnel. Identifying, recruiting, training and integrating qualified individuals will require significant time, expense and attention. In addition to hiring new employees, we must continue to focus on retaining our best ~~employees. Many~~employees, as well as a diverse and inclusive work environment that enables all of our employees ~~may be able~~ to ~~receive significant proceeds from sales of our equity in the public markets, which may reduce their motivation to continue to work for us.~~prosper. Competition for highly skilled personnel is intense, particularly in the San Francisco Bay Area, where our headquarters is located. We may need to invest significant amounts of cash and equity to attract and retain new employees, and we may never realize returns on these investments. Changes to U.S. immigration and work authorization laws and regulations, including those that restrain the flow of technical and professional talent, can be significantly affected by political forces and levels of economic activity. Our international expansion and our business in general may be materially adversely affected if legislative or administrative changes to immigration or visa laws and regulations impair our hiring processes and goals or projects involving personnel who are not citizens of the country where the work is to be performed.

If we are not able to effectively add and retain employees, our ability to achieve our strategic objectives will be adversely impacted, and our business will be harmed.

We may be sued by third parties for alleged infringement of their proprietary rights.

There is considerable patent and other intellectual property development activity in our industry. Our success depends on our not infringing upon the valid intellectual property rights of others. Our competitors, as well as a number of other entities, including non-practicing entities, and individuals, may own or claim to own intellectual property relating to our industry. ~~For example, in 2016 we settled a lawsuit brought against us by Open Text S.A. that had gone to trial and was pending appeal.~~

From time to time, certain other third parties have claimed that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. In addition, we cannot assure you that actions by other third parties alleging infringement by us of third-party patents will not be asserted or prosecuted against us. In the future, others may claim that our services and underlying technology infringe or violate their intellectual property rights. However, we may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify services, or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time consuming and divert the attention of our management and key personnel from our business operations. During the course of any litigation, we may make announcements regarding the results of hearings and motions, and other interim developments. If securities analysts or investors regard these announcements as negative, the market price of our Class A common stock may decline.

Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.

Our success and ability to compete depend in part on our intellectual property. As of October 31, 2017, we had 59 issued patents in the United States, 18 issued patents in Great Britain, 2 issued patents in Canada, and one issued patent in Japan that expire between 2027 and 2035, as well as 97 pending patent applications in the United States and 7 pending patent applications internationally. We primarily rely on copyright, trade secret and trademark laws, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate. We may not be able to obtain any further patents, and our pending applications may not

result in the issuance of patents. We may also have to expend significant resources to obtain additional patents as we expand our international operations.

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and may result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Accordingly, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Our failure to secure, protect and enforce our intellectual property rights could materially adversely affect our brand and adversely impact our business.

Our services contain open source software, and we license some of our software through open source projects, which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative impact on our business.

We use open source software in our services and will use open source software in the future. In addition, we regularly contribute software source code to open source projects under open source licenses or release internal software projects under open source licenses, and anticipate doing so in the future. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our services. Additionally, we may from time to time face claims from third parties claiming ownership of, or demanding release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to make our software source code freely available, purchase a costly license or cease offering the implicated services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source code may contain bugs or other defects and open source licensors generally do not provide warranties or controls on the functionality or origin of software. Additionally, because any software source code we contribute to open source projects is publicly available, our ability to protect our intellectual property rights with respect to such software source code may be limited or lost entirely, and we are unable to prevent our competitors or others from using such contributed software source code. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a negative effect on our business, financial condition and operating results.

We rely on third parties for certain financial and operational services essential to our ability to manage our business. A failure or disruption in these services could materially and adversely affect our ability to manage our business effectively.

We rely on third parties for certain essential financial and operational services. Traditionally, the vast majority of these services have been provided by large enterprise software vendors who license their software to customers. However, we receive many of these services on a subscription basis from various software-as-a-service companies that are smaller and have shorter operating histories than traditional software vendors. Moreover, these vendors provide their services to us via a cloud-based model instead of software that is installed on our premises. We depend upon these vendors to provide us with services that are always available and are free of errors or defects that could cause disruptions in our business processes, and any failure by these vendors to do so, or any disruptions in networks or the availability of the internet, would adversely affect our ability to operate and manage our operations.

We are subject to governmental export controls that could impair our ability to compete in international markets due to licensing requirements and economic sanctions programs that subject us to liability if we are not in full compliance with applicable laws.

Certain of our services are subject to export controls, including the U.S. Department of Commerce’s Export Administration Regulations and various economic and trade ~~sanctions~~sanction regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. The provision of our products and services must comply with these laws. The U.S. export control laws and U.S. economic sanctions laws include prohibitions on the sale or supply of certain products and services to U.S. embargoed or sanctioned countries, governments, persons and entities and also require authorization for the export of encryption items. In addition, various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our services or could limit our customers’ ability to implement our services in those countries.

