Braze, Inc.

Welcome to the BRAZE Fiscal Second Quarter 2027 Earnings Conference Call. My name is Leila, 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, Vice President of BRAZE Investor Relations.

Thank you, operator. Good afternoon and thank you for joining us today to review Brace's results for the fiscal second quarter 2027. I'm joined by our co-founder and chief executive officer, Bill Magnuson, and our interim chief financial officer, Pankaj Malik. 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.brace.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 and fiscal year ended January 31, 2027, the anticipated benefits from and product advancements due to ongoing developments in Braze AI technology, Thank you for joining us today. and our long-term financial targets and goals including our expectations regarding our profitability framework. 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 second quarter 2027 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 $227 million of revenue, up 26% year-over-year and 8% from the prior quarter. We also continued to realize operating efficiencies, improving non-gap operating margin by over 600 basis points year-over-year. Dollar-based net retention for our large customer cohort, who spend at least $500,000 annually, continued to inflect positively. Thank you for joining us. Brands are adopting ever more sophisticated strategies and racing to deploy AI-driven solutions to leverage their first-party data and direct-to-consumer relationships, and this is reflected in our results. Bookings were strong in the quarter, driven by competitive takeaways from legacy marketing clouds, point solutions, and a vendor consolidation motion that continues to gain traction. Net customer additions rose 76 sequentially, up 15% year-over-year, while customers spending at least $500,000 annually increased by 12 sequentially, Up 28% year-over-year. Notable new business wins and existing customer expansions included Boots Thailand, Chime, David Jones, Foxtel Group, Insurify, Omaze UK, Property Finder, and Wilson Sporting Goods, along with many others. Brands across a diverse set of industries and geographies continue to graduate from legacy platforms to braze. These included a global quick service restaurant, a bank in APAC, a European retailer, and an American challenger bank. Upsell momentum remained robust, driven by expanded channel adoption, deeper data platform integrations, and growing engagement with our rapidly advancing Braze AI capabilities, including agent console, decisioning studio, and operator. While AI monetization is still early, enterprise customers are realizing ROI using our solutions, and adoption is accelerating. Paid adoption of our AI tools, decisioning studio, agent console, AI Item Recommendations, and our Predictive Suite reached roughly one-third of our large customer cohort in Q2, up about 900 basis points from Q1. And that adoption is changing how customers send messages and personalized product experiences. As teams put Agent Console and Decisioning Studio to work, they pair the added intelligence with upgraded engagement strategies, experimenting with more advanced cross-channel programs and deeper personalization. We expect this adoption trend to compound as marketers are pushed to get more sophisticated in an AI-driven world and as our composable AI architecture keeps making Braze smarter and easier to use. We also recently signed a three-year strategic collaboration agreement with AWS. It establishes a dedicated co-sell motion, a joint go-to-market commitment and incentives for AWS sellers to bring Braze into their accounts. More of our customers are choosing to procure Braze through AWS Marketplace, drawing on cloud commitments they already have in place. And this agreement makes that path easier while extending our reach across international markets and industry verticals. It also deepens our work with AWS on data and AI, including the model integrations that let Agent Console run on Amazon Bedrock. You'll see us build on all of this over the coming quarters with more to come at Forge. That partnership lives at the infrastructure layer. But the question underneath most investor conversations right now is what sits above it. As AI models improve and converge, where does enduring value get created? The market's answer is coalescing around the harness. The layer of context management, workflow orchestration, proprietary data, feedback loops, permissions, and evaluations that turns raw model intelligence into reliable business outcomes. We agree. And the market has just found a word for what Braze has spent 15 years building for marketers. The four foundational strengths I've walked through on our last two calls, the Braze data platform as the foundation for first-party context, our vertically integrated data and decisioning stack, our composable AI ecosystem, and our position as both a revenue engine and mission-critical infrastructure are the anatomy of an agentic harness. And the same vertical integration that made our stream processor what we believe is the highest scale, most performant engine in our industry has now become something bigger. A complete environment where marketer AI is built, deployed, and trusted with production workloads. And while we talk about this in technical terms, for a marketer, the harness has a much simpler purpose. It's what closes the gap between having a great idea and being able to ship it. Start with what the agents know. Personalization rooted in a brand's own data is the difference between