Braze, Inc. (NASDAQ:BRZE) Q1 2023 Earnings Conference Call June 13, 2022 5:00 PM ET Company Participants Bill Magnuson - Co-Founder & Chief Executive Officer Isabelle Winkles - Chief Financial Officer Chris Ferris - Head of Investor Relations Conference Call Participants Ryan MacWilliams - Barclays DJ Hynes - Canaccord Genuity Gabriela Borges - Goldman Sachs Brent Bracelin - Piper Sandler Brian Peterson - Raymond James Pinjalim Bora - JP Morgan Arjun Bhatia - William Blair Derrick Wood - Cowen Patrick Walra ...

Financial Performance - Revenue reached $77.5 million, a 61.9% year-over-year increase and a 10.0% sequential growth[6] - Quarterly revenue run rate is $310 million[4] - GAAP gross margin was 66.6%, a decrease of 40 basis points year-over-year, while non-GAAP gross margin was 67.8%, an increase of 40 basis points year-over-year[6] - GAAP operating loss was $39.6 million, compared to a $13.0 million loss in the prior year quarter; non-GAAP operating loss was $18.0 million, compared to a $6.1 million loss in the prior year quarter[6] - Free cash flow was $15.7 million, compared to $(4.6) million in the prior year quarter[6] Customer Metrics - The company has 1,503 customers in over 60 countries[4] - Customer count increased to 1,503 as of April 30, 2022, representing a 50% year-over-year growth[7, 9] - There are 129 customers with over $500K+ ARR, up 65% year-over-year[9] - Dollar-based net retention rate was 127%[4, 6] - Subscription revenue accounts for 94% of total revenue[4] Future Outlook - Q2'23 revenue is projected to be between $80.5 million and $81.5 million, and full fiscal year 2023 revenue is projected to be between $345.0 million and $349.0 million[11] - Q2'23 non-GAAP operating loss is projected to be between $(19.5) million and $(20.5) million, and full fiscal year 2023 non-GAAP operating loss is projected to be between $(77.0) million and $(81.0) million[11] Remaining Performance Obligations - Total remaining performance obligations reached $390.9 million, a 57% year-over-year increase[10]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides Braze, Inc.'s unaudited condensed consolidated financial statements and management's analysis for the quarter ended April 30, 2022 [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents Braze, Inc.'s unaudited condensed consolidated financial statements and related notes for the quarter ended April 30, 2022 [Condensed Consolidated Balance Sheets (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) This section provides Braze, Inc.'s unaudited condensed consolidated balance sheets as of April 30, 2022, and January 31, 2022 | ASSETS | April 30, 2022 ($ thousands) | January 31, 2022 ($ thousands) | | :--------------------------- | :--------------------------- | :----------------------------- | | Cash and cash equivalents | 90,610 | 478,937 | | Marketable securities | 439,486 | 35,156 | | Total current assets | 598,765 | 608,185 | | TOTAL ASSETS | 716,298 | 666,262 | | LIABILITIES | | | | Total current liabilities | 180,979 | 159,966 | | TOTAL LIABILITIES | 228,754 | 161,444 | | TOTAL STOCKHOLDERS' EQUITY | 484,673 | 501,583 | - Cash and cash equivalents decreased significantly from **$478.9 million** to **$90.6 million**, while marketable securities increased from **$35.2 million** to **$439.5 million**, indicating a shift in asset allocation[26](index=26&type=chunk) - Total assets increased by approximately **$50 million**, driven by the increase in marketable securities and operating lease right-of-use assets[26](index=26&type=chunk) [Condensed Consolidated Statements of Operations (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited)) This section presents Braze, Inc.'s unaudited condensed consolidated statements of operations for the three months ended April 30, 2022 and 2021 | Metric | Three Months Ended April 30, 2022 ($ thousands) | Three Months Ended April 30, 2021 ($ thousands) | | :--------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Revenue | 77,495 | 47,877 | | Cost of revenue | 25,906 | 15,807 | | Gross profit | 51,589 | 32,070 | | Total operating expenses | 91,238 | 45,095 | | Loss from operations | (39,649) | (13,025) | | Net loss | (39,633) | (13,153) | | Net loss attributable to Braze, Inc. | (39,269) | (12,834) | | Net loss per share (basic & diluted) | (0.42) | (0.65) | - Revenue increased by **61.9%** year-over-year, from **$47.9 million** in Q1 2021 to **$77.5 million** in Q1 2022[30](index=30&type=chunk) - Net loss attributable to Braze, Inc. significantly widened from **$12.8 million** to **$39.3 million**, primarily due to a substantial increase in operating expenses[30](index=30&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss%20(Unaudited)) This section presents Braze, Inc.'s unaudited condensed consolidated statements of comprehensive loss for the three months ended April 30, 2022 and 2021 | Metric | Three Months Ended April 30, 2022 ($ thousands) | Three Months Ended April 30, 2021 ($ thousands) | | :------------------------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net loss | (39,633) | (13,153) | | Other comprehensive loss, net | (1,757) | (170) | | Comprehensive loss, net | (41,390) | (13,323) | | Comprehensive loss attributable to Braze, Inc. | (41,026) | (13,004) | - Other comprehensive loss increased significantly from **$170 thousand** in Q1 2021 to **$1.76 million** in Q1 2022, primarily driven by unrealized losses on marketable securities and foreign currency translation adjustments[34](index=34&type=chunk) [Condensed Consolidated Statements of Convertible Preferred Stock, Redeemable Non-controlling Interest and Stockholders' Equity (Deficit) (Unaudited)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Convertible%20Preferred%20Stock%2C%20Redeemable%20Non-controlling%20Interest%20and%20Stockholders%27%20Equity%20(Deficit)%20(Unaudited)) This section presents Braze, Inc.'s unaudited condensed consolidated statements of stockholders' equity and related items as of April 30, 2022, and January 31, 2022 | Metric | April 30, 2022 ($ thousands) | January 31, 2022 ($ thousands) | | :----------------------------------- | :--------------------------- | :----------------------------- | | Redeemable Noncontrolling Interest | 2,871 | 3,235 | | Additional Paid-in Capital | 741,291 | 717,175 | | Accumulated Deficit | (254,230) | (214,961) | | Total Stockholders' Equity | 484,673 | 501,583 | - Total stockholders' equity decreased from **$501.6 million** to **$484.7 million**, primarily due to the accumulated deficit increasing by **$39.3 million** from net loss, partially offset by increases in additional paid-in capital from stock-based compensation and charitable stock donations[37](index=37&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This section presents Braze, Inc.'s unaudited condensed consolidated statements of cash flows for the three months ended April 30, 2022 and 2021 | Cash Flow Activity | Three Months Ended April 30, 2022 ($ thousands) | Three Months Ended April 30, 2021 ($ thousands) | | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net cash provided by/(used in) operating activities | 17,921 | (3,807) | | Net cash (used in)/provided by investing activities | (407,803) | 17,153 | | Net cash provided by financing activities | 2,630 | 1,965 | | Net change in cash, cash equivalents, and restricted cash | (388,327) | 15,177 | | Cash, cash equivalents, and restricted cash, end of period | 94,646 | 48,195 | - Operating activities generated **$17.9 million** in cash in Q1 2022, a significant improvement from a **$3.8 million** cash outflow in Q1 2021[41](index=41&type=chunk) - Investing activities resulted in a substantial cash outflow of **$407.8 million** in Q1 2022, primarily due to increased purchases of marketable securities, contrasting with a **$17.2 million** inflow in Q1 2021[41](index=41&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed notes on Braze, Inc.'s accounting policies, revenue recognition, fair value measurements, and other financial disclosures for the reported period [1. Company Overview](index=12&type=section&id=1.%20Company%20Overview) Braze, Inc. is a cloud-based customer engagement platform operating as an emerging growth company, which has not experienced a material negative impact from the COVID-19 pandemic to date - Braze, Inc. is a cloud-based customer engagement platform that facilitates real-time experiences between brands and customers across various channels[47](index=47&type=chunk) - The company is an emerging growth company under the JOBS Act, utilizing extended transition periods for new accounting standards and reduced disclosure obligations[49](index=49&type=chunk) - Braze has not experienced a materially negative impact from the COVID-19 pandemic to date, but continues to monitor its potential effects[50](index=50&type=chunk) [2. Summary of Significant Accounting Policies](index=12&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines Braze's significant accounting policies, including the early adoption of ASC 842 (Leases) and Topic 326 (Credit Losses) on February 1, 2022 - Braze early adopted ASC 842 (Leases) on February 1, 2022, recognizing a **$59.6 million** right-of-use asset and a **$61.3 million** lease liability, without restating prior periods[68](index=68&type=chunk)[70](index=70&type=chunk) - The company also early adopted Topic 326 (Credit Losses) on February 1, 2022, determining it had no material impact on consolidated financial statements[71](index=71&type=chunk) - Significant estimates and assumptions are made for revenue arrangements, deferred contract costs, stock-based compensation, operating leases, and tax assets, with increased judgment due to market volatility[54](index=54&type=chunk)[55](index=55&type=chunk) [3. Revenue from Contracts with Customers](index=16&type=section&id=3.%20Revenue%20from%20Contracts%20with%20Customers) Braze disaggregates revenue into subscription and professional services, with subscription being the primary driver, and recognized **$59.5 million** from deferred revenue in Q1 2022 | Revenue Type | Three Months Ended April 30, 2022 ($ thousands) | Three Months Ended April 30, 2021 ($ thousands) | | :---------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Subscription | 72,836 | 44,708 | | Professional services and other | 4,659 | 3,169 | | Total | 77,495 | 47,877 | | Revenue Geography | Three Months Ended April 30, 2022 ($ thousands) | Three Months Ended April 30, 2021 ($ thousands) | | :---------------- | :---------------------------------------------- | :---------------------------------------------- | | United States | 45,352 | 28,865 | | International | 32,143 | 19,012 | | Total | 77,495 | 47,877 | - Revenue recognized from deferred revenue balances was **$59.5 million** for the three months ended April 30, 2022, up from **$35.9 million** in the prior year period[79](index=79&type=chunk) [4. Variable Interest Entity and Redeemable Non-Controlling Interest](index=17&type=section&id=4.