Braze Aktie

Good morning, everybody. I'm Tyler Radke, Citi's Co-Head of U.S. Software. We are joined by Braze Co-Founder and CEO, Bill Magnuson. Bill, thank you for joining Citi's tech conference. I think the third or fourth year in a row and shortly after earnings.

I always appreciate it.

There's been a lot of noise in the market, and maybe we can just sit on the earnings topic for a moment. Just maybe to kick off, could you just walk us through how the quarter played out? I think there were a lot of questions on the dynamics specifically around CRPO growth. So maybe we would hit that with -- how you're seeing underlying growth versus some of those metrics?

Yes, absolutely. So yes, I mean overall, a great quarter, as we mentioned, bookings were strong within the quarter, and it was also one of the most consistent global results that we've seen probably in the last 5 years with all of our major regions contributing at a high level. And similarly, trends around our competitive win rates and sales force productivity, all continued into the quarter. And so great to see that. The organic CRPO did take 2 percentage point down step to 23% in the quarter. And part of that also contributed to by just seasonality of Q4 and Q1 of this year were really big renewals quarters. Which is -- it's great to get through the early -- get through more of the renewals for the year, a little bit earlier on, and so some seasonality contributing there.

But overall, we were really happy with the booking -- the continued bookings momentum from Q4 into Q1 into Q2. And looking at the pipeline and the setup for the second half. So happy to flow through the beat and put a raise into the revenue forecast as well for the full year, and we're looking forward to Forge here in a couple of weeks, which historically has always been a big accelerator of pipeline for us. And so I think that our competitive positioning also continues to be in a really strong space, especially vis-a-vis the legacy marketing clouds. And so the continuation of share gain within that part of the -- primarily in the enterprise space is something that certainly my sales leaders are looking forward to here through the end of the year and into the next few quarters.

And our AI road map is really resonating out there in the market. When you look at the pace at which we've been able to bring products to market, the acceleration of the road map this year, the fact that Agent Console and operator, it got put into people's hands months ahead of schedule and now we've done the same with a lot of our work around our remote MCP server, our headless operator, and other work around things like Decisioning Studio Go, all of which you're going to hear a lot more about at Forge. But all of those things have accelerated. And one of the really exciting things about a lot of the Forge updates this year is just how much of it is already in beta or already like moving into general availability. Like this is definitely not -- this is not a year where there's a bunch of like slideware and future promises like the build is all happening in real time. And that means that we're putting capabilities in customers' hands faster.

It also means it's driving contributions to our growth more quickly as well and is enhancing our competitiveness too, because, frankly, in the competitive landscape, I think that we are sprinting and everyone else is still standing, sill.

Yes. No, it's great to hear. And I definitely want to hit on some of the AI product stuff, but just a few more kind of financial questions because they've been topical. How would you characterize just this reclassification of revenue from subscription into ProServe? I think you had talked about maybe that dynamic allowing you to progress through renewals faster. So just how -- what happened? How should investors kind of think about that PS versus subscription going forward?

Yes. So first of all, I'll just take a step back. The motivation for the pricing and packaging change that is now playing out in the numbers, which I'll explain in a bit more detail. But the motivation actually was to do a better job of aligning the professional services delivery with exactly where customers had a distinct willingness to pay for the different types of advisory services that we provide. And you actually -- if you go look at our post-sales headcount, you will see that our post-sales headcount is not like selling at this rate that professional services revenue, obviously, it appears to be growing. And that's because the -- while there is this kind of accounting shift in terms of how this revenue is labeled there has not been like a meaning -- it's not like there's been a shift in business strategy towards services. In fact, actually, the relative proportion of post-sales headcount is shrinking in the business because we're achieving efficiency gains through operator doing things like delivering technical support and customer success advisory and things like that.

Now one thing that is happening, and I mentioned this on the call, though, is that there are forms of advanced advisory services that we are seeing increased demand for because of -- some of the increases in like the adversarial environment, right? It is deliverability is harder than ever. And everyone in this room with an e-mail inbox probably understands why. When you look at the amount of Agentic, like messaging and mail traffic that's out there right now, for brands that actually are trying to play this game the right way with the right levels of consent and engaging with their loyalty programs and loyal audiences and things like that. Simply getting that signal through all the noise is like harder than it's ever been.

And so we are seeing incremental demand for things like our premium deliverability services. And that's because your pipes can't be dumb. If you're going to actually drive revenue and get effectiveness out of your messaging and customer engagement strategies. And similarly, on the technical account management side, our TAMs really help customers with the architectural setup of their -- the way that they set up their marketer workflows and the way that they integrate their data flows and things like that. And we're seeing increased demand for that too because the AI models that are able to drive enhanced performance for customers need to be fed with the right data and context in order for them to do their job.

And there's a ton of enthusiasm for marketers to do things like adopting our MCP server, being able to adopt and run operator. And then additional kind of more bespoke AI workflow work like we've got customers that are using Claude Cowork and then headless operator and our MCP servers together where they're going from kind of full brief to end-to-end strategy and then actually headless operator can go and implement it in Canvas, and so they can actually kind of work in a Claude Cowork workflow, if you will, and then go and see the results of all the programs that got built like inside the Braze dashboard.

And that's -- that's really cool, but requires also setting up those MCP servers and getting the right secure like architectural setup in place and such. And those are places where our technical account managers help people with that. And so we are -- a part of this is that we're seeing increased demand for those advisory services. I'll remind everyone that actually the way those advisory services are purchased from Braze is that they're always co-termed with subscriptions and the revenue is recognized ratably. They are all -- like 90% of those services are recurring, and they're tied to the exact same contract length as like everything else. And that's kind of always been the case.

And then the other thing, as I mentioned, that has been happening is that we started breaking out certain services that used to be bundled into the platform, and that has caused them from an accounting treatment standpoint to move from being classified under subscription to under professional services. That means that when you do the year-over-year compare, those -- that same revenue was in subscription in the prior period, and now it's in services, but it has traveled, but it is not. And that is causing the relative growth rates to look out of whack.

And so if you want to do an apples-to-apples comparison, and we shared this on earnings night as well, but the apples-to-apples percentage of revenue from professional services, if we had not done the packaging change, would be about 4% to 5% of the revenue would be in services. And so if you want to look at that as a comparison point to just get a better understanding of how the underlying subscription revenue has been growing, that you can use that as a number to flow through.

Got it. Okay. No, that's helpful. And then on gross margins, typically, Braze has seen some gross margin pressure in Q4 due to holiday messaging. How should investors think about the gross margin outlook this year?

Yes. So the seasonality will operate exactly the same as it has in prior years. As a reminder as well, like as a consequence of our revenue being recognized ratably which means that it's throughout the term or throughout the multiyear terms in most cases, the customers have. The Q4 is just a higher activity level quarter across the board. It's not just SMS and WhatsApp. It's like literally -- there's also -- we have more servers online because there's more data flowing and everything else. And so -- it's just a -- it's a quarter with more activity and, therefore, higher infrastructure COGS. And so it will have the same seasonality in gross margin percent.

All that being said, gross margin definitely has been a big focus area for us. We were working on it on multiple fronts. The new products that we've been rolling out in the BrazeAI family are all priced to be accretive to overall gross margin. Similarly, there are certain workloads that we are able to monetize now for the first time. For instance, like we don't charge for push notifications in Braze. We never have. and we send like over 1 trillion of them every year. But as customers start to use our AI capabilities to optimize those push notification campaigns, we'll actually start to make money on those workloads for the first time incrementally.

And so that's an exciting forward-looking opportunity as customers start to invoke our more advanced models in more and more of their existing messaging workloads as well. And that's -- a lot of that is on the foundation too, of the work that we've done to move our whole -- most -- the vast majority at this point of our customer base into our action credits model, which allows for them to more fungibly utilize those committed credits across different channel types or using the same credits that they previously would purchase to send an SMS they can now also use to invoke or reinforcement learning model that's going to enhance the performance of their upcoming campaigns.

We actually -- I just got another data point yesterday of a customer testing out a Content Optimizer and their SMS welcome flow. And they had more than an 80% increase in clicks in the welcome flow. And similarly, I think it was like 81% on clicks and 83% on conversions in terms of uplift from taking the workflow that they were doing before, where they were spending a good amount of money to run a welcome workflow through SMS as a channel and they ran a 90-10 test where they put 90% of the traffic on the new one that use content Optimizer, and they left 10% on the prior strategy as a control. And that experiment, of course, is dead simple to do in Braze to be able to go from your old strategy to one that has like an experiment branch on it.

And the 90% path used content optimizer, and they achieved over an 80% increase in the performance of that. And so that's just a great example where there's a whole bunch of optimized workloads that have been previously programmed into Canvas and Braze that we're really looking forward to customers being able to go back through like not just build with AI moving into the future, but actually also go back through all the abandoned cart campaigns and the new user onboarding series and the cross-sell messaging and things like that. And put more advanced AI into the flows that actually generate that content in order to drive more performance for them. And I think that there's a lot of performance enhancement opportunity for our customers as they go and work through that.

And the good news for them from just the burden of doing those builds and modifications is that operator can now do it for them. We have been rapidly advancing the capabilities of operator. It now even just over the last 6 weeks, we've added the capability for it to independently navigate to all different pages of the dashboard. It can now also build multistep Canvases for customers. And so you can just give it like, "Hey, I want to build a new welcome series" or "I want to build a new abandoned cart campaign." And for instance, like within an abandoned cart campaign, it can actually -- it knows now, and we've been -- we're going to continue to train it on these more advanced strategies that an abandoned car campaign should use Agent Console step in order to enhance the content personalization that actually gets sent out.

And so it's no longer just like here's the starting trigger and a time delay and then like send the message. It's also going to include like and send the message based on the intelligent channel for that given customer and take all the breadcrumbs that you've got along the way around what else the customer may be looked at recently, the last few products that they were considering between, et cetera, and put all that into context window and have the agent actually use that understanding from the breadcrumbs of the customer journey leading up to that to write a really compelling abandoned cart compare and contrast of everything that they were looking at recently or something with inspiring ideas of a great recipe or a great fitness plan or a great vacation that they might be able to go on depending on what category or vertical you're operating in, right?

And those types of more dynamic like content optimizing opportunities are now -- they're simple to build using an operator now. And so I think we're really excited as well that a lot of the advanced capabilities that, frankly, I think Braze has been on the leading edge of building advanced capabilities for our space for a long time now. And the adoption of those capabilities has kind of always lagged behind what I think the potential of them has been, and that's left a lot of performance on the floor that, frankly, people could have picked up. But for bandwidth and training, and there's all these things that kind of got in the way.

But now with operator, it collapses down all the steps to be able to move from us building more advanced capability that can drive uplift to getting built and implemented and tested and deployed.

And in that customer example where they saw this massive increase in click-through and conversion rates, like you also are benefiting from that, right, because they're using more credits and the AI capabilities.

Absolutely. Absolutely. Because, yes, the content optimizer that's running as well as the fact that -- and then, of course, when customers succeed and they engage with their customers more, then that's more monthly active users, their business is stronger, right? Like there's a -- you keep that customer engaged and so you continue to communicate with them more over the long term like the higher quality and the more effective messaging is, the better our customers grow their businesses, and that obviously results in increased growth for us.

Yes. Yes, absolutely. Maybe the last financial question, and you're doing a good job with the CFO hat on these. But the beat in the quarter on operating benefits was strong. I think some investors were a little underwhelmed by the raise for the full year. So can you just talk about how we're thinking about back half operating income and profitability?

Well, so first of all, we did raise the operating income margin percent from 8% to 8.3% on the guidance for the full year and though flowed through an increase in profitability for the year, both in absolute and in percentage terms. What we didn't do is we didn't flow through the entirety of the Q2 beat into the second half. The Q3 number and consensus, frankly, was a little out of position didn't take into account Forge, which has been there every year for the last several years. And so we'll share responsibility on that one. But yes, I mean we're excited about the investment for Forge this year Forge is just going to be bigger and better than ever.

We're in a new venue in Vegas at higher capacity -- Yes. Yes. This year, we're -- it's a little bit, I don't know, north or south, but we're not right in the heart of it. We're at Fontainebleau this year. And we're really excited to bring together that community. I think at this point, Forge is actually the largest focused gathering of marketers like for any event in the world. You've got events like Cannes Lions, the advertising festival, but those are -- it's kind of overrun by advertising and large tech companies or what have you. Forge really is -- it's a professional retreat for the most ambitious and creative marketers in the world, and we're really excited about what it means for the business because it's always a big pipeline accelerator for us.

But also it's time to build right now. And we've put a lot of really exciting tools into the hands of our community. And if you haven't been to Forge, the entire first day is dedicated to learning and workshops, and we anticipate doing like in excess of 1,000 certifications on the first day of Forge and running a number of hackathon workshops that are going to bring hundreds of people through and introduce them to our new AI products in person, in a lab building hackathon like setting.

And so yes, really excited about that investment. Yes. And then when you look at the full second half, we held back about $0.5 million of the Q2 beat in terms of the full year. And the primary use case for that is actually that we're starting or ramping of recruiting for new sellers into next year earlier than we normally do. So that's normally a Q4 kind of start that in Q4, so that they're here in time for kickoff in February. This year, we're just starting now for a few reasons. One is that we're -- we've been really happy with the consistency of performance around the world. As I mentioned, we've got -- within our verticalized teams as well as within all of our global regions, we've got strong leadership, strong programming, great momentum across the board, and so there's room to be adding capacity. Sales productivity also has been in a strong position.

And then the last reason is also that there's frankly a talent war going on out there, right, for people that are adept at selling AI software. There's a lot of competition for those people. And we think that there's a great opportunity for us to start next year with an enhanced sales capacity relative to the year in a meaningful way. But we got to get those bus and seats. We got to get them recruited and on ramp. And so we're spending to make sure that we're able to do that as we start next year.

But we did all that as well against the backdrop of increasing the full year operating income margin percent, as I mentioned, from 8% to 8.3%. And so I hope that people appreciate that, that not only fulfills our prior commitment of 400 basis points year-over-year, but we're actually now pacing ahead of that. And we're pacing ahead of that even while we're investing more in building up capacity for next year. And so from my perspective, like all pointed in the right direction.

Yes. You brought up a good point earlier where I think historically, Braze has built incredibly sophisticated products for marketers that may be out in some cases, out of their technical depth. But AI is making that easier to adopt, right? Because agents can call on this. Like what are the big bottlenecks and still constraints that you have in terms of customers being able to adopt your AI solutions. I know you talked about some constraints on your side in terms of forward deployed engineers. But just what is -- what are those big constraints that's limiting kind of a faster AI rollout.

Yes. I think it's not -- so it's not just use of AI, I think also when you look at what, for instance, cross-channel strategies are another big priority for us, having customers who are implementing their marketing to take advantage of all the logic that we have to be able to mix and match and fall back to and utilize different channels tend to not get used as much as they should. Also, like if you consider like a global business, any strategy that a global business is implementing using, say, SMS or WhatsApp should also be implementing it using LINE and Kakao and like all of the above, right? Like if you have an SMS strategy and you're a global or kind of a digital-first business, that strategy should also be being implemented using WhatsApp and LINE and Kakao so that you can implement effectively the same strategy in every country around the world.

That doesn't happen very frequently, though, because it requires building out 4x as much like content. A lot of it is shared, but they do have nuanced differences from channel to channel. You also have to have it all set up in advance, right, and people might not have activated all those channels so far, et cetera. And so I think that's a big goal because as operator makes it easier to just implement the right cross-channel strategies. We're going to want to make sure that all of those channels are activated and set up and available to customers so that they can expand the reach of the strategies that they're already running, that they already know we're running.

And then on the other side, data is the answer, right? Like these models are hungry for context and that's why we built the Braze data platform in the first place is to make sure that data can flow into Braze quickly, completely and cheaply, right? And that goal has not changed. And the consumers of it now are voracious. The models would love to have even more signals and even more data. One of the amazing things that we're seeing with Agent Console, in particular, is actually how good it is at getting signal from Sparse data points. We've actually had a number of use cases.

We had one that I was talking to a customer about just a few weeks ago where they had a like an onboarding journey that they had -- great. They'd optimize the performance of like over time through a lot of experimentation, but they had a cohort of users that they really struggle with performing on and the big reason was that they just didn't have a lot of data about them, like these were customers that didn't necessarily come in and like immediately navigated to their favorite product category or to their favorite sports teams or whatever, right, where you provide this really solid signal about like what you're interested in.

But what they experimented with was just taking the sparse data that they had and putting it into the Agent Console context window and asking it to try to like categorize those customers, and it worked super well. they actually got a really meaningful uplift out of it.

And so on the one hand, like a big part of the answer to that is like data, they're hungry for it. But on the flip side, actually, being able to find those like slivers of signal in a lot of noise is one of the things that these models are really, really good at, too. And so it's about getting the right data into the system. But what the right data is, is not necessarily like an overwhelming comprehensive amount of it. That making sure that the like signal providing context is there and is available in real time will continue to be a challenge. But it's -- that's like has been an important challenge forever.

And obviously, we invest heavily in making sure that customers can get that data into Braze quickly, completely.

With all the progress in AI, both across the industry and the features that you've been releasing at Braze, how has that impacted customer buying cycles at all? Like how would you sort of characterize the overall environment. It sounded like a pretty broad-based healthy performance across regions in the quarter. Do you think we're kind of coming out of this area of AI confusion that maybe we saw earlier this year, how would you sort of characterize the overall tone of conversation?

Yes. I mean I think overall, Braze is the AI transformation bet for a broad array of our customers. And the productivity gains available by people adopting like adopting operator and adopting our MCP server are astounding. And so I would say it's involved in and critical in every single deal cycle. Every deal cycle that we do we're demoing these marketer productivity and like workflow acceleration enhancements.

Similarly, differentiation for enhanced performance is becoming increasingly critical because -- and this just goes back to the point I made in the prepared remarks is that like in an environment this adversarial and this difficult, you better not have dumb pipes, right? Like you want pipes that are self-learning, self-optimizing, high performance. They've got great observability on them. And that allows you to then bring a creative vision to life and have it actually get seen by customers and have it actually drive performance that enhances your revenue growth as a business.

And so those remain the goals for marketers like higher engagement, higher cross-sell, higher LTV, higher subscription retention, et cetera. But they're now able to bring ideas to life substantially faster. One of the interesting things that we're seeing as well that you've seen in the software development world is that as coding sped up, the number of -- you see this in GitHub's downtime history over the last couple of months as well that it has like led to this explosion in the number of pull requests and therefore, also in the demands for doing code review. And we're seeing the same effect happening at Braze where as operator has sped up the ability for our customers to build new Canvases and campaigns, there -- the demand for the equivalent of code review, which is all the campaign QA has skyrocketed.

And that's why I mentioned on the call, the launch of Agentic Standards, which is us continuing to then also push forward on the whole workflow so that like we've sped up the creation side of it enormously. But we now have these systems that are both being built rapidly, which requires more automation for things like QA in the first place.

But the other thing is that these systems are increasingly dynamic as well. And so the problem of like the equivalent of QA is like not a static process anymore where you like check all the settings and you say like, yes, this is good. Because these systems learn and evolve over time and they interact with each other in various ways, right? Like you can have, for instance, maybe a program over here that's like in the early welcome series is then causing customers to like be in a different early journey and that early journey change might result in the cross-sell that you're trying to do when they've adopted their first product of yours, and you're trying to move them to the second product, the nature of optimizing that might change because the welcome journey was like more dynamic and adapted.

And similarly, you might see deliverability changes happen over time where maybe you make a mistake somewhere and you end up with more unsubscribes from e-mail like early on and then you need to go and like save that customer cohort later on through SMS as like a channel and get them to like reactivate, but that also has higher budget needs, right, because those costs more.

And so -- great example where like you might have approved both of those campaigns in isolation, but then the way they interact with each other over time is going to lead to performance changes and like budget changes, et cetera. And you need the ability to monitor and observe that, too. And so we're thinking a lot about -- not -- and by the way, the answer to that right now is actually utilizing our MCP servers to be able to pull in the results and be able to automatically analyze that. And you've got customers who are using things like Slack bot AI in their channels with their marketing teams or like Claude Tag living inside of your Slack channel where your team hangs out and being able to analyze results and pull in insights like that so that people can kind of pay clear attention to how the system is evolving and adapting over time.

And that's an exciting new world. We're looking at capability that is not just for the single player marketer trying to like help them write copy faster, but actually have an entire system be able to be built out and dynamically monitored. And QA being something that's not just a static concept but actually being more like the wardens that live within the system and like keep an eye on how they are dynamically evolving over time. And all of that is not to mention also like instances of fraud are going up out there too. And things like traffic pumping attacks and all sorts of other anomalous behavior that might show up as various groups or different AI systems now are like attacking your first-party infrastructure, your loyalty programs or like whatever it is.

And being able to have strong defenses and vigilance against activity like that is increasingly important, too. And so, those are also areas where our technical account managers are helping people with the secure design of a lot of their marketing infrastructure. And it's a difficult adversarial world out there right now, too. And so we're making sure that we're bringing AI innovation to all sides of the problem.

