Braze, Inc.

Welcome to the BRAZE first quarter fiscal year 2024 earnings conference call. My name is Anne and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. I'll now turn the call over to Christopher Ferris, head of BRAZE Investor Relations.

Thank you, operator. Good afternoon and thank you for joining us today to review Braze's results for the fiscal first quarter 2024. 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 the investor relations section of our 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 the 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 ended July 31, 2023, and for our fiscal year ended January 31, 2024, our planned product and feature development and the benefits to us and our customers therefrom, including our AI features, the potential impact and duration of current macroeconomic trends, our anticipated customer behaviors, including vendor consolidation trends and their impact on Brace, and our long-term financial targets and goals, including the anticipated period in which we may generate positive non-GAAP operating income and positive free cash flow. 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 Relations 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 2024 performance in addition to the impact these items have on the financial results. Please refer to the reconciliation 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 section 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're very pleased with our first quarter performance, which again demonstrated the power of the Braze Customer Engagement Platform. even against a challenging macroeconomic background. We got off to a great start to the year, generating $101.8 million in revenue, up 31% versus the prior year, while driving operating efficiency in the business. Non-GAAP gross margins increased 100 basis points year over year, and we demonstrated strong leverage, with non-GAAP operating margins improving by over 700 basis points compared to the first quarter last year. We also generated record free cash flow of $21.7 million, driven in part by solid fourth quarter bookings. As we progress through fiscal 2024, we plan to continue driving strong top line growth while maintaining cost discipline and believe we are well on our way to achieving the near and long term profitability goals outlined on our fourth quarter call in March. Brands continue to recognize the high ROI that can be achieved through personalized, cross-channel customer engagement enabled by the Braze platform. In the first quarter, we increased our total customer count by 96 sequentially to a total of 1,866, continuing to win against both legacy marketing clouds and point solutions with our best-in-class customer engagement platform. Recent new business wins and upsells included Procore Technologies, Sonos, Sweetgreen, and Swimply, among many others. We continue to realize strong growth across multiple customer classes, geographies, and verticals, with both retail e-commerce and media and entertainment showing particularly strong year-over-year growth during the period. Braze again benefited from vendor consolidation this quarter, and we believe this trend will continue as enterprises with ambition and sophistication consolidate their technology ecosystem with modern omnichannel customer engagement solutions like Braze. We further believe that both the legacy replacement cycle and this vendor consolidation trend will accelerate as customers look to capitalize on new AI-driven advancements in customer engagement, an area of innovation which benefits tremendously from the breadth of Braze's data footprint and messaging flexibility, as well as our real-time stream processing architecture. As I mentioned on our fourth quarter earnings call, existing at the leading edge of technology is in our DNA and at the core of our innovation roadmap. Braze is a company that perceived the opportunity presented by the coming wide scale adoption of mobile more than a decade ago. And since then, we've worked relentlessly to seize that opportunity through the use of sophisticated technology. For years, Brazos had dedicated teams of data engineers and data scientists focused on using machine learning to build AI into our product, with the goal of making marketers more effective at engaging their end users by optimizing customer journeys, generating more relevant content, and enhancing targeting strategies. Even more importantly, we believe that the ability to use machine learning and generative AI are as fundamental to being a software engineer as using databases and writing secure code. As new technologies emerge, including but not limited to breakthroughs in artificial intelligence, our forward-looking R&D posture and highly extensible foundations allow us to quickly deliver innovation to our customers. You can see this track record in not only our long history of activating real-time first-party data through stream processing, but also with AI, including generative AI more recently. Braze debuted a GPT integration for email subject line generation over a year ago, and we were early to integrate generative AI for images into the message composition experience, launching a dashboard integration with DALI last December. More recently, we launched a message content checking tool built on top of GPT-4, helping marketers to avoid copywriting mistakes, the accidental sending of test messages, or sending culturally insensitive content. We were also testing a wide array of new capabilities including generating SQL for advanced segmentation and reporting use cases, automatically suggesting improvements to message copy during composition, and even an adversarial A-B testing simulator that we believe may be able to generate and predict winning message variants for populations before a campaign is even launched. Customers have been successfully using both our AI copywriting assistant and automatic image generation for months to generate message content and inspire new engagement strategies. Lowering the burden of content creation while also serving as an in-dashboard muse encourages customers to bring new use cases into Braze more quickly, while also expanding their usage of the powerful experimentation features native to Canvas, our proprietary no-code visual development