%20Variable%20Interest%20Entity%20and%20Redeemable%20Non-Controlling%20Interest) Braze operates Braze KK as a consolidated subsidiary and variable interest entity (VIE) to expand in the Japanese market, with its non-controlling interest classified as redeemable mezzanine equity - Braze KK is consolidated as a Variable Interest Entity (VIE) to expand the company's business in the Japanese market[84](index=84&type=chunk)[85](index=85&type=chunk) - The non-controlling interest in Braze KK is classified as redeemable mezzanine equity due to investor put rights, but is not accreted to redemption value as redemption is not currently probable[86](index=86&type=chunk) [5. Fair Value Measurements](index=18&type=section&id=5.%20Fair%20Value%20Measurements) Braze measures financial instruments at fair value, primarily classifying money market funds and U.S. government bonds as Level 1, and other debt securities as Level 2 | Financial Instrument | April 30, 2022 ($ thousands) | January 31, 2022 ($ thousands) | | :------------------------ | :--------------------------- | :----------------------------- | | Cash equivalents (Total) | 33,336 | 439,627 | | Marketable securities (Total) | 439,486 | 35,156 | | Total | 472,822 | 474,783 | - Money market funds and U.S. government bonds are classified as Level 1, while foreign government bonds, commercial paper, corporate debt securities, and asset-backed securities are classified as Level 2[89](index=89&type=chunk) [6. Marketable Securities](index=19&type=section&id=6.%20Marketable%20Securities) Braze's marketable securities significantly increased to **$439.5 million** as of April 30, 2022, primarily in U.S. government securities, with unrealized losses due to interest rate expectations | Security Type | April 30, 2022 (Estimated Fair Value, $ thousands) | January 31, 2022 (Estimated Fair Value, $ thousands) | | :--------------------------- | :------------------------------------------------- | :------------------------------------------------- | | U.S. government securities | 353,913 | 4,006 | | Foreign bonds | 2,020 | 3,203 | | Commercial paper | 9,699 | 18,993 | | Corporate debt securities | 70,949 | 3,020 | | Asset-backed securities | 2,905 | 5,934 | | Total marketable securities | 439,486 | 35,156 | - The weighted-average remaining maturity of the investment portfolio was less than one year as of April 30, 2022[92](index=92&type=chunk) - Unrealized losses on marketable securities are primarily due to market volatility associated with expectations of aggressive interest rate increases by the Federal Reserve; no credit impairments were recorded[93](index=93&type=chunk) [7. Property and Equipment, Net](index=20&type=section&id=7.%20Property%20and%20Equipment%2C%20Net) Property and equipment, net, increased to **$9.5 million** as of April 30, 2022, driven by investments in capitalized internal-use software, computer equipment, and leasehold improvements | Asset Type | April 30, 2022 ($ thousands) | January 31, 2022 ($ thousands) | | :------------------------------ | :--------------------------- | :----------------------------- | | Capitalized internal-use software | 5,837 | 5,353 | | Computer equipment and software | 4,701 | 3,833 | | Leasehold improvements | 4,085 | 2,470 | | Total property and equipment, net | 9,497 | 7,393 | - Total depreciation and amortization expense for property and equipment was **$1.0 million** for the three months ended April 30, 2022, up from **$0.6 million** in the prior year[97](index=97&type=chunk) [8. Prepaid Expenses and Other Current Assets](index=20&type=section&id=8.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Prepaid expenses and other current assets decreased to **$26.0 million** as of April 30, 2022, primarily due to a reduction in prepaid software subscriptions | Asset Type | April 30, 2022 ($ thousands) | January 31, 2022 ($ thousands) | | :------------------------------ | :--------------------------- | :----------------------------- | | Prepaid software subscriptions | 12,531 | 19,396 | | Prepaid advertising | 1,192 | 704 | | Prepaid insurance | 3,501 | 4,372 | | Total prepaid expenses and other current assets | 26,006 | 29,588 | [9. Accrued Expenses and Other Current Liabilities](index=21&type=section&id=9.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued expenses and other current liabilities decreased to **$28.9 million** as of April 30, 2022, mainly due to reductions in accrued software subscriptions and commissions | Liability Type | April 30, 2022 ($ thousands) | January 31, 2022 ($ thousands) | | :-------------------------------------- | :--------------------------- | :----------------------------- | | Accrued compensation costs | 14,269 | 14,075 | | Accrued software subscriptions | 2,458 | 3,217 | | Accrued commissions | 4,060 | 5,961 | | Total accrued expenses and other current liabilities | 28,870 | 31,623 | [10. Employee Benefit Plans](index=21&type=section&id=10.%20Employee%20Benefit%20Plans) Braze's matching contributions to its 401(k) plan increased to **$1.8 million** for the three months ended April 30, 2022, reflecting increased employee benefits - Matching contributions to the 401(k) plan increased to **$1.8 million** for the three months ended April 30, 2022, from **$1.2 million** in the prior year[102](index=102&type=chunk) [11. Stockholder's Equity (Deficit)](index=21&type=section&id=11.%20Stockholder%27s%20Equity%20(Deficit)) Braze has a dual-class common stock structure and recorded a **$4.3 million** expense for a charitable donation of Class A common stock in Q1 2022 - Braze has Class A common stock (one vote per share) and Class B common stock (ten votes per share), with Class B convertible to Class A under certain conditions[103](index=103&type=chunk) - A charitable donation of **96,465** Class A common shares resulted in a **$4.3 million** expense in Q1 2022[104](index=104&type=chunk) [12. Employee Stock Plans](index=22&type=section&id=12.%20Employee%20Stock%20Plans) Braze granted **1.6 million** RSUs in Q1 2022, leading to a significant increase in total stock-based compensation expense to **$17.2 million** from **$7.0 million** in the prior year - No stock options were granted during the three months ended April 30, 2022, compared to **3.1 million** shares granted in the prior year[109](index=109&type=chunk) - **1,594,649** Restricted Stock Units (RSUs) were granted during the three months ended April 30, 2022, with a weighted-average grant date fair value of **$41.97**[111](index=111&type=chunk) Stock-based compensation expense | Expense Category | Three Months Ended April 30, 2022 ($ thousands) | Three Months Ended April 30, 2021 ($ thousands) | | :--------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Cost of revenue | 920 | 190 | | Sales and marketing | 5,667 | 2,338 | | Research and development | 6,173 | 2,587 | | General and administrative | 4,211 | 1,841 | | Total stock-based compensation expense | 17,203 | 6,956 | [13. Commitments and Contingencies](index=23&type=section&id=13.%20Commitments%20and%20Contingencies) Braze is subject to indirect taxes and legal proceedings, with **$1.3 million** in related liabilities recognized as of April 30, 2022, but no material loss is expected beyond recognized amounts - Braze is subject to indirect taxation (VAT, GST, sales and use tax) in various U.S. states and foreign jurisdictions[118](index=118&type=chunk) - Liabilities for indirect tax contingencies totaled **$1.3 million** as of April 30, 2022 and January 31, 2022[118](index=118&type=chunk) - The company is involved in various legal or regulatory proceedings but believes no material loss will be incurred in excess of recognized amounts[119](index=119&type=chunk) [14. Leases](index=24&type=section&id=14.%20Leases) Braze's lease portfolio consists of office space, with a total net lease cost of **$4.6 million** for Q1 2022, a weighted-average remaining term of **6.8 years**, and a discount rate of **5.4%** Lease Cost Type | Lease Cost Type | Three Months Ended April 30, 2022 ($ thousands) | | :-------------------- | :---------------------------------------------- | | Operating lease cost | 3,496 | | Variable lease cost | 585 | | Short-term lease cost | 552 | | Total net lease cost | 4,633 | - The weighted-average remaining lease term for operating leases is **6.8 years**, with a weighted-average discount rate of **5.4%**[121](index=121&type=chunk) [15. Income Taxes](index=25&type=section&id=15.%20Income%20Taxes) Braze recorded minimal income tax expense and an effective tax rate of **0.0%** for Q1 2022, maintaining a full valuation allowance against its net deferred tax assets - Income tax expense was **$0.0 million** for the three months ended April 30, 2022, compared to **$0.2 million** in the prior year[124](index=124&type=chunk) - The effective tax rate was **0.0%** for the three months ended April 30, 2022, and **(1.2)%** for the same period in 2021[124](index=124&type=chunk) - Braze maintains a full valuation allowance against its net deferred tax assets, as it is not more likely than not that they will be realized[125](index=125&type=chunk) [16. Net Loss per Share](index=25&type=section&id=16.%20Net%20Loss%20per%20Share) Braze's basic and diluted net loss per share improved to **$(0.42)** in Q1 2022 from **$(0.65)** in the prior year, despite a higher net loss, due to increased weighted-average shares outstanding Net Loss per Share | Metric | Three Months Ended April 30, 2022 | Three Months Ended April 30, 2021 | | :------------------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss attributable to Braze, Inc. ($ thousands) | (39,269) | (12,834) | | Weighted-average shares outstanding (thousands) | 93,250 | 19,669 | | Net loss per share (basic and diluted) | (0.42) | (0.65) | - Potentially dilutive securities, including options and RSUs, were excluded from diluted net loss per share as their inclusion would be anti-dilutive[128](index=128&type=chunk) [17. Related Party Transactions](index=26&type=section&id=17.%20Related%20Party%20Transactions) Purchases of services from Datadog, Inc. increased to **$0.6 million** in Q1 2022, following Datadog's CFO joining Braze's board - Purchases of services from Datadog, Inc. increased from **$0.2 million** in Q1 2021 to **$0.6 million** in Q1 2022, following Datadog's CFO joining Braze's board[129](index=129&type=chunk) [18. Subsequent Events](index=26&type=section&id=18.