Most interesting numbers from Box S1: Negative Net Churn & Cohort Based LTV
I quickly scanned the Box S1 yesterday before going to teach my Lean Entrepreneurship course. After a busy 24 hours, this afternoon had a chance to spend more time reviewing the document.
When I scanned the doc quickly yesterday, the P&L numbers jumped off the page to me. (From the coverage I wasn’t unique) Specifically:
- The significant & accelerating losses ($168.8M last FY 1/31/2014)
- The relatively low cash balance (if they hadn’t raised $100M in December would be sitting on a cash balance of $9M — obviously this would never happen but makes the point)
- The significant Sales & Marketing expenses - ass Paul Kedrosky commented they were “gobsmackingly amazing”
However, this morning there are two numbers that I think are important to keep in mind given it is a SaaS business.
1) Negative Net Churn
As David Skok has eloquently explained, Negative Churn in a SaaS is a powerful growth metric. In the case of Box, they are doing a great job generating negative churn across their accounts. Directly quoting from the S1 (pg 48 & 49):
We calculate our retention rate as of a period end by starting with the annual contract value (ACV) from customers with contract value of $5,000 or more as of 12 months prior to such period end (Prior Period ACV) and a subscription term of at least 12 months. We then calculate the ACV from these same customers as of the current period end (Current Period ACV). Finally, we divide the aggregate Current Period ACV for the trailing 12-month period by the aggregate Prior Period ACV for the trailing 12-month period to arrive at our retention rate.
Over the last 3 Fiscal Years, they have had retention rates at the end of the period of 129% 144% and 136%
2) Life Time Value / Cohort Analysis
One really helfpul way to look at Lifetime Value is to do time-based cohort analysis. In the Box S1, they do the math on their FY 2010 cohort. What follows is their explanation (bold emphasis mine) pg 52:
To provide an understanding of our customer economics, we are providing an analysis of the customers we acquired in fiscal year 2010, which we will refer to as the 2010 Cohort. The 2010 Cohort includes every customer we acquired in fiscal year 2010, including customers who at one point did not renew their subscriptions but are customers today. We selected the 2010 Cohort as a representative set of customers for this analysis because 2010 was the first year since our inception during which we acquired a material number of customers across a diverse range of industries, and we think the perspective of time is important to help investors understand the long-term value of our customers. In fiscal year 2010, we recognized $2.8 million in revenue and incurred variable costs that resulted in a negative contribution margin for the 2010 Cohort. In fiscal year 2014, we recognized $14.4 million in revenue from the 2010 Cohort, representing a compound annual revenue growth rate of 69.2%, and incurred variable costs that resulted in a positive contribution margin of 34% from the 2010 Cohort.
Unless, I missed it I don’t see the LTV broken out from the other cohorts included in the S1.
The sales & marketing expense is still a concern to me, but the LTV is more promising then I originally realized when scanning the doc yesterday.