Personal blog of Yzmir Ramirez

A battle between Box and its majority shareholder Starboard Value over control of the board ended today when the company’s slate of directors easily defeated Starboard’s. It culminated months of maneuvering on both sides as they battled for control of the company.

Box, in a somewhat generic statement, expressed gratitude for the results:

Box appreciates the support and perspectives we have received from our stockholders throughout this process. The Board and management team will remain focused on continuing to transform Box and executing Box’s strategy to grow profitably and deliver significant value to all Box stockholders.

Starboard on the other hand, as you might expect, was unhappy with the outcome and didn’t hide that in a letter to shareholders released earlier today.

“We are certainly disappointed by the results of this election, which were heavily skewed by the voting rights tied to the preferred equity financing and the use of stockholder capital to aggressively repurchase shares ahead of the record date from stockholders likely to support change. At this juncture, the future of Box is in the Board’s hands, and there is a significant amount of work left to be done. Many commitments have been made, and we hope that Box will finally be able to follow through on its promises to drive improved results, accountability, governance, and compensation practices,” managing director Peter A. Feld wrote in the letter.

This all began when Starboard Value invested in Box, taking a 7.5% stake, which would eventually grow to 8.8% in the company. With that stake, it became the largest shareholder, but it remained relatively quiet until March of this year. That is when public rumblings began that Starboard was unhappy with the direction of the company, a conflict that could have ultimately resulted in the ouster of founder and CEO Aaron Levie or the sale of Box.

The situation took an interesting turn when Box announced it was taking a $500 million investment from KKR, a move that Starboard took great exception to and made clear in a letter published at the beginning of May that it wanted significant changes to take place. As we wrote at the time:

While they couched the letter in mostly polite language, it’s quite clear Starboard is exasperated with Box. “While we appreciate the dialogue we have had with Box’s management team and Board of Directors (the “Board”) over the past two years, we have grown increasingly frustrated with continued poor results, questionable capital allocation decisions, and subpar shareholder returns,” Starboard wrote in its letter.

Less than a week later Starboard made a move for board seats and the battle was on for control. Box’s position was strengthened by two decent earnings reports prior to the vote; the company took the unusual move of delivering the results early in order to give the voters that information prior to the vote.

The company also made the unusual move of filing a document with the SEC that pushed back against Starboard’s slate of candidates. In the end, Box won the battle. Alan Pelz-Sharpe, founder and principal analyst at Deep Analysis, who has been watching the content management space where Box operates for years, sees this as a victory for Levie and Box.

“It was not a surprise to me that Box won the day. In my opinion, Starboard misread and underestimated the loyalty that Aaron Levie generates. The fact is that to most Box employees and investors, the company is a success story, and they also know that the customer base is pretty engaged and that there is plenty of room for future growth,” he said.

“For Box this vote of confidence will mean that they can (if they want) make some acquisitions and invest more in R&D moving forward, without constantly having an aggressive investor looking over their shoulder,” Pelz-Sharpe added.

It’s hard to know what happens next, but Starboard still maintains its shares for now, and it still has some clout in those numbers. Throughout its ownership tenure, Box has performed better, as the recent earnings results have shown, and the firm says that this remains the ultimate goal.

“As we have repeatedly stated, our only goal has been to help Box perform better and adopt best-in-class practices across operating performance, financial results, governance and compensation in order to create long-term value for the benefit of all stockholders. We will continue to monitor progress at Box, and we hope to see the company embrace the changes catalyzed by our involvement and create long-term value,” Starboard’s Feld wrote.

Box has been in an ongoing dispute with activist investors Starboard Value over control of the board, an argument that is expected to come to a head on September 9th at the annual shareholder meeting. In an effort to show shareholders that the numbers are continuing to improve under the current leadership, Box took the unusual move of releasing its earning report this morning, two weeks ahead of the expected August 25th report date.

Companies don’t normally report ahead of schedule, but perhaps Box sees the opportunity to do some lobbying, or conversely, to counter any negative lobbying that Starboard may be doing with its fellow investors ahead of the vote.

It’s also worth noting that in spite of the meeting being on September 9th, like a lot of voting these days, people will be sending in votes throughout this month, ahead of that day. Box wants to get its latest financial information out there sooner rather than later to catch those early voters before they cast their ballots.

Fortunately for Box and CEO Aaron Levie, the numbers look decent.

Earnings

It’s not hard to see why Box released its earnings early, as the numbers provide an argument for keeping the company’s current leadership in place.

