Box, Inc. (BOX - Snapshot Report) reported second-quarter fiscal 2016 loss of 40 cents per share, wider than the Zacks Consensus Estimate of a loss of 38 cents. Adjusted loss per share excludes one-time items but includes stock-based compensation expense.

Nevertheless, share price moved up more than 3% in after-hours trading driven by strong growth in billings and solid guidance.

Results in Detail

Box’s revenues of $73.5 million increased 42.8% year over year. Reported revenues were above management’s guided range of $69–$70 million and the Zacks Consensus Estimate of $69 million. Billings were $79.6 million, a 45% jump year over year. The company added about 3,000 customers, bringing the total to more than 50,000 globally.

Reported gross margin was 71.9%, down 700 basis points from 78.9% a year ago.

Box incurred operating expenses of $102.6 million, up 30.1% from the year-ago quarter figure of $78.9 million. As a percentage of sales, general & administrative as well as sales & marketing expenses decreased year over year, while research & development expenses increased. As a result, reported operating loss was 67.8% versus 74.5% a year ago.

On a GAAP basis, Box recorded net loss of $50.2 million (or loss of 42 cents per share) compared with loss of $39.4 million (or $2.71 a share) in second-quarter fiscal 2015.

On a pro-forma basis, Box generated net loss of $47.9 million compared with $37.2 million in the year-ago quarter. Pro-forma loss came in at 40 cents as against $2.57 per share in the year-earlier period.

Coming to the balance sheet, Box ended the quarter with cash and investment balance of $242.2 million versus $284.0 million at the end of the previous quarter. Accounts receivables were $54.0 million versus $38.6 million in the prior quarter. Deferred revenues were $118.3 million as against $111.5 million in the first quarter.

In the second quarter, cash generated from operations was ($21.7) million and capital expenditure was $17.9 million.

Guidance

For the third quarter, management expects revenues in the range of $76 million to $77 million. Analysts polled by Zacks expect revenues to be $74 million, below the guided range. Non-GAAP operating margin is expected in the range of (49%) to (50%), while share count is likely to be nearly 122 million.

Also, for fiscal 2016, management expects revenues in the range of $295–$297 million, up from $286–$290 million. Non-GAAP operating margin is expected in the range of (47%) to (49%) versus the (49%) to (51%) range, while share count is expected to be roughly 122 million.

Our Recommendation

Box is a cloud-storage company which went public earlier this year. The company has been continuously investing in security, compliance and administrative technology, and plans to hire more sales personnel. These investments and partnerships with IBM and Microsoft will enable the company to capitalize on the increasing adoption of cloud computing technologies across enterprises and the need for secure collaboration.

However, continuous investments in research and development activities could take a toll on the margins and profits, going ahead.

Currently, Box has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Attunity, Ltd. (ATTU - Snapshot Report), Cvent, Inc. (CVT - Snapshot Report) and magicJack VocalTec Ltd. (CALL - Snapshot Report). All these stocks sport a Zacks Rank #1 (Strong Buy).

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