Although we take precautions to prevent our services from being provided in violation of such laws, our solutions may have been in the past, and could in the future be, provided inadvertently in violation of such laws, despite the precautions we take. If we fail to comply with these laws, we and our employees could be subject to civil or criminal penalties, including the possible loss of export privileges, monetary penalties, and, in extreme cases, imprisonment of responsible employees for knowing and willful violations of these laws. We may also be adversely affected through penalties, reputational harm, loss of access to certain markets, or otherwise.

Changes in tariffs, sanctions, international treaties, ~~and~~ export/import laws and other trade restrictions or trade disputes may delay the introduction and sale of our services in international markets, prevent our customers with international operations from deploying our services or, in some cases, prevent the export or import of our services to certain countries, governments, persons or entities altogether. Any change in export or import regulations, economic sanctions or related laws, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our services, or in our decreased ability to export or sell our services to existing or potential customers with international operations. Any decrease in the use of our services or limitation on our ability to export or sell our services would likely adversely affect our business, financial condition and operating results.

~~We focus on product innovation and user engagement rather than short-term operating results.~~

We focus heavily on developing and launching new and innovative products and features, as well as on improving the user experience for our services. We also focus on growing the number of users and paying organizations through inside sales, outbound sales, field sales, channel sales and through word-of-mouth by individual users, some of whom use our services at no cost. We prioritize innovation and the experience for users on our platform, as well as the growth of our user base, over short-term operating results. We frequently make product and service decisions that may reduce our short-term operating results if we believe that the decisions are consistent with our goals to improve the user experience and to develop innovative features that we feel our users desire. These decisions may not be consistent with the short-term expectations of investors and may not produce the long-term benefits that we expect.

We provide service level commitments under our subscription agreements. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face subscription terminations, which could adversely affect our revenue. Furthermore, any failure in our delivery of high-quality customer support services may adversely affect our relationships with our customers and our financial results.

Our subscription agreements with customers provide certain service level commitments. If we are unable to meet the stated service level commitments or suffer periods of downtime that exceed the periods allowed under our customer agreements, we may be obligated to provide these customers with service credits which could significantly impact our revenue in the period in which the downtime occurs and the credits could be due. For example, in September 2019, a modification to a perimeter network configuration caused an internal routing problem which led to all Box services being temporarily unavailable. We could also face subscription terminations, which could significantly impact both our current and future revenue. Any extended service outages could also adversely affect our reputation, which would also impact our future revenue and operating results.

Our customers depend on our customer success organization to resolve technical issues relating to our services. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. Increased customer demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on the ease of use of our services, on our reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation and our ability to sell our services to existing and prospective customers.

Our services are becoming increasingly mission-critical for our customers and if these services fail to perform properly or if we are unable to scale our services to meet the needs of our customers, our reputation could be adversely affected, our market share could decline and we could be subject to liability claims.

Our core services and our expanded offerings such as Box KeySafe, Box Governance, Box Zones, Box Platform, Box Relay and Box ~~Platform~~Shield are becoming increasingly mission-critical to our customers’ internal and external business operations, as well as their ability to comply with legal requirements, regulations, and standards such as GxP, FINRA, HIPAA, and FedRAMP. These services and offerings are inherently complex and may contain material defects or errors. Any defects either in functionality or that cause interruptions in the availability of our services, as well as user error, could result in:

The costs incurred in correcting any material defects or errors might be substantial and could adversely affect our operating results. Further, our errors and omissions insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our insurance may not cover all claims made against us and defending a lawsuit, regardless of its merit, could be costly and divert management’s attention.

Because of the large amount of data that we collect and manage, it is possible that hardware failures, software errors, errors in our systems, or by third party service providers, user errors, or internet outages could result in data loss or corruption that our customers regard as significant. Furthermore, the availability or performance of our services could be adversely affected by a number of factors, including customers’ inability to access the internet, the failure of our network or software systems, security breaches or variability in customer traffic for our services. We have been required and, in the future, may be required to issue credits or refunds for prepaid amounts related to unused services or otherwise be liable to our customers for damages they may incur resulting from some of these events. In addition to potential liability, if we experience interruptions in the availability of our services, our reputation could be adversely affected, which could result in the loss of customers. For example, our customers access our services through their internet service providers. If a service provider fails to provide sufficient capacity to support our services or otherwise experiences service outages, such failure could interrupt our customers’ access to our services, adversely affect their perception of our services’ reliability and consequently reduce our revenue.

Furthermore, we will need to ensure that our services can scale to meet the needs of our customers, particularly as we continue to focus on larger enterprise customers. If we are not able to provide our services at the scale required by our customers, potential customers may not adopt our solution and existing customers may not renew their agreements with us.

