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.

Thank you, Bill, and thank you everyone for joining us today. We reported a strong first quarter, and as Bill noted, first quarter revenue rose 62% year over year to $77.5 million. This was driven by a combination of new business sales, expansion of existing customer contracts, and renewals. Our subscription revenue remains the primary component of our total top line, contributing 94% of our first quarter revenue. The remaining 6% represents a combination of one-time configuration and onboarding fees, as well as other professional services that are subject to similar annual contract terms as our subscription-based revenues. Customer momentum during the first quarter was strong, with total customer count increasing 50% year over year to 1,503 customers as of April 30th, up over 500 customers from the same period last year. Our total number of large customers, which we define as those spending at least $500,000 annually, grew 65% year over year to 129, and as of April 30th, contributed 54% to our total ARR. This compares to a 51% contribution as of the same time last year. Turning to dollar-based net retention. As a reminder, our dollar-based net retention represents a 12-month trailing statistic, and sources of upsell dollars include increases to pre-committed volumes of monthly active users and messaging entitlements, signing new business units as we continue to further penetrate our existing customer base through both geographic and brand expansion, and the addition of add-on features and recurring professional services. Our renewal rate combined with our strong upsells drove the year-over-year increase to our total dollar-based net retention rate as we continue to execute on our effective land and expand motion. For the total company, dollar-based net retention was 127%, up 260 basis points compared to the prior year, and down 80 basis points sequentially compared to the fourth quarter. Dollar-based net retention for our large customers, those spending at least $500,000 annually, was 133%, down 130 basis points compared to the first quarter of last year, and down 300 basis points compared to the fourth quarter. Expansion was strong across industries and geographic regions, with revenue outside the U.S. contributing 41% of our total revenue in the first quarter, up from 40% in the prior quarter. Moving to our remaining performance obligation. In the first quarter, our total remaining performance obligation rose 57% year-over-year and 5% sequentially to $391 million. Current RPO rose 56% year-over-year and 7% sequentially to $255 million. These increases were driven by strong business momentum, including new contracts, contract renewals, and term extensions. Our overall dollar-weighted contract length continues to be approximately two years. Now I'd like to review the income statement in more detail. As a reminder, some of the metrics I will discuss are non-GAAP. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release and accompanying earnings presentation. Non-GAAP gross profit in the quarter was $52.5 million, representing a non-GAAP gross margin of 67.8%. This compares to a non-GAAP gross profit of $32.3 million and non-GAAP gross margin of 67.4% in the first quarter of last year and 67.2% in Q4. Gross margin percent improved 40 basis points year-over-year due to continued economies of scale in our core technology expenses and ongoing efficiencies in core personnel costs. Turning to operating expenses, non-GAAP sales and marketing expense was $40.2 million or 52% of revenue compared to $22 million or 46% of revenue in the prior year quarter. This reflects our continued investments in headcount to support our strong growth and global expansion. Non-GAAP R&D expense was $15.3 million, or 20% of revenue, compared to $9.2 million, or 19% of revenue, in the prior year quarter. The dollar increase was primarily driven by headcount to support the expansion of our existing offering as well as to develop new products and features to drive growth. Non-GAAP G&A expense was $15 million, or 19% of revenue, compared to $7.1 million, or 15% of revenue in the prior year quarter. The dollar increase was driven by investments to support our overall company growth and public company expenses. Non-GAAP net loss attributable to Braze shareholders in the quarter was $17.7 million, or a loss of 19 cents per share, based on 93.2 million weighted average basic shares outstanding during the period. This compares to a loss of $5.9 million, or a loss of 30 cents per share, based on 19.7 million weighted average basic shares outstanding during the prior year quarter. Now turning to the balance sheet and cash flow statement. We ended the quarter with $534.1 million in cash, cash equivalents, restricted cash, and marketable securities. We believe Braze is currently a fully funded business. And consistent with comments made since our IPO roadshow and during our last two earnings calls, we continue to execute on our growth plan through FY23. Cash generated from operations in the quarter was $17.9 million compared to a use of approximately $3.8 million in the year-ago quarter, with the change driven by strong cash collections from customers as evidenced by $22 million decrease in accounts receivable and $13 million increase in deferred revenue. Taking into consideration the cash impact of capitalized costs, we generated a record $15.7 million of free cash flow in the quarter. As we have indicated in previous quarters, we expect our free cash flow to fluctuate from quarter to quarter given the timing of customer and vendor payments. Before I turn to our forecast, I would like to take a few moments to frame our plan for capitalizing on our long-term opportunity while navigating a more uncertain macro environment. We remain excited about our potential for revenue growth given the strong demand for our solution and the significant market opportunity ahead of us, and we are confident that our investments have the ability to drive strong returns. And while this is an investment year, we remain focused on driving efficiencies across the organization and managing discretionary spend with an eye towards long-term profitability. Our second quarter revenue guidance includes appropriate risk adjustments for new business and renewals we have yet to close this quarter. For the second quarter, we expect revenue to be in the range of $80.5 to $81.5 million, which represents a year-over-year growth rate of approximately 45% at the midpoint. Second quarter non-GAAP operating loss is expected to be in the range of $19.5 million to $20.5 million. Second quarter non-GAAP net loss is expected to be $18.5 million to $19.5 million, with second quarter non-GAAP net loss per share in the range of $0.19 to $0.20 per share based on approximately 95.4 million weighted average basic shares outstanding during the period. For the full fiscal year 2023, we are raising our revenue guidance. Revenues are now expected to be in the range of $345 million to $349 million, which represents a growth rate of approximately 46% year over year at the midpoint. Fiscal year 2023 non-GAAP operating loss is expected to be in the range of a loss of $77 million to $81 million. Non-GAAP net loss for the same period is expected to be in the range of a loss of $74.5 to $78.5 million. Fiscal year 2023 non-GAAP net loss per share is expected to be a loss in the range of 78 to 82 cents per share, based on a full-year weighted average share count of approximately 95.8 million shares. In summary, we are off to a great start in fiscal 2023, as evidenced by our strong execution in the quarter. New and existing customers continue to realize the value of our technology, and we remain focused and committed to delivering revenue growth at scale. And with that, we'll now open the call for questions.

