Braze, Inc. — Q1 FY2024 Form 10-Q Summary
Reporting period: Three months ended April 30, 2023; comparable period is the three months ended April 30, 2022. Braze provides a cloud-based customer engagement platform, primarily through subscription services.
Financial results and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Revenue | $101.8 million | $77.5 million | +31.3% |
| Gross profit / gross margin | $69.1 million / 67.9% | $51.6 million / 66.6% | Margin +1.3 percentage points |
| Operating loss | $41.9 million | $39.6 million | Loss widened $2.2 million |
| Net loss | $38.8 million | $39.6 million | Loss narrowed $0.8 million |
| Net loss per share, basic and diluted | $0.40 | $0.42 | Loss per share narrowed |
| Cash from operating activities | $22.5 million | $17.9 million | +$4.6 million |
| Non-GAAP free cash flow | $21.7 million | $15.7 million | +$6.0 million |
Subscription revenue was $97.1 million, up from $72.8 million; professional services and other revenue was $4.6 million, essentially flat. Revenue outside the U.S. was approximately 43%, compared with 41% a year earlier. Stock-based compensation expense was $24.6 million, versus $17.2 million.
At April 30, 2023, cash and cash equivalents were $116.9 million, marketable securities were $385.9 million, and restricted cash was $4.6 million. Cash, cash equivalents and marketable securities totaled $502.8 million; management reports principal liquidity of $507.4 million including restricted cash. Current liabilities were $245.0 million, including $181.2 million of deferred revenue. The filing reports no borrowings; operating lease liabilities totaled $52.4 million. Accumulated deficit was $392.4 million.
Material changes and operating indicators
- Revenue growth reflected both customer expansion and new customers: management attributed approximately 49% of subscription revenue growth to existing customers and 51% to new customers. Customer count increased to 1,866 from 1,503 a year earlier.
- Monthly active users rose to 5.1 billion from 4.8 billion at January 31, 2023.
- Trailing-12-month dollar-based net retention fell to 122% from 127%; for customers with at least $500,000 ARR, it fell to 124% from 133%. The number of customers with at least $500,000 ARR rose to 164 from 129.
- Gross margin improved as revenue grew faster than infrastructure costs. Cost of revenue increased 26.2%, including higher hosting and infrastructure costs and messaging fees.
- Sales and marketing expense increased 24.4% and research and development expense increased 37.6%, primarily reflecting higher personnel costs and headcount. General and administrative expense was up 1.7%; the prior-year period included a $4.3 million charitable stock donation.
- Other income, net increased to $3.5 million from $0.03 million, primarily due to higher investment income.
Outlook, risks and notable items
- Management said existing cash, cash equivalents and marketable securities should meet working-capital and capital-expenditure needs for at least the next 12 months. It expects free cash flow to fluctuate and operating expenses to increase as it invests in growth; the filing provides no numerical revenue or earnings guidance.
- Non-cancelable business purchase commitments were $239.6 million and operating lease obligations were $70.2 million, due primarily over the next four years. The company’s New York sublease for approximately 92,300 square feet is scheduled to begin October 2023 and run through January 2034, subject to third-party consent.
- Disclosure controls were deemed ineffective because an unremediated material weakness affected controls over revenue recognition, including IT controls and reconciliation of platform provisioning to accounting records. Management reported no identified material misstatement or restatement and is developing remediation measures; controls are not considered remediated until implemented and tested over time.
- Management highlights macroeconomic uncertainty, customer spending and renewal risks, competition, dependence on third-party cloud and messaging providers, privacy and cybersecurity exposure, and foreign-exchange and interest-rate risks. The company reported no material litigation expected to have a material adverse effect. It recorded $0.5 million of indirect-tax contingency liabilities.
- Subsequent to quarter-end, Braze announced a workforce reduction with estimated severance and related costs of approximately $1.0 million, and donated shares resulting in approximately $1.0 million of operating expense. In June 2023 it closed the acquisition of North Star Y for up to $28.0 million in cash and stock, plus potential capped earn-outs.
Investor facts to verify
- Whether revenue-control remediation is completed and tested, given the disclosed material weakness and ineffective disclosure controls.
- Whether customer retention and expansion metrics stabilize after the reported year-over-year declines in dollar-based net retention.
- How much reported operating cash flow and free cash flow depends on deferred-revenue billings, collections timing, and non-cash stock compensation.
- Whether infrastructure, messaging, and personnel costs continue to rise more slowly than revenue, supporting gross-margin improvement.
- The final costs and effects of the workforce reduction, and the acquisition’s closing consideration, earn-outs, and integration results.
- Liquidity relative to purchase commitments, lease obligations, and planned growth investments; the filing does not report funded debt.