If the prices we charge for our services are unacceptable to our customers, our operating results will be harmed.

As the market for our services matures, or as new or existing competitors introduce new products or services that compete with ours, we may experience pricing pressure and be unable to renew our agreements with existing customers or attract new customers at prices that are consistent with our pricing model and operating budget. If this were to occur, it is possible that we would have to change our pricing model or reduce our prices, which could harm our revenue, gross margin and operating results.

Sales to customers outside the United States or with international operations expose us to risks inherent in international sales.

A key element of our growth strategy is to expand our international operations and develop a worldwide customer base. To date, we have not realized a substantial portion of our revenue from customers outside of the United States. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic, geographic, social, and political risks that are different from those in the United States. Because of our limited experience with international operations and significant differences between international and U.S. markets, our international expansion efforts may not be successful in creating demand for our services outside of the United States or in effectively selling subscriptions to our services in all of the international markets we enter. In addition, we will face specific risks in doing business internationally that could adversely affect our business, including:

We sell our services and incur operating expenses in various currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may impact our operating results when translated into U.S. dollars. We currently manage our exchange rate risk by matching foreign currency assets with payables and by maintaining minimal ~~non-USD~~non-U.S. dollar cash reserves, but we do not have any other hedging programs in place to limit the risk of exchange rate fluctuation. In the future, however, to the extent our foreign currency exposures become more material, we may elect to deploy normal and customary hedging practices designed to more proactively mitigate such exposure. We cannot be certain such practice will ultimately be available and/or effective at mitigating all foreign currency risk to which we are exposed. If we are unsuccessful in detecting material exposures in a timely manner, our deployed hedging strategies are not effective, or there are no hedging strategies available for certain exposures that are prudent given the risks associated and the potential mitigation of the underlying exposure achieved, our operating results or financial position could be adversely affected in the future.

We are also monitoring developments related to Brexit, which could have significant implications for our business. Brexit could lead to economic and legal uncertainty, including significant volatility in global stock markets and currency exchange rates, and differing laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. Any of these effects of Brexit, among others, could adversely affect our operations, especially in the United Kingdom, and our financial results.

Failure to adequately expand our direct sales force and successfully maintain our online sales experience will impede our growth.

We will need to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. We plan to continue to expand our direct sales force, both domestically and internationally. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. Our business may be adversely affected if our efforts to expand and train our direct sales force do not generate a corresponding increase in revenue. If we are unable to hire, develop and retain talented sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the intended benefits of this investment or increase our revenue.

We maintain our Box website to efficiently service our high volume, low dollar customer transactions and certain customer inquiries. Our goal is to continue to evolve this online experience so it effectively serves the increasing and changing needs of our growing customer base. If we are unable to maintain the effectiveness of our online solution to meet the future needs of our online customers and to eliminate fraudulent transactions occurring in this channel, we could see reduced online sales volumes as well as a decrease in our sales efficiency, which could adversely affect our results of operations.

If we are unable to maintain and promote our brand, our business and operating results may be harmed.

We believe that maintaining and promoting our brand is critical to expanding our customer base. Maintaining and promoting our brand will depend largely on our ability to continue to provide useful, reliable and innovative services, which we may not do successfully. We may introduce new features, products, services or terms of service that our customers do not like, which may negatively affect our brand and reputation. Additionally, the actions of third parties may affect our brand and reputation if customers do not have a positive experience using third-party apps or other services that are integrated with Box. Maintaining and enhancing our brand may require us to make substantial investments, and these investments may not achieve the desired goals. If we fail to successfully promote and maintain our brand or if we incur excessive expenses in this effort, our business and operating results could be adversely affected.

Our growth depends in part on the success of our strategic relationships with third parties.

In order to grow our business, we anticipate that we will continue to depend on our relationships with third parties, such as alliance partners, resellers, distributors, system integrators and developers. For example, we have entered into agreements with partners such as AT&T, IBM, Microsoft ~~Amazon~~ and Google to market, resell, integrate with or endorse our services. Identifying partners and resellers, and negotiating and documenting relationships with them, requires significant time and resources. Also, we depend on our ecosystem of system integrators, partners and developers to create applications that will integrate with our platform or permit us to integrate with their product offerings. Our competitors may be effective in providing incentives to third parties to favor their products or services, or to prevent or reduce subscriptions to our services. In some cases, we also compete directly with our partners’ product offerings, and if these partners stop reselling or endorsing our services or impede our ability to integrate our services with their products, our business and operating results could be adversely affected. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of current and potential customers, as our partners may no longer facilitate the adoption of our services by potential customers.

If we are unsuccessful in establishing or maintaining our relationships with third parties, or realizing the anticipated benefits from such partnerships, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results may suffer. Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our services or increased revenue.

Furthermore, if our partners and resellers fail to perform as expected, our reputation may be harmed and our business and operating results could be adversely affected.