Operator, please.

Hello, this is Macy, your operator. We will now begin the Q&A session. Our first question comes from Ryan McWilliams with Barclays. Ryan, please unmute and ask your question.

I have a question. Bill, Braze has done a lot to accelerate time to ROI and implementation speed over the last few years. So as we potentially enter into a more difficult macro, how are new customers thinking through the cost and implementation process required to move to Braze at this point?

Thanks for the question, and thank you to everybody that's going to come up as well. We're really excited to talk about these results and also give you a better glimpse into the environment that we're operating in. So I think that's a particularly notable way to start to analyze what we're seeing in sales cycles, what we're seeing in response to customer implementations, customer priorities. I think that one of the great things that you have as a Graze customer is that once we get you up and running quickly, and as you're correct, that we've been very focused on time to value over the last few years, We get you up and running in a fashion that is customer centric so you know you're obviously going to start on one or a few channels. you're going to start on one or a handful of platforms, depending on where you either have your current priorities or where your user base is focused. But in implementing braids what we always make sure happens is that you're integrated at the platform level and then the data flow is vertically integrated all the way through to the channel. with our orchestration layer, which of course is customer centric sitting in the middle. And from a priority perspective, what we're seeing customers do is that obviously they want to be able to kind of defend the customer basis that they have. We're seeing an increased focus on getting higher ROI out of your acquisition investment, which means that people are trying to improve their retention rates or trying to improve the pace and the kind of, you know, the turning a funnel into a pipe, if you will, so that they're not acquiring and having large drop-offs at each stage as customers kind of develop habits and become more committed customers over time. But those are generally always on priorities with race customers. So what we're seeing overall, I think, you know, amongst their marketing and their business priorities are going to be a focus toward those things that are ultimately higher ROI, focused on first-party audiences, going through things that are going to maximize retention, maximize lifetime value, improve the ROI of their acquisition spend. But we're not seeing necessarily a shift in those priorities with people that are Brace customers. But what we do see in environments like this is a focus from what was traditionally advertising-focused acquisition spend toward caring a lot more about retention, activation, and really making sure that those acquisition investments that they've made either ongoing right now or in the past are maximally effective for them and have the maximum ROI.