environment. We believe this enhanced agility and reduced burden to test new ideas further combines with our other machine learning driven experiment optimization capabilities, further compounding the ROI we deliver to our customers. We know from our customer base that even small or one-person teams can still accomplish a lot with Braze. And as a company that has never charged for seats, we expect to see generative AI-driven productivity enhancements for individual marketers translate into even more Braze usage over time. We believe this will further cement our stickiness and promote expansion into new user populations, driving higher message volumes and the adoption of more channels. Internally, we talk a lot about smoothing the on-ramp into Braze as a key part of ensuring that the differentiation presented by Braze's sophisticated capabilities remains broadly accessible to our ever-growing market, even to those who are early in their journey of adopting the modern practice of customer engagement. Over the last five years, we've seen an acceleration of two trends that highlight the importance of tackling this challenge, which also translates into a deeper moat for Brazos technology and our customer community. First is the rising imperative of collecting first party data and making it available in real time to engagement systems. And second is the increased ROI of tightly coordinating customer engagement with the product journey, often including the delivery of messaging directly inside the product experience. Both of these trends mean that a customer engagement professional who expands their traditional marketing skillset to include a deeper understanding of data analysis, product design, and basic coding will find themselves generating higher ROI for their brand and advancing more quickly in their career. Braze's customer education and community investments are designed to help more marketers make this transition. And we believe that the integration of generative AI into our platform and the pairing of AI with our Canvas environment more broadly will compound these efforts by further smoothing the on-ramp into Braze for our new customers, while encouraging the use of our advanced targeting, personalization, and experimentation capabilities for those that are already familiar with Braze. All of this is a continuation of a central principle of our product strategy, which is that immense value can be created when you place the power of programmability and data directly into the hands of those who are closest to the customer journey and brand promise. It's why we built Canvas and it's why we continue to imbue it with not only additional power and flexibility, but also with enhanced usability and collaboration tools. And of course, generative AI isn't the whole story. Proceeding these features has been a robust collection of automated decision-making techniques using both machine learning and advanced statistical methods, including our predictive suite, intelligence suite, and the personalized variant capability integrated into Canvas. Some of these features are already monetized directly through premium add-ons, while others are provided as part of our standard offering, a blended approach that we anticipate continuing as we release more AI features over time. All of these capabilities are integrated deeply into Braze's data flow and execution stack, and represent early examples of what we believe will be an area of enduring differentiation for Braze. Underlying them is our differentiated architecture, which distinguishes Braze from our competitors in three key ways. First is our comprehensive data flow and messaging capabilities. Last fiscal year, Braze processed over 13 trillion data points and sent over 2 trillion messages, all with our real-time stream processor. Customer data flows into Braze across our customers' data ecosystems, inclusive of direct integrations into their products and their data warehouses. We are also integrated into a wide array of consumer touchpoints and end-user product interfaces, which enables us to take action across many channels. The inputs to AI and the direct outputs from its decisions are both more flexible and comprehensive with Braze, and the added value this represents is a key component of our ongoing success with vendor consolidation. Next is real-time execution. Our ability to ingest and act on newly generated data in real time means that AI in Braze is able to make better decisions faster. Braze already employs multiple machine learning and statistical methods to enable automated decision making in real time within Canvas. And we're experimenting with custom transformers for automated product recommendation that will be able to inject the outputs of generative AI into message content on a per user basis. Third is our focus on experimentation and programmability. Building on Canvas's flexibility and strength in experimentation, we'll continue injecting both AI, ML, and statistical techniques for automated decision-making into an increasing number of decision points throughout the user journey, enabling new AI techniques to be tested against existing manual strategies and against subsequent enhancement to our AI-driven methods. It's an incredibly exciting time to be leading a team as innovative as Braze in a market with as much potential as customer engagement. And even as we approach our 12-year anniversary this summer, it still feels like we're just getting started. Before I turn it over to Isabel, I'd like to note that on June 1st, we closed the acquisition of NorthStar, our exclusive reseller of brace technology in Australia and New Zealand. We are thrilled to have brought their team fully in-house and look forward to expanding in the Australia and New Zealand markets in the coming months and years. We look forward to updating you on our progress in that dynamic market. Despite macro challenges, we are confident in our ability to execute on our growth plan while remaining disciplined and on a path to profitability. Further, we believe the investments in our products, including generative AI, in addition to the strong secular customer engagement winds at our backs, positions Braze to become the industry standard for customer engagement in the coming years. And now, I'll turn the call over to Isabel.