Box's Q2 2026 Earnings Call: Contradictions Emerge on Enterprise Advanced Deals, Early Renewals, AI Impact, Pricing Dynamics, and Macroeconomic Outlook

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 26, 2025

Financials Results

• Revenue: $294M, up 9% YOY (7% in constant currency)
• EPS: $0.33 per diluted share, $0.02 above the high end of guidance
• Gross Margin: 81.4%, up ~40 bps YOY excluding prior-year data center equipment sales benefit
• Operating Margin: 28.6%, improved YOY and above guidance

Guidance:

- Q3 revenue expected at $298–$299M (~8% YOY); FX tailwind ~80 bps.- Q3 billings growth ~10%; FX tailwind ~200 bps.- Q3 gross margin ~81%; operating margin ~28% (100 bps headwind from BoxWorks; prior-year had 70 bps benefit).- Q3 non-GAAP EPS $0.31–$0.32; diluted shares ~150M.- FY26 revenue raised to $1.170–$1.175B (~8% YOY, ~7% cc); FX tailwind ~90 bps (30 bps lower vs prior).- FY26 billings growth ~9% with ~230 bps FX tailwind (down from ~340 bps prior).- FY26 gross margin ~81%; operating margin ~28% (incl ~10 bps FX tailwind).- FY26 non-GAAP EPS $1.26–$1.28 (incl ~$0.04 FX tailwind); noncash deferred tax expense headwind ~$0.58.

Business Commentary:

Revenue and RPO Growth:* - Box, Inc. reported revenue of $294 million for Q2 Fiscal 2026, up 9% year-over-year and 7% in constant currency. - Remaining performance obligations (RPO) were $1.5 billion, a 16% year-over-year increase. - The growth was driven by increased customer adoption of Box AI and advanced workflow capabilities.

• Enterprise Advanced Momentum:
• The company saw strong momentum in customer adoption of Enterprise Advanced, more than doubling the number of deals in Q2 compared to the prior quarter.

• This was driven by the demand for AI-powered features such as AI-driven metadata extraction and intelligent no-code apps.

• Billings and Consulting Business:

• Billings reached $265 million, up 3% year-over-year and 6% in constant currency.

• The growth was supported by strong bookings, early renewals, and contributions from the Box Consulting business.

• Net Retention Rate Improvement:

• Box's net retention rate improved to 103%, an increase from 102% in Q1 and the previous year.
• This improvement was due to customer upgrades and expansions into Enterprise Plus and Enterprise Advanced plans, driven by AI capabilities and price per seat increases.

  Sentiment Analysis:

  • Management exceeded guidance across metrics; revenue grew 9% YOY; EPS was $0.33, $0.02 above the high end. NRR improved to 103% and suites mix rose to 63% of revenue (from 58%). RPO grew 16% YOY and billings outperformed expectations. They raised FY26 revenue and EPS guidance, citing strong demand for Box AI and Enterprise Advanced and doubling of Enterprise Advanced deals sequentially.

  Q&A:

  • Question from Steven Lester Enders (Citi): How much did Enterprise Advanced drive billings outperformance, and is the deal environment improving?
  • Response: Billings strength came from strong bookings, consulting, and some early renewals, all propelled by AI/Enterprise Advanced momentum; not due to a better macro deal environment.
  • Question from Steven Lester Enders (Citi): How are Enterprise Advanced pipeline use cases and deal sizes evolving?
  • Response: Customers are combining AI agents with workflow automation (notably data extraction and custom agents), producing larger, broader deals that exceed the 20–40% per-seat uplift by adding more users and use cases.
  • Question from Lucky Schreiner (D.A. Davidson): What’s driving the rebound in net seat growth?
  • Response: Enterprise Advanced and Enterprise Plus unlock high-value AI use cases across more departments, boosting net seat additions.
  • Question from Lucky Schreiner (D.A. Davidson): How common are straight upgrades to Enterprise Advanced and what’s the pricing uplift?
  • Response: Direct upgrades from core non-suites to Enterprise Advanced often roughly double spend; from Enterprise Plus to Advanced delivers 20–40% uplift, with stronger-than-expected early momentum.
  • Question from Taylor Anne McGinnis (UBS): How much of Q2 outperformance was early renewals, and how should we view H2 billings given the guide?
  • Response: Outperformance was split across bookings, consulting, and early renewals (each a few million); the back-half guide is prudent given variability and the operating environment.
  • Question from Taylor Anne McGinnis (UBS): What drove the NRR uptick to 103% and what’s the outlook?
  • Response: Improved seat expansion drove the increase; pricing remains solid; expect 103% exiting FY26 with further improvement thereafter.
  • Question from Christopher Quintero (Morgan Stanley): Given reports of failing GenAI pilots, why is Box AI adoption working?
  • Response: Prebuilt, best-of-breed Box AI abstracts the stack (storage, embeddings, permissions, model updates, UX) and targets ROI use cases like summarization and large-scale extraction, avoiding pitfalls of homegrown efforts.
  • Question from Christopher Quintero (Morgan Stanley): What’s the public sector outlook after FedRAMP High and the Federal Summit?
  • Response: Momentum is improving as agencies prioritize IT modernization and AI; Box AI with FedRAMP High and GSA partnership positions Box well for federal deployments.
  • Question from Unidentified Analyst (Bank of America): Beyond metadata extraction, what’s next as Enterprise Advanced users mature?
  • Response: Enterprises will automate full workflows with AI agents orchestrating document reviews and next-best actions; more details to be announced at BoxWorks.
  • Question from Brian Christopher Peterson (Raymond James): You said Enterprise Advanced deals doubled sequentially—what was the mix?
  • Response: The doubling refers specifically to Enterprise Advanced deals across both new logos and upsells, reflecting focused go-to-market execution.
  • Question from Brian Christopher Peterson (Raymond James): Has your appetite for M&A changed with AI momentum?
  • Response: No change; Box remains product-led, with a modern AI architecture; M&A is considered only for time-to-market needs where it complements the roadmap.