Braze, Inc. (BRZE) Q4 2023 Earnings Report, Transcript and Summary

Welcome to the Braves Fourth Quarter Fiscal Year 2023 Financial Results Conference Call. My name is Michael and I will be your operator for today. [Operator Instructions] I will now turn the call over to Christopher Ferris. Head of Braves Investor Relations.

Thank you, operator. Good afternoon and thank you for joining us today to review Braze results for the fiscal fourth quarter 2023. The I'm joined by our Co-Founder and Chief Executive Officer, Bill Magnusson; and our Chief Financial Officer, is Will Winkle. We announced our results in a press release issued after the market closed today. Please refer to our investor website at investors.braze.com for more information and a supplemental presentation related to today's earnings announcement. During this call, we will make statements related to our business that are forward-looking under the federal securities laws and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include but are not limited to, statements regarding our financial outlook for the first quarter ended April 30, 2023 and for our fiscal year ended January 31, 2020 and our planned product and feature development and the benefits to us and our customers therefrom, including our AI tools, our anticipated market opportunity, the potential impact of current macroeconomic trends our anticipated customer behaviors, including vendor consolidation trends and their impact on Braze, our growth plan, our vision our long-term financial targets and goals, including the anticipated period in which we may generate positive non-GAAP operating income and positive free cash flow. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations and reflect our views only as of today. We assume no obligation to update any such forward-looking statements. For a discussion of the material risks and uncertainties that could affect our results, please refer to the risks identified in today's press release and our SEC filings, both available on the Investors section of our website. I'd also like to remind you that today's call will include certain non-GAAP financial measures used by management to evaluate our ongoing operations and to aid investors in further understanding the company's fiscal fourth quarter 2023 performance in addition to the impact these items have on the financial results. Please refer to the reconciliations of our non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with U.S. GAAP included in our earnings release under the Investor Relations portion of our website. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with U.S. GAAP. And now I'd like to turn the call over to Bill.

Thank you, Chris and good afternoon, everyone. We delivered a strong fourth quarter, generating $98.7 million in revenue, up 40% versus the prior year and 6% compared to the prior quarter, again demonstrating the high ROI and long-term value of the Brave solution. Our results were strong despite a challenging macroeconomic environment that elongated sales cycles, particularly in our Commercial segment. We increased our total customer count by 55% sequentially to $1,770 and continue to win against both legacy Marketing Clouds and point solutions. Notable recent new business wins and upsells include Discovery Communications, Finish Line, McClatchy Media Company, My Fitness Bell, Sonic Drive-in and [indiscernible], one of Europe's leading online marketplaces for high-quality used cars among many others. Customers continue to recognize the high ROI that can be achieved through personalized, cross-channel customer engagement enabled by the Braze platform. Despite market challenges, we remain confident in our ability to execute on our growth plans. Braze's momentum continues in key industries such as retail and e-commerce and media and telecommunications and as legacy marketing tools come up for renewal we see traction in newer to braze industries like travel and hospitality. And today, I'm proud to announce that during Q4, we passed $400 million of committed annual recurring revenue, demonstrating our ability to capitalize on our growing market opportunity to deliver best-in-class customer engagement at scale. Thank you to our dedicated and talented team across the globe who help make this happen. I'm excited to build on our success with you and march toward our next goal of becoming a $1 billion revenue company. Looking ahead, we are confident that whichever way the macroeconomic winds blow, customer engagement will remain a universal business imperative. In tough times, brands shift their focus to higher return activities like life cycle optimization and retention. To stand out, marketers need to use powerful customer engagement technology to drive innovation and productivity, all in service to customer value. And we are increasingly seeing the trend towards vendor consolidation which we think we will benefit from, specifically, Customers come to brace looking to strengthen their customer engagement suite with a platform that is simultaneously comprehensive while being intuitively integrated and powered by real-time data. These customers are moving from a disparate collection of marketing software, separately sending e-mail, SMS, push notifications and in-product messaging, all with siloed analytics and complex user data tracking. With Brave, customers ranging in size from small digital start-ups up to some of the world's large enterprises can cost effectively consolidate their customer engagement efforts into 1 solution, breaking down silos between channels and teams simplifying their technical architectures and improving is for customers in one particular new business win with an athletics retailer this quarter, we replaced 3 separate vendors, signing a deal across an array of channels, including e-mail, push, web and content cards. In another case, we're radiational media company, we replaced the legacy Marketing Cloud and 3 other messaging vendors as they modernize their customer engagement platform with Braze. We expect this trend to continue as enterprises with ambition and sophistication consolidate their technology ecosystem with modern omnichannel customer engagement solutions, removing legacy marketing clouds and point solutions that don't scale which we believe will provide a tailwind for Brave in the coming years. In another proof point of our leadership in the industry, I'm pleased to highlight that Brace was recently named a leader in the Q1 2023 Forrester Wave for cross-channel marketing hubs. Their coverage of bra should resonate with those who have been listening in on our earnings calls the last few quarters. So let me just read directly from Forrester's report. Braze lives up to its start anywhere and go Everywhere product vision via innovative products and expert services to help its clients build human connections with their customers regardless of size or technical competence. Its superior innovation road map reflects these concepts by balancing investments across a use, platform depth and workflow flexibility. They continue by saying that brace suits organizations looking for a flexible and marketer friendly cross-channel marketing hub solution to refresh their digital experience strategy. Next, I'd like to briefly highlight our recently announced strategic partnership with WPP a leading creative transformation and services agency. Together, we'll be partnering on joint product and solution development and integrations aimed at helping brands resolve customer identities at scale and power personalized engagement, alongside coordinated go-to-market efforts to help clients make investments in customer activation, retention and loyalty. We look forward to partnering with WPP and deepening our relationships with other agencies and GSIs to create better outcomes for our customers. As we look to the future, we will continue to improve our platform and build our competitive moat. Artificial intelligence is a key component of that innovation push. Those that closely follow bras, know we were founded by 2 engineers, myself and our CEO, John Heyman and that existing on the cutting edge of technology innovation is in our very DNA. Let me walk you through a few of our existing AI developments and how we plan to leverage AI to drive customer engagement in the future. In 2017, we invested in a dedicated team of data engineers and data scientists focused on using machine learning to build AI into the product, making marketers more effective in engaging their end users by optimizing timing and targeting strategies inspiring new ideas to enhance relevance for customers and when possible, automating decisions entirely. In May of 2022, we started investing in generative AI as a marketer copilot, building GPT-3 into Braze for AI copywriting which saves customers' time when creating subject lines and messaging for their campaigns. Last December, we integrated Dolly into our image library and customers have been using both very effectively to be more agile, speed creative production and more easily test and optimize content for different variants. We're very excited about the potential for these tools to enable even small marketing teams to wield an immersive creative vision. While also making it easier for them to take advantage of Braze's sophisticated and differentiated testing capabilities by lowering their creative production burden. We have also already seen examples of that PT successfully leveraged to generate valid message templating syntac and to speed along integration with source code samples. This is a set of capabilities that enhance the efficiency of our product support and further accelerate time to value for our customers. We're also experimenting with customizations of GPT-4 which are aware of Braze's support knowledge base and up-to-date documentation in order to enable a wider swath of base users to leverage our most advanced capabilities more quickly. And as we discussed with you in October at our first Investor Day, we've also introduced new machine learning features designed to improve outcomes in brace campaigns and campuses. We introduced personalized variant to automatically determine for each individual message recipient which content variation they will most likely engage with based on data from consumers with similar behaviors and profiles. And we've expanded our predictive suite to use sophisticated machine learning to identify which users are most likely to churn or make a purchase. This generates models that are customized to each brand's usage fingerprint, a solution that adapts to work effectively across different industries and business models. Finally, we are using machine learning-driven predictive models designed to improve our quality of service while lowering our infrastructure costs. Auto scaling is a technique we've used for years to adapt the cloud footprint of our stream processor in response to dynamic messaging workloads. We recently enhanced it to use machine learning to automatically predict upcoming load based on customer usage and a wide array of historical data. Early tests have shown the potential for meaningful reductions in our infrastructure costs as we continue to drive efficiencies in our core tech stack. You can expect that Braves will continue developing AI and ML-driven products and service enhancements throughout the surface area of our platform in the coming months and years. Finally and before I turn it over to Isabelle, I'd like to spend a moment to discuss some exciting news we announced earlier this afternoon. We have entered into an agreement to acquire North Star, our exclusive reseller of Brave technology in the Australian and New Zealand markets. We have been working with their team for several years and have been impressed by their ability to drive adoption of our industry-leading solution across the region. We estimate this transaction will close in our fiscal second quarter and we look forward to updating you on the progress in the region in the coming quarters. Thank you for your continued support of Braze. We are very excited about the year ahead and believe the investments in our products, coupled with the strong secular customer engagement tailwinds will keep raise on the path to becoming the industry standard for customer engagement. And now I'll turn the call over to Isabelle.

