Braze, Inc. (BRZE) Earnings

Management highlights

- Overall Commercial Performance - Achieved the fourth straight quarter of both organic and total revenue growth acceleration - Trailing 12-month dollar-based net retention (DBNR) improved 100 basis points to 110% overall, and 100 basis points to 111% for the large customer cohort - Q1 bookings were robust, driven by competitive takeaways particularly in the enterprise segment; net customer additions increased 104 sequentially (up 16% year-over-year) - Customers spending $500k+ annually increased 16 sequentially (up 33% year-over-year); $1 million+ customer count rose 27% year-over-year, with 5 total 8-figure customers and multiple $6 million+ deals closed - Total remaining performance obligation (RPO) was $1.1 billion, up 30% year-over-year and 4% sequentially; current RPO was $670 million, with year-over-year growth accelerating to 28% from 27% in the prior quarter - Non-GAAP operating income was $10.5 million (5% of revenue), up from $2.8 million (2% of revenue) in the year-ago quarter; non-GAAP operating margin improved over 300 basis points year-over-year - Generated a record $27 million in free cash flow, up from $23 million in the year-ago quarter - AI Product Development and Adoption - Braze AI Operator and Braze AI Agent Console reached general availability early in Q1, ahead of schedule, with hundreds of customers already adopting the tools to build more sophisticated programs with smaller, more efficient teams - Braze AI Decisioning Studio new business pipeline is scaling rapidly; published customer case studies demonstrate strong performance improvements: 81% drop in unsubscribes and 284% increase in app opens for Clio with Braze AI Operator, 10% lift in revenue per user for Luxury Escapes with Braze AI Agent Console, and double-digit increases in click-through rate for a large hotel franchise with Braze AI Decisioning Studio - Resolved prior Q4 supply constraints for Decisioning Studio by accelerating hiring and ramping of forward-deployed delivery personnel, cutting delayed deployment start times by approximately half - Expanded AI product capabilities, including adding SMS/MMS/RCS support to Braze AI Content Optimizer and launching automated QA agent capability in beta - Strategic Positioning - Built-in platform architecture (real-time processing, first-party data focus, enterprise-grade security) is inherently suited for AI requirements, creating a competitive advantage over legacy competitor architectures that cannot support advanced AI at scale - Competing effectively in the legacy replacement cycle, as brands prioritize AI-driven customer engagement solutions that leverage first-party data; notables wins include a prominent AI lab, Bondora Group, ClassPass, Denny's, Subway, and regional leaders across North America, Latin America, Europe, and APAC - Four foundational strengths driving momentum: 1) Braze Data Platform as a first-party context engineering layer for AI at massive scale; 2) vertically integrated data and decisioning architecture; 3) composable AI architecture that improves both platform intelligence and usability; 4) position as a mission-critical revenue-driving engine for customers

Guidance

- Second Quarter FY27 Guidance (upward revised from prior outlook): - Revenue expected in the range of $219.5 million to $220.5 million, representing ~22% year-over-year growth at the midpoint - Braze AI Decisioning Studio revenue expected to grow 15% to 20% sequentially from Q1 - Non-GAAP operating income expected in the range of $17 million to $18 million, implying an ~8% non-GAAP operating margin at the midpoint - Non-GAAP net income expected between $17 million and $18 million, with non-GAAP net income per share of $0.15 to $0.16 (based on 114 million weighted average diluted shares outstanding) - Full Fiscal Year 2027 Guidance (upward revised from prior outlook): - Total revenue expected in the range of $895 million to $899 million, representing ~22% year-over-year growth at the midpoint - Non-GAAP operating income expected in the range of $70 million to $74 million, implying an 8% non-GAAP operating margin at the midpoint - Non-GAAP net income expected between $70 million and $74 million, with non-GAAP net income per share of $0.61 to $0.65 (based on 114 million full-year weighted average diluted shares outstanding) - Reiterated commitment to achieving 400 basis points of operating margin expansion for the full fiscal year, and maintaining a disciplined approach to investment while progressing toward long-term profitability targets

