Box Financial Analyst Day. September 30, 2015

Transcription

1 Box Financial Analyst Day September 30,

2 Analyst Day Agenda 11:30-12:05 12:05-12:15 12:15-12:30 12:30-1:15 1:15-2:00 Company Overview & BoxWorks Recap Aaron Levie, co-founder and CEO Competitive Dynamics Aaron Levie, co-founder and CEO Jeetu Patel, SVP of Platform and CSO Q&A with Aaron and Jeetu Box for Industries Panel Moderator: Karen Appleton, SVP Industries Jeetu Patel, SVP of Platform and CSO Missy Krasner, Managing Director, Healthcare & Life Sciences Sonny Hashmi, Managing Director, Government Adam Ross, Managing Director, Financial Services Financial Model Dylan Smith, co-founder and CFO 2:00-2:30 Q&A Executive team 2

3 Investor Disclosure: Forward-Looking Statements and Non- GAAP Financial Measures This presentation contains forward-looking statements relating to our future performance that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding expected financial results for the third quarter and full fiscal year 2016 and beyond, our expectations regarding expansion of sales to existing customers, sales to new customers, future expenses, our ability to achieve positive free cash flow, profitability, expected gross and operating margins, future pricing of our products and services, the availability and success of future products, services and product features, and the benefits that we may realize from our partnerships with third-parties. Our actual results may differ materially from the forward-looking statements included in this presentation for a variety of reasons, including, but not limited to: adverse changes in general economic or market conditions; delays or reductions in information technology spending; factors related to our intensely competitive market, including but not limited to pricing pressures, industry consolidation, entry of new competitors and new applications and marketing initiatives by our current or future competitors; the development of the cloud-based Enterprise Collaboration and Content Management market; risks associated with our ability to manage our rapid growth effectively; our limited operating history, which makes it difficult to predict future results; the risk that our customers do not renew their subscriptions or expand their use of our services; our ability to provide successful enhancements, new features and modifications to our services; and actual or perceived security vulnerabilities in our services or any breaches of our security controls; our ability to realize the anticipated benefits from our partnerships with third-parties. Further information on these and other factors that could affect the forward-looking statements we make in this presentation can be found in the documents that we file with or furnish to the US Securities and Exchange Commission, including our most recent Quarterly Report on Form 10-Q for the quarter ended July 31, You should not rely on any forward-looking statements, and we assume no obligation, nor do we intend, to update these statements after the date this presentation is first given. All information in this presentation is as of September 30, This presentation contains non-gaap financial measures relating to the company's performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the appendix at the end of this presentation. Except as otherwise noted, all financial measures are presented on a non-gaap basis. All growth rates represent year-over-year comparisons, except as otherwise noted. 3

4 Company Overview Aaron Levie, co-founder and CEO 4

5 We re building the next generation enterprise content management and collaboration platform 5

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7 CRM HCM ERP IT Services Content 7

8 40MM+ Users 50K+ Customers 52% Fortune 500 8

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10 Over the past year we ve advanced our leadership position even further 10

11 Advanced Enterprise & Security Capabilities Box Governance & Compliance Box Enterprise Key Management IRM 11

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14 Box for Industries Retail Healthcare Media Nonprofits Finance Education Government Life Sciences Engineering & Construction 14

15 We re just getting started 15

16 Our mission is to transform the way that people and organizations work 16

17 Everything about the way we work is changing 17

18 Box sits at the center of this new way to work 18

19 BoxWorks News Reimagining how you work in the cloud Transforming your business with the Box Platform 19

20 Experience rich, interactive content on Box Work on your files seamlessly in leading apps Connect mobile content to business workflows 20

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30 Capture photos, videos, contextual data Automatically trigger workflows Secure and compliant Built on Box mobile SDKs 30

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32 BoxWorks News Reimagining how you work in the cloud Transforming your business with the Box Platform 32

33 Box launched its first open API in

34 50K Developers 6B Third party API calls per month 1600 Apps in our marketplace 34

35 But we re thinking much bigger 35

36 Companies in every industry are reinventing themselves through the strategic use of technology 36

37 Education Publisher Financial Advisory Firm Hospital Retailer Consulting Firm Teachers & Students Private Wealth Clients Patients Customers & Suppliers Clients 37

38 To build digital experiences, enterprises need new platforms 38

39 Content Management Content Experience Content Security Storage Infrastructure Preview Document Services Comments & Tasks Permissioning Sharing Powering content services for your apps Encryption Services Compliance & Certifications IRM 39