Thank you, Bill and thank you, everyone, for joining us today. As Bill mentioned, we reported a strong fourth quarter with revenue up 40% year-over-year to $98.7 million. This was driven by a combination of existing customer contract expansion, renewals and new business. Our subscription revenue remains the primary component of our total top line, contributing 96% of fourth quarter revenue. The remaining 4% represents a combination of onetime configuration and onboarding fees as well as other professional services. Total customer count increased 29% year-over-year to 1,770 customers as of January 31, up 395 from the same period last year and up 55% from the prior quarter. Our total number of large customers which we define as those spending at least $500,000 annually grew 46% year-over-year to 156 and as of January 31 contributed 57% to our total ARR compared to a 52% contribution as of the same time last year. Compared to last quarter, this reflects a 5% increase from 148 large customers that contributed 56% of our total ARR as of October 31. Measured across all customers, dollar-based net retention was 124%, while dollar-based net retention for our large customers, those spending at least $500,000 annually was 126%. And Expansion was broadly distributed across industries and geographic regions. Revenue outside the U.S. contributed 43% of our total revenue in the fourth quarter in line with the prior quarter and up from 40% at the end of fiscal year 2022. In the fourth quarter, our total remaining performance obligation was $456 million, up 22% year-over-year and up 11% sequentially. Current RPO was $313 million, up 31% year-over-year and up 10% sequentially. The year-over-year increase was driven by contract renewals and upsells and the signing of new customer contracts. Overall, dollar-weighted contract length remains at approximately 2 years. Now I'll review the income statement in more detail. As a reminder, some of the metrics I will discuss are non-GAAP. We've provided a reconciliation of GAAP to non-GAAP financials in our earnings release and accompanying earnings presentation. Non-GAAP gross profit in the quarter was $66.2 million, representing a non-GAAP gross margin of 67%. This compares to a non-GAAP gross profit of $47.3 million and non-GAAP gross margin of 67.2% in the fourth quarter of last year and 69.7% in the third quarter of this year. In addition to normal seasonality which reduces gross margin in Q4 due to higher levels of customer activity, our cost of revenue in Q4 included the impact of a onetime expense true-up. Excluding this impact, Q4 non-GAAP gross profit was $67.5 million, representing a non-GAAP gross margin of 68.4%, up 120 basis points year-over-year due to continued economies of scale in our core technology expenses and ongoing efficiencies related to our customer support functions. Turning to operating expenses. Non-GAAP sales and marketing expense was $46.5 million or 47% of revenue compared to $35.3 million or 50% of revenue in the prior year quarter. While the dollar increase reflects our investment in headcount to support our ongoing growth, global expansion and increased travel and entertainment expenses, the improved efficiency reflects our disciplined investment approach to resource deployment across our go-to-market organization. Non-GAAP R&D expense was $19 million or 19% of revenue compared to $13.1 million or 19% of revenue in the prior year quarter. The dollar increase was primarily driven by increased headcount to support the expansion of our existing offerings as well as to develop new products and features to drive growth. Non-GAAP G&A expense was $17.5 million or 18% of revenue compared to $12.4 million or 18% of revenue in the prior year quarter. The dollar increase was driven by investments to support our overall company growth and public company expenses. Non-GAAP operating loss was $16.7 million compared to a non-GAAP operating loss of $13.4 million in the prior year quarter. Non-GAAP net loss attributable to Brave shareholders in the quarter was $13.7 million or a loss of $0.14 per share based on 95 million weighted average basic shares outstanding during the period. This compares to a loss of $13.8 million or a loss of $0.18 per share based on 78.4 million weighted average basic shares outstanding in the prior year quarter. Now turning to the balance sheet and cash flow statement. We ended the quarter with $482.7 million in cash, cash equivalents, restricted cash and marketable securities. Cash provided by operations during the quarter was just over $12,000 compared to a use of approximately $24.5 million in the prior year quarter, driven by lower net loss and positive changes in working capital. Free cash flow was negative $1.9 million in the quarter compared to a negative $26 million in the year ago quarter. As we have stated in previous quarters, we expect our free cash flow to fluctuate from quarter-to-quarter given the timing of customer and vendor payments. And now turning to our forecast. We continue to see solid interest in high-quality customer engagement solutions, tempered by macroeconomic headwinds that persist in a number of geographic regions and industry verticals. Like many of our peers, we continue to experience elongated sales cycles and slower new business growth. As such, our guidance assumes an elevated level of conservatism and that the current macro environment persists throughout fiscal 2024. And as we navigate this fiscal year, we will continue to maintain cost discipline and believe that we are well positioned to make significant progress towards our long-term operating targets outlined last October. For the first quarter, we expect revenue to be in the range of $98.5 million to $99.5 million which represents a year-over-year growth rate of approximately 28% at the midpoint. As a reminder, our first quarter contains 89 days or 3 fewer days compared to the other 3 quarters of the year which each contain 92 days. Because we recognize revenue ratably over the course of the year, the Q1 day count is reflected in our revenue guidance. First quarter non-GAAP operating loss is expected to be in the range of $19 million to $20 million. First quarter non-GAAP net loss is expected to be in and first quarter non-GAAP net loss per share in the range of $0.18 to $0.19 per share based on approximately 96.2 million weighted average basic shares outstanding during the period. For the full fiscal year 2024, we expect total revenue to be in the range of $433 million to $438 million which represents a year-over-year growth rate of approximately 23% at the midpoint. Fiscal year 2024 non-GAAP operating loss is expected to be in the range of $57 million to $61 million. Non-GAAP net loss for the same period is expected to be in the range of $53 million to $57 million. For fiscal year 2024, non-GAAP net loss per share is expected to be $0.55 to $0.59 per share based on a full year weighted average basic share count of approximately 97.1 million shares. As we look further out, we are focused on growing revenue while improving operating income and free cash flow margins and expect base will generate positive quarterly non-GAAP operating income and positive quarterly free cash flow in the fiscal year ended January 31, 2025. In addition, we expect our non-GAAP operating income margin in Q4 of this year to be negative 7% or better. I'll conclude by reiterating our excitement in Braze's future. We are focused on growing our business, partnering with customers to help them achieve incredible customer engagement outcomes while effectively managing our expenses to achieve our long-term financial targets. And with that, we'll now open the call for questions. Operator, please begin the Q&A.

