Braze, Inc.

Welcome to the BRAZE third quarter fiscal year 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 BRAZE Investor Relations.

Thank you, operator. Good afternoon and thank you for joining us today to review Braze's results for the fiscal third 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 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 fourth quarter and the fiscal year ended January 31, 2024 and the fiscal year ended January 31, 2025, 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, the anticipated benefits of our partnerships, the expected effects of our social impact initiatives, 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 third 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 another strong quarter, generating $124 million in revenue, up 33% versus the prior year, despite a macroeconomic environment that remains challenging. Our execution was strong, and we continued to drive operating efficiency in the business, improving non-gap gross margin by 170 basis points year over year, and non-gap operating margin by over 1,100 basis points compared to the third quarter of last year. We were pleased with the strength of our enterprise business, the continued rapid pace of R&D and the resulting customer excitement about new product launches and announcements, as well as the continued expansion of the global Braze partner and customer ecosystem. In October, we also hosted Forge, our annual flagship customer conference, which brought together leading marketing, growth, and engagement teams to learn best practices for delivering brilliant customer experiences, including incredible stage sessions from brands including Activision Blizzard, Elf Cosmetics, McDonald's, The Walt Disney Company, and Wise Labs. It was an inspiring capstone for what has been an exciting year for Braze's own global events, including the newly introduced City by City series. In total, we hosted events across 21 major global cities and welcomed nearly 4,000 attendees through our doors. Looking ahead into next year, we're already excited to be hosting Forge again in the U.S. and bringing City by City to five continents as our customer community and partner ecosystem continues to prosper. Across our global footprint, Braze has scaled by methodically building a customer base across a wide array of industry verticals, business models, and company sizes. And today, I'm proud to announce that during the month of November, we passed $500 million of committed annual recurring revenue, nearly doubling since our IPO just over two years ago. A huge thank you to our dedicated team across the globe who helped us achieve this milestone. I'm excited to keep building on this success with you as we continue on our journey to make Braze the standard for customer engagement. Brands continue to recognize the significant ROI that can be achieved through personalized cross-channel customer engagement enabled by the Brace platform. New business wins and upsells included FabFitFun, Mythical Games, Oro, formerly Netspend, Papa John's UK, and Sonos, among others. Enterprise new business was strong as we continued to capitalize on the legacy vendor replacement cycle and the consolidation trend that we've highlighted in prior quarters. During the quarter, We added to our growing list of major QSR customers with a competitive takeaway from a legacy marketing cloud. And we're excited to consolidate away a number of other vendors as we begin work with a top news organization looking to simplify their complex technology ecosystem and drive better outcomes for their customers through higher quality engagement. We also continue to win against both startup competitors and legacy point solutions as they struggle to deliver high quality customer engagement seamlessly coordinated across the many channels that matter to the modern B2C marketer. We are excited by our competitive position amongst the category of customer engagement, especially as we reflect on what hasn't changed in our space. And that's that top brands continue to invest heavily in order to deliver increased value and relevance to their consumers, both by understanding the real-time context that surrounds every marketing and product interaction, and by leveraging their growing first-party data assets to harness the gains available from real-time stream processing combined with AI-driven orchestration and personalization. As marketers chart the course of their business goals and customer engagement initiatives in our visual canvas environment, they can increasingly rely on AI, ML, and other forms of automated decision-making to manage the complexity of the modern customer engagement environment while delivering relevance and personalization to their customers at scale. While the macro environment remains uncertain as we head into next year, we are confident that customer engagement will remain a business imperative for brands. In tough times, brands shift their focus to high return initiatives like lifecycle optimization and retention. And to stand out, marketers need powerful customer engagement tools. Sophisticated brands continue to invest in their customer engagement efforts, finding opportunities to initiate new relationships efficiently and strengthening those bonds over time by staying relevant in their customers' lives and delivering value in critical moments. Especially as consumers continue navigating an environment with high interest rates and inflation, the period from Black Friday to Cyber Monday was a particularly important time for brands to break through the early noise of the holiday season and stand out in their customers' minds. At Braze, this year again saw record-breaking send volumes, as we sent over 37 billion messages in the four-day period from Black Friday through Cyber Monday. More importantly, we also saw increases in the sophistication of messages, campaigns, and canvases. On Black Friday alone, we processed nearly 25 billion in-pound API calls, and during that day's peak activity periods, our outbound packet throughput more than doubled compared to last year. That rise was driven by more send-time API calls and advanced personalization being used by more customers. Brands