Yes. I'm sure it's topical with the Metas and some of these consumer-facing chatbots that have exploded in popularity over the few weeks.

Yes, for sure.

I guess just in closing, a lot of exciting things happening. It's kind of the accelerated go-to-market investments the AI product innovation, which we'll talk about at Forge. You're sitting here next year, where do you want this company to be? Where are you aspiring to take it if you had to break it down into 2 or 3 high-level goals?

Yes. I mean I think we are in a golden era product advancement at Braze right now. The foundations that we have built over the last 15 years with our vertical integration, a Braze data platform and the full stream processor and Canvas as a programming environment have come together in a way that we already had most of the pieces assembled for a full Agentic harness for marketing technology effectively. And we've only seen that accelerate with the innovation that we've been driving through operator and man watching operator interface with Canvas as a programming environment is like magic in action.

And we similarly have really exciting research going on across a number of different AI technologies to be able to drive these advanced models to be able to do automatic optimization of content and decision-making across a number of different price points and different levels of sophistication. So we're focused on building out an entire family of advanced AI, but I think that -- it is the -- you mentioned upfront. It's the first time in our history, I think, where we are simultaneously advancing the power and capability of Braze and making it easier to use and faster to use at the same time.

That advances have always, in the past, come with a higher education burden and more complexity and harder to build and everything else. And like, man, it's like it's only upside now. It's really great to see. And I think that how advanced Braze has in the past been kind of both a blessing and a curse. And nowadays only a blessing. It's just great to see.

Awesome. Great. Well, let's leave it there. I think we're out of time. Thank you, everyone, for joining. Bill, appreciate you joining us shortly after earnings and look forward to seeing you out in Vegas a couple of weeks.

Absolutely. Thanks for having me.

Thank you.

Welcome to the Braze Fiscal Second Quarter 2027 Earnings Conference Call. My name is Leila, 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 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. And now I'd 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.

And 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 U.K., 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 reached roughly 1/3 of our large customer cohort in Q2, up about 900 basis points from Q1. And 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'll see us build on all of this over the coming quarters with more to come at Forge. That partnership lives at the infrastructure layer. But 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 4 foundational strengths I've walked through on our last 2 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.

And 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. And when we talk about this in technical terms, for a marketer, the Harness has a much simpler purpose.

It's 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, our reverse ETL suite, which enables bidirectional data flow between Braze and the major cloud data warehouses, including AWS Redshift, Databricks, Google BigQuery and Snowflake. The context system has 3 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 and our new knowledge sources feature adds semantic search to Agent Console. As this engine runs, we're not just ingesting data, we're also producing tremendous amounts of it.

Currents keep 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 Currents streaming or Snowflake data sharing.

That depth flowing in both directions is what gives the context layer its power. Next is how the work gets done and how it gets better. We've said since 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. And Operator is now unleashing marketers to reach it, letting all of Braze shine through. And 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.

Because we vertically integrated Operator skills with the design and metadata of the dashboard itself, for Braze workloads, Operator's bespoke intelligence is racing ahead of the foundational models that it's built on, providing proprietary advantage for our customers to further enhance their productivity.

Operator now builds Canvases end-to-end, configuring the Agent Console and Content Optimizer steps inside them, and it can navigate the entire dashboard on its own. Describe your goal from any page and it goes where the work needs to happen. Virgin Media O2, one of the U.K.'s leading telecom providers, used Operator to cut their campaign quality assurance process from 6 hours down to mere seconds and their build iterations from 2 days to about 15 minutes.

And the learning half of this loop is compounding just as fast. Content Optimizer is replacing manual A/B testing with always-on optimization across hundreds of message combinations all at once. Motorway, a car selling platform in the U.K., recently used it to mix and match subject lines, body copy and call to action in a single campaign, driving 114% lift in clicks and driving 37% more car valuations by their consumers, their key conversion metric.

Meanwhile, Decisioning Studio is steadily taking responsibility for making compound decisions of what to send, when, on which channel and with which offer, all optimized against the precise business outcomes our customers choose. Then the part that decides whether any of this reaches production, trust. AI is compressing every step of the campaign launching path from brief to build to approval.

The brief is becoming a prompt. The build is becoming a conversation with Operator, but compression only helps if your standards survive it. Well, you can dump a 100-page brand book and every historical campaign result into a giant context window and hope for the best, it's slow, expensive and produces lower quality, higher volatility outcomes. The answer is to make the standards part of the machine.

That's Agentic Standards now in beta. Teams encode their brand guidelines, content standards, tracking mechanisms and compliance rules once. Every campaign then gets checked against them automatically with a pass or fail. Operator fixes the issues that it finds, and audit logs record every check and every response. The brand book becomes enforceable standards. The approval chain becomes an audit trail, automated nearly everywhere, but still with human sign-off wherever the customer wants it.

Last September at Forge, we asked a room of senior executives to raise their hand if they let an AI system send content to their customers without review. No one was ready yet, but we knew that wasn't a technology gap. It's a trust gap and closing it is a product problem that we are solving. And as AI advances in cybersecurity capability, the challenge of trust is extending beyond the dashboard. In the post-Mythos communication environment, agentic traffic is rising fast.

There's more noise for brands to cut through and more sophisticated threats probing their defenses. In an environment this adversarial, your pipes better not be dumb. They need to be secure, high performance and automatically optimizing. The major inbox providers are deploying increasingly stringent AI-driven filtering that rejects generic content. The answer is personalization built on context.

Protecting deliverability is no longer a niche issue for the marketing team. It has become a whole company revenue protection challenge. The same is true for anti-fraud protections, where tighter sending controls and AI-enhanced countermeasures against traffic pumping have made us better watch guards for our customers.

And our technical account managers are increasingly the guides for this new terrain, helping ensure our customers' data flows, product integrations and messaging architectures are designed securely, navigating them through the many governance and security gates required to ramp up their agentic workloads safely. That backdrop also explains the evolution of our services revenue, where 2 distinct trends are playing out.

The first is mechanical. Starting with last year's pricing and packaging changes, we began breaking out services more explicitly in new business order forms and at renewal. Under our prior structure, customer success entitlements were primarily bundled into platform fees. As customers move to the new structure, some revenue that was previously bundled as subscription is now packaged as professional services and year-over-year comparisons of the 2 lines reflect this reclassification as cohorts migrate.

As we stated on our last earnings call, approximately 90% of our professional services revenue is recurring, recognized ratably over the same term as subscription revenue. The remaining 10% of our services revenue comes from the minority of customers who opt for lightweight onboarding directly from Braze, although more than 80% of new Braze customers now leverage our growing ecosystem of Braze-certified agency partners as they kick off long-term services engagements that will maximize their ROI from Braze over the long term.

The second driver of these trends is simply demand growth, and you just heard the reasons for it. As AI scales volume and risk together, customers are investing in the expertise that protects the ROI of their primary revenue channels. And where does the Harness go from here? We are excited to see AI acceleration of marketer productivity building along 3 dimensions as we invest further in Operator specifically and BrazeAI more generally. First, seeing Operator take on larger and more complex projects.

The multistep work that used to require a specialist blocking off their week and extended collaboration with engineering is now built automatically. Second, moving from executing tasks to keeping watch. Think of Operator as a supervisor that never goes off shift, monitoring the AI systems, making optimization and decisioning choices, watching channel volumes, broad signals and deliverability trends and flagging anything that drifts off course. And third, AI that works with whole teams instead of individuals.

Most AI productivity gains so far have gone to individual users, but customer engagement is a team sport that crosses marketing, data and engineering and supporting how those teams work together is where we see the next wave of value. This is composable intelligence, agents that do the work inside Braze while also working directly with the people and systems at the brands we serve.

And customers are adopting these features with enthusiasm. In the last 90 days, almost 80% of Braze accounts engaged with Operator more than 10x and over half of those turned it into a habit, chatting with Operator more than 100 times in that same time period.

Operator has also rapidly driven record declines in customer support tickets, letting our premium support stay focused on high complexity, high-value challenges, delivering stronger customer outcomes and higher post-sales efficiency at the same time. But this is not just a reflection of cases. Operator is helping our customers build, and it's already a sophisticated builder in its own right.

At a hackathon that we hosted alongside City x City Sydney, a team from an Australian food and beverage brand put Operator through its paces. They were already using Braze Surveys to follow up with customers after their coffee purchases, and they wanted to upgrade those follow-ups with stronger personalization based on the feedback itself while introducing new channels to their most engaged customers.

Operator took them through the whole setup. It found the right survey data, took them into Agent Console to build a sentiment agent and configured and tested the outputs. Then it drafted a new Canvas, added the agent step and templated the results into a follow-up text message. Customers who expressed negative sentiment were routed accordingly, and the agent summarized each customer's specific feedback, so the follow-up spoke to the exact concern they raised.

If the coffee was cold, the message said so. By leveraging Operator for this multistep build, idea to implementation took only about 10 minutes. Marketing technology has always forced a trade-off. Every gain in power came with added complexity and every ambitious idea took specialists, time and patience. We believe that we are now breaking that trade-off. Braze is getting both more powerful and easier to use at the same time.

When a marketer watches an idea, go from creative spark to working prototype in just minutes, they remember why they fell in love with this work. And that's the flywheel that we're building. The product itself inspires the builder spirit. Our hackathons, events and community feed it, and ambitious creative marketers bring their ideas to life faster, amplify their performance with leading-edge AI and carry their whole teams farther.

Braze was born out of a hackathon. True to our roots, we've been hosting them all over the world, and they're driving great early adoption for Agent Console. Over 650 customers have now made their first agents with more being added every day. The hardest part of this industry has never been the idea. It was the distance between having one and being able to ship it.

That distance is what this Harness collapses because a Harness after all, is not what keeps you on the ground, it's what lets you fly safely. Our technology is made for this moment, and so are the marketers using it. Our job is to teach them to fly again. They take it from there.

We have a lot more to share about Operator, Content Optimizer, Agent Console and Decisioning Studio at Forge in just a few weeks, and we hope to see you there, either in person or on the live stream. While we won't be hosting a full Investor Day this fall, we will be welcoming investors for a reception on the evening of Tuesday, September 29. Contact Investor Relations for more details. Thank you for your interest and support in Braze. With that, I'll turn the call over to Pankaj.

As Bill stated, we reported a strong second quarter with revenue increasing 26% year-over-year to $227 million, driven by a combination of existing customer contract expansions, renewals and new business. BrazeAI Decisioning Studio contributed $6.6 million of revenue in the quarter, implying an organic year-over-year revenue growth rate of 24%.

Subscription revenue remains the primary component of our total top line, contributing 91% of our second quarter revenue, while the remaining 9% represents a combination of recurring professional services and one-time configuration and onboarding fees. Approximately 90% of our professional services revenue is recurring with revenue recognized ratably over the life of the contract.

As Bill noted, demand for these services is growing as AI adoption scales. Total customer count increased 15% year-over-year to 2,789 customers as of July 31, 2026, up 367 from the same period last year and up 76 from the prior quarter. Our total number of large customers, which we define as those spending at least $500,000 annually, grew 28% year-over-year to 361.

And as of July 31, 2026, these customers contributed 65% to our total ARR compared to a 62% contribution as of the same quarter last year. Measured across all customers, trailing 12-month dollar-based net retention was 110%, while trailing 12-month dollar-based net retention for our large customers was 112%, up from 111% in the prior quarter.

Expansion was again broadly distributed across industries and geographic regions. In the second quarter, our total remaining performance obligations was $1.1 billion, up 27% year-over-year. Current RPO was $691 million, up 24% year-over-year. The year-over-year increases were driven by contract renewals and upsells and the signing of new customer contracts. Non-GAAP gross profit in the quarter was $156 million, representing a non-GAAP gross margin of 68.6%.

This compares to a non-GAAP gross profit of $125 million and non-GAAP gross margin of 69.3% in the second quarter of last year. The decrease in year-over-year margin was driven primarily by high premium messaging volumes and the addition of Decisioning Studio headcount attributable to cost of revenue. Total non-GAAP operating expenses were $134 million, 58.9% of revenue compared to $119 million or 66% of revenue in the prior year quarter.

The improved efficiency reflects our disciplined approach as we effectively balance investing in our growth priorities while working towards achieving our long-term profitability targets. Non-GAAP operating income was $22 million or 9.7% of revenue compared to non-GAAP operating income of $6 million or 3.4% of revenue in the prior year quarter.

Non-GAAP net income attributable to Braze shareholders in the quarter was $21 million or $0.19 per share compared to $17 million or $0.15 per share in the prior year quarter. Now turning to the balance sheet and cash flow statement. We ended the quarter with approximately $414 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 $7 million in the prior year quarter.

Including the cash impact of capitalized costs, we achieved record second quarter free cash flow of $22 million compared to $4 million in the prior year quarter. We expect our free cash flow will continue to fluctuate from quarter-to-quarter given the timing of customer and vendor payments. Finally, we are pleased to report that we completed our $50 million accelerated share repurchase program in August, buying back approximately 2.1 million shares.

Approximately $50 million remains on the Board's authorization. We regularly review our capital allocation priorities and will look to return capital to shareholders when appropriate. Now turning to guidance. For the third quarter of fiscal 2027, we expect revenue to be in the range of $229 million to $230 million, which represents a year-over-year growth rate of approximately 20% at the midpoint.

In line with normal seasonality patterns for our business, third-quarter operating income will be affected by the cost of Forge, our annual customer conference, as well as several global customer events scheduled during the quarter. Third quarter non-GAAP operating income is expected to be in the range of $16 million to $17 million at the midpoint.

This implies a non-GAAP operating margin of approximately 7%. Third quarter non-GAAP net income is expected to be $15 million to $16 million and third quarter non-GAAP net income per share in the range of $0.13 to $0.14 per share based on approximately 114.5 million weighted average diluted shares outstanding during the period. For the full fiscal year 2027, we expect total revenue to be in the range of $910 million to $913 million, which represents a year-over-year growth rate of approximately 23% at the midpoint.

Fiscal year 2027 non-GAAP operating income is expected to be in the range of $75.5 million to $76.5 million. At the midpoint, this implies a non-GAAP operating margin of 8%. Non-GAAP net income for the full fiscal year is expected to be in the range of $72.5 million to $73.5 million, and net income per share is expected to be $0.64 to $0.65 per share based on a full year weighted average diluted share count of approximately 114 million shares.

By embedding AI-driven intelligence into the core of our platform, we continue to elevate what's possible in customer engagement. Looking ahead, Braze remains fully committed to an ambitious innovation road map while staying disciplined and firmly on track to meet our long-term financial targets. 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 Ryan MacWilliams with Wells Fargo.

It seems like the big shift this year in AI has been long-running agents, and it's great to see you guys take advantage as it's now generally available that Braze Operator can chain together a multistep work from a single prompt. But how do you think these more powerful models and agents can help unlock new use cases for Braze from here with customers?

Yes. Thanks. And we're super excited about this. I mentioned in the prepared remarks that I think it's the first time in our history that we're combining together both enhanced capability with enhanced ease of use and higher productivity, higher ability to build, et cetera. A lot of the structure and the capabilities that we put around the Canvas environment are being highly effectively utilized by Operator.

And it has been fantastic to see as well that Operator is providing differentiated capability on top of the foundational models, abilities to use Braze in a more generic fashion. The way that, that is being driven is because of the vertical integration of the development environment into Operator skills and intelligence. So when Operator runs, it has a deep understanding of all the features available to it in its development environment, similar to how Cursor would integrate with an entire IDE.

And it has full access to all of the metadata around how the -- our customers' integrations of Braze are set up in the first place. And so it can see all the different attributes and events and the full data schemas, and it understands what the goals of the campaigns are. And through Agentic Standards, it has increasing levels of understanding of compliance measures, brand voice, style, et cetera.

When you pull all of that together in a vertically integrated environment like Braze, you just get this incredible building capability. And so on the one hand, we're really excited and seeing customers able to really unleash their builder spirit, bring their creative ideas to life more quickly.

We also are really excited about what this means from a product-led growth standpoint. when you look at our pricing and packaging evolution over the last few years, a big part of what we've been trying to accomplish with the shift toward action credits and being able to use these more fungible credits more flexibly for customers is that it also allows for us to use Operator to point their adoption toward more of these more advanced features that are also monetized by Braze.

And so whereas in the past, we would release a new feature or we would enhance a new channel, and we had to wait for the very kind of human manual process of being able to enable a broad field around that, enable the customer community around it, have them then build up the -- get over the activation energy of trying it out for the first time, potentially needing to build additional resources, et cetera.

Instead, all of that happens instantaneously and automatically. When we build out new capabilities, when we do something like roll out Content Optimizer into beta, we're doing the same thing with Decisioning Studio Go right now, we're going to have a lot more to talk about at Forge. The ability for adoption to happen instantaneously upon those becoming available is unlike it has ever been before.

And so we're really excited about Operator coming in, driving enhanced productivity, getting our customers all the way to our capability ceiling and really breaking through it with their creativity right out of the gate. And then that also being able to drive really strong monetization and adoption outcomes for us because it's effectively like product-led growth on steroids where Operator itself just drives the adoption agenda.

I appreciate that. That reflective cycle could be pretty powerful. And then I know you mentioned it's early for AI monetization. And look, you got really sophisticated customers that want a high degree of certainty before they put AI into production.

But in terms of AI translating into like near-term revenue for Braze, are there certain types of customers you're looking at who are now more forward in deploying AI use cases? Or is it products like Operator that might get more adoption? Like how do you think we start to see more tangible results of AI increasing Braze consumption?

Well, Operator, we've been seeing week-over-week increases in penetration across the customer base and its stickiness is incredible. I mentioned the acceleration of a customer that tries it out 10x, more than half, and that's a number that's been increasing every week as well, accelerate to using it more than 100x. And we've got people that are doing all of their work in Operator now.

And we're just seeing that as soon as people get a taste of it that it really drives immediate adoption and habit forming around that. And what that means is that we've also been able to start to build out Operator defaults that are driving additional adoption of these more advanced AI capabilities. That's something that we actually only started within the last few weeks. But I mentioned the build example during the prepared remarks from our City x City Sydney hackathon that we did back in August.

And that -- in that example is the automatic creation of Agent Console. But we've also said for a long time that there's capabilities we have like Personalized Paths in the past and now Content Optimizer and Decisioning Studio Go, where it's just simply the case that basically every campaign that gets created should be using these AI optimization capabilities.

But the reality is that in the past, due to bandwidth concerns or creative production requirements or just a lack of knowledge or confidence in utilizing these new features that adoption often lag the availability, but we're seeing that collapse down now as well.

And so our ability to, for instance, roll out Content Optimizer and just turn that into the default way that a push notification campaign or an e-mail campaign gets built in the first place is -- that provides a new capability that we're just really excited is going to continue to accelerate adoption.

And so I think not only do you get the full capabilities of Braze being on display for a higher percentage of our customer base more quickly, which helps with our differentiation and helps with customer ROI, but it just helps us drive the monetized adoption of these new capabilities as soon as we build them.

Your next question will come from DJ Hynes with Canaccord.

Bill, I want to ask about cRPO growth. I mean, obviously, it moderated a little bit this quarter, but dollar-based net retention remained quite healthy. Can you just help me unpack kind of the bookings mix this quarter? And how much of that cRPO deceleration reflects maybe a smaller renewal cohort versus any changes in new business or expansion activity?

Yes. Well, there is seasonality in cRPO. Q4 and Q1 are always our largest renewal quarters. Similarly, we lapped the OfferFit acquisition within the quarter. And so you're seeing that effect in cRPO as well. But overall, very happy with the quarter. I mentioned in the prepared remarks, it being a strong bookings quarter from a competitive win rate standpoint. We continue to see strong durability in the sales force's productivity.

We're also seeing great diversity across the upsell motion with customers adopting new use cases and channels, expanding their action credits, allocations and continuing to drive new adoption of Decisioning Studio use cases. And we're seeing the full display of all the different dimensions of how Braze drives upsell across the customer base. And so when we look at the overall strength in the business, we were excited to be able to flow through the full beat and be able to raise both Q3 and raise the full year.

And so excited to see the strength continue into the back half. We are really excited for the setup for the back half of the year as well, strong pipeline and just a lot of opportunity out there, and Forge is still to come. So we historically always see Forge as a strong accelerator of pipeline, and we're feeling good about what we're sitting on going into it. And so we're excited about the back half setup.

Yes. Good. And look forward to seeing you in Vegas. Maybe a follow-up just on the AWS agreement. Obviously, you talked about a dedicated co-sell motion and incentives for their sellers. How meaningful can these partnerships become as a source of pipeline and distribution? And how long does it take for that to ramp?

Yes. So we've been continuing to prioritize building out stronger alignment amongst, in particular, our very large technology partnerships. And you heard me mention all of the different Braze data platform partners across the major data warehouses and hyperscalers. With AWS, the growth in the AWS Marketplace purchasing across our customer base has been astounding over the course of the last couple of years.

And so I think that what we see with the SCA is that we've got -- over the last couple of years, we've gotten a lot of the foundations built out, and now this provides the formalization that will help us further accelerate that. And it ties into good timing with the rest of our go-to-market verticalization efforts where we have driven a lot more organized vertical alignment within the Braze selling organization over the course of the last roughly 4 to 6 quarters.