In the three-month period ending July 31, 2021 — the second quarter of Box’s fiscal 2022 — the company generated $214 million in revenue, up 11% on a year-over-year basis. And, as Box is quick to point out, its second consecutive quarter of “accelerating revenue growth.” The company bested its own guidance of $211 to $212 million in revenue for the period.

It matters that Box is showing an ability to accelerate its revenue growth. First, because doing so puts wind in the sales of its stock; quickly growing companies are worth more per dollar of revenue than more slowly growing concerns, and accelerating revenue growth over time is investor catnip.

The accelerating pace of growth over the last half year also provides footing for Box’s leadership to argue that their product choices have been sound, directly supporting their positions that they should remain in charge of the company. If they made good product decisions quarters ago, and those choices are leading to accelerating revenue growth, why swap out the CEO?

Box had more quarterly good news apart from its revenue numbers to disclose. It also reported improved GAAP and non-GAAP operating margins — a key measure of profitability — better billings results than it had previously anticipated for the period. Box’s net retention rate also expanded to 106% from 103% in the sequentially preceding period.

And the company boosted its guidance for its fiscal year from “$845 million to $853 million” to “$856 million to $860 million.”

The counter arguments are somewhat easy to generate, however. Yes, Box’s revenue growth is accelerating, but from an admittedly reduced base; it’s not as hard to accelerate revenue expansion from low numbers as it is from higher base levels. And the company’s net retention is lower than what any business-focused SaaS company would want to report.

Will the good news be enough? Shares of Box are up around 1.5% in today’s regular trading, despite a somewhat mixed overall market. Investors now have to vote with more than just their dollars.

Boardroom context

Starboard bought approximately 7.5% of the company in 2019, and actually stayed fairly quiet for the first year, but at the end of 2020 it started making itself heard with rumors of pressure to sell the company. In what appeared to be a defensive move, Box took a $500 million investment from private equity firm KKR and gave the investor a board seat in April.

The activist investor did not take kindly to that move, writing in a letter to investors in early May, “The only viable explanation for this financing is a shameless and utterly transparent attempt to “buy the vote” and shows complete disregard for proper corporate governance and fiscal discipline.” In that same letter, Starboard made it official that it wanted to take over several board seats, outlining a litany of complaints it had about the way the company was being run. It also made clear that it wanted co-founder and CEO Aaron Levie gone or the company sold.

 

Box pushed back that the letter and another on May 10th did not accurately reflect the progress that the company had made. In July, Box took the battle public in an SEC filing detailing the back and forth dance that had been going between Box and Starboard since it bought its stake in the company

So far, the cloud content management company has staved off all attempts to force its hand and sell the company or fire Levie, but this is all going to culminate with the shareholder’s vote. It’s truly a battle for the soul of the company.

If Starboard convinces shareholders to give it several seats on the Box board, it would probably be able to push out Levie, take control of the company and likely sell it to the highest bidder. The early financial report released today, while not exactly stellar, shows a pattern of increasingly good quarters, and that’s what Box is hoping voters will focus on when they fill out their ballots.

Box released its new native e-signature product Box Sign on Monday, providing e-signature capability and unlimited signatures as part of Box’s business and enterprise plans at no additional cost.

The launch comes five months after the Redwood City, California-based company agreed to acquire e-signature startup SignRequest for $55 million.

Box CEO Aaron Levie told TechCrunch the company is already securing content management for 100,000 businesses, and Box Sign represents “a breakthrough product for the company” — a new category in which Box can help customers with business processes.

“We are building out a content cloud that powers the lifecycle of content so customers can retain and manage it,” Levie said. “Everyday, there are more transactions around onboarding a customer, closing a deal or an audit, but these are still done manually. We are moving that to digital and enabling the request of signatures around the content.”

Here’s how it works: Users can send documents for e-signature directly from Box to anyone, even those without a Box account. Places for signature requests and approvals can be created anywhere on the document. All of this integrates across popular apps like Salesforce and includes email reminders and deadline notifications. As with Box’s offerings, the signatures are also secure and compliant.

The global e-signature software market was estimated to be around $1.8 billion in 2020, according to Prescient & Strategic Intelligence, while IDC expects it to grow to $3.8 billion by 2023.