Appreciate the color. And then Isabel, just as investors think about the puts and takes of Braze's net retention, how should we think about how MAU growth within Braze's customers has supported Braze's net retention historically? And has any changes to the monthly active users within your customer base impacted your view going forward?

Yeah, so the monthly active user continues to be the single largest component of our top line, and we've been talking about that since actually before the IPO when we were talking to you guys in education sessions. The other components, CPM-based messaging, those are less than the MAU but also growing fairly quickly. So the MAU will continue to be kind of a large component and will also drive, you know, additions to our dollar-based net retention. I think the other components will mix in as well. You know, SMS, for example, is one of the smaller CPM messaging components for us. And obviously, because of the smaller size, you get higher growth rates based on just starting off a smaller base. So I think the MAU will continue to add and continue to grow, but we're seeing strong additions from other components as well that are seeing strong growth.

Thanks, guys.

Our next question comes from DJ Hines at Canaccord. DJ, please unmute and ask your question.

Hey, thanks, guys. Bill, I'm not sure this is a fair question. I'm going to ask it anyways. Is there a way to parse out have marketing use cases for Braze versus more customer engagement use cases. And the reason I ask, look, I think some investors look at marketing spend as more of a discretionary category, whereas engaging with their existing customers may be more resilient. Just would love to get some color on kind of where you think you fall in that spectrum.

Yeah, thanks, EJ. I appreciate you bringing up that kind of investor sentiment where they think about marketing use cases and how they respond to economic headwinds and how customer engagement more broadly and a lot of also just transactional messaging use cases or things that are closer to infrastructure or product are obviously going to be more sticky. Now, going back to my answer to Ryan's question, though, about how we think about integration, how people get started with Braze and how they grow with them over time. I think it's really important to center your thinking, not necessarily in how those things are split, but rather in how they get implemented. Because the key thing is that whether someone starts with either marketing use cases or customer engagement use cases with Braze, the way that they actually are going to integrate Braze and get up and running is going to be the same. Because they're going to integrate us into their end user interfaces, into their apps or their websites or into their data warehouses. they're then going to flow all the data that's generated through those to generate those signals in order to inform targeting or orchestration or personalization. And then we're going to deliver those messages. And certainly, message volumes are going to be correlated with the number and the type of use case that you have. But in general, the integration actually is going to enable you to start in either of those places or any sliver of either of those places and then move more broadly into them over time. And so when we've got customers that are running, the vast majority of our customers are running both of these things. And they're running actually a whole bunch of examples of marketing, promotional, onboarding, activation, retention, as well as just much more utilitarian product type use cases. They're all running through the same data flow. They're all addressing the same monthly active user base. So going back to Isabel's response, she just gave you in terms of thinking about how, you know, our revenue is structured. And then certainly the CPM sit on top of that. But even within those use cases, a lot of the marketing that we're talking about is, you know, I always go back to this, the high ROI portion of it. This is where you're marketing to your existing customer base, right? You're simulating demand from relationships that you already have, that you've already paid for. You've already earned the right to communicate with them on a channel that you control. And so what we generally see is that, you know, those are the use cases that even though they are marketing by their nature, they are always on because they are so valuable and the ROI function of them versus the marginal cost just makes so much sense. So even if you're trying to think about like, oh, is there some portion of Braze's use cases that will act more like advertising in the sense that, you know, someone might not be willing to pay to stimulate the marginal because of whatever in the spending environment, or maybe they don't have the marginal supply due to supply chain issues, things like that. We don't see that type of behavior within our customer base because the types of marketing use cases that we run are much more about lifecycle. They're about building that long-term value. And even to the extent that they're promotional, the marginal cost is just the message volume. It's not the same kind of ROI function as you see in the advertising world.

