BRZE - NASDAQ

Welcome to the Braze Fiscal First Quarter 2026 Earnings Conference Call. My name is Luke, and I'll be your operator for today's call. [Operator Instructions] I'll now turn the call over to Christopher Ferris, Vice President of Braze Investor Relations.

Thank you, operator. Good afternoon, and thank you for joining us today to review Braze's results for the fiscal first quarter 2026. I'm joined by our Co-Founder and Chief Executive Officer; Bill Magnuson; and our Chief Financial Officer, Isabelle Winkles. We announced our results in our 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 second quarter ended July 31, 2025, and the fiscal year ended January 31, 2026, our ability to integrate and realize the benefits of the acquisition of OfferFit, our anticipated product development and performance, our expectations concerning new customer verticals, 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; and our long-term financial targets and goals. 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 first quarter 2026 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. And now I'd like to turn the call over to Bill.

Thank you, Chris, and good afternoon, everyone. We delivered strong first quarter results, generating $162.1 million of revenue, up nearly 20% year-over-year. That top line growth continues to be paired with efficiency improvements as we increased our non- GAAP operating margin by over 900 basis points year-over-year and realized our fourth straight quarter of non-GAAP net income profitability, achieving over $7 million of net income and nearly $23 million of free cash flow in the quarter. We are proud of our financial success as we continue our mission to become the leading customer engagement platform on a global scale and look forward to achieving sustained profitable growth in the coming quarters and years, while thoughtfully reinvesting in our business and building our competitive moat. Despite an environment that remains noisy and uneven, we continued our momentum from Q4, achieving strong bookings as we got off to a good start in fiscal 2026. Thus far, global trade concerns have yet to materially affect deal cycles. And in the first quarter, we secured a diverse set of new business wins and upsells, including Beyond Inc., Chamberlain Group, Evite, Freshket, Fubo, LUSH Cosmetics, Njuskalo, ThredUP and many others. Our customer count rose to 2,342, up 46 sequentially and up 240 versus the prior year. Our large customer additions were again strong with $500,000 plus ARR customers, rising 24% year-over-year to 262, demonstrating the need for enterprises to deploy AI-based solutions and leverage first-party data to drive sophisticated cross-channel customer engagement at scale. We also continue to replace legacy marketing clouds across verticals and around the world, including at a North American FinTech, a global luxury retail brand, an EMEA insurance comparison firm, a North American amusement park chain, an EMEA Fashion House and APAC Tourism Board, a North American clothing marketplace, a U.S. health care company, a construction equipment rental firm in APAC a U.S. gaming company and an EMEA professional sports organization, among many others. We also continued to win against both channel-specific point solutions and homegrown tools across a diverse set of industries, geographies and use cases. And it's that diversification, which supports our results even as the economic and geopolitical environment remains dynamic. As we continue our substantial and focused investment on our journey to become the recognized leader in customer engagement, we are confident that the legacy replacement cycle and vendor consolidation trends will persist, presenting Braze with opportunities to increase market share as brands increasingly seek to improve their customer engagement strategies and leverage new AI-driven advancements to simultaneously achieve better results and higher levels of productivity. Meanwhile, our legacy competitors continue to stand still. Failing to innovate or adapt as the modern customer engagement landscape continues to forge ahead in both scope and sophistication. Braze remains focused and forward-looking as we deploy AI in tandem with first-party data activation, applying leading-edge reinforcement learning and generative AI technology to an ever-evolving set of messaging channels and product interfaces to help our customers deliver more relevant customer experiences and grow their businesses. This multifaceted strategy was on display just a few weeks ago as we announced the general availability of RCS messaging, in-product banners and canvas context. Separately, these are important upgrades to our channel offerings, orchestration environment and visual programming language, but it's a combination of these capabilities with our increasingly robust Braze AI suite that really makes our product road map shine whether a brand is orchestrating a dynamic customer journey, initiating an interactive conversational experience or enhancing core product offerings, the tools and skills of customer engagement are there to help them identify and optimize every one of the moments that matter in the customer journey. As the Braze product races ahead, we also continue to invest heavily in the community of marketers and agencies that are the foundation of the broader Braze ecosystem. And we firmly believe that now is the ideal moment to elevate the craft of customer engagement as marketers lead behind the drudge work of campaign creation and ascend to being a maestro of experience. By combining the accelerated capabilities of reinforcement learning and generative AI, we believe that marketers can ascend to a strategic conductor role responsible for prioritizing and driving business goals as brands unlock new opportunities for growth on the back of their continued investments in first-party data and the building of direct-to-consumer relationships. The enhanced flexibility of data, expansion of communication channels, rapid advance of AI and rising skill sets of marketers present brands with an unprecedented opportunity to engage with their customers, fostering enduring relationships that are the foundation of efficient brand growth. This goes beyond the conventional notion of delivering the right message to the right channel at the right moment. It involves gaining a deeper understanding of customers, engaging with them more holistically and reinforcing customer connections by providing seamlessly integrated messages and product experiences. Agentic AI plays a vital role in enhancing relevance and enabling extensive personalization as these decision-making agents independently test, learn and provide highly tailored experiences to customers. To accelerate our progress in this area, earlier this week, we successfully closed the acquisition of OfferFit, a leading AI decisioning company that leverages proprietary reinforcement learning to enable brands to deliver highly relevant and personalized customer engagement at scale. OfferFit has spent the last 4.5 years building and deploying a leading multi-agent solution that autonomously explores solution spaces across life cycle marketing campaigns, creating highly customized recommendations for cross-channel campaign content and delivery strategies. By substituting the manual processes of AB testing with reinforcement learning agents that independently experiment and identify optimal actions, OfferFit's advanced AI decisioning can be utilized across a diverse range of experimentation and optimization scenarios. This approach has been highly successful, enabling OfferFit to quickly land and expand with large enterprises across a diverse set of industry verticals. After years of successful product partnership, we are now working quickly to fully integrate OfferFit's multi-agent decisioning engine into Braze's customer engagement platform. By leveraging the Braze data platform, dashboard infrastructure and our already scaled event-driven stream processor, we anticipate that OfferFit will be able to simultaneously accelerate their previously independent road map, even while we prioritize the many integration tasks that will lay a strong foundation for future innovation and scaling. Together, we believe we can enable brands to leverage cutting-edge technologies in automation and machine learning, transforming customer relationships and creating shared value for both consumers and businesses. In the short term, we anticipate that OfferFit solution will enable us to increase deal sizes through their distinctive reinforcement learning products and services, while also setting us apart from competitors by offering a broad range of AI-driven optimization capabilities at various price tiers and service levels. In the medium term, similar to our approach with other key components of Braze AI, we plan to integrate OfferFit agents and machine learning models throughout the Braze platform. This integration will empower us to collaboratively address new use cases and improve existing features, ultimately helping brands achieve higher uplift with lower effort. The integration of OfferFit also complements Braze's Project Catalyst, a native AI agent aimed at helping brands personalize and optimize experiences through highly relevant journeys and content at scale, which is now available in private beta. Finally, we are confident that over the long term, their solution and AI expertise will help Braze accelerate progress on several long-running initiatives in Braze AI and Canvas, reinforcing our position as a leader in AI and customer engagement. We are thrilled to welcome OfferFit's team and technology to Braze, enabling our combined experience in machine learning and AI to enhance our product ecosystem and create exceptional experiences for our customers and their end consumers. We are excited to build the future of customer engagement together and look forward to unveiling more about the OfferFit integration, Braze AI and our broader road map at Forge, our annual flagship Customer Conference in September. And before I go, I'm excited to share that when we arrive at Forge in September, I'll be joined by the latest addition to our executive team as Ed McDonnell will be starting at Braze as our new Chief Revenue Officer in early July. Ed brings a wealth of experience and qualifications to this role with a proven track record of building and scaling revenue at leading SaaS organizations. As a former Executive Vice President and CRO at Salesforce Marketing Cloud, he developed a deep understanding of the customer engagement landscape and successfully scaled a multibillion-dollar marketing technology business. Most recently, he served as CRO at Asana, where he led revenue growth in the work management sector. His transition back to marketing technology underscores his strong belief in Braze's market position and growth potential in the customer engagement space. We are very excited to have Ed joining us soon, rounding out what we believe to be a best-in-class SaaS leadership team here at Braze. Thank you for your continued interest and support. And now I'll turn the call over to Isabelle.

