Braze, Inc. Class A Common Stock 2027 Q2 Earnings Call

Thank you, operator. Good afternoon, and thank you for joining us today to review Braze's results for the fiscal second quarter 2027. I'm joined by our co-founder and Chief Executive Officer, Bill Magnuson, and our Interim Chief Financial Officer, Pankaj Malik. We announced our results in a press release issued after the market closed today. Please refer to the investor relations section of our website at investors.braze.com for more information and a supplemental presentation related to today's earnings announcement. During this call, we will make statements related to our business that are forward-looking under federal securities laws and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements include, but are not limited to, statements regarding our financial outlook for the third quarter and fiscal year ended January 31, 2027, the anticipated benefits from and product advancements due to ongoing developments in BrazeAI technology, our anticipated customer behaviors, including vendor consolidation and replacement trends and their impact on Braze, our potential market opportunity, and our ability to effectively execute on such opportunity, the execution and anticipated benefits of our share repurchase program, and our long-term financial targets and goals, including our expectations regarding our profitability framework. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations and reflect our views only as of today. We assume no obligation to update any such forward-looking statements.

For a discussion of the material risks and uncertainties that could affect our actual results, please refer to the risks identified in today's press release and our SEC filings, both available on the investor relations section of our website. I'd also like to remind you that today's call will include certain non-GAAP financial measures used by management to evaluate our ongoing operations and to aid investors in further understanding the company's fiscal second quarter 2027 performance, in addition to the impact these items have on the financial results. Please refer to the reconciliations of our non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with U.S. GAAP included in our earnings release under the investor relations section of our website.

The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with U.S. GAAP. I would like to turn the call over to Bill.

Thank you, Chris, and good afternoon, everyone. We delivered a strong second quarter, generating $227 million of revenue, up 26% year-over-year and 8% from the prior quarter. We also continued to realize operating efficiencies, improving non-GAAP operating margin by over 600 basis points year-over-year. Dollar-based net retention for our large customer cohort, who spend at least $500,000 annually, continued to inflect positively, rising 100 basis points to 112% in the quarter. We generated a record second quarter free cash flow of $22 million. Our results, robust pipeline, channel expansion, and customer adoption of AI solutions provide us with the confidence to raise our revenue guidance for the third quarter and the full year.

We are also pleased to raise our operating income guidance for the full year and are on track to deliver at least 400 basis points of operating margin improvement in line with our long-term profitability framework. Brands are adopting ever more sophisticated strategies and racing to deploy AI-driven solutions to leverage their first-party data and direct-to-consumer relationships, and this is reflected in our results. Bookings were strong in the quarter, driven by competitive takeaways from legacy marketing clouds, point solutions, and a vendor consolidation motion that continues to gain traction. Net customer additions rose 76 sequentially, up 15% year-over-year, while customers spending at least $500,000 annually increased by 12 sequentially, up 28% year-over-year. Notable new business wins and existing customer expansions included Boots Thailand, Chime, David Jones, Foxtel Group, Insurify, Omaze UK, Property Finder, and Wilson Sporting Goods, along with many others.

Brands across a diverse set of industries and geographies continue to graduate from legacy platforms to Braze. These included a global quick service restaurant, a bank in APAC, a European retailer, and an American challenger bank. Upsell momentum remained robust, driven by expanded channel adoption, deeper data platform integrations, and growing engagement with our rapidly advancing BrazeAI capabilities, including Agent Console, Decisioning Studio, and Operator. While AI monetization is still early, enterprise customers are realizing ROI using our solutions, and adoption is accelerating. Paid adoption of our AI tools, Decisioning Studio, Agent Console, AI Item Recommendations, and our Predictive Suite, reach roughly one-third of our large customer cohort in Q2, up about 900 basis points from Q1. That adoption is changing how customers send messages and personalize product experiences.

As teams put Agent Console and Decisioning Studio to work, they pair the added intelligence with upgraded engagement strategies, experimenting with more advanced cross-channel programs and deeper personalization. We expect this adoption trend to compound as marketers are pushed to get more sophisticated in an AI-driven world, and as our composable AI architecture keeps making Braze smarter and easier to use. We also recently signed a 3-year strategic collaboration agreement with AWS. It establishes a dedicated co-sell motion, a joint go-to-market commitment, and incentives for AWS sellers to bring Braze into their accounts. More of our customers are choosing to procure Braze through AWS Marketplace, drawing on cloud commitments they already have in place, and this agreement makes that path easier while extending our reach across international markets and industry verticals.

It also deepens our work with AWS on data and AI, including the model integrations that let Agent Console run on Amazon Bedrock. You will see us build on all of this over the coming quarters, with more to come at Forge. That partnership lives at the infrastructure layer. The question underneath most investor conversations right now is what sits above it. As AI models improve and converge, where does enduring value get created? The market's answer is coalescing around the harness. The layer of context management, workflow orchestration, proprietary data, feedback loops, permissions, and evaluations that turns raw model intelligence into reliable business outcomes. We agree, and the market has just found a word for what Braze has spent 15 years building for marketers.

The four foundational strengths I have walked through on our last two calls, the Braze Data Platform as the foundation for first-party context, our vertically integrated data and decisioning stack, our composable AI ecosystem, and our position as both a revenue engine and mission-critical infrastructure are the anatomy of an agentic harness. The same vertical integration that made our stream processor what we believe is the highest scale, most performant engine in our industry has now become something bigger, a complete environment where marketer AI is built, deployed, and trusted with production workloads. While we talk about this in technical terms, for a marketer, the harness has a much simpler purpose. It is what closes the gap between having a great idea and being able to ship it. Start with what the agents know.

Personalization rooted in a brand's own data is the difference between a front desk reading from a script and a concierge who has known the guest for years. Engineering that knowledge securely and at massive scale is what the Braze Data Platform was built for. Among our large customers, 87% use the Braze Data Platform, 91% have adopted Canvas, and 57% use cloud data ingestion, a reverse ETL suite which enables bi-directional data flow between Braze and the major cloud data warehouses, including Amazon Redshift, Databricks, Google BigQuery, and Snowflake. The context system has three connected parts. The Braze Data Platform holds the first-party data, Canvas carries the live operational context of every customer journey, and BrazeAI puts both to work. Agent Console agents executing on that context in the moment and Decisioning Studio learning from every outcome to optimize the decisions ahead.

This quarter, we continued to widen those context streams. Cloud data ingestion now connects customer data warehouses directly into Decisioning Studio to power one-on-one personalization without middleware. Our new Knowledge Sources feature adds semantic search to Agent Console. As this engine runs, we are not just ingesting data, we are also producing tremendous amounts of it. Currents keeps expanding the scope of what it streams out, with user profile updates now in beta and the entire BrazeAI catalog generating output all along the way. Content variants, experiment results, and observability data on every decision the AI makes. This data is so valuable that adoption of our export features is near universal. Amongst our large customers, 96% use our SDK, 98% use our REST APIs, and 87% recapture the data that Braze generates through either current streaming or Snowflake data sharing.

That depth flowing in both directions, it is what gives the context layer its power. Next is how the work gets done and how it gets better. We have said since its inception that Canvas is a programming environment, and we built it like one. Application context, a scalable distributed runtime, debugging and observability, and full versioning and collaboration controls. For years, that depth has given Braze a higher ceiling than our competition. Operator is now unleashing marketers to reach it, letting all of Braze shine through. The timing could not be better, because coding is the single skill that the foundation models have advanced most quickly. These models love to code, and we handed them a proper development environment to build in.