We depend on our ecosystem of system integrators, partners and developers to create applications that will integrate with our platform or to allow us to integrate with their products.

We depend on our ecosystem of system integrators, partners and developers to create applications that will integrate with our platform and to allow us to integrate with their products. This presents certain risks to our business, including:

Many of these risks are not within our control to prevent, and our brand may be damaged if these applications do not perform to our users’ satisfaction and that dissatisfaction is attributed to us.

Our company culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture, and our business may be harmed.

We believe that our culture has been and will continue to be a key contributor to our success. We expect to continue to hire additional employees as we expand our business. If we do not continue to develop our company culture or maintain our core values as we grow and evolve both in the United States and ~~internationally,~~abroad, we may be unable to foster the innovation, creativity and teamwork we believe we need to support our growth.

We use open source software in our services and will use open source software in the future. In addition, we regularly contribute software source code to open source projects under open source licenses or release internal software projects under open source licenses, and anticipate doing so in the future. The terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that open source software licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide or distribute our services. Additionally, we may from time to time face claims from third parties claiming ownership of, or demanding release of, the open source software or derivative works that we developed using such software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to make our software source code freely available, purchase a costly license or cease offering the implicated services unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. In addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. Additionally, because any software source code we contribute to open source projects is publicly available, our ability to protect our intellectual property rights with respect to such software source code may be limited or lost entirely, and we are unable to prevent our competitors or others from using such contributed software source code. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a negative effect on our business, financial condition and operating results.

Future acquisitions and investments could disrupt our business and harm our financial condition and operating results.

Our success will depend, in part, on our ability to expand our services and grow our business in response to changing technologies, customer demands, and competitive pressures. In some circumstances, we may choose to do so through the acquisition of complementary businesses, teams of employees, and technologies rather than through internal development. For example, the team from ~~Wagon Analytics,~~Progressly, a ~~data analytics~~workflow automations company, joined us in ~~September 2016,~~May 2018, and ~~in 2015, we acquired Verold,~~employees from Butter.ai, a cloud-based ~~3D model viewer and editor to make it easy for businesses to create engaging and immersive content experiences for the web and mobile.~~intelligent search company, joined us in July 2018. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete or integrate identified acquisitions. The risks we face in connection with acquisitions include:

Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, incremental operating expenses or the write-off of goodwill, any of which could harm our financial condition or operating results.

We may require additional capital to support our operations or the growth of our business, and we cannot be certain that this capital will be available on reasonable terms when required, or at all.

On occasion, we may need additional financing to operate or grow our business. Our ability to obtain additional financing, if and when required, will depend on investor and lender demand, our operating performance, the condition of the capital markets and other factors. We cannot guarantee that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our Class A common stock, and our existing stockholders may experience dilution. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support the operation or growth of our business could be significantly impaired and our operating results may be harmed.

Financing agreements we are party to or may become party to may contain operating and financial covenants that restrict our business and financing activities.

Our existing credit agreement contains certain operating and financial restrictions and covenants that may restrict our and our subsidiaries’ ability to, among other things, incur indebtedness, grant liens on our assets, make loans investments, consummate certain merger and consolidation transactions, dispose of assets and enter into affiliate transactions, subject in each case to customary exceptions. We are also required to comply with a minimum liquidity covenant and a maximum leverage ratio. These restrictions and covenants, as well as those contained in any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in, expand or otherwise pursue our business activities and strategies. Our ability to comply with these covenants may be affected by events beyond our control, and breaches of these covenants could result in a default under the credit agreement and any future financial agreements that we may enter into and under other arrangements containing cross-default provisions. If not waived, defaults could cause our outstanding indebtedness under our credit agreement and any future financing agreements that we may enter into to become immediately due and payable, and permit our lenders to terminate their lending commitments and to foreclose upon any collateral securing such indebtedness.

Our business depends on the overall demand for cloud content management ~~and collaboration~~services and on the economic health of our current and prospective customers. The United States and other key international economies have experienced cyclical downturns from time to time that have resulted in a significant weakening of the economy, more limited availability of credit, a reduction in business confidence and activity, and other difficulties that may affect one or more of the industries to which we sell our services. Uncertainty about economic conditions in the United States, Europe, Japan and other key markets for our services could cause customers to delay or reduce their information technology spending. This could result in reductions in sales of our services, longer sales cycles, reductions in subscription duration and value, slower adoption of new technologies and increased price competition. Any of these events would likely have an adverse effect on our business, operating results and financial position. In addition, there can be no assurance that cloud content management and collaboration spending levels will increase following any recovery.

Changes in laws and regulations related to the internet or changes in the internet infrastructure itself, or disruption in access to the internet or critical services on which the internet depends, may diminish the demand for our services, and could have a negative impact on our business.