Thank you, Bill, and thank you, everyone, for joining us today. As Bill stated, we reported a strong first quarter with revenue increasing 20% year-over-year to $162 million, driven by a combination of existing customer contract expansions, renewals and business. subscription revenue remains the primary component of our total top line, contributing 96% of our first quarter revenue, while the remaining 4% represents a combination of recurring professional services and onetime configuration and onboarding fees. Total customer count increased 11% year-over-year to 2,342 customers as of April 30, 2025, up 240 from the same period last year and up 46 from the prior quarter. Our total number of large customers, which we define as those spending at least $500,000 annually grew 24% year-over-year to 262. And as of April 30, 2025, contributed 62% to our total ARR compared to a 60% contribution as of the same quarter last year. Measured across all customers, dollar-based net retention was 109%, while dollar-based net retention for our large customers was 112%. Expansion was again broadly distributed across industries and geographic regions. Revenue outside the U.S. contributed 46% of our total revenue in the quarter, up from 45% in the fourth quarter of last year and up from 44% in the prior year quarter. In the first quarter, our total remaining performance obligation was $829.3 million, up 26% year-over-year and up 5% sequentially. Current RPO was $522 million, up 24% year-over-year and up 3% sequentially. The year-over-year increases were driven by contract renewals and upsells and the signing of new customer contracts. Overall, our dollar-weighted contract length remains at just over 2 years. Non-GAAP gross profit in the quarter was $112 million, representing a non-GAAP gross margin of 69.3%. This compares to a non- GAAP gross profit of $92 million and a non-GAAP gross margin of 67.9% in the first quarter of last year. The increase in year-over- year margin was driven by continued cost optimization of our technology stack with additional benefits from personnel efficiencies partially offset by higher premium messaging volumes. Non-GAAP sales and marketing expenses were $64 million or 39% of revenue compared to $60 million or 44% of revenue in the prior year quarter. While the dollar increase reflects our year-over-year investments in headcount costs to support our ongoing growth and global expansion, the improved efficiency reflects our disciplined investment approach to resource deployment across our go-to- market organization. Non-GAAP R&D expense was $25 million or 15% of revenue compared to $23 million or 17% of revenue in the prior year quarter. The dollar increase was primarily driven by increased headcount costs to support the expansion of our existing offerings as well as to develop new products and features to drive growth. Our R&D expenditures reflect our intentional and disciplined technology investment strategy and are in line with our long-term non-GAAP R&D percent of revenue target of 13% to 15%. Non-GAAP G&A expense was $21 million or 13% of revenue compared to $19 million or 14% of revenue in the prior year quarter. The dollar increase was driven by investments to support overall company growth and global expansion. Non-GAAP operating income was $3 million or 2% of revenue compared to a non-GAAP operating loss of $10 million or negative 7% of revenue in the prior year quarter. Non-GAAP net income attributable to Braze shareholders in the quarter was $7 million or $0.07 per share compared to a loss of $6 million or a loss of $0.05 per share in the prior year quarter. Now turning to the balance sheet and cash flow statement. We ended the quarter with approximately $540 million in cash, cash equivalents, restricted cash and marketable securities. Cash provided by operations during the quarter was $24 million compared to cash provided by operations of $19 million in the prior year quarter. Including the cash impact of capitalized costs free cash flow in the quarter was $23 million compared to free cash flow of $11 million in the prior year quarter. Free cash flow during Q1 of FY '26 includes the impact of approximately $6 million in vendor payments related to the OfferFit acquisition during the quarter. We expect our free cash flow to continue to fluctuate from quarter-to-quarter given the timing of customer and vendor payments. Now turning to guidance. Please note that we closed the OfferFit acquisition on June 2. And as such, guidance for our second quarter incorporates a nearly 2-month impact of owning OfferFit, while guidance for the full year incorporates a nearly 8-month impact of the transaction. For the second quarter of fiscal 2026, we expect revenue to be in the range of $171 million to $172 million, which represents a year-over-year growth rate of approximately 18% at the midpoint. Second quarter non-GAAP operating income is expected to be in the range of $0.5 million to $1.5 million. At the midpoint, this implies a non-GAAP operating income margin of approximately 1%. Second quarter non-GAAP net income is expected to be $2.5 million to $3.5 million and second quarter non-GAAP net income per share is expected to be in the range of $0.02 to $0.03 per share based on approximately 113 million weighted average diluted shares outstanding during the period. For the full fiscal year 2026, we expect total revenue to be in the range of $702 million to $706 million which represents a year-over- year growth rate of approximately 19% at the midpoint. Consistent with the commentary we provided during our fourth quarter call, we expect OfferFit to add approximately 2 percentage points to year-over-year revenue growth for the full fiscal year, which equates to approximately $11 million to $12 million. Fiscal year 2026 non-GAAP operating income is expected to be in the range of $5.5 million to $9.5 million. At the midpoint, this implies a non-GAAP operating margin of 1%, roughly a 100 basis point improvement versus fiscal year 2025. As I stated on our last earnings call, the Offer fit acquisition will create a temporary departure from the operating income margin framework outlined during our Analyst Day last September. However, we expect to return to the framework in fiscal 2027. Non-GAAP net income for the full fiscal year is expected to be in the range of $17 million to $21 million, and net income per share is expected to be $0.15 to $0.18 per share based on a full year weighted average diluted share count of approximately 115 million shares. To conclude, I'd like to express our excitement for what lies ahead at Braze. We are committed to offering industry-leading customer engagement solutions and driving product innovation as we work towards achieving our long-term financial goals. And with that, we'll now open the call for questions. Operator, please begin the Q&A.