Yeah, super helpful, Collar. I appreciate that. Thank you. Isabel, maybe a quick call for you. Just look, we heard your comments around kind of continue to press forward with the investment agenda this year. I mean, I think investors have made it pretty clear they're kind of more interested in balanced growth and profits in a risk-off environment. Obviously, I understand kind of you can't sacrifice what's best for the business to appease the capital markets, but just want to, any update on kind of how you're thinking about things going forward? I mean, have you raised the return threshold for your investment agenda? Like, how are you thinking about kind of balancing, threading that needle, if you will, with what is still a fairly high loss business?

Yeah, absolutely. Thanks for the question. So look, I think we have consistently sort of over the last several years had a very, very disciplined approach to capital deployment and cash deployment. And that continues. And so, you know, we are very diligent right now about how we are having folks travel around the world. And we are very, very clear that we want to continue to bring our our headcount plans into focus and deploy our headcount as we have expected to do so. And that's where it's important for us to be deploying capital right now is to continue our growth strategy across the world. And so we've always maintained discipline when it came to our expense strategy, and we're going to continue to do that so that we can continue to deploy it in the most efficient and effective way possible. So there's no pullback on anything. We're continuing to execute on our plan. You're seeing us raise top line guidance. You're also seeing us improve our burn outlook for the year. So that's very consistent with what we're trying to do here. And we are going to continue to capitalize on the growth opportunity that's ahead of us and do what we said we were going to do.

And I just want to also kind of restress our track record from that perspective. So if you look at the time of IPO late last year, at that point, we had only burned about $95 million in cash in our entire company's history, which at that point had been more than a decade. And we had a car run rate at that point of over a quarter billion. So that ratio of greater than two and a half to one is relatively rare, even among startups. And I think it's important to keep in mind that we achieved those efficiency metrics at a time when the market wasn't really valuing it or rewarding it. We did it because it's an important part of our culture in terms of how we think about having value orientation in building for efficiency and building for the long term. We have been anticipating that the market's appetite with respect to profitability and growth at all costs would shift back to the state that it's in today for years. We're well prepared for it culturally, and we're actually excited that the market is starting to place more scrutiny on the way that people make investment decisions like this, because to a large extent for a company with a culture and a value set like ours around spend efficiency, it levels the playing field.

Very helpful, guys, and congrats on the next quarter. Thank you.

Our next question comes from Gabriela Borges from Goldman.

Good afternoon. Thanks for taking the question and congrats on the quarter. Bill or Isabel, I was hoping you could comment a little bit on the pipeline and any nuance on what you're seeing between mid-market enterprise, US versus rest of world, or from an end market standpoint. Thank you.

Yeah, so overall, I think our continued outlook continues to be strong, and we're really excited about the rest of the year. Pipeline geographically remains diverse. It remains diverse across industries. And so what we've seen over the last several quarters is continued strength in kind of our top five verticals, continued growth. growth in some of the smaller verticals. And we're kind of continuing to see that evolution. Geographically, you know, we've had some folks travel over to Europe and get some face-to-face time with customers over there. Some of our leadership has gone over there and they came back really, really enthusiastic. So look, we're mindful of the risks and how things are going economically around the world. The war in Eastern Europe is certainly not over we have our eye on all of this, but the sentiment that we are seeing from our existing customers and then potential new customers continues to be strong and enthusiastic.

Great, and the follow-up is on unit economics and your commentary just now on focusing on LTV to CAC and unit economics for the business. What we're noticing is that even with the acceleration in sales and marketing spending over the last year, your LTV to CAC by our calculations is holding pretty steady. So Isabel, maybe you can comment a little bit on the productivity that you're seeing in the sales force. Any nuance between folks that have been with Braze longer versus folks that are ramping?

Yeah, yeah, absolutely. So I think some of that speaks to a lot of this sort of automation and, and, and, you know, things that we've put into place to kind of accelerate the go to market strategy, particularly for SMB area, we've done a lot of investments in that area. To really just make things more efficient, more effective and get more leverage out of existing tools. And the beauty of that is as we develop those really for the SMB, we can actually use them across other parts of the business. And so SMB is a great place to develop this and test it and hone it. and refine it. And then when it's ready and it can be scaled up for mid-market or enterprise customers, we can do that. And so I think some of what you're seeing is some of that efficiency at play. And again, really the strong discipline as it relates to capital deployment.