The future success of our business depends upon the continued use and availability of the internet as a primary medium for commerce, communication and business services. Federal, state or foreign government bodies or agencies have in the past adopted,

and may in the future adopt, laws or regulations affecting the use of the internet as a commercial medium. The adoption of any laws or regulations that could adversely affect the growth, popularity or use of the internet, including laws or practices limiting internet neutrality, could decrease the demand for, or the usage of, our products and services, increase our cost of doing business, adversely affect our operating results, and require us to modify our services in order to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-related commerce or communications generally, or result in reductions in the demand for internet-based services such as ours.

For example, in December 2017, the Federal Communications Commission voted to repeal the “net neutrality” rules and return to a “light-touch” regulatory framework. However, the repeal has not yet taken effect and a number of parties have already stated their intent to appeal this order; thus, the future impact of such repeal and any challenge thereto remains uncertain. The rules were designed to ensure that all online content is treated the same by internet service providers and other companies that provide broadband services. Should the repeal of net neutrality rules take effect, access to or demand for our services could be hindered, we could incur greater operating expenses, and our business and results of operations.

In addition, the use of the internet and, in particular, the cloud as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost, ease of use, accessibility, and quality of service. The performance of the internet and its acceptance as a business tool have been adversely affected by “viruses,” “worms”, “denial of service attacks” and similar malicious activity. The internet has also experienced a variety of outages, disruptions and other delays as a result of this malicious activity targeted at critical internet infrastructure. These service disruptions could diminish the overall attractiveness to existing and potential customers of services that depend on the internet and could cause demand for our services to suffer.

We employ third-party ~~licensed~~ software for use in or with our services, and the inability to maintain ~~these~~ licenses to this software, or errors in the software, ~~we license~~ could result in increased costs, or reduced service levels, which would adversely affect our business.

Our services incorporate certain third-party software obtained under open source licenses or licenses from other companies. We anticipate that we will continue to rely on such third-party software and development tools in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of the software used in our services with new third-party software may require significant work and require substantial investment of our time and resources. Also, to the extent that our services depend upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our services, delay the introduction of new services introductions, result in a failure of our services, and injure our reputation.For example, we discovered that a bug in a third-party software library we use in our services caused a very small subset of certain files uploaded during a short period of time (from mid-December 2017 to early January 2018) to be stored in a partially-corrupted state. Our use of additional or alternative third-party software would require us to enter into additional license agreements with third parties.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act and the listing standards of the New York Stock Exchange (NYSE). We expect that compliance with these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is properly recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. We are also continuing to improve our internal control over financial reporting. We have expended, and anticipate that we will continue to expend, significant resources in order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business, including increased complexity resulting from our international expansion. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Additionally, to the extent that we acquire other businesses, the acquired company may not have a sufficiently robust system of internal controls and we may uncover new deficiencies. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of management reports and independent registered public accounting firm audits of our internal control over financial reporting that we are required to include in our periodic reports that we file with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.

Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business and operating results, and cause a decline in the market price of our Class A common stock.

Failure to comply with anti-bribery, anti-corruption, and anti-money laundering laws could subject us to penalties and other adverse consequences.

We are subject to the Foreign Corrupt Practices Act, or the FCPA, the U.K. Bribery Act and other anti-corruption, anti-bribery and anti-money laundering laws in various jurisdictions both domestic and abroad. In addition to our own sales force, we also leverage third parties to sell our products and services and conduct our business abroad. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners, and agents, even if we do not explicitly authorize such activities. While we have policies and ~~procedure~~procedures to address compliance with such laws, we cannot assure you that our employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held responsible. Any violation of the FCPA or other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, operating results and prospects.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of January 31, ~~2017,~~2019, we had U.S. federal net operating loss carryforwards of approximately ~~$518.0~~$692.3 million, state net operating loss carryforwards of approximately ~~$498.6~~$713.2 million, and foreign net operating loss carryforwards of approximately ~~$164.8~~$268.0 million. Under Sections 382 and 383 of Internal Revenue Code of 1986, as amended, ~~(Code),~~ if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We have in the past experienced an ownership change which has impacted our ability to fully realize the benefit of these net operating loss carryforwards. If we experience additional ownership changes as a result of future transactions in our stock, then we may be further limited in our ability to use our net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn. Any such limitations on the ability to use our net operating loss carryforwards and other tax assets could adversely impact our business, financial condition and operating results.

Tax laws or regulations could be enacted or changed and existing tax laws or regulations could be applied to us or to our customers in a manner that could increase the costs of our services and adversely impact our business.

The application of federal, state, local and international tax laws to services provided electronically is unclear and continuously evolving. Income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted or amended at any time, such as the Tax Act in the United States, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the internet. These enactments or amendments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and ultimately result in a negative impact on our operating results and cash flows.

