Braze, Inc.

Welcome to the Braze first quarter fiscal year 2025 earnings conference call. My name is Megan 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 hand 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 2025. 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 second quarter ended July 31, 2024 and the fiscal year ended January 31, 2025, the anticipated development, performance, and benefits of our products and features, the potential impact and duration of current macroeconomic trends, our anticipated customer behaviors, including vendor consolidation trends and their impact on Braze, the timing and benefits from our global expansion efforts, our potential market opportunity, 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 first quarter 2025 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 are pleased with our first quarter results, which again demonstrated the strength of the Brace customer engagement platform in a challenging macroeconomic environment. We got off to a solid start to the year, generating $135.5 million of revenue, up 33% compared to the prior year. Excluding the $750,000 impact of a servage outage we experienced in April, revenue would have been approximately $136.3 million. This quarter, we again demonstrated strong leverage, improving non-gap operating margins by over 800 basis points year over year, and generating strong cash flow from operations of approximately $19 million, driven by collections on our fourth quarter bookings. As we progress through 2025, we plan to continue investing to support our top-line growth and our long-term opportunity, all while staying focused on improving our efficiency and hitting our profitability goals. 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 customer count by 58 sequentially to a total of 2,102, as we continue to win against legacy marketing clouds and point solutions with our industry-leading platform. Our enterprise business was strong, with $500,000-plus ARR customers continuing to grow, rising 29% year-over-year to 212%. Notable new business wins include Bauer Media Group, Bolt Technology, Country Road Group, Leonardo.ai, Property Finder, Solaris Bank AG, and many others. Notable upsells in the quarter include Etsy, Lime, Mr. Eye Doctor, Talkspace, and the rewards credit card Yonder. In the quarter, we again benefited from the vendor consolidation trend that we have highlighted in recent quarters, securing new business wins that simultaneously replaced legacy marketing clouds, channel-specific point solutions, and homegrown tools across diverse customer examples, including a German e-commerce brand, an Australian fintech app, a specialty fashion retailer in APAC, and an American workforce management solutions firm. These are just a few examples of the many in which Braze replaced legacy marketing clouds, siloed point solutions, and regionally fragmented technical architectures, as brands look to combine capabilities and centralized administration of their customer engagement technology ecosystem. We believe that both the legacy replacement cycle and vendor consolidation trends can lead to share gains for Braze as brands look to capitalize on new AI-driven advancements in customer engagement capabilities. As marketers become increasingly agile, ambitious, and experimental with their customer engagement initiatives, we believe Braze stands to benefit and position itself as the dominant player in customer engagement while delivering increased relevance and personalization to consumers at scale. As we've stated on previous calls, even as we are pleased with our execution, the macro environment remains uncertain. We have not seen a meaningful improvement in the qualitative characteristics of our demand environment and continue to see cautious buyer behaviors, long decision-making cycles, and enhanced scrutiny on both budget and personnel resources. However, we remain confident that the cultivation of strong and well-understood first-party customer relationships will continue to rise in value and importance for modern brands. As we all embark on the third year of operating through an environment with heightened interest rates, brands must continue their value-conscious focus on high ROI initiatives like lifecycle optimization and retention, both core strengths of Braze's primary offering. Building on that foundation and looking into the future, we believe that it takes much more than optimizing existing strategy for brands to remain competitive, particularly as more industries are turned upside down by the dual forces of globalization and rapid technological change driven by AI and enhanced by the continued convergence of our digital and physical lives. And this is why we continue to invest in R&D to drive innovation in the Brace customer engagement platform. We are relentlessly focused on using product innovation to enhance our competitive differentiation gain market share, and accelerate the enterprise consolidation and replacement cycles. As we grow, we are also expanding the global community of Braze-trained marketers and customer engagement professionals, strengthening a long-term moat rooted in the adoption of a sophisticated, interdisciplinary, and cross-channel approach to marketing that is driven by first-party data, enhanced by agility, experimentation, and AI, and comprehensively applied throughout the customer lifecycle. With a long-standing focus on enhancing marketer productivity, We launched an early version of our AI copywriting assistant last year and has been adopted and effectively employed by hundreds of customers. We recently expanded this feature set with on-brand copy generation, allowing customers to quickly customize new cross-channel campaigns by using retrieval augmented generative AI to mine their historical brace campaign content and automatically generate new message variants, all while keeping strong guardrails on the GenAI outputs to maintain appropriate brand personality, reputation, values, and voice. This pairs well with our generative tone control feature, which helps marketers adapt and control the tone of AI or human-generated copy throughout Braze. And we