And that is creating better opportunities for us to align with the likes of AWS, Databricks, Snowflake, et cetera, who themselves are also vertically organized. And so I think that was something that created more of a partnership alignment challenge in the past, but it's one that we've gotten over.

One other great thing about this quarter's results is that it was one of the most consistent regional performance sales results that we've seen in the last couple of years, we saw strong contributions from all of our major regions around the world. And one of the great things about strategic alignment partnership with organizations operating at the scale of AWS is that we're able to leverage the benefits of those globally.

And you've seen us add new data centers over the course of the last couple of years as well in places like Korea, Indonesia, Australia, Japan. And those have all been done in partnership with AWS as well. And so bringing all of that together, we're excited about being able to accelerate on top of a strong foundation.

Next, we'll go to Raimo Lenschow with Barclays.

Bill, the -- on that cRPO and the bookings number, that's where I get most of the question. And we're living in this new AI world, like what are you seeing in terms of like pipeline, there's this argument of crowding out spending, et cetera. Listening to you, it doesn't sound like it, but could you just kind of double-click on that one more time, please?

Yes. I mean I think the biggest thing about our pipeline is that there's still a huge amount of addressable market that is living on legacy technology and Braze is their AI bet. And so we are -- we certainly see customers being cost conscious. As people are adopting Agent Console, they are certainly doing the calculations to figure out what it's going to cost them in advance.

There's not just kind of a reckless running into the adoption of these technologies. But we built out capabilities like Agent Console being cognizant of the -- of customers' needs to budget and control these costs as well. We actually think that it's a critical component of the Harness.

And I walked through all the different capabilities within Braze that make up the Agentic Harness for marketers and billing and cost controls and having the right observability and understanding to that is certainly an important input into adoption and scaling of new use cases. And so we are seeing that.

But I think that the biggest underlying trend that we're seeing is that organizations are seeing that they need to have the combination of being able to have the full first-party context that is actionable with advanced AI within a platform that provides them the right guarantees and scalability and security and performance to be able to bring to life these more advanced AI capabilities and drive new strategies within their organizations.

And that's exactly what Braze has to offer them. And so we're continuing to orient our go-to-market priorities around being able to drive that legacy replacement cycle. And we are excited to see more and more customers adopting Braze as exactly where they're making their AI investments.

The pace at which customers are eagerly adopting and just the feedback that we get from customers around them being able to bring to life visions that they've had about how they would be able to run their customer engagement programs and what's now possible for them within Agent Console and how quickly they're able to build that utilizing Operator. We feel it compounding together, and we're excited about what that means.

Okay. Perfect. Yes, makes sense. That's really helpful, Bill. And then one quick number question. You were really much better this quarter on operating profitability. If I look at guidance, though, it looks like it's slightly below consensus. Some of that is timing. There's Forge as well in Q3. Is there any other factors that kind of drove the better this quarter and slightly below next quarter?

The only thing is, yes, I mean, the timing around Forge in Q3, we also are -- we're excited to be able to be investing with new sales capacity heading into next year as well. And so we're starting the hiring push to be able to have the right seller capacity as we start next year now, and we're investing in that.

And so we didn't -- we were excited with the Q2 beat. We continue to see strong operating income results. We raised the full year operating income margin percentage for -- as a result of that Q2 beat. And we're going to continue to balance investment into the back half of the year with this continued strong performance and year-over-year improvements.

Our next question will come from Scott Berg with Needham.

Bill, you seem pretty pleased with the initial adoption of a variety of your AI modules here. You talked about some accelerating traction there. But as you've seen those customers adopt those modules, is it also driving expanded use of the core Braze platform?

I mean when I look at things, whether it's Decisioning Studio, et cetera, I can see a real scenario where someone is using, it could be more profiles, more channels, more flex credits as they're able to create some of these campaigns more quickly. Just didn't know if you're seeing any of that tangential impact yet.

Yes, we definitely are. And one of the things that we're seeing in the hackathons as well is people adopting things like multichannel strategies as well as multi-variant experimentation strategies with more eagerness. Those are the types of strategies that I think historically have always been a good idea for people to adopt. But because they required more work or more creative production, et cetera, they just didn't see the adoption that their performance potential deserved.

And so the most exciting thing, I think, that we're seeing from the Operator build-outs is just that there's been a lot that we've built in the last 5 to 8 years, in particular, that hasn't seen the level of adoption that it probably deserved to given what it had to offer to customers. And we're now seeing that gap get closed. And so that is resulting in customers utilizing more advanced features, expanding to more new channels more quickly and driving our automated experimentation capabilities.

And as I mentioned before, we're in the early innings of starting to have those more advanced ways of building Canvases and of driving cross-channel strategies and then driving experiment automation as well as decisioning, just by default and making that be the way that new campaigns and new Canvases get built in the first place.

And we're excited about what that means from a long-term retention as well as customer expansion standpoint because we already know that customers that adopt Braze with 3, 4, 5 channels as well as using our more advanced features that they have higher DBNR than other customer cohorts do, et cetera. And what Operator has the potential to, therefore, do is to make nearly every customer look like those that we already know have higher levels of retention and customer growth potential.

Very helpful. And then from a follow-up perspective, if I go back to my notes when you acquired the OfferFit a year ago, I think you all talked about an ASP uplift from that product being, I believe, it was $300,000 or $400,000 kind of an average level deal. Is that what you're still seeing today? Or is the uplift maybe something different than your initial expectations?

Yes. So the use case price range that we talked about around the acquisition is around $250,000 to $300,000, I believe. And we've seen the pricing power around that maintain itself. We are also building out Decisioning Studio Go, and we're going to have more to share about that at Forge. And that is, of course, that is a self-serve offering that will be able to be deployed more quickly and be able to be priced and paid for with action credits.

And so that allows for a customer to adopt it without the larger upfront costs around it. Now of course, that is a more constrained deployment of the model. It doesn't have as much flexibility or as much power as Decisioning Studio Pro, but it still represents incredible capability to drive uplift for customers, especially if they're not using experiment optimization in various ways already today.

And so our vision for the future of decisioning is one where we have multiple price points as well as different pairings of expert services on top of that in order to drive varying levels of performance optimization by taking advantage of other complexities that exist in the more advanced forms of the underlying reinforcement learning model.

And a big part of the development road map for Decisioning Studio since the acquisition, of course, in addition to integrating it into the Braze data platform and into the Braze dashboard has been the build-out of Decisioning Studio Go, which is a deployment at a completely new price point with higher levels of accessibility around the customer base. And so we're excited to be able to have both ends of that spectrum available to customers relatively soon.

You're going to hear more about that at Forge, as I mentioned. And that's going to allow for the opportunity for those high use case uplifts that we mentioned in the part of the customer base for whom that is the right performance ROI optimization for them and then to be able to introduce decisioning as a concept to the entire customer base very quickly through Decisioning Studio Go.

Next, we'll hear from Brian Peterson with Raymond James.

So Bill, I wanted to understand maybe more qualitatively on the uptick in AI adoption. Is there anything that you can share in terms of what types of customers, what industry, larger, smaller that are leaning into some of this AI adoption and what may still be on the come?

Yes. So we're seeing -- I think, in general, larger teams are adopting Operator in more cases at higher rates because of the fact that their build processes are already quite complex. However, what we're seeing in the trend line on that is that Operator is trending toward universal adoption. We certainly have run into a number of organizations either in different geographies that are a little bit more reticent to adopt AI quickly or large enterprises that might have AI adoption consoles or other sorts of heavier weight processes.

But once people start to get a taste for it, they're really running at it. And so I think that we're -- within the next quarter or 2, we're just going to be talking about Operator, something that everyone is using and everyone is using at high rates. Within Agent Console, those are places where we're doing the work of getting customers into hackathons, building community around that, getting them to bring ideas to life, doing the education. And we're starting to see those efforts compound.

Definitely, the kind of blockers that are in front of people to be able to get new use cases scaled and into production, they vary a lot from company to company. Some of them, it's cost concerns. Other places, it's access to data. In other places, it might be brand and kind of brand controls and things like that, really handing over that autonomy to be able to produce new content. But as we are rapidly iterating with customers that are building and they're doing it with us, we're getting that customer feedback back.

The road map is moving really fast. We are able to build simultaneously with capabilities like Agent Console and Content Optimizer and Decisioning Studio Go with Operator involved as well. So as we get new feedback in and as we build new features, Operator becomes aware of those features immediately and is able to help customers adopt them more quickly. And so we're seeing a great feedback loop around that. It is still -- there are -- these are new concepts for a lot of people.

And so it is still taking time. And in some cases, we're going customer by customer to train them on these capabilities. But man, when you see people's eyes light up as they get to bring an idea that they've had for 2 years, we just had a customer last week sent us an effusive note because they've had an idea sitting on the shelf for literally a decade, and they were able to build it in Agent Console and do it in just a few days, and it's driving a completely new campaign strategy for them.

And so being able to see example after example like that has been really rewarding, I think, for the whole Braze team and has been an important catalyst around the Braze community, and we're really excited to see what Forge brings to continue to provide another boost to that adoption.

Great. Yes, that will be great to hear about that out in Vegas, Bill. But maybe just a follow-up. I know you've had a transition from some of the customer success revenue from subscription to professional services. Can you remind us how big was that impact? And any help on trying to kind of frame the growth rates over the next few quarters for ProServ?

Thanks for your question. Yes, I'd expect that the professional services contribution is going to range between 9% to 10% moving forward. We continue to see the migration of our customers. We still have them legging out of the legacy pricing and packaging into our new packages. We're about 50% through our customer base in the migration.

I'd expect about 80% of the remaining to migrate into the new packages over the next 6 quarters. But also, as Bill indicated, some of the demand that you're seeing for pro services is a result of the AI adoption as customers start to hit more premium inboxes. There is the AI deliverability and cyber risks. And so there is a continued demand for AI services.

Our next question will come from Parker Lane with Stifel.

Bill, you talked about having really great diversity in the upsell motions of the business and higher DB&E characteristics or DBNR characteristics in the customers leaning into AI. Looking at total DBNR of 110%, I think that was consistent sequentially. How is that informing what you think that figure can look like going forward? Do you expect some of these new capabilities to help you remain at that level? Is there an opportunity to expand the corporate rate even higher than that?

Yes. We definitely think that customer growth has room to grow over time. We are seeing customers adopting a broader spectrum of channels and the opportunity for us to monetize a higher percentage of the sends that customers have by invoking more advanced AI in the messaging send flow is an exciting one. And it's how you see our road map oriented. We're closely tracking the percentage of sends across different channels that are invoking AI before those message sends happen.

That's a number that is growing rapidly, and it's something that we're going to continue to keep as a North Star for the coming years. And we did a lot of work to be able to get ourselves into this action credit universe over the course of the last few years, and that really set the stage for us to be able to build and take advantage of this more quickly from here.

Got it. And I remember last quarter, you were talking about compressing the time lines for Decisioning Studio and AI launches through FB&E investments. You also mentioned greater demand for ProServ now. How do you feel from a capacity standpoint on where you're at today? And how does that flow through to your expectations for gross margins, in particular for the rest of the year?

Yes. So we're feeling good about the ability to deliver with Decisioning Studio. I also mentioned the Decisioning Studio Go has a lot lower requirement for services. It's nearly self-serve. Customers obviously need to be set up with Braze already in the first place to be able to utilize it. But after that, their ability to self-serve both the setup and be able to access the reporting and all that over time is something that doesn't require the forward deployed services to anywhere near the same level.

And similarly, we've done a lot over the course of the last -- or like throughout this year in order to make sure that our recruiting pipeline, our training pipeline and being able to bring those field deployed data scientists up to speed quickly is all there. And those services are -- and the delivery personnel are also benefiting from productivity enhancements of their own through the capabilities that Operator is bringing them.

And so you're seeing the -- as well as the integration of Decisioning Studio into the Braze data platform that I mentioned earlier. And so just a whole bunch of different dimensions that are helping us continue to improve the overall picture there. And across the BrazeAI product family, there is an accretive benefit to gross margin. You saw a strong gross margin percent result in the quarter.

You should still expect to see the same seasonality that we have on an annual basis where the holiday quarter will certainly have a lower gross margin percent due to enhanced messaging volumes. And it is also the case that the headwinds from the growth in premium messaging is certainly there and mixes into the overall gross margin percent story. But there's a lot of work that we're doing to the positive as well.

All the new product families that we've been working on across BrazeAI and over the last couple of years with new channel expansion as well as some of the BYO options in terms of how customers pay for certain channels as well as Agent Console, all of those provide gross margin accretive benefits.

We've also done a lot of work with our finance team and our engineering teams to be able to do vendor optimization as well as performance optimization. I like to say that fast is my favorite feature because it provides strong -- it provides better outcomes for customers and better scalability, but it also, of course, saves us money on the gross margin side, and that has been a focus area for our R&D team throughout the year.

And so you're seeing the puts and takes across all those different efforts as well as the continued underlying growth around the premium messaging channels. And so we're going to continue to work and focus on the gross margin percent. As I said, you should still expect the normal seasonality in Q4 that you've seen over the last several years, but it's going to continue to remain a focus area, and there's a lot of great work going on there.

[Operator Instructions] And our next question will come from Derrick Wood with TD Cowen.

Bill, the number of net new customers has bounced around the last several quarters. Could you update us on kind of how you're looking to balance targeting enterprise versus mid-market opportunities? And then just specifically around 7-figure deal activity. I mean, Q4 was very strong. I think Q1 was seasonally softer. How is Q2? And how are you feeling about large deal pipeline activity as you look into second half?

Yes. So generally, and you would have noticed this in the prepared remarks, that we've been really excited about the continued growth potential and acceleration in the $500,000-plus customer cohort. We continue to see Braze's differentiation really building huge amounts of value for these more complex and larger scale organizations. And I think that's something that you'll continue to see be part of our strategy.

It's also well aligned with the opportunities that we have around the broader legacy replacement cycle. Seasonality is always going to trend Q4 to be a strong $1 million-plus quarter just due to enterprise budget cycles. We also, as a January 31 fiscal, we capture both the end of the calendar year and the beginning of the next calendar year's budget cycles in our Q4.

And so you see the -- and that has a strong effect on that enterprise and large deal seasonality. And so I would expect to see the same thing as you -- as we get into the back half of this year. And like I said, really strong pipeline, and we're excited to see Forge be it -- provide its normal pipeline acceleration as we get into the back half of the year.

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

Bill, it sounded like competitive dynamics are looking quite favorable. I think you called out good win rates and vendor consolidation. I'm curious how much you're hearing sort of your AI capabilities or AI in general come up in new customer RFPs. Is that sort of the primary driver that customers are looking at? And how often do you even hear customers think about DIY from an AI perspective as one of the alternatives they're considering?

Yes. I mean, first of all, it's -- it is in every single RFP, and it is a focus area in every single deal cycle. It is also an area where we are able to really shine because of our ability to deliver across all the different dimensions of marketer productivity and marketer experience as well as decisioning and all the great capability in Agent Console and Canvas.

And now with launches like Agentic Standards as well, that's helping on the QA side of the house to allow for customers to be able to build more quickly and build with higher levels of confidence. And so all of that, I think, is coming together in strong ways to deliver on what the market is demanding.

We also -- we've been doing a lot of work on our MCP server as well and some of the other agentic workflow capabilities that allow for customers who are doing more DIY to be able to utilize Braze as the infrastructure upon which they do that. We have a lot more to share about that at Forge coming up, which we're excited about.

But I mentioned earlier that when you look at this problem space, I think there's a lot of conversation, which involves something like vibe coding on top of a set of dumb pipes, if you will. And I think that the reality in our environment, and this is becoming increasingly clear to more customers is that the idea of building on top of dumb pipes is just not one that's going to drive any amount of revenue for you because the space is not about sending messages.

It's about customers actually seeing messages and then responding to those and that resulting in the business goals that you have. And that requires full end-to-end capability. It requires strong deliverability. It requires strong optimization. We had a customer actually in the quarter who had been moving ahead with a kind of vibe coded content delivery, et cetera.

They quickly got themselves into full deliverability trouble, and we had to pair our deliverability services with them to ensure that they were actually -- that they were able to get their reputation back into a good place. And I think it's a great example where kind of driving into this more naively or with a more limited capability set is going to allow you to trigger messages or to get them sent.

But for you to really accomplish your customer engagement goals is a more advanced set of requirements. And I think that we're obviously seeing more and more customers that are demanding that in the right ways. And there's always going to be a build versus buy conversation in marketing tech. There always has been, there always will be.

But I think we feel really good about the offering that we're providing, the flexibility with which it can be implemented and wielded by organizations regardless of kind of where they are on that spectrum of how much they want to build versus how much they want to build on top of smart infrastructure. And Braze will provide -- we provide services across that spectrum. We always have.

And I think that the conversation that we're seeing around build versus buy right now is it's a little bit elevated from the past, but not by much. And for every one example that I have where people are chasing their vibe coding dreams, we've got 10 more for whom Braze is their AI bet. And we're excited to see that opportunity, and that's where we're orienting our go-to-market.

There are no more questions at this time. I'd now like to turn the call over to Bill for closing remarks.

We're really excited to see you all in a few weeks at Forge. We've got a lot more to share with our customer community. And I thank you for joining us for today's earnings call, and we'll see you all later.

Welcome to the Braze Fiscal First Quarter 2027 Earnings Conference Call. My name is Ryan, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, we will conduct a question-and-answer session.

I'll now turn the call over to Christopher Ferris, Vice President of Braze's Investor Relations.

Thank you, operator. Good afternoon, and thank you for joining us today to review Braze'z results for the fiscal first quarter 2027. 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 a press release issued after the market closed today. Please refer to the Investor Relations section of our website, investors.brave.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 and the fiscal year ended January 31, 2027, the anticipated benefits from and product advancements due to the combination of Braze and ongoing developments in Braze AI 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 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 first 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.

And now I'd like to turn the call over to Bill.

Thank you, Chris, and good afternoon, everyone. We're off to a great start in fiscal 2027, reporting a quarter that demonstrates our market leadership and go-to-market momentum. We delivered our fourth straight quarter of organic and total revenue growth acceleration, generating $211 million of revenue, which is up 30% year-over-year and 3% from the prior quarter. We also continue to realize operating efficiencies and improving non-GAAP operating margin by over 300 basis points year-over-year, and we generated both strong operating cash flow and a record free cash flow amount of $27 million in the quarter.

Trailing 12-month dollar-based net retention also continued to improve, rising another 100 basis points to 110%, while inflecting positively with our large customer cohort as well, rising 100 basis points to 11%. We are pleased to raise our revenue guidance for the second quarter, for the full year and to reiterate that we are on track to achieve the 400 basis points operating margin expansion promised for the fiscal year. The strong market momentum and buyer trends that we experienced at the end of fiscal year 2026 carried into the first quarter of fiscal 2027. Braze are moving quickly to transform their businesses with AI and to further leverage their investments in first-party data and direct-to-consumer relationships. Q1 bookings were robust, driven by competitive takeaways, particularly in the enterprise.

Net customer additions increased by 104 sequentially, up 16% year-over-year, and customers spending $500,000 or more annually increased by 16 sequentially, up 33% year-over-year. And our $1 million-plus customer count rose by 27% year-over-year, while we achieved $6 million plus deals and expanded our 8-figure customer count to 5. Notable new business wins and existing customer expansions include Bandora Group, ClassPass, Denny's, Deuna, Kueski,

NRMA, Regal Cinemas, Salomon, and Subway

In addition, we achieved a milestone new business win with a prominent AI lab, further expanding our presence across high-scale data-intensive workloads. Our upsell motion was also strong as customers adopted additional channels, deepened data platform integrations and experimented with new and enhanced praise tools such as operator and agent console. Braze is moving fast on the leading edge of Frontier AI technologies, and that pace of innovation is what enterprises globally are demanding, positioning us to become the standard for customer engagement. The legacy replacement cycle remained a fertile source of new business this quarter and demonstrated the market's preference for AI-driven solutions paired with high-performance first-party data activation.

The combination required to execute modern cross-channel customer engagement at scale. Since our founding, Braze has been built on the architectural choices that now turn out to be exactly what AI demands. Real time, a focus on first-party data a stream processor that learns as it runs and enterprise-grade security and performance built in from day 1. By contrast, the same flaws that held back our competitors during the mobile and stream processing areas are hindering them again in the status quo. The architectures that could not handle real-time data then cannot harness advanced AI today.

As we accelerate product development, we are putting AI to work on the problems that our customers actually face. This quarter, Braze across diverse industries and geographies, graduated from legacy platforms to Braze. These include an expansion into Lat Am with an existing global beauty customer and new business opportunities with companies like an Australian online wagering business, a franchitletic apparel company, a global retirement and investment solutions company and one of the leading energy drink companies in the United States whose products are a long-time favorite at our HQ in New York and have been credited over the years with major productivity gains in R&D alongside our AI coding tools, of course.