In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted or applied adversely to us, possibly with retroactive effect, which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties, as well as interest for past amounts. If we are unsuccessful in collecting such taxes due from our customers, we could be held liable for such costs, thereby adversely impacting our operating results and cash flows.

We are subject to income, sales, use, value added and other taxes in the United States and other countries in which we conduct business, and such laws and rates vary by jurisdiction. Certain jurisdictions in which we do not collect sales, use, value added or other taxes on our sales may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes in the future. Significant judgment is required in determining our worldwide provision for income taxes. These determinations are highly complex and require detailed analysis of the available information and applicable statutes and regulatory materials. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical tax practices, provisions and accruals. If we receive an adverse ruling as a result of an audit, or we unilaterally determine that we have misinterpreted provisions of the tax regulations to which we are subject, there could be a material effect on our tax provision, net loss or cash flows in the period or periods for which that determination is made. In addition, liabilities associated with taxes are often subject to an extended or indefinite statute of limitations period. Therefore, we may be subject to additional tax liability (including penalties and interest) for a particular year for extended periods of time.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles (GAAP) in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. For example, in ~~May 2014,~~February 2016, the FASB issued accounting standards update No. ~~2014-09 (Topic 606),~~ ~~Revenue from Contracts with Customers~~,2016-02, which ~~supersedes nearly all existing revenue recognition~~requires lessees to record most leases on their balance sheet while recognizing expense in a manner similar to current lease accounting guidance. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The new accounting guidance ~~under U.S. GAAP and becomes~~is effective for us beginning ~~the first quarter of fiscal~~February 1, 2019. In addition, were we to change our critical accounting estimates, including the timing of recognition of subscription revenue and other revenue sources, our results of operations could be significantly impacted. These or other changes in accounting principles could adversely affect our financial results. See Part I, Item 1. Financial Statements—Note 1 for information regarding the effect of new accounting pronouncements on our financial statements.Any difficulties in implementing these pronouncements could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.

The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the completion of our initial public offering, including our executive officers, employees and directors and their affiliates, which limits your ability to influence the outcome of important transactions, including a change in control.

Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. Stockholders who held shares of our Class B common stock as of October 31, 2017, including our executive officers, employees and directors and their affiliates, collectively held approximately 59.2% of the voting power of our outstanding capital stock as of such date. Because of the ten-to-one voting ratio between our Class B common stock and Class A common stock, the holders of our Class B common stock collectively continue to control a majority of the combined voting power of our capital stock and therefore are able to control all matters submitted to our stockholders for approval so long as the shares of our Class B common stock represent at least 9.1% of all outstanding shares of our Class A common stock and Class B common stock. These holders of our Class B common stock may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentrated control may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their capital stock as part of a sale of our company and might ultimately affect the market price of our Class A common stock.

Transfers by holders of our Class B common stock will generally result in those shares converting into shares of our Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning or charitable purposes. The conversion of shares of our Class B common stock into shares of our Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, Messrs. Levie, Levin and Smith retain a significant portion of their holdings of our Class B common stock for an extended period of time, they could control a significant portion of the voting power of our capital stock for the foreseeable future. As board members, Messrs. Levie, Levin and Smith each owe a fiduciary duty to our stockholders and must act in good faith and in a manner they reasonably believe to be in the best interests of our stockholders. As stockholders, Messrs. Levie, Levin (our former Chief Operating Officer) and Smith are entitled to vote their shares in their own interests, which may not always be in the interests of our stockholders generally.

Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws include provisions:

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents certain stockholders holding more than 15% of our outstanding capital stock from engaging in certain business combinations without approval of the holders of at least two-thirds of our outstanding common stock not held by such stockholder.

Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock, and could also affect the price that some investors are willing to pay for our Class A common stock.

The market price of our Class A common stock has been and may continue to be volatile, and you could lose all or part of your investment.

The market price of our Class A common stock has been and may continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control and may not be related to our operating performance. For example, from ~~October 31, 2016~~ November 1, 2018 through October 31, ~~2017,~~2019, the closing price of our Class A common stock ranged from ~~$13.70~~$13.03 per share to ~~$21.95~~$24.88 per share. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this ~~Quarterly Report on~~ Form 10-Q, factors that could cause fluctuations in the market price of our Class A common stock include the following:

In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. We are currently subject to securities litigation, which is described in Part II, Item 1. Legal Proceedings. This or any future securities litigation ~~if instituted against us,~~ could result in substantial costs and a diversion of our management’s attention and resources.

Responding to actions by activist shareholders could be costly and time-consuming, disrupt our operations and divert the attention of management and our employees. Additionally, perceived uncertainties as to our future direction as a result of shareholder activism or changes to the composition of our board of directors may lead to the perception of a change in the direction of our business or other instability, which may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel. If customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us, then our business, financial condition and operating results would be adversely affected. In addition, our share price could experience periods of increased volatility as a result of shareholder activism.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business, our market or our competitors, or if they adversely change their recommendations regarding our Class A common stock, the market price of our Class A common stock and trading volume could decline.