Sounds good.

Thanks for the call.

Yep. Thank you.

The next question comes from Brent Graceland from Piper Sandler. Brent, you may unmute yourself.

Thank you and good afternoon. Bill, I wanted to kind of go back to this current environment where we're fielding lots of questions, lots of unknowns out there. How durable are these direct-to-consumer tail ends and this investment wave into first-party stacks? You have a lot of large B2C brands, but what are those B2C brands telling you at this point? Are they leaning more in? Are they pausing some investments on the consumer engagement side? Just trying to think through how some of these B2C brands respond and how durable those DDC and first party data investment tailwinds are in the current environment. Thanks.

Yeah, so I think you're seeing the same things happening as you do anytime that there's kind of headwinds that show up, which is that there generally ends up being, there's gonna be trends for consolidation, flight to quality, et cetera. And what we're seeing amongst D2C brands that we work with, and I'll provide this with the reminder that Braze's revenue base is extremely diversified. So while certainly retail and e-commerce is an important, one of our top five verticals, it's right up there with the other four in terms of its percentage contribution to our business. And even within that, D2C brands in general are a subset of that. And within that even, many of the D2C brands that we work with are those that have a longer term outlook and are attempting to build a more enduring customer relationship through a multi-product portfolio. So I think that when you look at a lot of the kind of DTC growth over the last few years, a lot of it was focused on, you know, a small number of products in a small product portfolio. Many of them were working on the kind of CAC LTV arbitrage that Facebook was affording them in terms of being able to run really good retargeting through platforms like Instagram and other places. And what you have been seeing there and a lot of the headwind being caused by IDFA is they've lost the kind of transparency into those cycles. The marginal dollar is not going to Facebook. We see that in their earnings. And that kind of affects a lot of that acquisition. But it's really important to note that Braze in general, the use cases that we work with and the types of brands that we work with are not those that are kind of solely reliant on growth through those tasks. We're working with these brands that have more kind of enduring value. In many cases, they've been around longer, they have a more multi-product portfolio. And in many cases, they're also looking to nurture those relationships over time, even if the customer is maybe not making a purchase today. And so we're certainly seeing amongst that subset of our customer base a lot of the things that you're probably hearing about in other places. But it, again, is really important to translate those observations back into the use cases that we run and the kind of aspects and then the selection bias that already exists with those types of business that we work with within those categories.

Super helpful. Then quick follow-up for Isabel here. Extremely surprised to see 20% free cash flow margins in the quarter. How much operating flexibility do you have in this model as you think about the changing macro? You talked about improving the burnout for the year, but how much operating flexibility do you have to respond quickly if things do turn a little bit worse than what you're expecting at this point?

Yeah, so I'm certainly not expecting to have to turn on a dime and do anything. As I'll reiterate, we're executing on our plan. I would make the comment about the free cash flow that we obviously don't guide on free cash flow. I always tell people to look at free cash flow at a four-quarter trailing. You obviously saw a big cash outflow from a free cash flow perspective in Q4. Some of that is a little bit of a snapback from that. So we're very comfortable with where we are landing on a four-quarter trailing statistic. And I think should we need to make changes, we have all of the data and infrastructure and sort of communication channels in place and ready to go should we need to do that. But we have no expectation at this point that we would have to do that anytime soon.

Great to hear. Thank you so much.

Our next question comes from Brian Peterson with Raymond James.

Thanks for taking the question. So just one for me. So it's interesting to see the user conference. I know it's going to be in person both in North America and in London. I'm curious, you know, what is that historically driven in terms of that new business or expansion with existing customers? And should we think about that as a catalyst as we head into next year?

