Braze, Inc.

Welcome to the Braves fiscal second quarter 2024 earnings conference call. My name is Christine 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 Braves Investor Relations.

Thank you, operator. Good afternoon, and thank you for joining us today to review Braze's results for the fiscal second quarter, 2024. I'm joined by our co-founder and chief executive officer, Bill Magnuson, and our chief financial officer, Isabel Winkels. 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 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 third quarter ended October 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 Braze, 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 aid investors in further understanding the company's fiscal second quarter 2024 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 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 delivered a strong second quarter, generating $115.1 million in revenue, up 34% versus the prior year, while continuing to drive operating efficiency in the business. Non-GAAP gross margin increased 70 basis points year over year, and we again demonstrated strong leverage, with non-GAAP operating margin improving by over 1300 basis points compared to the second quarter of last year. We were encouraged by the new business we won in the quarter, sales strength in the commercial and enterprise businesses, the progress of our product initiatives and AI development efforts, and the adoption of our newest channel, WhatsApp. While the macro environment still presents challenges, we are effectively navigating them and remain confident in our ability to drive top line growth while maintaining cost discipline and delivering on the financial targets that we have set. Brands continue to recognize the high ROI that can be achieved through personalized, cross-channel customer engagement delivered by the Braze platform. Customer growth was solid, with our total customer count reaching 1,958, an increase of 92 during the quarter. New business wins and upsells included Miro, the National Basketball Association, Rappi, and Story, among many others. The diversification of new customer wins was also impressive, with the top five new business deals all originating from entirely different types of businesses, a quick service restaurant chain, an e-commerce platform, a provider of coupons and discounts, a digital collaboration platform, and a company that connects homeowners to tradespeople. As those of you who have followed us closely are aware, Brace's business is highly diversified, with no single vertical contributing more than a quarter of our ARR, and many others where we have not only a significant presence but also opportunity for growth. The versatility and adaptability of the Brace platform enables its adoption by any business that prioritizes investments in first-party data and customer relationships, regardless of size, vertical, or geography. As the field of customer engagement matures, we continue to win against point solutions that have limited channel offerings, are not real-time, or simply don't scale. We are similarly making progress against legacy marketing clouds as marketers find their fragmented solutions increasingly unfit for modern customer engagement use cases. This quarter, we displaced legacy marketing clouds at numerous enterprises, including at a top quick service restaurant chain, a large consumer discounter, and a well-known travel company. In the case of the restaurant chain, a global systems integrator partner was instrumental in the sales cycle and will be working with the customer to complete onboarding and provide ongoing marketing and data services. As we continue to expand our product surface area and enhance its capabilities by infusing AI throughout our stack, we're helping brands create personalized cross-channel solutions faster than ever before, speeding the rotation of the imagine, create, and evolve loop that lets them compound learnings and increase their ROI over time. Meanwhile, the legacy clouds continue to be held back by antiquated data foundations and complex siloed architectures, limiting their innovation and causing them to fall further behind. We believe our product innovation and R&D focus, coupled with their relative stasis, will accelerate the legacy replacement cycle and compel more enterprises to upgrade to the personalized cross-channel customer engagement enabled by the Braze platform. We also continue to benefit from the vendor consolidation trend we've called out the last couple of quarters as brands look to an all-in-one platform to coordinate messaging across the growing array of B2C channels and accelerate their investments into first-party data. In the case of an accessories retailer, we replaced four separate vendors, providing a great example of how Braze wins on technical integration capabilities, aligning with the customer's vision of working with a comprehensive, best-in-class customer engagement platform. We believe this trend will continue 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. At Braze, we are constantly evaluating new ways for brands to communicate directly with their customers by delivering more relevant content and engaging experiences in the channels that resonate most. In March of this year, we launched a native WhatsApp integration that enables marketers to create, orchestrate, and send WhatsApp campaigns directly from the Brace platform. With more than 2 billion active users in 2022, broad international penetration, and the ability to engage in content-rich conversations that build retention and loyalty, WhatsApp is a highly valuable addition to our cross-channel portfolio. And I'm happy to report that new and existing customers have responded very favorably to our offering, with dozens of customers using the channel and a fast-growing pipeline. One early WhatsApp success story I'd like to highlight is Rappi, one of the most popular and trusted technology companies in Latin America. Rappi has expanded its investment in