%20Subsequent%20Events) In June 2022, Braze granted **0.7 million** shares of Class A common stock as RSUs to employees, with a grant date fair value of **$26.0 million** - In June 2022, Braze granted **0.7 million** shares of Class A common stock as RSUs to employees, with a grant date fair value of **$26.0 million**[130](index=130&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses Braze's business, performance factors, financial results for Q1 2022, liquidity, capital resources, and critical accounting policies, highlighting revenue growth and increased net losses [Overview](index=27&type=section&id=Overview) Braze is a leading cloud-based customer engagement platform generating revenue primarily from subscription fees based on monthly active users and message volume, utilizing a 'land-and-expand' model - Braze is a cloud-based customer engagement platform enabling real-time, personalized interactions across channels like push notifications, email, and in-product messaging[133](index=133&type=chunk) - Revenue is primarily generated from subscription fees based on monthly active users and message volume, with additional revenue from professional services[135](index=135&type=chunk) - The company uses a 'land-and-expand' business model, increasing revenue by expanding platform usage, adding new channels, and selling additional products to existing customers[136](index=136&type=chunk) [Factors Affecting Our Performance](index=27&type=section&id=Factors%20Affecting%20Our%20Performance) Braze's performance is driven by customer acquisition, expansion within its existing base, international growth, and continuous innovation, with the COVID-19 pandemic having mixed impacts - Braze aims to acquire new customers in existing strong verticals (Retail & eCommerce, Financial Services, Media & Telecom, Health & Wellness, On-Demand services) and expand into new ones[138](index=138&type=chunk) - Monthly active users (MAU) increased from **3.7 billion** to **4.1 billion** as of April 30, 2022[142](index=142&type=chunk) - Dollar-based net retention rate for the trailing 12 months ended April 30, 2022, was **127%** for all customers and **133%** for customers with ARR of **$500,000** or more[147](index=147&type=chunk) - International revenue accounted for approximately **41%** of total revenue for the three months ended April 30, 2022, with plans for further expansion in Europe and Asia-Pacific[148](index=148&type=chunk) - The COVID-19 pandemic has caused a modest adverse impact on sales cycles but a modest positive impact on messaging volume from existing customers, and slower growth in certain operating expenses[151](index=151&type=chunk) [Components of Results of Operations](index=29&type=section&id=Components%20of%20Results%20of%20Operations) This section details Braze's revenue components (subscription, professional services), cost of revenue, gross profit, and operating expenses, anticipating continued investment and increased costs due to growth and public company operations - Revenue is primarily from subscription services (platform access, support, excess usage) recognized ratably, and professional services (training, configuration) recognized over up to six months[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) - Cost of revenue includes third-party cloud infrastructure, application service providers, personnel, and overhead, expected to increase with business growth[159](index=159&type=chunk)[160](index=160&type=chunk) - Operating expenses (sales & marketing, R&D, G&A) are primarily driven by personnel costs and allocated overhead, with expected increases due to growth and public company requirements[162](index=162&type=chunk) [Results of Operations (Comparison of the Three Months Ended April 30, 2022 and April 30, 2021)](index=32&type=section&id=Results%20of%20Operations) Braze reported a **61.9%** revenue increase to **$77.5 million** in Q1 2022, but net loss widened due to a **63.9%** increase in cost of revenue and significant rises in operating expenses, including a **$4.3 million** charitable stock donation | Metric | Three Months Ended April 30, 2022 ($ thousands) | Three Months Ended April 30, 2021 ($ thousands) | Change ($ thousands) | % Change | | :--------------------------- | :---------------------------------------------- | :---------------------------------------------- | :------------------- | :------- | | Revenue | 77,495 | 47,877 | 29,618 | 61.9% | | Cost of revenue | 25,906 | 15,807 | 10,099 | 63.9% | | Gross profit | 51,589 | 32,070 | 19,519 | 60.9% | | Gross margin | 66.6% | 67.0% | -0.4% pts | | | Sales and marketing | 46,044 | 24,351 | 21,693 | 89.1% | | Research and development | 21,620 | 11,797 | 9,823 | 83.3% | | General and administrative | 23,574 | 8,947 | 14,627 | 163.5% | | Loss from operations | (39,649) | (13,025) | (26,624) | 204.4% | | Net loss | (39,633) | (13,153) | (26,480) | 201.3% | - Subscription revenue increased by **$28.1 million (62.9%)**, with **47.4%** from existing customer expansion and **52.6%** from new customers; international revenue increased by **$13.1 million**[175](index=175&type=chunk) - The increase in cost of revenue was driven by **$3.3 million** in hosting/infrastructure fees, **$3.5 million** in third-party messaging fees, and **$3.1 million** in personnel/overhead costs[176](index=176&type=chunk) - General and administrative expenses included a **$4.3 million** expense for a charitable donation of Class A common stock[183](index=183&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) Braze held **$534.1 million** in cash, cash equivalents, and marketable securities as of April 30, 2022, with operating activities generating **$17.9 million** in cash, while investing activities used **$407.8 million** - As of April 30, 2022, principal liquidity sources were **$534.1 million** in cash, cash equivalents, and marketable securities[185](index=185&type=chunk) Cash Flow Activity | Cash Flow Activity | Three Months Ended April 30, 2022 ($ thousands) | Three Months Ended April 30, 2021 ($ thousands) | | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net cash provided by/(used in) operating activities | 17,921 | (3,807) | | Net cash (used in)/provided by investing activities | (407,803) | 17,153 | | Net cash provided by financing activities | 2,630 | 1,965 | - Non-GAAP Free Cash Flow was **$15.7 million** for Q1 2022, compared to **$(4.6) million** for Q1 2021, driven by higher collections from seasonally higher billings[197](index=197&type=chunk)[199](index=199&type=chunk) - Significant funding requirements include **$182.0 million** in non-cancelable purchase commitments and **$71.2 million** in operating lease obligations, primarily due over the next five years[201](index=201&type=chunk) [Critical Accounting Policies and Estimates](index=37&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Braze's financial statements rely on continuous evaluation of estimates and assumptions, with no material changes to critical accounting policies reported beyond those in Note 2 - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts[204](index=204&type=chunk) - No material changes to critical accounting policies and estimates were reported, other than those referenced in Note 2[205](index=205&type=chunk) [Recently Adopted Accounting Pronouncements](index=37&type=section&id=Recently%20Adopted%20Accounting%20Pronouncements) This section refers to Note 2, Summary of Significant Accounting Policies, for a discussion of recently adopted accounting pronouncements [JOBS Act Accounting Election](index=37&type=section&id=JOBS%20Act%20Accounting%20Election) As an 'emerging growth company,' Braze uses an extended transition period for new accounting standards, which may affect comparability and investor attractiveness - Braze, as an 'emerging growth company,' has elected to use the extended transition period for complying with new or revised accounting standards under the JOBS Act[207](index=207&type=chunk)[208](index=208&type=chunk) - This election may make the company's financial statements less comparable to other public companies and potentially affect investor attractiveness[208](index=208&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Braze is exposed to market risks from interest rate fluctuations and foreign currency exchange rates, though a hypothetical **10%** change in either would not materially impact financial statements [Inflation Risk](index=38&type=section&id=Inflation%20Risk) Inflation has not materially affected Braze's business, but an inability to offset rising costs through price increases could harm profitability - Inflation has not had a material effect on Braze's business, financial condition, or results of operations[210](index=210&type=chunk) - Inability to offset higher costs from inflationary pressures through price increases could harm the business[210](index=210&type=chunk) [Interest Rate Risk and Market Risk](index=38&type=section&id=Interest%20Rate%20Risk%20and%20Market%20Risk) Braze held **$534.1 million** in cash, cash equivalents, and marketable securities as of April 30, 2022, with a hypothetical **10%** interest rate change not materially impacting financial statements - As of April 30, 2022, Braze held **$534.1 million** in cash, cash equivalents, and marketable securities, with **$439.5 million** invested in government bonds, commercial paper, corporate debt, and asset-backed securities[211](index=211&type=chunk) - A hypothetical **10%** change in interest rates would not have a material impact on the consolidated financial statements[212](index=212&type=chunk) [Foreign Currency Exchange Rate Risk](index=38&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) Braze's foreign currency risk on revenue is limited as most sales are USD-denominated, but operating expenses in foreign currencies create some exposure, with a **10%** change not materially affecting exchange gains/losses - Braze's reporting and functional currency is the U.S. dollar; substantially all sales are USD-denominated, limiting foreign currency risk on revenue[213](index=213&type=chunk) - Operating expenses are denominated in local currencies (primarily USD, GBP, SGD, JPY), exposing the company to fluctuations in foreign currency exchange rates[213](index=213&type=chunk) - A hypothetical **10%** change in the U.S. dollar's value against other currencies would not have a material effect on realized and unrealized foreign exchange gains/losses[214](index=214&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Braze's management concluded that disclosure controls were not effective as of April 30, 2022, due to three unremediated material weaknesses, despite financial statements being fairly stated, and is actively implementing a remediation plan [Evaluation of Disclosure Controls and Procedures](index=38&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of April 30, 2022, due to material weaknesses, though financial statements are deemed fairly stated - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were not effective as of April 30, 