[Operator Instructions] Our first question comes from DJ Hynes at Canaccord.

Bill, first for you -- look, with more accessibility to third-party streaming data solutions and then continued advancements in AI and ML. Are you seeing any signs that legacy Marketing Cloud customers are figuring out workarounds to make the existing solutions any more productive. I'm just trying to think about like implications for willingness or appetite to swap out existing marketing infrastructure and move to somebody like race.

Yes. Thanks for the question. I mean, first, I would highlight the vendor consolidation trends that that I just spoke about a little bit ago, in both of those cases, we're seeing legacy Marketing Cloud and point solution deployments that are consolidating on to Braze. And I think that's showing you 2 things. One is that replacement cycle, legacy tool. And two, the fact that there was a legacy Marketing Cloud alongside point solutions in their original deployment means that they're just not delivering across the touch points in the channels that modern customer engagement requires and demands. We're similarly seeing -- and I highlighted this about the travel and hospitality industry but across verticals that have been a little bit slower to move over starting to see that legacy marketing tool and it's not just legacy marketing clouds. We're also seeing some other some other software that was in the last generation, getting wholesale replaced in the enterprise. And increasingly, what we're seeing is that the default for that is not moving to one of those legacy marketing clouds but moving over to raise. And when we look at AI within that -- and I can speak about this more later, I'm sure I'm going to get more questions around AI and ML before we finish this call. But I think that because we have access to a more complete picture of the customer, combined with the ability to directly interact with them and we have our vertically integrated real-time data flow and the comprehensiveness across these customer touch points and messaging channels, that puts us in a position in the technology stack with respect to the data flow and access to it in real time as well as comprehensiveness of the entire picture of the first-party data that will just allow us to have more flexibility and optionality in what we build out from an AIML perspective into the future.

