Braze, Inc.

Welcome to the Brace fourth quarter fiscal year 2024 earnings conference call. My name is Layla 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 will now turn the call over to Christopher Ferris, head of Brace Investor Relations.

Thank you, operator. Good afternoon, and thank you for joining us today to review Braze's results for the fiscal fourth 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 first quarter ended April 30, 2024, and the fiscal year ended January 31, 2025, the anticipated development, performance, and benefits of our products and features, including our Sage AI by Braze features, the potential impact and duration of current macroeconomic trends, our anticipated customer behaviors, including vendor consolidation trends and their impact on Braze, 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 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 fourth quarter 2020 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 fourth quarter, generating $131 million in revenue, up 33% versus the prior year and 6% compared to the prior quarter, again demonstrating the high ROI and long-term value of the Braze customer engagement platform. Our solid performance comes despite a selling environment that has remained challenging all year due to macro considerations and its associated scrutiny on budgets. We have continued advancing our strategy and evolving our execution in order to simultaneously deliver strong revenue growth and enhanced operating efficiency, improving non-gap gross margins by 90 basis points year-over-year and non-gap operating margin by over 1,100 basis points compared to the fourth quarter of last year. We were again pleased with the strength of our enterprise business as we continue to capitalize on the legacy vendor replacement cycle and consolidation trend. And we achieved record upsell this quarter as customers continue to grow with Braze, adopting more channels, deploying more use cases, increasing their volumes, and adding new business units and geographies. In fact, this quarter, we secured our first eight-figure customer through upsell with a media and entertainment conglomerate who has consistently grown with Braze over the past eight years. Continued expansion opportunities like these with our long-term customers speaks to our pace of innovation, stability and reliability at scale, and our leadership of the customer engagement category. As enterprise remains a strength for us, our roster of $500,000-plus ARR customers continues to grow as well, rising to 202 in the quarter, up 29% year-over-year, a testament to how customers continue to leverage rich first-party data and advanced artificial intelligence to drive sophisticated cross-channel customer engagement at scale. Notable new business wins and upsells in the quarter include AB InBev, Bojangles, DraftKings, FanDuel, FlixSE, which is the parent company of both Flixbus and Greyhound, and Nestle Purina, among many others. We're also pleased to share that earlier in fiscal year 2024, we secured new relationships with both DoorDash and Wendy's. The performance, reliability, and scalability of our platform is a core component of what many of these brands appreciate about Braze. Earlier this week, we published scalability and performance metrics for our full calendar year 2023, which included over 2.6 trillion outgoing actions, including the sending of messages, execution of webhooks, and other canvas operations that transform data and manage audiences. Inbound, we processed over 7.5 trillion API calls with 99.99% average system-wide uptime across all customers and products. Whether those API calls originate from our SDKs running in our customers' products, partner integrations, or custom software running in our customers' backends, these API calls deliver constantly evolving context about users and their actions in order to trigger messages and drive personalization strategies, showcasing the growing sophistication among Braze customers as they tailor the communications to each individual recipient. During 2023, we also saw year-over-year growth of over 60% for messages sent with Braze Canvas, our no-code visual development environment which marketers use to quickly implement sophisticated customer engagement strategies. This increase in usage reflects a rise in multi-step cross-channel messaging flows and the continued adoption of sophisticated orchestration, experimentation, and personalization techniques, all supported by Sage AI. Designed from the ground up to scale with demand, support massive scale at speed, and minimize outages, our system is exceptionally reliable, even when faced with some of the world's largest consumer audiences. All of these metrics build on our privacy and security by design, which integrates safeguards at every level of our operation and is reflected in our privacy processes and security certifications. As the customer engagement landscape evolves, we continue to win against a large field of competitors who cannot reliably deliver on real-time use cases, have limited channel selection or flexibility, a lower sophistication ceiling, or simply don't scale. Similarly, we continue to make progress replacing legacy marketing clouds, as marketers realize that those clouds-disjointed and siloed solutions are increasingly unsuited for modern customer engagement use cases. This quarter, we replaced legacy marketing clouds at a European-based transportation company, a leading American health nonprofit, a UK-based QSR, and a Japan-based digital software developer, among others. In addition, this quarter, we replaced point solution competitors at a design and collaboration platform, an athletics clothing retailer, and a mobile gaming company. As I mentioned last quarter, we've been very happy with the execution of our sales team in the second half as we continue to navigate a choppy macro. And our competitive wins across verticals and geographies demonstrates both the flexibility and versatility of our platform, as well as the enormous future potential of our business. Braze has the right to compete and win with virtually any organization that has ambition or sophistication around customer engagement. If your organization has a person whose job is customer engagement, we believe Braze is the best-in-class solution for them. In order to maintain our technical lead, we continue to invest in improving the capabilities of the Braze platform. With the wealth of data captured by Braze and the introduction of AI-powered tools, marketers are able to enhance relevance and performance while saving time and energy in production. In order to meet the demands of this paradigm shift, we are infusing AI throughout our stack to help marketers efficiently implement highly personalized cross-channel