40 We re building the platform to help our customers go digital 40

41 Content Management Content Experience Content Security Your app Your user App User 41

42 Managed Users 42

43 App Users Managed Users 43

44 This fundamentally changes our business model 44

45 DEVELOPER FREE 25 Users 50 GB Storage 50 GB Bandwidth ENTERPRISE $500 per month 100 Users 250 GB Storage 250 GB Bandwidth 45

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47 Key Benefits of Box Platform For Customers For Partners For Box 1. Create. Secure. Engage 2. Focus on Core Competency 3. Strategic to CIO & LOB 1. Services Revenue 2. Distribution 3. Brand 1. Stickiness 2. Larger TAM 3. Strategic to CIO & LOB 47

48 Large and Growing Addressable Market $42B $32B Content Mgmt Project Mgmt Cloud Storage Project Mgmt Content Mgmt Cloud Storage Collaboration Collaboration Source: IDC: Worldwide Project and Portfolio Management Forecast Worldwide Content Management Software Forecast, Worldwide Storage for Public and Private Cloud Forecast. Worldwide Collaborative Applications Forecast,

49 Competitive Dynamics Aaron Levie, co-founder and CEO Jeetu Patel, SVP of Platform and CSO 49

50 The Market has Evolved Integrating with & partnering with Box Enterprise infancy and haven t proven success Integrating with & partnering with Box Online business spinoff, questionable future Divested Syncplicity, questionable future in ECM Exited EFSS market, global Box partnership 50

51 Box Has Evolved & Thrived Leader and Most Strategic provider in ECM Leader again in EFSS Strategic partnership and integrations with Microsoft Global partnership with IBM 51

52 And Leads The Pack EFSS ECM 52

53 Box and Microsoft are Strategic Partners 53

54 Box and Microsoft Cloud Content Platform Cloud Productivity Suite 54

55 More Use Cases, Replacing More Infrastructure EFSS ECM Platform Basic Enablement Replace Corporate Business Processes Advanced Use Cases Basic Sync & Share Secure FTP File Shares & Personal Drives Virtual Deal Room HR, Finance Automation Client Contract Management Records Mgmt Custom Mobile Apps SOX Compliance Developer Platform 55

56 More Use Cases, Replacing More Infrastructure EFSS ECM Platform Basic Enablement Replace Corporate Business Processes Advanced Use Cases Basic Sync & Share Secure FTP File Shares & Personal Drives Virtual Deal Room HR, Finance Automation Client Contract Management Records Mgmt Custom Mobile Apps SOX Compliance Developer Platform 56

57 More Use Cases, Replacing More Infrastructure EFSS ECM Platform Basic Enablement Replace Corporate Business Processes Advanced Use Cases Basic Sync & Share Secure FTP File Shares & Personal Drives Virtual Deal Room HR, Finance Automation Client Contract Management Records Mgmt Custom Mobile Apps SOX Compliance Developer Platform 57

58 More Use Cases, Replacing More Infrastructure EFSS ECM Platform Basic Enablement Replace Corporate Business Processes Advanced Use Cases Basic Sync & Share Secure FTP File Shares & Personal Drives Virtual Deal Room HR, Finance Automation Client Contract Management Records Mgmt Custom Mobile Apps SOX Compliance Developer Platform 58

59 Q&A With Aaron & Jeetu 59

60 Box for Industries Panel Moderator: Karen Appleton, SVP Industries Jeetu Patel, SVP of Platform and CSO Missy Krasner, Managing Director, Healthcare & Life Sciences Sonny Hashmi, Managing Director, Government Adam Ross, Managing Director, Financial Services 60

61 Platform + Box Industries Enabling customers to build tailored industry solutions on top of our platform Leveraging the platform to build an ecosystem of content centric industry-specific 3rd party applications 61

62 Targeted industries grew 21% faster than the rest of Box 62

63 Targeted industries grew 21% faster than the rest of Box Top Industries Financial Services Government Healthcare & Life Sciences Media & Entertainment Professional Services Retail, CPG & Hospitality 63

64 Healthcare & Life Sciences Uses Box to collaborate on cancer research, eliminating need for USB drives/ftp sites Uses Box to securely communicate with CROs and other contracted vendor Uses Box to enhance sales productivity and increase mobility for 15,000 sales reps 64

