box financial analyst days21.q4cdn.com/328470014/files/doc_presentations/... · 2 analyst day...

1

September 30, 2015

Box Financial Analyst Day

2

Analyst Day Agenda

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

Q&A

‒ Executive team

11:30-12:05

12:05-12:15

12:30-1:15

1:15- 2:00

2:00- 2:30

12:15-12:30

3

• 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, 2015.

• 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, 2015.

• 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.

Investor Disclosure: Forward-Looking Statements and Non-GAAP Financial Measures

4

Company OverviewAaron Levie, co-founder and CEO

5

We’re building the next generation

enterprise content management and

collaboration platform

7

CRM

HCM

Content

ERP

IT Services

8

40MM+ Users

50K+Customers

52%Fortune 500

10

Over the past year we’ve advanced our

leadership position even further

11

Advanced Enterprise & Security Capabil i t ies

Box Governance

& Compliance IRMBox Enterprise

Key Management

14

NonprofitsRetail Healthcare Media EducationFinance

Government Engineering &

ConstructionLife Sciences

Box for Industries

15

We’re just getting started

16

Our mission is to transform the way that

people and organizations work

17

Everything about the way we work is changing

18

Box sits at the center of this new way to work

19

BoxWorks News

Reimagining how you

work in the cloud

Transforming your business

with the Box Platform

20

Experience

rich, interactive

content on Box

Connect mobile

content to business

workflows

Work on your

files seamlessly

in leading apps

30

• Capture photos, videos, contextual data

• Automatically trigger workflows

• Secure and compliant

• Built on Box mobile SDKs

32

BoxWorks News

Reimagining how you

work in the cloud

Transforming your business

with the Box Platform

33

Box launched its first open API in 2006

34

6BThird party API calls

per month

1600Apps in our

marketplace

50KDevelopers

35

But we’re thinking

much bigger

36

Companies in every industry are

reinventing themselves through the

strategic use of technology

37

Education Publisher Teachers & Students

Financial Advisory Firm Private Wealth Clients

Hospital Patients

Retailer Customers & Suppliers

Consulting Firm Clients

38

To build digital experiences, enterprises need

new platforms

39

Powering content services for your apps

Content Experience

Preview

Comments & Tasks

Sharing

Content Management

Storage Infrastructure

Document Services

Permissioning

Content Security

Encryption Services

Compliance &

Certifications

IRM

40

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

41

Content Management

Content Experience

Content Security

App User Your userYour app

42

Managed Users

43

Managed UsersApp Users

44

This fundamentally changes our business model

45

ENTERPRISE25 Users

50 GB Storage

50 GB Bandwidth

DEVELOPER

FREE

100 Users

250 GB Storage

250 GB Bandwidth$500 per month

47

For Customers

Key Benefits of Box Platform

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

48

Large and Growing Addressable Market

Project Mgmt

Collaboration

Cloud Storage

Content Mgmt

Project Mgmt

Collaboration

Cloud Storage

Content Mgmt

Source: IDC: Worldwide Project and Portfolio Management Forecast 2015-2019. Worldwide Content Management Software Forecast, 2015-2019. Worldwide Storage for Public and Private Cloud 2014-2019 Forecast. Worldwide Collaborative Applications Forecast, 2015-2019.

$42B

$32B

2015 2018

33

49

Competitive DynamicsAaron Levie, co-founder and CEOJeetu Patel, SVP of Platform and CSO