Yes. Helpful color. And then is about one for you. Just in terms of the guidance, like what are your expectations in terms of the mix of growth from the base, so NRR versus contribution from net new in fiscal 2024, that gets you to that midpoint 23% growth guidance?

Yes. Thanks for the question. So first of all, I just want to say, I think we've been performing very well against an increasingly tough environment here that we've been seeing over the course of this past year. And we're seeing the same dynamics that a lot of our peers are seeing with regards to elevated levels of deal scrutiny, certainly when it comes to kind of that net new business and then continuations of these elongated deal cycles. So, I think we are going to continue and we've incorporated into our guide a good degree of conservatism across a number of fronts. And so specifically across a number of KPIs, we have incorporated the expectation that we'll see some further degradation. That's true for pipeline generation and therefore, some ongoing weakness in kind of net new business. Conversion rates, win rates, the deal cycle length, we think will continue to stay long or we've assumed that rather in the context of our guide. We're assuming limited improvements to sales productivity. This is all embedded in the guidance. And so I think it's fair to say that we do expect in the context of the guide for the net new business to continue to struggle. We've also been able to incorporate the events of kind of the last few weeks that have led to a little bit more market disruption and a little bit more uncertainty and maybe how net new buyer behavior and net new investment is going to behave over the coming months and quarters. And as a result of that, we feel really comfortable with where our guidance is right now against many of the possible scenarios that might play out for FY '24.

I'll just add that in general, obviously, the environment has been super dynamic and it's been challenging to operate in. But that said, I'm really optimistic about where we are as a business and also how we're positioned in the ecosystem. We've been focused, especially over the last couple of quarters on preparing for the world as it is but doing that while also setting us up for long-term success. And qualitatively, I've never been more excited about our position. When you look at things like our product road map and the momentum there with things like cloud data ingestion or the recent launch of WhatsApp. You may have seen the announcement that came out yesterday about the partnership with WPP which is exciting. All its own but it's also a for our continued progress with the GSIs. Our go-to-market investments and the trends that I just highlighted around the replacement cycle for legacy tools and vendor consolidation, these are all things that really build the one that we're going to build Braves into the future on. Now quantitatively, obviously, the environment is difficult and you see that in the numbers across the industry. And as Isabelle mentioned, we're being very mindful of the events of the last couple of weeks and our experience in this environment so far and our guidance is informed by that but we feel comfortable with the guide that we're providing.

Yes, it makes sense. I think the prudence is logical.

And our next question comes from Ryan MacWilliams of Barclays.

Great to hear about the profitability improvement in the guidance and the fourth quarter exit margin rate was better than we expected. So if the macro stays current or similar to the current environment, do you have any updated thoughts about the potential path of profitability time line for Braze? And how do you think about making investments in this current [indiscernible]?

Yes. Thanks for the question. So if we take you back to December, we made an announcement in December that we had broadly paused net growth in overall headcount. And think of that as actually staying. We're staying the course on that. So that has not changed. And so we are able to sort of continue on with this sort of path to profitability and actually make meaningful progress this year. Because we have incredible amounts of kind of control and visibility into our overall spend for the balance of the year. And so we think that, that's actually a key driver for the path to profitability is being able to kind of stay the course. It's -- and it's actually been incredibly helpful for our leaders to have to reprioritize how they're going to deploy spend over the course of this year. as we've maintained the headcount pause for the headcount increase pause for the time being. So I wouldn't look for us to materially expand net new investment over the balance of this year.

Yes. And I'll just say that touching on the culture and how leadership has rallied around our entire employee base has rallied around this move to profitability. We've been able to do it while also making great foundational investments and that's just through a lot of the advantages that we have around our mastery of R&D and data as well as the adaptability of the employee base. I've been really proud of our employee culture through this transition and it gives me not only great confidence for our path to profitability but confidence for our future as we continue to build our leadership position in the space.

And then one for Bill. Exiting the fourth quarter, how should we think about how the macro is currently impacting customer usage of the Grace platform? Because data points processes messages sent still seems healthy at like mid-40% year-over-year growth rate. So to see or you're thinking about how different verticals or different customer sizes are currently faring.

Yes. I think this just points back to the reality that customer engagement is a really multifaceted operation that is always on in some extent. And I think that a lot of people look at marketing technology in general and they think, oh, that's -- it's like advertising spend, it's discretionary, et cetera. The responsibility to be communicating with your customers isn't always on one. And especially as we see customers continue to expand into new use cases as they take advantage of new feature development like cloud data ingestion to bring in new data sets and drive yet more use cases and more messaging. We continue to see them expanding across multiple channels. There's just a lot of expansion in the surface area of the product. There's expansion of our customers as they find ROI in their early use cases and they expand into new ones. And then, just the fact that so much of what BRACE does mission-critical communication in order to deliver products and services. I think that the secular trend toward being able to build up first-party relationships inform those first-party relationships with first-party data and then take action on them directly is one that's becoming an imperative for brands of all kinds across every vertical and of every size.

And our next question comes from Arjun Bhatia with William Blair.

Bill, maybe just to stick with you. You mentioned some of the AI investments that you've made over the past several years. But when you think about the advent of generative AI, what do you think that can do for the platform from a customer standpoint? Does it help you be more competitive? Does it drive more productivity for your customers? Just would love to get your thoughts on how this plays out over the next several years?