Braze, specifically adding WhatsApp as an additional channel to its innovative customer engagement strategy that already included email, SMS, push, and in-app messaging. Rappi was looking for a more effective out-of-product channel to directly reach their audience and successfully leverage WhatsApp to motivate lapsed users to return to the app to make new purchases and to drive active users to make more purchases over time. Leveraging WhatsApp and Braze's Canvas environment, Rappi was able to drive an 80% uplift in purchases versus a control group that received only push notifications and email. Case studies such as these demonstrate how marketers can immediately leverage the flexibility of Canvas and the power of our streaming architecture with new channels like WhatsApp to target, personalize, and orchestrate sophisticated campaigns that drive high engagement and ROI. Beyond additional channels, we continue to improve and enhance our competitive moat by expanding our product surface area and deepening our existing capabilities, particularly around data management and governance. Yesterday, we announced new data transformation and integration options to enable brands to get data into brace quickly and easily. with less ongoing maintenance burden and lower lift from technical teams. I won't go through all of these enhancements in detail, but I'll mention a few key innovations that we believe will be particularly impactful for customers. First is data transformations, a feature that gives brands the ability to easily map incoming data from third-party services onto Braze user profiles. Even more exciting, the code that defines these transformations can be automatically generated using a generative AI capability within our Sage AI Suite. Second, we are expanding cloud data ingestion to include an integration with Databricks' Lakehouse platform, while expanding the capabilities of our existing integrations into the Snowflake Data Cloud, Amazon Redshift, and Google BigQuery. This flexible data ingestion capability helps customers reduce total cost of ownership in their data ecosystem by eliminating complexities when accessing their first-party data. Third, we infuse generative AI into our query builder and SQL segment extension tools to empower teams to easily transform natural language prompts into insightful reports and audience segments. SQL segment extensions itself is a recently released addition to our classification layer that enables comprehensive and flexible targeting on top of a customer's entire Braze dataset, enabling marketers to execute on more advanced targeting use cases completely within Braze, instead of relying on their in-house data teams or third-party tools. Leveraging these advancements, brands will be able to easily access and activate their valuable first party data to power personalized customer engagement strategies that enhance loyalty, retention, and revenue. We also recently launched Braze Instant Insights, a Snowflake native app that provides turnkey visualizations for analysis use cases like attribution, high value actions, retention, and investigating monetary value across cohorts. In the same way that we built Snowflake Data Sharing to reduce the effort and time to value for customers building outgoing data pipelines from Braze, Instant Insights reduces the effort to go from data in the warehouse to sophisticated reporting. And in June, we announced Sage AI, a set of advanced AI and ML capabilities integrated into the Braze platform. Sage AI is designed to enhance marketer productivity while powering better and more effective customer engagement results. The most recent additions to Sage included three main innovations. First, an AI recommendation engine that utilizes a custom trained transformer model to match items from Braze catalogs with customers most likely to buy them, providing content personalization that outperforms competing techniques in our tests. We believe this feature, which will become a separate SKU, will boost campaign revenue and improve customer loyalty for the brands that use it. Second, our AI Content QA tool that leverages OpenAI's GPT-4 to check messages for tone, structure, grammar, and appropriate language was promoted into general availability and has now been used by hundreds of brands. We're seeing the advantage of being early movers in generative AI as we're quickly expanding beyond obvious use cases and integrating capabilities that are finely tuned to marketer workflows. Third, we added Winning Path to Canvas, our visual development environment which marketers use as a no-code journey orchestration tool. This feature automatically optimizes how customers flow through paths in a canvas, allowing brands to boost conversions with a single click. Finally, we were refining an A-B test prediction feature, designed to use a combination of large language models and other neural network architectures to automatically predict the winner of an A-B test without a pilot send, helping marketers execute on new experiments more efficiently and improving their overall performance. Finally, I wanted to update you on our social impact initiatives. In July, BRACE published its second annual ESG report. This report included our FY23 Greenhouse Gas Emissions Audit, an overview of our diversity, equity, and inclusion activities, and details on our grantmaking efforts as part of our Pledge 1% Equity Donation Program. Our social impact mission is to amplify employee impact, to create opportunity for underserved groups within our communities, and to accelerate science-based climate solutions. We look forward to growing these efforts through continued employee advocacy and participation over time. Thank you to our customers, team members, and shareholders for your continued support of Braze. We are excited about our path ahead and believe the investments in our product, people, and ecosystem, combined with strong secular tailwinds, position Braze to become the industry standard for customer engagement. And now, I'll turn the call over to Isabel.