Yeah, so thanks for the great question. We're super excited to be back in person as well. We also, you know, increasingly are leaning into bringing our event production and our community growth efforts, you know, closer to where our customers are. So we're excited to do this on both sides of the Atlantic this year, and we'll have a number of regional activations around the world, including in Japan and Singapore throughout the year. So watch out for a lot more to come from that perspective. Now, with respect to your question around how this drives new business versus upsell, historically, it certainly has been a driver for business, but it's also one that we've had multiple years in the past. COVID in the last two years have obviously changed the nature of the event. quite a bit, but we assume that we're going to run a customer event. And so, you know, we're excited about the potential that that'll have for us from a pipeline generation perspective. But, you know, I'm not going to speculate on exactly how that would feed into, you know, end of your plan with respect to surprising us in any way as we've done this year over year.

Understood. Thanks, Bill. Yep.

The next question comes from Pinjalim Bora with JP Morgan.

Great. Hey, thanks for taking the question. Congrats on the very strong order. I want to ask you a high-level question, Bill, on community. I'm starting to see people flaunt Braze certified marketer badges on LinkedIn. Seems like you are doubling down on the community with Braze for Success, with the Learning Portal. What remains to be done at this point in time to kind of make the path of people starting to build careers on Braze as the default platform for customer engagement? And in the last year, are you kind of starting to hear a bigger drumbeat of people starting to do so, kind of spreading the brand recognition more broadly?

Yeah, I mean, absolutely. And, you know, thanks for noticing. We think we're still definitely early in the progression of supporting our customers through traditional education, supporting and building the community of those practitioners that come together, augmenting it with additional, you know, trained ventures from the GSIs and from the rest of the agency community, you know, the kind of growth Mark Benthien, ECA- marketing community has obviously been an important part of our timeline from you know it's advent in our early years and how that's grown up into growth agencies all over the world, many of which. Mark Benthien, ECA- We work with and are helping with our partner lead onboarding or PLO initiatives that we've been driving that's one of those. Mark Benthien, ECA- Things that Isabel referenced a little bit ago in terms of our higher efficiency investments into our SMB sector that will then. you know, later help us improve unit economics elsewhere. So there's a lot there. I think when we think about the investments, you know, it has a few different dimensions to it. One of them is that improves time to value because if we can have customers, you know, get up and running more quickly, get up and running more expansively and make that early education and onboarding more efficient and have them retain more, all of those things obviously help them get up and running. We also know that the quicker people get up and running, the quicker they move on to new use cases, the quicker they expand to more platforms and more channels. And that leads to you know, the strong valor-based net retention that you see. It also means that as people become more advanced in their usage of Braze, we frankly have fewer and fewer competitors that can deliver on the same types of things. There certainly are people out there that can deliver and compete with us on the most basic parts of Braze, but we feel very confident that, you know, as a customer becomes more sophisticated and advanced in their Braze usage over time, that, you know, we really, truly rise above the rest in a way that is... differentiated writ large across the entire market. And so we have a strong motivation to make sure that our customers are getting to that point as well. They obviously are showing this willingness and this desire to build their careers around those skills. And ultimately, we want to continue to also push the state of the art in terms of thinking around customer engagement and marketing. We're really excited about where that goes over the next few years. I think that Braze has been super focused over the last few on you know, making sure that we are getting data flowing through the system, that we're investing in things like Canvas to make it more and more usable over time and enable more of our business experts, the people that are really close to the problems in the day to day and understand them intuitively and are kind of constantly in the flow of those things. We want them to be able to express their strategy and their creativity directly through the brace tool without needing to kind of deal with the, you know, going over to an engineering team, explaining it all over there or, you know, with the The data science teams that maybe are not in it day to day, you know, we really want to empower that marketer to fully bring programs to life. And we're seeing that happening more and more. And that's a combination of product investment along with education and the building of the community. We think that that leads to these really amazing feedback loops and the flywheel is only just beginning to spin up.

That's great to hear. One follow-up, Isabel. I was looking at the billings growth, which is super strong, and then I'm looking at the RPO growth, which kind of a little bit decelerated. I want to clarify, I think you said contract lengths were approximately 24 months. I think last quarter you said it was slightly above 24 months. Was contract length, was that a slight headwind to RPO in Q1?

