Braze(US:BRZE)2021-12-20 16:00Part I. Financial Information Item 1. Financial Statements Braze, Inc.'s unaudited condensed consolidated financial statements for periods ended October 31, 2021, are presented Condensed Consolidated Balance Sheets Total assets reached $184.1 million, liabilities $124.7 million, and accumulated deficit $172.0 million as of October 31, 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Oct 31, 2021 | Jan 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $41,976 | $28,509 | | Marketable securities | $34,906 | $58,004 | | Total Assets | $184,086 | $171,394 | | Liabilities & Equity | | | | Deferred revenue | $98,427 | $74,789 | | Total Liabilities | $124,700 | $103,439 | | Accumulated deficit | $(172,026) | $(138,242) | | Total Stockholders' Deficit | $(118,486) | $(108,507) | Condensed Consolidated Statements of Operations Q3 2021 revenue grew 62.6% to $64.0 million, with increased operating expenses leading to a $9.1 million net loss Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $63,968 | $39,332 | $167,601 | $107,261 | | Gross Profit | $44,794 | $24,901 | $113,865 | $68,029 | | Loss from operations | $(10,448) | $(8,788) | $(35,623) | $(21,634) | | Net loss | $(9,058) | $(8,822) | $(34,824) | $(21,217) | | Net loss per share | $(0.42) | $(0.47) | $(1.67) | $(1.21) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $10.9 million for the nine months ended October 31, 2021 Cash Flow Summary for the Nine Months Ended October 31 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,868) | $(6,100) | | Net cash provided by investing activities | $19,789 | $19,644 | | Net cash provided by financing activities | $4,604 | $5,100 | Notes to Condensed Consolidated Financial Statements Notes detail the November 2021 IPO, revenue recognition, RPO growth, and stock-based compensation expenses - On November 19, 2021, the company completed its IPO, receiving net proceeds of approximately $457.1 million. All convertible preferred stock was converted to Class B common stock53 - Subscription revenue is the primary revenue source, growing to $59.3 million in Q3 2021 from $36.8 million in Q3 2020. International revenue accounted for approximately 40% of total revenue for the nine months ended October 31, 202173 - Remaining Performance Obligations (RPO) increased to $304.0 million as of October 31, 2021, up from $234.2 million at January 31, 2021, indicating strong future revenue visibility79 - Upon completion of the IPO, the company recognized $16.1 million in compensation expense related to RSUs whose performance-based vesting conditions were satisfied by the event139 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q3 revenue growth to $64.0 million, improved gross margin, and increased operating expenses Factors Affecting Our Performance Performance driven by customer acquisition and expansion, with 1,247 customers and a 126% dollar-based net retention rate - The number of customers grew to 1,247 as of October 31, 2021, up from 841 as of October 31, 2020153189 Dollar-Based Net Retention Rate (Trailing 12 Months) | Customer Cohort | As of Oct 31, 2021 | As of Oct 31, 2020 | | :--- | :--- | :--- | | All Customers | 126% | 124% | | Customers with ARR ≥ $500k | 136% | 134% | - International revenue constituted approximately 40% of total revenue for the nine months ended October 31, 2021, highlighting successful geographic expansion161 Results of Operations Analysis shows significant revenue growth and improved gross margin, offset by substantial increases in operating expenses Revenue Growth (in thousands) | Period | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Oct 31 | $63,968 | $39,332 | $24,636 | 62.6% | | Nine Months Ended Oct 31 | $167,601 | $107,261 | $60,340 | 56.3% | Gross Margin Performance | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended Oct 31 | 70.0% | 63.3% | | Nine Months Ended Oct 31 | 67.9% | 63.4% | - The increase in operating expenses for Q3 2021 was primarily driven by higher personnel and overhead costs due to increased headcount: Sales & Marketing ($7.1M), R&D ($4.7M), and G&A ($3.9M)193194195 Liquidity and Capital Resources Liquidity was $76.9 million as of October 31, 2021, bolstered by $457.1 million net IPO proceeds - Principal source of liquidity as of October 31, 2021, was $76.9 million in cash, cash equivalents, and marketable securities209 - The company closed its IPO in November 2021, resulting in net proceeds of $457.1 million210 - A substantial source of cash is deferred revenue, which stood at $98.6 million as of October 31, 2021213 Non-GAAP Free Cash Flow (in thousands) | Period | Nine Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2020 | | :--- | :--- | :--- | | Non-GAAP Free cash flow | $(13,820) | $(9,824) | Quantitative and Qualitative Disclosures About Market Risk Primary market risks are interest rate and foreign currency fluctuations, both minimal with no hedging instruments - The company's main market risks are interest rate risk and foreign currency exchange rate risk234 - As of October 31, 2021, a hypothetical 10% change in interest rates would not have a material impact on the value of cash, cash equivalents, or marketable securities237 - Foreign currency risk is limited as substantially all sales are denominated in U.S. dollars. A hypothetical 10% change in exchange rates would not have had a material effect238240 Controls and Procedures Disclosure controls were ineffective due to three material weaknesses in financial statement close, revenue recognition, and IT controls - Management concluded that disclosure controls and procedures were not effective as of October 31, 2021242 - Three material weaknesses were identified in internal controls over: the financial statement close process, revenue recognition accounting (ASC 606), and inadequate IT controls for financial systems245 - Remediation efforts are underway, including hiring more staff, engaging external resources, and implementing new policies and a revenue recognition system249 Part II. Other Information Legal Proceedings Braze is not a party to any legal proceedings expected to materially affect its business or financial condition - The company is not presently a party to any litigation that is expected to have a material adverse effect on its business251 Risk Factors Key risks include unsustainable growth, intense competition, platform dependence, data privacy, internal control weaknesses, and concentrated voting power - The company's rapid revenue growth may not be indicative of future growth and makes future prospects difficult to evaluate256 - Braze faces intense competition from legacy marketing clouds like Adobe and Salesforce, as well as point solutions, many of which have greater resources271 - The business is subject to stringent and changing data privacy laws like GDPR and CCPA, which impose significant compliance costs and risks related to data transfer and processing352358 - Three material weaknesses in internal control over financial reporting have been identified, which could adversely affect the accuracy and timing of financial reporting447 - The dual-class stock structure concentrates approximately 98.8% of voting power with holders of Class B common stock, limiting the influence of Class A stockholders457458 Unregistered Sales of Equity Securities and Use of Proceeds The company issued RSUs and common stock in unregistered transactions and received $457.1 million net proceeds from its November 2021 IPO - From August 1, 2021, to October 31, 2021, the company granted 767,554 RSUs and issued 749,299 shares of common stock from option exercises in unregistered transactions489 - The November 2021 IPO resulted in net proceeds of $457.1 million after deducting underwriting discounts and offering expenses492 Exhibits This section indexes exhibits including corporate governance documents and CEO/CFO certifications - The Exhibit Index lists key corporate governance documents, including the Amended and Restated Certificate of Incorporation and Bylaws499 - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits497499