65 Financial Services Rapid adoption of Box due to intuitive interface and user security settings Built a cloud-based loan process service on Box platform reducing loan approval time 65

66 Government DOJ uses Box to simplify collaboration between 59 component agencies Argonne uses Box to collaborate securely on research leading to lower operating costs DSA uses Box real-time from any device for coordination between offices, the field and clients 66

67 Financial Model Dylan Smith, co-founder and CFO 67

68 Topics We ll Cover Driving Growth Compelling Customer Economics Achieving Positive Free Cash Flow Q&A 68

69 Topics We ll Cover Driving Growth Compelling Customer Economics Achieving Positive Free Cash Flow Q&A 69

70 Strong Top Line Growth Rare Combination of 40%+ Growth and ~$300M Scale Revenue ($M) $216 Billings ($M) $246 $174 $124 $139 $149 $97 $86 $99 $59 FY2013 FY2014 FY2015 1HFY15 1HFY16 FY2013 FY2014 FY2015 1HFY15 1HFY16 Note: Billings is a non-gaap measure and is determined by adding the change in deferred revenue to GAAP revenue recognized during the quarter. 70

71 Growth Catalysts Grow paid user base via new and existing customers Drive adoption of EKM, Governance and future products Accelerate Box Platform business model Leverage growing channel partnerships Grow international presence and expand distribution 71

72 Predictable Revenue Growth Sticky Customers and Business Model Provide High Visibility SHORT TERM VISIBILITY LONG TERM VISIBILITY ~95% ~96% Quarterly subscription revenue under contract at start of quarter Dollar-weighted annualized retention 72

73 Powerful Land and Expand Dynamic New and Existing Customers Drive Growth $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 4% 25% ~60:40 Ratio of net expansion to new customer ARR $0.20 $0.00 Beginning ARR Churn Net Expansion Installed Base ARR New Customer ARR Total ARR 1. Note: "Existing Customers" = customers with $5k+ in annual contract value (ACV) 12 months ago. "Net Expansion" = net increase in ACV from customers who both (a) had $5K+ in ACV12 months ago and (b) continue to be customers today. 73

74 Significant Expansion Opportunity Ahead 52% of Fortune 500 are Box Paying Customers 52% 4% Seat Penetration 74

75 Expanding Cross-Sell Product Portfolio Multiple Product Releases Planned Per Year Enterprise Key Management Box Governance Box Platform Potential Future Services Price uplift of 20-30% on top of core Price uplift of 20-30% on top of core Bundled pricing for select # of seats e.g. Workflow and Threat Detection Core Content Services Priced per seat 75

76 New Box Platform Dramatically Expands Market Opportunity Content Management Developer Enterprise Content Experience FREE 25 application users 50 GB storage 50 GB bandwidth $500 / month / app 100 application users 250 GB storage 250 GB bandwidth Content Security 76

77 Growing Reseller Partner Ecosystem Additional Channel Partners Extend Global Sales Reach + 77

78 Expanding Internationally Leveraging Coverage within Existing Sales Footprint Grow existing presence in UK, Japan, Australia and other regions 25% of all reps are international and gaining tenure Leverage IBM global professional services team and IBM international data centers for localization 78

79 Topics We ll Cover Driving Growth Compelling Customer Economics Achieving Positive Free Cash Flow Q&A 79

80 Strong Retention Rate 121% 25% 4% Retention Rate (1) Best-in-class Net Expansion (2) Remain above 20% for foreseeable future Full Churn Product stickiness improved over time 1. We calculate Retention Rate by dividing (a) the current annual contract value of customers who had $5K+ in annual contract value 12 months ago by (b) their annual contract value 12 months ago. 2. "Net Expansion" = net increase in annual contract value from customers who both (a) had $5K+ in annual contract value 12 months ago and (b) continue to be customers today. 80

81 Stable Price per Seat Cross-Sell Features Provide Opportunities to Increase Price $13 Price per Seat $11 $9 $7 $5 Q315 Q415 Q116 Q216 Note: Price per Seat excludes Enterprise License Agreements, our IBM contract, and contracts with education customers through our partnership with I2. 81

82 Strong Gross Margin Profile Business Model Drives Future Leverage 78% 81% 80% 76% 75-80% Investment Areas: Data center expansion Building consulting capacity Double rent in FY16 FY2013 FY2014 FY2015 1HFY2016 Long Term Target Note: Gross Margin is presented on a non-gaap basis. 82

