Braze(US:BRZE)2023-06-08 16:00Cover Page & Corporate Information This is the Form 10-Q quarterly report for Braze, Inc. for the period ended April 30, 2023 - This is a Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2023, for Braze, Inc.67 - Braze, Inc. is a Delaware corporation whose Class A Common Stock trades on Nasdaq under the symbol BRZE53 Outstanding Shares as of June 1, 2023 | Class | Shares Outstanding | | :--- | :--- | | Class A Common Stock | 63,842,793 | | Class B Common Stock | 33,744,159 | PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited financial statements for Q1 FY2024 show revenue of $101.8 million and a net loss of $38.8 million Condensed Consolidated Balance Sheets The balance sheet shows total assets of $721.3 million and total liabilities of $285.1 million as of April 30, 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 30, 2023 | January 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $598,108 | $583,171 | | Cash and cash equivalents | $116,932 | $68,587 | | Marketable securities | $385,869 | $410,083 | | Total Assets | $721,293 | $705,406 | | Total Current Liabilities | $245,036 | $217,303 | | Deferred revenue | $181,216 | $166,092 | | Total Liabilities | $285,061 | $258,648 | | Total Stockholders' Equity | $435,149 | $445,303 | Condensed Consolidated Statements of Operations For Q1 FY2024, revenue grew 31.3% YoY to $101.8 million, while the net loss slightly improved to $38.8 million Statement of Operations Highlights (in thousands, except per share data) | Metric | Q1 FY2024 (ended Apr 30, 2023) | Q1 FY2023 (ended Apr 30, 2022) | | :--- | :--- | :--- | | Revenue | $101,780 | $77,495 | | Gross Profit | $69,093 | $51,589 | | Loss from Operations | $(41,897) | $(39,649) | | Net Loss | $(38,826) | $(39,633) | | Net Loss Per Share | $(0.40) | $(0.42) | Condensed Consolidated Statements of Cash Flows Net cash from operating activities was $22.5 million, driven by changes in marketable securities transactions Cash Flow Summary (in thousands) | Activity | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,549 | $17,921 | | Net cash provided by/(used in) investing activities | $24,297 | $(407,803) | | Net cash provided by financing activities | $2,211 | $2,630 | | Net change in cash, cash equivalents, and restricted cash | $48,877 | $(388,327) | Notes to Condensed Consolidated Financial Statements The notes detail revenue disaggregation, RPO growth, stock compensation, and a subsequent acquisition Revenue by Type (in thousands) | Type | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Subscription | $97,146 | $72,836 | | Professional services and other | $4,634 | $4,659 | | Total | $101,780 | $77,495 | Revenue by Geography (in thousands) | Geography | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | United States | $58,503 | $45,352 | | International | $43,277 | $32,143 | | Total | $101,780 | $77,495 | - Total Remaining Performance Obligations (RPO) as of April 30, 2023, were $477.5 million, of which $325.4 million is expected to be recognized as revenue in the next year142 - In June 2023, the company acquired North Star Y, Pty Ltd for up to $28.0 million in cash and stock, with potential earn-out payments193 - Stock-based compensation expense for the quarter was $24.6 million, up from $17.2 million in the prior-year period163 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong revenue growth, key customer metrics, and positive operating cash flow amid market uncertainty Factors Affecting Our Performance Performance is driven by customer acquisition, a land-and-expand model, and international expansion - The company's customer base grew to 1,866 as of April 30, 2023197 Key Performance Metrics (as of April 30, 2023) | Metric | Value | | :--- | :--- | | Total Customers | 1,866 | | Customers with ARR > $500k | 164 | | Dollar-Based Net Retention Rate (All Customers) | 122% | | Dollar-Based Net Retention Rate (ARR > $500k) | 124% | | International Revenue % of Total | 43% | - The company's growth strategy focuses on a land-and-expand model, capitalizing on digital transformation in various industries, and expanding internationally, particularly in Europe and Asia-Pacific196197218 Results of Operations Revenue increased 31.3% YoY, gross margin improved to 67.9%, and operating expenses grew due to higher headcount Revenue Comparison (in thousands) | Period | Revenue | Change | % Change | | :--- | :--- | :--- | :--- | | Q1 FY2024 | $101,780 | $24,285 | 31.3% | | Q1 FY2023 | $77,495 | | | - The increase in subscription revenue was driven almost equally by growth from existing customers (49.0%) and new customers (51.0%)266 Operating Expense Comparison (in thousands) | Expense Category | Q1 FY2024 | Q1 