Braze (BRZE) Q1 2026 Earnings Call Transcript
Key Takeaways
Image source: The Motley Fool. DATEThursday, June 5, 2025, at 4:30 p. EDTCALL PARTICIPANTSChief Executive Officer — Bill MagnusonChief Financial Officer — Isabelle WinklesNeed a quote from one of our...
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June 6, 2025
09:47 AM
The Motley Fool
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Image source: The Motley Fool
DATEThursday, June 5, 2025, at 4:30 p
EDTCALL PARTICIPANTSChief Executive Officer — Bill MagnusonChief Financial Officer — Isabelle WinklesNeed a quote from one of our analysts. [ tected]RISKSBill Magnuson stated, "a continuation of some of those elevated churn levels that we had seen through the back half of last year," impacted first quarter results, and the forecast assumes imvement, but "still need to see that in the revenue, and the DBNR, both of which are lagging indicators. "Bill Magnuson cited, "We do see a regional comparative weakness across places Southeast Asia as an example, you know, where growth has not been as vigorous and where we haven't seen as much of the kind of venture activity starting to flow again. "Isabelle Winkles said the OfferFit acquisition "will create a temporary departure from the operating income margin framework outlined during our Analyst Day last September," with expectations to return to the framework in FY2027
Isabelle Winkles noted, "We expect our free cash flow to continue to fluctuate from quarter to quarter given the timing of customer and vendor payments," signaling variability
TAKEAWAYSRevenue: $162. 1 million in revenue, representing 20% year-over-year growth, driven by customer expansions, renewals, and new
Subscription Revenue Mix: 96% of total revenue came from subscriptions, while 4% came from fessional services and onboarding fees
Customer Count: Rose to 2,342 customers, up 46 sequentially and 240 year over year, with large customers ($500,000-plus ARR) up 24% year over year to 262
Dollar-Based Net Retention (DBNR): 109% across all customers and 112% for large customers, with management noting churn mitigation efforts
Revenue Mix by Geography: 46% of revenue was generated outside the U
S, up from 45% in the fourth quarter and 44% year over year
Remaining Performance Obligations (RPO): Total RPO reached $829. 3 million (up 26% year over year, 5% sequentially); Current RPO was $522 million (up 24% year over year, 3% sequentially)
Non-GAAP Gross fit and Margin: $112 million with a 69. 3% non-GAAP gross margin, up from $92 million and a 67. 9% margin in the prior year quarter
Non-GAAP Operating Income: Non-GAAP operating income was $3 million, or 2% of revenue, in the first quarter, versus a $10 million loss (negative 7% margin) in the prior year quarter
Non-GAAP Net Income: Non-GAAP net income attributable to Braze holders was $7 million, or $0. 07 per, in the first quarter, compared to a $6 million loss ($0. 05 loss per ) in the prior year quarter
Free Cash Flow: $23 million in free cash flow (including ~$6 million in vendor payments related to the OfferFit acquisition), up from $11 million in the prior year quarter
Cash Position: the quarter with apximately $540 million in cash, cash equivalents, restricted cash, and marketable securities
Q2 Guidance: Revenue expected at $171 million to $172 million (18% growth at midpoint), non-GAAP operating income of $0. 5 million to $1. 5 million (implying ~1% margin), and non-GAAP net income of $2. 5 million to $3
Full-Year Guidance: jected revenue of $702 million to $706 million (19% growth at midpoint), non-GAAP operating income of $5. 5 million to $9. 5 million (~1% margin at midpoint), and non-GAAP net income of $17 million to $21 million ($0
OfferFit Impact: OfferFit is expected to add apximately 2 percentage points to full-year revenue growth (apximately $11 million to $12 million), and is cited as a temporary drag on non-GAAP operating income margin, with most cost impact in sales and marketing and R&D
AI and duct Initiatives: Announced plans to integrate OfferFit’s reinforcement learning engine, general availability of RCS messaging, in-duct banners, Canvas context, and expansion of Braze AI including "ject Catalyst" in private beta
Pricing and Packaging Changes: Braze launched revamped pricing and packaging with reduced data point friction, expanded API rate limits, and broader adoption of the credits model across more channels; first deal on new pricing closed eight days after launch
Sales Organization: Ed McDonald will join as Chief Revenue Officer in July, bringing experience from Salesforce Marketing Cloud and Asana
Fessional Services Dynamics: Growth in fessional services revenue was attributed to a higher portion of net new in Q4 FY2025, resulting in more implementation and onboarding revenue in the first quarter
Contract Duration: Dollar-weighted contract length remains just over two years
SUMMARYBraze's (BRZE 2. 17%) Non-GAAP gross margin increased to 69. 3% in the first quarter, up from 67. 9% in the prior year quarter
