Q3 Fiscal 2023 Earnings Results December 13, 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 fourth quarter of and full fiscal year ended January 31, 2023. Words such as "anticipate, ...

PART I - FINANCIAL INFORMATION This section presents Braze's unaudited financial statements, management's analysis, market risk, and internal control findings [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents Braze's unaudited condensed consolidated financial statements for the quarter, with comprehensive explanatory notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents Braze's condensed consolidated balance sheets, detailing assets, liabilities, and stockholders' equity at key reporting dates Balance Sheet Items | Balance Sheet Items | October 31, 2022 (in thousands) | January 31, 2022 (in thousands) | | :--- | :--- | :--- | | **Total Assets** | **$677,418** | **$666,262** | | Cash and cash equivalents | $45,390 | $478,937 | | Marketable securities | $428,223 | $35,156 | | **Total Liabilities** | **$223,204** | **$161,444** | | Deferred revenue | $140,681 | $126,260 | | **Total Stockholders' Equity** | **$452,402** | **$501,583** | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents Braze's condensed consolidated statements of operations, detailing revenue, gross profit, and net loss for the specified periods Income Statement | Income Statement | Three Months Ended Oct 31, 2022 (in thousands) | Three Months Ended Oct 31, 2021 (in thousands) | Nine Months Ended Oct 31, 2022 (in thousands) | Nine Months Ended Oct 31, 2021 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | **$93,125** | **$63,968** | **$256,751** | **$167,601** | | Gross Profit | $63,990 | $44,794 | $174,358 | $113,865 | | Loss from Operations | $(36,864) | $(10,448) | $(111,620) | $(35,623) | | **Net Loss** | **$(33,892)** | **$(9,058)** | **$(106,938)** | **$(34,824)** | | Net Loss Per Share (basic & diluted) | $(0.35) | $(0.42) | $(1.12) | $(1.67) | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents Braze's condensed consolidated statements of cash flows, summarizing operating, investing, and financing activities for the nine-month periods Cash Flow Summary | Cash Flow Summary | Nine Months Ended Oct 31, 2022 (in thousands) | Nine Months Ended Oct 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(22,320) | $(10,868) | | Net cash (used in)/provided by investing activities | $(416,542) | $19,789 | | Net cash provided by financing activities | $7,213 | $4,604 | | **Net change in cash, cash equivalents, and restricted cash** | **$(433,547)** | **$12,994** | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of accounting policies and specific financial statement items, including recent accounting standard adoptions - The company will cease to qualify as an **emerging growth company** as of the end of the fiscal year ending January 31, 2023[55](index=55&type=chunk) - The company early adopted new accounting standards for **Leases (Topic 842)** and **Financial Instruments—Credit Losses (Topic 326)** on February 1, 2022[72](index=72&type=chunk)[73](index=73&type=chunk) Revenue by Type | Revenue by Type | Three Months Ended Oct 31, 2022 (in thousands) | Nine Months Ended Oct 31, 2022 (in thousands) | | :--- | :--- | :--- | | Subscription | $88,982 | $243,545 | | Professional services and other | $4,143 | $13,206 | | **Total** | **$93,125** | **$256,751** | - As of October 31, 2022, remaining performance obligations (RPO) totaled **$408.7 million**, with **$283.3 million** expected to be recognized as revenue in less than one year[86](index=86&type=chunk) Stock-based Compensation Expense | Stock-based Compensation Expense | Three Months Ended Oct 31, 2022 (in thousands) | Nine Months Ended Oct 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cost of revenue | $889 | $2,720 | | Sales and marketing | $6,512 | $17,618 | | Research and development | $8,060 | $21,154 | | General and administrative | $3,847 | $11,900 | | **Total** | **$19,308** | **$53,392** | [Item 2. 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 the company's financial condition and results of operations, analyzing performance drivers, liquidity, and accounting policies [Overview and Factors Affecting Performance](index=28&type=section&id=Overview%20and%20Factors%20Affecting%20Performance) This section provides an overview of the company's business model and key factors influencing its financial performance, including customer acquisition and expansion - The company employs a **land-and-expand business model**, growing with customers as they add channels, purchase more products, and increase their user base and message volume[144](index=144&type=chunk) - Key performance drivers include **acquiring new customers**, **expanding within the existing customer base**, **geographical expansion**, and **sustaining innovation**[146](index=146&type=chunk)[149](index=149&type=chunk)[154](index=154&type=chunk)[156](index=156&type=chunk) Key Metrics | Key Metrics | As of Oct 31, 2022 | As of Oct 31, 2021 | | :--- | :--- | :--- | | Total Customers | 1,715 | 1,247 | | Dollar-Based Net Retention Rate (All Customers) | 126% | 126% | | Dollar-Based Net Retention Rate (Customers with ARR > $500k) | 129% | 136% | | Customers with ARR > $500k | 148 | 97 | - International revenue accounted for approximately **42% of total revenue** for the nine months ended October 31, 2022, up from **40%** in the prior year period[155](index=155&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance for the three and nine months ended October 31, 2022, focusing on revenue, gross margin, and operating expenses - For the three months ended October 31, 2022, revenue increased **45.6% year-over-year** to **$93.1 million**, driven by **50.0% growth in subscription revenue** from existing (**50.8%**) and new (**49.2%**) customers[179](index=179&type=chunk) - Gross margin for Q3 2022 decreased slightly to **68.7%** from **70.0%** in Q3 2021, due to higher infrastructure and nonrecurring hosting migration costs[182](index=182&type=chunk) - Operating expenses for Q3 2022 increased significantly, with **sales and marketing up 78.7% to $52.8 million**, **R&D up 100.8% to $25.6 million**, and **G&A up 73.4% to $22.4 million**, driven by personnel, stock-based compensation, and marketing events[183](index=183&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity position, capital resources, and cash flow activities, assessing its ability to meet future financial obligations - As of October 31, 2022, the company's principal liquidity source was **$473.6 million** in cash, cash equivalents, and marketable securities[199](index=199&type=chunk) Cash Flow & Liquidity | Cash Flow & Liquidity | Nine Months Ended Oct 31, 2022 (in thousands) | Nine Months Ended Oct 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(22,320) | $(10,868) | | Non-GAAP Free cash flow | $(37,091) | $(13,820) | - Management believes current cash, cash equivalents, and marketable securities will be **sufficient to meet working capital and capital expenditure requirements for at least the next 12 months**[215](index=215&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's primary market risks, including interest rate fluctuations on investments and foreign currency exposures - The company's primary market risks are **interest rate risk** on its **$473.6 million** of cash, cash equivalents, and