have increasingly seen customers using both features in tandem to save time in content production and create more authentic brand experiences, all while eliminating marketing missteps. As we continue expanding Sage AI, we are doing so carefully and methodically to ensure that we are also increasing marketer confidence in the quality of automatically generated outputs and orchestration decisions. We believe that success on this path will lead us to a future where marketers can trust Braze to fully optimize the orchestration, relevance, and personalization dimensions of their first-party data investments and customer engagement strategies. While we continue injecting AI throughout our platform, we are also hard at work to evolve and expand Braze's channel selection in order to maximize the value that our customers can derive from the sophistication available further up the Braze stack. We've spoken a lot about SMS and WhatsApp in the last few earnings calls, and today I wanted to highlight recent evolution in a channel that Brace has supported since our founding, mobile push notifications. Most iPhone users have by now experienced the power of live activity notifications. iOS 17 upgraded live activities, and they now allow for persistent real-time updates right on the lock screen to keep users informed about deliveries, ride share status, sports scores, and other time-sensitive activities. Relying on our SDKs and vertical integration, Braze makes it simple for brands to use live activities, allowing them to easily update and manage the activity lifecycle using real-time first-party data while also taking advantage of our advanced targeting, testing, orchestration, and personalization capabilities. In addition, Braze makes it easy to pair live activities with other channels like in-app messages and content cards, advancing a brand's cross-channel engagement strategies. This feature is particularly exciting for brands in media, entertainment, sports, and gaming, where live activities help fans keep apprised of the in-the-moment updates for events like the ongoing NBA or NHL playoffs or the T20 Cricket World Cup and even the Olympics later this summer. These are just a few examples of the myriad of enhancements we have been adding in order to enhance our platform and help our customers drive higher ROI. We believe these are efficient investments in our future and will help drive additional usage and new customers to Braze in the coming quarters and years. Zooming out to look at our operational footprint, we are also excited by the increasingly global nature of our addressable market and continue making investments to support Braze's growth with an expanding roster of multinational brands. In the enterprise, this opportunity is enhanced by both the technology consolidation trend that I referenced earlier and by the continued expansion of enterprise direct-to-consumer offerings into new and fast-growing markets, particularly in regions like APAC and LATAM. In May, we announced progress on our planned team and office expansions into Sao Paulo, Bucharest, Dubai, and Seoul. The month prior, we announced our plans to open a new data center in Indonesia, our second non-US data center and our first in APAC. We expect this investment in our global data center footprint to accelerate in future years, enabling us to better navigate the increasingly complex data residency and privacy landscape, particularly for our customers and prospects in heavily regulated industries such as financial services, healthcare, and the public sector. We've also continued making localization investments that make life easier for marketers working across multiple languages or diverse regions. Recently, we launched major upgrades to our multi-language composition capabilities, allowing customers flexible workflow options to manage translations, test and preview multi-language messaging, and derive new data insights across locales and languages. We also announced availability of the Braze dashboard in Spanish and Brazilian Portuguese, and have made enhancements to the existing Japanese and Korean dashboard and documentation translations. Brace has operated globally from its early years, and revenue outside the U.S. continues to be a substantial portion of our total, at 44% in the current quarter. As we look to the future, we see large greenfield growth opportunities in these fast-growing global markets and are excited to be preparing for that future today. You may have also seen that just this week, we added Yvonne Wassenaar, a seasoned SaaS executive, to our board of directors. For over 30 years, Yvonne has advised leaders on scaling, diversifying, and transforming their businesses throughout the Americas, Europe, and Asia. She replaces Doug Pepper, who served on our board for nearly a decade and who will remain on the team as a board observer. We look forward to all the contributions Yvonne will make to Braze's strategy and next stage of growth. Before I turn it over to Isabel, I'd like to update you on our latest ESG initiatives. We are excited to announce that BRACE has formally committed to setting a near-term science-based target of reducing our carbon emissions, marking a significant step in our sustainability journey. This commitment aligns our emissions reduction targets with the global goal of limiting warming to 1.5 degrees Celsius above pre-industrial levels, in line with the UN Paris Agreement. By committing to setting a science-based target, we pledge to reduce our greenhouse gas emissions in line with the latest climate science. We'll be publishing our third annual ESG report and launching our ESG microsite later this summer. I'll close my remarks by reiterating our confidence and excitement in the simultaneous execution of our long-term growth, efficiency, and profitability goals. Difficult execution environments enhance the opportunity to create long-term differentiation and separation from our competition, and we are committed to capitalizing on this time to solidify our position as a global leader in customer engagement. Thank you for your interest and support in Braze, and now I'll turn the call over to Isabel.