2022[218](index=218&type=chunk) - The ineffectiveness is attributed to three material weaknesses in internal control over financial reporting[218](index=218&type=chunk) - Unaudited condensed consolidated financial statements are deemed fairly stated in all material respects in accordance with GAAP, despite the material weaknesses[219](index=219&type=chunk) [Material Weaknesses](index=39&type=section&id=Material%20Weaknesses) Three material weaknesses remain unremediated as of April 30, 2022: insufficient accounting policies, inadequate revenue recognition controls, and deficient IT controls, posing risks of material misstatement - Three material weaknesses remain unremediated as of April 30, 2022: insufficient written policies for accounting and financial reporting, lack of properly designed revenue recognition controls (ASC 606), and inadequate information technology controls[221](index=221&type=chunk) - These deficiencies could result in a material misstatement of financial statements not being prevented or detected timely[221](index=221&type=chunk) [Remediation Plan](index=39&type=section&id=Remediation%20Plan) Braze has developed a detailed remediation plan, including hiring resources, adopting new information security policies, and improving IT general controls, with efforts ongoing until deemed effective - Braze has developed a detailed remediation plan, including hiring additional internal resources, engaging external assistance, adopting new information security policies, and developing program change management and user access controls[222](index=222&type=chunk)[409](index=409&type=chunk)[410](index=410&type=chunk)[411](index=411&type=chunk) - Remediation efforts are ongoing, and control weaknesses are not considered remediated until new controls have been operational, tested, and deemed effective by management[222](index=222&type=chunk)[413](index=413&type=chunk) [Changes in Internal Control Over Financial Reporting](index=39&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the period, other than ongoing steps to remediate identified material weaknesses - No material changes in internal control over financial reporting occurred during the period covered by this Quarterly Report on Form 10-Q, other than ongoing steps to remediate identified material weaknesses[223](index=223&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=39&type=section&id=Inherent%20Limitations%20on%20Effectiveness%20of%20Controls) Management acknowledges that control systems provide only reasonable, not absolute, assurance against error and fraud due to inherent limitations and resource constraints - Management acknowledges that control systems provide only reasonable, not absolute, assurance against error and fraud due to inherent limitations and resource constraints[224](index=224&type=chunk)[225](index=225&type=chunk) [PART II. OTHER INFORMATION](index=41&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, equity security sales, and exhibits for the reported period [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) Braze is not currently involved in any litigation expected to have a material adverse effect on its business, though defending against legal proceedings can be costly - Braze is not currently a party to any litigation that is believed to have a material adverse effect on its business, operating results, cash flows, or financial condition[228](index=228&type=chunk) - Legal proceedings can be costly, divert management attention, and may not be fully covered by insurance[228](index=228&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) This section outlines various risks and uncertainties that could materially affect Braze's business, financial condition, and share price, including growth, competition, technology, data privacy, and legal compliance [Risk Factors Summary](index=41&type=section&id=Risk%20Factors%20Summary) Key risks include unstable market conditions, difficulty forecasting growth, need for capital, intense competition, dependence on customer renewals, platform innovation, data privacy, and public company challenges - Key risks include unstable market conditions, difficulty forecasting future results due to rapid growth, need for additional capital, intense competition, and dependence on customer renewals and platform innovation[230](index=230&type=chunk)[231](index=231&type=chunk) - Other significant risks involve platform performance issues, data privacy and security compliance, reliance on third-party cloud providers, and challenges related to being a public company with a dual-class stock structure[231](index=231&type=chunk)[232](index=232&type=chunk) [Risks Related to Our Growth and Capital Requirements](index=42&type=section&id=Risks%20Related%20to%20Our%20Growth%20and%20Capital%20Requirements) Braze faces risks from unstable market conditions, unsustainable rapid growth, potential need for additional capital, uncertain future profitability due to operating losses, and inaccurate market opportunity estimates - Unstable market and economic conditions, including inflation and geopolitical conflicts, may adversely affect Braze's business, financial condition, and share price[233](index=233&type=chunk)[234](index=234&type=chunk) - Rapid revenue growth may not be indicative of future growth, and forecasting is difficult due to limited operating history at current scale and various fluctuating factors[235](index=235&type=chunk)[237](index=237&type=chunk)[240](index=240&type=chunk)[242](index=242&type=chunk) - Braze has a history of operating losses (**$39.6 million** in Q1 2022) and may not achieve or sustain profitability due to substantial investments in technology, sales, marketing, and international expansion[244](index=244&type=chunk)[245](index=245&type=chunk) - Estimates of market opportunity and growth forecasts may be inaccurate, and the business may fail to grow at similar rates even if the market expands[246](index=246&type=chunk)[248](index=248&type=chunk) [Risks Related to Our Business and Our Brand](index=45&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Our%20Brand) Braze faces intense competition, requires continuous innovation and adaptation to technological changes, must effectively manage rapid growth, and is exposed to substantial liabilities from indemnity provisions in customer agreements - Braze faces intense competition from established and emerging marketing solution providers, many with greater resources, which could lead to pricing pressure and market share loss[249](index=249&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) - The company's ability to attract and retain customers depends on adapting to rapidly changing technology, evolving industry standards, and changing customer needs, including potential regulatory restrictions on customer engagement tools[256](index=256&type=chunk)[257](index=257&type=chunk) - Dependence on a single platform means its failure to achieve continued market acceptance, or issues with platform performance, defects, or disruptions, could severely harm the business and reputation[267](index=267&type=chunk)[271](index=271&type=chunk)[273](index=273&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk) - Failure to effectively manage rapid growth, expand sales and marketing, maintain a strong brand, or retain senior management and skilled employees could adversely affect business operations and future growth prospects[265](index=265&type=chunk)[266](index=266&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk)[297](index=297&type=chunk)[298](index=298&type=chunk)[299](index=299&type=chunk) - Indemnity provisions in agreements expose Braze to substantial liability for intellectual property infringement, privacy law violations, and data breaches, potentially leading to significant costs[303](index=303&type=chunk)[304](index=304&type=chunk) [Risks Related to Our Dependence on Third-Parties](index=53&type=section&id=Risks%20Related%20to%20Our%20Dependence%20on%20Third-Parties) Braze heavily relies on third-party providers for messaging and cloud infrastructure, exposing it to service disruptions, policy changes, and security incidents, while growth depends on successful strategic partnerships - Braze depends on third-party services for email and SMS delivery, and Apple/Google services for mobile/web notifications; disruptions or policy changes could harm customer engagement and business[313](index=313&type=chunk)[314](index=314&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk) - Substantially all cloud-based platform infrastructure is outsourced to third-party hosting providers, primarily AWS; any disruption, capacity limitation, or security incident could impair operations, lead to customer claims, and harm reputation[318](index=318&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk) - Growth depends on strategic relationships with cloud alliance, infrastructure, and technology partners; failure to establish or maintain these relationships could impair market competitiveness and revenue growth[325](index=325&type=chunk)[326](index=326&type=chunk)[327](index=327&type=chunk) [Risks Related to Privacy, Data Security and Data Protection Laws](index=55&type=section&id=Risks%20Related%20to%20Privacy%2C%20Data%20Security%20and%20Data%20Protection%20Laws) Braze is subject to stringent and evolving global data privacy laws, with non-compliance risking significant fines and litigation, while security breaches could severely harm its reputation and incur substantial liabilities - Braze is subject to numerous data privacy and security obligations, including federal and state laws in the U.S. (e.g., HIPAA, COPPA, CCPA, CPRA) and international regulations (e.g., EU GDPR, U.K. GDPR, PIPEDA, CASL)[330](index=330&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk)[333](index=333&type=chunk) - Non-compliance with these laws can lead to significant statutory penalties, fines (up to **20 million euros** or **4%** of global revenue under EU GDPR), litigation, and bans on data processing[331](index=331&type=chunk)[332](index=332&type=chunk)[333](index=333&type=chunk)[338](index=338&type=chunk) - Cross-border data transfer laws (e.g., EU GDPR restrictions, 2021 SCCs, UK Addendum) increase complexity and costs, potentially limiting business operations in certain jurisdictions[334](index=334&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk)[337](index=337&type=chunk) - Security breaches or unauthorized access to data, whether by Braze or third-party providers, could result in reputational harm, reduced demand, government enforcement actions, litigation, and significant financial losses[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk)[343](index=343&type=chunk)[344](index=344&type=chunk) [Risks Related to Other Laws and