marketable securities, and **foreign currency exchange rate risk**[226](index=226&type=chunk)[228](index=228&type=chunk) - Foreign currency risk primarily relates to operating expenses in countries like the United Kingdom, Singapore, and Japan, as revenue is substantially denominated in U.S. dollars[230](index=230&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to three unremediated material weaknesses in internal control over financial reporting, with a remediation plan underway - Management concluded that disclosure controls and procedures were **not effective** as of October 31, 2022[235](index=235&type=chunk) - The ineffectiveness stems from three unremediated material weaknesses: **financial reporting close process**, **revenue recognition controls**, and **inadequate information technology controls**[238](index=238&type=chunk) - A **remediation plan is underway**, including hiring personnel, engaging external resources, and implementing new systems and policies to address the weaknesses[239](index=239&type=chunk) PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and other miscellaneous disclosures [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%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 report date, the company is **not involved in any material legal proceedings**[245](index=245&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) This section details numerous risks, including market instability, competition, operating losses, third-party reliance, data privacy, internal control weaknesses, and dual-class stock structure - Key risks include **unstable market/economic conditions**, **intense competition**, a **history of operating losses**, and **reliance on customer renewals**[247](index=247&type=chunk) - The company is substantially dependent on **third-party providers like Amazon Web Services (AWS)** for hosting and on **mobile operating systems (iOS, Android)** for message delivery[249](index=249&type=chunk)[331](index=331&type=chunk)[337](index=337&type=chunk) - The business is subject to stringent and changing laws related to **privacy and data security**, such as **GDPR and CCPA**, which could impose significant costs and restrictions[249](index=249&type=chunk)[347](index=347&type=chunk) - The **three identified material weaknesses in internal control over financial reporting** are a significant risk that could adversely affect financial reporting accuracy and timing[249](index=249&type=chunk)[426](index=426&type=chunk) - The **dual-class stock structure** concentrates voting control with executive officers, directors, and significant stockholders, limiting Class A common stockholders' influence[249](index=249&type=chunk)[436](index=436&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=72&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered equity sales and details the use of **$456.8 million** net IPO proceeds, with no material change in planned use - There were **no unregistered sales of equity securities** during the quarter ended October 31, 2022[465](index=465&type=chunk) - The company received net proceeds of **$456.8 million** from its Initial Public Offering in November 2021, with **no material change in the planned use of these proceeds**[466](index=466&type=chunk)[469](index=469&type=chunk) [Other Items (Items 3, 4, 5, 6)](index=73&type=section&id=Other%20Items) This section briefly notes no defaults on senior securities, no mine safety disclosures, no other material information, and lists exhibits - **Items 3 (Defaults Upon Senior Securities)**, **4 (Mine Safety Disclosures)**, and **5 (Other Information)** are noted as not applicable or having no information to report[471](index=471&type=chunk)[472](index=472&type=chunk)[473](index=473&type=chunk)

Q2 Fiscal 2023 Earnings Results September 12, 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 third quarter of and full fiscal year ended January 31, 2023. Words such as "anticipate, ...

Braze, Inc. (NASDAQ:BRZE) Q2 2023 Results Conference Call September 12, 2022 5:00 PM ET Company Participants Christopher Ferris - Head, IR Bill Magnuson - Co-Founder and CEO Isabelle Winkles - CFO Conference Call Participants Brent Bracelin - Piper Sandler Ryan MacWilliams - Barclays Arjun Bhatia - William Blair Andrew Sherman - Cowen Jake Titleman - Goldman Sachs Taylor McGinnis - UBS Yun Kim - Loop Capital Brian Schwartz - Oppenheimer Pinjalim Bora - JPMorgan Brian Peterson - Raymond James Operator Welcom ...

PART I. FINANCIAL INFORMATION This section presents the unaudited financial statements, management's analysis of financial condition, market risks, and internal controls [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, revenue recognition, fair value measurements, and other financial details for the periods ended July 31, 2022, and January 31, 2022 [Condensed Consolidated Balance Sheets (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (Unaudited) | ASSETS (in thousands) | July 31, 2022 | January 31, 2022 | | :-------------------- | :------------ | :--------------- | | Cash and cash equivalents | $80,881 | $478,937 | | Marketable securities | $425,754 | $35,156 | | Total current assets | $580,904 | $608,185 | | TOTAL ASSETS | $702,093 | $666,262 | | LIABILITIES (in thousands) | July 31, 2022 | January 31, 2022 | | :-------------------- | :------------ | :--------------- | | Deferred revenue | $135,794 | $126,260 | | Total current liabilities | $184,306 | $159,966 | | TOTAL LIABILITIES | $229,198 | $161,444 | | TOTAL STOCKHOLDERS' EQUITY | $470,551 | $501,583 | [Condensed Consolidated Statements of Operations (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (Unaudited) | (in thousands, except per share amounts) | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | Six Months Ended July 31, 2022 | Six Months Ended July 31, 2021 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $86,131 | $55,756 | $163,626 | $103,633 | | Gross profit | $58,779 | $37,001 | $110,368 | $69,071 | | Loss from operations | $(35,107) | $(12,150) | $(74,756) | $(25,175) | | Net loss | $(33,413) | $(12,613) | $(73,046) | $(25,766) | | Net loss attributable to Braze, Inc. | $(32,886) | $(12,228) | $(72,155) | $(25,062) | | Net loss per share, basic and diluted | $(0.35) | $(0.60) | $(0.77) | $(1.25) | [Condensed Consolidated Statements of Comprehensive Loss (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Condensed Consolidated Statements of Comprehensive Loss (Unaudited) | (in thousands) | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | Six Months Ended July 31, 2022 | Six Months Ended July 31, 2021 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(33,413) | $(12,613) | $(73,046) | $(25,766) | | Change in foreign currency translation adjustments | $(193) | $105 | $(755) | $(25) | | Unrealized gains (losses) on marketable securities | $(1,164) | $5 | $(2,359) | $(35) | | Comprehensive loss, net | $(34,770) | $(12,503) | $(76,160) | $(25,826) | | Comprehensive loss attributable to Braze, Inc. | $(34,243) | $(12,118) | $(75,269) | $(25,122) | [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,%20Redeemable%20Non-controlling%20Interest%20and%20Stockholders'%20Equity%20(Deficit)) Stockholders' Equity (Deficit) Activity (in thousands) | Item | Balance at April 30, 2022 | Balance at July 31, 2022 | | :-------------------------------------------------- | :------------------------ | :----------------------- | | Redeemable Noncontrolling Interest | $2,871 | $2,344 | | Additional Paid-in Capital | $741,291 | $761,412 | | Accumulated Deficit | $(254,230) | $(287,116) | | Total Stockholders' Equity | $484,673 | $470,551 | | Item | Balance at January 31, 2022 | Balance at July 31, 2022 | | :-------------------------------------------------- | :------------------------ | :----------------------- | | Redeemable Noncontrolling Interest | $3,235 | $2,344 | | Additional Paid-in Capital | $717,175 | $761,412 | | Accumulated Deficit | $(214,961) | $(287,116) | | Total Stockholders' Equity | $501,583 | $470,551 | - Stock-based compensation for the six months ended July 31, 2022, was **$34,484 thousand**, significantly higher than **$12,624 thousand** for the same period in 2021[36](index=36&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) | Cash Flow Activity | Six Months Ended July 31, 2022 | Six Months Ended July 31, 2021 | | :-------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by/(used in) operating activities | $1,600 | $(8,414) | | Net cash (used in)/provided by investing activities | $(403,799) | $18,885 | | Net cash provided by financing activities | $5,411 | $2,584 | | Net change in cash, cash equivalents, and restricted cash | $(398,056) | $12,883 | | Cash, cash equivalents, and restricted cash, end of period | $84,917 | $45,901 | Supplemental Cash Flow Disclosure (in thousands) | Non-Cash Investing and Financing Activities | Six Months Ended July 31, 2022 | Six Months Ended July 31, 2021 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Stock-based compensation capitalized to internal-use software | $379 | $18 | | Unrealized net loss on marketable investment securities | $(2,359) | $(35) | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Company Overview](index=13&type=section&id=1.%20Company%20Overview) - Braze, Inc. operates as a cloud-based customer engagement platform, facilitating real-time interactions between brands and customers across various channels[48](index=48&type=chunk) - The Company will cease to qualify as an emerging growth company as of the end of the fiscal year ended January 31, 2023, leading to increased reporting requirements and compliance costs[50](index=50&type=chunk) [2. Summary of Significant Accounting Policies](index=13&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - The Company early adopted ASC 842 (Leases) and ASC 326 (Credit Losses) on February 1, 2022, with Topic 842 resulting in a **$59.6 million** right-of-use asset and a **$61.3 million** lease liability[68](index=68&type=chunk)[69](index=69&type=chunk) - No single customer accounted for **10% or more** of total revenue or accounts receivable for the periods presented, indicating diversified customer concentration[58](index=58&type=chunk)[59](index=59&type=chunk) [3. Revenue from Contracts with Customers](index=16&type=section&id=3.%20Revenue%20from%20Contracts%20with%20Customers) Total Revenue by Type (in thousands) | Revenue Type | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | Six Months Ended July 31, 2022 | Six Months Ended July 31, 2021 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Subscription | $81,727 | $51,727 | $154,563 | $96,435 | | Professional services and other | $4,404 | $4,029 | $9,063 | $7,198 | | Total | $86,131 | $55,756 | $163,626 | $103,633 | Total Revenue by Geography (in thousands) | Geography | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | Six Months Ended July 31, 2022 | Six Months Ended July 31, 2021 | | :---------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $49,875 | $33,592 | $95,227 | $62,457 | | International | $36,256 | $22,164 | $68,399 | $41,176 | | Total | $86,131 | $55,756 | $163,626 | $103,633 | Remaining Performance Obligations (in millions) | Date | Total | Less than 1 Year | 1-5 Years | | :--------- | :---- | :--------------- | :-------- | | July 31, 2022 | $410.5 | $274.2 | $136.3 | | January 31, 2022 | $373.6 | $237.8 | $135.8 | [4. Variable Interest Entity and Redeemable Non-Controlling Interest](index=17&type=section&id=4.%20Variable%20Interest%20Entity%20and%20Redeemable%20Non-Controlling%20Interest) - Braze KK, a Japanese subsidiary, is consolidated, with investors holding a redeemable non-controlling interest classified in mezzanine equity due to a future put right[83](index=83&type=chunk)[85](index=85&type=chunk) - Stock options issued to Braze KK employees are classified as a liability within Other long-term liabilities, totaling **$0.1 million** as of July 31, 2022[84](index=84&type=chunk) [5. Fair Value Measurements](index=18&type=section&id=5.%20Fair%20Value%20Measurements) Financial Instruments Measured at Fair Value (in thousands) | Category | July 31, 2022 Total | January 31, 2022 Total | | :-------------------- | :------------------ | :------------------- | | Cash equivalents | $474 | $439,627 | | Marketable securities | $425,754 | $35,156 | | Total | $426,228 | $474,783 | - Money market funds and U.S. government bonds are classified as Level 1, while foreign government bonds, corporate debt securities, and asset-backed securities are Level 2[88](index=88&type=chunk) [6. Marketable Securities](index=19&type=section&id=6.%20Marketable%20Securities) Marketable Securities (in thousands) | Security Type | July 31, 2022 Estimated Fair Value | January 31, 2022 Estimated Fair Value | | :-------------------- | :------------------------------- | :-------------------------------- | | U.S. government securities | $323,577 | $4,006 | | Foreign bonds | $3,015 | $3,203 | | Corporate debt securities | $97,763 | $3,020 | | Asset-backed securities | $1,399 | $5,934 | | Total | $425,754 | $35,156 | - Unrealized losses on marketable available-for-sale debt securities totaled **$(2,450) thousand** as of July 31, 2022, primarily due to market volatility from expected interest rate increases[90](index=90&type=chunk)[92](index=92&type=chunk) Investment Income (in thousands) | Item | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | Six Months Ended July 31, 2022 | Six Months Ended July 31, 2021 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $1,956 | $117 | $2,399 | $340 | | Investment income | $2,158 | $23 | $2,614 | $86 | [7. Property and Equipment, Net](index=20&type=section&id=7.%20Property%20and%20Equipment,%20Net) Property and Equipment, Net (in thousands) | Category | July 31, 2022 | January 31, 2022 | | :-------------------------------------------------- | :------------ | :--------------- | | Capitalized internal-use software | $6,542 | $5,353 | | Computer equipment, office equipment, and software | $6,657 | $3,833 | | Leasehold improvements | $9,184 | $2,470 | | Total property and equipment, net | $16,276 | $7,393 | - Total depreciation and amortization expense for property and equipment was **$1.9 million** for the six months ended July 31, 2022, up from **$1.4 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 (in thousands) | Category | July 31, 2022 | January 31, 2022 | | :-------------------------------------------------- | :------------ | :--------------- | | Prepaid software subscriptions | $14,557 | $19,396 | | Investment interest receivable | $2,367 | $259 | | Total prepaid expenses and other current assets | $26,296 | $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 (in thousands) | Category | July 31, 2022 | January 31, 2022 | | :-------------------------------------------------- | :------------ | :--------------- | | Accrued compensation and employee benefit costs | $17,664 | $14,075 | | Accrued commissions | $4,226 | $5,961 | | Total accrued expenses and other current liabilities | $34,981 | $31,623 | [10. Employee Benefit Plans](index=21&type=section&id=10.