Yes, absolutely. So I'll take a step back from just generative and give you kind of a framework for how we think about AI and ML and its influence in customer engagement in general. So you're effectively kind of bucketing things in a few ways. One is -- is this a copilot for a human? Is it automated optimization? Or is it a full autopilot. And I think that the nature of first-party data and managing first-party relationships is that the bar for full autopilot is much higher than it is in things like advertising or even in areas like prospecting and B2B. And thus, you should expect to see the move towards something where you have like a Magic Black Box or a full autopilot move a little bit more carefully in the first-party data space and the first-party relationship space. It's one thing to have an ad or an e-mail that's well targeted on someone that you, or that's been crafted for someone that you don't know very well, it's very different to have that live inside of your own product experience. A related concept that require training data and that you need to learn over time versus those that can be used immediately. We definitely balance our investments to make sure that we're delivering on both. Obviously, a lot of the generative AI stuff recently has been particularly special because much of it can be used immediately. It's easy to get up and running and learn and even the learning cycle when you're in the middle of a conversation in Chat happens pretty quickly. We found that the systems which learn over time are best suited for partial automation, especially for things like variant or full strategy testing for which Canvas is a really robust framework or other things like predictive intelligence targeting. And now I just mentioned earlier that Braze, I think, is uniquely positioned in our ecosystem to take full advantage of those types of developments because of the comprehensiveness of our touch points and the fact that we can just put our hands on data immediately when it's generated because of the vertically integrated real-time data flow. And so that more complete picture puts us in an enviable position to be able to take advantage of new AI and ML developments. Now kind of getting specifically on the generative side, one of the near-term places I'm most excited about is using predictive targeting and other ML-driven orchestration intelligence which we already have in the platform and are certainly going to continue to develop more in the future. to supercharge experimentation in particular, because one of the barriers to experimentation for marketers is the creative production side. how do you actually produce 6 interesting, relevant, different ways of communicating a similar message to someone or evoking the same -- trying to encourage the same action. Pair that with things like image generation or video and it gets even harder. And so that's where if we go back to my -- the framework that I broke out in the beginning, all of those are the aid of a creative copilot. So whether that's chat top helping with the equivalent of writers block or it's [indiscernible] doing the same thing for images and we expect that will come about for animated gifts and video production capabilities pretty soon. Those types of things are particularly important for our customers with smaller teams and less resources. But I think it actually helps everyone move faster and more efficiently which helps raise not only differentiate by opening up new use cases through our real-time capability but it also augments the games which compound through experimentation. I think that the easier it is for customers to both produce multiple variants of strategies to test. And then we insert machine learning to help make that testing more effective compound those learnings and those gains together, you really enhance ROI. And so those are I hope that gives you an idea of kind of how we think about it and what that road map is going to look like. There's definitely some unique aspects to braze with respect to being first-party data but also some really amazing advantages because of where we're positioned in the stack.

Yes. That's very helpful. And then I wanted to touch on just geographic priorities because -- so you're making this acquisition in Australia, New Zealand. You've launched the WhatsApp integration. I'd love to hear how you think that might help drive further international expansion because it is obviously a key channel that users abroad in Europe, LatAm, et cetera, used much more frequently than here in the States.

Yes, absolutely. I mean you'll all cite as well just as kind of foundational stat that 43% of our revenue comes from outside of the United States. And so as we know, Brace has a very global footprint and because of the nature of mobile and the app stores and such, especially in our early days, we've always been a very global company. In fact, actually our second largest office is in London. So I like to say that the geographic center of brass somewhere over the North Atlantic. And that global exposure and footprint is a particular reason why I'm most excited about WhatsApp within Braves, especially vis-a-vis lot of the competition that you see in the marketing tech space who, in general, you see a huge concentration in their SMS being in the United States. And so when we can take our differentiated WhatsApp capability and we can multiply that by our international footprint, I think it's got a lot of exciting potential.

Our next question comes from Jake Titleman with Goldman Sachs.

It sounds like Braze is experiencing many of the same macro headwinds as other software companies but it would be good to get an update on the win rates you're seeing. And maybe you can comment on how those win rates are trending with both larger and smaller customers, especially because we've heard that some of the smaller private players are really pulling the pricing lever to try and win new business.

Yes. So there are some great things that we've been seeing from a competition standpoint. First, the vendor consolidation momentum has been really positive for us. We also continue to win at higher prices and head-to-heads because we are effectively value selling. We've spoken a lot about our go-to-market investment that we've been making over the last few quarters and I've been excited to see the results from that. We're operating with less opportunities to go around which I think because of the macro, everyone is, we're definitely seeing more desperate tactics from competitors. And frankly, we're actually seeing those [indiscernible] from competitors that are both large and small. But we don't see anything that is fundamentally changing the competitive landscape. I'd also say that even those competitors who are progressing by trying to imitate our feature set, they're still built on either old or cheapen in complete architectures which simply means that their attempts to fast follow us and try to sell at lower prices are eventually going to hit a wall. And in the meantime, we're going to keep innovating and leading the way. You know from our track record that we don't do margin dilutive deals and we're seeing those win rates improve or hold up, depending on which category we're operating in. It is definitely a dynamic competitive landscape. And as I mentioned, there are less opportunities to go around before and that's having predictable second order effects from our competitive cohorts but we feel really good about where we're positioned, especially over the longer term.

That's great. And then maybe you can comment on if you think this market slowdown has maybe concerned you at all that the TAM for an offering like BRAS isn't as large as you previously thought? Maybe if not, you can talk about your conviction in the long-term fundamentals and why investors should not view the current environment as the new normal?

