Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Braze Inc (BRZE, Financial) reported a 26% year-over-year revenue increase to $145.5 million, demonstrating strong financial performance.
- The company achieved its first-ever quarter of non-GAAP operating income profitability and non-GAAP net income profitability.
- Customer count increased to 2,163, with notable new business wins and upsells from major brands like Asiana Airlines, Bell Media, and Papa John's Pizza.
- Braze Inc (BRZE) launched the Braze data platform, enhancing data unification, activation, and distribution capabilities.
- The company introduced new initiatives like Braze for startups and a free trial program to accelerate customer community growth and platform adoption.
Negative Points
- Despite strong financial performance, the macroeconomic environment continues to present challenges, impacting customer behaviors and spending.
- Dollar-based net retention for all customers was 114%, indicating some pressure on customer retention and expansion.
- The company expects a non-GAAP operating loss in the range of $3.5 million to $4.5 million for the third quarter of fiscal 2025.
- Third quarter operating expenses will be impacted by the cost of Forge, the annual customer conference, and other global customer events, estimated at $5 million to $6 million.
- Braze Inc (BRZE) anticipates continued pressure on net retention rates, indicating potential ongoing challenges in maintaining customer growth and expansion.
Q & A Highlights
Q: Bill, with Apple supporting RCS in iOS 18, have you seen any customer interest yet on RCS? And how could you see this as a channel for Braze since RCS seems more complex than SMS and it has the ability to be more personalized for individual users?
A: Yes. So first, we're excited for RCS and actively preparing full support, and we're excited to share more about that at Forge in just a few weeks. Some aspects of RCS are going to be strictly better than SMS sending even for text-only messages. And so I think that's something that will really help marketers work through some of the additional complexity is that they can just lift and shift prior SMS strategies. And then they're actually get access to authentication and branding as a sender, they're going to get richer analytics. And then they'll also then be able to progressively leg into these new content types. And while there's got work to do on the Braze side both for ops because like SMS and carrier ops because of the carrier complexity, and on the go-to-market side, as we ingest what surely is going to be a dynamic pricing environment in the early innings of RCS's global rollout. Most of the R&D needs to support things like composition, previewing, testing and reporting on RCS have already been done in some fashion, due to our support of WhatsApp, line or other Braze zone and operated channels like content cards and in product messaging. And similarly, for any customers that are already adopting richer content formats, even if they're just in push notifications, but obviously also with WhatsApp in line. The shift over to RCS a lot. And from an R&D perspective, it obviously increases the leverage that we get on that investment. And as a good reminder, the compounding benefits that Braze grants of channel support provides us as the consumer message sending landscape continues to grow more complex over time. We're also well prepared for it with the launch of our more flexible credit model. So if you remember, until the end of Q1, we actually used to require that customers made commitments on a country-by-country basis for SMS and MMS sending separately. Now any customer who's actually bought the credits from Braze starting at the end of Q1 and then into Q2 where we saw a great uptake on that, both for renewals as well as new business. We'll be able to use those same credits just with conversion ratios as RCS support becomes available. So that's definitely something to look forward to as Braze continues to launch new channels into the future, including RCS, is that the go-to-market complexity and the ability for our existing customer base to adopt them quickly to be able to as any sort of stage that involves new contracting.
Q: Isabelle, how should we think about member retention for the rest of this year? Do you feel like we're at the right level at this point? And was there any impact to this metric based on the acquisition from a year ago?
A: Yeah. So thanks for the question. So I've been asked this question over the last couple of quarters of sort of when can we see the bottom here. And I think we're not quite yet at the bottom. And as you think about how we're guiding. Think about the guide as embedding some element of kind of continued pressure on this metric. So I don't think we are quite stabilizing here yet. We lagged out of sort of another quarter historically that had some stronger numbers. And so that's part of it, is continuing to leg out of some of these stronger historical quarters. Not a huge impact here from the acquisition, small percentage points, from the impact of having lapped the acquisition, but really more just lagging out of historically stronger quarters.
Q: Bill, maybe you touched on the legacy Marketing Cloud replacement cycle. Maybe talk about how often is AI or your road map around AI has been cited by customers in these deals as kind of a point of differentiation? And is the intensity there in terms of the displacement cycle? Are you seeing that increase recently or are people holding on more to their incumbent solution given the challenging macro?
A: Yeah. So I think we're seeing both attitudes depending on the posture of the company that we're working with or selling to. In some places, there are especially driven by things like vendor consolidation as well as just a bit of breathing room from slower growth rates that companies are experiencing right now. They're taking as an opportunity to go and shore up their prior foundations, embark transformation journeys, in other places because the teams are static or there's not new projects launching and such, they're sticking with the status quo. And so I think you're seeing both of them at play. From an AI perspective, I think it continues to be a fully important part of every deal cycle. When you're going through a legacy replacement, you obviously want to make sure that the vendor that moving on to is going to be future-proofed as well, especially if you're a more traditional enterprise, it maybe only makes a change in their technology stack like this every 5 or 10 years. And so there's a bit of a double-edged sword there in the sense that there's obviously still a lot of noise in the AI space, and it's an important part of every deal cycle, but customers are still in prospects still have a hard time getting full conviction behind it. There's a lot of great product marketing around AI from the legacy clouds and being able to see what's real from what's noise. Still very difficult for a lot of prospects and we take that on to try to take a very pragmatic approach and a very transparent approach about what's possible, what's not, where our advantages are we work through that with customers. And so I think it's a complicated landscape. But I think that when we look at the long-term legacy replacement cycle, what we're seeing is there's no meaningful new innovation or investment really going into any of these legacy Marketing Cloud offerings that compete specifically with Braze. Their eye seems to be off the ball on this from a marketing and customer engagement space, and they don't have the right foundations to be able to compete with us over the longer term. We still see them leveraging things like their ecosystem relationships through places like the GSIs or with aggressive pricing tactics. But we feel really good about our position against legacy marketing cloud especially as -- we continue to look at the advantages that we have in AI adoption and AI development because of our stronger foundations around real-time capability, around our comprehensive data ingestion, governance and management that we have through the Braze data platform and also the comprehensive touch points that we have across all of our channel breadth in order to, and take the outcomes of those decisions that are being made with AI and bring them to life for the customer.
Q: Maybe talk about the macro environment tactically versus business last quarter. When I look at the numbers, it seems like NRR took a bigger step down this quarter sequentially. Some of the bookings numbers RPO-based, CRPO-based seems like slowed a bit. So wanted to hear if the macro environment, do you feel like it took a step down? Or are there some other dynamics maybe Isabelle can talk about on the deferred revenue side, which
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