Levie considers the market still early as less than one-third of organizations use e-signature due to legacy tool limitations and cost barriers, revealing massive future opportunities. However, that may be changing: Box worked with banks during the pandemic that were still relying on mailing, scanning and faxing documents to help them adapt to digital processes. It also surveyed its customers last year around product capabilities, and the No. 1 “ask” was e-signature, he said.

He mentioned major players DocuSign and Adobe Sign — two products it will continue to integrate with — among the array of technology within the space. He said that Box is not trying to compete with any player, but saw a need from customers and wanted to proceed with an option for them.

The e-signature offering also follows the hiring of Diego Dugatkin in June as Box’s new chief product officer. Prior to joining, Dugatkin was vice president of product management for Adobe Document Cloud and led strategy and execution for Adobe’s suite of products, including Adobe Sign.

“Our strategy has been for many years to expand our portfolio and power more advanced use cases, as well as a vision to have one platform to manage everything,” Levie said. “Diego has two decades of tremendous domain experience, and he will make a massive dent in powering this for us.”

In addition to the e-signature product, Box also introduced its Enterprise Plus plan that includes all of the company’s major add-ons, as well as advanced e-signature capabilities that will be available later this summer, the company said.

 

The war between Box’s current leadership and activist shareholder Starboard took a new turn today with a detailed timeline outlining the two groups’ relationship, thanks to an SEC filing and companion press release. Box is pushing back against a slate of board candidates put forth by Starboard, which wants to shake up the company’s leadership and sell it.

The SEC filing details a lengthy series of phone calls, meetings and other communications between the technology company and Starboard, which has held a stake in Box greater than 5% since September of 2019. Since then shares of Box have risen by around $10 per share.

Today’s news is multi-faceted, but we’ve learned more concerning Starboard’s demands that Box sell itself; how strongly the investor wanted co-founder and CEO Aaron Levie to be fired; and that the company’s complaints about a KKR-led investment into Box that it used to repurchase its shares did not match its behavior, in that Starboard asked to participate in the transaction despite its public statements.

Activist investors, a bit like short-sellers, are either groups that you generally like or do not. In this case, however, we can learn quite a lot from the Box filing. Including the sheer amount of time and communication that it takes to manage such an investor from the perspective of one of its public-market investments.

What follows are key excerpts from Box’s SEC filing on the matter, starting with its early stake and early agreement with Starboard:

• On September 3, 2019, representatives of Starboard contacted Mr. Levie to inform Mr. Levie that Starboard would be filing a
• Schedule 13D with the SEC reporting a 7.5% ownership stake in the company.
• On March 9, 2020, Mr. O’Driscoll and Ms. Barsamian had a call with representatives of Starboard to discuss entering into a settlement agreement with Starboard.
• On March 22, 2020, the company and Starboard entered into an agreement[.]
  Also on March 23, 2020, Starboard reported beneficial ownership of 7.7% of the outstanding Class A common stock.

Then Box reported earnings, which Starboard appeared to praise:

• On May 27, 2020, the company reported its fiscal first quarter results, noting a 13% increase in year-over-year revenue, a 900 basis point increase in year-over-year GAAP operating margin and a $36.4 million increase in year-over-year cash flow from operations. Peter Feld, a representative of Starboard, and Mr. Levie had an email conversation related to the company’s first quarter results in which Mr. Feld stated “you guys are on a good path…congrats to the team and keep it up.”
• Also on May 29, 2020, Starboard reported that it had decreased its beneficial ownership to 6.0% of the outstanding Class A common stock.

The same pattern repeated during Box’s next earnings report:

• On August 27, 2020, Mr. Levie, Mr. Smith and company IR discussed the company’s earnings release with Starboard. Starboard indicated it was pleased with the rate of margin expansion and where the company was heading. In an email exchange between Mr. Feld and Mr. Levie related to the company’s results, Mr. Feld stated that he was “thrilled to see the company breaking out and performing better both on the top and bottom line. Appreciate you guys working with us and accepting the counsel. Not everyone behaves that way and it is greatly appreciated. Shows your comfort as a leader and a willingness to adapt. Very impressive.”