%20Employee%20Benefit%20Plans) - Matching contributions to the 401(k) plan increased to **$3.0 million** for the six months ended July 31, 2022, from **$1.7 million** in the prior year[102](index=102&type=chunk) [11. Stockholder's Equity (Deficit)](index=21&type=section&id=11.%20Stockholder's%20Equity%20(Deficit)) - The Company has a dual-class common stock structure, with Class A common stock having one vote per share and Class B common stock having ten votes per share[103](index=103&type=chunk) - A charitable donation of **96,465 shares** of Class A common stock resulted in a **$4.3 million** expense recognized in general and administrative expenses during the six months ended July 31, 2022[104](index=104&type=chunk) [12. Employee Stock Plans](index=22&type=section&id=12.%20Employee%20Stock%20Plans) - No stock options were granted during the three and six months ended July 31, 2022[109](index=109&type=chunk) - RSUs granted during the six months ended July 31, 2022, totaled **2,468,566 shares** with a weighted-average grant date fair value of **$36.55**[112](index=112&type=chunk) Stock-based Compensation Expense (in thousands) | Category | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | Six Months Ended July 31, 2022 | Six Months Ended July 31, 2021 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $911 | $177 | $1,831 | $367 | | Sales and marketing | $5,439 | $1,957 | $11,106 | $4,295 | | Research and development | $6,921 | $1,571 | $13,094 | $4,158 | | General and administrative | $3,842 | $1,945 | $8,053 | $3,786 | | Total stock-based compensation, net of capitalized amounts | $17,113 | $5,650 | $34,084 | $12,606 | | Capitalized stock-based compensation expense | $299 | $0 | $531 | $0 | | Total stock-based compensation expense | $17,412 | $5,650 | $34,615 | $12,606 | [13. Commitments and Contingencies](index=24&type=section&id=13.%20Commitments%20and%20Contingencies) - Liabilities for indirect tax contingencies were **$0.5 million** as of July 31, 2022, a decrease from **$1.3 million** at January 31, 2022[120](index=120&type=chunk) - The Company believes no material loss will be incurred from legal or regulatory proceedings in excess of amounts recognized in financial statements[121](index=121&type=chunk) [14. Leases](index=24&type=section&id=14.%20Leases) Operating Lease Costs (in thousands) | Lease Cost Type | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2022 | | :-------------------- | :------------------------------- | :----------------------------- | | Operating lease cost | $3,397 | $6,893 | | Variable lease cost | $675 | $1,260 | | Short-term lease cost | $568 | $1,120 | | Total net lease cost | $4,640 | $9,273 | Operating Lease Liabilities (in thousands) | Maturity Period | Total Future Undiscounted Lease Payments | | :-------------------- | :--------------------------------------- | | 2023 | $5,096 | | 2024 | $11,363 | | 2025 | $10,529 | | 2026 | $8,264 | | 2027 | $7,300 | | Thereafter | $24,449 | | Total | $67,001 | | Less: Imputed interest | $(11,751) | | Total reported lease liability | $55,033 | - As of July 31, 2022, the weighted-average remaining lease term was **6.7 years** with a weighted-average discount rate of **5.4%**[124](index=124&type=chunk) [15. Income Taxes](index=25&type=section&id=15.%20Income%20Taxes) - The effective tax rate for the six months ended July 31, 2022, was **(0.1)%**, compared to **(1.3)%** for the same period in 2021[125](index=125&type=chunk) - The Company maintains a full valuation allowance against its net deferred tax assets, indicating uncertainty about their future realization[126](index=126&type=chunk) [16. Net Loss per Share](index=25&type=section&id=16.%20Net%20Loss%20per%20Share) Net Loss per Share Attributable to Braze, Inc. Common Stockholders (Basic and Diluted) | (in thousands, except per share amounts) | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | Six Months Ended July 31, 2022 | Six Months Ended July 31, 2021 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to Braze, Inc. | $(32,886) | $(12,228) | $(72,155) | $(25,062) | | Weighted-average shares used to calculate net loss per share | 94,103 | 20,329 | 93,668 | 20,004 | | Net loss per share | $(0.35) | $(0.60) | $(0.77) | $(1.25) | [17. Related Party Transactions](index=26&type=section&id=17.%20Related%20Party%20Transactions) - The Company purchased approximately **$1.0 million** in services from Datadog, Inc. during the six months ended July 31, 2022, a vendor whose CFO joined Braze's board in May 2021[129](index=129&type=chunk) [18. Subsequent Events](index=26&type=section&id=18.%20Subsequent%20Events) - In August 2022, the Company granted **0.6 million shares** of Class A common stock as RSUs to employees, with a grant date fair value of **$32.1 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's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of Braze's business, discusses key factors affecting its performance, analyzes the components of its results of operations, and compares financial results for the three and six months ended July 31, 2022 and 2021. It also covers liquidity, capital resources, critical accounting policies, and the impact of the JOBS Act [Overview](index=27&type=section&id=Overview) - Braze is a leading cloud-based customer engagement platform that enables brands to create real-time, personalized interactions with consumers[133](index=133&type=chunk) Key Financial Highlights (in millions) | Metric | Three Months Ended July 31, 2022 | Three Months Ended July 31, 2021 | Six Months Ended July 31, 2022 | Six Months Ended July 31, 2021 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $86.1 | $55.8 | $163.6 | $103.6 | | YoY Revenue Growth | 54.5% | - | 57.9% | - | | Net Loss | $(33.4) | $(12.6) | $(73.0) | $(25.8) | | Net Cash Provided by Operating Activities | - | - | $1.6 | $(8.4) | | Non-GAAP Free Cash Flow | - | - | $(9.0) | $(10.3) | [Factors Affecting Our Performance](index=27&type=section&id=Factors%20Affecting%20Our%20Performance) - The Company had **1,599 customers** as of July 31, 2022, and aims to expand its customer base across various verticals and regions[138](index=138&type=chunk) - Monthly active users (MAU) grew to **4.1 billion** as of July 31, 2022, from **3.7 billion** as of January 31, 2022, indicating platform usage expansion[142](index=142&type=chunk) Dollar-Based Net Retention Rate (Trailing 12 Months Ended July 31) | Customer Segment | 2022 | 2021 | | :-------------------- | :--- | :--- | | All customers | 126% | 125% | | Customers with ARR of $500,000 or more | 130% | 135% | - Approximately **42%** of revenue for the six months ended July 31, 2022, was generated outside the United States, up from **40%** in the prior year, reflecting international expansion[147](index=147&type=chunk) - The Company continues to invest in research and development to enhance its platform, particularly in artificial intelligence capabilities and channel offerings[148](index=148&type=chunk) - The COVID-19 pandemic has not had a materially negative impact on the