83 Driving Sales and Marketing Efficiency Revenue Growth Outpacing Spending Growth Facilities and IT Free User Marketing 7% 17% 7% 13% Improvement Drivers 3% Greater focus on paying customers drives down FUM People and Programs 67% Strong business model traction drives leverage 53% More tenured sales force drives sales productivity improvements Q2FY15 Q2FY16 S&M spend as % Revenue Note: Sales and marketing expenses by type as a percentage of revenue are presented on a non-gaap basis. 83

84 With Further Improvement Expected Initiatives Underway to Deliver Continued Leverage Facilities and IT Free User Marketing 7% 17% 7% Driving Future Improvements 13% People and Programs 67% 53% Q2FY15 Q2FY16 S&M spend as % Revenue Note: Sales and marketing expenses by type as a percentage of revenue are presented on a non-gaap basis. 84

85 With Further Improvement Expected Initiatives Underway to Deliver Continued Leverage Facilities and IT Free User Marketing 7% 17% 7% Driving Future Improvements Lower facilities expense post new HQ move 13% People and Programs 67% 53% Q2FY15 Q2FY16 S&M spend as % Revenue Note: Sales and marketing expenses by type as a percentage of revenue are presented on a non-gaap basis. 85

86 With Further Improvement Expected Initiatives Underway to Deliver Continued Leverage Facilities and IT Free User Marketing 7% 17% 7% Driving Future Improvements Lower facilities expense post new HQ move 13% Continued leverage from user base People and Programs 67% 53% Q2FY15 Q2FY16 S&M spend as % Revenue Note: Sales and marketing expenses by type as a percentage of revenue are presented on a non-gaap basis. 86

87 With Further Improvement Expected Initiatives Underway to Deliver Continued Leverage Facilities and IT Free User Marketing 7% 17% 7% Driving Future Improvements Lower facilities expense post new HQ move 13% Continued leverage from user base People and Programs 67% 53% Continued sales productivity improvements New product SKUs increase ACV via more efficient expansion sale Maturity of channel relationships and self-service features drives lower touch sale Lower marketing spend as a % of revenue as we grow customer footprint and brand awareness grows Q2FY15 Q2FY16 S&M spend as % Revenue Note: Sales and marketing expenses by type as a percentage of revenue are presented on a non-gaap basis. 87

88 Inherent Business Model Leverage Growing Revenue from Existing Customers Drives Increasing Margin $300M ARR $500M ARR ARR:S&M ~ 3:2 ARR:S&M ~ 5:2 Renew Total ARR Renew Total ARR Land Expand Land Expand Revenue Less S&M Sales and Marketing Expenses X Note: This slide is for illustrative purposes only and is not intended to represent Box's expectations regarding future ARR growth. 88

89 Unit Margins 101 Recoup Sales and Marketing Costs in 2 Years New ARR $ Customer Acquisition Cost ($1.70) - Cost to Serve ($0.25) 1-Year Unit Contribution Margin ($0.95) Note: Customer Acquisition Cost is blended across sales to new customers and upsells to existing customers. 89

90 Unit Margins 101 Significantly Shorter Payback Period for Future Sales New ARR $ Customer Acquisition Cost ($1.70) - Cost to Serve ($0.25) 1-Year Unit Contribution Margin ($0.95) Annual Growth 20% Annual Churn 4% - Upsell Customer Acquisition Cost per $1 Upsell ARR ($1.00) - Renewal Expenses per $1 Recurring Revenue ($0.05) 1-Year Unit Contribution Margin for Future Upsell ($0.05) Note: Customer Acquisition Cost is blended across sales to new customers and upsells to existing customers. 90

91 $1 of New ARR Today Has Massive Future Return Strong Unit Economics Offset Cost of Acquisition 10-Year Period Upsell expansion $4 $1 New ARR Land Sales Revenue Customer Acquisition Cost Cost To Serve Land Sale Unit Contribution Margin Expand Sales Revenue Customer Acquisition Cost Cost To Serve Total Unit Contribution Margin 91

92 $1 of New ARR Today Has Massive Future Return Land and Expand Compounding Creates Significant Future Value 10-Year Period Upsell expansion $9 $4 $1 New ARR Land Sales Revenue Customer Acquisition Cost Cost To Serve Land Sale Unit Contribution Margin Expand Sales Revenue Customer Acquisition Cost Cost To Serve Total Unit Contribution Margin 92