Litigation](index=58&type=section&id=Risks%20Related%20to%20Other%20Laws%20and%20Litigation) Braze faces risks from evolving internet laws, potential litigation, and compliance with anti-corruption, anti-bribery, and export/import control laws, with international operations and NOL limitations posing adverse tax consequences - Changes in internet-related laws, regulations, or infrastructure (e.g., taxes, fees, security threats) could diminish demand for Braze's platform[347](index=347&type=chunk)[348](index=348&type=chunk)[349](index=349&type=chunk) - Future litigation, including claims related to customer activities or content, could be costly, divert management resources, and harm reputation[350](index=350&type=chunk)[351](index=351&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[392](index=392&type=chunk)[393](index=393&type=chunk) - Braze is subject to anti-corruption, anti-bribery, and anti-money laundering laws (e.g., FCPA, U.K. Bribery Act); non-compliance can lead to criminal/civil liability, fines, and reputational harm[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk) - U.S. export controls and economic sanctions, as well as foreign import/export regulations, could impair Braze's ability to compete internationally and subject it to liability for violations[358](index=358&type=chunk)[359](index=359&type=chunk)[361](index=361&type=chunk)[362](index=362&type=chunk)[363](index=363&type=chunk) - International operations may lead to adverse tax consequences due to differing tax laws, rates, and interpretations, and the ability to use net operating losses (NOLs) may be limited by ownership changes or regulatory changes[364](index=364&type=chunk)[365](index=365&type=chunk)[367](index=367&type=chunk)[368](index=368&type=chunk)[369](index=369&type=chunk)[370](index=370&type=chunk) [Risks Related to Intellectual Property](index=61&type=section&id=Risks%20Related%20to%20Intellectual%20Property) Braze relies on third-party and open-source software, faces challenges in protecting its proprietary technology, and is exposed to intellectual property infringement claims, all of which could lead to increased costs or litigation - Reliance on third-party licensed software means inability to maintain licenses or errors/vulnerabilities could increase costs or reduce service levels[371](index=371&type=chunk)[372](index=372&type=chunk) - Use of open-source software carries risks of unanticipated license conditions, potential requirements to release proprietary source code, and litigation over ownership rights[374](index=374&type=chunk)[375](index=375&type=chunk)[376](index=376&type=chunk) - Failure to protect proprietary technology and intellectual property (patents, trademarks, trade secrets) through legal means and contractual protections could substantially harm the business, as enforcement is difficult and costly[377](index=377&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk)[380](index=380&type=chunk)[381](index=381&type=chunk)[382](index=382&type=chunk)[383](index=383&type=chunk)[384](index=384&type=chunk) - Braze may be subject to intellectual property infringement claims by third-parties, which are costly to defend, could result in significant damages, and may require licensing or developing alternative technologies[385](index=385&type=chunk)[386](index=386&type=chunk)[388](index=388&type=chunk)[389](index=389&type=chunk) [Risks Related to Socioeconomic Factors](index=64&type=section&id=Risks%20Related%20to%20Socioeconomic%20Factors) Braze's future revenue could be harmed if pandemic-driven demand does not continue, its hybrid work model presents operational challenges, and catastrophic events could disrupt business operations - Future revenue and results could be harmed if increased demand from certain industries (e.g., e-commerce, at-home fitness) due to COVID-19 does not continue after the pandemic[395](index=395&type=chunk)[396](index=396&type=chunk) - The distributed workforce and hybrid work model, influenced by the COVID-19 pandemic, may lead to operational inefficiencies or employee dissatisfaction[397](index=397&type=chunk)[398](index=398&type=chunk) - Natural catastrophic events and human-made problems (e.g., power disruptions, cyberattacks, global pandemics) could cause system interruptions, reputational harm, and loss of critical data[400](index=400&type=chunk)[401](index=401&type=chunk) [Risks Related to Being a Public Company](index=65&type=section&id=Risks%20Related%20to%20Being%20a%20Public%20Company) As an 'emerging growth company,' Braze benefits from reduced reporting but faces risks from unremediated material weaknesses in internal controls, which could affect financial reporting accuracy and investor confidence - As an 'emerging growth company,' Braze uses an extended transition period for accounting standards and reduced disclosure, which may make its Class A common stock less attractive to investors[402](index=402&type=chunk)[404](index=404&type=chunk)[406](index=406&type=chunk) - Three material weaknesses in internal control over financial reporting remain unremediated, posing a risk to financial reporting accuracy and potentially leading to loss of investor confidence or delisting[407](index=407&type=chunk)[408](index=408&type=chunk)[413](index=413&type=chunk)[414](index=414&type=chunk) - Operating as a public company incurs significant finance, legal, accounting, and other expenses, requiring substantial management time for compliance with regulations[444](index=444&type=chunk)[445](index=445&type=chunk) [Risks Related to Ownership of Our Class A Common Stock](index=67&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) Braze does not intend to pay dividends, its dual-class stock structure concentrates voting control, and future stock sales or anti-takeover provisions could affect market price and stockholder influence - Braze does not intend to pay dividends, so investor returns depend on Class A common stock price appreciation[416](index=416&type=chunk)[417](index=417&type=chunk) - The dual-class stock structure (Class B has **10 votes/share**) concentrates voting control (**90.8%** as of April 30, 2022) with executive officers, directors, and significant holders, limiting influence for Class A stockholders[418](index=418&type=chunk)[419](index=419&type=chunk) - An active public trading market for Class A common stock may not develop or be sustained, impairing liquidity and potentially reducing fair value[423](index=423&type=chunk) - Anti-takeover provisions in charter documents and Delaware law could make company acquisition more difficult and limit stockholder influence on management[424](index=424&type=chunk)[425](index=425&type=chunk)[426](index=426&type=chunk)[427](index=427&type=chunk) - Exclusive venue provisions in the certificate of incorporation for certain lawsuits may discourage actions against directors and officers[428](index=428&type=chunk)[429](index=429&type=chunk)[430](index=430&type=chunk)[431](index=431&type=chunk) [General Risk Factors](index=70&type=section&id=General%20Risk%20Factors) The market price of Braze's Class A common stock may be highly volatile, future stock issuances will dilute existing stockholders, and negative analyst reports could cause share price and trading volume to decline - The market price of Class A common stock may be highly volatile due to fluctuations in financial condition, market conditions, and other factors, leading to potential investment losses[436](index=436&type=chunk)[437](index=437&type=chunk)[438](index=438&type=chunk) - Issuance of additional capital stock for financings, acquisitions, or equity incentive plans will dilute all other stockholders[439](index=439&type=chunk)[440](index=440&type=chunk) - Negative research or cessation of coverage by securities analysts could cause the share price and trading volume to decline[441](index=441&type=chunk)[442](index=442&type=chunk)[443](index=443&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=71&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Braze issued **96,465** Class A common shares as an unregistered sale to a charitable fund and detailed the use of **$456.8 million** net proceeds from its November 2021 IPO, with no material change in planned use [Unregistered Sales of Equity Securities](index=71&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities) On April 25, 2022, Braze issued **96,465** shares of Class A common stock to a charitable donor-advised fund for no consideration, exempt from registration - On April 25, 2022, Braze issued **96,465** shares of Class A common stock to a charitable donor-advised fund for no consideration, exempt from registration under Section 4(a)(2) of the Securities Act[446](index=446&type=chunk)[447](index=447&type=chunk) [Use of Proceeds](index=71&type=section&id=Use%20of%20Proceeds) Braze's November 2021 IPO generated net proceeds of **$456.8 million**, with no material change in the planned use of these funds - Braze's initial public offering in November 2021 generated net proceeds of **$456.8 million** after deducting underwriting discounts and offering expenses[448](index=448&type=chunk)[449](index=449&type=chunk) - There has been no material change in the planned use of proceeds from the IPO[449](index=449&type=chunk) [Issuer Purchases of Equity Securities](index=72&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) Braze repurchased **875** unvested shares of Class A common stock from employees during April 2022 Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | | :----------------------- | :------------------------------- | | April 1 - April 30, 2022 | 875 | - All purchases represent the repurchase of unvested shares of Class A common stock previously issued to employees[453](index=453&type=chunk) [Item 3. Defaults Upon Senior Securities](index=72&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to Braze, Inc. for the reported period [Item 4. Mine Safety Disclosures](index=72&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Braze, Inc. for the reported period [Item 5. Other Information](index=72&type=section&id=Item%205.%20Other%20Information) This item indicates that there is no other information to report for the period [Item 6. Exhibits](index=72&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[459](index=459&type=chunk)[461](index=461&type=chunk) - Certifications under Exhibit 32 are furnished, not filed, and not incorporated by reference into other filings[462](index=462&type=chunk)

Q4 and Full Year Fiscal 2022 Earnings Results March 30, 2022 Forward Looking Statements and Disclaimer Forward-Looking Statements This presentation contains, and statements made during this presentation contain, "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding Braze's financial outlook for the first quarter of and full fiscal year ended January 31, 2023. Words such as "a ...