Company's business, but the global situation and its potential effects are continuously monitored[149](index=149&type=chunk) [Components of Results of Operations](index=29&type=section&id=Components%20of%20Results%20of%20Operations) - Revenue is primarily generated from subscription services, based on monthly active users, message volume, platform access, and add-on products, with professional services as a secondary source[150](index=150&type=chunk)[151](index=151&type=chunk) - Cost of revenue includes third-party cloud infrastructure, application service providers, and personnel-related costs, expected to increase with business growth[155](index=155&type=chunk)[156](index=156&type=chunk) - Operating expenses (sales & marketing, R&D, G&A) are significantly driven by personnel costs and are expected to increase as the Company expands operations and global footprint[158](index=158&type=chunk) - Other income (expense), net, primarily consists of net exchange gains or losses on foreign currency transactions and investment income[167](index=167&type=chunk) - The Company maintains a full valuation allowance on its net deferred tax assets, indicating that realization of these assets is not more likely than not[168](index=168&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) [Comparison of the Three Months Ended July 31, 2022 and July 31, 2021](index=32&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20July%2031,%202022%20and%20July%2031,%202021) Revenue Comparison (Three Months Ended July 31, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :------- | :----- | :----- | :----- | :------- | | Revenue | $86,131 | $55,756 | $30,375 | 54.5% | - Subscription revenue increased by **$30.0 million (58.0%)**, with **48.2%** from existing customers and **51.8%** from new customers. International revenue grew by **64%**[171](index=171&type=chunk) Gross Profit and Margin Comparison (Three Months Ended July 31, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :---------- | :----- | :----- | :----- | :------- | | Cost of revenue | $27,352 | $18,755 | $8,597 | 45.8% | | Gross profit | $58,779 | $37,001 | $21,778 | 58.9% | | Gross margin | 68.2% | 66.4% | - | - | - Gross margin increased to **68.2%** due to economies of scale, optimized tech stack costs, and increased personnel efficiencies[174](index=174&type=chunk) Operating Expenses Comparison (Three Months Ended July 31, in thousands) | Expense Category | 2022 | 2021 | Change | % Change | | :-------------------- | :----- | :----- | :----- | :------- | | Sales and marketing | $50,007 | $27,492 | $22,515 | 81.9% | | Research and development | $23,336 | $11,595 | $11,741 | 101.3% | | General and administrative | $20,543 | $10,064 | $10,479 | 104.1% | - Other income, net, increased significantly to **$1.7 million** from **$(0.3) million**, primarily driven by investment income from IPO proceeds[180](index=180&type=chunk) [Comparison of the Six Months Ended July 31, 2022 and July 31, 2021](index=34&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20July%2031,%202022%20and%20July%2031,%202021) Revenue Comparison (Six Months Ended July 31, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :------- | :----- | :----- | :----- | :------- | | Revenue | $163,626 | $103,633 | $59,993 | 57.9% | - Subscription revenue increased by **$58.1 million (60%)**, with **54%** from existing customers and **46%** from new customers. International revenue grew by **66%**[181](index=181&type=chunk) Gross Profit and Margin Comparison (Six Months Ended July 31, in thousands) | Metric | 2022 | 2021 | Change | % Change | | :---------- | :----- | :----- | :----- | :------- | | Cost of revenue | $53,258 | $34,562 | $18,696 | 54.1% | | Gross profit | $110,368 | $69,071 | $41,297 | 59.8% | | Gross margin | 67.5% | 66.6% | - | - | - Gross margin increased to **67.5%**, driven by increased stock-based compensation, employee headcount, and Class A common stock valuation, alongside economies of scale[183](index=183&type=chunk) Operating Expenses Comparison (Six Months Ended July 31, in thousands) | Expense Category | 2022 | 2021 | Change | % Change | | :-------------------- | :----- | :----- | :----- | :------- | | Sales and marketing | $96,051 | $51,843 | $44,208 | 85.3% | | Research and development | $44,956 | $23,392 | $21,564 | 92.2% | | General and administrative | $44,117 | $19,011 | $25,106 | 132.1% | - General and administrative expenses included a **$4.3 million** charitable donation of Class A common stock[187](index=187&type=chunk) - Other income, net, increased to **$1.8 million** from **$(0.3) million**, primarily due to higher investment income from IPO proceeds[188](index=188&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) - As of July 31, 2022, the Company's principal source of liquidity was **$506.6 million** in cash, cash equivalents, and marketable securities[190](index=190&type=chunk) - The Company had an accumulated deficit of **$287.1 million** as of July 31, 2022, and generated **$1.6 million** in net cash from operating activities for the six months ended July 31, 2022[191](index=191&type=chunk)[194](index=194&type=chunk) Cash Flows Summary (Six Months Ended July 31, in thousands) | Cash Flow Activity | 2022 | 2021 | | :-------------------------------------------------- | :----- | :----- | | Net cash provided by/(used in) operating activities | $1,600 | $(8,414) | | Net cash (used in)/provided by investing activities | $(403,799) | $18,885 | | Net cash provided by financing activities | $5,411 | $2,584 | Non-GAAP Free Cash Flow (Six Months Ended July 31, in thousands) | Metric | 2022 | 2021 | | :-------------------------------------------------- | :----- | :----- | | Net cash provided by/(used in) operating activities | $1,600 | $(8,414) | | Less: Purchases of property and equipment | $(9,844) | $(755) | | Less: Capitalized internal-use software costs | $(783) | $(1,172) | | Non-GAAP Free cash flow | $(9,027) | $(10,341) | - Future funding requirements include **$177.2 million** in non-cancelable purchase commitments and **$67.7 million** in operating lease obligations as of July 31, 2022, primarily due over the next five years[204](index=204&type=chunk) [Critical Accounting Policies and Estimates](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - There have been no material changes to critical accounting policies and estimates from those previously reported in the Annual Report, other than those referenced in Note 2[209](index=209&type=chunk) [Recently Adopted Accounting Pronouncements](index=38&type=section&id=Recently%20Adopted%20Accounting%20Pronouncements) - Refer to Note 2, 'Summary of Significant Accounting Policies,' for a discussion of recent accounting pronouncements[210](index=210&type=chunk) [JOBS Act Accounting Election](index=38&type=section&id=JOBS%20Act%20Accounting%20Election) - The Company will cease to qualify as an 'emerging growth company' as of January 31, 2023, leading to the loss of certain exemptions from reporting requirements and extended transition periods for accounting standards[212](index=212&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) This section discusses the Company's exposure to market risks, including inflation, interest rate, and foreign currency exchange rate risks, and assesses their potential impact on financial position and results of operations [Inflation