In a conversation last week at Web Summit in Dublin, Box COO Dan Levin talked to me about the shellacking the company received after it filed its S-1 last spring. Levin expected that dogs would come out, but he said he was still surprised by the vitriolic reaction the company received, especially around their spending.
The response after the announcement was swift and brutal. People looked at the bottom line and they saw steep cash burn with significant losses and they pounced. Sure, there was big growth, but the losses were staggering. Box seemed to have been exposed as another cloud company poser, but Levin says it wasn’t quite that simple or clear cut. He told me the spending was all part of a carefully crafted plan to eventually reach profitability, just as you would expect from any company.
In fact, as Chief Operating Officer for the company, he was well aware they had been spending money, but as he saw it at least, the spending had a definite purpose and the strong criticism took him aback. “We were surprised at some of the press that followed our public filing. We were surprised about concern about cash trajectory. [Critics] didn’t understand we had been investing intentionally in a disciplined way to grow the business,” he told me.
In his view, the spending made sense for Box at the time. “We had access to large amounts of inexpensive capital and our market is arbitrarily large and when you have those conditions, money and a big market, the rational behavior is to ramp up as fast as you can. We won’t do it forever. We don’t have to do it forever,” Levin said.
But the concerns were there. As my colleague Alex Wilhelm and I wrote in an analysis of Box’s IPO delay this past Fall, the S-1 was a mixed bag, especially in the eyes of skeptical Wall Street investors.
“It didn’t help that the numbers in Box’s S-1 filing showed lots of growth, but also tectonic losses. Box’s full fiscal 2013 earned revenue of $124 million, a large number to be sure. But the company had GAAP losses that were greater: $168 million in the fiscal period. In its recently updated S-1, Box managed to get its fiscal first quarter GAAP operating margin under -100 percent, but its loss still grew 13 percent in the period to $38.5 million. On the plus side, the company’s revenue grew at a much larger 93.6 percent to $45.3 million in its fiscal first quarter,” Wilhelm wrote.
Levin hinted the IPO could be on the backburner for now. He did tell me the company still sees value in going public, but the $150M they received in private market funding last summer gave them the leeway to take their time with that decision. “We raised the money in the summer to show we have the money to [do what we have to do] to get to a profitability state.” He added emphatically that the company is fully cognizant it needs to be profitable. While he wouldn’t talk specifics or timeframes, he mentioned that the company has a detailed plan to get to profitability and a road map to get there.
As an example of how the company approached its spending, he said they talked about going to Europe for 18 months before they actually did it. It was the kind of move that would be costly and take chunks of that venture money, and it would also be costly in management time. As Levin tells it, one day CEO Aaron Levie came in and made the decision to pull the trigger. Three weeks later Levin was on a plane to Europe, then spent a fair amount of time and money there setting up the European operation.
It costs money to build a worldwide sales and marketing operation, but Levin seems comfortable where Box is going and the path it took to get to this point. It may still seem odd that the company filed its S-1 and then charted a different course (at least for now), but he says this has not been done willy-nilly. They have a plan to become a profitable company eventually.
Comment