Then Box reported its next quarter’s results, which was followed by a change in message from Starboard (emphasis TechCrunch):

• On December 1, 2020, the company announced its fiscal third quarter results, noting an 11% increase in year-over-year revenue, an improvement of 2100 basis points in year-over-year GAAP operating margin and a $36 million increase in year-over-year cash flow from operations. The company also provided guidance regarding its fiscal fourth quarter results, noting that its revised revenue guidance was due to “lower professional services bookings than we noted previously, which creates a roughly $2 million headwind” and that the company was being “prudent in our growth expectations given the macroeconomic challenges that our customers are facing.” The revised guidance for revenue was 1.1% below analysts’ consensus estimates of $198.8 million.
• On December 2, 2020, Box’s common stock declined approximately 9% from its prior close of $18.54 to $16.91. On December 2, 2020 and December 4, 2020, Mr. Levie, Mr. Smith and Box IR discussed the company’s earnings release with representatives of Starboard. Despite the prior support Mr. Feld communicated to the company, Starboard reversed course and demanded that the company explore a sale of the entire company or fire the company’s CEO, or otherwise face a proxy contest from Starboard. Mr. Feld further stated that the company should not turn down an offer from a third party to buy the entire company “in the low twenties” and that Starboard would be a seller at such a price.

Recall that Box shares are now in the mid-$26s. At the time, however, Box shares lost value (emphasis: TechCrunch)

• On December 16, 2020, two weeks after earnings, the company’s stock price closed at $18.85, which was above where it was trading immediately prior to the announcement of the company’s fiscal third quarter results on December 1, 2020.
• On January 11, 2021, Starboard disclosed that it had increased its beneficial ownership to 7.9% of the outstanding Class A common stock.
• On January 15, 2021, Mr. Lazar and Ms. Barsamian had a call with representatives from Starboard. Mr. Feld expressed his view that, while the company’s Convertible Senior Notes were executed on favorable terms, he was not supportive of the transaction. He reiterated his demand that the company sell itself and indicated that if the company did not do so then it must replace its CEO or otherwise face a proxy contest from Starboard to replace the CEO.

Over the next few months, Box bought SignRequest, reported earnings, and engaged external parties to try to help it bolster shareholder value. Then the KKR deal came onto the table:

• On March 31, 2021, the Strategy Committee met to discuss the status of the strategic review. At such time, the Strategy Committee was in receipt of a proposal from KKR pursuant to which KKR and certain partners would make an investment in the form of convertible preferred stock at an initial yield of 3%, which had been negotiated down from KKR’s proposal of 7% yield in its preliminary indication of interest in early March.

The deal was unanimously approved by Box’s board, and announced on April 8th, 2021. Starboard was not stoked about the transaction, however:

• Later on April 8, 2021, Ms. Mayer and Mr. Lazar had a call with representatives of Starboard. Mr. Feld expressed Starboard’s strong displeasure with the results of the strategic review. During the conversation, Mr. Feld indicated that he would stop the fight immediately if Mr. Levie were replaced.
• On April 14, 2021, Ms. Mayer, Mr. Lazar and Ms. Barsamian had a call with Mr. Feld. Despite his prior statements, Mr. Feld now indicated that Starboard was not willing to sell its shares of Class A common stock at $21 or $22 per share. Mr. Feld requested that the company release KKR from its obligation to vote in favor of the company as a gesture of good faith. Mr. Feld reiterated Starboard’s desire to replace Mr. Levie as CEO and indicated that he would like to join the Board of Directors if the company did so. Ms. Mayer offered Mr. Feld the opportunity to execute a non-disclosure agreement to receive more information about the strategic review process, which Mr. Feld immediately declined.

Box was like, all right, but Feld doesn’t get to be on the board:

• On April 20, 2021, Ms. Mayer and Mr. Lazar had a call with representatives of Starboard. Mr. Feld stated that Starboard would not move forward with its planned director nominations if Starboard were offered the opportunity to participate in the KKR-Led Transaction and Mr. Feld were appointed to the Board of Directors. Mr. Feld reiterated that he was not willing to sign a non-disclosure agreement.
• On April 27, 2021, Mr. Park had a discussion with Mr. Feld. During this conversation, Mr. Feld reiterated his desire for Starboard to participate as an investor in the KKR-Led Transaction.
• On April 28, 2021, Ms. Mayer and Mr. Lazar informed Mr. Feld that the Board of Directors was amenable to allowing Starboard to participate in the KKR-Led Transaction but would not appoint Mr. Feld as a director. Mr. Feld indicated that there is no path to a settlement that doesn’t include appointing him to the Board of Directors.

And then Starboard initiated a proxy war.

What to make of all of this? That trying to shake up a company from the position of a minority stake is not impossible, with Starboard able to exercise influence on Box despite having a sub-10% ownership position. And that Box was not willing to put a person on the board that wanted to fire its CEO.

