Braze, Inc. — Q2 FY2023 Form 10-Q
Reporting period: Three and six months ended July 31, 2022. Braze provides a cloud-based customer engagement platform. Subscription services are its primary revenue source; the fiscal quarter is not separately labeled in the filing as “Q2.” Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Three months ended July 31, 2022 | Six months ended July 31, 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $86.1 million; +54.5% year over year | $163.6 million; +57.9% | $55.8 million and $103.6 million |
| Gross profit / margin | $58.8 million / 68.2% | $110.4 million / 67.5% | Quarter: $37.0 million / 66.4%; six months: $69.1 million / 66.6% |
| Operating loss | $35.1 million | $74.8 million | $12.2 million and $25.2 million |
| Net loss | $33.4 million | $73.0 million | $12.6 million and $25.8 million |
| Net loss per share, basic and diluted | $0.35 | $0.77 | $0.60 and $1.25 |
Quarterly subscription revenue was $81.7 million; professional services and other revenue was $4.4 million. International revenue was $36.3 million, approximately 42% of six-month revenue. Gross margin improved year over year, but operating expenses rose to 109% of quarterly revenue from 88% a year earlier, widening the operating loss.
For the six months, operating cash flow was positive $1.6 million versus negative $8.4 million in 2021. Non-GAAP free cash flow was negative $9.0 million versus negative $10.3 million. Investing cash outflow was $403.8 million, principally reflecting purchases of marketable securities, partly offset by maturities—not operating cash use alone.
At July 31, cash and cash equivalents were $80.9 million and marketable securities were $425.8 million, totaling $506.6 million in reported liquidity. Current assets were $580.9 million and current liabilities $184.3 million. The filing reports no debt balance; operating lease liabilities totaled $55.0 million, including $10.6 million current. Accumulated deficit was $287.1 million.
Changes, outlook, risks, and unusual items
- Revenue growth reflected both customer expansion and new customers: existing customers accounted for approximately 48% of quarterly subscription growth and 54% of six-month subscription growth. Customers increased to 1,599 from 1,119 year over year; monthly active users reached 4.1 billion, up from 3.7 billion at January 31, 2022.
- Trailing-12-month dollar-based net retention was 126%, versus 125% a year earlier; for customers with at least $500,000 ARR it was 130%, versus 135%. Remaining performance obligations were $410.5 million, including $274.2 million expected within one year.
- Operating expenses increased substantially, driven largely by hiring, stock-based compensation, sales and marketing investment, product development, and public-company compliance costs. Six-month stock-based compensation expense was $34.6 million. A $4.3 million stock donation expense was recorded in general and administrative expense during the six months.
- Management expects continued investment in sales and marketing, research and development, infrastructure, and administrative capacity; expenses are expected to rise in absolute dollars. No specific revenue, earnings, or cash-flow guidance is provided. Management said available cash, equivalents, and marketable securities should cover working capital and capital expenditure needs for at least 12 months.
- Commitments included $177.2 million of non-cancelable business purchase commitments and $67.7 million of operating lease obligations, primarily due over the next five years. Management noted potential need for future financing if estimates prove inaccurate, which could dilute shareholders or add debt.
- Management cited macroeconomic uncertainty, inflation, higher interest rates, customer spending and renewal risk, competition, international expansion, foreign exchange exposure, privacy and data-security regulation, and reliance on third-party cloud and messaging providers. The company reported no material litigation expected to exceed recognized provisions; indirect tax contingencies were $0.5 million.
- Three material weaknesses in internal controls remained unremediated: financial close procedures, revenue-recognition controls, and IT controls relevant to financial reporting. Disclosure controls were deemed ineffective as of July 31, 2022, although management stated the financial statements were fairly stated in all material respects. Braze expected to cease being an emerging growth company at fiscal year-end January 31, 2023.
- Subsequent to quarter-end, Braze granted approximately 0.6 million RSUs with a stated grant-date fair value of $32.1 million. The filing also notes adoption of lease accounting, recognizing a $59.6 million right-of-use asset and $61.3 million lease liability at February 1, 2022.
Important facts for investors to verify
- Whether revenue growth and customer expansion persist, particularly given retention trends among larger customers and economic uncertainty.
- Whether gross-margin gains can continue while infrastructure, messaging, and personnel costs rise, and whether operating losses narrow.
- How much liquidity is available after operating needs and contractual commitments; distinguish security purchases and maturities from operating cash generation.
- Progress and independent testing of remediation for the three material weaknesses, and any effect on reporting reliability or compliance costs.
- Potential dilution from equity compensation, the August 2022 RSU grant, and Braze’s dual-class voting structure.
- Exposure to cloud-provider or messaging-channel disruption, privacy/security incidents, foreign exchange movements, and indirect tax or other contingencies.