also leaned further into cross-channel messaging this year, with Bray supporting a wide array of established and emerging messaging channels, including significant increases in the use of WhatsApp, email, SMS, MMS, content cards, Roku messages, and web push. Zooming out to the orchestration layer, we saw a 67% increase in messages sent using Canvas, our visual development environment, which reflects how marketers are orchestrating multi-step cross-channel messaging flows and relying on differentiated braze capabilities during this critical time. In order to stay on the leading edge of customer engagement, we are relentlessly focused on product innovation that can accelerate the legacy replacement cycle and compel more brands to upgrade their customer engagement. At Forge, we unveiled new low-code and AI-driven product innovations designed to more effectively personalize brands' customer engagement efforts and drive more agile and productive marketing teams. We are always looking for ways to allow our customers to test and iterate more quickly on customer experience, both in and outside of their products. Building on the strong in-product foundation provided by our SDKs, we were excited to promote feature flags to general availability in October. Feature Flags allows marketers to quickly launch, test, and optimize features on mobile apps or websites, providing flexibility to test varying expressions of their product, and promoting an agile and experimental method of product delivery that results in better experiences for customers. These types of experiments are particularly impactful when coordinated with customer messaging and optimized by the AI and testing features native to Canvas. One brand putting this all into action is Immobilare.it, a leading player in the EU real estate industry who used feature flags to test the release of dark mode to a segment of customers who were very active in the evening. After turning on dark mode for that segment and targeting those same users with an in-app message about the new feature, they allowed the test users to experiment for two weeks and then subsequently collected qualitative feedback from them via an in-app survey. After validating both the survey feedback and the conversion data, Immobilare gradually extended the feature to all of their registered users. Normally, a launch like this would have required multiple platforms and complex cross-team coordination. By bringing complementary product and messaging workflows together, one person coordinated this entire launch in Braze and did it in half the time of similar past experiments. At Forge, we also announced several tools in development that we anticipate adding to our Sage AI suite, including an AI recommendation engine that is designed to use machine learning to match relevant items from Brace catalogs with customers most likely to buy them, the addition of a large language model or LLM Canvas step to our visual programming language, and channel-specific message content recommendations paired with performance prediction. The Canvas LLM step uses GenAI to interpret user-provided input, such as survey feedback or reply to a WhatsApp conversation, and then provides a contextual response that can be templated into subsequent Canvas actions or message steps. We are actively testing multiple underlying models for this LLM step, including our own custom trade models built on top of LLMA2, as well as OpenAI-hosted models such as GPT-4 Turbo. Extending on our experimentation with custom-trained models, we are also very excited by our work in channel-specific message content recommendations, paired with a growing ability to automatically predict which variants are likely to perform best using custom-trained predictive transformer models. By providing these predictions before launching a canvas or campaign, we intend to further increase marketer velocity, encourage more creative risk-taking, and free up time that can be spent on further experimentation with deeper personalization techniques. This is just a small portion of our exciting AI-related product roadmap, which we are designing to push the boundaries to deliver the most personalized brand experiences for our customers. As the legacy clouds continue to be held back by antiquated architectures and decades of unpaid complexity debt, we believe our modern foundations, combined with a relentless focus on innovation, will accelerate the legacy replacement cycle and compel more brands to upgrade their customer engagement strategies with the Braze platform. As we zoom out and look at our broader ecosystem, I'm also excited to share an update on our strengthening relationship with AWS. Just last week, we shared Braze's achievement of AWS advertising and marketing technology competency in the category of digital customer experience. And in October, we announced the availability of Braze through the AWS marketplace. These recent announcements build on our broader partnership, which includes AWS retail competency, travel and hospitality competency, and digital customer experience competency. We look forward to growing our relationship with Amazon and other partners as we improve the depth and capabilities of our solutions. Before turning the call over to Isabel, I'd like to update you on our latest social impact initiative, Tech for an Equitable Future, announced just yesterday. This program aims to remove barriers for underrepresented founders by providing introductory free access to the Braze platform. We are also excited to share that Braze recently made our first commitment to a virtual power purchase agreement, an important step for our overall climate commitment, and we look forward to sharing more climate-related updates next year. Thank you to all our stakeholders for your continued interest in Braze. We are excited about our future, meeting customers where they are on their customer journey and empowering them to achieve world-class customer engagement while delivering efficient growth at scale for our shareholders. We look forward to continuing this journey to becoming the de facto standard for customer engagement with you in the coming months and years. And now I'll turn the call over to Isabel.