What’s slightly silly about all of this is that the fight is coming at a time when Box is doing better than it has in some time. Its profitability has improved greatly, and in its most recent quarter the company topped expectations and raised its forward financial guidance.

There were times in Box’s history when it may have deserved a whacking for poor performance, but now? It’s slightly weird. Also recall that Starboard has already made quite a lot of money on its Box stake, with the company’s value appreciating sharply since the investor bought in.

Most media coverage is surrounding the public criticism by Starboard of the KKR deal and its private demand to be let into the deal. That dynamic is easily explained: Starboard thought that the deal wouldn’t make it money, but later decided that it could. So it changed its tune; if you are expecting an investor to do anything but try to maximize returns, you are setting yourself up for disappointment.

A person close to the company told TechCrunch that the current situation should be a win-win for everyone involved, but Starboard is not seeing it that way. “If you’re a near term shareholder, [like Starboard] then the path Box has taken has already been better. And if you’re a long term shareholder, Box sees significantly more upside. […] So overwhelmingly, the company believes this is the best path for shareholders and it’s already been proven out to be that,” the person said.

Alan Pelz-Sharpe, founder and principal analyst at the Deep Analysis, who has been watching the content management space for many years, says the battle isn’t much of a surprise given that the two have been at odds pretty much from the start of the relationship.

“Like any activist investor Starboard is interested in a quick increase in shareholder values and a flip. Box is in it for the long run. Further, it seems that Starboard may have mistimed or miscalculated their moves, Box clearly was not as weak as they appeared to believe and Box has been doing well over the past year. Bringing in KKR was the start of a big fight back, and the proposed changes couldn’t make it any clearer that they are fed up with Starboard and ready to fight back hard,” Pelz-Sharpe said.

He added that publicly revealing details of the two companies’ interactions is a bit unusual, but he thinks it was appropriate here.

“Actually naming and shaming, detailing Starboard’s moves and seemingly contradictory statements, is unusual but it may be effective. Starboard won’t back down without a fight, but from an investor relations/PR perspective this looks bad for them and it may well be time to walk away. That being said, I wouldn’t bet on Starboard walking away, as Silicon Valley has a habit of moving forward when they should be walking back from increasingly damaging situations”

What comes next is a vote on Box’s board makeup, which should happen later this summer. Let’s see who wins.

It’s worth noting that we attempted to contact Starboard Value, but as of publication they had not gotten back to us. Box indicated that the press release and SEC filing speak for themselves.

 

 

Box executives have been dealing with activist investor Starboard Value over the last year, along with fighting through the pandemic like the rest of us. Today the company reported earnings for the first quarter of its fiscal 2022. Overall, it was a good quarter for the cloud content management company.

The firm reported revenue of $202.4 million up 10% compared to its year-ago result, numbers that beat Box projections of between $200 million to $201 million. Yahoo Finance reports the analyst consensus was $200.5 million, so the company also bested street expectations.

The company has faced strong headwinds the past year, in spite of a climate that has been generally favorable to cloud companies like Box. A report like this was badly needed by the company as it faces a board fight with Starboard over its direction and leadership.

Company co-founder and CEO Aaron Levie is hoping this report will mark the beginning of a positive trend. “I think you’ve got a better economic climate right now for IT investment. And then secondarily, I think the trends of hybrid work, and the sort of long term trends of digital transformation are very much supportive of our strategy,” he told TechCrunch in a post-earnings interview.

While Box acquired e-signature startup SignRequest in February, it won’t actually be incorporating that functionality into the platform until this summer. Levie said that what’s been driving the modest revenue growth is Box Shield, the company’s content security product and the platform tools, which enable customers to customize workflows and build applications on top of Box.

The company is also seeing success with large accounts. Levie says that he saw the number of customers spending more than $100,000 with it grow by nearly 50% compared to the year-ago quarter. One of Box’s growth strategies has been to expand the platform and then upsell additional platform services over time, and those numbers suggest that the effort is working.

While Levie was keeping his M&A cards close to the vest, he did say if the right opportunity came along to fuel additional growth through acquisition, he would definitely give strong consideration to further inorganic growth. “We’re going to continue to be very thoughtful on M&A. So we will only do M&A that we think is attractive in terms of price and the ability to accelerate our roadmap, or the ability to get into a part of a market that we’re not currently in,” Levie said.