FY2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Sales and Marketing | $57,262 | $46,044 | $11,218 | 24.4% | | Research and Development | $29,745 | $21,620 | $8,125 | 37.6% | | General and Administrative | $23,983 | $23,574 | $409 | 1.7% | Liquidity and Capital Resources The company holds $507.4 million in liquid assets and generated $21.7 million in non-GAAP free cash flow - Principal sources of liquidity as of April 30, 2023, were cash, cash equivalents, and marketable securities totaling $507.4 million257 Non-GAAP Free Cash Flow Reconciliation (in thousands) | Line Item | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,549 | $17,921 | | Less: Purchases of property and equipment | (40) | (1,960) | | Less: Capitalized internal-use software costs | (852) | (306) | | Non-GAAP free cash flow | $21,657 | $15,655 | - A substantial source of operating cash is deferred revenue, which stood at $181.2 million as of April 30, 2023258 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from interest rate and foreign currency exchange rate fluctuations - The company's primary market risk exposures are interest rate risk and foreign currency exchange rate risk294 - As of April 30, 2023, the company held $507.4 million in cash, cash equivalents, and marketable securities, with investments subject to interest rate changes280 - Foreign currency risk is mainly from operating expenses in countries like the United Kingdom, Singapore, and Japan, as sales are predominantly in U.S. dollars320 Item 4. Controls and Procedures Disclosure controls were deemed ineffective due to a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of April 30, 2023, due to an unremediated material weakness282 - The material weakness relates to the lack of properly designed controls for revenue recognition, including issues with IT General Controls and system data reviews300323 - The company is implementing a remediation plan that includes developing user access controls, enhancing review procedures, and creating new reconciliation reporting301325 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material litigation that would adversely affect its business - As of the report date, Braze is not a party to any legal proceedings expected to have a material adverse effect on the company328 Item 1A. Risk Factors The company faces risks from economic conditions, competition, data privacy regulations, and internal control weaknesses Risks Related to Growth, Business, and Competition Risks include economic instability impacting customer spending, intense competition, and a history of net losses - Unstable market and economic conditions may adversely affect customer spending, extend sales cycles, and harm the business332333 - The company has a history of operating losses, with an accumulated deficit of $392.4 million as of April 30, 2023, and may not achieve or sustain profitability337 - Braze faces intense competition from legacy marketing clouds like Adobe and Salesforce, and point solutions like Airship and Iterable341 Risks Related to Third-Parties, Data, and Technology The business depends on third-party infrastructure like AWS and is subject to stringent data privacy laws like GDPR - The company outsources substantially all of its cloud infrastructure to Amazon Web Services (AWS), and any disruption could adversely affect operations405438 - The business is subject to stringent and changing privacy laws like GDPR and CCPA, where non-compliance can result in significant consequences456 - The company faces threats from cyberattacks; a security incident could lead to unauthorized access to customer data, disrupt services, and cause reputational harm7411 Risks Related to Legal, Tax, and Public Company Status Risks include an unremediated material weakness, limited use of NOLs, and a dual-class stock structure - The company has an unremediated material weakness in internal control over financial reporting related to revenue recognition51125 - The dual-class stock structure concentrates voting power, with Class B holders controlling approximately 84.2% of the voting power498 - The company had significant federal and state Net Operating Loss (NOL) carryforwards of approximately $281.6 million and $182.4 million, respectively, but their future use is subject to limitations15 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period covered by the report - There were no unregistered sales of equity securities during the reporting period520 Item 6. Exhibits This section provides an index of exhibits filed with the Form 10-Q, including certifications and XBRL data - The Exhibit Index lists documents filed with the report, including CEO/CFO certifications (Exhibits 31.1, 31.2, 32) and XBRL data files (Exhibit 101)532534546