[Operator Instructions] Our first question will come from Gabriela Borges with Goldman Sachs.

Will and Isabelle, I was hoping to reconcile some of your prepared remarks. On the one hand, the sequential growth in the quarter was lower than what it has been in the last couple of years. You've got the uneven macro. You've got the NRR dynamic. But on the other hand, the CRPO number actually looks pretty good, and it sounds like the competitive environment continues to accrue in your favor. So my question is, when do you think some of these positive company-specific dynamics start to more than offset some of the more uneven macro pieces that you've talked about? And what kind of metrics should we be looking at, whether it's revenue acceleration or maybe the CRPO number? How are you tracking that internally in your business?

Yes. So I'll address the numbers, and then Bill can possibly provide more color there as well. But specifically on CRPO, recognize that, that number is also sensitive to the volume of available renewal dollars and renewed dollars in the quarter, which was high in Q1 in terms of available renewal dollars. And so that number will help move the needle a little bit on that CRPO number as well. And so I don't love the CRPO number as a leading indicator. I would say, really look to revenue as the number that we're looking for kind of to accelerate -- to really show the indication that the macro has stabilized for us over the longer term.

Yes. I would say competitively, we feel really good about the results we continue to see both against the start-up competition as well as across the enterprise. We also saw continued great momentum out of Q4 into Q1 and the execution from the teams around the world was great. We saw -- good results in particular across America and across the Americas and across EMEA, and we saw broad- based strength across the different verticals. And by that, I just mean we didn't necessarily see pockets of weakness. I know that a lot of people have been really focused on retail and consumer goods, in particular, I'll remind everyone, as we spoke about last quarter, that we started the year with cross-functional verticalization efforts across both retail and consumer goods and financial services. We're committed to continuing to do both of those throughout the year despite some of the tariff uncertainty that's obviously hit retail and consumer goods, and we've been happy to see the momentum that has come out of those investments. And so what we also saw in Q1 is, as we mentioned last quarter, was a continuation of some of those elevated churn levels that we had seen through the back half of last year because of the seasonality of the enterprise business, a lot of our prior year's Q4 enterprise business closes which tends to be multiyear do renew in Q1. And so you see a bit of a hit of that in Q1 that explains some of the DBNR weakness or the slight decline that you saw in DBNR in Q1 as well. But we've been really happy with the -- both seeing the improved health of those poster cohorts as well as the cumulative effects of the last, call it, 6 quarters of very focused preventative efforts around churn, and we're looking at a forecast through the rest of the year where those churn numbers are going to improve. And so obviously, still need to see that in the revenue and the DBNR, both of which are lagging indicators. And we're executing, I think, at a really great level in a macro that has a lot of noise and uncertainty, but the diversification of the business and a lot of the work that we've been doing over the course of the last year to really manage around noise like that has been coming to fruition.

Our next question will come from DJ Hynes with Canaccord.

Bill I want to ask you one on Project Catalyst and realizing it's still in private beta. But when you see customers that are using Project Catalyst and maybe testing it against more hardwired Canvas flows, what is the performance or ROI delta look like, right? And how is that informing your view of what Catalyst adoption may look like over time?