Our momentum continues to be driven by the 4 foundational strengths that we articulated last quarter. First, the Braze data platform's ability to serve as the first-party context engineering layer for AI at massive scale. Second, our vertically integrated data and decisioning architecture. Third, our composable AI architecture that makes Braze both smarter and easier to use and fourth, our position as both a revenue driving engine and mission-critical operational capability. These strengths are compounding as we accelerate AI innovation and continue winning in the enterprise.

The marketers using Braze are seeing better performance from the programs that they run today and they're seeing the work itself change. What used to take a team of specialists is increasingly something that a small group can build, monitor and improve in a single afternoon. And the capabilities of the Braze platform are advancing at a rapid pace to support them. As I shared in March, BrazeAI operator and BrazeAI Console reached general availability early in the first quarter, ahead of schedule, and we are seeing strong early adoption. Hundreds of customers are already using them to design and execute more sophisticated programs with more efficient teams. BrazeAI decisioning Studio's new business pipeline is scaling rapidly and contributing to growth this year.

And these are not just road map commitments. They are AI solutions that are in the wild and in our customers' hands, earning their place in how some of the world's most demanding brands engage with their customers. The early adoption we are seeing across BrazeAI operator, BrazeAI agent Console and BrazeAI Decisioning Studio reflects a consistent pattern. Customers across industries and scale are finding that our AI delivers with general-purpose tools cannot. It operates directly on their first-party data inside their existing workflows and against their specific goals. And we published an incredible example of what BrazeAI operator makes possible in a recent case study with CLEO, a global family care platform that wanted to rebuild its member welcome series from the ground up.

Clio knows their members well. and engages with them frequently on their health and care journey. They use Braze to translate that knowledge into real-time action, but their ambition was outpacing their ability to implement new personalization strategies and experiment at the scale that they desired. Now with BrazeAI Operator working alongside them directly inside the brace dashboard, Clios Lifecycle Marketing Manager was able to quickly build and QA the code and configuration behind an upgraded welcome experience that automatically adapts to each member's care goals. The results were striking. Unsubscribes across the welcome series fell 81%. Opt-outs on the first e-mail dropped 97% and app opens increased 284%. And that's what BrazeAI operator was built to do. put sophisticated execution in the hands of the people that are closest to understanding their customers without requiring an army to support them.

The same principle, AI that understands context rather than operating in the abstract is what led luxury escapes to take a different kind of leap with BrazeAI agent Console. One of the world's fastest-growing travel companies with 9 million global members, the brand deployed Agent Console to push past the limits of rules-based segmentation. Their team replaced fixed thresholds with an AI agent that evaluated 10 distinct behavioral signals simultaneously throughout each new user into the right welcome cohort. The agent-based approach delivered a 10% lift in revenue per user driven entirely by conversion rate, along with a 7% increase in total transaction value and a 6% increase in purchase volume. What mattered most to the team was what the agent chose not to do. It did not default to the promo cohort to take the path of least resistance.

It was reading the users in a way that rules never could and the performance followed. Now if you scale that same challenge up to 114 million loyalty members, the problem shifts from replacing segmentation rules to replacing the testing infrastructure itself. And that's where BrazeAI Decisioning Studio comes in. One of the world's largest hotel franchisees adopted Decisioning Studio to move past a manual testing operation, which was previously a sequential manual 10-week cycle of build, test and analyze. BrazeAI Decisioning Studio replaced that process with continuous automated experimentation across hundreds of simultaneous permutations, optimizing message, timing and creative for each member in real time. They achieved double-digit increases in click-through rate with personalization of creative accounting for roughly half of the total uplift.

We built Braze on the conviction that the brand's closest to their customers would win their categories and AI is making that advantage compound faster. The combination of our data platform, our AI decisioning layer and our comprehensive channel suite gives customers something that no loosely assembled stack can replicate. Engagement rooted in their own first-party data and delivered at the speed and scale modern consumers expect. Braze is becoming the standard for global customer engagement not because we declared it, but because the world's leading brands are building with Braze and wielding the sophisticated AI that we've placed in their hands.

We entered the rest of fiscal 2027 with strong commercial momentum and accelerating product road map and a team that is winning wear accounts. I'm energized by what is ahead. And before I close, you probably saw the news that we shared at the end of April, that Isabella is stepping away and we are actively engaged in a CFO search at this time.

I want to take a moment to thank Isabelle for her dedication over the past 6 years. She's been an incredible partner through some of our most defining moments guiding us through the IPO, helping us scale the business to nearly $1 billion in ARR and driving our path to profitability. Isabelle, we're grateful for everything that you've contributed to Braze, and we're excited to see what's next for you.

And with that, I'll now turn the call over to Isabelle.

Thank you, Bill. Building and leading the finance team at Braves and working with you and your leadership team over the past 6 years has been one of the most rewarding experiences of my career. I'm proud of what we've accomplished together, and I'm excited to witness Braze's continued success ahead. As Bill stated, we reported a strong first quarter, with revenue increasing 30% year-over-year to $211 million, driven by a combination of existing customer contract expansions, renewals and new business. BrazeAI Decisioning Studio contributed $5.7 million of revenue in the quarter, implying an organic year-over-year growth rate of 26.7%, our fourth straight quarter of organic revenue growth acceleration.

After a supply-constrained Q4 that forced us to limit decisioning studio bookings in certain regions and also delayed decisioning studio start dates by multiple months we are happy to share that we have successfully accelerated the hiring and ramp of our forward deployed delivery personnel, which has enabled us to accelerate the pace and timing of decisioning studio start dates. As a result, we expect revenue from Decisioning Studio in Q2 to grow 15% to 20% sequentially from Q1. Subscription revenue represents the primary component of our total top line, contributing 93% of our first quarter revenue, while the remaining 7% represents professional services revenue.

Approximately 85% of the total professional services revenue is recurring revenue that is recognized ratably over the life of a contract, just like our subscription revenue. These recurring professional services include dedicated support from forward deployed engineers, e-mail deliverability services and dedicated technical and strategic support and customer success entitlements. Total customer count increased 16% year-over-year to 2,713 customers as of April 30, 2026, up $371 from the same period last year and up 104% from the prior quarter. Our total number of large customers, which we define as those spending at least $500,000 annually, grew 33% year-over-year to 349.

And as of April 30, 2026. These customers contributed 65% to our total ARR compared to a 62% contribution as of the same quarter last year. Measured across all customers, dollar-based net retention was 110% and an improvement of approximately 100 basis points sequentially. While dollar-based net retention for our large customers was 111%, also up approximately 100 basis points from the prior quarter. Expansion was again broadly distributed across industries and geographic regions. In the first quarter, our total remaining performance obligation was $1.1 billion, up 30% year-over-year and up 4% sequentially.

Current RPO was $670 million, accelerating to 28% year-over-year from 27% in the prior quarter. The increases were driven by contract renewals and upsells, the signing of new customer contracts and a continued modest increase in dollar-weighted contract length. Non-GAAP gross profit in the quarter was $142 million, representing a non-GAAP gross margin of 67.4%. This compares to a non-GAAP gross profit of $112 million and a non-GAAP gross margin of 69.3% in the first quarter of last year. The decrease in the year-over-year margin was driven primarily by higher premium messaging volumes and the addition of Decisioning Studio headcount attributable to core.

Total operating expenses were $132 million or 62% of revenue compared to $110 million or 68% of revenue in the prior year quarter. While the dollar increase reflects our investment to support overall growth, the improved efficiency reflects our disciplined approach as we work towards our long-term profitability targets. Non-GAAP operating income was $10.5 million or 5% of revenue compared to a non-GAAP operating income of $2.8 million or 2% of revenue in the prior year quarter. Non-GAAP net income attributable to Braze shareholders in the quarter was $11.4 million or $0.10 per share compared to $7.3 million or $0.07 per share in the prior year quarter.

Now turning to the balance sheet and cash flow statement. We ended the quarter with approximately $392 million in cash, cash equivalents, restricted cash and marketable securities. Cash provided by operations during the quarter was $28 million compared to cash provided by operations of $24 million in the prior year quarter, including the cash impact of capitalized costs free cash flow was a record $27 million in the quarter compared to $23 million in the prior year 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. For the second quarter of fiscal 2027, we expect revenue to be in the range of $219.5 million to $220.5 million, which represents a year-over-year growth rate of approximately 22% at the midpoint. Second quarter non-GAAP operating income is expected to be in the range of $17 million to $18 million. At the midpoint, this implies a non-GAAP operating margin of approximately 8%. Second quarter non-GAAP net income is expected to be $17 million to $18 million and second quarter non-GAAP net income per share in the range of $0.15 to $0.16 per share based on approximately 114 million weighted average diluted shares outstanding during the period. For the full fiscal year 2027, we expect total revenue to be in the range of $895 million to $899 million which represents a year-over-year growth rate of approximately 22% at the midpoint. Fiscal year 2027 non-GAAP operating income is expected to be in the range of $70 million to $74 million.

At the midpoint, this implies a non-GAAP operating margin of 8%. Non-GAAP net income for the full fiscal year is expected to be in the range of $70 million to $74 million, and net income per share is expected to be $0.61 to $0.65 per share based on a full year weighted average diluted share count of approximately 114 million shares. By integrating AI-driven intelligence at the core of our platform, we continue to set the standard for best-in-class customer engagement. Braze remains fully committed to an ambitious innovation road map while staying firmly on track to meet the company's 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 comes from Arjun Bhatia with William Blair.

It's been a pleasure working together all these years and wish you the best in the future. And actually, I wanted to maybe touch on your comment on the bottleneck sort of in Decision Studio. I'm curious how much of a headwind was it not having those FTEs that you talked about? And now that you're kind of looking ahead and kind of taking into account the demand for Decisioning Studio, how do you feel about the hiring and the headcount that you have sort of brought on board over the last several months here to address the bottleneck?

Yes. So thanks for the question, and thanks for the comment. So we feel really good about the momentum and the pace of hiring. And actually, so I won't break out specifically the impact in Q1, but the purpose of the comments I made in my prepared remarks are actually to give you an indication of the impact of the hiring and where Q2 revenue is likely to land.

So given a range for the sequential off of Q1, so you can kind of see the momentum we're starting to build there. And that's to that momentum that we have in the headcount increases. So we're really pleased with that. We've gone from 0 to 1 on headcount in certain locations where we just didn't have this capacity. So we were strong in kind of the Americas region because that's really where Decisioning Studio was kind of born and then had to start with EMEA and APAC, and we have now done that.

Okay. Perfect. Understood. That's very helpful. And then Bill, one for you. It seems just like on broader AI adoption with operator and agents, especially -- it seems like customers are starting to adopt these capabilities. It sounds like you had a win with an AI lab.

But I'm curious how you think about just customer readiness to adopt AI and they're sort of dealing with this in every function of their organization. Where does customer engagement rank sort of in this priority of AI projects and kind of being at the frontier of across the organization for your customers?

Yes. So I think there's 2 components, and we break down our product road map in the same way when we look at the demand signal and the prioritization from AI. One of them is transforming marketer workflows and making sure that teams are getting maximal productivity that they're able to leverage the other AI tools that they're bringing into their tool chain. And we see that through increased usage of the Braze MCP server and a lot of different usage patterns expanding there.

The other side is on the performance and the quality of personalization and relevance optimization and other aspects of decisioning that we can bring to customers so that, one, they can achieve better results with their customers, but two, it also feeds back into the productivity, really allowing the marketer to ascend above the drudge work of going campaign by campaign really drive higher levels of experimentation that lead to better performance and allowing them to operate more as a conductor or a composer of AI capabilities rather than being in the tool, working through -- or being in the tool line by line, working through a lot of the manual processes that we've seen in the past.

And so I think both of those are key to the transformation agendas within organizations. But we are also still seeing the customer education is paramount, both in the decisioning space, specifically as well as in AI-driven optimization more generally. And I think we've been really happy with how our full spectrum approach that is leveraging reinforcement learning, gen AI and agentic approaches together is developing into a robust suite of a AI offerings and a really exciting road map. We're also seeing from Decisioning Studio what we were confident of in our analysis of the Opera fit acquisition last year, which is that it is a hard and complex problem space. It takes careful data science and a deep business problem understanding a strong appreciation of the role of the marketer and all of that to meaningfully solve it.

And so just the product quality, the quality of the deployments, the excitement that we see from people adopting new ways of working with operators as well as new ways of driving personalization and relevance optimization with both Agent Console and Decisioning Studio and Content Optimizer as well are all pointed in a really optimistic direction. And I think we're continuing to see this be an important prioritization point in broader AI transformation agendas simply because it both improves employee productivity and it drives the bottom line.

Your next question comes from the line of Scott -- excuse me. from the line of Brett Huff with Stephens.

Good evening, everybody. Isabelle, good luck on the next chapter. It's been nice working with you, so you'll be missed. Two questions for me. One, to follow up on the operator point. Our understanding is that that's really been helpful in showing the power of AI to not just your more sophisticated marketers, but maybe those who aspire to be more sophisticated and has maybe made entry into that AI buying motion better.

I think that happened in 4Q and it sounds like maybe with some more forward deploying engineers that could be happening again. Can you talk a little bit about if that's the sort of tip of the spear and what you're seeing in day-to-day selling and is that dynamic that we understand to be true?

As I mentioned on our post Q4 earnings call, which was actually just 64 days ago, we had recently released both Operator and Agent Console to general availability, well ahead of schedule. Since then, we also completed the public launch of Operator and Agent Console. And we did that on stage alongside live product demos at the Braze, City by city, London event, which is our second largest event of the annual calendar. And that was at the end of April.

Audience feedback was tremendously positive. We've since been featuring Operator and Agent Console at Grow with Braze events around the world. We've even hosted partner and customer hackathons to continue to drive ideation and adoption. And we're also moving fast on enhancing Decisioning Studio self-serve features, and we recently expanded support for Content Optimizer to include SMS, MMS and RCS in addition to e-mail and push support, which was already there. So a multifaceted road map that continues to advance quickly. Customers are definitely still in different phases.

We've got some that have full production use cases, and we've been sharing the case studies on those, both in these earnings calls as well as on our website in order to both share that with all of you, but also to help get the creative juices flowing amongst our customer base. These are definitely new working paradigms in particular, being able to incorporate agentic capability into cannabis and into that control plane really understanding how to use the data sources that are there effectively. We've done a lot of work in the product line to make sure that we can deliver context to these agents on a per user basis that's derived from first-party data in a way that has the right operational guardrails, security and privacy guarantees as well as the performance that is required in order to run these in B2C messaging use cases or in product experiences.

And so, there's definitely still work to be done broadly across the customer base to first lay down the baseline education, then encourage early adoption and experimentation and moving that into scaled use cases. And we've got teams mobilized around the company to continue to push ahead on those goals, both for our customers to be adopting operator to accelerate their own workflows as well as Agent Console and Decisioning Studio and Content Optimizer to enhance the outcomes that they're achieving with Braze.

That's great. And just a quick follow-up. To put a finer point on the context question, as you imagine, we continue to get questions on the AI eating SaaS. It seems like you all are building in a lot of AI in a very specific and purposeful way. Can you talk a little bit about this idea of preprocessing or context enabling pre-processing before giving data to an LLM in order to start thinking about total cost of LLM token use, making those more efficient. And just kind of -- it seems to us reemphasizing the importance of SaaS generally, but Braze in particular, in a very sort of important cost going up quickly?

Yes, absolutely. And I think anyone that has worked with the likes of Cloud cowork or some of the other, I would call single-player agentic harnesses that are out there. We know that these tools have limitations. They still require a lot of baby sitting and handholding. They can go up the rails, especially on long-running tasks. And similarly, the quality of the outcomes have a lot to do with the context that you provide because a lot of their intelligence capability also rides on their ability to focus on the right things and to sign attention to the right aspects of the context.

And so a big part of what Agent Console provides is not just preprocessing of that context using the stream processing engine and the Canvas run time that we have today so that, that context can be efficiently and rapidly provided to the agents so that they don't need to use a whole bunch of tokens going and processing all that context in the first place. But it also serves the role of designing and compressing the context so that the attention can be placed in the attention is more obvious for the agent. That allows for us to not have to rely on the most expensive, slowest state-of-the-art models we can use faster, higher performance and cheaper models within those workflows, which is better suited for at least with current technology is certainly better suited for these B2C use cases.

And it allows for us to kind of manage the overall quality of outcomes, performance and cost tension that exists when you're using these models. So absolutely, a lot of -- a lot of careful product design, a lot of learnings. We're very fortunate to be right on the frontier with the most ambitious tech forward, data-driven marketers on the planet, who, of course, have always characterize the Braze customer base. We're getting great engagement from our agency and systems integrator partners on this front as well as they're bringing in specialist teams to be able to really flex these tools in new and creative ways.

And that's coming together with the -- what Canvas has always done a great job of which is being control plane. But of course, the job of the control plane in a AI native world also requires careful attention to contact engineering. And so that is a big part of where we've been focusing product development, and it's something that we think will continue to be a really important role that the software layer will play on top of the models.

Your next question comes from the line of Scott Berg with Needham.

Everyone, nice quarter here. First question is on jump in professional services revenue in the quarter. Isabelle, my guess is that the jump there is partially related to the these new 4 deployed engineers and they're hiring and kind of getting ramped up to speed. But my question is, one, to validate that. And is this kind of the new run rate level and as we think about this line item is truly an enabler of selling additional subscription revenue.

And then lastly, in that professional services kind of great question there is -- how much of that is pressing on gross margin today? Obviously, the premium channels last couple of quarters have pushed on margins a little bit because of their costs. But how much further do we expect those increase in professional services revenues to maybe eat at gross margins?

Yes. Thanks for the question. So just first, yes, yes, it's partially related to the 4 deployed personnel that mix in but actually, a bigger part of it is related to some packaging changes that have occurred relative to how we sell our CS entitlements. They were previously kind of fully bundled into the subscription piece with a bit of an allocation into professional services based on activity. We've actually become a little bit more specific there and created some line items and SKUs for CS purchases. This allows customers to have a little bit more transparency in terms of what they're buying. It allows us to realign the workforce and have kind of the right sort of number of people that are actually being paid for by customers.

And then from an accounting perspective, it simply creates the fact pattern that you're starting to see with a bit more of an allocation or attribution or rather into professional services. But part of the reason I wanted to disclose the percentage of the professional services that behaves on a recurring basis because we thought it was important to explain that there is no fundamental change to the revenue recognition. It is just a geographic change between the subscription line item in the professional services line item. So I think that's kind of how I would describe it. And then in terms of the gross margin impact, it's a little bit of an impact there from the personnel, but we've also been able to kind of realign things with strategic cost optimized location, strategy there. And really the messaging is kind of a primary component to the gross margin story.

Understood. And I'd be remiss to say or not to say good luck -- wishing you good luck in the next spot, and I hope we can work together again. Yes. But from a follow-up question, how do we think about kind of the impact on sales cycles, Bill, with all the new AI modules that you've released, the last 6 to 8 months has been a huge innovation boon for the company, including a couple that you've released early here recently.

But is that delaying sales cycles? Is it speeding it up? It seems like deals are getting bigger, but sometimes that can be offset by time frames. How do we think about this in this environment where spending seems to be on the rise on the increase?

Yes. I mean I think you're seeing in the bookings results that we're seeing higher velocity making. We've also seen it in our competitive win rates, and I think those things work together with a strong differentiation in the offering, which is, of course, led by the road map since that's front and center for all purchasers right now and kind of everyone evaluating either software transitions or new purchases into their technology ecosystem.

That that is coming together in order to create more efficient sales cycles, and we're seeing that. We shared that in the bookings results following Q4. We similarly saw great competitive win rates and higher deal velocity than we have in prior years throughout the quarter. And so we're responding to that with our own teams as well in terms of how we're organizing within our sales teams, as we've talked about in the past, we've also been doubling down on verticalization of our sales teams in this year so that we've got stronger familiarity and more alignment within the key verticals within Braze that's really helping drive alignment, not just with customers so that we're speaking their language and that we understand their business models more deeply, but it's also helping with alignment with partners.

And within the broader ecosystem and partner alignment tends to help out deal cycles as well because the architectural questions get resolved faster and we're able to bring in a social proof of trusted partners that are already installed at partners be able to expand or graduate into brace. And so I think we're liking what we're seeing there. Similarly, as you mentioned, I think we're seeing pretty similar macro conditions as we have over the last few quarters, so not a big change to really report there. But we're seeing the opportunities for higher velocity and we're seizing them.

Excellent nice quarter.

Your next question comes from Ryan MacWilliams with Wells Fargo.

Excellent. Bill, it looks like you're seeing monthly active users increasing and your net retention is increasing. I know you it's not a great tick for your business, but it just seems like the digital ecosystem over the last few quarters as really shifted for the better AI or not, but what are some of the things you're seeing from your customers? And are you seeing your existing customers like activate on more campaigns and more message sending at this point?

Yes. Well, we're definitely seeing more campaign creation. And in fact, we saw an interesting proof point of that, that parallels our own experience with use of agent coding tools, which is like, of course, with our engineering teams, as soon as you can start to pump out code faster, the bottleneck appears at reviewing that code and deploying and releasing that code. And we're seeing similar impacts within our own customer base where operator and use of other agentic tooling is speeding up campaign creation, create content creation, people are doing more experimentation, et cetera.