I would hold up 2 things here. First, as we referenced earlier on the call, we're seeing things like messaging and data volumes and such, all hold up which I think is a pretty clear sign that, that overall activity between brands and customers communicating with each other, it's not something that is a temporary a temporary phenomenon in business or in the lives of humans. But also when we just look at the secular and generational trends that are happening right now as we continue to digitize more and more of our lives and really importantly to me is I think that we're still in the early innings of this move to first-party data, the first kind of valley of investment in first-party data, I think, has been an understandable reaction to the fall of third-party data, the -- whether it's IDFA or the death of the cookie or what have you, you see brands trying to collect first-party data sets because they're trying to replace third-party data sets for things that they were doing before. But the more important aspect of first-party data in these first-party relationships is that it takes the customer relationship which, of course, de facto always exists in the ether. And it actually makes it directly actionable. The fact that you can understand the nature of your customer relationships and you can take action in order to enhance them directly when you combine together an investment in first-party data with sophisticated and powerful customer engagement tools like Braze is creating tremendous amounts of business value for those brands that are already investing in it. And when I kind of look at the many secular trends that Brace has certainly benefited from over the years. First, it was obviously the rise of mobile and the app stores and then we started to see the walls get broken down between messaging channels within businesses and we started to land a lot more of those cross-channel deals and expanding into places like e-mail and web and in product messaging. More recently, we've seen the rise of the data scientists and the data engineer who is really coming to the picture and you've seen the Base product surface area expand in order to accommodate those new members of customer engagement teams. But I think that the super cycle under all this is really that move toward brands being able to take action directly on their customer relationships, being able to inform that action with the first-party data assets that they are building up and then being able to take action on it through software and strategies and team structures like customer engage -- the entire customer engagement category delivers to them.

And our next question comes from Brian Peterson with Raymond James.

Just one for me. So I wanted to hit on the NorthStar acquisition. Any help on what drove the timing of that, the strategic rationale? And anything you can share in terms of the financial contributions that's in the fiscal year '24 guide?

Yes. So I'll let Isabelle speak to the financial side. But from a timing perspective, I think that we've been working with North Star in the market for years. It's unique in our global footprint in the sense that it is a bidirectionally exclusive relationship which means that they are the only people selling Brave in Australia and New Zealand and they are also the only reseller that we work with in the region. We've been close to them for a long time and we felt like that there was a lot of efficiency to be gained by bringing our teams together. I was out there actually in November, met with all the different teams and it was clear that them just having an abstraction layer between being real base employees was getting in the way of a lot of their efficiency from a day-to-day basis. And we wanted to take -- who has been a really long time, great partner and bring them into the fold of bras and really help accelerate our progress in the region.

Speak to the guidance. There's nothing in the guidance currently that accounts for North Star. This is a tuck-in, a small tuck-in acquisition. The overall impact to FY '24 revenue is going to be fairly small. We won't even close until Q2, so we won't get a full year's worth of revenue impact. So you're talking about a of revenue impact in this year. So it's not included. We'll update you guys on that progress as we get through to closing the deal.

And our next question comes from Taylor McGinnis with UBS.

So the outlook for negative 7% operating income margin by 4Q or better is really solid. It seems that in order to get there based on some of the math that we played with and might imply mid-single digits or so OpEx growth versus the 36% growth you did last quarter. So can you maybe just talk about or even quantify the drivers of that? So how much might be related to the pauses in hiring versus fixes in some of the sales efficiencies that you flagged in past quarters. And if we really use that negative 7% as a starting point for next year, how to think about the drivers beyond.

Yes, thanks for the question. So yes, I think that one of the keys here and I touched on this when I answered a previous question, is really related to our commitment to pausing head count for the time being. And so what that really has required our leaders to do is actually look at their existing resources. So it's not about less investment. It's actually about reprioritization of investment dollars. Now, yes, sequentially, the cost structure did go up from Q3 to Q4 but I think we talked about this in Q4 as we implemented the headcount pause. There were still a few strategic heads that were being onboarded and we had sort of the remaining number of heads of offers that had been made that needed to come and join the company. you're going to start to see that stabilize over the coming quarters which is why there's not any appreciable in our guidance, appreciable improvement in the operating leverage between Q4 and in Q1, for example. And so you're going to start to see that over the coming quarters as we the revenue growth continues to evolve and that continues to play out and the overall growth in the expense structure moderates as a result of the headcount pause.

Got it. And then just as a quick follow-up. So when we think about the positive quarterly by 2025 commentary, is there any level of revenue growth, I guess, even directionally that you guys are thinking in that time frame that would drive that? And then also to anything on the hiring front embedded in that further out outlook.

So I'll say 2 very high-level comments on that. One is for that to happen for the positive quarterly operating income and free cash flow to come to pass in FY '25, we are not expecting any acceleration in revenue growth between FY '24 and FY '25. And we do have the ability to hire some level. We will have some incremental headcount that is embedded in the forecast for the following year. So we've not dependent on sustaining this headcount pause through to next year.

And our next question comes from Derrick Wood with Cowen.

Bill, I wanted to start asking about pricing and packaging. I think one of the changes you made last year was to diversify away from platform sales. sell a bit more on a modular basis. And just from a sales standpoint or to be more precise with the use cases. Has there been any kind of material change in terms of how you're selling your various products? And what are the netbacks to think about when looking at the impact on sales cycles and deal sizes and transaction volumes and all that when looking into the new year.

Yes. I'd break this down in a couple of ways. One is that we've been preparing the product for this and I think that, that's really important both in the near term for all the things you just referenced but also in the long term because as part of our start anywhere, go everywhere framework, we want to have customers have more and more places where they can get going. And that in the future could include channel and platform or channel and kind of customer touch point pairings that that we don't even currently sell today. And so we're excited to see that continue -- that we're basically setting the stage for us to be able to do that into the future. I don't -- you shouldn't expect to see that much of a, call it, ASP change. We actually had an increase in ASP heading into Q4. And you can kind of drive those numbers, obviously, from what we've already shared. And we do have instances where customers are certainly buying a narrower set of entitlements but we also have that vendor consolidation trend that's happening which is obviously pushing in the other direction. And so when you kind of net those things out, I wouldn't expect to see material changes in what you're seeing in terms of average deal size as these motions but what it is doing for us is it's expanding our addressable market and it's going to be able to do it more easily.