Yes. So Project Catalyst just recently entered the private beta. So I don't have rigorous uplift case studies for you specifically on Project Catalyst, but I can give some insight into some of the technology that it's using and actually personalized path, which you've heard me talk about quite a bit in the past is actually using some of the more advanced reinforcement learning techniques that use the context around individual users in order to determine individualized path decisions. One of the great results that we actually saw over the course of the last quarter with some customers has been then shifting some of their usage of strategies like that to move up the decision-making stack. And so in this particular example, a customer was trying to optimize delivery cadences for selling either new apartments or promoting the purchase of new homes to people and they had actually done the segmentation manually and then they were using the machine learning in order to optimize some of the decision-making after they had done the segmentation. And what they did is they actually switched the strategy and they allowed for the reinforcement learning to go up a level and actually make decisions about whether or not someone is going to -- someone's journey is going to resonate most with renting versus buying based off of other indicators that they had. And that ended up outperforming and was achieving 5x the uplift that the prior experimentation was doing when it was just looking at cadences. And so I think that's such a great example where, even though we've built up a lot of intuition around how we communicate with customers over time, and there's a lot of marketing strategy around things like segmentation and delivering strategies -- delivery strategies that there's still a lot of uplift for reinforcement learning when we can really hand over control to it to make decisions to deliver to people. And so we're obviously looking forward to Project Catalyst continuing to combine together generative AI along with these reinforcement learning examples in order to more fully automate the exploration of those different decisions. That example I just provided was one where someone can use a preexisting Canvas feature. They can use it very quickly, but they do still need to produce those different variants in order to set up that experiment. Obviously, with Project Catalyst, what we're moving toward is the creation of the experiment also becoming more automated and allowing for it to go from making individual content decisions to making multi- message sequencing decisions, to different canvas -- parts of canvases or parts of journey flows. And then, of course, eventually moving all the way up to the level where it's making optimization decisions at a whole strategy level and a whole kind of customer engagement, customer journey level. We obviously anticipate as well that Project Catalyst and the longer term, when we get to that point where it's making these very high-level decisions I alluded to as the marketer ascends through these strategic roles have become more of a conductor of the business as different business strategies are being automatically prioritized against each other and then the implementation and the execution on how to optimize those -- for those strategies is being done by the AI. We think that, that's a place where the great collaboration that we're looking forward to with the OfferFit team, their reinforcement learning engine to be able to continue to kind of push ahead that road map is really going to come together.

And our next question will come from Brent Bracelin with Piper Sandler.

Isabelle, I wanted to just start with you. Obviously, pretty strong backlog build in the quarter. It sounds like maybe there's some renewal activity that helped. But maybe if you could just talk about linearity that you saw, particularly as you think about exiting April? And then one quick follow-up for Bill.

Yes. So there's nothing special about the linearity that we achieved in the quarter. I think we're very pleased with the pacing that we achieved in terms of like when the ACV came in. But broad brush stroke, and I think I've disclosed these numbers before. We tend to close about 15% to 20% of our business in the first month of the quarter and then we'll get up to about 50% or so by the second month of the quarter and the balance of that happens in the last month with most of that in the last couple of -- in the last sort of week or 2 of that month. There's nothing abnormal about Q1, and we were just generally pleased with the overall performance of that in the quarter.

Great. That's good to hear with all the uncertainty out there, particularly during April. Bill, for you, OfferFit, you've had now 3 months to kind of understand a little bit more about the product, what's been the early payback from customers so far? Anything jump out to you? And then what else did you learn in the last 3 months about OfferFit worth flagging here?

Yes. So a couple of things. First, before we even got deeper into conversations about acquiring OfferFit, we already had the advantage of working alongside them with a large number of mutual customers. As we mentioned, when we first signed and announced at the end of last quarter, roughly 1/3 of their existing customers are also customers of Braze. And so we've been getting great feedback both from those customers that are really excited to hear that we're coming together so that we'll be able to provide a better integrated experience for them as well as help put more fuel on the fire of the R&D road map of OfferFit overall. We've had a ton of incredible interest coming in from customers. We've had OfferFit presenting at a couple of our events over the course of the last couple of months, including most recently, at City x City London, which was last week, that conference actually had -- excuse me, this was 2 weeks ago, that conference actually had a higher attendance than Forge did last year because we continue to see incredible year-over-year growth in size of our customer community. And me and George, the OfferFit CEO, were on stage together They got a huge number of leads out of that. People are really excited to hear about the potential. So definitely great momentum there. I think 1 of the big learnings, especially as we head into integration is that, we're going to be moving into an environment where OfferFit is actually going to be in a very lead-rich environment now. And so we shift from the go-to-market priority being more around being in a lead scarce environment where they were -- had to leverage a lot of the flexibility of their engine to kind of find the right use case for a really huge diverse array of customers. Now I think the goal for the rest of the year is going to be to continue to qualify the opportunities that are going to be all over the place and the rest of the Braze customer base in order to cross-sell across our enterprise footprint and our GSA footprint to make sure that we're efficiently able to actually move through those opportunities quickly and predictably and help OfferFit scale faster than they were before, hopefully, with the added benefit of the Braze community and the Braze customer base.

Our next question will come from Arjun Bhatia with William Blair.

Maybe one Isabelle, one for Bill. Isabelle first for you. Can you just walk us through what the renewal cadence is like of some of the post-

Yes. So I'll answer the first question on the numbers. So the available renewal dollars were on balance sort of high in Q1, it's going to drop back down in Q2 and Q3. There'll be another pop in Q4 from an available renewal dollar perspective. What we've not broken out in that commentary has nothing to do with the

Yes. And then with respect to pricing, I'll remind everyone that the OfferFit solution is deployed as a very high-end flexible, customizable reinforcement learning engine, and has done so with the pairing of expert services. So we absolutely intend on continuing to sell for the rest of this year right along the lines of how they've been pricing and packaging throughout their -- certainly throughout the last couple of years at the business where they deploy on a per use case basis and that has an incremental cost around $250,000 to $300,000 annually inclusive of the expert services that help with the implementation and then the ongoing maintenance. And so we expect that to be additive on top of the customer contracts that people are purchasing from Braze. There's obviously some question around potentially some budget cannibalization, but we also think and know that there is a lot of additional budget out there for this decisioning layer and for other forms of AI investments as well. And so we certainly hope to be able to capitalize on that in terms of overall wallet size. And then we further think that this is obviously a really important part of our competitive motion moving forward and will really help to differentiate in particular, in cases where customers either have very large user bases where even small amounts of uplift are worth very large amounts of dollars or in places, and you see these across financial services and a lot of multiproduct companies and such, where being able to identify specific high-value actions in the customer journey like someone going from single product to a multiproduct or then upgrading to higher tiers of service or then moving into other product categories that are higher margin or higher value. Those are all customer profile transitions that represent high-value actions where gaining the absolute best uplift is very high ROI investment for those customers. And so we'll be looking to qualify and deploy it into those circumstances with this existing pricing and packaging. And then we've got a lot of optionality for how that evolves over time and into the future. I won't speculate on that too much right now, but we obviously think that there is a lot more potential for the underlying technology, especially when combined with all the strengths of Braze's customer engagement platform.