93 New Products Create Opportunities for Faster Growth New Products Introduce an Efficient Expansion Vector 10-Year Period Cross-sell expansion $9+ $4 $1 New ARR Land Sales Revenue Customer Acquisition Cost Cost To Serve Land Sale Unit Contribution Margin Expand Sales Revenue Customer Acquisition Cost Cost To Serve Total Unit Contribution Margin 93

94 Significant Embedded Value in Customer Base Existing Revenue Base Alone Delivers ~$2B in Value over 10 Years $2,000M $1,600M $1,200M $800M $400M $0M Years 94

95 Topics We ll Cover Driving Growth Compelling Customer Economics Achieving Positive Free Cash Flow Q&A 95

96 Steady Progress Toward Profitability Driving Operating Leverage Across the Business 200% Non-GAAP Operating Expenses (% of Revenue) Sales Non-GAAP & Marketing Operating decreased Margin15 points (% of Revenue) YoY due to increased leverage in our sales model and focus on driving efficiency in our marketing spend. 150% 166% 134% -59% -63% -47% 100% 91% 95% 76% 50% 0% 47% 34% 25% 22% 27% 37% 29% 23% 28% 20% FY2013 FY2014 FY HFY15 1HFY16 G&A R&D S&M -172% -117% FY2013 FY2014 FY2015 1H2015 1H

97 Understanding Billings Growth Strong Track Record of ~35-55% Normalized Growth Rate 53% 54% 58% 53% 45% 45% 32% 37% 33% 37% Unadjusted YoY Growth Normalized YoY Growth Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16 Q2 FY16 Large deals and variable payment durations impact growth comparisons Note: Normalized Year-Over-Year (YoY) Growth represents what the year-over-year billings growth rate would have been had the multi-year billing terms in our customer agreements in the period presented been weighted the same as the multi-year billing terms in the same period one year earlier. 97

98 Levers to Achieve Positive Free Cash Flow Realizing Business Model Scale and Operational Efficiency ARR continues to grow via land and expand, new partnerships, new add on features such as Box Platform, EKM and Governance Modest improvement to payment durations Non-GAAP operating loss has been steady as expenses are gaining leverage and mature customers require lower sales and marketing costs Cash flow from operations improving with tighter working capital management Fully funded to achieve positive free cash flow in the January 2017 quarter 98

99 Trending Towards Positive Free Cash Flow On Track for Quarter Ending January 2017 *Actual Operating Cash Flow excludes $25M in restricted cash set aside to secure a letter of credit for our Redwood City headquarters. 99

100 Long Term Targets FY13 FY14 FY15 1HFY16 Long Term Targets Gross Margin S&M as a % of revenue R&D as a % of revenue G&A as a % of revenue Operating Margin Free Cash Flow Margin 78% 81% 80% 76% 75-80% 166% 134% 91% 76% 35-40% 47% 34% 25% 27% 13-15% 37% 29% 23% 20% 7-9% (172%) (117%) (59%) (47%) 15-20% (172%) (94%) (57%) (41%)* 20-25% *Excludes $25M in restricted cash set aside to secure a letter of credit for our Redwood City headquarters. Note: Gross Margin, S&M as % of revenue, R&D as % of revenue, G&A as % of revenue, Operating Margin, and Free Cash Flow Margin are non-gaap measures. 100

101 We re on our way to achieving positive free cash flow in quarter ending January 2017 and delivering a sustainable cashgenerating business 101

102 Topics We ll Cover Driving Growth Compelling Customer Economics Achieving Positive Free Cash Flow Q&A 102

103 Q&A All 103

104 Appendix 104

105 GAAP to Non-GAAP Reconciliation Billings ($ in thousands) FY2013 FY2014 FY2015 1HFY15 1HFY16 GAAP revenue $58,797 $124,192 $216,440 $96,753 $139,071 Deferred revenue, end of period Less: deferred revenue, beginning of period $40,099 $90,072 $120,057 $92,594 $130,349 ($13,169) ($40,099) ($90,072) ($90,072) ($120,057) Billings $85,727 $174,165 $246,425 $99,275 $149,

106 GAAP to Non-GAAP Reconciliation Gross Margin ($ in thousands) FY2013 As a % of revenue FY2014 As a % of revenue FY2015 As a % of revenue 1HFY16 As a % of revenue GAAP gross margin $44, % $98, % $169, % $101, % Add: stock-based compensation Add: Intangible assets amortization $1,087 $450 $1,492 $1,892 $- $1,813 $3,455 $2,579 Non-GAAP gross margin $45, % $100, % $174, % $105, % 106