Financial Data and Key Metrics Changes - Braze reported Q4 2022 revenue of $70.4 million, a 64% increase year-over-year and a 10% increase sequentially [11][35] - The dollar-based net retention rate reached a new high of 128%, up 500 basis points year-over-year and 200 basis points sequentially [37] - Non-GAAP gross profit was $47.3 million, with a gross margin of 67.2%, compared to 65% in the same quarter last year [40] Business Line Data and Key Metrics Changes - The total customer count increased by 54% year-over-year to 1,375 customers, with large customers (ARR of $500,000 or more) growing by 51% [36] - Customers with ARR over $1 million grew by 58% year-over-year, contributing 38% to total ARR [36] - The total remaining performance obligation rose 60% year-over-year to $374 million [39] Market Data and Key Metrics Changes - Revenue outside the U.S. contributed 40% of total revenue in both Q4 and the full year [39] - Monthly active user count reached approximately 3.7 billion, with over 9 trillion consumer-generated data points processed [12] Company Strategy and Development Direction - Braze aims to enhance customer engagement through new product offerings, including Braze for Commerce, which focuses on personalized campaigns driven by first-party data [15][16] - The company is expanding its global footprint, with new locations planned in Toronto and Paris, and is focusing on the fast-growing APAC region [22][24] - Braze is committed to investing in its product roadmap to maintain competitive advantages against legacy marketing clouds [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about revenue growth potential, citing a strong pipeline of new business and upsell opportunities [44] - The company is aware of macroeconomic risks but believes its focus on first-party data and customer engagement strategies positions it well during economic slowdowns [61] - For Q1 2023, revenue is expected to be between $72 million and $73 million, representing a year-over-year growth rate of approximately 51% [44] Other Important Information - Braze has launched a social impact department to drive diversity, equity, and inclusion initiatives, including a program for Black-owned startups [32][33] - The company ended the quarter with $518.1 million in cash and cash equivalents, with cash used in operations amounting to $24.5 million [43] Q&A Session Summary Question: What is driving the strength overall? - Management highlighted multiple generational trends, including digitization and the move to first-party data, as key drivers of business strength [49] Question: Can you unpack the dollar-based net retention strength? - Management noted strong renewals and the impact of trailing statistics from previous weaker quarters as contributing factors [51] Question: How sensitive is the business to a macro slowdown? - Management believes that Braze's focus on customer engagement provides a comparative advantage during economic slowdowns [61] Question: Are there signs of a slowdown in monthly active users in specific categories? - Management stated that they do not break out monthly active users by category but emphasized high retention rates among customers using Braze [66] Question: Is landing a seven-figure deal an anomaly? - Management indicated a trend of improvement in landing seven-figure deals, driven by an expanding product portfolio and customer engagement strategies [72] Question: How will the new commerce products drive revenue opportunities? - Management discussed the importance of data integrations and the ability to optimize customer engagement strategies as key to driving revenue from new commerce products [78]

Part I [Business](index=5&type=section&id=Item%201.%20Business) Braze, Inc. provides a comprehensive customer engagement platform that enables brands to manage customer interactions across various channels in real-time - Braze is a customer engagement platform that powered interactions with **3.7 billion monthly active users** as of January 2022, an increase from **3.0 billion** in January 2021[26](index=26&type=chunk) - The company serves over **1,300 customers** globally and processed over **nine trillion consumer-generated data points** in fiscal year 2022[26](index=26&type=chunk) - Braze's platform supports cross-channel interactions including in-app messages, push notifications, email, SMS, and integrations with ad networks like Facebook and Google[32](index=32&type=chunk) - The company's growth strategy focuses on acquiring new customers, expanding within its existing customer base, expanding geographically, investing in technology leadership, and strengthening partnerships[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) [Overview](index=5&type=section&id=Item%201.%20Business%20-%20Overview) Braze provides a leading customer engagement platform designed to power personalized, real-time interactions between consumers and brands - Braze's mission is to forge human connections between consumers and the brands they love through relevant and memorable experiences[25](index=25&type=chunk) - The platform is built on a proprietary, enterprise-grade stream processing architecture that processes first-party customer data in real time, avoiding channel silos[29](index=29&type=chunk)[30](index=30&type=chunk) [Our Products](index=8&type=section&id=Item%201.%20Business%20-%20Our%20Products) Braze offers a vertically integrated platform covering data ingestion, classification, orchestration, personalization, and action - Data ingestion is managed via Braze SDKs for various platforms (iOS, Android, Web, etc.) and REST APIs for server-to-server integration[61](index=61&type=chunk)[62](index=62&type=chunk) - The Orchestration layer features 'Canvas', a flagship tool for creating multi-step, cross-channel messaging journeys, and 'Campaigns' for single-channel or multi-channel messages[67](index=67&type=chunk)[68](index=68&type=chunk) - The Action layer includes a wide range of messaging channels: In-Product (In-App/In-Browser Messages, Content Cards) and Out-of-Product (Push, Email, SMS/MMS, Ad Network Sync)[79](index=79&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - Braze Currents allows for real-time data export to partners like Snowflake, Segment, and Amplitude, enhancing the customer's technology ecosystem[88](index=88&type=chunk)[89](index=89&type=chunk) [Competition](index=12&type=section&id=Item%201.%20Business%20-%20Competition) The customer engagement market is highly competitive, with Braze facing competition from legacy marketing clouds and point solutions - Key competitors include legacy marketing clouds (Adobe, Salesforce) and point solutions (Airship, Iterable, Leanplum, MailChimp, MoEngage)[93](index=93&type=chunk) - Competitors may have substantial advantages such as greater name recognition, longer operating histories, and significantly more financial and technical resources[94](index=94&type=chunk) - Larger competitors may bundle products or restrict access to their platforms, making it difficult for customers to integrate Braze's platform[96](index=96&type=chunk) [Human Capital](index=14&type=section&id=Item%201.%20Business%20-%20Human%20Capital) Braze considers its employees its most valuable resource, emphasizing culture, diversity, and social responsibility - As of January 31, 2022, Braze had **1,164 full-time employees**[124](index=124&type=chunk) - The company's workforce as of January 31, 2022, was **54% male** and **44% female**, with the remainder being non-binary or declining to self-identify[118](index=118&type=chunk) - Braze has joined the Pledge 1% movement, reserving up to **964,647 shares** of Class A common stock for social impact and ESG initiatives[122](index=122&type=chunk) [Risk Factors](index=16&type=section&id=Item%201A.%20Risk%20Factors) The company faces numerous risks that could materially affect its business, including operating losses, intense competition, and regulatory compliance - The company has a history of operating losses and may not achieve or sustain profitability in the future[140](index=140&type=chunk) - Braze faces intense competition from legacy marketing clouds like Adobe and Salesforce and point solutions, which may have greater resources[147](index=147&type=chunk) - The business relies on third-party providers, particularly Amazon Web Services (AWS), for cloud infrastructure, and any disruption could adversely affect operations[216](index=216&type=chunk) - Three material weaknesses in internal control over financial reporting have been identified, related to the financial close process, revenue recognition controls, and IT controls[303](index=303&type=chunk) - The dual-class stock structure concentrates approximately **97.6% of voting power** with holders of Class B common stock as of January 31, 2022, limiting the influence of Class A stockholders[314](index=314&type=chunk) [Unresolved Staff Comments](index=45&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[343](index=343&type=chunk) [Properties](index=45&type=section&id=Item%202.