A closer look at the financials

Box managed modest growth acceleration for the quarter, existing only if we consider the company’s results on a sequential basis. In simpler terms, Box’s newly reported 10% growth in the first quarter of its fiscal 2022 was better than the 8% growth it earned during the fourth quarter of its fiscal 2021, but worse than the 13% growth it managed in its year-ago Q1.

With Box, however, instead of judging it by normal rules, we’re hunting in its numbers each quarter for signs of promised acceleration. By that standard, Box met its own goals.

How did investors react? Shares of the company were mixed after-hours, including a sharp dip and recovery in the value of its equity. The street appears to be confused by the results, weighing the report and working out whether its moderately accelerating growth is sufficiently enticing to warrant holding onto its equity, or more perversely if its growth is not expansive enough to fend off external parties hunting for more dramatic changes at the firm.

Sticking to a high-level view of Box’s results, apart from its growth numbers Box has done a good job shaking fluff out of its operations. The company’s operating margins (GAAP and not) both improved, and cash generation also picked up.

Perhap most importantly, Box raised its guidance from “the range of $840 million to $848 million” to “$845 to $853 million.” Is that a lot? No. It’s +$5 million to both the lower and upper-bounds of its targets. But if you squint, the company’s Q4 to Q1 revenue acceleration, and upgraded guidance could be an early indicator of a return to form.

Levie admitted that 2020 was a tough year for Box. “Obviously, last year was a complicated year in terms of the macro environment, the pandemic, just lots of different variables to deal with…” he said. But the CEO continues to think that his organization is set up for future growth.

Will Box manage to perform well enough to keep activist shareholders content? Levie thinks if he can string together more quarters like this one, he can keep Starboard at bay. “I think when you look at the next three quarters, the ability to guide up on revenue, the ability to guide up on profitability. We think it’s a very very strong earnings report and we think it shows a lot of the momentum in the business that we have right now.”

Last week activist investor Starboard delivered a public letter rebuking Box for what it perceives as underperformance. Today the firm, which owns 8% of Box stock, making it the company’s largest stock holder, took it a step further with an official slate of four candidates it will be putting up at the next stockholder’s meeting.

While the company rehashed many of the same complaints as in last week’s letter, this week it explicitly stated its intent to run its own slate of candidates for the Box board. “Therefore, in accordance with the Company’s governance deadlines and in order to preserve our rights as stockholders, we have delivered a formal notice to Box nominating four highly qualified director candidates (the “Nominees”) for election to the Board at the Annual Meeting,” Starboard wrote in a public letter to Box.

Box responded in a press release that the Board as currently constituted categorically rejects this attempt by Starboard to take over additional seats.

“The Box Board of Directors does not believe the changes to the Board proposed by Starboard are warranted or in the best interests of all stockholders. The Box Board has been consistently responsive to feedback from all of its stockholders, including suggestions from Starboard, and open-minded toward all value enhancing opportunities. Furthermore, Starboard’s statements do not accurately depict the progress Box has made,” the Board wrote in a statement this morning.

Box further points out that the company overhauled the Board last year with three new board members specifically receiving Starboard approval.

What is driving Starboard to take this action? Like any good activist investor it wants a higher stock price and is seeking more growth from Box. Activist investors often come in and try to extract value by brute force when they perceive the company is underperforming. The end game, were they to be successful, could involve removing Levie as CEO or more likely selling the company and grabbing its profit on the way out.

Box asserted that “Starboard’s statements do not accurately depict the progress Box has made,” highlighting some of its recent financial performance, including “a $127 million increase in free cash flow in fiscal 2021.” The former private-market darling also argued that its fiscal 2021 “revenue growth rate plus free cash flow margin [came to more than] 26%,” which beat its own target of 25% and was “nearly double” what it managed in its fiscal 2020.

This is a good time for a “yes, but“: Yes, but Box’s ability to improve its profitability does not change the fact that its growth rate has been in steady decline for years. And while a company’s growth rate can cover nearly any sin, slowing growth that has already slipped into the single digits doesn’t cut Box much slack. (For reference, in its most recent quarter, the fourth of its fiscal 2021, Box grew just 8% on a year-over-year basis.)

It’s worth noting that the company did promise “accelerated growth and higher operating margins in the years ahead” in its most recent earnings call, but the company’s recent $500 million investment from KKR particularly irked Starboard, which asserts that it was akin to “buying the vote.”

“[Box] made several poor capital allocation decisions, including its recent entry into a financing transaction that we believe serves no business purpose and was done in the face of a potential election contest with Starboard at the 2021 Annual Meeting of Stockholders.”