But that, of course, is increasing both the demands on QA for all of them as well as just the complexity that comes about when you've got more programs running simultaneously. So we actually, at the customer advisory board that we did at London City by city, QA automated QA and agenetic automation of QA, which we were very happy to share with everyone, actually entered beta that same day as an offshoot of our Agent Console product was one of the top demanded features. And that's actually the first time I can remember that being the case in a Customer Advisory Board.

So I think that already seeing some of the implications of enhanced marketer productivity moving into other parts of their overall workflow. And then, of course, there are a bunch of caveats around monthly active users. But of course, we're happy to see growth amongst the overall network growth amongst the mobile community as well. I know that you've been closely tracking Appstore submissions and things like that. And obviously, those fact patterns remind me of 10 years ago as we first launched into the mobile universe and those mobile app stores started to take off. And so we certainly operate up at a level where those mobile apps will need to mature over time, and we're no stranger to that from the early days of the App Store even today, millions of apps out there, and we only have single-digit thousands of customers.

So obviously, there's a match there for our business model and how those mobile apps will mature and then graduate to becoming Brace customers over time, and we're really excited to bring them into the picture. But we also do have a number of very fast growing, fast maturing AI-native applications that have come into our customer base over time, too. And so definitely an exciting time to broadly be in software, people are out there building, they're growing, they're expanding, and that's great to see. And we're excited to be putting more advanced tools into the hands of the marketers that are responsible for the customer experience and the growth of those applications. And we're seeing their workflows evolve and change in front of our eyes as well, and we're moving fast to be able to continue to provide the best tools possible for them.

Excellent. Yes. Great to see the prominent AI and ramping natives. Isabelle, pleasure to work together. Just one point of clarification on the professional services side. You mentioned CS credits. What are those? Just like to something too familiar with? And then just from your perspective, it seems like this is coming up in my investor conversations, like -- do you just feel it as like moving one bucket to another, like the composition of the revenue is very similar to last quarter, it's more just an accounting change for this quarter and the difference between the mix there?

Yes. So that's exactly -- so let me clarify, CS, is it simply the customer success entitlements that were previously bundled in with the subscription platform fee are now separately skewed out and can be purchased separately by the customers. So that's what you're seeing. And just to do the math for you, what this means is that I said that about 85% of our professional services is recurring, and obviously, the subscription component is recurring. So that means in total, you're looking at about 99% of our revenue is on a recurring basis.

Your next question comes from Parker Lane with Stifel.

Bill, one of the things you guys talked about when you brought in was not only verticalization, but adding a lot more capacity to this business. And I think you messaged this earlier this year that you'd see a big ramp into the second half of the year. Can you just talk about how that's tracking according to expectations or where that is? And we expect that to have the biggest impact on the business?

Yes. So hiring across the sales and field organizations is absolutely a priority in the business right now. As you know, we have -- in particular, in the enterprise, there is a relatively long ramp time as new account executives come into seat and get to another patch and engage in enterprise deal cycles, which are of a typical length of base, but still counts in quarters sometimes. And so early in the year, sales hiring and capacity expansion has been an important priority. It will continue to be.

We're on track for that so far through the year. and continuing to bring in great people into the organization. I think that the Braze story is resonating really well amongst the software category right now. The combination of our results as well as our AI road map is just bringing in some really excellent talent, and we've been really excited to be able to continue to grow our teams through this period.

Got it. And obviously, you've seen some nice improvements in DBNR here and all cohorts of the business with decisioning studio come in its first year in the business, and you've got operator and agent console out there. What's the right framework to think about the potential impact to DBNR. Do you think about these tools as helping you sustain these levels? Is there a potential for us to break out further from here? Anything there would be great.

Yes. Well, so first of all, Decisioning Studio, obviously, because of its price point at around $200,000 to $300,000 per use case has a the ability to have a more direct short-term impact on upsells. But we've also been broadly expanding the product portfolio, putting more SKUs in place for our sales team to go and sell more use case in a more channels, more AI to be able to optimize those channels, and we're really looking at it as a full portfolio play.

Your next question comes from Brian Peterson with Raymond James.

Isabelle, it's been a pleasure working with you. I'll keep it to one. So just as we're thinking about the importance of first-party data, I know in AI, that will be critically important. Bill, I'm curious how much of that's a factor in some of these win rates improving that you're seeing? Just would love to get any color there.

Yes. I mean I think the key thing is just that the differentiation is clear right now. And when you look at Brave versus the broader competitive set, we combine together the industry-leading in with an incredible customer community that we're able to develop at the frontier of these technologies right alongside that also includes our partner ecosystem alongside all the amazing agencies and systems integrators that we work with that continued to push ahead. And we're moving really fast on development across the full suite of Base AI offerings.

I think we also had a huge starting benefit in that our platform is vertically integrated, it's been almost entirely organically developed, which means that there's not a bunch of hidden complexity in tech that throughout the system. We've done a great job over the years of continuing to upgrade underlying programming languages, different frameworks, major versions of all of our underlying technologies, et cetera. And that puts us in a great position to be able to move fast with our road map and to be able to scaled new capability on top of what is the industry's most reliable, highest performance stream processor in this space. And that just gives us a ton of latitude to be able to develop quickly. And so when you combine together a very strong fundamental starting point from an engineering and a product health and a product quality standpoint, with an ambitious road map, the ability to invest in R&D due to our scale, really great signals from the market in terms of getting access to real-time feedback from those innovative marketers and partners. -- out in the ecosystem.

And I think that combines together to put us into an advantageous position that we've been leveraging for several quarters now through this AI build-out, and that's coming together in real tangible, concrete products that customers can see in sales cycles. They can use in free trials. They can put their hands on them, they can deploy them in production and they can scale them into production use cases and that -- both the leading vision there as well is the fact that they're live, and they're available now are combining together to really resonate in the market.

Your next question comes from Matt Van Vliet with Cantor Fitzgerald.

It's been nice working with you as well. Good luck on the next step there. I guess when you look at overall adoption of the Flex credits, especially as premium messaging is coming in. I guess, at this point in the year, how are customers tracking versus maybe even where they entered the year in terms of allocation there? What's been the pace of customers coming back and just realizing the value and looking to upgrade their allotments before maybe some of the critical fourth quarter selling season.

Yes. So look, I mean, the uptake in the adoption of the flexible credits, it's really the only way we sell. And we've actually changed the name. We're now calling them action credits because they do encompass more than messaging. And so the uptake, it's really the only way we sell to all of our customers that are renewing and all of our customers that are buying new, they're all on this approach. And there is the opportunity for more mid-quarter -- sorry, mid-contract term upsells.

We're seeing kind of generally similar buying patterns where we've been talking about this for some time. Customers generally buying a little bit closer to their known needs and then upskilling scaling their purchases as they need more -- so look, we're really pleased with the eonline the dollar base and our retention. That is an element to it. We've seen kind of the upsells that are coming in through that SKU with the flexible credits. But it's all kind of working together with helping us sort of retain and help customers get the most out of the platform.

And then following up on the FDA discussion. I guess 2 parts. One, how do you feel -- I know you said you're ramping up the hiring, and it seems to be going well. But, is there still a significant amount more capacity to be added in to meet the demand you're already seeing in decisioning Studio? And then kind of breath in that I guess at what point in the first quarter did you get back to a point where you could start meeting the demand levels. So thinking about kind of how much of the quarter actually was significantly bogged down versus some of the commentary you made going into the second quarter?

Yes. So just to give you a quick measure on the ending -- end of your question. As we ended Q4, we were pushing -- we were being forced to push start dates on decisioning studio deployments out in excess of 4 months in some cases, depending on the region. We've cut that about in half over the course of Q1. And that's through both the ramp and the hiring but also doing things like doing in-person group onboarding in order to accelerate the readiness dates of those new hires and just be able to get people deployed under new projects faster.

There's also a a robust road map that the Decisioning Studio team is executing on to be able to create more self-serve capability. And they also have a version of the Braze operator that under active development right now. that we'll be able to start to do some of the activities that were previously delivered through those personnel. And so we've got a lot of development underway, both in terms of the practices with how we grow the team as well as in the product itself in order to be able to more rapidly in studio to do so with more efficiency so that we can just get more instances of it out in market and so that we can deliver it to customers faster. And so that's still a that we're going to be on, but we still have a very robust road map of improvements that were -- that are -- that we're -- we've got high certainty on are going to continue to improve that picture over time, and we're excited about it.

I think at a base level, we've also just been really excited to see that while there's been a lot of bluster and recent entrants into decisioning from a competitive standpoint, we continue to see that no one can hold a candle to Decisioning Studio in terms of the overall product quality. For those that have been with the Braze story for a long time, that's a familiar position for Braze to be in and in a position we like to be in. And we're continuing to invest heavily in making decisioning studio faster to deploy, more self-serve and there's a lot more to come on that. But I'll also say that we're very happy with the foundation and today's momentum as well, even in an increasingly competitive environment.

Your next question comes from Clark Wright with D.A. Davidson.

Awesome. Thank you. Bill, you noted during the prepared remarks that 1 of the logo wins this quarter was a prominent AI lab and increasing your presence in data-intensive workloads priority. Can you talk about the steps you need to take or the partnerships you're leading into in order to increase your presence, specifically with data-intensive loads?

Yes. So first of all, I think that this is a continuation of a journey that we've been on for multiple years. For Braze, having quick and complete access to basically all relevant sources of first-party data within the customers' ecosystem, whether those are directly generated by user activity and we need to process them in milliseconds or they are the result of deep data science work that's being done to build out additional models or other data warehousing long-running work, like identity resolution and what have you, we want to be able to have rapid and complete access to all the insights available in order to drive the quality of the personalization and the other decisions that we make along the way.

And so that has meant a robust investment and partnership posture for Braze for a long time. We're continuing to lean into that. We've got an exciting road map of continued expansion for the Braze data platform as well as for the MCP servers and API integrations into the Braze data platform throughout the rest of the year. We also have exciting advancements that we continue to push ahead across the likes of Google BigQuery and Snowflake and Databricks and you're going to continue to hear more about those throughout the year. So it's always been and will continue to be multifaceted investment posture. The most important thing for Brave is that we have rapid and complete access to the insights that we need in order to drive the intelligence that lives in the orchestration and the control plane and the personalization layers of Braze so that we can deliver the best possible product and messaging experiences to customers.

And the other side of that is also, of course, getting access to creative and content we announced the creative studio launch at Braze City-by-City in London at the end of April included integrations with both Figma and Canyon as well, which we're really excited to continue to develop and expand throughout the course of the year. And really just looking at these pipelines that feed the Braze orchestration engine, which is inclusive of context of all kinds. And that means making sure that we've got robust investment the Braze data platform, that the Braze creative studio feeds that from a content and a creative standpoint. And then, of course, our composable intelligence vision of the agentic capabilities and a lot of the context that drives them all integrated directly into the Braves ecosystem.

Awesome. And then Isabelle one for you. In terms of the penetration rate of the Decision Studio, how should we think about the ramp there given the headwind or at least the friction that you've kind of aforementioned in the prepared remarks? And where should we think about that heading forward as we look at the new logo growth that we see today?

Yes. So look, I mean, we're really focused on continuing to upsell our installed base with the capability. So remember, we kept the customer at the ultimate parent level. And so we're going to see -- first, we're going to see kind of deeper penetration of sales of Decisioning Studio to within our existing customer base. So I wouldn't necessarily look for that to like increase the logo count immediately, but we are certainly excited about the comments that I made and the comments that Bill made around the headcount that we've been able to add on the 4 deployed personnel.

And so we were excited to kind of continue to fulfill that pipeline. The pipeline continues to be really robust and to build through the rest of the year.

[Operator Instructions] Your next question comes from Nick Altmann with BTIG.

Awesome. Thank you. Isabelle, it's been great working with you and what you need the best of luck in the new role. Bill, the legacy replacement cycle seems to be continuing very nicely. I think you mentioned 8-figure customers are now at 5%. And my question is, how much has decisioning Studio agent console operator sort of driven that acceleration? And I understand some of these customers may not be adopting these tools right away.

But maybe just talk about how the new AI offerings, the innovation on the road to actually driving some of that replacement strength that you're seeing and whether that gives you more confidence in adoption and monetization on the agentic side over the medium term?

Yes. So I think all the commentary that I've had about the role that our AI road map and our AI offerings have had on new business also applies to a lot of these expansions because frankly, everyone is looking at their soft stacks right now and questioning whether or not they have the right capabilities and whether they've got the right partnerships and the right vendors to be able to make sure they're taking advantage of the AI transformation maximally as possible. And so you're not winning expansions like that with organizations at this scale and at this level of sophistication without them having full confidence that you're a vendor that they can rely upon to partner with as part of their own AI journey.

And so I think it's just as applicable there. One of the other things that we're seeing and Braze's product and our strategy has always been at the convergence of both the marketer experience and the raw capabilities to be able to drive high-performance personalization and such, which I mentioned earlier, both the marketer experience and the consumer experience, but also the continued evolution of consumer behaviors and consumer devices. And we spoke about this a lot in the past, but we are also seeing that in the face of some of the uncertainty around things like AgenticCommerce that within the retail category as an example, companies are starting to prioritize CRM higher right now because they know that as we've seen in so many other categories that have been disintermediated by agents, whether those are online travel agents and the story from a decade ago or more than a couple of decades ago, or the story from a decade ago of a lot of the restaurant brands being disintermediated by delivery platforms.

And, of course, you can see in Braze Street that we've benefited from those disintermediations because it causes brands to double down on connecting more directly with their customers to make sure that they've got the first-party data to understand who those customers are, that they can communicate with them and that they can nudge them toward being customers that don't come in through these disintermediated -- these disintermediated platforms or other user experiences where they achieve lower margin, they don't get as much data, et cetera, et cetera. And so in preparation for potentially seeing more AgenticCommerce out there, we're actually seeing retailers doubling down on their CRM investments so that they can get closer to their customers and they can understand them more completely and be able to keep those lines of communication open.

And so I think that across the board, we're seeing the drive for additional market or productivity, we're seeing the demand for greater performance and results through wielding these advanced capabilities. And then we're also seeing the continued drive toward building strong first-party relationships with customers, which is, of course, in our mind, a sustainable business tactic through all generations of technology, and we absolutely know that the brands that thrive through this period are going to be the ones that continue to keep a strong connection with their customer and Braze is exactly how they're going to do that.

Your next question comes from Derrick Wood with TD Cowen .

Great. It's Bell, great to work with you. Good luck on your next endeavor. I wanted to ask about the U.S. carrier fees on the SMS side of the business. They have been on the rise. Just curious how you guys are kind of absorbing this? Are you passing this on to customers or not? Have you seen any impact from like demand elasticity? And what are the implications for gross margins, especially as we look through the rest of the year?

Yes. So we approached carrier fees. We've approached these in a very, very consistent manner over the last several years. We do pass those on directly to the customer. And so that we've been very consistent. So any changes in price there are borne by the customer. I would say we've been talking about premium messaging channels, having that impact over time on the gross margin. This is a component to it, but it's all -- it all mixes in. So it's everything from sort of WhatsApp to general SMS carrier fees, all of it's combined.

Your next question comes from Raimo Lenschow with Barclays.

This is Sam Cohen on for Ramon Lenschow. Bill, as a Decision Studio and Agent Console continue to gain traction with your customer base, how do you think about the long-term coexistence between LLM-based Agentic decisioning and reinforcement learning-based decisioning? Are those use cases or customer verticals that might be better suited for one versus the other?

So the short answer is, absolutely, there are different use cases that of those technologies in isolation as well as various hybridizations of them are going to be best suited for. And that truth is a big part of our full spectrum AI strategy that we continue to build out. To go back to also that the split between the marketer experience and marketer productivity and then the customer experience and customer outcomes, we are also seeing a variety of different approaches on both sides of that. And so on the operator and the marketer experience side, we're also actively expanding our investments in our MCP service and our API suite and in the proprietary braze operator.

We also have customers who are already using Agentic computer use to automatically operate our dashboard. But we believe that hooking those agentic harnesses into operators brace specific training and tool use is going to be the stronger usage path -- in the medium and long term. We prioritize building out the in dashboard experience or operator first, but we're also investing and allowing the operators intelligence to be flexibly leveraged through a variety of usage patterns.

We're also, on that point, really excited to see innovation coming from customers utilizing co-work and other agent harnesses to interface directly with Braze. But we also know that we're still in the beginning of that. Most agent use still requires a ton of handholding. It's also mostly individual or what we call like single-player exercise of those tools today. Martin is typically a multiplayer activity, and it inherently crosses over a lot of different disciplines. It touches broad parts of the customer journey and it benefits from both creativity and deep data analysis, which often has done better in teams. And so we want to enable BrazeAI capabilities for the marketer in a composable and a flexible fashion, supporting a variety of both single player and multiplayer AI-enabled workflows. And we're going to continue to invest heavily there. Across the decisioning side, I think it's also helpful to go back and look at how we've interoperated with data and creative and personalization sources over the years.

We see both in our partner ecosystem as well as from hyperscaler services and home built capabilities that often customers will want to took into in order to either provide additional data sources or maybe there's a specialized vendor from the Braze Ally's partner ecosystem or something that they've been investing in a long -- for a long time internally. For us, the critical components of the architectural mode are ensuring the real-time access to high-quality first-party data. We do that with the Braves data platform and our composable design. We want to maintain a strong foothold in the control plane, which we do through Canvas, Agent console through decisioning and through our many air traffic control capabilities and things like content optimizer. And so within that, and specifically to your question around which technology approaches I think when we think about the relevant control plane and the right tool for the job.

A lot of it has to do with are we engaging in long-running aspects of the customer journey, responding to a cultural event or an emergency? Is this an operational need? Are we trying to fulfill a product experience versus provide some sort of real-time notification use case, these all have very different demands on them, but they're all in customer engagement. And so you need to be able to have different intelligence approaches to enhance and optimize across all of those different use cases, and of course, the huge surface area of that problem, both creates gravity for us to progressively take responsibility for new use cases new channels.

You see that in the strong DBNR. You see that in the expansion of the channels that our customers adopt over time. And the diverse set of install points allows for braces predictive models, our AI recommenders and optimizers and our decisioning systems to all enhance the orchestration work that we're already doing. And that drives our value to the customers and its higher revenue opportunities for Braze. And so customers are going to mix and match not just Braze's intelligence systems with first and third-party hands. They're also going to mix and match the composable hybrid solutions that we provide together. And that's been an important part of our design and differentiation for many years. And so we're excited to see these new capabilities coming into the fold. But from a composability of design perspective, it really fits into the strategy that we've been running for years.

Your next question comes from DJ Hynes with Canaccord.

Well, Isabelle congrats to you and best of luck. Bill, I'm curious if you're seeing any of your large enterprise customers, kind of rethink organization structure around customer engagement because of AI. And then like longer term, do you still think marketers and CX teams themselves remain the primary user or does this all go autonomous at some point?

Yes. So first of all, one of the things that we continue to see is is something that's been true for a long time in our customer base, which is that Braze is typically being used by small agile teams of what I would call builder marketers, right? These are marketers that are on the leading edge of using new technology, they're doing data-driven and experimental work and they build these experiences, right? And they use Braze and other tooling around Braze in order to kind of build and deploy the ideas that -- and the experiments that they want to run and the optimizations around those. And so I unlike large support desks or other teams that have historically had a lot of headcount, Braze has always been wielded by the small resourceful tech-forward teams. And so, their productivity is of the utmost importance because they're always limited and small and the work that they can do and especially every time we bring new capability to buy better performance and better optimization, the demand on those teams to go and leverage that in order to drive the bottom line exists within those companies and in order for them to fulfill those demands, they need higher levels of productivity.

And so putting that in a virtuous cycle where we we create the opportunity for those marketers to deliver more impact and then they, of course, subsequently need to be made more productive, and we work on both of those in a loop. I think that with respect to org chart -- org chart evolution, Braze has also driven a lot of work chart evolution over time. In our early days, it wasn't uncommon to have every single channel like separate web, mobile and e-mail teams. Now it's very -- it's much more normal to just have a consumer CRM or customer engagement or a growth team that is responsible for cross-channel engagement. The way that the responsibility bridges into product experiences versus messaging experiences, tends to vary from company to company. But the trend line is all about having a more holistic point of view over more and more of the customer experience and being able to put the kind of management of that customer experience in the hands of someone that is also deeply in tune with the business strategy and the business schools.

And that the convergence of both that perspective and the deep understanding of the customer and the business has historically lived in marketing and growth organizations or product organizations. Braze actively sells into all 3 of those organizations across our customer base. Of course, we predominantly sell into a CMO budget, but we see examples of the others across the Board. And so I think in terms of how this evolves from here, the key thing for us is just where does responsibility lie for turning your customers into the best versions of themselves for strengthening relationships and for really coordinating those experiences. And I think there's going to be -- we're going to keep on enhancing their productivity certainly. But that vision of really having the marketer ascend into the role of the strategic conductor and the composer of those strategies, I think that the value of having human ingenuity, creativity and judgment and attachment to the business strategies in the loop in that is going to persist in ad infinitum.

There are no more questions at this time. I'd now like to turn the call over to Bill for closing remarks.