Segment performance

Total company revenue for Q1 FY27 was $211 million, representing 30% year-over-year growth and 3% sequential growth from the prior quarter. Subscription revenue is the primary top line component, contributing 93% of total Q1 revenue. The remaining 7% is professional services revenue, of which approximately 85% is recurring revenue recognized ratably over contract terms. Braze AI Decisioning Studio contributed $5.7 million of revenue in the quarter, implying 26.7% year-over-year organic growth. As of Q1 end, total customer count was 2.17 thousand, up 16% year-over-year. Large customers (defined as those spending at least $500 thousand annually) numbered 349, growing 33% year-over-year, and these customers contributed 65% of total ARR, up from 62% in the year-ago quarter.

Risks & headwinds

- Forward-looking statements (including financial guidance, AI adoption expectations, and market growth projections) are subject to risks and uncertainties that could cause actual results to differ materially from expectations, as detailed in Braze's SEC filings and earnings release - Higher premium messaging volumes and increased Decisioning Studio headcount put near-term pressure on gross margins, with SMS carrier fees also contributing to this margin pressure - Customer education remains a key requirement to drive broad adoption of new AI capabilities across the entire customer base, as many customers are still in early phases of understanding and implementing new AI-powered workflows - Deploying AI at scale for B2C customer engagement use cases requires ongoing management of tradeoffs between outcome quality, performance speed, and rising LLM token costs - Sales hiring and capacity expansion for enterprise segments has a multi-quarter ramp time, which could delay expected revenue contribution from new sales team members

Analyst Q&A

• Q: After resolving the Decisioning Studio deployment bottleneck via headcount hiring, what is the outlook for further capacity expansion, and how much was Q1 impacted? /

  A: At the end of Q4, Decisioning Studio deployment start dates were pushed out more than 4 months in some regions depending on geography. That delay has been cut in half during Q1 via accelerated hiring and group onboarding to speed new hire readiness. The company is also building self-serve Decisioning Studio capabilities and an AI-powered operator tool to automate work previously done by field personnel, to further improve deployment efficiency. Braze remains confident that Decisioning Studio has unmatched product quality in the market despite new competitors entering the space, and is excited by current momentum even as it continues to improve delivery capacity.

• Q: How has Braze's AI product portfolio impacted legacy replacement win rates, and does the current AI transformation strengthen Braze's long-term position? /

  A: Braze's AI roadmap and available live products are a major driver of accelerated legacy replacement activity, because all enterprises are re-evaluating their software stacks to ensure they can capitalize on AI transformation. A key additional tailwind is that retailers are doubling down on CRM and first-party customer data investment in preparation for potential future disintermediation from agentic commerce, which plays directly to Braze's core strengths. This dynamic has increased deal size and accelerated decision-making for replacement deals, with 8-figure customers growing to 5 total this quarter.

• Q: What is the correct framework for different AI approaches (LLM-based agentic vs reinforcement learning) at Braze, and will they coexist? /

  A: Different AI approaches are best suited for different use cases, and this diversity is core to Braze's full-spectrum AI strategy. For marketer productivity workflows, LLMs and agentic tools power tools like Braze AI Operator, which is designed to work with both in-dashboard usage and flexible external integrations with third-party agent harnesses. For decisioning, Braze maintains a composable architecture that supports all types of AI tools from internal and third-party sources, centered on Braze's core moat of real-time first-party data access and a unified control plane for customer engagement. Different use cases across the customer journey require different AI approaches, and Braze's design supports mixing all options to deliver maximum customer value.

• Q: What drove the increase in professional services revenue this quarter, and what is the impact on gross margins? /

  A: The increase is largely a result of accounting changes, not a fundamental shift in revenue: customer success entitlements that were previously bundled into subscription revenue are now split into separate professional services SKUs for better customer transparency. ~85% of professional services revenue is recurring, so 99% of Braze's total revenue is now recurring overall. There is a small gross margin impact from additional forward-deployed personnel, but strategic location optimization offset much of this, and the main driver of recent gross margin changes remains premium messaging channel costs.