So, I mean, it was still in the sort of 24-month range. I think we're going to stop providing sort of the nitty-gritty details of, you know, up a month, down a month. It's still in the two-year range, so we're just going to stick to that as the disclosure. I think from a billings perspective, you know, if you actually look at the components of what drove the calculated billings, The change to deferred revenue was obviously significantly stronger than, you know, same period a year ago. So, you know, growth obviously a part of that, but very strong cash collections from customers also fed into that as well. So I wouldn't necessarily read into sort of, you know, otherwise weakness in the RPO relative to the billings number.

Got it. Thank you.

The next question will come from Arjun Bhatia with William and Blair.

Perfect. Thank you. And I'll add my congrats on a great quarter. Bill, it seems like obviously customers are spending more with Braze. You're seeing larger deal sizes as customers realize the importance of this customer led growth and first party data. I'm curious, when you see customers spend more with Braze, what are you noticing about where they're reallocating those dollars from? Is that Are you seeing a consolidation trend where other vendors are maybe getting displaced? Is it advertising dollars? Just curious what dynamics you're seeing in terms of budget reallocations.

Yeah, so thanks for that. So we're seeing kind of all the above, of course, and we have been for a long time. And that really plays in more at the land stage with new business. So you're going to see money get moved out of advertising. Consolidation happens a lot with respect to us kind of going in. And maybe there was previously an email vendor and a mobile push notification vendor, and they were running something else for in-product or maybe like a survey vendor or something like that. So we have a long track record of coming in and starting out with either replacing or consolidating other places. We also often are part of net new budgets, especially when there's new initiatives. So if you look at the kind of move toward direct-to-consumer type offerings that are happening in places like sports leagues or in media and streaming or even in consumer packaged goods industries or with QSRs. All of these are great examples where they've been building more direct to consumer digitally enabled offerings. And so those are part of net new budgets because they're brand new corporate initiatives. I do think that we also see over time a shift or a kind of accumulation from two other places. First, of course, it is ROI positive. uh as we've spoken about before and often much more so than advertising so you do see a shift from advertising um i think also one of the things that we bring in uh to the mindset of organizations is to think about not just acquisition and retention but actually acquisition activation and then retention. And Braze really helps with those activation use cases, which are that, okay, I've got my first chance to really communicate with or interact with someone on a first party platform. I need to try to maximize the value of that, whether that is to deliver an even stickier experience, or maybe it's to just get the opportunity or the privilege to communicate with them on a first party channel later on, or otherwise kind of optimize that spend. So those are all... those are all use cases where we can be seen to be improving the ROI function directly of advertising. And then that helps either allocate net new budget because it's productive, or it shows the importance of balancing those in a different way than they were before, because we're really supercharging a lot of that acquisition spend. The last thing that I would bring up, and we're seeing some really incredible examples of this, We actually have features in Canvas that allow for you to take an individual customer and either kind of trigger them for suppression lists because maybe you were running expensive retargeting campaigns against them and they've now shown up in your first party properties. And because of the way that Canvas works, we're actually able to, in real time, immediately make those updates out to suppression lists in a very easy way and even do that as part of a multi-channel Canvas step. So we could engage them on an own channel at the same exact time that we suppress them on a paid channel. The other is making lookalike audiences and doing the same thing in the flow of an individual user. And so doing those as part of the lifecycle marketing so that when you achieve certain lifecycle milestones, those are either going to lead to suppression or or to the creation of lookalike audiences. And we've been hearing quotes from customers of upwards of 40% decreases in CPAs, depending on what industry you're in, by utilizing some of those hooks that we have that bridge that kind of data divide between lifecycle and into advertising. Now, we're not running those advertising use cases, right? Those are usually hooked into partners like Facebook or Google. But those are places where we're really augmenting that spend. And then that, of course, feeds back into a budget for things like race.

Perfect. That's very helpful, Keller. I'll leave it there in an interesting time, but thank you. Thank you.

Okay. I would like to remind that we will stick to one question. Our next question comes from Derek Wood with Cowen.