Yes. Thank you, everyone, for joining the call today. We appreciate your continued interest in Braze and your support, and we are looking forward to speaking with you soon. Cheers.

Welcome to the Braze Fiscal Fourth Quarter 2026 Earnings Conference Call. My name is Leila 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 fourth 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 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 first quarter and the fiscal year ended January 31, 2027, the anticipated benefits from and product advancements due to the combination of Braze and ongoing developments in Braze AI technology, 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, 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 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 fourth 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 financial 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. Today, we reported outstanding fourth quarter results further validate our product leadership, go-to-market approach and financial strategy. In Q4, we generated $205 million of revenue, up 28% year-over-year and 8% from the prior quarter. Organic revenue growth accelerated year-over-year for the third straight quarter where we continue to drive operating efficiency in our business. Trailing 12-month dollar-based net retention showed strength as well, reflecting positively during the quarter to reach 109%. Two milestones underscore this momentum in our business. During the quarter, we surpassed $1 billion in remaining performance obligations as customers increasingly commit to Braze for their long-term customer engagement needs. And early in fiscal 2027, we passed $800 million in annual recurring revenue, demonstrating continued strong demand for the high ROI delivered by our platform. We are incredibly proud of these achievements, and I thank our team across the world for their tireless efforts over the past year.

For the full fiscal year 2026, we delivered 24% year-over-year revenue growth and $28 million of non-GAAP operating income with operating margins expanding nearly 400 basis points over the prior year. This performance demonstrates our ability to deliver on our profitability framework even while accelerating our investments in Braze AI and completing the successful transformation of last summer's acquisition of OfferFit into the rapidly growing Braze Decisioning Studio. We also realized $42 million of non-GAAP net income in FY '26, up from $18 million last year and generated $58 million of free cash flow, providing us with the financial flexibility to invest thoughtfully in shaping the future of customer engagement.

Our financial strength has also enabled Braze to initiate its first share repurchase program, a milestone that reflects our high conviction in our long-term growth opportunity. Isabelle will provide more details on this program later in the call. Our business momentum accelerated in the fourth quarter as brands look to transform their businesses with AI and further leverage their ongoing investments in first-party data and direct-to-consumer relationships. Q4 bookings rose over 50% year-over-year as we established a new high watermark for average sales price and saw a particular strength in the enterprise. Net customer additions increased by 81 sequentially, up 14% year-over-year, well, $500,000-plus customers increased by 30 sequentially, up 35% year-over-year.

Additionally, $1 million plus customers was 28% year-over-year, up from 18% year-over-year growth in Q4 of last year. Large deal velocity was also impressive as we signed 29 deals in excess of $500,000 this quarter, including $7 million plus deals and an expansion that increased our 8-figure customer count to 4. Notable new business wins and existing customer expansions include Dis-Chem, Goodnotes, ID.me,

King, Life360, Mytheresa, PowerUs, realestate.co.nz, Shell Mobility & Convenience, and ThriftBooks, along with many others. While new logo wins were strong, upsells also showed strength as existing customers expanded across channels, adopted news Braze AI capabilities and deepened their integrations with the Braze data platform. This expansion of our land and expand strategy to include growth in data integrations and AI workloads is a testament to both Braze's composable design and our position as mission-critical infrastructure for our diverse and demanding global customer base.

Competitive takeaways from the legacy Marketing Clouds in the fourth quarter continue to validate the market's preference for Braze's AI-driven omnichannel approach to deliver on modern customer engagement use cases at scale. This quarter, brands across diverse industries and geographies migrated from legacy platforms to Braze, including a global heritage footwear brand, a global genealogy company, a leading American cybersecurity company, an American department store chain, an American Financial Solutions company, a European travel insurance provider, a European national lottery a luxury hotel group based in APAC and a large Latin American bank. Looking ahead, we are well positioned to capitalize on the momentum we've been building over the past several quarters.

Our go-to-market motion under the leadership of Chief Revenue Officer, Ed McDonnell, who joined in like Q2 is operating at a high level, delivering a meaningful improvement in sales productivity. Pipeline generation was also strong in the fourth quarter, indicating robust market demand for our AI-driven solutions, particularly in the enterprise. The field of customer engagement is moving faster now than it has in years, and Braze continues to be perfectly positioned to turn AI disruption into opportunity. By driving platform innovation in tandem with the evolving craft of customer engagement, Braze has been actively redefining the front door to marketing technology for most of the last decade. This innovative leadership continues to drive share gain in enterprise, and it's why both our customer community and broader partner ecosystem continue to compound with ambition and optimism. Our competitive position rests on 4 foundational strengths that position us to capitalize on AI-driven disruption. First, the Braze platform and customer engagement stack serve as critical infrastructure for our customers. delivering secure and reliable performance at massive scale. Unlike applications that manage workflows and tasks that are ultimately executed by humans, Braze has always been a platform wielded by small teams of builders to directly execute massive complex workloads.

During calendar year 2025 alone, we powered 4.5 trillion messages and canvas actions, processed over 25 trillion data points, executed 3.1 trillion AI decisioning inferences and made 8.7 trillion updates to our user profile system of record. This execution capability provides brands with confidence to deploy business-critical programs for entire global audiences, confidence that no point solution can match. Second, our vertically integrated data and decisioning architecture allows for capabilities that no one else can replicate. The Braze data platform needs real-time context into control planes like Canvas and Decisioning Studio, which then serve as a substrate for agentic AI execution. This tight integration between data infrastructure and AI decisioning combined with the most comprehensive set of marketing, conversational and product channels on the market delivers differentiated outcomes rooted in real customer data, not just generic LLM outputs. Third, our composable AI architecture is compounding the value of our deep infrastructure and comprehensive platform.

At our Forge customer conference in September, we announced the upcoming betas for both Braze AI operator and the agent console to be available in Q1 and Q2, respectively. Last month, we beat those delivery time lines by months and launch both operator and agent console into general availability, leveraging the flexibility of composable data and the power of composable intelligence, these products have been able to quickly spread their wings and capability because they wheel the differentiated power, performance and scale that Braze has delivered to the market for years. The excitement from customers partners around both launches has been palpable. Agent Console is seeing rapid uptake across a wide array of use cases and BrazeAI Operator is accelerating and evolving workloads for thousands of Braze dashboard users every week automating campaign, canvas and agent creation, deepening quality assurance checks and uncovering data insights through simple conversational prompts. Operator is first trained with Braze's documentation, use case libraries and source code and then enhanced by a comprehensive knowledge of each customer's data models, brand strategy and integration details, enabling each Braze user's operator to answer difficult questions and execute complex tasks as it navigates the dashboard in front of their eyes.

Operator also integrates with Snowflake's Cortex Code to drive analytics insights that feed back into campaign strategies, and its skills continue to advance rapidly, including the recently trained capability to build directly inside the Agent Console. Will eager beta testers of the agent console repeatedly asked us for more templates, we leaped over their request for faster horses and instead delivered a powerful prompting agent capability that turns simple inspiration into sophisticated agents, each specifically configured according to a customer's Braze integration and existing marketing programs. These agents are already being deployed to enhance customer journeys in Canvas and to drive data enrichment workloads in the Braze data platform's catalog feature. And all this works in tandem with Braze AI Decisioning Studio, which harnesses modern reinforcement learning to achieve maximum performance in the most important parts of the user journey. Just as we delivered the most comprehensive solution for cross-channel marketing in the age of deterministic automation, we're building Braze AI to combine the flexibility of a composable architecture with the power of Frontier AI across multiple fields of research to deliver a comprehensive solution for AI-driven customer engagement.

Fourth, we believe Braze occupies a unique position in the software landscape as a rare hybrid of a revenue-driving engine and mission-critical operational capability. Whether it's the urgency of responding to an evolving emergency the pressure of publishing a message that will be read by hundreds of millions of people or the criticality of executing deeply optimized marketing programs that drive a business' most important quarterly results. Brands trust Braze with their most important workloads because we provide the agility, observability and reliability that business-critical infrastructure demands. In an environment where companies must maximize every dollar of uplift this proven ability to deliver measurable ROI at scale makes Braze in a central and highly optimized component of the modern enterprise stack, not a discretionary tool. As we look ahead, Braze will continue to invest with focus to remain at the frontier of consumer and technological change, turning disruption into opportunity as our customers transform their jobs, their businesses and the experiences that they deliver to consumers. We are rapidly advancing our platform, enhancing our global customer community to scale agentic use cases across marketing programs, customer conversations, product experiences and data workloads, enabling brands to turn context into connection and achieve in the AI era, what they have been striving for all along, stronger business performance built on durable customer relationships. I'll wrap my remarks by emphasizing what a great position we are in as we enter our next phase of growth in fiscal 2027 and beyond. Thank you for your interest and support.

And now I'll turn the call over to Isabelle.

Thank you, Bill, and thank you, everyone, for joining us today. We reported an outstanding fourth quarter with revenue increasing 28% year-over-year to $205.2 million, driven by a combination of existing customer contract expansions, renewals and new business. Braze AI Decisioning Studio, formerly known as OfferFit, contributed $5.7 million of revenue in the quarter. This implies an organic revenue growth rate of 24.3% year-over-year. We're excited to see continued strength from our core business as organic revenue growth accelerated for the third sequential quarter, and we realized robust bookings and strong demand signal for Decisioning Studio and our other AI products.

As Bill mentioned, in February, Agent Console transition to general availability, and we're pleased to report immediate and persistent consumption of our flexible credits in its first month of release. In Q4, our total customer count increased 14% year-over-year to 2,609 customers as of January 31, up 313 from the same period last year and up 81 from the prior quarter. Our total number of large customers, which we define as those spending at least $500,000 annually, grew 35% year-over-year to 333. And as of January 31 contributed 64% to our total ARR. This compares to a 62% contribution as of the same quarter last year. As a reminder, a customer is counted when their service date is effective, not when a contract is signed. As such, some new logos won in the fourth quarter will appear in our customer count in the first quarter of fiscal 2027. Measured across all customers, dollar-based net retention was 109%, up from 108% in the third quarter of this year. Dollar-based net retention for our large customers was 110%, in line with the third quarter of this year. Expansion was again broadly distributed across industries and geographic regions. Revenue outside the U.S. contributed 45% to our total revenue in the fourth quarter, consistent with the prior quarter of this year and the prior year quarter.

In the fourth quarter, our total remaining performance obligation was just over $1 billion, up 30% year-over-year and up 16% sequentially. Current RPO was $642 million, up 27% year-over-year and up 12% sequentially. The strong year-over-year growth in RPO and CRPO was driven by 4 factors: strong Q4 bookings, healthy Q4 renewals, a large quarter for available renewal dollars and a small increase in overall duration of contracts. Non-GAAP gross profit in the quarter was $138 million, representing a non-GAAP gross margin of 67.2%. This compares to a non-GAAP gross profit of $112 million and non-GAAP gross margin of 69.9% in the fourth quarter of last year. The decrease in year-over-year margin percentage was driven primarily by higher premium messaging volumes and hosting costs, partially offset by improved efficiencies in personnel costs. Non-GAAP sales and marketing expenses were $70 million or 34% of revenue compared to $60 million or 37% of revenue in the prior year quarter. While the dollar increase reflects our year-over-year investment in head count cost to support our ongoing growth and global expansion, the improved efficiency reflects our disciplined approach to investment as we continue to scale and expand our go-to-market organization.

Non-GAAP R&D expense was $29 million or 14% of revenue compared to $23 million or 14% of revenue in the prior year quarter. The dollar increase was primarily driven by increased head count costs towards 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 yet disciplined technology investment strategy and are in line with our long-term non-GAAP R&D plan of revenue targets of 13% to 15%. Non-GAAP G&A expense was $25 million or 12% of revenue compared to $21 million or 13% of revenue in the prior year quarter. The improved efficiency reflects increasing scale across public company expenses and the benefit of leveraging strategic locations for headcount expansion. Non-GAAP operating income was $15 million or 7% of revenue compared to a non-GAAP operating income of $8 million or 5% of revenue in the prior year quarter. Non-GAAP net income attributable to Braze shareholders in the quarter was $11 million or $0.10 per share compared to $12 million or $0.12 per share in the prior year quarter. Non-GAAP net income was negatively impacted by a $5 million purchase accounting adjustment related to the deferred tax liability from OfferFit, the enforcement learning engine company acquired in June of last year. Excluding this onetime adjustment, non-GAAP net income and earnings per share were $16 million and $0.15, respectively.

Now turning to the balance sheet and cash flow statement. We ended the quarter with approximately $416 million in cash, cash equivalents, restricted cash and marketable securities. Cash provided by operations during the quarter was $19 million compared to cash provided by operations of $17 million in the prior year quarter. Including the cash impact of capitalized loss, free cash flow in the quarter was $14 million compared to $15 million in the prior year quarter. And as we have noted in the past, we expect our free cash flow to continue to fluctuate from quarter-to-quarter given the timing of customer and underpayments.

Before turning to guidance, I'd like to take a moment to highlight the Board's $100 million share repurchase authorization. This authorization reflects our confidence in our fundamentals, outlook and disciplined approach to capital allocation. We believe this share repurchase represents an efficient and meaningful way to drive shareholder value. As we noted in our earnings release today, the repurchase program includes a $50 million accelerated share repurchase transaction with respect to our stock, which we plan to enter into before the end of the first quarter. In addition, our guidance for share count and EPS includes only the estimated impact of the $50 million ASR. For the first quarter of fiscal 2027, we expect revenue to be in the range of $204.5 million to $205.5 million, which represents a year-over-year growth rate of approximately 26% at the midpoint.

As a reminder, our first quarter contains 3 fewer days compared to the other 3 quarters of the year, which each contained 92 days. First quarter non-GAAP operating income is expected to be in the range of $10 million to $11 million. At the midpoint, this implies a non-GAAP operating margin of approximately 5%. First quarter non-GAAP net income is expected to be $11 million to $12 million and first quarter on GAAP net income per share in the range of $0.10 to $0.11 based on approximately 112 million weighted average diluted shares outstanding during the period. For the full fiscal year 2027, we expect total revenue to be in the range of $884 million to $889 million, which represents a year-over-year growth rate of approximately 20% at the mid-teens. Fiscal year 2027 non-GAAP operating income is expected to be in the range of $69 million to $73 million. At the midpoint, this implies a non-GAAP operating margin of 8%, a more than 400 basis point improvement since fiscal year 2026. Non-GAAP net income for the same period is expected to be in the range of $69 million to $73 million and net income per share is expected to be $0.61 to $0.65 per share based on a full year weighted average diluted share count of approximately 113 million shares. It's an exciting time at Braze. We remain committed to delivering industry-leading customer engagement solutions powered by AI as we continue executing against our long-term financial targets.

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 Ryan MacWilliams with Wells Fargo.

For Bill, great to see 3 straight quarters of organic revenue reacceleration in the business. I know last year has benefited from some go-to-market changes along with moving past COVID era customer renewals. But how do you feel about the underlying growth trajectory of Braze from here? Like has it improved more sustainably? And I know it's early, but how do you envision AI layering in to support growth trends?

Yes, absolutely. Thanks, Ryan. And it's been a great back half of the year heading into Q4. I think that the biggest difference in Q4 was also the differentiation of our AI road map, especially coming out of our Forge conference in September. It's clear that customers can see where we're going. They can see how our long-standing advantages are being made more accessible and more capable with further investments in Braze AI. That helped with both win rates and deal velocity in Q4 as a lot of the competitor FUD just didn't hold water against both our offering and our pace of new product delivery.

We're also seeing stronger momentum with the partner ecosystem, including across both the global agency groups and the more focused regional players that are growing super fast through tight partnership with us. And our global sales leaders are moving with high velocity. And so I think that when we look at it all coming together, you've got a robust product road map. It's moving at pace. There's really exciting AI inhibition that's not only capability, but it's also making our existing capability more accessible and more leverageable by our customer base. And we're out in front with that R&D advantage also being combined with a pricing model that's always been consumption-based with a global go-to-market organization that operates in all the world's major markets and a global customer community that has always been the world's most ambitious and creative marketer, who have been on the leading edge of rapidly building with Braze from the beginning. And so I think that this is just a great moment for all of our existing scale, performance and innovation advantages to come together and we're excited for this year.

Really appreciate the color there. And then Isabelle, it seems like the initial full year revenue guide is slightly stronger than past years. We'll have to hear if any change in the guidance philosophy here? And what are some of the key points that help you build up to the full year guide?

Yes. Thanks for the question. So first of all, no change in the guidance philosophy. Really excited about the momentum that we saw in the business coming into Q4, coming out of Q4, in particular. As Bill mentioned, across a number of different dimensions, we're seeing more 2-year contracts. We're seeing larger deal in quarter contract sizes. Upsells continue to be really strong. There's real excitement around our AI capabilities, as Bill mentioned, ongoing strength in the enterprise, ongoing strength in the Americas, which has been something we've been working on. And so there's just a lot of momentum across a number of different dimensions. I think as we mentioned, bringing Ed on in the middle of last year, he has been furthering our efforts across a number of different things that we've already put into motion, and it's been really great to see some of that success across verticalization. So really excited for that, and you're seeing that in our guide, and we're really comfortable with how we've guided for the year.

Our next question will come from Scott Berg with Needham.

Really nice quarter, and my apologies, I'm in an airport in case there was to background noise. My first question I wanted to ask was of the channel check -- or customer conversation, I guess, that we had during the quarter. we got to speak with one of your largest customers, and they noted to us that they had an internal project that spent 18 months and over $10 million in costs to try to actually replace higher Braze deployment at this well-known brand. But they feel the projects because they're only able to achieve about 1/3 of your functionality even after an 18-month time frame. I guess, Bill, as you think about a customer in the situation that might want to try to put code their own platform with one in GenAI LLM models. What's most difficult to replace at the end of the day that makes a customer's approach this probably -- it's not feasible?

Yes. I touched on this in the prepared remarks, but I think that the meat of this answer lies in the combined requirement of one, a tightly integrated, high-performance infrastructure that encapsulates both the context and the intelligence layers. And two, the comprehensiveness required to handle both the vastness of the modern enterprise data landscape on the ingestion side and then the complexity of customer journeys on output or the interaction side. Within Braze, the Braze data platform is the dedicated context layer and Canvas provides the control plane. They work together to engineer the context of the Agent Console and other Braze AI capabilities harness to drive higher performing personalization and orchestration decisions. For B2C audiences, which, of course, is where we primarily work, this had to happen at massive scale and performance needs to be able to drive real-time interaction across an ever-growing set of channels and direct-to-consumer product interfaces. .

Over 1/3 of Braze customers use us for fiber more channels, more than half of them use us for 4 or more and amongst our 500 Ks customers, more than 90% use our SDK, over 80% use currents to export the data that Braze generates and already 50% are now using cloud data ingestion, which is our reverse ETL product that connects directly to cloud data warehouses like Snowflake, Databricks and Google BigQuery. You overlay that with privacy, security and regulatory concerns that are related to first-party data and communication consent, then you add the operational demands that I also mentioned in the prepared remarks of things like demanding marketing schedules, the urgency of capitalizing on cultural moments or managing through emergencies.

And then finally, to consider how much investment is already going into building these direct-to-consumer audiences and first-party data sets in the first place. The combined customer acquisition costs and the product investments for major consumer brands like consider the amount that, that represents. That's the investment that's already made. And then customer engagement is a multiplier on that investment. And that means that even small basis points matter when it comes to performance. In finance, you all understand the importance of having an edge in data, especially when it's driving decisions on large positions. I think sophisticated customer engagement is that same edge on a brand's customer acquisition investment. And we see time and again that settling for good enough just to save a little bit of money on the software line item is really throwing away enterprise value optimization.

And so, I know that's multi-faceted, but I think that what you see in that anecdote that you shared is that there's a lot of kind of combination of the need for vertical integration, for reliability, for performance and for comprehensiveness. And then you need to interface that with privacy, security, regulatory complexity and the need for this to be operated in real time. and doing so with an external environment and complicated businesses and complicated consumer journeys, and all that complexity needs to be managed. And that requires, I think, a professional focus on building the tooling and the platforms that address this problem.

Excellent answer well understood. And then I guess from a follow-up perspective, I've been at the Shoptalk conference yesterday and today, and you all have a big presence here, obviously. But there's a significant amount of brand momentum with its new universal commerce protocol, a couple of different areas I know you all had released your SDK for chatGPT last fall and take advantage of some of the apps they were betting in their platform. But as your customers use more of this UCP that capture transactions on these new channels and platforms, how do you all benefit? How do you capture some of that first-party data kind of within that workflow process?

Yes. So I think 2 things. One is that Braze will always be invested in every new consumer interface that helps us understand the customer and the customer journey better, any source of first-party data. And we will also invest in areas where we can communicate with customers and where we can help drive better personalization for the product experiences that are delivered to them. And no matter what happens with consumer devices or app stores, the most valuable customers to a brand are going to continue to be those that they have a direct relationship with Braze's bread and butter and focus has always been about helping expand and strengthen those audiences that can access through direct-to-consumer interfaces or other messaging channels that have low marginal costs that are dictated based off of user consent and the right to communicate with them instead of needing to kind of pay to acquire the right to put a message in front of their eyes over and over again, which, of course, is a great way to acquire customers, but can't be how you run a business over the long term and also managing the first-party data that contextualizes them and then orchestrating the product and messaging interactions that enrich those relationships over time.

