Braze, Inc. Q1 FY2023 earnings

Braze opened fiscal 2023 with revenue of $77.5 million for the quarter ended April 30, 2022, up 61.9% from $47.9 million in the prior-year quarter. New customers, upsells and renewals drove the gain. Remaining performance obligations reached $390.9 million at quarter end, up 56.6% from $249.6 million a year earlier. Deferred revenue, current portion only, was $139.4 million.

Profitability did not keep pace. Gross profit rose 60.9% to $51.6 million, but gross margin eased to 66.6% from 67.0% as stock-based compensation and infrastructure costs grew. The operating loss widened to $39.6 million from $13.0 million, and operating margin fell to -51.2% from -27.2%. Two items explain much of the gap: $17.0 million of stock-based compensation and a $4.3 million charitable contribution tied to the 1% Pledge. On a non-GAAP basis, the operating loss was $18.0 million versus $6.1 million, and non-GAAP gross margin was 67.8% versus 67.4%. The net loss attributable to Braze widened to $39.3 million from $12.8 million, while diluted loss per share narrowed to $0.42 from $0.65. Non-GAAP net loss per share was $0.19 versus $0.30.

Cash generation flipped positive. Operating cash flow was $17.9 million, against $3.8 million used in operating activities a year earlier. Capital expenditures were $1.96 million versus $0.30 million. Free cash flow, a non-GAAP measure defined as operating cash flow less purchases of property and equipment and capitalized internal-use software costs, was $15.7 million versus $(4.6) million. Cash, cash equivalents, restricted cash and marketable securities totaled $534.1 million as of April 30, 2022, up from $518.1 million as of January 31, 2022. Management believes that balance covers working capital and capital expenditure needs for at least the next 12 months, though non-cancelable purchase commitments of $182.0 million and operating lease obligations of $71.2 million remain.

Customer metrics held up. Dollar-based net retention for all customers over the trailing 12 months was 127%, up from 124% a year earlier, while retention among accounts with ARR of $500,000 or more eased to 133% from 134%. Total customers rose to 1,503 from 1,002, and the number spending at least $500,000 in ARR grew to 129 from 78. Monthly active users reached 4.1 billion as of April 30, 2022, up from 3.7 billion as of January 31, 2022. Braze added 120 employees in the quarter, bringing the team to more than 1,280, and signed Little Spoon, Mercari, PaulCamper and Pizza Hut in Australia. International markets produced roughly 41% of revenue, up from 40%.

Guidance points to more of the same mix. For the fiscal second quarter ending July 31, 2022, Braze expects revenue of $80.5 million to $81.5 million, a non-GAAP operating loss of $19.5 million to $20.5 million, and a non-GAAP net loss per share of $0.19 to $0.20. For the full fiscal year ending January 31, 2023, revenue is guided to $345.0 million to $349.0 million, with a non-GAAP operating loss of $77.0 million to $81.0 million and a non-GAAP net loss per share of $0.78 to $0.82. The company does not reconcile these forward non-GAAP figures to GAAP, citing uncertainty around stock-based compensation that moves with its share price.

Risks cut across the story. Braze carries a history of operating losses, and management warns that recent rapid revenue growth may not be indicative of future growth. It flags unstable market and economic conditions, the ongoing COVID-19 pandemic, the conflict between Russia and Ukraine, intense competition, and reliance on third-party cloud infrastructure. Evolving cybersecurity and data privacy rules and the ability to attract and renew customers also rank among the named risks. Seasonality adds a wrinkle, since messaging volume and compute requirements typically peak in the fourth quarter on holiday activity, pushing cost of revenue higher in that period. Operating expenses are expected to increase in absolute dollars as the company invests in sales, research and its global footprint.