Braze, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Three and six months ended July 31, 2023. Braze provides a cloud-based customer engagement platform, primarily sold through subscriptions. Amounts below are in U.S. dollars; financial statement figures are rounded to millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $115.1m | $86.1m | $216.9m | $163.6m |
| Gross profit / margin | $79.6m / 69.2% | $58.8m / 68.2% | $148.7m / 68.6% | $110.4m / 67.5% |
| Operating loss | $(35.4)m | $(35.1)m | $(77.3)m | $(74.8)m |
| Net loss | $(32.0)m | $(33.4)m | $(70.9)m | $(73.0)m |
| Net loss per share, diluted | $(0.33) | $(0.35) | $(0.72) | $(0.77) |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $5.0m | $1.6m |
| Non-GAAP free cash flow | Not presented quarterly | Not presented quarterly | $3.0m | $(9.0)m |
Q2 revenue grew 33.6% year over year, led by subscription revenue, up 34.2%. Of that subscription increase, 51.7% came from existing customers and 48.3% from new customers. Customers increased to 1,958 from 1,599 a year earlier. Six-month international revenue represented approximately 43% of total revenue, versus 42% in the prior-year period. Trailing-12-month dollar-based net retention declined to 120% from 126%; for customers with at least $500,000 ARR, it was 123% versus 130%.
Operating expenses rose 22.5% for the first half, below revenue growth of 32.6%; nevertheless, the operating loss widened modestly. Higher investment income, principally from rising interest rates, helped reduce the net loss. Stock-based compensation was $25.2m in Q2 and $49.9m for the first half.
At July 31, cash and cash equivalents were $77.3m and marketable securities were $394.9m, together $476.2m. Current assets were $574.0m versus current liabilities of $248.5m; deferred revenue was $176.8m. The balance sheet reports no borrowings; it does report operating lease liabilities of $51.6m. The company cited $356.3m of non-cancelable purchase commitments and $61.3m of operating lease obligations, principally due over the next four years. Accumulated deficit was $424.1m.
Material changes and notable items
- Remaining performance obligations rose to $523.5m at July 31, 2023, from $455.7m at January 31, 2023 and $410.5m a year earlier. The filing cautions that timing, renewals, and economic risks affect conversion to revenue.
- Gross margin improved as infrastructure costs grew more slowly than revenue. Hosting and infrastructure fees and third-party messaging fees were the main drivers of higher cost of revenue.
- In June, Braze acquired North Star Y, its exclusive reseller in Australia and New Zealand, for stated consideration of $28.5m: $17.6m cash, $6.0m in stock, and $1.6m fair value of contingent consideration at acquisition. Earn-outs may total up to $26m, subject to revenue targets. The purchase-price allocation was preliminary; acquired operations were not material to reported results.
- A May workforce reduction resulted in approximately $0.6m of severance and termination costs in Q2. A $1.0m charitable stock donation was also expensed in Q2.
- After quarter-end, Braze entered a strategic-vendor purchase agreement with a $25.0m spend commitment for August 2023 through December 2024.
Outlook, risks, and contingencies
The filing provides no specific revenue or earnings guidance. Management expects available cash, cash equivalents, and marketable securities to cover working capital and capital expenditures for at least the next 12 months. It expects operating expenses to increase in absolute dollars as it invests in sales and marketing, research and development, infrastructure, and public-company functions; free cash flow may fluctuate. Management notes that messaging and infrastructure usage typically rise in the fourth quarter.
Key risks include macroeconomic uncertainty and customer budget constraints; competition and the ability to win, renew, and expand subscriptions; reliance on third-party cloud hosting and messaging channels; privacy, data-security, and regulatory obligations; and execution of international growth and acquisitions. The company maintains a full valuation allowance against net deferred tax assets. It recorded $0.5m of probable and estimable indirect-tax contingencies and said it did not expect material losses from legal proceedings beyond amounts recognized.
Control issue: Disclosure controls were deemed ineffective at July 31, 2023 because an unremediated material weakness remains in controls over revenue recognition, including application access and change controls, review of system-generated revenue information, and reconciliation of platform provisioning to accounting records. Management reported no identified material misstatement or restatement in the period and is implementing remediation; controls are not considered remediated until they have operated and been tested effectively.
Most important facts for investors to verify
- Whether revenue-control remediation is completed and independently tested, and whether future filings report any control deficiencies or revenue adjustments.
- Whether customer retention, expansion, and RPO trends stabilize or continue to decline, particularly given lower net retention rates year over year.
- Whether revenue growth can translate into sustained profitability and cash generation after stock-based compensation, deferred contract costs, and ongoing operating investments.
- The final North Star purchase-price allocation, earn-out outcomes, integration progress, and the scale of the new vendor commitment relative to liquidity.
- Whether the $356.3m purchase commitments, lease obligations, and other operating needs remain supportable without additional financing or shareholder dilution.