50

The Market has Evolved

• Online business spinoff, questionable future

• Divested Syncplicity, questionable future in ECM

• Enterprise infancy and haven’t proven success

• Integrating with & partnering with Box

• Exited EFSS market, global Box partnership

• Integrating with & partnering with Box

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

52

…And Leads The Pack

EFSS ECM

53

Box and Microsoft are Strategic Partners

54

Cloud Productivity SuiteCloud Content Platform

Box and Microsoft

55

Basic

Enablement

Basic Sync &

ShareSecure

FTP

Client Contract

Management

More Use Cases, Replacing More Infrastructure

File Shares

& Personal

Drives

Virtual Deal

Room

RecordsMgmt

Replace Corporate Business

Processes

Advanced Use

Cases

HR,

Finance

Automation

Custom

Mobile

Apps

Developer Platform

SOX

Compliance

EFSS ECM Platform

56

Basic

Enablement

Basic Sync &

ShareSecure

FTP

Client Contract

Management


Virtual Deal

Room

RecordsMgmt

Replace

HR,

Finance

Automation

File Shares

& Personal

Drives

Corporate Business

Processes

Advanced Use

Cases

Custom

Mobile

Apps

SOX

Compliance

EFSS ECM Platform

Developer Platform

57

Basic

Enablement

Basic Sync &

ShareSecure

FTP

Client Contract

Management


Virtual Deal

Room

RecordsMgmt

Replace

HR,

Finance

Automation

File Shares

& Personal

Drives

Corporate Business

Processes

Custom

Mobile

Apps

SOX

Compliance

Advanced Use

Cases

EFSS ECM Platform

Developer Platform

58

Basic

Enablement

Basic Sync &

ShareSecure

FTP

HR,

Finance

Automation

Client Contract

Management


Virtual Deal

Room

RecordsMgmt

Replace

File Shares

& Personal

Drives

Corporate Business

Processes

Custom

Mobile

Apps

SOX

Compliance

Advanced Use

Cases

EFSS ECM Platform

Developer Platform

59

Q&A With Aaron &

Jeetu

60

Box for Industries PanelModerator: Karen Appleton, SVP Industries

Jeetu Patel, SVP of Platform and CSOMissy Krasner, Managing Director, Healthcare & Life SciencesSonny Hashmi, Managing Director, GovernmentAdam Ross, Managing Director, Financial Services

61

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

Platform + Box Industries

62

Targeted industries grew 21% faster than the rest of Box

63

Targeted industries grew 21% faster than the rest of Box

Top

Industries

Healthcare &

Life Sciences

Financial

Services

Retail, CPG

& Hospitality

Professional

ServicesGovernment

Media &

Entertainment

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

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

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

67

Financial ModelDylan Smith, co-founder and CFO

68

Driving Growth

Compelling Customer Economics

Achieving Positive Free Cash Flow

Q&A

1

2

3

4

Topics We’ll Cover

69

Driving Growth


Q&A

1

3

4

Compelling Customer Economics2


70

Strong Top Line GrowthRare Combination of 40%+ Growth and ~$300M Scale

$59

$124

$216

$97

$139

FY2013 FY2014 FY2015 1HFY15 1HFY16

Revenue ($M)

$86

$174

$246

$99

$149

FY2013 FY2014 FY2015 1HFY15 1HFY16

Billings ($M)

Note: Billings is a non-GAAP measure and is determined by adding the change in deferred revenue to GAAP revenue recognized during the quarter.

71

Growth Catalysts

Grow paid user base via new and existing customers

Accelerate Box Platform business model

Drive adoption of EKM, Governance and future products

Leverage growing channel partnerships

Grow international presence and expand distribution

72

Predictable Revenue GrowthSticky Customers and Business Model Provide High Visibility

Quarterly subscription revenue under contract at

start of quarter

~95% ~96%Dollar-weighted

annualized retention

SHORT TERM VISIBILITY LONG TERM VISIBILITY

73

Powerful Land and Expand DynamicNew and Existing Customers Drive Growth

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

Beginning ARR Churn Net Expansion Installed BaseARR

New CustomerARR

Total ARR

4% 25% ~60:40Ratio of net

expansion to

new customer

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.

74

Significant Expansion Opportunity Ahead52% of Fortune 500 are Box Paying Customers

4%Seat Penetration

52%

75

Core Content ServicesPriced per seat

Expanding Cross-Sell Product PortfolioMultiple Product Releases Planned Per Year

Price uplift of 20-30%

on top of core

Box

Governance

Bundled pricing for

select # of seats

Box

Platform

e.g. Workflow and

Threat Detection

Potential Future

Services

Price uplift of 20-30%

on top of core

Enterprise Key

Management

76

$500 / month / app

• 100 application users

• 250 GB storage

• 250 GB bandwidth

FREE

• 25 application users

• 50 GB storage

• 50 GB bandwidth

New Box PlatformDramatically Expands Market Opportunity

Developer EnterpriseContent Management

Content Security

Content Experience

77

Growing Reseller Partner Ecosystem

+

Additional Channel Partners Extend Global Sales Reach

78

Expanding InternationallyLeveraging 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

79

Driving Growth



Q&A

1

3

4

2


80

Strong Retention Rate

Retention Rate(1)

Best-in-class

121% 25% 4%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.