107 GAAP to Non-GAAP Reconciliation Operating Expenses ($ in thousands) 1HFY15 As a % of revenue 1HFY16 As a % of revenue GAAP research and development $31,243 32% $49,587 36% Less: stock-based compensation ($5,013) ($11,566) Non-GAAP research and development $26,230 27% $38,021 27% GAAP sales and marketing $97, % $114,955 83% Less: stock-based compensation ($5,184) ($9,025) Non-GAAP sales and marketing $91,913 95% $105,930 76% GAAP general and administrative $24,421 25% $33,147 24% Less: stock-based compensation ($3,004) ($4,960) Less: Intangible assets amortization ($85) ($78) Less: Accruals related to a legal verdict $- ($978) Non-GAAP general and administrative $21,332 22% $27,131 20% 107

108 GAAP to Non-GAAP Reconciliation Operating Expenses (Cont d) ($ in thousands) FY2013 As a % of revenue FY2014 As a % of revenue FY2015 As a % of revenue GAAP research and development $28,996 49% $45,967 37% $66,402 31% Less: stock-based compensation ($1,211) ($3,154) ($11,767) Non-GAAP research and development $27,785 47% $42,813 34% $54,635 25% GAAP sales and marketing $99, % $171, % $207,749 96% Less: stock-based compensation ($1,893) ($5,017) ($11,616) Non-GAAP sales and marketing $97, % $166, % $196,133 91% GAAP general and administrative $25,429 43% $39,843 32% $61,672 28% Less: stock-based compensation ($3,345) ($3,128) ($7,054) Less: Intangible assets amortization ($176) ($174) ($169) Less: Accruals related to a legal verdict $- $- ($3,900) Non-GAAP general and administrative $21,908 37% $36,541 29% $50,549 23% 108

109 GAAP to Non-GAAP Reconciliation Sales and Marketing Expenses by Type ($ in thousands) GAAP general and administrative As a % of revenue Less: stockbased compensation As a % of revenue Non-GAAP general and administrative As a % of revenue Q2 FY15 Facilities and IT $3,701 7% $- -% $3,701 7% Free User Marketing $8,863 17% ($260) -% $8,603 17% People and Programs $37,093 72% ($2,859) (5%) $34,234 67% Total $49,657 96% ($3,119) (5%) $46,538 91% Q2 FY16 Facilities and IT $5,361 7% $- -% $5,361 7% Free User Marketing $9,839 14% ($431) (1%) $9,408 13% People and Programs $43,260 59% ($4,311) (6%) $38,949 53% Total $58,460 80% ($4,742) (7%) $53,718 73% 109

110 GAAP to Non-GAAP Reconciliation Operating Margin ($ in thousands) 1HFY15 As a % of revenue 1HFY16 As a % of revenue GAAP operating margin ($76,069) (79%) ($96,407) (69%) Less: stock-based compensation $13,831 $27,443 Less: Intangible assets amortization $1,496 $2,657 Less: Accruals related to a legal verdict $- $978 Non-GAAP operating margin ($60,742) (63%) ($65,329) (47%) 110

111 GAAP to Non-GAAP Reconciliation Operating Margin (Cont d) ($ in thousands) FY2013 As a % of revenue FY2014 As a % of revenue FY2015 As a % of revenue GAAP operating margin ($109,129) (186%) ($158,780) (128%) ($166,656) (77%) Less: stock-based compensation $7,536 $11,749 $31,929 Less: Intangible assets amortization $176 $1,987 $3,624 Less: Accruals related to a legal verdict $- $- $3,900 Non-GAAP operating margin ($101,417) (172%) ($145,044) (117%) ($127,203) (59%) 111

112 GAAP to Non-GAAP Reconciliation Free Cash Flow Margin ($ in thousands) FY2013 As a % of revenue FY2014 As a % of revenue FY2015 As a % of revenue 1HFY16 As a % of revenue Net cash used in operating activities Add: restricted cash used to guarantee a letter of credit for Redwood City HQ Less: purchases of property and equipment ($81,751) (139%) ($91,769) (74%) ($84,900) (39%) ($53,843) (39%) $- $- $- $25,000 ($19,499) ($24,424) ($38,681) ($27,844) Free cash flow ($101,250) (172%) ($116,193) (94%) ($123,581) (57%) ($56,687) (41%) 112