Our next question comes from Pinjalim Bora with JPMorgan.

Congrats on the quarter. Bill, one for you, one for Isabelle. We heard from the channel that there are some consternations around pricing of data points within Braze. Do you see an opportunity to change pricing and packaging around how you price data points below kind of the MAU-based pricing? And then Isabelle, is it possible to kind of split out the impact on EBIT from OfferFit to your full year guidance?

Yes, so great upfront question because just a couple of weeks ago, we launched our new pricing and packaging for this fiscal year, and it includes a massive relaxation on data point limits. Data points have been actually one of the highest friction points in our pricing for a long time. And it's always been in our pricing because it's highly correlated with our costs. And because our event-driven stream processor is expensive to operate and run with the high levels of performance and the high SLAs that we provide to our customers and they demand of us for the -- especially for the huge variety of high-performance use cases that many of them run. But we, over the last few years, have put huge investment into shifting from data point limits because we, of course, know that data is also the engine that feeds a lot of the uplift for AI and machine learning. It also allows for customers to more flexibly move across different use cases. And with the continued build-out and capabilities of the Braze data platform, the amount of data flowing through Braze and the amount of use cases that people want to accomplish with the Braze data platform continues to expand. And so having kind of a toll gate on the data points as they came into Braze was not only a friction point in sales cycles, but it was holding back increased usage. And so our R&D teams have gone on a multiyear journey behind the scenes to be able to shift from these data point caps toward a more API rate limit-based way of making sure that we're able to guarantee the levels of performance that we want to and also be able to do that with keeping our COGS and our margin profile in the place that we want it to be. And so we're really excited about this moving into market more broadly with that pricing and packaging becoming available in more and more places. We deployed it in a more private pilot throughout last year. And the competitive results of it were extremely good. It was a very potent way to neutralize a lot of the FUD that a lot of our competitors like to use around data points out there. And as you noted in your own reference checks, it's some of the only negative things that you hear out there often are centered around these data point concerns. And so we're really happy to have neutralized those. We actually on that new pricing and packaging closed the first deal on the new pricing and packaging, just 8 days after it became available. And so customers are already showing early signs of liking the flexibility that is there. That, of course, also came with expansion in the flexibility of the flexible credit model as well to include more channels within it. We think that, that's going to be a help for go-to- market throughout the year, both competitively and with respect to sales team productivity.

And just to answer your question on the impact on EBIT. So if you go back to when we announced Q4 and gave guidance for the year, I did indicate that on an organic basis, we expected to add about 400 basis points to non-GAAP operating income. That obviously has come down in the context of the guidance by about 300 basis points. So a good portion of that is the impact of OfferFit specifically on its own. And then a little bit of that is also from additional investments that we will make to help with the integration. And so there's those 2 components together that kind of get you there. Recognize that, that is on a somewhat risk-adjusted basis, so take that into consideration. And a part of that mix is in on a gross margin basis, their gross margin is a little bit lower than ours for the time being and the bulk of it sits in the operating expenses.

Isabelle, just to put a finer point, is that 2/3, 1/3, is it any way to quantify that?

When you're asking for the quantification, you mean between the OfferFit specifically and then any additional investment that we're making?

Correct.

Yes, the majority of it, it's more like 80-ish percent. It's more than 3/4 is going to be specifically from them with a little bit from us.

Our next question comes from Scott Berg with Needham.

This is Rob Morelli. Just wanted to touch on pricing and packaging. Again, last year, you transition to the flexible credit model. Now that this has been in place for some time. Any sort of commentary or insight you can provide on customer reception and feedback. This is driving the sort of uplift in trials you anticipated and any impact to overall spend levels?

Yes. I think we've talked about this in the past, and the same trends have continued throughout the rest of last year. So around this time last year, obviously, we initially released the flexible credits model on a small number of channels. We've expanded that to include more channels this year. I think customer uptake has been great, and it did, in fact, increase -- it shortened negotiation times because the order form complexity went down. It also has created new strategies for us to be able to help customers expand their usage in various creative ways to be able to test out new channels and new ideas without being hamstrung by whatever their order form happened to have purchased at some point, potentially in the distant past, depending on where they are in their contracts. And just generally providing the flexibility that allows for a customer to expand across the Braze feature set and experiment and find and identify new strategies that are going to drive value for their business. And so I think customer sentiment has been very good. It has definitely helped speed up negotiation cycles. It also does help us introduce new features to customers and introduce new channels to them more quickly with less friction. It hasn't been in market long enough to see exactly what that's going to do to DBNR overall. But certainly, we expect it to be supportive as we're able to avoid some of the sources of partial churn, where people misestimated and overbought certain aspects of messaging channel entitlements, which is because we're a use-it-or-lose-it, that often would lead to customer satisfaction issues. And while we could reallocate sometimes that spend to new channels or to different strategies at renewal time, by that point, a lot of times, there had already been that hit to customer satisfaction or the opportunity to be able to lay the groundwork to expand to those new channels, maybe already passed or what have you. And so just goodness across the board when it comes to aligning customer value creation along with the right foundations for expansion and speeding up our deal cycles with the expansion of the flexible credits model and to yet more channels and more parts of the Braze product, which, as I mentioned, just launched recently in this year's pricing and packaging refresh, we certainly expect to see more of the same.

Our next question comes from Brett Huff with Stephens.

Can you hear me now?

Yes.

Okay. Sorry about that. Two quick ones. Congrats on a nice quarter. First, for Bill, investors that we talk with still have a hard time wrapping their heads around the really uncertain macro yet marketing dollars continue to seem to be being spent. So I wondered if you had an anecdote or 2 that could help square that circle. I think just being a little more concrete would help -- certainly help me and maybe others. And then Elizabeth (sic) [ Isabelle ] any commentary on how FX assumptions changed on the full year rev guide, we can understand kind of what the organic underlying guide was?