Yes, that makes sense. One Isabelle, for you on net revenue retention rate and just kind of thinking about directional trends, it sounds like you'd probably be expecting some more pressure on that with respect to how you guided. But just you guys are a bit unique out there. You've got a pretty diversified pricing model, other companies. There's companies with seat-based licensing models that are seen pressure because of headcount growth. There's other companies with consumption models, seen pressure because of optimization. Again, you guys are much more diversified. Do you think that lends to more durability and net expansion rates. And I guess if not, what parts of the model could come under more pressure given the macro trends.

So thanks for the question. So I think -- and I'll point to kind of the greater than $500,000 spenders which typically are sort of some of these larger multifaceted enterprises. And a good bit of the upsell motion that happens with those organizations is actually a go-to-market motion that looks a lot like net new business. So it is our salespeople trying to access new logos within existing parent organizations. That is new stakeholders, new budgets. It's an entirely new sales cycle that behaves a lot like trying to acquire a net new organization. And I think that's where you're going to see continued pressure where that behaves just like net new business and we're -- that is going to continue to be under pressure and work against us in terms of the evolution of the dollar-based net retention, particularly for those large vendors. In fact, you're starting to see kind of the total company and the large guys kind of start to compress in terms of the distance. I will say that in the context of the guide, we are certainly embedding in the guide an assumption that there is more air to come out of the balloon. And so I think you're correct there in that, that is absolutely assumed in the context of the guide from a conservatism active.

And our next question comes from Scott Berg with Needham.

Isabelle, I wanted to see if you can comment maybe on the linearity of sales in the quarter. your Q1 guide kind of suggests the minimal sequential increase from Q4 which suggests maybe a more front-end weighted quarter than back end. But I just wanted to see if you had any commentary around that.

Yes. So we have been evolving into kind of continually more actually back-end loaded. Q4 was fairly back-end loaded. In fact, we're actually pretty proud of even our last day of the quarter, had operationally a lot of great success in pushing through quite a bit of business on the last day of the quarter. So that was a great success sort of internally from an operational perspective. But we are continuing to see back-end loaded quarter. So under normal circumstances, it would be about 50% of the net bookings get done in the third month and we're seeing that trend upward.

Got it. Helpful. And then from a follow-up perspective, just wanted to see if you all can comment maybe on the expansion activity in the quarter. Did the type of expansion activity change at all, maybe from, I don't know, new channels, new different types of usage? Or was it really more just expansion on, I don't know, existing implementations customers were adding?

Yes. No, it's -- there's been no sort of dramatic change in any of that. SMS continues to be sort of -- it's on a smaller base. So we're seeing continued strong growth there. But otherwise, across our various channels and platform items, the growth has been relatively distributed in similar fashions to prior quarters.

And our next question comes from Pat Walravens with JMP Securities.

Bill, we're going to go a little afield here this future of life pause letter, did you sign it? Would you sign it? What are your thoughts?

I was preparing for earnings and so I didn't dig into that yesterday. But I definitely think that we -- with all technology that could go either way in terms of being helpful or becoming dangerous that we should be responsible around the development of it. I think that BASE is a place that's always been really measured about what AI is capable of and where we should trust it. I talked about that earlier in the sense that when you're interacting with first-party data and first-party relationships, the bar is just a lot higher for when we should go and trust the AI. And you've seen that base has never been won to promise a Magic Black Box. It's also all your problems. But it's definitely an exciting time for AI development. I think we need to continue to be mature and responsible about how we do it. I think that there should be more openness in terms of how these large models are being trained, what kinds of rule sets are being applied to them, what kinds of data sets are going into them. And I think that without additional transparency, it's going to be hard to trust continued development of it. And so I definitely support continuing to put pressure on this eco stem. It's not something that we should allow to just like run unchecked.

And our next question comes from Pinjalim Bora with JPMorgan.

One -- just one question for me. Isabelle, you were assuming it seems like a degrading degradation in the macro environment in the guidance. I want to ask you if you saw the macro headwinds intensify through the quarter or towards the end of the quarter or through Q1 so far?

So we haven't necessarily seen things getting worse in Q1 other than some of the disruption that we're seeing or that one could expect as a result of the most recent sort of banking uncertainty that obviously will have impacts on potential buyer behavior. But we're not necessarily seeing anything more negative in Q1 specifically.

And our next question comes from Hannah [ph] with Piper Sandler.

First one for you, Bill. You touched on this earlier but can you just talk about what you're seeing in terms of adoption from outside of marketing such as data engineers and product teams and what you're doing to kind of encourage adoption from those other users?

Yes, absolutely. We've been really encouraged to see just how the interdisciplinary nature of the teams that use Braze has been -- year-over-year has continued to increase. We've been excited to see more users coming to the base dashboard, accomplishing more use cases. You heard us announce feature flags as well back at Forge. And so that's been bringing more product engineering teams into the fold. So when we look at things like cloud data injection, a lot of the work that's being done around data transformation, bringing currents into the fold, the expansions to the product catalog capabilities as well as I referenced earlier that there are subsets of the artificial intelligence feature set that we're building that do require being some sophistication in terms of how you train it, how it learns and how you nurture it over time which does end up bringing more data scientists into the fold. And so we're definitely we're understanding of our position right now and we're not like rushing to go and try to sell directly to the out we think there's a tremendous amount of value to be had around bringing those persona into as fold, having them collaborating with the marketer and the marketing budget that we are selling into today. That increases our awareness and our reputation in those groups and we think it creates a lot of great optionality for us in the future.

