Braze(US:BRZE)2022-12-13 16:00PART I - FINANCIAL INFORMATION This section presents Braze's unaudited financial statements, management's analysis, market risk, and internal control findings Item 1. Financial Statements This section presents Braze's unaudited condensed consolidated financial statements for the quarter, with comprehensive explanatory notes Condensed Consolidated Balance Sheets 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 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 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 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, 202355 - The company early adopted new accounting standards for Leases (Topic 842) and Financial Instruments—Credit Losses (Topic 326) on February 1, 20227273 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 year86 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 Management discusses the company's financial condition and results of operations, analyzing performance drivers, liquidity, and accounting policies Overview and Factors Affecting Performance 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 volume144 - Key performance drivers include acquiring new customers, expanding within the existing customer base, geographical expansion, and sustaining innovation146149154156 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 period155 Results of Operations 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%) customers179 - Gross margin for Q3 2022 decreased slightly to 68.7% from 70.0% in Q3 2021, due to higher infrastructure and nonrecurring hosting migration costs182 - 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 events183184185 Liquidity and Capital Resources 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 securities199 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 months215 Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 risk226228 - 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. dollars230 Item 4. Controls and Procedures 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, 2022235 - The ineffectiveness stems from three unremediated material weaknesses: financial reporting close process, revenue recognition controls, and inadequate information technology controls238 - A remediation plan is underway, including hiring personnel, engaging external resources, and implementing new systems and policies to address the weaknesses239 PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and other miscellaneous disclosures Item 1. Legal Proceedings 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 proceedings245 Item 1A. Risk Factors 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 renewals247 - 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 delivery249331337 - 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 restrictions249347 - The three identified material weaknesses in internal control over financial reporting are a significant risk that could adversely affect financial reporting accuracy and timing249426 - The dual-class stock structure concentrates voting control with executive officers, directors, and significant stockholders, limiting Class A common stockholders' influence249436 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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, 2022465 - 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 proceeds466469 Other Items (Items 3, 4, 5, 6) 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 report471472473