Risk](index=39&type=section&id=Inflation%20Risk) - Inflation has not had a material effect on the Company's business, financial condition, or results of operations, but an inability to offset higher costs through price increases could be harmful[215](index=215&type=chunk) [Interest Rate Risk and Market Risk](index=39&type=section&id=Interest%20Rate%20Risk%20and%20Market%20Risk) - As of July 31, 2022, the Company held **$506.6 million** in cash, cash equivalents, and marketable securities, with **$425.8 million** invested in various debt securities[216](index=216&type=chunk) - A hypothetical **10%** change in interest rates would not have a material impact on the consolidated financial statements[217](index=217&type=chunk) [Foreign Currency Exchange Rate Risk](index=39&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) - The Company's reporting currency is the U.S. dollar, and most sales are U.S. dollar-denominated, limiting significant foreign currency risk on revenue, except for Yen-denominated sales in Japan[218](index=218&type=chunk) - Operating expenses are denominated in local currencies (primarily US, UK, Singapore, Japan), making consolidated results subject to foreign currency fluctuations[218](index=218&type=chunk) - The Company does not currently hedge foreign currency transactions, and a hypothetical **10%** change in exchange rates would not materially affect foreign exchange gains/losses[219](index=219&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures, identifies existing material weaknesses in internal control over financial reporting, outlines the remediation plan, and discusses the inherent limitations of control systems [Evaluation of Disclosure Controls and Procedures](index=39&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - The Company's disclosure controls and procedures were not effective as of July 31, 2022, due to identified material weaknesses in internal control over financial reporting[222](index=222&type=chunk) - Despite the material weaknesses, management concluded that the unaudited condensed consolidated financial statements are fairly stated in all material respects in accordance with GAAP[224](index=224&type=chunk) [Material Weaknesses](index=40&type=section&id=Material%20Weaknesses) - Three unremediated material weaknesses persist as of July 31, 2022: (1) insufficient written policies/procedures for financial reporting, (2) lack of properly designed controls for revenue recognition (ASC 606), and (3) inadequate IT controls for financial statement relevant systems[226](index=226&type=chunk) [Remediation Plan](index=40&type=section&id=Remediation%20Plan) - A detailed remediation plan has been developed, including hiring additional resources, engaging external assistance, and developing new IT general and process-level controls[227](index=227&type=chunk) - Control weaknesses are not yet considered remediated as new controls require a period of operation and testing to confirm effectiveness[227](index=227&type=chunk) [Changes in Internal Control Over Financial Reporting](index=40&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - No material changes in internal control over financial reporting occurred during the period, but steps are ongoing to remediate identified material weaknesses[228](index=228&type=chunk) [Inherent Limitations on Effectiveness of Controls](index=40&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[229](index=229&type=chunk) PART II. OTHER INFORMATION This section details legal proceedings, comprehensive risk factors, equity sales, and other required disclosures for the reporting period [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the Company is not currently a party to any legal proceedings that would materially adversely affect its business, operating results, cash flows, or financial condition, while acknowledging the potential costs and management burden of future litigation - As of the report date, the Company is not involved in any litigation that is believed to have a material adverse effect on its business, operating results, cash flows, or financial condition[232](index=232&type=chunk) - Defending legal proceedings can be costly and impose a significant burden on management and employees, with uncertain outcomes[232](index=232&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) This comprehensive section outlines various risks and uncertainties that could materially and adversely affect the Company's business, financial condition, and results of operations, categorized by growth, business and brand, third-party dependence, privacy and data security, legal and litigation, intellectual property, socioeconomic factors, public company status, and stock ownership [Risk Factors Summary](index=41&type=section&id=Risk%20Factors%20Summary) - Key risks include unstable market conditions, rapid revenue growth not being indicative of future performance, need for additional capital, operating losses, intense competition, reliance on third-party infrastructure, stringent privacy laws, material weaknesses in internal controls, and concentrated voting control due to dual-class stock structure[234](index=234&type=chunk)[235](index=235&type=chunk)[236](index=236&type=chunk) [Risks Related to Our Growth and Capital Requirements](index=42&type=section&id=Risks%20Related%20to%20Our%20Growth%20and%20Capital%20Requirements) - Unstable market and economic conditions, including inflation, higher interest rates, and international conflicts, may seriously impact the business, financial condition, and share price[237](index=237&type=chunk)[238](index=238&type=chunk) - Rapid historical revenue growth may not be indicative of future performance, and the annual growth rate is expected to decline as the business matures[239](index=239&type=chunk)[240](index=240&type=chunk) - The Company may require additional capital to support growth, which might not be available on acceptable terms or could result in dilution to stockholders[242](index=242&type=chunk) - A history of operating losses and an accumulated deficit of **$287.1 million** as of July 31, 2022, indicate that future profitability is not guaranteed due to ongoing investments[247](index=247&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) - The market for customer engagement products is highly competitive, with established companies and new entrants posing significant challenges due to greater resources and potential pricing advantages[253](index=253&type=chunk)[254](index=254&type=chunk) - Failure to attract new customers and retain existing ones, or to adapt to rapidly changing technology and evolving industry standards, could adversely affect the business[257](index=257&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk) - Dependence on customer renewals and expansion, coupled with potential pricing pressures and contractual limitations, could impair the ability to scale the business efficiently[263](index=263&type=chunk)[264](index=264&type=chunk)[267](index=267&type=chunk) - The Company's reliance on a single platform means that any failure to achieve continued market acceptance or proper performance could lead to reputational harm, market share decline, and liability claims[270](index=270&type=chunk)[273](index=273&type=chunk)[274](index=274&type=chunk) - Managing rapid growth and increasing operational complexity, including international expansion