The trading market for our Class A common stock is influenced, to some extent, by the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. If any of the analysts who cover us adversely change their recommendations regarding our Class A common stock or provide more favorable recommendations about our competitors, the market price of our Class A common stock would likely decline. If any of the analysts who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price of our Class A common stock or trading volume to decline.

We do not anticipate declaring any cash dividends to holders of our Class A common stock in the foreseeable future. Consequently, investors may need to rely on sales of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase shares of our Class A common stock.

The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per share		BOX		New York Stock Exchange, Inc.

	PART I – FINANCIAL INFORMATION	Page
Item 1.	Financial Statements (Unaudited)
	~~Condensed Consolidated Balance Sheets as of October 31, 2017 and January 31, 2017~~	5
	Condensed Consolidated Balance Sheets as of October 31, 2019 and January 31, 2019	5
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended October 31, ~~2017~~2019 and ~~2016~~2018	6
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended October 31, ~~2017~~2019 and ~~2016~~ 2018	7
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended October 31, 2019 and 2018	8
	Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended October 31, ~~2017~~2019 and ~~2016~~2018	810
	Notes to Condensed Consolidated Financial Statements	911
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2227
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3743
Item 4.	Controls and Procedures	3843
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	3944
Item 1A.	Risk Factors	3944
Item 6.	Exhibits	5764
	Signatures	5965

	October 31,			January 31,
	2019			2019
Servers and related equipment	$	299,810		$	215,626
Leasehold improvements		79,910			76,888
Computer hardware and software		22,669			20,614
Furniture and fixtures		14,211			13,661
Construction in progress		13,779			9,737
Total property and equipment		430,379			336,526
Less: accumulated depreciation		(240,514	)		(198,823	)
Total property and equipment, net	$	189,865		$	137,703

	October 31,			January 31,
	2017			2017
Servers	$	160,067		$	143,219
Leasehold improvements		64,507			64,379
Computer hardware and software		11,996			11,373
Furniture and fixtures		13,073			12,824
Construction in progress		13,234			5,882
Total property and equipment		262,877			237,677
Less: accumulated depreciation		(144,599	)		(120,501	)
Total property and equipment, net	$	118,278		$	117,176


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	October 31, 2019
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	32,388	$	—	$	—	$	32,388
Certificates of deposit		—		20,000		—		20,000
Total cash equivalents	$	32,388	$	20,000	$	—	$	52,388

	January 31, 2019
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Certificates of deposit	$	—	$	50,056	$	—	$	50,056
Restricted cash:
Certificates of deposit	$	—	$	238	$	—	$	238

	October 31,
	2019
Operating lease right-of-use assets	$	230,371
Less: accumulated amortization		(26,445	)
Operating lease right-of-use assets, net	$	203,926

	Weighted Average Useful Life (1)			Gross Value		Accumulated Amortization			Net Carrying Value
October 31, 2017
Developed technology		2.5	years	$	14,273	$	(14,273	)	$	—
Trade name and other		6.9	years		1,201		(1,138	)		63
Intangibles, net				$	15,474	$	(15,411	)	$	63

January 31, 2017
Developed technology		2.5	years	$	14,273	$	(13,908	)	$	365
Trade name and other		6.9	years		1,201		(1,023	)		178
Intangibles, net				$	15,474	$	(14,931	)	$	543

	October 31,
	2019
Weighted-average remaining lease term (in years)
Operating leases		6.84
Finance leases		3.07

Weighted-average discount rate
Operating leases		5.41	%
Finance leases		4.29	%

Years ending January 31:	Operating Leases (1)			Finance Leases
Remainder of 2020	$	14,577		$	17,559
2021		51,175			48,240
2022		48,918			38,084
2023		39,241			29,160
2024		37,230			8,742
Thereafter		115,241			—
Total lease payments	$	306,382		$	141,785
Less: imputed interest		(52,678	)		(9,842	)
Present value of total lease liabilities	$	253,704		$	131,943

Years ending January 31:	Capital Leases			Operating Leases, net of Sublease Income
Remainder of 2018	$	5,082		$	6,593
2019		17,923		$	28,061
2020		12,415		$	32,453
2021		8,932		$	33,447
2022		1,947		$	30,793
Thereafter		—		$	161,669
Total minimum lease payments	$	46,299		$	293,016
Less: amount representing interest		(1,561	)
Present value of minimum lease payments	$	44,738

Years ending January 31:
Remainder of 2018	$	5,046
2019		25,164
2020		22,708	$	8,786
2021				12,003
2022				2,309
2023				34,011
2024				—
Thereafter				165,800
	$	52,918	$	222,909