Now it’s becoming a battle over more board seats. Box is putting up Levie, Verisign CFO Dana Evan and Peter Leav, CEO of McAfee and former CEO of BMC. Evan sits on the boards of Domo and Survey Monkey in addition to Box, while Leav previously served on the board of ProofPoint, which was acquired last month by Thoma Bravo for over $12 billion.

While Starboard’s nominees come with impressive resumes, it’s worth pointing out that they mostly lack direct experience working with an enterprise SaaS company like Box. The folks on the slate include Deborah S. Conrad, former executive at Intel; Peter A. Feld, Starboard’s head of research; John R. McCormack, former CEO of WebSense and Xavier D. Williams, a director of American Virtual Cloud Technologies, a public company on $170 million run rate. Box made $771 million last fiscal year.

The vote will take place at the Box stockholder’s meeting, which has traditionally been held in late June or early July. To this point, the company has not put out the exact date publicly.

Box announced this morning that private equity firm KKR is investing $500 million in the company, a move that could help the struggling cloud content management vendor get out from under pressure from activist investor Starboard Value.

The company plans to use the proceeds in what’s called a “Dutch auction” style sale to buy back shares from certain investors for the price determined by the auction, an activity that should take place after the company announces its next earnings report in May. This would presumably involve buying out Starboard, which took a 7.5% stake in the company in 2019.

Last month Reuters reported that Starboard could be looking to take over a majority of the board seats when the company board meets in June. That could have set them up to take some action, most likely forcing a sale.

While it’s not clear what will happen now, it seems likely that with this cash, they will be able to stave off action from Starboard, and with KKR in the picture be able to take a longer-term view. Box CEO Aaron Levie sees the move as a vote of confidence from KKR in Box’s approach.

“KKR is one of the world’s leading technology investors with a deep understanding of our market and a proven track record of partnering successfully with companies to create value and drive growth. With their support, we will be even better positioned to build on Box’s leadership in cloud content management as we continue to deliver value for our customers around the world,” Levie said in a statement.

Under the terms of the deal, John Park, head of Americas Technology Private Equity at KKR, will be joining the Box board of directors. The company also announced that independent board member Bethany Mayer will be appointed chairman of the board, effective on May 1st.

Earlier this year, the company bought e-signature startup SignRequest, which could help open up a new set of workflows for the company as it tries to expand its market. With KKR’s backing, it’s not unreasonable to expect that Box, which is cash flow positive, could be taking additional steps to expand the platform in the future.

Box stock was down more than 8% premarket, a signal that perhaps Wall Street isn’t thrilled with the announcement, but the cash influx should give Box some breathing room to reset and push forward.

Box could be facing troubled times if a Reuters story from last week is accurate. Activist investor Starboard Value took a 7.9% stake in the storage company in September 2019, and a year ago took three board seats as its involvement in the cloud company deepened. It seemed only a matter of time before another shoe dropped.

That thunk you just heard could be said shoe as Starboard is reportedly after three additional board seats. Those include current CEO Aaron Levie’s and two independent board members, all of whom have their seats coming up for election in June. If the firm were to obtain three additional seats, it would control six of nine votes and could have its way with Box.

What could the future hold for the company given this development (assuming it’s true)? It seems changes are coming for Box.

Below, we’ll explore how Box got to this point. And if an acquisition is in Box’s future, just who might be in the market for a cloud-native content management company built to scale in the enterprise? There would very likely be multiple suitors.

Box’s fickle financial fate

Starboard may have reason to be frustrated by Box’s performance. The cloud company’s stock price and market cap remain stubbornly low. Its share price is mired around $18 a share, not much higher than the price it went public at in 2015 when it was valued at $14 per share. Its market cap today is $3 billion, which is lacking in comparison to fellow cloud stalwarts like Dropbox at $9 billion, Slack at $23 billion or Okta at $34 billion.

Remember back in March 2014 when Box announced it was going public? It then did something highly unusual, delaying the deed 10 months until January 2015. One thing or another kept the company from pulling the trigger and just doing it. Perhaps it was a sign.

Instead, Box raised $150 million more after its S-1 filing received a lackluster response from the market. Looking back, you could argue that the SaaS model was simply less well known in 2014 than it is today. Certainly public investors are more sympathetic to software companies that run deficits in the name of growth than they were back then.