Yes. I think broadly across the macro, a lot of the things that we've spoken about in the past, in particular around enterprise deal cycles and the unwillingness for a lot of companies to invest in new growth initiatives, a lot of the spending is still focused on consolidation and optimization. And we certainly have a role to play in that, especially when we are consolidating multiple point solutions together when we're driving increased levels of efficiency and productivity by marketing teams. But switching costs are still costs, and we do still see deals that take longer because people are trying to time their moving to a new vendor exactly with their renewals or their prior legacy contracts running out so that they're not double paying. Those are the kinds of things that are causing a lot of these enterprise cycles to sometimes take longer, sometimes push or get dragged out. We're getting better at navigating those and you are certainly seeing that in our sales teams, productivity and efficiency improvements over the course of the last few quarters. Our competitive win rates also continue to improve. And we're also seeing important advances in broader partner ecosystem as well. I spoke about this in the prepared remarks, but I think that it's very clear that the legacy players in the space, the likes of Salesforce and Adobe have taken their eye off the ball broadly in customer engagement are not investing nearly as much, if anything, in their existing products in the space. And it's not just their customers that are noticing that, it's also the broader partner ecosystem. And those are leading to benefits for us as well. And so I think that we're liking what we're seeing from a competitive win rate standpoint from a team execution standpoint. There's still difficulty out there. We do see regional comparative weakness across places like Southeast Asia, as an example, where growth has not been as vigorous and where we haven't seen as much of the kind of venture activity starting to flow again, et cetera. We are seeing great results in core markets across the U.S. and EMEA, in particular, and continue to see broad-based strength across verticals when we look out across landscape. I know that there's -- as I mentioned at the very top of the Q&A, a lot of hand wringing around retail and consumer goods, but I think we're seeing good momentum there as well. And so it continues to be a noisy and difficult to navigate environment, but we like where we're positioned in terms of the efficiency and productivity of the sales team and our ability to execute within a pretty diverse customer base.

And just to answer your question on FX, the only currency in which we book customer contracts, that is not USD is Japanese yen and that accounts for low single-digit percent of our total revenue. So the short answer is the FX impact embedded in any forward guide has a de minimis impact.

Our next question comes from Brian Peterson with Raymond James.

This is Johnathan McCary on for Brian. So you kind of just touched on it there, but I wanted to double click on the SI channel. I know it's earlier days there, but here that it's a difficult environment from a marketing budget perspective and your commentary on the competitive environment, sounds encouraging. So I'm curious what impact, a more fluid macro has on that channel? And does that influence the momentum for Braze engagements to those integration partners? And then just a quick follow-up for Isabelle, housekeeping wise, in terms of the impact from OfferFit, I know you mentioned some gross margin impact. Is there anywhere else you can break out within the OpEx lines, line by line, where we should see the biggest impact there?

Yes. So on the broader agency community, there's a couple different dimensions here. One is, as I just mentioned, just 2 weeks ago at City x City London, we had our largest attendance event of all time. I mean we certainly anticipate exceeding that total again at Forge later this year. And a big part of that is not just the customer community but also the broader partnership ecosystem inclusive of a lot of the agency community and the SI community, all of whom are sponsors of these events as well. And so we're really encouraged by the progress that we are seeing there. It tends to be more regional, like when you look at, for instance, the big global systems integrators, we we're making great progress in certain geographies or certain verticals. I wouldn't say there's a broad-based groundswell within the likes of Accenture or Deloitte, if you will, but we're certainly making progress in areas of preexisting strength and continuing to parlay that into building additional momentum. We also have a huge number of agency relationships around the world that start -- many of whom started out in the midmarket. They're also now starting to serve up in the enterprise. Stitch is one of those based here out of North America. They're also now expanding out into Europe, along with us as they continue to grow their business rapidly. I mean we're continuing to see more and more competition amongst our partners as well to be able to advertise the huge numbers of Braze certifications that they have, and they're competing vigorously against each other for opportunities in these deal cycles as we continue to surface them. With respect to the broader macro and the impact on a lot of that, the same things that I think are holding up, switching of various ways because they have switching costs, you obviously also have an impact on the onetime costs associated with lift and shifts, many of which are executed on by systems integrators or by other agency partners. We also see ongoing creative services and a lot of the additional kind of data intelligence and data invites investments being made. We do a lot of great work with VML and other parts of the broader WPP Group on that, especially across Europe, where we see a lot of great strength there. And so good signs all over the world in different verticals from a lot of the most important and critical players in the space, and we're looking forward to continuing to build momentum with all of the major partners as we build out huge groundswell community around the customer engagement space.

And then on your question regarding the distribution of the OfferFit costs. So recognize they're only 2% of our revenue, right, I said that in terms of -- revenue growth, sorry, from -- versus last year. So this will mix in to that effect. But in terms of the distribution of the cost, broadly speaking, you can think of it about being about 75% sales and marketing, about 1/4 R&D and a de minimis amount of G&A. So that's going to be the broad brush distribution.

Our next question comes from Brian Schwartz with Oppenheimer.

Bill, first for you, just wanted to ask you a little more color on OfferFit on the pace of the integration plans. Specifically, how quickly can you achieve the growth and cost synergies with this acquisition? How should we think about time lines for success with the acquisition? And then I have one follow-up for Isabelle.