strategies. Last year, we launched Sage AI by Braze to inform and scale personalized, sophisticated, and lasting experiences that consumers love. At that time, we spoke to you about some of the exciting enhancements under development that further empower brands to embrace the craft of customer engagement, allowing them to move beyond simply sending messages. Just yesterday, we announced new features that simplify and accelerate the ability of marketers to tailor recommendations to each unique customer, further unlocking sophisticated personalization and prediction at scale, inspiring creativity and driving high-value actions from customers. At the same time, each feature is easily accessible and located intuitively across the marketer's workflow to support more creative testing, optimization, and personalization. These innovations include AI item recommendations, personalized path, tone control, and estimated real open email rates. All of these features leverage comprehensive first-party data inputs in real time, allowing for smarter decision-making and powering better business outcomes. Let me take a moment to walk through each of these offerings. Last fall, I mentioned the development of AI item recommendations. Today, I'm pleased to announce that this engine, which uses AI to enhance message relevance with better product, service, and catalog recommendations, is now generally available. AI Item Recommendations leverages cutting-edge transformer-driven AI models and is layered on top of Braze catalogs to enable easier setup and tighter integration with the rest of the Braze stack. Accordingly, these recommendations can be used across every channel that Braze offers and as part of sophisticated cross-channel journeys in Canvas. We believe AI Item Recommendations will increase campaign revenue and improve customer loyalty for the brands that deploy it. I'm also pleased to announce the release of Personalized Paths, an automated decision-making feature within Canvas that scales personalization by matching each customer with the message, copy, creative, channel, and offer that they are most likely to engage with. It can be incorporated at any point in a Canvas journey and used across any channel, allowing it to be combined with sophisticated personalization and orchestration techniques. Personalized Paths enables marketers to leverage AI to deliver more value to their customers through deeply customized experiences while also saving time for them and their colleagues in engineering, even as they delve into more sophisticated experimentation. In addition to the work we're doing using our own custom models, we also continue to deliver productivity enhancements that utilize prompt engineering and fine-tuning of publicly available models like OpenAI's GPT-4. Recall that we integrated ChatGPT and Dolly into Braze in May and December of 2022, respectively, before the AI hype of early 2023. And it's been exciting to see how customers have used and experimented with these features. We believe there is even more potential for marketing teams to quickly generate and validate creative assets to support more effective campaign creation and testing while maintaining brand voice and safety. Now we have built-in generative functionality we call Tone Control, which helps marketers dictate and control the tone of AI-generated copy directly in Braze. This can save marketers time, help them craft more authentic experiences, foster additional creativity, quickly generate variants for testing and experimentation, and help eliminate mistakes. Finally, I'd like to highlight our Estimated Real Open Rates feature, another use of machine learning that allows Braze customers to continue to rely on data-driven content strategies, even as changes in the privacy landscape obscure certain data inputs. This solution addresses the changes made by Apple's Mail Privacy Protection program, offering marketers a more complete view of open rates for email campaigns by controlling for the uncertainty created by Mail Privacy Protection's machine opens. One early AI customer success story that I'd like to highlight is from Koro Drogerie, a German superfood e-commerce company, which tested our new AI item recommendation offering to help determine what products to offer to which customers and drive purchase decisions. Koro syncs their product catalog into Braze in real time with Braze's cloud data ingestion feature, and can then intelligently suggest product offerings tailored to individual customer preferences. By combining the simplicity of Braze's cloud data ingestion with the power of AI item recommendation, Koro gained valuable insights into new user behaviors, empowering them to deliver highly personalized recommendations from their extensive catalog of over a thousand products. In addition, they drove these improved results with significantly less effort, automating everything from the data warehouse to the personalized recommendations seen by customers. Most importantly, Koro tripled their purchase rates when these personalized product suggestions were incorporated into their onboarding messaging flows. Our pace of innovation and ease of use also continue to earn industry accolades for our excellence in software products. Recently, G2, the largest and most trusted marketplace for software, recognized Braze across six categories in its annual Best Software Awards, including the categories Best Software Products, Global Software Companies, Highest Satisfaction Products, Marketing and Digital Advertising Products, Products for Enterprise, and Products for Mid-Market. Our solutions inclusion in the G2 Best of Software Awards is a testament of the strength and loyalty of our customer community and our ability to deliver high ROI solutions that our customers need to power outstanding customer engagement for their users. Before I turn it over to Isabel, I want to update you on our latest social impact initiatives. In 2021, Braze joined the Pledge 1% movement, through which we have reserved nearly a million shares of our Class A common stock to donate to a donor-advised fund. Thus far, Braze has surpassed more than $1 million in grants via our Braze for Social Impact Fund, of which more than half have been directed by employee grant programs. 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 for your continued support of Braze. We are very excited for the year ahead. Our strategy of driving innovation to create industry-leading solutions remains unchanged, and we believe our investments in new product growth, channels, and advanced AI and machine learning, coupled with strong secular customer engagement tailwinds, will keep Braze on the path to becoming the industry standard for cross-channel customer engagement. And now, I'll turn the call over to Isabel.