But when Box did file again, finally pricing at $14 per share in 2015, it received a strong welcome. The company had priced above its $11 to $13 per-share IPO range as TechCrunch reported at the time and instantly shot higher. We wrote on its IPO day that the cloud company quickly “surged to over $20 a share and [was then] trading at $23.67.”

A year later, our continuing coverage had flipped with the share price stuck at $10 in January 2016.

When growth won’t come

Box announced this morning that it has agreed to acquire e-signature startup SignRequest for $55 million. The acquisition gives the company a native signature component it has been lacking and opens up new workflows for the company.

Box CEO Aaron Levie says the company has seen increased demand from customers to digitize more of their workflows, and this acquisition is about giving them a signature component right inside Box that will be known as Box Sign moving forward. “With Box Sign, customers can have a seamless e-signature experience right where their content already lives,” Levie told me.

While Box has partnerships with other e-signature vendors, this gives it one to call its own, one that will be built into Box starting this summer. As we have learned during this pandemic, the more work we can do remotely, the safer it is. Even after the pandemic ends and we get back to more face-to-face interactions, being able to do things fully in the cloud and removing paper from the workflow will speed up everything.

“The massive push to remote work effectively instantly highlighted for every enterprise where their digital workflows were breaking down. And e-signature was a major part of that — too many industries still rely on paper-based processes,” he said.

Levie says that the signature component has been a key missing piece from the platform. “As for our platform, when you look at Snowflake, they’re the data cloud. Salesforce is the sales cloud. Adobe is the marketing cloud. We want to build the content cloud. Imagine one platform that can power the entire lifecycle of content. E-signature has been a major missing link for critical workflows,” he said.

He believes this will open up the platform for a number of scenarios, that while possible before, could not flow as easily between Box components. “Having SignRequest gets us more natively into mission-critical workflows like customer contracts, vendor onboarding, healthcare onboarding and supply chain collaboration,” Levie explained.

It’s worth noting that Dropbox acquired HelloSign for $230 million two years ago to provide it with a similar kind of functionality and workflow capability, but analyst Alan Pelz-Sharpe from Deep Analysis, a firm that follows the content management market, says this wasn’t really in reaction to that.

“I think what is interesting here is that Box is going to integrate SignRequest and bundle it as part of the standard service. That’s what really caught my eye as the challenge with e-sig is that it’s typically a separate product and so gets limited use. They bought it partly in response to Dropbox, but it was a hole that needed fixing regardless so would have done so anyway,” Pelz-Sharpe explained.

As for SignRequest, the company was founded in the Netherlands in 2014. Neither PitchBook nor Crunchbase has a record of it raising funds. The plan is for the company’s employees to join Box and help build the signature component that will become Box Sign. According to a message to customers on the company website, existing customers will have the opportunity over the next year to move to Box Sign, and get all of the other components of the Box platform.

Levie says the basic Box Sign function will be built into the platform at no additional charge, but there will be more advanced features coming that they could charge for. The deal is expected to close soon with the SignRequest team remaining in The Netherlands.

We are hearing that a COVID-19 vaccine could be on the way sooner than later, and that means we could be returning to normal life some time in 2021. That’s the good news. The perplexing news, however, is that each time some positive news emerges about a vaccine — and believe me I’m not complaining — Wall Street punishes stocks it thinks benefits from us being stuck at home. That would be companies like Zoom and Peloton.

While I’m not here to give investment advice, I’m confident that these companies are going to be fine even after we return to the office. While we surely pine for human contact, office brainstorming, going out to lunch with colleagues and just meeting and collaborating in the same space, it doesn’t mean we will simply return to life as it was before the pandemic and spend five days a week in the office.

One thing is clear in my discussions with startups born or growing up during the pandemic: They have learned to operate, hire and sell remotely, and many say they will continue to be remote-first when the pandemic is over. Established larger public companies like Dropbox, Facebook, Twitter, Shopify and others have announced they will continue to offer a remote-work option going forward. There are many other such examples.

It’s fair to say that we learned many lessons about working from home over this year, and we will carry them with us whenever we return to school and the office — and some percentage of us will continue to work from home at least some of the time, while a fair number of businesses could become remote-first.

Wall Street reactions

On November 9, news that the Pfizer vaccine was at least 90% effective threw the markets for a loop. The summer trade, in which investors moved capital from traditional, non-tech industries and pushed it into software shares, flipped; suddenly the stocks that had been riding a pandemic wave were losing ground while old-fashioned, even stodgy, companies shot higher.