81

$5

$7

$9

$11

$13

Q315 Q415 Q116 Q216

Stable Price per SeatCross-Sell Features Provide Opportunities to Increase Price

Note: Price per Seat excludes Enterprise License Agreements, our IBM contract, and contracts with education customers through our partnership with I2.

Price per Seat

82

Strong Gross Margin ProfileBusiness Model Drives Future Leverage

78% 81% 80%76%

75-80%

FY2013 FY2014 FY2015 1HFY2016 Long TermTarget

Investment Areas:

• Data center expansion

• Building consulting capacity

• Double rent in FY16

Note: Gross Margin is presented on a non-GAAP basis.

83

Driving Sales and Marketing EfficiencyRevenue Growth Outpacing Spending Growth

Q2FY15

3%

• Strong business model traction drives leverage

• More tenured sales force drives sales productivity improvements

Q2FY16

67%

17%

53%

13%

7%

• Greater focus on paying customers drives down FUM

Improvement Drivers7%

S&M spend as % Revenue

Facilities and IT

Free User Marketing

People and Programs

Note: Sales and marketing expenses by type as a percentage

of revenue are presented on a non-GAAP basis.

84

With Further Improvement ExpectedInitiatives Underway to Deliver Continued Leverage

Q2FY15 Q2FY16

67%

17%

7%

53%

13%

7%


Facilities and IT

Free User Marketing

People and Programs

Driving Future Improvements

Note: Sales and marketing expenses by type as a percentage of revenue are presented on a non-GAAP basis.

85


Q2FY15 Q2FY16

67%

17%

7%

53%

13%

7%


• Lower facilities expense post new HQ move

Facilities and IT

Free User Marketing

People and Programs



86


Q2FY15 Q2FY16

67%

17%

7%

53%

13%

7%

• Continued leverage from user base



Facilities and IT

Free User Marketing

People and Programs



87

Q2FY15 Q2FY16

67%

17%

7%

53%

13%

7%


• 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



• Continued leverage from user base


Facilities and IT

Free User Marketing

People and Programs


88

Expand

Renew

$300M ARR

X

Land

Note: This slide is for illustrative purposes only and is not intended to represent Box's expectations regarding future ARR growth.

Revenue Less S&MSales and Marketing Expenses

Expand

Renew

Land

ARR:S&M ~ 3:2 ARR:S&M ~ 5:2

Inherent Business Model Leverage

Total ARR

Total ARR

$500M ARR

Growing Revenue from Existing Customers Drives Increasing Margin

89

Unit Margins 101Recoup Sales and Marketing Costs in 2 Years

New ARR $1.00

- 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.

90

Unit Margins 101Significantly Shorter Payback Period for Future Sales

New ARR $1.00

- 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.

91

New ARR Land SalesRevenue

CustomerAcquisition

Cost

Cost To Serve Land Sale UnitContribution

Margin

Expand SalesRevenue

CustomerAcquisition

Cost

Cost To Serve Total UnitContribution

Margin

$1 of New ARR Today Has Massive Future ReturnStrong Unit Economics Offset Cost of Acquisition

Upsell expansion10-Year Period

$1

$4

92


CustomerAcquisition

Cost


Margin

Expand SalesRevenue

CustomerAcquisition

Cost


Margin

$1 of New ARR Today Has Massive Future ReturnLand and Expand Compounding Creates Significant Future Value

Upsell expansion10-Year Period

$9

$1

$4

93


CustomerAcquisition

Cost


Margin

Expand SalesRevenue

CustomerAcquisition

Cost


Margin

New Products Create Opportunities for Faster GrowthNew Products Introduce an Efficient Expansion Vector

Cross-sell expansion10-Year Period

$9+

$1

$4

94

Significant Embedded Value in Customer Base Existing Revenue Base Alone Delivers ~$2B in Value over 10 Years

$0M

$400M

$800M

$1,200M

$1,600M

$2,000M

0 1 2 3 4 5 6 7 8 9 10

Years

95

Driving Growth



Q&A

1

3

4

2


96

Sales & Marketing decreased 15 points

YoY due to increased leverage in our

sales model and focus on driving

efficiency in our marketing spend.