%20Properties) Braze's corporate headquarters is located in New York City, with additional leased office spaces globally, and it owns no real property - The company's headquarters is in New York City, with a lease for approximately **84,000 square feet** expiring in April 2024[344](index=344&type=chunk) - Braze leases additional office space in San Francisco, Austin, Chicago, Berlin, London, and Singapore and does not own any real property[344](index=344&type=chunk) [Legal Proceedings](index=45&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any litigation expected to have a material adverse effect on its business or financial condition - As of the filing date, the company is not a party to any litigation expected to have a material adverse effect on its business[345](index=345&type=chunk) [Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[347](index=347&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=47&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Braze's Class A common stock trades on Nasdaq, the company has never paid dividends, and its November 2021 IPO generated significant net proceeds - Class A common stock is traded on Nasdaq under the symbol "**BRZE**". Class B common stock is not listed[350](index=350&type=chunk) - The company has never declared or paid dividends and does not intend to in the foreseeable future[353](index=353&type=chunk) - The November 2021 IPO of **7.5 million Class A shares** at **$65.00 per share** generated net proceeds of **$456.8 million** for the company[356](index=356&type=chunk)[359](index=359&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Braze's revenue grew significantly in fiscal 2022, driven by customer acquisition and expansion, though net losses increased due to investments, while liquidity remains strong from IPO proceeds Key Financial Performance (FY2022 vs FY2021) | Metric | Fiscal Year 2022 | Fiscal Year 2021 | YoY Change | | :--- | :--- | :--- | :--- | | **Revenue** | $238.0 million | $150.2 million | +58% | | **Net Loss** | ($78.2 million) | ($32.0 million) | +144% | | **Net Cash Used in Operating Activities** | ($35.4 million) | ($6.1 million) | +480% | - The number of customers grew from **890** as of January 31, 2021, to **1,375** as of January 31, 2022[369](index=369&type=chunk)[406](index=406&type=chunk) - The dollar-based net retention rate for the trailing 12 months ended January 31, 2022, was **128%** for all customers and **136%** for customers with ARR of **$500,000** or more[377](index=377&type=chunk) - International revenue accounted for approximately **40% of total revenue** in fiscal 2022, consistent with the prior year[378](index=378&type=chunk) [Results of Operations (FY2022 vs. FY2021)](index=53&type=section&id=Item%207.%20MD%26A%20-%20Results%20of%20Operations) For fiscal year 2022, revenue increased by 58.5% to $238.0 million, but operating expenses rose significantly, leading to a larger loss from operations Revenue Comparison (FY2022 vs. FY2021) | Revenue Type | FY 2022 ($M) | FY 2021 ($M) | Change ($M) | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$238.0** | **$150.2** | **$87.8** | **58.5%** | Operating Expense Comparison (FY2022 vs. FY2021) | Expense Category | FY 2022 ($M) | FY 2021 ($M) | Change ($M) | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales and Marketing | $127.1 | $70.7 | $56.5 | 79.9% | | Research and Development | $59.0 | $29.2 | $29.8 | 102.1% | | General and Administrative | $51.6 | $28.0 | $23.6 | 84.4% | | **Total Operating Expenses** | **$237.7** | **$127.8** | **$109.9** | **86.0%** | - The increase in revenue was driven by growth from existing customers (**62%**) and new customers (**38%**)[406](index=406&type=chunk) - Gross margin increased from **63.7%** to **67.0%** due to economies of scale and cost optimization initiatives[409](index=409&type=chunk) [Liquidity and Capital Resources](index=56&type=section&id=Item%207.%20MD%26A%20-%20Liquidity%20and%20Capital%20Resources) As of January 31, 2022, Braze's liquidity was $518.1 million, significantly boosted by IPO proceeds, and is deemed sufficient for the next 12 months - Principal liquidity as of Jan 31, 2022, was **$518.1 million** in cash, cash equivalents, and marketable securities[416](index=416&type=chunk) - The company received net proceeds of **$456.8 million** from its IPO in November 2021[417](index=417&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(35,398) | $(6,080) | $(7,365) | | Net cash provided by/(used in) investing activities | $18,040 | $22,472 | $(87,234) | | Net cash provided by financing activities | $467,910 | $4,866 | $1,257 | Non-GAAP Free Cash Flow Reconciliation (in thousands) | Metric | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(35,398) | $(6,080) | $(7,365) | | Less: Purchases of property and equipment | $(2,310) | $(2,466) | $(1,724) | | Less: Capitalized internal-use software costs | $(2,065) | $(1,886) | $(830) | | **Non-GAAP Free cash flow** | **$(39,773)** | **$(10,432)** | **$(9,919)** | [Critical Accounting Policies and Estimates](index=58&type=section&id=Item%207.%20MD%26A%20-%20Critical%20Accounting%20Policies%20and%20Estimates) Braze's critical accounting policies involve significant judgment in revenue recognition, capitalization of contract costs, and stock-based compensation valuation - Revenue recognition (ASC 606) requires judgment in identifying performance obligations and determining standalone selling prices (SSP) to allocate transaction prices[441](index=441&type=chunk)[443](index=443&type=chunk) - Incremental costs to obtain contracts, mainly sales commissions, are capitalized and amortized over an estimated benefit period of up to **four years**[444](index=444&type=chunk) - Stock-based compensation is valued using the Black-Scholes model, which requires subjective inputs for expected volatility, term, and, prior to the IPO, the fair value of common stock[447](index=447&type=chunk) - The company maintains a full valuation allowance on its net deferred tax assets, concluding it is not more likely than not that they will be realized[461](index=461&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks primarily from interest rate fluctuations on its cash holdings and foreign currency exchange rates on operating expenses - The company's primary market risk exposures are interest rate risk and foreign currency exchange rate risk[464](index=464&type=chunk) - As of January 31, 2022, the company had **$518.1 million** in cash, cash equivalents, and marketable securities subject to interest rate changes[467](index=467&type=chunk) - Foreign currency risk arises from operating expenses denominated in local currencies (primarily in the UK, Singapore, and Japan), as most sales are in U.S. dollars[469](index=469&type=chunk) [Financial Statements and Supplementary Data](index=62&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for Braze, Inc. for the fiscal years ended January 31, 2022, 2021, and 2020 Consolidated Balance Sheet Highlights (as of Jan 31, 2022) | Account | Amount (in thousands) | | :--- | :--- | | **Total Assets** | **$666,262** | | Total Current Assets | $608,185 | | Cash and cash equivalents | $478,937 | | **Total Liabilities** | **$161,444** | | Deferred revenue | $126,260 | | **Total Stockholders' Equity** | **$501,583** | Consolidated Statement of Operations Highlights (FY ended Jan 31, 2022) | Account | Amount (in thousands) | | :--- | :--- | | **Revenue** | **$238,035** | | Gross Profit | $159,524 | | Loss from operations | $(78,211) | | **Net Loss** | **$(78,167)** | | Net loss per share, basic and diluted | $(2.20) | [Controls and Procedures](index=98&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management evaluated the company's disclosure controls and procedures and concluded they were not effective as of January 31, 2022 - Management concluded that disclosure controls and procedures were not effective as of January 31, 2022[676](index=676&type=chunk) - The ineffectiveness is due to three unremediated material weaknesses in internal control over financial reporting[679](index=679&type=chunk) - The material weaknesses are related to the financial close process, revenue recognition controls, and IT general controls[679](index=679&type=chunk) - A remediation plan is in place, but the controls have not been operational long enough to be considered fully remediated[680](index=680&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=100&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2022 Annual Meeting Proxy Statement - Required information is incorporated by reference from the forthcoming 2022 Proxy Statement[688](index=688&type=chunk) - The company has adopted a Code of Conduct, the full text of which is available on its website[689](index=689&type=chunk) [Executive Compensation](index=100&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement - Required information on executive compensation is incorporated by reference from the 2022 Proxy Statement[690](index=690&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=100&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners, management, and related stockholder matters, including securities authorized for issuance under equity compensation plans, is incorporated by reference from the company's 2022 Proxy Statement - Required information on security ownership and equity compensation plans is incorporated by reference from the 2022 Proxy Statement[691](index=691&type=chunk)[692](index=692&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=100&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2022 Proxy Statement - Required information on related transactions and director independence is incorporated by reference from the 2022 Proxy Statement[693](index=693&type=chunk) [Principal Accounting Fees and Services](index=100&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's 2022 Proxy Statement - Required information on principal accounting fees and services is incorporated by reference from the 2022 Proxy Statement[694](index=694&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=101&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the documents filed as part of the Annual Report on Form 10-K - This item lists the consolidated financial statements and an index of exhibits filed with the report[697](index=697&type=chunk)[699](index=699&type=chunk) - Financial statement schedules have been omitted because the required information is either inapplicable or already included in the financial statements and notes[698](index=698&type=chunk) [Form 10-K Summary](index=102&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company indicates that there is no Form 10-K summary provided - None[704](index=704&type=chunk)

Investor Presentation January 2022 Disclaimer 2 Forward-Looking Statements This presentation contains, and statements made during this presentation contain, "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding Braze's anticipated business growth and market opportunity. These forward-looking statements are based on current expectations, estimates, forecasts and projections. W ...