Non-GAAP operating income and net income also turned positive in the first quarter, while executing a pricing overhaul and major AI-driven duct integration
Management highlighted the acquisition of OfferFit, expected to accelerate both nology development and revenue, even as it places near-term pressure on operating margins and resource allocation
Global customer acquisition continued, with notable gress in large enterprise accounts and international geographies, balanced against persistent churn from prior periods and regional softness in Southeast Asia
D guidance for FY2026 incorporates OfferFit’s financial contribution, and signals management’s more conservative risk-adjusted apach for the remainder of the fiscal year
Bill Magnuson detailed that new pricing has "neutralized" previous data point friction: "one of the highest friction points in our pricing for a long time
We're really happy to have neutralized those. "Isabelle Winkles separated OfferFit’s full-year impact, noting " $11 million to $12 million contribution from OfferFit" to guided revenue, along with majority of related operating cost pressure from their sales and marketing organization
Management cited "continued great momentum" in competitive win rates against both legacy marketing clouds and point solutions, referencing large enterprise wins and replacement of incumbents
OfferFit cross-sell plays are priced per use case, with annual fees of $250,000 to $300,000, including expert services, as stated by management for the current year
The quarterly mix of new versus expansion remains within historical ranges, with 40%-60% variability, consistent with recent quarters, and no deviation reported from prior quarters
Isabelle Winkles clarified, "The only currency in which we book customer contracts that is not USD is Japanese yen. " limiting FX's effect on forward revenue guidance to de minimis levels
Across all OpEx from OfferFit, 75% of expense impact accrues in sales and marketing, 25% in R&D, and minimal effect in G&A
INDUSTRY GLOSSARYRCS Messaging: Rich Communication Services, an upgrade over SMS that enables multimedia and interactive messaging in customer engagement
Reinforcement Learning: A type of machine learning where algorithms learn strategies by testing actions and receiving back to optimize outcomes; used in OfferFit and Braze AI deployments for campaign decisioning
Canvas: Braze’s orchestration tool allowing brands to map multi-step and cross-channel customer messaging journeys for lifecycle engagement
Ject Catalyst: Braze’s native AI agent, now in private beta, developed to enable automated personalization and optimization of customer journey experiences at scale
CRPO: Current Remaining Performance Obligations, a measure of the contracted future revenue expected to be recognized within 12 months
Flexible Credits Model: A usage-based pricing apach by Braze that enables customers to apply credits across multiple channels for increased flexibility and simplified contract negotiation
ZERP Cohort: An internal Braze term for customers with contracts signed during a specific period, representing a cross-section for renewal and churn analysis
Full Conference Call TranscriptBill Magnuson, and our Financial Officer, Isabelle Winkles
We announced our results in a press release issued after the market closed today
Please refer to the Investor Relations section of our website at investors
Com for more information and a supplemental presentation related to today's earnings announcement
During this call, we will make statements related to our that are forward-looking under federal securities laws and the Safe Harbor visions of the Private Securities Litigation Reform Act of 1995
These statements include, but are not limited to, statements regarding our financial outlook for the second quarter July 31, 2025, and the fiscal year January 31, 2026, our ability to integrate and realize the benefits of the acquisition of OfferFit, our anticipated duct development and performance, our expectations concerning new customer verticals, anticipated customer behaviors, including vendor consolidation and replacement trends and their impact on Braze, our potential market opportunity, and our ability to effectively execute on such opportunity, and our long-term financial targets and goals
These statements are subject to a variety of risks and uncertainties that could cause results to differ materially from expectations and reflect our views only as of today
We assume no obligation to any such forward-looking statements
For a discussion of the material risks and uncertainties that could affect our actual results, please refer to the risks identified in today's press release and our SEC filings, both available on the Investor Relations section of our website
I'd also to remind you that today's call won't include certain non-GAAP financial measures used by management to evaluate our operations to aid investors in further understanding the company's fiscal first quarter 2026 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
