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As Box Resets Post-Earnings And Dropbox Goes Public, Egnyte Details Its Low-Burn SaaS Path

As Dropbox looks to join its historical-competitor Box in the public markets, Egnyte, a company that competes with both storage companies, released a grip of its own financial results. The startup is an enterprise file storage company based in Mountain View that also works with what it calls “content governance.”

The trio of companies is incredibly interesting at the moment. Dropbox, the largest and most valuable, is working to go public with as little a valuation haircut as it can; Box is clawing back from its recent public market declines; and Egnyte wants to show that its lower-burn approach to SaaS is a winner as well.

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Underscoring that last point, in a comparative chart shared with Crunchbase News, Egnyte detailed its 2017 operating expenses in percent-of-revenue terms, contrasting its results with those of both Dropbox and Box, along with notes on profitability, free cash flow, and revenue targets.

But before we dive into the numbers and Egnyte’s contrasting metrics from Dropbox and Box, let’s remind ourselves of where the startup stood the last time it crossed our radar.

Preceding Results

In May of 2017, amidst a moderately robust enterprise IPO cycle (Yext, Alteryx, MuleSoft, among others), Egnyte disclosed that it had reached free cash flow status in the second half of 2016 and that it had started turning profit on a GAAP basis. GAAP, as a reminder, simply means “inclusive of all costs.”

That last metric caught our eye, so we wrote up the disclosure as it was, well, a surprise. Enterprise-facing SaaS companies, and especially firms under the umbrella in the EFSS (in case you go outside occasionally, here’s what that means), don’t tend to be profitable.

That fact, according to defenders of the cohort, is due to continued corporate investment in growth. The other half of the argument is that if the companies in question stopped investing in growth, they would make money.—which is mostly true, but not as all-absolving as SaaS boosters think.

The argument is a rough take on the balance between profitability and revenue expansion. Companies, and especially tech-focused startups, will often trade short-term profits for growth that will, in theory, fuel later, greater profits. So, on that spectrum, how quickly was Egnyte growing when it became profitable?

According yes to [CEO Vineet] Jain, Egnyte grew 38 percent in 2016 […] The company also grew 30 percent in the first quarter of 2017, compared to the year-ago period.

This leaves us with a good starting place to dive into Egnyte’s present, where we can begin to stack against its competitors.

Recent Expenses, Recent Growth

In addition to its 2017 cost profile, Egnyte provided Crunchbase News with a number of metrics regarding its growth. Let’s start there, and then peek at the company’s expenses.

First, the company grew “north of 30%” year-over-year in 2017, per its CEO, Vineet Jain. It also managed to maintain both near GAAP profitability along with free cash flow positivity. That growth pace is similar to Dropbox’s last-year revenue expansion (31 percent, but from a far-larger revenue base) and Box’s (27 percent, also from a larger revenue base).

At a scale similar to Egnyte’s current revenue pace, both Dropbox and Box were growing more quickly in percentage terms, but they were also unprofitable and consumed cash. That tradeoff is the reason that Egnyte has been an interesting company to watch over the years. It has taken a slightly different path towards growth.

So how does the above break down in terms of costs? After our recent blitz through Dropbox’s own numbers, here’s what Egnyte shared from its fiscal 2017:

  • S&M spend, F’2017: 42 percent of revenue.
  • R&D spend, F’2017: 24 percent of revenue.
  • G&A spend, F’2017: 11 percent of revenue.
  • Total operating costs, F’2017: 76 percent of revenue.

From the fact that Egnyte was very close to GAAP profitable over that time period, we can infer that its gross margins were around 75 percent or so.

In comparison, Box’s fiscal 2018 (roughly calendar 2017) saw it spend around 104 percent of its revenue on operating costs. Our third player, Dropbox, spent about 77 percent of its revenue over the same period on operating costs.

You can also work out the different business models at each firm by looking at their sales and marketing costs as a percent of revenue. Dropbox, with a strong self-serve model, spent a little over 28 percent of its revenue on selling its product. Box, with its enterprise focus, spent nearly 60 percent on the same metric. Egnyte, which has an annual contract value (commonly shortened to ACV) that is far closer to Box’s than Dropbox’s, put up a 42 percent result. It’s far higher than Dropbox, but less aggressive than Box’s own as a percent of top line.

The Magic Number

According to the firm, Egnyte expects to reach the $100 million run rate figure by Fall of 2019. If you work backwards from that figure, and presume, say, 30 percent growth, Egnyte did around $60 million in 2017 revenue.

Egnyte has talked about going public for some time, mostly because it seems to have been in decent financial shape for years. However, the firm has yet to grow to the revenue threshold that it has commonly cited as the critical mark: the $100 million yearly top line level.

This is when the company’s preceding choices will divide external parties. Is it better to raise less, grow less quickly, and make money along the way? Or is it better to raise more, grow more quickly, and lose money? The latter model has been in vogue the last half decade or more, with Box as the most famous example. (And to its credit, Box now generates cash and brought in a half-billion in revenue during its last fiscal year.)

Looking ahead, Egnyte’s profit-centered growth to $100 million seems possible. The firm claims dollar-based revenue retention of 113 percent in the fourth quarter of 2017, which compares with Box’s own 110 percent figure for its similar period. A year prior, Box was ahead at 115 percent to Egnyte’s 106 percent.

(Box, in its most recent earnings call, said that it could see an “acceleration of [its] expansion rate” in the future and that its rate had fallen due to it “signing larger deals initially with customers,” thus undercutting upsell.)

That 113 percent figure may help the company grow its recurring revenue while also keeping sales costs in check. We’ll check back with the firm in about a year’s time to see its latest scores, and then, perhaps, we can start its IPO countdown.

Update: Post corrected to reflect a math error. Also, Egnyte was near to GAAP profitability for all calendar 2017 after starting the year positive. The post has been corrected to reflect the correct profit line.

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