	Shares Subject to Options Outstanding					Weighted-Average
				Weighted-		Remaining
				Average Exercise		Contractual Life		Aggregate
	Shares			Price		(Years)		Intrinsic Value
								(in thousands)
Balance as of January 31, 2017		12,318,800		$	7.44		6.42	$	119,606
Options granted		1,533,056			17.46
Option exercised		(1,561,172	)		6.36
Options forfeited/cancelled		(852,990	)		15.05
Balance as of October 31, 2017		11,437,694		$	8.37		5.99	$	155,364
Vested and expected to vest as of October 31, 2017		11,330,158		$	8.30		5.97	$	154,675
Exercisable as of October 31, 2017		8,939,286		$	6.36		5.30	$	139,342

	Number of			Weighted-
	Restricted			Average
	Stock Units			Grant Date
	Outstanding			Fair Value
Unvested balance - January 31, 2017		11,822,316		$	14.67
Granted		6,820,260			17.74
Vested, net of shares withheld for employee payroll taxes		(2,338,184	)		14.51
Forfeited/cancelled		(1,342,417	)		15.12
Unvested balance - October 31, 2017		14,961,975		$	16.22

	Three Months Ended						Nine Months Ended						As of and for the Three Months Ended							As of and for the Nine Months Ended
	October 31,						October 31,						October 31,							October 31,
	2017			2016			2017			2016			2019			2018				2019			2018
Remaining performance obligations (in millions)													$	636.0		$	607.4			$	636.0		$	607.4
Remaining performance obligations growth rate														5	%		—		*		5	%		—		*
Billings (in thousands)	$	141,471		$	112,405		$	380,489		$	294,864			171,893			155,609				463,212			435,171
Billings growth rate		26	%		26	%		29	%		23	%		10	%		10	%			6	%		14	%
Free cash flow (in thousands)		6,310			(10,899	)		(4,381	)		(35,017	)		(1,686	)		(4,064	)			(7,204	)		(7,159	)
Retention rate (period end)		112	%		115	%		112	%		115	%		105	%		108	%			105	%		108	%

(1) Includes intangible assets amortization as follows:

	Three Months Ended						Nine Months Ended
	October 31,						October 31,
	2017			2016			2017			2016
Cost of revenue		—	%		—	%		—	%		1	%
General and administrative	—			—			—			—
Total intangible assets amortization		—	%		—	%		—	%		1	%

(2) Includes stock-based compensation expense as follows:

	Three Months Ended						Nine Months Ended
	October 31,						October 31,
	2017			2016			2017			2016
Cost of revenue		2	%		2	%		2	%		2	%
Research and development		8			8			8			7
Sales and marketing		6			7			7			6
General and administrative		4			3			3			3
Total stock-based compensation		20	%		20	%		20	%		18	%

			Payments Due by Period (in thousands)										Payments Due by Period (in thousands)
			Less Than 1						More Than				Less Than 1						More Than
	Total		Year		1-3 Years		3-5 Years		5 Years		Total		Year		1-3 Years		3-5 Years		5 Years
Debt~~(2)~~(1)	$	41,246	$	1,147	$	40,099	$	—	$	—	$	43,389	$	1,235	$	42,154	$	—	$	—
Operating lease obligations, net of sublease income amounts (3)		293,016		27,150		65,197		56,931		143,738
Capital leases(4)		46,299		18,973		23,746		3,580		—
Operating lease liabilities, net of sublease income amounts (2)												306,382		52,761		91,380		68,087		94,154
Finance leases (3)												141,785		54,340		72,688		14,757		—
Purchase obligations~~(5)~~(4)		52,918		20,631		32,287		—		—		222,909		19,801		37,308		—		165,800
Total	$	433,479	$	67,901	$	161,329	$	60,511	$	143,738	$	714,465	$	128,137	$	243,530	$	82,844	$	259,954

Exhibit		Incorporated by Reference
Number	Exhibit Description	Form	File No.	Exhibit	Filing Date
10.1	Credit Agreement, dated as of November 27, 2017, by and between Box, Inc. and Wells Fargo Bank, National Association.	8-K	001‑36805	10.1	November 29, 2017
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Schema Linkbase Document.
101.DEF	XBRL Taxonomy Definition Linkbase Document.
101.CAL	XBRL Taxonomy Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Labels Linkbase Document.
101.PRE	XBRL Taxonomy Presentation Linkbase Document.

	BOX, INC.

	By:		/s/ Aaron Levie
			Aaron Levie
			Chairman and Chief Executive Officer
			(Principal Executive Officer)

	By:		/s/ Dylan Smith
			Dylan Smith
			Chief Financial Officer
			(Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ ~~(Do not check if a small reporting company)~~

Small reporting company

Emerging growth company