Derek, you may unmute and ask your question.

Sorry, I found the unmute button.

Thanks, and congrats from my end as well. I guess then, Isabel, I'll just throw one out to you on the dollar-based expansion rate. It remains healthy. It was down sequentially. Now, we've seen that trend from many others given the, you know, anniversary and kind of the catch-up benefits and post-COVID. Is that the main factor here or anything else to call out and, you know, Should we expect this number to kind of continue to moderate through the year, just given the tougher comps?

Yeah. I mean, look, I think we're already operating at, you know, a great level for these metrics. I think company wide, uh, the number, uh, went up year over year and, and we're pretty excited about that. So, uh, I think we're, we're already operating in sort of a best in class area. I think, uh, they're going to bounce around, uh, and we're going to keep executing on our land and expand strategy. And so in some quarters, you're going to get some great lands and in some quarters, you're gonna get some great expands and on, on the whole, uh, over the course of the years, it'll kind of drive the overall growth of the organization.

Okay, thank you.

Our next question comes from Pat Walravens with JPM.

It's JMP Securities, but thank you. Hey, Bill, so are you seeing any impact from the tougher venture financing environment on the positive side? Like, are you seeing any of your competitors pull back or maybe interesting companies reaching out because they're running out of money and want to get bought?

So headwinds like this definitely lead to consolidation in markets. And we have seen some, you know, smoke rising in various areas, but I wouldn't, you know, I'm not going to kind of speculate more deeply on behalf of, you know, any of our competitors amongst the broader landscape. What I will say is, from our perspective on all this though is that you know we feel really fortunate to be fully funded as isabel mentioned we see a tremendous opportunity to go and you know not only gain great market share during this time period but you know bring in fantastic talent uh we're starting to see know a little bit of a thaw in the job market which for those of us that are still hiring is a really fantastic thing because we can um you know we can find a lot of people that probably haven't been on the market for a long time as we go through this next critical stage of growth and we're well aware that you know a lot of our uh the competitive progress that we make over the next couple years is going to be higher leverage than it is an environment where money is easy and so we're laser focused on uh that as an opportunity right now and we're you know as if you go back to my point from earlier that we've been ready and are excited to embrace this environment where there's more scrutiny on efficiency because we think it's a cultural advantage of ours.

Great, thank you.

Okay, our final question comes from Brian Schwartz. Brian, please ask your question.

Thank you very much. One prayer is about I know you don't get the granularity on the gross margins by geographies, but it looks like you had a very strong international quarter. So I was wondering if there was any changes in the gross margin that you're saying between your business in the US versus international. Thank you.

Yeah, no, there's really no material difference if you think about kind of APAC overall, EMEA overall, and the Americas overall. There's kind of no real distinction there. We really think about the products that we sell as kind of the comprehensive customer engagement platform. We look to service the customers in the best way possible for them to engage with their end user community. And so, you know, we've talked about this in the past, different products mix in with different levels of margin. But there's no sort of, you know, direct trend with the broader regions against each other. And even to a certain degree across the industries, you know, there's higher margin and lower margin customers across the various regions. And there's higher margin and lower margin customers across the various segments and industries. So there's not really a story or a theme there.

Yeah, and I think that just to kind of hit that a little bit more directly, I wouldn't expect there to really at any point in our future either be like a read through in terms of what you might be seeing an SMS oriented businesses and their international versus domestic margin situations. We really when we pursue business like SMS, we ensure that it fits the margin profile that we expect and if it doesn't make sense in an international market, you know, we're not prioritizing that business. We know that the use cases that we run are ones that are high value, higher ROI, as I go back to a lot, the sophistication and the platform is in the customer centricity of it. And that's where we're looking for our pricing power. So we're not chasing, you know, high volume, low margin, you know, business anywhere in the world. And so you should expect that to kind of continue to be our dynamic as Isabel just walked through.

Thank you very much.

That concludes all of the questions. I will now turn it over to Bill.

All right. Thank you, everyone. We were excited to share all this information with all of you. We're looking forward to doing it again in about three months.