Braze, Inc.

I will be your conference operator today. At this time, I would like to welcome everyone to the BRAZE fiscal first quarter results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Thank you. I'd like to turn the call over to Chris. You may begin.

Thank you, operator. Good afternoon, and thank you for joining us today to review Braze's results for the fiscal first quarter 2023. Today's hold music was again composed, performed, and provided by Frankie Saxena, a solutions consultant in Braze's London office. Thank you, Frankie. I'm joined by our co-founder and chief executive officer, Bill Magnuson, and our chief financial officer, Isabel Winkles. We announced our results in a press release issued after the market closed today. Please refer to our investor website at investors.braze.com for more information and a supplemental presentation related to today's earnings announcement. During this call, we will make statements related to our business that are forward-looking under federal securities laws and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding our financial outlook for the second quarter of and full fiscal year ended January 31, 2023, our planned product and feature development, our planned social impact initiatives, our competitive landscape, our market opportunity, our anticipated customer behaviors and our anticipated investments, our growth plan, and our long-term financial targets. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations and reflect our views only as of today. We assume no obligation to update any such forward-looking statements. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to the risks identified in today's press release and our SEC filings, both available on the Investor section of our website. I'd also like to remind you that today's call will include certain non-GAAP financial measures used by management to evaluate our ongoing operations and to aid investors in further understanding the company's fiscal first quarter 2023 performance in addition to the impact these items have on the financial results. please refer to the reconciliations of our non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with U.S. GAAP included in our earnings release under the investor relations portion of our website. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with U.S. GAAP. And now, I'd like to turn the call over to Bill.

Thank you, Chris, and good afternoon, everyone. We are very pleased with our first quarter performance, which again demonstrated the power of the Braze customer engagement platform. We got off to a great start to the fiscal year, generating $77.5 million in revenue, up 62% year-over-year and 10% compared to the fourth quarter. Our dollar-based net retention was 127% overall and 133% for our customers spending at least $500,000 annually. We also generated free cash flow of nearly $16 million, driven in part by our strong bookings from Q4. We continue to expand across numerous growth vectors as our customers realize the positive business outcomes available through coordinated, personalized, cross-channel customer engagement enabled by the Braze customer engagement platform. Zooming out to our market, we believe the opportunity for customer engagement platforms has never been stronger as businesses increasingly prioritize customer-led growth. Customer-led growth is a strategic approach that leverages customer insights to qualify and quantify customer value, then operationalize and optimize the end-to-end customer experience. Braze is unique in the marketplace as our technology is designed to create an organization-wide culture shift to focus on the experience that is most relevant to each customer. Let me give you an example of how an industry-leading streaming music company uses Braze to achieve customer-led growth. I recently discovered the artist Bora Uzer at a live event and have been listening to his recorded music on a leading streaming platform. Picking up on my evolving music tastes, this company uses Braze to send me push notifications as he releases new music. And if I get busy and don't catch a song at release time, they use real-time listening data to remind me when tracks I missed start to trend. Further enhancing my experience and driving other engagement goals, they store my listener profiles home region to send me an email when artists related to Bora are playing in the New York City area, while also alerting me that Bora himself is scheduled to play at the Red Rocks Amphitheater in Colorado in October, even texting me moments before the show goes on sale so I don't miss the opportunity to buy tickets. Customer-led growth organizations recognize that the value is not just getting me to stream more music, but to provide a meaningful experience with the music I love to keep me renewing my subscription. As we interact with brands, each of us is continuously signaling our intent and revealing our preferences through our actions, generating first-party data along the way. Processing that amount of data and responding in real time at scale is challenging. As they look to conquer that challenge, businesses sometimes reduce their customer engagement data processing choice to a false dichotomy that limits their success. Either opting for a legacy marketing cloud with siloed data, batch processing limitations, and antiquated technology that's not fit for modern purpose, or buy a point solution that isn't multi-channel or built to scale with them. At Braze, we enable brands to take a customer-centric approach and rise above this false choice by combining the power of modern stream processing with the channel-agnostic orchestration engine to enable businesses of all sizes to harness and take action on a constant flow of first-party data to increase customer lifetime value. Braze is well-positioned to win the customer engagement platform market because we are purpose-built to enable our customers to start anywhere and go everywhere. Customers often start with Braze on one or a handful of channels to begin generating value immediately. Then, because of our customer-centric design and vertically integrated data flow, it is easy for them to fast follow into other channels while evolving to more sophisticated cross-channel campaigns. or a brand may start working with Braze for its business in one country and then expand in their local region before finally going global. Braze continues to service and grow a diverse customer base across multiple dimensions, and we were excited to once again see growth across many verticals this quarter, particularly financial