Steady Progress Toward Profitability

37%29% 23% 28%

20%

47%

34%

25% 22%27%

166%

134%

91%95%

76%

0%

50%

100%

150%

200%

FY2013 FY2014 FY 2015 1HFY15 1HFY16

Non-GAAP Operating Expenses(% of Revenue)

G&A R&D S&M

-172%

-117%

-59% -63%

-47%

FY2013 FY2014 FY2015 1H2015 1H2016

Non-GAAP Operating Margin(% of Revenue)

Driving Operating Leverage Across the Business

97

Understanding Billings GrowthStrong Track Record of ~35-55% Normalized Growth Rate

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.

32%

53%

33%

58%

45%

37%

54%

37%

53%

45%

Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16 Q2 FY16

Unadjusted YoY Growth

Normalized YoY Growth

Large deals and variable payment durations impact growth comparisons

98

Levers to Achieve Positive Free Cash Flow

• 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

Realizing Business Model Scale and Operational Efficiency

99

Trending Towards Positive Free Cash FlowOn 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.

100

Long Term Targets

FY13 FY14 FY15 1HFY16 Long Term Targets

Gross

Margin78% 81% 80% 76% 75-80%

S&M as a %

of revenue166% 134% 91% 76% 35-40%

R&D as a %

of revenue47% 34% 25% 27% 13-15%

G&A as a %

of revenue37% 29% 23% 20% 7-9%

Operating

Margin(172%) (117%) (59%) (47%) 15-20%

Free Cash

Flow Margin(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.

101

We’re on our way to achieving positive free cash flow

in quarter ending January 2017 and delivering a sustainable cash-

generating business

102

Driving Growth



Q&A

1

3

4

2


103

Q&AAll

104

Appendix

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$40,099 $90,072 $120,057 $92,594 $130,349

Less: deferred revenue,

beginning of period($13,169) ($40,099) ($90,072) ($90,072) ($120,057)

Billings $85,727 $174,165 $246,425 $99,275 $149,363

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 $44,517 75.7% $98,218 79.1% $169,167 78.2% $101,282 72.8%

Add: stock-based

compensation$1,087 $450 $1,492 $1,892

Add: Intangible assets

amortization$- $1,813 $3,455 $2,579

Non-GAAP gross margin $45,604 77.6% $100,481 80.9% $174,114 80.4% $105,753 76.0%

107

GAAP to Non-GAAP Reconciliation – Operating Expenses

($ in thousands)1HFY15

As a % of

revenue1HFY16

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 $97,097 100% $114,955 83%


Non-GAAP sales and marketing $91,913 95% $105,930 76%

GAAP general and administrative $24,421 25% $33,147 24%


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%

108

GAAP to Non-GAAP Reconciliation – Operating Expenses (Cont’d)

($ in thousands)FY2013

As a % of

revenueFY2014

As a % of

revenueFY2015

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 $99,221 169% $171,188 138% $207,749 96%


Non-GAAP sales and marketing $97,328 166% $166,171 134% $196,133 91%

GAAP general and administrative $25,429 43% $39,843 32% $61,672 28%


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%

109

GAAP to Non-GAAP Reconciliation – Sales and Marketing Expenses by Type

($ in thousands)

GAAP general

and

administrative

As a % of

revenue

Less: stock-

based

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%

110

GAAP to Non-GAAP Reconciliation – Operating Margin

($ in thousands)1HFY15

As a % of

revenue1HFY16

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%)

111

GAAP to Non-GAAP Reconciliation – Operating Margin (Cont’d)

($ in thousands)FY2013

As a % of

revenueFY2014

As a % of

revenueFY2015

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%)

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($81,751) (139%) ($91,769) (74%) ($84,900) (39%) ($53,843) (39%)

Add: restricted cash used to guarantee a letter of credit for Redwood City HQ

$- $- $- $25,000

Less: purchases of property and equipment

($19,499) ($24,424) ($38,681) ($27,844)

Free cash flow ($101,250) (172%) ($116,193) (94%) ($123,581) (57%) ($56,687) (41%)

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