Yes. So I think the key priorities for this year are the integration of the go-to-market motions and the integration of the products and the underlying technology together so that we can both enhance the OfferFit offering as well as continue to grow it rapidly as we attach OfferFit to more and more of the Braze customer base and also continue to grow them and their independent offering on a -- not a stand-alone basis because obviously, they'll be integrated as part of Braze, but continuing to build out the OfferFit offering with the rest of the partnership ecosystem where they work as a decision engine with customer engagement solutions that are not Braze, which of course, represented around 2/3 of their customers at the time of acquisition. And we certainly intend on continuing to provide that as its own offering well into the future. And so when we look at all of those different priorities, I think that OfferFit comes into Braze with a lot of momentum already built. They've been a great partner of ours over the last couple of years. We know them well. As I mentioned, I think a big part of really being successful this year is going to be making sure that we can get through the integration phases quickly so that there's not a friction that's going to slow us down from that perspective, and we don't incur organizational complexity that will slow us down either now or further into the future. And then also that we make sure that as we bring together the teams and the opportunity set, and we open up the ability to cross-sell OfferFit to the Braze customer base that we do so in a way where we're qualifying those opportunities really effectively that we're able to predictably deliver OfferFit to those customers with quick time to value and be able to make sure that they get up and running and see that high performance uplift from the customized reinforcement learning engines that is, of course, the secret sauce of what OfferFit delivers to customers and do that as comprehensively as we can.

And for Isabelle, in terms of the assumption underlying the annual revenue guidance or at least the net new revenue that's going to come in for the business this year, is your expectation the assumption that the majority will come from net new or from expansions.

Yes. So there's no real expectation of a change in the evolution or distribution of that. So we typically -- it's been sort of broad 50-50 mix over kind of the broad quarters of our history during slightly more challenged times, you'll end up getting more of that coming from expansion versus net new because, as Bill mentioned, some of the inertia and the switching costs and some of that, the challenge some of our ability to capture that net new. However, we do push to continue to kind of expand that net new amount. So that can be a little bit more than half. But broadly speaking, I think thinking about it as broadly 50-50 is probably the right way to think about it over the long term.

Our next question comes from Matt VanVliet with Cantor Fitzgerald.

I guess when you look at maybe the integration of the sales team for OfferFit, curious on sort of the size and scale of the number of core carrying reps they have there? And at what point do you anticipate sort of synthesizing those so that of your sellers are selling both products even before the integrations of the products are fully complete. So how much capacity are you sort of adding? And when would you expect the cross-sell that really kind of take hold?

Yes. So let me just work through that starting from next year. So as we start the next year's fiscal year, February 1, we anticipate that the combined sales teams will both be selling across the full gamut of Braze's customer engagement platform plus the existing OfferFit solution. And of course, we expect those products to intertwine with each other more over time as well. As we look at -- the deal closed on Monday, and so we added 14 ramp -- we added 15 new reps, 14 of which will be ramped by the end of the year from OfferFit. The way that we are going to sell alongside them through the rest of the year, just recognizing the specific skills and experience required to sell OfferFit as it is today. We are enabling the Braze team to be able to work very closely with the OfferFit sales reps to be able to help with a lot of those qualification determinations that I mentioned before, so they can identify opportunities in their existing installed base as well as in their new business cycles that they're already working through and be able to sell alongside those OfferFit reps. And so we're looking forward to being able to parlay the learnings of these next 2.5 quarters that we still have in this fiscal year to be able to start next year with that combined sales team around the world, selling the integrated solutions and having everyone doing that. And we're going to try to move as quickly as we can on that. The cross-sell and upsell opportunities that are already there, I'll just remind everyone again that we have been partnering with OfferFit for a while. And so our teams have already worked together in pockets around the world on the shared customers that already exist. Now obviously, OfferFit doesn't have a tremendous number of customers, so there's not a huge number of at-bats in that. But we've already vetted out aspects of this cross-selling motion, and we certainly anticipate the momentum on that to be able to move rapidly throughout the year.

And then Isabelle, I think everyone's sort of figuring out when we kind of trough on net retention here. With smaller renewal cohorts in the next 2 quarters, are we approaching that if execution remains as strong as it has maybe this quarter and last? How should we think about the trend of dollar-based net retention from here?

Yes. So I think I sort of indicated that we'll see some kind of stabilization in the revenue growth before we see that in dollar-based net retention. So the cohorts of available renewal dollars are going to be a little lower, certainly in Q2 and Q3. But not -- there's still going to be some elements of churn. And so I wouldn't look to that necessarily as sort of a massive decel in the rate of change of the dollar- based net retention. So we're not calling that specific trend quite yet. So I would again point everybody to the trend on revenue that's going to stabilize first.

Our next question comes from Derrick Wood with TD Cowen.

Bill, I wanted to ask about APAC. And I know you guys have put some investment there with some sales heads and new data center infrastructure and LINE as a new channel, but it also sounds like maybe there are some pockets of softness from the macro. Just can you talk about how you're feeling about demand and building new growth levers on those investments? And then a quick one for Isabelle. You had strong growth in professional services revenue in the quarter. Wondering what drove that. And since we've got that spiking and we've got the acquisition folding in you care to comment on kind of how to think about growth in subscription revenue versus professional services revenue in the context of your guidance for the full year.

Yes. So when we look on the globe, as I mentioned, we had strength in Q1 across both America and EMEA. We've also, as you've noticed, built on our preexisting data center options that we already had in both the U.S. and in the EU with recently launched data centers in Australia and Indonesia. We also anticipate that as data residency considerations continue to grow importance, both legally and commercially. And by that, I mean that there are certainly markets where data residency and other related concerns are not the law yet, but they are becoming kind of de facto commercial requirements, especially in more regulated industries. We expect to continue expanding that data center footprint over time. And coordinating both Braze go-to-market and partnership investments alongside them in order to efficiently support the continued globalization of the customer base across those markets. I mentioned that broadly, we saw less strength in APAC than we did in America and in EMEA, and that certainly was true in Q1, especially as we've seen a little bit of an uneven recovery as the economy in China, which obviously impacts a lot of Southeast Asia has had an uneven recovery over the last couple of years. But seeing strength in markets like Australia, New

And on the -- your question regarding professional services, that is linked to actually events that happened in Q4, where we actually had a strong proportion actually approaching that 50-50 proportion of net new business in our bookings during the quarter. And the more -- the higher proportion we have of net new business, the more revenue we will have in the subsequent quarter related to implementation and onboarding. And so that is some of the dynamics that you're seeing there.

Our next question comes from Tyler Radke with Citi.