services, gaming, and quick service restaurants, while also securing new business and large upsell opportunities with Little Spoon, Mercari, Paul Camper in Germany, and Pizza Hut in Australia, among many others. Digging a bit deeper, I'd like to highlight two recent renewals which demonstrate how businesses grow in sophistication with Braze over time, as market conditions and customer needs evolve. The first is a Japanese e-commerce company that renewed for its sixth year with Braze in April. Known for its Marketplace app, the brand, along with its Braze customer success team, identified an opportunity to improve retention rates for shoppers who are multi-platform and use their browsers to buy. With rising inflation and economic uncertainty creating headwinds for e-commerce, improving conversion rates for acquisition efforts, and lifting customer value throughout their lifetimes has taken on greater importance. That's why the company added new brace features to their website, so their marketing team can personalize web-based experiences in coordination with mobile, all while adapting dynamically to user preferences. The other is an American fitness equipment and media company, which has been a Braze customer for five years. The company initially deployed Braze in 2017 for mobile messaging only. Their mission of bringing the community and excitement of boutique fitness into the home resonated with consumers, and the pandemic greatly accelerated their membership growth. As they grew over the last several years, Braze has rapidly scaled with them. Now, with the pandemic winding down, people are rethinking the opportunity to return to in-person fitness. The company recognizes the importance of strengthening customer engagement at this critical moment, and not only renewed with us, but added email, SMS, web messaging, and content cards to their existing mobile messaging capabilities with Braze, so they can create more cohesive customer experiences that power customer-led growth. In our view, this shows that customer engagement remains an imperative for today's businesses, and sometimes it is even precisely because the macro environment is harder that first party audience engagement becomes a higher priority. We believe the reason we see businesses grow in sophistication with Braze is because of our four key differentiators, vertical integration, stream processing, Canvas, which is our flagship orchestration tool, and our community. Vertical integration empowers businesses to maximize their data's value with Braze. We designed our platform to enable companies to drive growth by listening to customers, understanding them deeply, and acting appropriately in real time. The goal is simple. Create a unified, easy-to-use platform to collect data, gather meaning from it, and take action, all in a way that is not only accessible to business users getting started, but also provides them the agility to experiment and evolve programs over time. This constant flow of data through a live user profile forms the foundation for real-time interactions that enable customer led growth organizations to reduce churn and increase customer lifetime value. We believe what sets Braze apart from other solutions is the depth and performance delivered to our customers. And we take pride that we sent approximately one and a half trillion messages and processed over nine trillion consumer generated data points in fiscal 2022 for our customers with effectively no downtime. We continue to innovate across our vertically integrated stack to maximize performance and enable our customers to launch campaigns without limits. In order to execute on our product roadmap and support our customers, we have kept our talent engine running, growing our team by over 120 headcount in the quarter, bringing our total employee base to over 1,280 at quarter end. And we know that developers are essential to driving exceptional customer engagement outcomes. With that in mind, we recently launched next generation SDKs for web, iOS, and Android, making significant upgrades. Our Web SDK now automatically removes unused code with a technique called tree shaking, decreasing our footprint and improving performance. Our next generation iOS SDK has been upgraded fully to Swift, a modern developer-friendly language, allowing access to all of the latest brace features in a current tooling environment. And for Android, we migrated from Java to Kotlin, another evolved language option, while also building support for Android 13, which is expected to be released later this year. Modernizing these SDKs is critical to staying in stride with the rapidly evolving customer engagement landscape. And we look forward to continuing to roll out innovative solutions for developers in the coming months and years. We continue to focus on deepening our integration with delivery channels as well, because in today's digital first world, brands need to connect with customers on any channel and on any device. This quarter, we upgraded support for our Roku SDK by adding in-app messages on Roku devices, allowing customers to easily reach relevant viewers as they browse, make content recommendations that enhance subscriber stickiness, and deliver promotions, which improves the bottom line. This demonstrates our commitment to ensuring we are delivering both depth and breadth across every channel so businesses can easily reach their customers wherever they are. Our second key differentiator and a crucial component in our data architecture is stream processing. With stream processing, data flows immediately into the highly differentiated and customer-centric portion of our tech stack. the classification, orchestration, and personalization layers, enabling our customers to create more relevant and responsive campaigns, such as preference-based reminders or limited-time promotions, while also enabling them to rely on Braze for mission-critical product use cases that are delivered by messaging. By contrast, legacy marketing clouds use batch processing, which even if done frequently or in small batches, still silos data and introduces both latency and complexity, while limiting customers to processing information on a time or volume-based schedule. We believe it would be very challenging for competitors to pivot towards stream processing, because to do so would require them to completely rethink and rework their architecture. Braze was built from the ground up as a vertically integrated stream processor, its core to our architectural DNA. Our flexible data model allows businesses to seamlessly connect data, structured or unstructured, from a wide