a front desk reading from a script and a concierge who has known the guest for years. Engineering that knowledge, securely and at massive scale, is what the Braze data platform was built for. Among our large customers, 87% use the Braze data platform, 91% have adopted Canvas, and 57% use cloud data ingestion, a reverse ETL suite which enables bidirectional data flow between Braze and the major cloud data warehouses, including AWS Redshift, Databricks, Google BigQuery, and Snowflake. The context system has three connected parts. The Braze data platform holds the first-party data, Canvas carries the live operational context of every customer journey, and Braze AI puts both to work. Agent console agents executing on that context in the moment and decisioning studio learning from every outcome to optimize the decisions ahead. This quarter, we continue to widen those context streams. Cloud data ingestion now connects customer data warehouses directly into decisioning studio to power one-on-one personalization without middleware. And our new knowledge sources feature adds semantic search to agent console. As this engine runs, we're not just ingesting data. We're also producing tremendous amounts of it. Currents keeps expanding the scope of what it streams out, with user profile updates now in beta and the entire Braze AI catalog generating output all along the way. Content variants, experiment results, and observability data on every decision the AI makes. This data is so valuable that adoption of our export features is near universal. Amongst our large customers, 96% use our SDK, 98% use our REST APIs, and 87% recapture the data that Braze generates through either current streaming or Snowflake data sharing. That depth flowing in both directions is what gives the context layer its power. Next is how the work gets done and how it gets better. We've said since its inception that Canvas is a programming environment, and we built it like one. Application context, a scalable distributed runtime, debugging and observability, and full versioning and collaboration controls. For years, that depth has given Braze a higher ceiling than our competition. An operator is now unleashing marketers to reach it, letting all of Braze shine through. And the timing could not be better, because coding is the single skill that the foundation models have advanced most quickly. These models love to code, and we handed them a proper development environment to build in. Because we vertically integrated operators' skills with the design and metadata of the dashboard itself, for Braze workloads, operators' bespoke intelligence is racing ahead of the foundational models that it's built on, providing proprietary advantage for our customers to further enhance their productivity. Operator now builds canvases end-to-end, configuring the agent console and content optimizer steps inside them, and it can navigate the entire dashboard on its own. Describe your goal from any page, and it goes where the work needs to happen. Virgin Media 02, one of the UK's leading telecom providers, used Operator to cut their campaign quality assurance process from six hours down to mere seconds, and their build iterations from two days to about 15 minutes. Thank you for watching. and driving 37% more car valuations by their consumers, their key conversion metric. Meanwhile, Decisioning Studio is steadily taking responsibility for making compound decisions of what to send, when, on which channel, and with which offer, all optimized against the precise business outcomes our customers choose. Thank you for watching. Thank you for watching. The brand book becomes enforceable standards. The approval chain becomes an audit trail, automated nearly everywhere, but still with human sign-off wherever the customer wants it. Last September at Forge, we asked a room of senior executives to raise their hand if they'd let an AI system send content to their customers without review. No one was ready. Yet. But we knew that wasn't a technology gap. It's a trust gap. And closing it is a product problem that we're solving. And as AI advances in cybersecurity capability, the challenge of trust is extending beyond the dashboard. In the post-mythos communication environment, agentic traffic is rising fast. There's more noise for brands to cut through and more sophisticated threats probing their defenses. In an environment this adversarial, your pipes better not be dumb. They need to be secure, high performance, and automatically optimizing. The major inbox providers are deploying increasingly stringent AI-driven filtering that rejects generic content. The answer is personalization built on context. Protecting deliverability is no longer a niche issue for the marketing team. It has become a whole company revenue protection challenge. The same is true for anti-fraud protections, where tighter sending controls and AI-enhanced countermeasures against traffic pumping have made us better watchguards for our customers. and our technical account managers are increasingly the guides for this new terrain, helping ensure our customers' data flows, product integrations and messaging architectures are designed securely, navigating them through the many governance and security gates required to ramp up their agentic workloads safely. That backdrop also explains the evolution of our services revenue, where two distinct trends are playing out. The first is mechanical. Starting with last year's pricing and packaging changes, we began breaking out services more explicitly and New Business Order Forms and