First question for Bill. Just go-to-market update. It was great to see the hiring of Myles' replacement. Can you talk about any changes that you intend to make throughout the rest of the year? And then you talked about some of these verticalization strategies around things like financial services. Just curious what type of traction you're seeing there and in regulated industries.

Yes. So we're super excited to bring Ed in and bring together his decade of experience scaling at Salesforce and competing in our space, along with his more recent experience at as CRO at Asana, where he got hands-on experience with a lot of adjacent buyers and product areas and a different sales motion. So I'm really excited to have him come in. Obviously, there's already a lot going on. So for Braze go-to-market, our priorities for the rest of the year are going to rank consistent as we continue to capitalize on the legacy replacement cycle in the enterprise, especially that strength we're seeing in America and Europe, as I mentioned, across those, investing in those verticalization efforts globally as we continue to bring together those cross-functional teams for both retail and consumer goods and financial services, and we're pushing that into coordinated event strategy and market development strategy around the world, including in LatAm and across all of APAC and in GCC. And the momentum on those has been really good. We've definitely seen increased momentum. And just I think the awareness of those investments is helping those deal cycles move a lot more efficiently for everyone that's working on those. We're also obviously working to continue to encourage greater customer expansion. We mentioned the pricing and packaging evolution that is helping support that as well as lowering churn, which has been a culmination of the last year, 1.5 years of really focused preventative efforts looking at a lot of the upfront around consumption and completeness. A lot of these things that I've been talking about the last few quarters, but obviously, by their nature, you don't really see the benefits of preventative early customer life cycle churn prevention efforts until you start to renew those customers, and we're going to have that be happening later this year, and I think that, that's an important driver of some of the improvements in the churn forecast that I mentioned at the top of the call. And those -- and just making sure that those trend lines continue, those preventive efforts continue to be effective, that those support customer expansion are all really important goals through the end of the year. And then, of course, working to rapidly integrate OfferFit. Ed is going to join almost exactly a month after the OfferFit acquisition, which just closed on Monday. We'll have been off to the races from an integration standpoint, we'll have about a month left in Q2. So it's going to be an exciting July as we work through closing out Q2 alongside that OfferFit integration. We're excited to have Ed onboard to help us through that and look ahead then to the rest of the year.

Great. And if I could sneak in a quick follow-up for Isabelle. I appreciate the commentary on the OfferFit moving pieces on margins. Could you just clarify again on revenue, the impact there? And then just as we think about the guide -- for -- the updated guide, did you incorporate any incremental conservatism on the organic piece as well?

Yes. So if you look at the guide, actually, and we were clear about this in the prepared remarks, what's included is about $11 million to $12 million contribution from OfferFit. And so actually, if you do the math on our prior guide, our actual beat in Q1 and then our net new guide, we essentially pass through the full beat from Q1 and then we added in the OfferFit component. And so what I would say is there's a risk adjustment in the context of both our numbers and the OfferFit numbers. I was fairly conservative in my commentary around the level -- how close to the sun we were flying in Q1 -- when we gave guidance in Q4 for the year, and I said, look, we're going to be a little even closer to the pin this year. The -- some of the overachievement that we had in Q1 and our net new guide for the balance of the year. I think we've given us ourselves a little bit more wiggle room there as it relates to some of the risk adjustments. So we're very comfortable with the new level of risk adjustment that we've provided in the context of the net new guide. So it's a little bit more risk adjusted versus where we were after Q4.

Our next question is from Nick Altmann of Scotiabank.

Awesome. I wanted to circle back to Brian's question, but just going off of strong CRPO and RPO growth in Q1, is Isabelle, I know you said that the strength was broad-based. It was a strong renewal quarter. But just any mix shift in terms of the new ACV in the quarter from net new customers versus cross-sell and upsell. And that's all I got.

Yes. No, so there is nothing sort of specific. As I mentioned, we're sort of -- we hover in any given quarter anywhere between sort of 40% net new, 60% upsell to the reverse of that. So there's kind of a certain degree of variability in that. And there was nothing unique or different about how Q1 behaved. So that -- those dynamics are well in line with historical norms and where we would expect them to be trending.

Our final question comes from the line of Michael Berg with Wells Fargo.

I wanted to ask one more on OfferFit given that they have large professional services, is there anything to assess in terms of the mix between subscription revenue and professional services as it relates to the OfferFit revenue you're taking on Isabelle?

Yes. I mean they're going to behave financially a little -- very close to kind of our proportions. In addition, they're small today as a proportion of the total. So I wouldn't look to incorporation of their financials to materially change that split between the two for us.

Yes. And longer term as well, and this is already something that's been playing out for them year-over-year. Their overall gross margin inclusive of those professional services has been increasing year-over-year as they've continued to automate more of the prior more manual roles that those professional services were playing. It's been an important part of their product development strategy. As I mentioned, when we announced the acquisition, it's not dissimilar to the forward deployed engineering model that Palantir has effectively used over the years where they take advantage of the fact that their expert services are out in the field, seeing exactly how the product needs to evolve in order to make them those deployed people more efficient and allow them to be more productive over time. OfferFit has been following a very similar model where their expert machine learning services are closely tied to the product road map, making them more efficient over time. And then similarly, a lot of the actual literal hours, much like with the deployment of Braze, tied to the upfront, where they're going through and they're searching through the data sources, getting data pipeline set up. That, by the way, is something we expect to speed up by utilizing the Braze data platform for OfferFit deployments into the future. It's one of those great R&D and kind of services and delivery synergies that we're looking forward to. And then similarly, the overall technology costs of actually operating the reinforcement learning engine of OfferFit is actually less infrastructure intensive than running the Braze event-driven stream processor. And so well, there is a bit of a headwind to their overall gross margin percent in these early years of their product development, we anticipate that in the long run, it will be gross margin accretive for us on a percentage basis. And we'll look to see that picture evolve over time, but we feel really good about the dynamics there.

And just for the record for the call, since this is transcribed, I'm just going to update everybody or just to remind everybody, my name is Isabelle and not Elizabeth.