Braze, Inc. (NASDAQ:BRZE) Q3 2022 Earnings Conference Call December 20, 2021 5:00 PM ET Company Participants Chris Ferris - Head of Investor Relations Bill Magnuson - Co-Founder & Chief Executive Officer Isabelle Winkles - Chief Financial Officer Conference Call Participants Gabriela Borges - Goldman Sachs Mark Murphy - JPMorgan Raimo Lenschow - Barclays Arjun Bhatia - William Blair Brent Bracelin - Piper Sandler DJ Hynes - Canaccord Derrick Wood - Cowen & Company Brian Peterson - Raymond James Scott Berg - ...

Part I. Financial Information [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Braze, Inc.'s unaudited condensed consolidated financial statements for periods ended October 31, 2021, are presented [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets reached **$184.1 million**, liabilities **$124.7 million**, and accumulated deficit **$172.0 million** as of October 31, 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Oct 31, 2021 | Jan 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $41,976 | $28,509 | | Marketable securities | $34,906 | $58,004 | | Total Assets | $184,086 | $171,394 | | **Liabilities & Equity** | | | | Deferred revenue | $98,427 | $74,789 | | Total Liabilities | $124,700 | $103,439 | | Accumulated deficit | $(172,026) | $(138,242) | | Total Stockholders' Deficit | $(118,486) | $(108,507) | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 2021 revenue grew **62.6%** to **$64.0 million**, with increased operating expenses leading to a **$9.1 million** net loss Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $63,968 | $39,332 | $167,601 | $107,261 | | Gross Profit | $44,794 | $24,901 | $113,865 | $68,029 | | Loss from operations | $(10,448) | $(8,788) | $(35,623) | $(21,634) | | Net loss | $(9,058) | $(8,822) | $(34,824) | $(21,217) | | Net loss per share | $(0.42) | $(0.47) | $(1.67) | $(1.21) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities increased to **$10.9 million** for the nine months ended October 31, 2021 Cash Flow Summary for the Nine Months Ended October 31 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,868) | $(6,100) | | Net cash provided by investing activities | $19,789 | $19,644 | | Net cash provided by financing activities | $4,604 | $5,100 | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the November 2021 IPO, revenue recognition, RPO growth, and stock-based compensation expenses - On November 19, 2021, the company completed its IPO, receiving net proceeds of approximately **$457.1 million**. All convertible preferred stock was converted to Class B common stock[53](index=53&type=chunk) - Subscription revenue is the primary revenue source, growing to **$59.3 million** in Q3 2021 from **$36.8 million** in Q3 2020. International revenue accounted for approximately **40%** of total revenue for the nine months ended October 31, 2021[73](index=73&type=chunk) - Remaining Performance Obligations (RPO) increased to **$304.0 million** as of October 31, 2021, up from **$234.2 million** at January 31, 2021, indicating strong future revenue visibility[79](index=79&type=chunk) - Upon completion of the IPO, the company recognized **$16.1 million** in compensation expense related to RSUs whose performance-based vesting conditions were satisfied by the event[139](index=139&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong Q3 revenue growth to **$64.0 million**, improved gross margin, and increased operating expenses [Factors Affecting Our Performance](index=28&type=section&id=Factors%20Affecting%20Our%20Performance) Performance driven by customer acquisition and expansion, with **1,247** customers and a **126%** dollar-based net retention rate - The number of customers grew to **1,247** as of October 31, 2021, up from **841** as of October 31, 2020[153](index=153&type=chunk)[189](index=189&type=chunk) Dollar-Based Net Retention Rate (Trailing 12 Months) | Customer Cohort | As of Oct 31, 2021 | As of Oct 31, 2020 | | :--- | :--- | :--- | | All Customers | 126% | 124% | | Customers with ARR ≥ $500k | 136% | 134% | - International revenue constituted approximately **40%** of total revenue for the nine months ended October 31, 2021, highlighting successful geographic expansion[161](index=161&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Analysis shows significant revenue growth and improved gross margin, offset by substantial increases in operating expenses Revenue Growth (in thousands) | Period | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Oct 31 | $63,968 | $39,332 | $24,636 | 62.6% | | Nine Months Ended Oct 31 | $167,601 | $107,261 | $60,340 | 56.3% | Gross Margin Performance | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended Oct 31 | 70.0% | 63.3% | | Nine Months Ended Oct 31 | 67.9% | 63.4% | - The increase in operating expenses for Q3 2021 was primarily driven by higher personnel and overhead costs due to increased headcount: Sales & Marketing (**$7.1M**), R&D (**$4.7M**), and G&A (**$3.9M**)[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity was **$76.9 million** as of October 31, 2021, bolstered by **$457.1 million** net IPO proceeds - Principal source of liquidity as of October 31, 2021, was **$76.9 million** in cash, cash equivalents, and marketable securities[209](index=209&type=chunk) - The company closed its IPO in November 2021, resulting in net proceeds of **$457.1 million**[210](index=210&type=chunk) - A substantial source of cash is deferred revenue, which stood at **$98.6 million** as of October 31, 2021[213](index=213&type=chunk) Non-GAAP Free Cash Flow (in thousands) | Period | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :--- | :--- | :--- | | Non-GAAP Free cash flow | $(13,820) | $(9,824) | [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risks are interest rate and foreign currency fluctuations, both minimal with no hedging instruments - The company's main market risks are interest rate risk and foreign currency exchange rate risk[234](index=234&type=chunk) - As of October 31, 2021, a hypothetical **10%** change in interest rates would not have a material impact on the value of cash, cash equivalents, or marketable securities[237](index=237&type=chunk) - Foreign currency risk is limited as substantially all sales are denominated in U.S. dollars. A hypothetical **10%** change in exchange rates would not have had a material effect[238](index=238&type=chunk)[240](index=240&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were ineffective due to three material weaknesses in financial statement close, revenue recognition, and IT controls - Management concluded that disclosure controls and procedures were not effective as of October 31, 2021[242](index=242&type=chunk) - Three material weaknesses were identified in internal controls over: the financial statement close process, revenue recognition accounting (ASC 606), and inadequate IT controls for financial systems[245](index=245&type=chunk) - Remediation efforts are underway, including hiring more staff, engaging external resources, and implementing new policies and a revenue recognition system[249](index=249&type=chunk) Part II. Other Information [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) Braze is not a party to any legal proceedings expected to materially affect its business or financial condition - The company is not presently a party to any litigation that is expected to have a material adverse effect on its business[251](index=251&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) Key risks include unsustainable growth, intense competition, platform dependence, data privacy, internal control weaknesses, and concentrated voting power - The company's rapid revenue growth may not be indicative of future growth and makes future prospects difficult to evaluate[256](index=256&type=chunk) - Braze faces intense competition from legacy marketing clouds like Adobe and Salesforce, as well as point solutions, many of which have greater resources[271](index=271&type=chunk) - The business is subject to stringent and changing data privacy laws like GDPR and CCPA, which impose significant compliance costs and risks related to data transfer and processing[352](index=352&type=chunk)[358](index=358&type=chunk) - Three material weaknesses in internal control over financial reporting have been identified, which could adversely affect the accuracy and timing of financial reporting[447](index=447&type=chunk) - The dual-class stock structure concentrates approximately **98.8%** of voting power with holders of Class B common stock, limiting the influence of Class A stockholders[457](index=457&type=chunk)[458](index=458&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=76&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued RSUs and common stock in unregistered transactions and received **$457.1 million** net proceeds from its November 2021 IPO - From August 1, 2021, to October 31, 2021, the company granted **767,554** RSUs and issued **749,299** shares of common stock from option exercises in unregistered transactions[489](index=489&type=chunk) - The November 2021 IPO resulted in net proceeds of **$457.1 million** after deducting underwriting discounts and offering expenses[492](index=492&type=chunk) [Exhibits](index=77&type=section&id=Item%206.%20Exhibits) This section indexes exhibits including corporate governance documents and CEO/CFO certifications - The Exhibit Index lists key corporate governance documents, including the Amended and Restated Certificate of Incorporation and Bylaws[499](index=499&type=chunk) - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits[497](index=497&type=chunk)[499](index=499&type=chunk)