and maintaining company culture, poses significant challenges that could adversely affect financial results[291](index=291&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk)[301](index=301&type=chunk)[302](index=302&type=chunk) - Loss of key senior management or inability to attract and retain highly skilled employees could seriously harm the business and future growth prospects[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) [Risks Related to Our Dependence on Third-Parties](index=51&type=section&id=Risks%20Related%20to%20Our%20Dependence%20on%20Third-Parties) - The business relies heavily on third-party providers for sending consumer engagement messages (email, SMS) and mobile operating systems (Apple, Google) for notifications; disruptions could lead to customer loss[316](index=316&type=chunk)[317](index=317&type=chunk)[319](index=319&type=chunk) - Substantial reliance on cloud-based infrastructure providers, particularly Amazon Web Services (AWS); any disruption, capacity limitation, or termination of services could adversely affect operations and customer access[321](index=321&type=chunk)[322](index=322&type=chunk)[327](index=327&type=chunk) - Growth is partly dependent on strategic relationships with third-party partners; failure to establish or maintain these relationships could impair market competitiveness and revenue growth[328](index=328&type=chunk)[330](index=330&type=chunk) [Risks Related to Privacy, Data Security and Data Protection Laws](index=55&type=section&id=Risks%20Related%20to%20Privacy,%20Data%20Security%20and%20Data%20Protection%20Laws) - The Company is subject to stringent and evolving data privacy and security laws globally (e.g., HIPAA, CCPA, EU/UK GDPR), with non-compliance potentially leading to significant fines, litigation, and reputational harm[331](index=331&type=chunk)[334](index=334&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk)[341](index=341&type=chunk) - Increasing data localization and cross-border data transfer laws, particularly in Europe, could impede business operations and increase compliance costs[337](index=337&type=chunk)[338](index=338&type=chunk)[340](index=340&type=chunk) - Security breaches or unauthorized access to customer or company data could severely harm reputation, reduce demand for the platform, and result in significant liabilities and operational disruptions[342](index=342&type=chunk)[343](index=343&type=chunk)[346](index=346&type=chunk) [Risks Related to Other Laws and Litigation](index=58&type=section&id=Risks%20Related%20to%20Other%20Laws%20and%20Litigation) - Changes in internet-related laws, regulations, or infrastructure could diminish demand for the platform and negatively impact the business[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk) - Non-compliance with anti-corruption, anti-bribery, and anti-money laundering laws (e.g., FCPA) can lead to criminal or civil liability, investigations, and reputational damage[357](index=357&type=chunk)[358](index=358&type=chunk)[359](index=359&type=chunk) - Governmental export and import controls, including those related to encryption technology and sanctions, could impair the ability to compete internationally and result in liability for violations[361](index=361&type=chunk)[362](index=362&type=chunk)[363](index=363&type=chunk)[366](index=366&type=chunk) - International operations may lead to adverse tax consequences due to differing tax laws, transfer pricing challenges, and potential limitations on the use of net operating losses (NOLs)[367](index=367&type=chunk)[368](index=368&type=chunk) [Risks Related to Intellectual Property](index=61&type=section&id=Risks%20Related%20to%20Intellectual%20Property) - Reliance on third-party licensed software and open-source software carries risks, including increased costs, reduced service levels, potential litigation, and challenges to proprietary source code[373](index=373&type=chunk)[374](index=374&type=chunk)[375](index=375&type=chunk) - Failure to protect proprietary technology and intellectual property rights (patents, trademarks, trade secrets) through legal means or against misappropriation could substantially harm the business and competitive advantage[379](index=379&type=chunk)[380](index=380&type=chunk)[382](index=382&type=chunk)[386](index=386&type=chunk) - The Company may be subject to costly intellectual property infringement claims by third-parties, which could divert management attention, require significant damages, or limit the ability to use certain technologies[387](index=387&type=chunk)[388](index=388&type=chunk)[389](index=389&type=chunk) - Potential liability or reputational harm could arise from customer activities, content, or data stored on the Company's servers, especially if such use violates laws or industry standards[390](index=390&type=chunk)[391](index=391&type=chunk)[393](index=393&type=chunk) [Risks Related to Socioeconomic Factors](index=63&type=section&id=Risks%20Related%20to%20Socioeconomic%20Factors) - Future revenue and results could be harmed if the increased demand from certain industries, observed during the COVID-19 pandemic, does not continue post-pandemic[395](index=395&type=chunk)[396](index=396&type=chunk) - The ongoing impact of COVID-19, including new variants and challenges of a hybrid work model, could adversely affect workforce, economies, and financial markets[397](index=397&type=chunk)[398](index=398&type=chunk)[399](index=399&type=chunk)[401](index=401&type=chunk) - Natural catastrophic events and human-made problems (e.g., power disruptions, cyberattacks, global pandemics, terrorism) may disrupt business operations and lead to system interruptions or data loss[402](index=402&type=chunk)[403](index=403&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,' reduced reporting and disclosure requirements may make Class A common stock less attractive to investors, and the loss of this status by January 31, 2023, will increase compliance costs[404](index=404&type=chunk)[405](index=405&type=chunk)[406](index=406&type=chunk)[407](index=407&type=chunk) - Three material weaknesses in internal control over financial reporting remain unremediated, posing a risk to the accuracy and timeliness of financial reporting and potentially leading to loss of investor confidence[408](index=408&type=chunk)[409](index=409&type=chunk)[411](index=411&type=chunk)[414](index=414&type=chunk)[415](index=415&type=chunk) [Risks Related to Ownership of Our Class A Common Stock](index=66&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) - The Company does not intend to pay dividends in the foreseeable future, meaning investor returns will depend solely on Class A common stock price appreciation[417](index=417&type=chunk)[418](index=418&type=chunk) - The dual-class common stock structure concentrates voting control with executive officers, directors, and significant holders, limiting the influence of Class A common stockholders[420](index=420&type=chunk)[421](index=421&type=chunk)[422](index=422&type=chunk) - Anti-takeover provisions in charter documents and Delaware law could make an acquisition more difficult and limit attempts by stockholders to influence management[425](index=425&type=chunk)[426](index=426&type=chunk)[429](index=429&type=chunk) - Future sales of Class A common stock in the public market, including from exercised options and settled RSUs, could depress the