GAAP, included in our earnings release under the Investor Relations section of our website
The non-GAAP financial measures vided should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U
And now, I'd to turn the call over to Bill
Bill Magnuson: Thank you, Chris, and good afternoon, everyone
We dered strong first-quarter results, generating $162. 1 million of revenue, up nearly 20% year over year
That top-line growth continues to be paired with efficiency imvements, as we increased our non-GAAP operating margin by over 900 basis points year over year and realized our fourth straight quarter of non-GAAP net income fitability
Achieving over $7 million of net income, and nearly $23 million of free cash flow in the quarter
We are ud of our financial success as we continue our mission to become the leading customer engagement platform on a global scale and look forward to achieving sustained fitable growth in the coming quarters and years
While thoughtfully re in our and building our competitive moat
Despite an environment that remains noisy and uneven, we continued our momentum from Q4, achieving strong bookings as we got off to a good start in fiscal 2026
Thus far, global trade concerns have yet to materially affect deal cycles, and in the first quarter, we secured a diverse set of new wins and upsells including Beyond Inc, Chamberlain Group, Evite, FreshKet, Fubo, Lush Cosmetics, Neuschelot, ThredUp, and many others
Our customer count rose to 2,342, up 46 sequentially and up 240 versus the prior year
Our large customer additions were again strong, with $500,000 plus ARR customers rising 24% year over year to 262
Demonstrating the need for enterprises to deploy AI-based solutions and leverage first-party data to drive sophisticated cross-channel customer engagement at scale
We also continue to replace legacy marketing clouds across verticals and around the world
Including at a North American fin, a global luxury retail brand, an EMEA insurance comparison firm, a North American amusement park chain, an EMEA fashion house, an APAC tourism board, a North American clothing marketplace, a US healthcare company, construction equipment rental firm in APAC, a U
Gaming company, and an EMEA fessional sports organization
We also continued to win against both channel-specific point solutions and grown tools across a diverse set of industries, geographies, and use cases
And it's that diversification which supports our results even as the economic and geopolitical environment remains dynamic
As we continue our substantial and focused investment on our journey to become the recognized leader in engagement, we are confident that the legacy replacement cycle and vendor consolidation trends will persist
Presenting Braze with opportunities to increase market as brands increasingly seek to imve their customer engagement strategies and leverage new AI-driven advancements to simultaneously achieve better results and higher levels of ductivity
Meanwhile, our legacy competitors continue to stand still, failing to innovate or adapt as the modern customer engagement landscape continues to forge ahead in both scope and sophistication
Braze remains focused and forward-looking, as we deploy AI in tandem with first-party data activation
Applying leading-edge reinforcement learning and generative AI nology to an ever-evolving set of messaging channels and duct interfaces to help our customers der more relevant customer experiences and grow their es
This multifaceted strategy was on display just a few weeks ago, as we announced the general availability of RCS messaging, in-duct banners, and Canvas context
Separately, these are important upgrades to our channel offerings, orchestration environment, and visual language, but it's a combination of these capabilities with our increasingly robust Braze AI suite that really makes our duct roadmap shine
Whether a brand is orchestrating a dynamic customer journey, initiating an interactive conversational experience, or enhancing core duct offerings, the tools and skills of customer engagement are there to help them identify and optimize every one of the moments that matter in the customer journey
As the Braze duct races ahead, we also continue to invest heavily in the community of marketers and agencies that are the foundation of the broader Braze ecosystem, and we firmly believe that now is the ideal moment to elevate the craft of customer engagement as marketers leave behind the drudge work of campaign creation and ascend to being a maestro of experience
By combining the accelerated capabilities of reinforcement learning and generative AI, we believe that marketers can ascend to a strategic conductor role, responsible for prioritizing and driving goals as brands unlock new opportunities for growth on the back of their continued investments in first-party data and the building of direct-to-consumer relationshi.
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