at Renewal. Under our prior structure, customer success entitlements were primarily bundled into platform fees. As customers move to the new structure, some revenue that was previously bundled as subscription is now packaged as professional services. And year-over-year comparisons of the two lines reflect this reclassification as cohorts migrate. As we stated in our last earnings call, approximately 90% of our professional services revenue is recurring. Recognized radically over the same term as subscription revenue. The remaining 10% of our services revenue comes from the minority of customers who opt for lightweight onboarding directly from Braze. Although more than 80% of new Braze customers now leverage our growing ecosystem of Braze-certified agency partners as they kick off long-term services engagements that will maximize their ROI from Braze over the long term. The second driver of these trends is simply demand growth, and you just heard the reasons for it. As AI scales volume and risk together, customers are investing in the expertise that protects the ROI of their primary revenue channels. And where does the harness go from here? We're excited to see AI acceleration of marketer productivity building along three dimensions as we invest further in operators specifically and Braze AI more generally. First, seeing operator take on larger and more complex projects. The multi-step work that used to require a specialist blocking off their week and extended collaboration with engineering is now built automatically. Second, moving from executing tasks to keeping watch. Think of operator as a supervisor that never goes off shift, monitoring the AI systems, making optimization and decisioning choices, watching channel volumes, broad signals, and deliverability trends, and flagging anything that drifts off course. And third, AI that works with whole teams instead of individuals. Most AI productivity gains so far have gone to individual users, but customer engagement is a team sport that crosses marketing, data, and engineering. and supporting how those teams work together is where we see the next wave of value. This is composable intelligence. Agents that do the work inside Braze while also working directly with the people and systems at the brands we serve. And customers are adopting these features with enthusiasm. In the last 90 days, almost 80% of Braze accounts engaged with Operator more than 10 times and over half of those turned it into a habit, chatting with Operator more than 100 times in that same time period. Operator has also rapidly driven record declines in customer support tickets, letting our premium support stay focused on high complexity, high value challenges, delivering stronger customer outcomes and higher post-sales efficiency at the same time. But this is not just deflection of cases. Operator is helping our customers build, and it's already a sophisticated builder in its own right. at a hackathon that we hosted alongside City by City Sydney, a team from an Australian food and beverage brand put Operator through its paces. They were already using Braze surveys to follow up with customers after their coffee purchases, and they wanted to upgrade those follow-ups with stronger personalization based on the feedback itself while introducing new channels to their most engaged customers. Operator took them through the whole setup. It found the right survey data, took them into Agent Console to build a sentiment agent, and configured and tested the outputs. Then it drafted a new canvas, added the agent step, and templated the results into a follow-up text message. Customers who expressed negative sentiment were routed accordingly, and the agent summarized each customer's specific feedback so the follow-up spoke to the exact concern they raised. If the coffee was cold, the message said so. By leveraging Operator for this multi-step build, idea to implementation took only about 10 minutes. Marketing technology has always forced a trade-off. Every gain in power came with added complexity, and every ambitious idea took specialists, time, and patience. We believe that we are now breaking that trade-off. Braze is getting both more powerful and easier to use at the same time. When a marketer watches an idea go from creative spark to working prototype in just minutes, they remember why they fell in love with this work. And that's the flywheel that we're building. The product itself inspires the builder spirit. Our hackathons, events, and community feed it. And ambitious creative marketers bring their ideas to life faster, amplify their performance with leading-edge AI, and carry their whole teams farther. Braze was born out of a hackathon. True to our roots, we've been hosting them all over the world, and they're driving great early adoption for Agent Console. Over 650 customers have now made their first agents, with more being added every day. The hardest part of this industry has never been the idea. Thank you for watching. and so are the marketers using it. Our job is to teach them to fly again. They take it from there. We have a lot more to share about operator, content optimizer, agent console and decisioning studio at Forge in just a few weeks and we hope to see you there either in person or on the live stream. While we won't be hosting a full investor day this fall, we will be welcoming investors for a reception on the evening of Tuesday, September 29th. Contact Investor Relations for more details. Thank you for your interest and support in Braze. With that, I'll turn the call over to Pankaj.