market price and impair the ability to raise capital[434](index=434&type=chunk)[436](index=436&type=chunk)[437](index=437&type=chunk) [General Risk Factors](index=69&type=section&id=General%20Risk%20Factors) - The market price of Class A common stock may be highly volatile due to various factors, including financial performance, analyst expectations, and general economic conditions, potentially leading to loss of investment[439](index=439&type=chunk)[440](index=440&type=chunk)[441](index=441&type=chunk) - Issuance of additional capital stock for financings, acquisitions, or equity incentive plans will dilute existing stockholders' ownership interests[442](index=442&type=chunk)[443](index=443&type=chunk) - If securities or industry analysts publish negative reports or cease coverage, the share price and trading volume could decline[445](index=445&type=chunk)[446](index=446&type=chunk) - Operating as a public company incurs increased costs and requires substantial management time for compliance with regulations[447](index=447&type=chunk)[448](index=448&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=70&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the absence of unregistered sales of equity securities and details the use of proceeds from the Company's initial public offering, confirming no material change in the planned use of funds [Unregistered Sales of Equity Securities](index=70&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities) - There were no unregistered sales of equity securities during the period[449](index=449&type=chunk) [Use of Proceeds](index=70&type=section&id=Use%20of%20Proceeds) - The Company closed its initial public offering on November 19, 2021, selling **7.5 million shares** of Class A common stock at **$65.00 per share**, generating **$487.5 million** in gross proceeds[450](index=450&type=chunk) - Net proceeds after deducting underwriting discounts and offering expenses were **$456.8 million**, with no material change in the planned use of these proceeds[451](index=451&type=chunk) [Issuer Purchases of Equity Securities](index=70&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) - There were no issuer purchases of equity securities during the period[452](index=452&type=chunk) [Item 3. Defaults Upon Senior Securities](index=71&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there are no defaults upon senior securities to report - Not applicable[454](index=454&type=chunk) [Item 4. Mine Safety Disclosures](index=71&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that there are no mine safety disclosures required for the Company - Not applicable[455](index=455&type=chunk) [Item 5. Other Information](index=71&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - None[456](index=456&type=chunk) [Item 6. Exhibits](index=71&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL-related documents - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer, as well as various Inline XBRL documents for financial data[460](index=460&type=chunk)[462](index=462&type=chunk) - Certifications under Exhibit 32 are furnished, not filed, and are not incorporated by reference into other SEC filings[463](index=463&type=chunk) [SIGNATURES](index=73&type=section&id=SIGNATURES) This section contains the required signatures for the Quarterly Report on Form 10-Q, confirming its submission by authorized officers - The report was duly signed on September 12, 2022, by William Magnuson, Chief Executive Officer, and Isabelle Winkles, Chief Financial Officer[467](index=467&type=chunk)

Financial Data and Key Metrics Changes - The company reported Q1 2023 revenue of $77.5 million, representing a 62% year-over-year increase and a 10% increase compared to the previous quarter [8][44] - Dollar-based net retention was 127% overall and 133% for customers spending at least $500,000 annually [8][47] - Free cash flow generated was nearly $16 million, driven by strong bookings from Q4 [9][54] - Non-GAAP gross profit was $52.5 million with a gross margin of 67.8%, an improvement from 67.4% year-over-year [50] Business Line Data and Key Metrics Changes - Subscription revenue accounted for 94% of total revenue, with the remaining 6% from one-time fees and professional services [44] - The total customer count increased by 50% year-over-year to 1,503 customers, with large customers (spending at least $500,000 annually) growing by 65% to 129 [45] - The remaining performance obligation rose 57% year-over-year to $391 million, indicating strong business momentum [49] Market Data and Key Metrics Changes - Revenue outside the U.S. contributed 41% of total revenue, up from 40% in the previous quarter [48] - The company continues to see growth across various verticals, particularly in financial services, gaming, and quick-service restaurants [17] Company Strategy and Development Direction - The company aims to capitalize on the growing market for customer engagement platforms, emphasizing customer-led growth strategies [10][42] - Braze's technology is designed to facilitate a customer-centric approach, allowing businesses to harness first-party data effectively [15][22] - The company is focused on expanding its product offerings and enhancing customer engagement through innovative solutions [27][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's outlook despite macroeconomic volatility, emphasizing the importance of customer engagement in challenging environments [42] - The company believes that its services will remain a priority for customers, even during economic downturns [43] - Management highlighted the necessity of customer engagement as a significant market opportunity that remains under-penetrated [43] Other Important Information - The company has expanded its workforce by over 120 employees in the quarter, bringing the total to over 1,280 [25] - Braze has launched next-generation SDKs for web, iOS, and Android to improve performance and developer experience [26] Q&A Session Summary Question: How are new customers thinking through the cost and implementation process required to move to Braze? - Management noted that customers are focused on maximizing ROI from acquisition investments and improving retention rates, with no significant shift in priorities observed [61][64] Question: How should investors think about MAU growth within Braze's customers and its impact on net retention? - Management confirmed that monthly active users (MAU) remain a significant component of revenue and will continue to drive dollar-based net retention [66][68] Question: Can you parse out marketing use cases versus customer engagement use cases? - Management emphasized that both marketing and customer engagement use cases are integrated and that the focus is on maximizing retention and lifetime value [70][75] Question: How durable are direct-to-consumer tailwinds in the current environment? - Management indicated that while some D2C brands are facing challenges, many are focused on building enduring customer relationships and are not solely reliant on short-term growth tactics [90][92] Question: How much operating flexibility does the company have in the current macro environment? - Management expressed confidence in their ability to respond to changing conditions, noting that they are executing their growth plan effectively [93]

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]