And so I think we -- we're always on top of new innovations and developments in new direct-to-consumer interfaces of all kinds. We're always interested in how they can help us learn about customers better, communicate with them in new ways. And of course, the more complex that, that landscape gets, the stronger the answer that I provided to your first question is because it means that there's even more complexity for where the data comes from, there's even more complexity for where the interactions are. And as I mentioned in response to Ryan, I think that when we look at agenic workflows, they're also characterized by moving even faster. And that's a place where our focus on performance that we've always historically had is going to be even more important competitively.

Your next question will come from Raimo Lenschow with Barclays.

Can you hear me okay?

Yes, we can hear you great.

Okay. Perfect. Can I start DBNR like got better 209? You talked about it in the last few quarters that it's a lagging indicator that kind of takes some time to improve, but it's really nice to see the improvement. Now can you talk a little bit about the journey we should expect from here? Like -- that's my first question. Second question is, with Ed their joining in Q2, normally, the big changes to go-to-market happen more at the beginning of the new year. Is there anything we should be aware of as we go into this year in terms of changes that we should expect here?

Yes. So on the DBNR, one thing that I've been providing is at least a directional view on the in-quarter organic number. And so over the last couple of quarters, we talked about it, being a little bit below 107 and then a little bit above 107 and then continuing to kind of trend up from there. What I can say here is that the in-quarter organic is above where we're recording -- where we're reporting. So I think the direction of travel here, we're very comfortable with sort of what we're seeing. We're really excited about the momentum in the business that is driving this. And so it is a lagging indicator, but I think we are comfortable that some of the troughing that we have experienced over the last couple of quarters, we've talked about being through the belly of the beast and we are, in fact, through the belly of the beast. So hopefully, that's some helpful color though we don't specifically guide on the metric. .

And then with regards to Ed, look, I think in my last of answers to questions here, I was indicating that Ed has been driving forward a number of initiatives that we had already put into motion. And so not a lot of sort of massive changes. He is trying to be more effective and efficient about bringing on the new head count and being rapid in the right areas, being disciplined about where that is being deployed, building out internal capabilities to help our sales team be more enabled and move more quickly. And he -- I think we said in the beginning, he's not only has he seen the movie, but he's seen the remake and we're definitely seeing the impacts of that. and leveraging his relationships across the potential hires and prospects here. So nothing material that we need to kind of call out, and he's just moving things forward in a way that we feel really happy about.

Your next question will come from Parker Lane with Stifel.

Isabelle, maybe one for you on gross margins. If you look at premium messaging channel growth, if you look at some of these new products you have and your comments about the immediate consumption of credit you see from Agent Console. What's the impact to the predictability of gross margins that you're seeing in this business? And what's the right way to think about not only the near-term picture but sort of the mid-range picture of gross margin as well?

Yes. So look, we've talked about the evolution of the premium messaging and how that mixes in. And just keep in mind that really over the last couple of years, the only new channels that we have introduced are in fact, these premium messaging channels. So now we are introducing certainly with the advent of agent console and some of the other here, things that mix in with a slightly better margin. That said, it's starting off of a small base, and so it's going to take some time for all of that to kind of work itself in. And certainly, the premium messaging is still in demand by our customers. And so I don't think there's so much of an issue necessarily with predictability because we continue to look at that on a fairly detailed basis. But certainly, we've got eyes on the direction of travel. And really, I think what's important is the 8% operating income margin that we feel really comfortable with for the year, and we're going to continue to manage that.

Got it. And Bill, one for you. You talked earlier about AI not just helping in the form of new products, but making your existing capabilities more approachable and accessible. Was wondering if you could provide a concrete example or 2 of what you're seeing there? And where do you expect that to translate into business results? Is that better win rates, better utilization, less churn, all of the above?

Yes. So I think that when you look at the history of Braze, we more often are held back by making sure that our customer base can really flex into the full power and sophistication that Braze has to offer. And one of the things that is most exciting to me about the Brze AI potential right now is that we are both making Braze smarter and more powerful, and we're making it easier and faster to use. And so as we redefine that new front door to marketing technology, again, the door is both easier to open. And when you get to the other side, there's a lot more excitement on value generation there. And we're already seeing this in the Agent Console.

I mentioned an example in the prepared remarks, where we had a lot of customers who were working on building new agents within the beta test and were asking for more templates, more ideas, et cetera. And we actually went through, we had already been working on prompt to campaign, prompt to e-mail generation, prompt to Canvas where people can actually [indiscernible] code their canvases directly from the Braze operator. And not only is it providing you advice, it's literally grab control, the dashboard and you watch it happen in front of your eyes. And so you're both learning -- you're both like having the operator act for you, but you're also learning how to use it at the same time as you watch it. And that allows for that allows our marketers to then immediately go in and check things to tweak them to refine them, et cetera.

I think as a platform that's used for publishing at massive scale or where there's a professional skill set of high consequence when you're running marketing programs that you're relying on to hit your quarterly numbers or that need to go out to 100 million people around the globe in response to a critical emergency or to take full advantage of an evolving cultural moment or what have you. These are all places where you need to combine both rapid usability with high confidence and being able to see the operator building more confidence for people speeding up their own workflows providing that and providing that inspiration with our existing feature set is incredible. Then when we go over to the agent console, where people are -- they're getting to prompting, but there's still a lot to do there and building a good agent does have a specialized skill set around it.

There's still some work that you need to do around the outputs from EGEN and helping make sure that there's consistency and that you're getting the right context in the context window, and we've built incredible capability and Agent Console to manage that even more exciting is that operator is helping write and inspire those agents for people. And so it's just drugging faster adoption. It's -- it's driving higher levels of curiosity for people to be able to use new features that they maybe hadn't looked at before and helping really build stronger confidence for them to use a system like Braze that is really -- it's always been a small number of builders and a small number of marketers welding at a massive scale and that has a stress and a pressure and a consequentialism to it that having that operator assistant there with you really helps increase confidence, and we think is going to drive a lot more usage.

Your next question will come from Brett Huff with Stephens.

Congrats on seeing in the financial stuff that I know you all have been working on kind of in the background for a long time. So nice to see that. Two questions. One big picture, I think this is for you, Bill. As you're hearing -- your conversations with folks you're selling to on AI, our checks tell us that data heterogeneity, lack of AI talent governance issues are all roadblocks. At the same time, companies seem to want quick hit ROI things that are happening in order to justify continued spend. How are you -- how are those conversations going in Braze? I think your point about more features easier to get to. But is there some anecdotes there that give us a little bit of meat on the bone on that we might be able to sort of get our head around?

Well, I think first of all, every software investment decision being made right now, you have to have confidence that the company that you are spending the time to integrate with to enable your teams on and to build with and commit to has their arms around taking advantage of AI innovation. And so I think that's table stakes for everyone, even if you, as a team, don't like have confidence that you're going to be able to use it all on day 0, or maybe the incremental budget to drive new use cases isn't there yet, et cetera. There's just simply no one that is making a switch and a software vendor right now without having the confidence that it's the right vendor for them to be on as they move into this future that's being transformed by AI.

And that's why I think if you go back to my answer to Ryan's first question, and talking about the strength in Q4, so much of that just came out of the confidence in the road map and the confidence in the beta test, we were able to show live demos of operator and agent console. Now obviously, they're out there in general availability, so it's even more palpable for everyone. And I think that A lot of the things that you just said are true. There's a lot of sources of anxiety around there. A lot of this is still dynamic. It's changing really fast. But at the end of the day, we already see Agent Console driving stronger performance in ongoing campaigns. These aren't like brand-new experimental use cases. This is -- there's the same customer journeys are actually just being executed on with higher performance, it's driving real revenue, real performance uplift. It's doing so in an environment that's easy to test and experiment and scale it.

I mentioned Canvas as an important control plane. I think when you look at the difficulty of deploying AI in a lot of enterprises, a lot of it has to do with contact engineering. It has to do with observability and governance and that control plane. And when you look at Braze, the Braze data platform is providing that context engineering Canvas is providing that control plane. We have Decisioning Studio as another angle of being able to bring in agent decision-making over deep data science when that reinforcement learning approach is the right unique to apply, depending on where you are in the customer journey. And we have this full spectrum of the right solution and the right approach for the complex problem space of customer engagement, and we can help guide customers to that. And the vast majority of it is relying on the combination of a reliable, high-performance, stable and secure infrastructure that Braze has always maintained as a competitive advantage in our space. And now we're multiplying the value of that with our investments in Braze AI.

That's super helpful. And Isabelle, we're hearing more and more about verticalization and we also had an update on the gross margin sort of maybe we're going to get some tailwinds on that given the new AI products. Can you talk a little bit about sort of long term, any change in long-term sort of puts and takes on the gross margin pressures? And then should we think about any step change for verticalization spending? Or is that just a matter of course?

Yes. So I think on verticalization, I would just consider that kind of a matter of ordinary course. We're just going to continue to kind of expand slowly, but methodically, just deepening our focus on some of the verticals. We've already started this over the last couple of years, and I would just kind of continue -- just expect that to kind of continue to expand. .

And then from a gross margin perspective, yes, look, I mean, we've been talking about the impact of some of the premium messaging. And then I did indicate that in my response to one of the last questions that the -- some of these new products and agent console does mix in with better than company average margin, but it's obviously starting off from low dollars, and so it will take a bit of time for that to kind of mix in more meaningfully. And so what we're really focused on is the operating income margin down to the bottom line, and we feel really good about that 8%.

[Operator Instructions] Our next question will come from Arjun Bhatia with William Blair.

Perfect. Bill, maybe can we touch on things like Agent Console is obviously getting a lot of traction. And I'm just curious if you can kind of put that into perspective of when that might help monetization, which types of customers. Do you think we'll adopt that first. And then in the broader scheme of things, we're hearing a lot about, obviously, third-party agent proliferation. So I'm curious how that mix is in with Agent Console. And if you have any views on what access third-party agents would have to Braze or not have to Braze and the data that you use store for your customers?

Yes. So I'll just hit those topics one by one. So regarding Agent Console and pacing of adoption and revenue, as I shared in the prepared remarks, both Agent Console and the operator both went into general availability, months ahead of schedule. And we're already seeing great uptake on both. After just a few weeks, more than 2/3 of our customers are now actively using operator. and we're watching Agent Console adoption grow week-over-week. But I think we're going to have a lot more to share about both of those that are at City by City London, which is our second largest event of the year, just one month from now on April 23 at Olympia, London. And we're also lining up the entire company and our partnership ecosystem to help push adoption.

Agent Console is already showing material results for its beta testers and early adopters, and we're excited for it to spread rapidly across the customer base. But also remind you and everyone else quickly that Agent Console consumes flexible credits. So it's build -- it is consumption-based pricing, but the revenue is recognized the same way that it is for messaging volumes, which is to say that it's ratably over the length of the contract. So we expect usage of agent console to be supportive of early renewals and upsells. But keep in mind that the consumption of credits does not lead to immediate revenue recognition in our contracting model. We do have the benefit that we've been shifting to the flexible credit model over the last few years. And the customers who have adopted the new credits plan, which has been, as a reminder, has basically been the default for all renewals and new business over the course of the last couple of years. So it's already the majority of our customer base. that they already have credits that are ready to be used for Agent Console. We do have a portion of our customer base that's still on older pricing that we are working hard to move into this new world so that they can also rapidly adopt Agent Console, and that's something that we'll be focused on throughout the year.

With respect to looking at other tools, I think Braz has always been built for composability and built for change. The combination of our composable architecture, our high-performance infrared and our flexible APIs aren't just a strong foundation that we used to build our own innovation. I think they're also really well suited for market overflows that are both transforming and inflecting through the use of other AI tools. We've always been architected to be composable, to be ecosystem neutral and to integrate with other best-of-breed tools across the modern marketing stack. And that's both for plugging in to enhance things like orchestration and predictive analytics decision-making as well as personalization. It's also for evolving new channels, new use cases, new AI capabilities, et cetera.

A few other things. I think we're also seeing that performance in the context layer is more important than ever with agentic consumers. Agents move fast and they're tireless and we think that, that's a perfect match for the performance and reliability advantage that Braze has always maintained over competing in homegrown products. And as I mentioned earlier, we've always been a platform where leading-edge marketers with the builder mindset can deploy and optimize sophisticated strategies. And so I think what we're doing with operator and Agent Console is simultaneously putting more power in their hands and making it easier to use. There is also a big advantage to a tool like operator being inside the Braze dashboard information environment, having access to our internal use case libraries, the skills that we've built, the customers' dashboard information architecture so that it can adapt recommendations and run the dashboard for them with knowledge of their specific Braze integration.

We actually had a really great anecdote on Braze operator that was shared by a customer recently that they were working through a difficult challenge with liquid that they had spent over an hour on using one of the leading edge or using one of the big chat AI products. and operators solve the problem for them in a minute because operator had full knowledge of the way that Braze uses liquid, where it was in the dashboard and the information architecture. And so I think being able to adapt both the context and the semantic layer and be able to train the operator with the skills and the knowledge of the architecture is going to provide differentiation, but we've always been composable, built for change and extensible. And so we're also already seeing a lot of customers that are using the Braze MCP server and using our powerful and flexible APIs in order to innovate their own workflows outside of the ecosystem and we embrace both of those through our composability.

Your next question will come from Taylor McGinnis with UBS.

Bill, so I think there's a view out there that customer engagement and marketing software is more workflow heavy and lacking data modes that could make it more vulnerable to AI disruption. You talked a lot about the context layer and what Braze is doing there. But could you just maybe unpack that for us? Like what proprietary data modes does Braze have? And does that give you an edge in creating some of the AI solutions you talked about like Decisioning Studio and Agent Console?

Yes. So let me answer that on 2 dimensions. First, talking about context engineering with respect to Agent Console. And then second, talking about the broad -- when I talk about us having a full spectrum of AI technologies and how we can compose them together to drive more innovation in the future. So first, on the context engineering point, I think contact engineering, of course, we know requires comprehensive rapid access to data. I think that underscores the criticality of the Braze data platform, and we were very happy to share some of the scale numbers on the Braze date platform recently over 25 trillion data points processed last year and widespread adoption of the multitude of integration options that we have. And I think that, that is the beginning of the story because contact engineering requires not just access to huge amounts of data quickly but also deliberate design and not just because of the cost and performance considerations of large context windows, but also because the deliberate management of the attention of agents, which is a relatively new concept.

We generally tend to think about access to data as just a kind of storage cost and latency and throughput. This idea of attention is really important as well because you can actually -- you can have context windows shots and unless you can keep the agents focused, you start to see outcomes go down and the quality go down, and it sounds great to be able to dump a 200-page EDF brand book and every historical campaign result and every raw data point that you've ever seen about a user into a large context window and hope for the best, but that's not only slow and expensive. It also leads to lower quality outcomes and higher volatility that creates both brand risk and lower performance. And so by taking the environment that we built in Braze AI with the Braze data platform with Canvas and Agent Console, designed to solve that problem for customers. It lets them and their bras operator, rapidly build, test and scale new agentic ideas that they have with tremendous promise to improve consumer experience, enhance their own bottom lines and do so in a way where the context is being managed and governed in a way that is privacy and regulatory compliant and it's being engineered in a way that it's managing the attention of the agents and it's doing so in a way that keeps performance, quality and consistency top of mind.

And so I think that whole problem space has a lot of additional complexity in it. We're working really hard to solve that for customers, and that's what's going to be able to drive both defensibility and rapid adoption. And then going from there over to decisioning, you've heard me speak about the full spectrum of AI technologies that braces investing in I think that a age of both our R&D scale and the composable high-performance infrastructure that we're built on top of -- when we look at decisioning, there's another haradigm-rising that relies on agentic intelligence, overseeing deep data science that relies on reinforcement learning. And for those that maybe haven't looked at decisioning Studio, closely in the past. This approach is similar to what personalizes your Instagram feed and injects ads into it. And it's the best way to enable the decisioning system to rapidly learn from past interactions across the rest of your customer base. You can just take like, hey, here's the last 10 million push notifications that I sent and how everyone responded to them and everything about them and jam it all into a context window and expect an LM to be able to keep its attention in the right place and make sense of that.

But by using decisioning and reinforcement learning around that, you're actually able to find those hidden points of resonance between the content and the engagement strategy and the individual customers be able to do that interaction. And that's also a field that's rapidly advancing. We've talked about how today it's best deployed to optimize the most valuable transition points in the customer journey. When a free trial streaming subscriber is upgrading premium or when an on-demand or a banking customer adopts a new service or an add-on product. That makes them more valuable and secure at the same time. So you want to bring that kind of heavy weight data science approach into those problems exactly because they're your most valuable and they're where you want to have the best performance uplift. But over time, we plan to continue to use decisioning science combined with agentic reasoning to increase the applicability of both approaches across more and more of the small moments in a customer journey as well so that customers can continue to harness these different approaches to AI and combine them together to get the best outcomes for a eternal for their businesses. And so when we look broadly across the space, I think there's so much opportunity for additional value to be created out of depth.

And if you go back to our -- the question from earlier about why it's hard to build Braze and why? Where that incremental value comes from and think about the leverage that you get out of the investments that are made in building first-party audiences, combining together these optimizations and being able to compound them over time and to be deliberate about it, is exactly how you drive additional bottom lines, how you drive higher loyalty in your customer relationships and how you get competitive edge in these ruthless consumer markets. And so we just believe that the brands that win in these markets are going to be the ones that are arming themselves with the most sophisticated tooling and the strongest contact engineering, not just trying to throw a whole bunch of data and do a context window with a frontier model and hoping for the best.

Your next question will come from Brian Peterson with Raymond James.

So the really bookings this quarter, I'm curious, has that changed your thoughts on sales hiring as you enter fiscal year '27. And Isabelle, maybe you could unpack some of the individual margin drivers by OpEx line and gross margin as we think about ramping to that 8% number for fiscal year '27?

Yes. So just in terms of hiring, and we talked about this as we were kind of closing out getting into the end of the year last year. As we've seen rep productivity continue to improve through last year, we already put into our plan that we were going to hire incremental sales capacity. So that is underway and has been underway and continues to work productively. So definitely excited about that. And then as we think about kind of the pathway here to the 8%, look, I mean, the place where it's going to come out of -- mostly is in fact in sales and marketing. We continue to expect to get efficiencies of scale there. And then G&A, as we continue to lean on some of these strategic locations, that's going to be helpful as well. R&D, we've said is already kind of just operating where we expected to. So we're really excited about the continued scale that we're going to get -- continue to get out of the sales and marketing place.

Your next question will come from DJ Hynes with Canaccord.

Congrats on the nice quarter and the strong guide for fiscal '27. Isabelle, I'm going to pull on that booking threat as well. When you talk about a 50% year-over-year increase in bookings, obviously, the timing of renewal cohorts can impact that math. I normally wouldn't ask a bookings question, but since you shared the metric, I'll press a little bit. Any way to help us think about net new ACV growth? Like is that growing faster than run rate revenue growth? I'm just trying to get a handle on the magnitude of the strength you saw in the quarter.

Yes. I mean, look, I think both from like renewal cohorts that then kind of added to -- through upsells as well as kind of the net new business. I think both were really strong. So I think the overall, the momentum in the business in Q4 definitely have accelerated within the quarter. The renewals that we saw were very, very strong. And as we continue to kind of work on the downsell pressure that we had been seeing in years past, so I think it's a combination of kind of all of those things mixing together. And obviously, that strength in Q4 was certainly a part of the storyline going into this year and what helped us with the guide and our confidence in the outlook.

Your next question will come from Nick Altman with BTIG.

Isabelle, can you just talk about what drove the strength in professional services revenue this quarter? Just how much of the outperformance from -- this is a new studio is in subscription revenue versus professional services?

Yes. I mean they make it a little bit more with a little bit more professional services, but the reality is the proportion of professional services rate large across the company. The mix shift isn't changing dramatically. And so we really sell professional services in order to sell more software. And as the bookings strength continues to be strong, there's some element to implementation and onboarding that's mixing into that. Obviously, we're also trying to bring in more partners to bring that in. So I wouldn't read too much into kind of the distribution between the 2 -- the reality is -- and then we've got things like TAM and sells or other professional services that are actually contractual over the full term of customers' contract life that continues to be strong. So it's a mix of different things, but the reality is we truly sell professional services in order to sell more software.

Your next question will come from Matthew VanVliet with Cantor Fitzgerald.

Great. Maybe touching on the question about build it yourself earlier from a different angle, are you guys using some of these AI coding tools internally to keep your advantage from a technical perspective and just evolve just as quickly as anybody else can how is that, I guess, impacting the rapid adoption of some of this functionality? And if anything, how does it impact your cost structure?