Super helpful. And then can you just talk about the feedback and adoption for your cloud data ingestion product and how that's trended? And remind us when that goes GA?

Yes, absolutely. So actually, to answer your last question first, we actually had Snowflake go into GA on February 7. And excitingly, Redshift went into early access on the same day. And so actually, the product momentum there has been quite rapid. We also are off to a strong start in terms of customer adoption. We've got an early wave customers actively sinking data from their warehouse or Braze. We're already counting the number of data points with units of $1 billion which is exciting to see, especially in the early days. We've also been really happy with how quickly people have been able to get those connectors up and running and integrated and configured. And you should also expect much like with our launch of currents that we'll plan to roll out a few more connectors to cover the most popular data warehousing solutions in our customer base. we're not going to try to build 100 cloud data ingestion connectors or anything like that because we're tightly integrated also with Reverse ETL and CDP partners. And so once we have cover bases with some of these more popular data warehousing solutions, we then will switch to refocusing on tightening the vertical integration into brave with those partners as well as with our own cloud data injection products.

And our next question comes from Yun Kim with Loop Capital.

With the new year, anything you were changing in your go-to-market motion to better -- to show better execution or adjust your execution in the current environment. any changes that you're making? And then also any particular focus this year in your SKL.

Yes, we've been really happy with the investments we've been making across go-to-market strategy operations as well as across all the field teams. There's been a lot of moving parts from the summer through November and we spoke about those in the last couple of earnings calls. And so not a lot of big changes being made as we enter the new year because we were really preparing for this year already in advance. I'll say that the programs have been running really well. Our annual kickoff in early February, we executed on that right away as we started our new fiscal year and it was super productive, great feedback across the board. And also, one of the benefits of the net new hiring slowdown is that it's taken a little bit of pressure off the system and we've been able to focus on enabling a group with increasing average tenure. And so that's been giving us a lot of -- just a lot of optionality to focus in on more advanced optics and we've been happy with how those investments have been going.

Okay, great. And then if you can give us an update on the traction with the partners how is that progressing, especially in the current environment? Has the recent look like partnership and what that integration have those been a key driver driving incremental traction with CSI, for instance?

Yes. So I mean, I'll obviously point to the announcement that we made about the partnership with WPP yesterday. We're really excited about that and think it has a lot of potential in the future, both from consolidated product development standpoint as well as coordinated go-to-market activity. We're also continuing to make great progress with the global systems integrators like Accenture and Deloitte. And then you referenced a few technology partners that have been really important as we've been doing co-development, like with cloud data ingestion with Snowflake and obviously the launch of WhatsApp with Meta. And so these are all places where we're leveraging and taking advantage of partnerships -- and I would just connect all of that back to the commentary that I made early on in the call where qualitatively, I'm really excited about all of these things that are happening, they're enhancing our position. We're taking advantage of this opportunity to really go and cement really strong partnerships around our ecosystem. We're backing it up with investment that we're making, both from a product perspective as well on the go-to-market side. Quantitatively, obviously, the macro is impacting everyone. And so we don't think that those partnerships are operating at their full potential right now from an overall dollars perspective. But what we're doing is building out the qualitative aspects of them that are going to provide the right foundation such that when the macro improves later on that we're going to be ready to really accelerate in partnership with all of them.

And our next question comes from Matt Benett [ph] with BTIG.

I guess, Isabelle you mentioned in the guide you're essentially assuming no major improvements to sales productivity. Although with the pause and hiring and what Bill was talking about with the extended tenure of the sales team, I think that was sort of the assumption for most of us at least that sales productivity will continue to improve throughout the year. So maybe just help us think about what's giving you the pause or at least the level of conservatism on that front? And anything that you can share kind of influencing that, that we might watch to see if you're outperforming.

Yes. So thanks for that. So I think it's really just a way to kind of moderate our view of what the right level of current investment is in the business. And we want to wait to see more signs of kind of et in the net new business environment, our ability to kind of continue to sort of strongly upsell among these enterprise customers and access these sort of net new logos within the existing organizations. And we're waiting to see sort of a little bit more kind of acceleration there. And so I -- before I and willing to sort of incorporate that into the guide, we'd like to get a little bit more time within this year to see how the macro is going to play out. still a lot of uncertainty and we just think it's prudent. We've always approached the guide very prudently. And so we just believe it's prudent in the context of the guide to make that assumption that the sales productivity will have limited improvement and then we hope to surprise to the upside.

Okay. Very helpful. And then when you look at the potential rationale for easing the hiring pause. You mentioned high level 25 is not yet assuming that pause continues. Are you looking at it more on a time-based element? Are you going to wait for the macro to improve? Are there certain internal KPIs that would give you confidence that maybe it's time to start hiring a little bit more aggressively and sort of additive to go-to-market in particular?

So most of our headcount infrastructure is fairly model-driven. And so what we do and we are consistently evaluating this is evaluating the algorithms for the models, the inputs. And then what that would say in terms of head count requirements to support the needs of the business around the organization. So we that consistently, we do very regularly 4 to 5 times a year in a very structured fashion. And so we will continue to evaluate the inputs of the overall business growth, business size and make those decisions around increasing the overall size of the headcount as a result of how those algorithms play out.

There are no more questions in the queue, so I will now pass the call back to Bill for closing remarks.

All right. We are right at time. So thank you to everyone for joining us today. We remain committed to delivering industry-leading customer engagement solutions for our customers and high growth at scale for our shareholders and are looking forward to updating you on that progress in the coming quarters.