Braze, Inc. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended January 31, 2023, with comparisons to fiscal years ended January 31, 2022 and 2021. This is an annual filing, not a standalone calendar fourth-quarter report.
Business context
Braze sells subscriptions to a cloud-based, cross-channel customer engagement platform, with additional professional services. Subscription pricing is based primarily on customer commitments for user reach, messaging volumes, platform access and add-on features. At year-end, Braze reported 1,770 customers, up from 1,375, and approximately 4.8 billion monthly active users on its customers’ digital properties, compared with 3.7 billion a year earlier.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change or context |
|---|---|---|---|
| Revenue | $355.4 million | $238.0 million | Up 49.3% |
| Subscription revenue | $338.4 million | $221.7 million | Up about 53%; 72.5% of the increase came from existing customers |
| Gross profit / margin | $239.6 million / 67.4% | $159.5 million / 67.0% | Margin increased 0.4 percentage points |
| Operating expenses | $387.7 million | $237.7 million | Up 63.1%; 109% of revenue versus 100% |
| Operating loss | $148.1 million | $78.2 million | Loss widened |
| Net loss | $140.7 million | $78.2 million | Loss widened; FY2023 diluted loss per share was $1.47 versus $2.20 |
| Net cash used in operating activities | $22.3 million | $35.4 million | Cash use decreased |
| Non-GAAP free cash flow | $(39.0) million | $(39.8) million | Still negative; company definition excludes property and equipment purchases and capitalized software costs from operating cash flow |
| Cash, cash equivalents and marketable securities | $478.7 million | $514.1 million | Unrestricted balance; $4.0 million of additional cash was restricted at FY2023 year-end |
International revenue was $150.5 million, about 42% of total revenue, versus $95.4 million, or about 40%, in FY2022. Deferred revenue was $166.1 million, and remaining performance obligations were $455.7 million, including $312.6 million expected within one year. The filing reports no borrowings; total liabilities of $258.6 million include deferred revenue and operating lease liabilities. Braze said available cash, cash equivalents and marketable securities should cover working capital and capital expenditure needs for at least the next 12 months.
Material changes versus FY2022
- Revenue growth remained strong, driven mainly by higher subscription sales and expansion within existing customers; customer count rose by 395.
- Dollar-based net retention declined to 124% from 128% for all customers, and to 126% from 136% for customers with ARR of at least $500,000. The number of customers in the latter group grew to 156 from 107.
- Sales and marketing expense rose 58.6%, research and development 64.8%, and general and administrative expense 72.2%, reflecting headcount, stock compensation and operating investments.
- Stock-based compensation was $72.2 million, up from $47.2 million. Operating loss and net loss widened as expenses grew faster than revenue.
- Cash and cash equivalents fell to $68.6 million from $478.9 million, while marketable securities increased to $410.1 million from $35.2 million, largely reflecting investment of available funds. Investing cash outflow was $398.5 million, primarily from securities purchases.
Outlook, risks and unusual items
- Guidance: The filing provides no specific revenue, margin or earnings guidance. Management expects ongoing investment in infrastructure, product development, sales and marketing, international expansion and public-company compliance; it expects free cash flow to fluctuate.
- Management reported slower growth from new customers in recent quarters, possibly related to macroeconomic uncertainty, and could not estimate the continuing effects. Inflation, higher interest rates, customer budget reductions and banking-sector stress were cited as risks; the company said it had not been materially affected by the banking events to date.
- Financial reporting controls: A material weakness in revenue-recognition controls remained unremediated at year-end. Management concluded disclosure controls and internal control over financial reporting were ineffective, and the auditor issued an adverse opinion on ICFR. The financial statement audit opinion was unqualified, and no material misstatement or restatement was identified.
- Other items: Gross margin benefited from scale and cost-efficiency efforts, partly offset by a one-time vendor charge. Braze recognized $4.3 million of expense for a charitable stock donation. It adopted the lease accounting standard, recording a $59.6 million right-of-use asset and $61.3 million lease liability at adoption.
- Subsequent events: In March 2023, Braze agreed to acquire North Star Y for estimated consideration of $28.0 million in cash and stock, with potential capped earn-outs; closing was expected in FY2024’s second quarter. It also granted 2.9 million RSUs in March with a stated grant-date fair value of $97.5 million.
- Key business risks include privacy and data-protection regulation, cybersecurity, reliance on AWS and third-party messaging and mobile platforms, competition and pricing pressure, customer renewal and expansion, and the company’s history of operating losses. Fourth-quarter customer usage typically raises messaging, compute and storage requirements.
Important facts for investors to verify
- Progress and testing of the revenue-recognition control remediation, given the unremediated material weakness and adverse ICFR opinion.
- Whether revenue growth and retention stabilize, particularly as new-customer growth has slowed and net retention declined.
- Operating expense growth, stock-based compensation and the path toward profitability and positive free cash flow.
- Liquidity and investment portfolio composition, including the distinction between unrestricted funds and restricted cash, and the impact of market-rate changes.
- Closing terms and earn-outs for the North Star Y acquisition, and the potential dilution and compensation expense from the substantial RSU grants.