variety of sources. We easily ingest data from virtually anywhere with minimal configuration thanks to our robust APIs, SDKs, and integrations built through Braze Alloys, our technology partner program. Braze closes the engagement feedback loop by capturing data during each customer interaction, while also providing real-time analytics and in-depth reporting to understand performance, draw on actionable insights, and sharpen campaigns across all channels and platforms. This data can then be seamlessly transported back into a data warehouse or CDP with Braze Currents, further informing future customer engagement. Many businesses rely on stream processing to provide customers with up-to-the-second updates, which can have a meaningful impact on customers' lives. We recently saw a great example within the brace community. One of our employees recently went on parental leave to tend to his four-month-old daughter, who has a severe allergy. His child requires a special formula, which has been in short supply across the U.S., creating major challenges for many parents. Thankfully, a consumer goods and food delivery company that leverages real-time communication with Braze sent him an immediate alert at 1026 a.m. that the formula they use had just been restocked. He ordered shortly thereafter and was able to receive delivery of the formula less than an hour later. Real-time inventory alerts like these easily scale and braze across massive product catalogs, even with the difficult combination of matching up global consumers to constantly changing local inventory. Batch processing technology is simply not built for our always-on future. Our third key differentiator is Canvas, our proprietary no-code visual development environment that empowers marketers to easily build, operate, and understand the real-time results of personalized multi-channel campaigns. With Canvas, brand marketers can bring their data to life, creating multi-step, cross-channel customer journeys with limited technical training. We want to empower marketing experts to quickly build effective campaigns that would otherwise require the expensive time of software engineering teams and the long delays associated with heavyweight software releases. Canvas fulfills this promise, helping brands deliver the cohesive, responsive, and personalized experiences that consumers have come to expect at any moment. which leads me to the final Braze differentiator, our community of employees, partners, and customers. We firmly believe that businesses don't just buy technology, they buy solutions. That's why we've invested in our Braze Allies program, which includes both technology and solutions partners, such as Global Systems Integrators, who are actively building Braze expertise and providing us with new client opportunities. We have expanded Braze Alloys overall, adding more than 30 new partners in the last year and nine in Q1, including companies like Microsoft and Heap. In the case of Microsoft, this new connection will enable brands to easily ingest data and insights into Braze via our APIs, allowing shared Braze and Microsoft Dynamics 365 customers to seamlessly act on data in real time to orchestrate customer journeys. We are also investing in our customer success, professional services, support, and education teams to help businesses of all sizes navigate the wave of workplace disruption post-pandemic and shift to customer-led growth marketing. Just last month, we announced Brace for Success, a series of new offerings and enhancements to provide customers with end-to-end support, allowing for more flexible onboarding, robust creative services, enhanced customer education, and new channels for customer support. We have an excellent track record of delivering for our customers, as evidenced by Braze winning the prestigious North Face Scoreboard Award three years in a row and the 2021 Customer Success Team of the Year by the Customer Success Collective. And I would be remiss to talk about people and not talk about Braze Bonfire, our customer community launched right before the pandemic. We have grown Bonfire to over 6,000 members globally across nearly 2,000 brands, which leads me to an exciting announcement to make on this call. We will be hosting our annual customer conference, Forge, in person, both here in New York City in early October and in London in early November. We look forward to bringing our entire community together for what promises to be a week of deep learning and connection. Before turning it over to Isabel, I want to update you on our social impact and ESG initiatives as we continue to make progress against our goals. In our Tech for Black Founders program, we've added nine companies in our 2022 cohort, including FemConnect, which responds to women experiencing health issues in Sub-Saharan Africa, and Kinkofa, which is on a mission to help people uncover their family histories with DNA insights. Our total number of Tech for Black Founders companies now stands at 23. In connection with our 1% pledge, we transferred our first tranche of brazed Class A common stock to TIDES, our donor-advised fund, to support our social impact, environmental, and governance initiatives. In addition, we are working on our first materiality assessment and greenhouse gas emissions audit. We look forward to providing you with an update on both of these initiatives through our inaugural ESG report, which we plan to publish this fall. I'll wrap my remarks with a few comments on the state of the macroenvironment generally. While the world is confronting increased macroeconomic volatility and geopolitical uncertainty, we remain confident in our outlook. We had a great quarter and feel very good about our fiscal 2023 outlook. Our commitment to helping our customers build strong and lasting customer relationships through great customer engagement becomes even more relevant in a challenging environment. And we believe that our customers will continue to prioritize our services even in times of uncertainty. We also believe that the necessity of customer engagement, coupled with our rapid time to value, makes Braze more resilient during a potential slowdown. We are confident that customer engagement represents a massive market opportunity that remains under-penetrated, and we will continue to lean into our growth potential while accepting the responsibility to deliver against that potential through relentless execution, creative innovation, and winning strategy. Thank you to all of our customers, team members, and shareholders, and I look forward to updating you on our progress again in the coming months.