Yes. So I think that when we look at Braves R&D overall, that my major takeaway is just how excited I am that we've got in place a cadre of long tenured leaders that have a ton of experience navigating through disruption, we were born in the disruption of smartphones. We've been in probably the most competitive -- or like one of the most competitive software categories, our whole existence. We've got a team that knows how to navigate disruption and knows how to win together, including both of our technical co-founders still here, both of the offer fit co-founders still here and a bunch of long-tenured R&D leaders that are driving ahead innovation pace and urgency combined with experience of navigating disruption and really understanding our deep global customer community. .

So with respect to the adoption of agenda coding, you see it in the results, like we released the operator and the agent console months ahead of schedule. That was due to a combination of a strong beta test, but also because the velocity increases that we're seeing. Braze Engineering is also at all-time highs in please engineer per week and lines of code per week. But just like AI slop isn't producing value for differentiated investment analysis, the volume of code, I think, isn't the whole story there. The craft of building and scaling a valuable software application for professional workflows and enterprise workloads that are also transforming themselves is going to remain incredibly valuable. It's one that we're really excited to apply to customer engagement at scale.

And I think that we're right in the throes of this. We're having fun with it. We're moving it pace. And we're really excited about what this means for our entire software category to go through another reinvention, a team that was born exactly because of the opportunity that came out of the disruption of mobile gets to see our product space transform again, find new opportunity. But we get to do it this time with a global customer community, with a global go-to-market organization and with a lot more experience, but we're moving faster than ever. So it's just really exciting all around.

Your next question will come from Brian Schwartz with Oppenheimer.

Congrats on a strong finish to the year Bill, I wanted to ask you a question again on the moat with AI. Maybe I would ask you the question in the form of the origin of the data models. So if you think about the outputs that are coming in your AI products and the decision in Gen, is it possible to think about what percentage of those of the AI output is coming from signals that's being trained on data specific and proprietary to base versus those third-party foundation models in the market?

Yes. So when you look at, for instance, everything going on in decisioning studio, those are reinforcement learning models that are proprietary to Braze. They're trained with customers' data. The data is being fed through the Braze data platform. When you look at Agent Console, that is a combination of the context engineering that's being done by Braze that I spoke about earlier. But of course, it's lying on the foundational models to be able to provide the broad-based reasoning and personalization capability, that's a big part of the distinction that I made earlier as well because there's no one size fits all and while there's a lot of work that the foundational models can do and a lot of great opportunity for them to be able to do things like do personalization once you already have a recusation algorithm has narrowed down the choices and you want to write an e-mail that's maybe comparing to the top choices to someone so that they can compare and contrast and you can drive up the conversion window.

But we've also found that being able to combine reinforcement learning with the intelligence it's in the foundational models, is actually the best approach to not only get the highest performance but to be able to prove it over time. I'm sure you've seen in your own experimentation with LLMs that being able to understand like that in their performance and improve it over time as more of an art than a science, the explainability and observability within them and the attribution of what data really drives better outcomes for them is still very hard on solve problem within decisioning and within the reimbursement learning engine, we're able to actually see what data is moving the needle and what be thrown out, what can be optimized and then go and search for more signals that are along the lines of the one that are really driving better uplift, et cetera. So I think that's why we think that the right approach here is multifaceted. It's multifaceted both from a data source perspective which is why you see the investment and the scale and the composability in the design of the Braze data platform. And then also one where you need to be using multiple approaches to assemble, context and utilize your own bespoke training alongside, of course, the formidable intelligence that exists in the frontier models.

Your next question will come from Siti Panigrahi with Mizuho.

Can you hear me? All right.

Yes.

It's good to see some of this AI momentum. I was specifically OfferFit. It's been a year almost since acquisition. What kind of discussion you're having with your installed base? What kind of traction are you seeing cross-selling to the installed base? And then specifically on the margin side, I know there are some kind of plan there to improve it. What kind of progress you are making on an improving margin for OfferFit?

Yes. So I think just on the installed base, that is -- that's the primary area where the sales and the upsells are happening is, in fact, within our installed base. There's a lot of momentum. The pipeline is strong. There's a lot of interest. And then on the margin front, yes, look, there's a growth element here where as we bring on the necessary staff to enable the implementations and onboardings for customers buying it. Yes, there's -- we have to handle that expense and that does mix into margins as well. But we're very focused on that, and we've been working -- continuing to work on the product, and we're also working on expanding product tiers to include products that are a little bit more self-service. And that will also -- those will also mix in with higher margins as well. So a number of things in flight to continue to work on that, but we're just excited overall for the momentum with our existing customers is shaping up.

There are no more questions at this time. I'll now turn the call over to Bill for closing remarks.

I want to thank everybody. Thank you everybody for joining us today. As I mentioned, we're excited for City by City London about a month, and then we will see you after Q1.

Welcome to our next session. Glad to have the team from Braze. Great week for you so far.

Can you talk a little bit, you reported very strong numbers. Share price move kind of reflected that as well and even more. Kind of maybe to bring everyone on the same page, like talk a little bit about what you saw in this quarter and the highlights for you?

Yes. I think this quarter, really a combination of two things. One is the work that we've been doing in the last 6 or 8 quarters really focused on product health, customer health, a lot of the changes that we've made around pricing and packaging and other things to make using Braze and growing with Braze easier, just removing those friction points for customers to be able to get up and running and be able to experiment with new use cases, scale them production, et cetera.

And you're seeing that come together, and we'll talk about that a little bit more around Black Friday, Cyber Monday as well. And then, of course, all the excitement around the frontier work being done on the AI road map. We launched -- the -- we launched a bunch of new products, the Operator Agent Console, Decisioning Studio at Forge, which was right at the end of September.

And AI is in every single customer conversation. We're seeing people bringing it to life, driving real impact on their businesses with the Decisioning Studio, obviously, also driving revenue for us as well as customers are deploying that in order to drive greater levels of performance in some of their most important parts of their customer journey.

And so a lot of different things coming together, some that's dynamic and changing every day around the AI road map and then some that's just great business, making sure that we're staying focused on the fundamentals around product health and customer health, and we're seeing that come together.

And Isabelle, like in terms of numbers, like maybe just kind of round up there as well?

Yes. I mean we're seeing, as Bill mentioned, kind of the culmination of some of the efforts that we've been putting into place over the last kind of number of quarters. So when we think about efforts around completeness and consumption and our ability to have better telemetry on areas where there might be some risk associated with customers who aren't quite utilizing the full breadth of their entitlements.

We now have the flexible credit model that allows us to kind of get people to sort of really be able to flexibly expand across channels and make some differentiated decisions and engage in more sophisticated cross-channel strategies. And what that means is we've really been able to stem some of the downsell activity that we've been seeing. And so you're seeing more opportunities for upsell, a little bit less downsell. We're kind of through the belly of the beast on the ZIRP cohort.

And so we're starting to see less customer churn activity. You're seeing some improvements in the net customer adds, which is great to see. And then generally speaking, for the overall customer health, you can see this in things like our day sales outstanding and our free cash flow, real strength in kind of payment collections that we're getting there. And that's an indication of kind of the overall health of our customer base, which is exciting to see as well.

Yes. Yes. I mean -- and maybe one last question on that was like talk a little bit about the trends, like I think organic growth accelerated a little bit. What did you see on NRR?

Yes. So on NRR, we've been talking about the organic in-quarter NRR, which I think is an important metric for people to be grounded in as we think about the really -- the underlying health of the business. And I understand that the reported number is a trailing 12-month number. And so it's a little bit hard for people to get some telemetry on sort of what does this mean for kind of the future and because it is such a lagging indicator.

So we really started to talk about the in-quarter number. And so to see between Q1, Q2, Q3, ongoing stabilization and slight pickup in that number. And again, I think that speaks to more limited levels of overall customer churn, more limited levels of downsell activity as, again, customers are able to much more flexibly and completely utilize their entitlements.

It's been a great trajectory for us. And so we've been talking about stabilization in that metric. It's translating to the organic revenue growth and we talked about organic revenue growth was going to sort of inflect a little bit before the DBNR. That has sort of happened. But so we're really excited about kind of that overall direction of travel of the business.

Yes. Okay. And then, yes, Bill, you mentioned already like the one question I keep asking all the guys that are in your field that are playing in your field is like how about Cyber Week. Like two parts of that question. One is like how does it play out for you? But then also, what are the trends you're seeing there? Because the world seems -- world is changing and merchants are seeing that as well. So maybe kind of talk to the two?

Yes. I mean, so first, the headlines, 100 billion messages sent over the 7-day Cyber Week period, just a tremendous number. Did that with 100% uptime and high performance all the way through. So really good operationally, I think, in overall message volume. In terms of trend lines also, it was the first year that Cyber Monday had higher volumes than Black Friday, which is interesting to see. We obviously are seeing retailer strategies starting to expand across a longer holiday season in order to try to break through the noise. And breaking through the noise is also a personalization strategy question as well.

And so we are seeing increased usage of our more advanced features that help with relevance optimization and a lot of optimization around send time, channel selection, content personalization, et cetera. I think the other interesting thing, though, is that it's not a retail-only event. And this is probably the primary driver of that Cyber Monday versus Black Friday comment as well because we're seeing huge growth in other verticals in terms of increases in messaging around these.

And Braze is a very diversified customer base. We do retail and consumer goods is our largest vertical, but it's only about 1/5 of the business. And across those other 80%, it's also a globally diverse business. And so there's other interesting times that we'll look ahead to, like, for instance, the first week of January is effectively the Cyber Week for a lot of the health and wellness, personal finance, education apps, things where people are setting the user solutions and engagement in those moments is really important as well as retention.

We also had a really interesting thing happen on Black Friday. It's 8:00 a.m. Friday morning. The production support teams are all at the ready. Everybody is watching all the monitors, and we have a tripling of traffic on one of our clusters that shows up all of a sudden, and it turns out it's because the K-Pop Grammys are going on in Hong Kong the evening, and they're doing a giant like one of our big customers in that category is doing a voting like promotion right in the middle of the K-Pop Grammys.

And so we've got U.S. retailers all spinning up for Black Friday, and then here's the K-Pop Grammy showing up with this huge traffic influx as well. And of course, we handle all that. As I mentioned, operationally, high performance all the way through that period. But I think just a great testament to how diversified the Braze customer base is as well.

Yes, yes. And then so with Cyber Week, like how would you describe the overall market and I did ask that to kind of all the management teams because the year was kind of -- sorry, I want to say a tough year, but like that's kind of morning, but like a lot of volatility with the tariffs, et cetera, a lot of uncertainty. Like what are you seeing at the moment in the market?

Yes. I mean I think one of the things that we see is the durability of the life cycle CRM and kind of mid and further down the funnel use cases that are in Braze, right? Like there's a lot of volatility at the top of the funnel as you go through a lot of these things that you just cited. But when you're engaged with a customer, the -- a, like the marginal cost of engaging with them is lower once you have -- once someone is a Braze customer and you can e-mail them or send push or you can personalize messaging on your website once they visit it or SMS and WhatsApp, which tends to be further down the funnel because it does have more of a marginal cost, but it's still less of a marginal cost than a lot of other performance marketing tactics.

And so that -- I think just seeing the durability of engagement once you're further down the funnel, even as all this chaos happens is one important takeaway. One of the other things, we highlighted the increase in SMS and WhatsApp growth, which was one of the fastest-growing channels. The next fastest-growing channel that we mentioned was content cards, which is actually an in-product message channel.

And what's consistent about both of those as well is that they are further down the funnel. And they are also channels that are net new for a lot of marketers to be able to add to their arsenal. And one of the big things that we've been focused on for a long time, but also with a lot of the work around the flexible credits model and the consumption and completeness that Isabelle mentioned is making it easier for customers to expand their strategies across these channels.

And the way that, that usually looks is that they run smaller scale experiments. They show themselves that they can achieve uplift through that and then they deploy them more widely. And so I think that we've gotten a lot of questions about whether or not our SMS and WhatsApp growth could be due to like changes in SEO Land or other things going on. Within the Braze customer base, like it's important to remember that those channels are still new. And so what you're actually seeing is just that this year, year-over-year, there are more of our customers that over the course of the last 12 months have experimented with these use cases on SMS and WhatsApp. They found early success with them, and then they've been growing and scaling those.

And so those tend to be more middle and further down the funnel places where you've already been engaging with the customer, you're a little bit closer to a sale, you really want to close the deal. And those are, therefore, also places where the marginal cost of those premium channels is more worth it to a marketer because they can see the conversions happening right there.

Yes, yes. And do you -- you talked about the top of the funnel having a lot of changes. The question I get, and I just had like e-Commerce on stage as well is that it's kind of -- it actually feeds all the way down that you kind of actually do go and do start doing transactions out of like perplexity, et cetera. When you talk with your big customers, like how do they think about the whole evolution of the value chain and like the future view, like will you get more important because like what's your role in the future as part of that?

Yes. Well, so one of the things that I think is important to keep in mind is that marketers are -- so we're having a lot of these conversations with our customers who are building things like ChatGPT native apps or they're experimenting with instant checkout and such. And one of the consistent perspectives is that they're thinking about these things like marketers always do, which is that they have a diverse range of traffic sources and those traffic sources have different amounts of data and certainty that flow with them, and they also have different costs in terms of the cost of discovery of acquiring those customers.

And it also continues to be the case that the best purview on those customers and the highest value way to like reengage with them is if while once they discover you, if they get connected to your first-party or direct-to-consumer ecosystem somehow. And that's true across all these different verticals. And so I think that there's a broader question around how much of our buyer behavior shifts to aggregators as like new aggregator technology comes in.

And then there's always the second order effect of once an aggregator starts to command the user attention, what -- how extractive does that aggregator act? And I think one of the -- an instructive example of probably some of the effects that will happen here is like if you look at Amazon, the early Amazon marketplace entrants, you would compete on like organic considerations, like how well reviewed are your products and how do they show up and how do they match like what people are looking for, et cetera.

Now they built a giant ad business on top of it, right? And so it is very much pay to play. And that is an example where because that aggregator, the people started in that search box, right, has now started to extract more value out of that, it has increased the incentive for brands to set up their own first party. And so there's a lot of brands that maybe 5 years ago would have been happy just living downstream of the Amazon search box. Now that's not as profitable of a venture anymore.

And so Shopify has certainly been a beneficiary of that as more brands have set up their own first-party universe. And I think we are going to see very similar dynamics play out with agentic commerce, which is that having a customer come through an agentic route is a -- that's some GMV like in the retailer example. But that customer is not as valuable if they never actually have a connection with your brand. And so -- and they're even less valuable if all of a sudden an advertising business gets built on top of that agentic commerce.

And now not only are you not connecting with them, but you're also paying for the privilege of not being connected to them. And that's the exact same world that a lot of food retailers found themselves in as the delivery app started to come into play, too. And so you see strategy shifts from the likes of McDonald's and Burger King and such with respect to the delivery platforms, and it's because being a commodity supplier downstream of effectively an aggregator or an agentic food delivery experience was not the business that they wanted to be in.

And so they've invested heavily and the same thing with hotels and airlines around the OTAs. And so I think as Braze looks at it, there's -- the customers that arrived on these first-party properties, it's actually increasingly important in this chat where if your search box starts with chat, you actually currently have even less visibility than you do if the search box starts in Google, like once they end up on your page. And that's one of the things we're hearing from marketers is that they just don't have visibility about what's happening across that interface. That increases the relative importance of making sure that you're collecting first-party data and getting that ability to reconnect with that customer. And that benefits us.

So there's going to continue to be a bunch of change there. But I think that as I spoke about on the earnings call, as the app ecosystem and OpenAI also gets built out, they are -- as -- if that ends up more open and less extractive, that's great. It becomes a new app store or becomes like somewhere between probably the Apple App Store and the open web in terms of how open it is and what they allow there. And that's great for us.

It's a new platform to collect first-party data and engage with customers. If they end up much more closed and more extractive, that just increases the incentive for brands to build those first-party connections with their customers, and they do that with Braze.

Yes, yes, exactly. Yes.

Okay. Yes. That makes a lot of sense. I mean it's going to be fascinating yes, how that continues to play out?

Absolutely.

Shifting gear a little bit, Isabelle. Sorry, that's kind of more like a number question, sorry. If you think about it, like last quarter, but it might be related actually, last quarter, you think customer growth was really good, especially on the high end. The question I'm getting a lot is like, is that kind of AI-driven or like maybe speak to that.

Yes. So Bill mentioned that AI is sort of embedded in every conversation that we're having with customers. So I think it's just -- it's generally part of the narrative. But it's not like it's necessarily like, oh, well, all these new customers are coming from kind of the AI kind of native tiny companies that are all kind of budding out there. So it's not really that. And actually, when we think about the larger -- the greater than $500,000 customers, we're seeing a lot of healthy graduations from kind of sub 500 up into north of 500. And that's really great to see.

And again, the customers' ability to kind of more fully utilize their entitlements is really kind of a driver of the ability to sort of see upsells on the horizon. And then -- and when you think about that net number of sort of customers that will trade down from north of 500 to below, that obviously works against us. Well, if you are utilizing the vast majority of your entitlements, then you are not going to have to trade down at a contract renewal period. So that's also really exciting to see.

Yes. And I think what is absolutely true is that like no one in this category is gaining new customers like without frontier investments in AI and an extremely strong AI product road map, and that is like increasingly like the pivot point in purchasing decisions that people are making, especially for those that are making this decision once every 5 or 10 years, right, which characterizes broadly the legacy replacement cycle opportunity that's out there.

And so I think we're also really -- like we're optimistic about both within the customer community and customer section, but also the broader partner ecosystem. that Braze's position right now, you look at the Salesforce Marketing and Commerce Cloud growing 1% year-over-year versus Braze growing 25.5% year-over-year. And just like brass tacks on that, like which one of those is going to have a more robust AI investment that if I'm going to partner with them, if I'm either going to build an agency practice in the partner ecosystem or I'm a customer looking to make a transition in my infrastructure and for the first time in 5 or 10 years, like where am I going to place my chips, right? And so I think we feel really good about our position around that.

And then -- I mean, there's 2 ways to think about that using more of what's available to them. That's kind of macro because like they feel they want to do more or it's more like product -- more product from you guys that you want to kind of work with to improve things?

Yes. I would say there are two things at play there. One of them is that people's budgets are stable at a minimum right now. And for some of them, they're growing. And in other places as well, I think some of the SMS growth that we saw certainly is driven by the fact that there's a clear ROI function there, right? The example that I provided in the -- in my prepared remarks and earnings about the medical supply repurchase use case, like that's further down the funnel. There you are spending both to have AI personalized the content and to deliver the lural message.

And you know exactly how worth it that is, right, because you've got that ROI function there. And so that is driving certainly incremental usage of some of these higher marginal cost channels in particular. But in general, I think that the marginal cost of engaging your first-party ecosystem has always been more performative and had higher visibility than the broader performance marketing space.

But retention and engagement usually is higher up and hierarchy than acquisition is for a lot of people, right? And so I think it's important and one of our roles in our customer community and in broader education and the marketing technology space certainly that strategies need to go further down the funnel. You need to stay there as a companion of the customer all the way through their customer journey. And you need to have an -- like in order to do that, you also need to be able to orchestrate a strategy that goes across all these different relevant channels.

And so I think we're really focused on that. AI is absolutely an important part of that because the complexity inherent in trying to actually keep track of where customers are across these multifaceted customer journeys that they are and making sure you're engaging in the right moments with the right strategies. And increasingly, I think deliverability is getting very hard in these inbox, too, right?

Push notification, inboxes are getting automatically sorted by AI now on both Android and iOS. You've got more noise than ever coming into your e-mail and some Instantbox. And so those are places where it is -- personalization isn't just like a nice to have that gives you some uplift anymore. It is like table stakes if you even want your messages to get in front of people's eyes. And so I think that increased complexity in that deliverability environment has always been a big benefit for us because as the more advanced solution, there's always the question of like, well, do I need to invest in the more advanced solution? Like what about this other thing that I've been doing before? Like isn't that just good enough?

And it's like the harder it is for messages to even just get any sort of placement in an inbox and have a customer actually look at it, the more the answer to that question is like, no, what you were doing before is not only not good enough, it's actually not accomplishing anything for you, right? And that we're a big beneficiary from that.

And changes to our pricing and packaging are actually enabling.

I was asking about the premium...

Right. The credits model, if you think about what that's doing is it's materially lowering the activation energy for a customer to even think about the cross-channel engagement strategy, the experimentation, the expansion into net new channels that they maybe haven't tried before. It used to be one that if you were going to even do SMS, you had to start thinking about which countries, how much volume, how much across each individual country. And if you kind of underutilized in one place, it was really hard to kind of switch that over somewhere else.

Here, when you buy the credit, you don't have to think about that in the same level of detail. So it reduces friction in the original sales cycle. And then once you have the credit, you're automatically enabled, right? We have to enable all the customers across all of these channels. So once if they want to try something new, they don't have to engage in a new procurement cycle. They don't have to work with another order form and work to understand what a SKU looks like. It's just embedded and ready to go. And that experimentation is great from a customer experience perspective, and it enables them to actually get to the place where they have the cross channel. And once we have a customer using more and more channels, the number of competitors that we have just kind of falls away. And so that adds to the stickiness of the customer.

Yes, yes. I mean how do you -- from a CFO perspective, pricing packaging, how do you think about premium SKUs then?

Yes. Yes. So look, we look at this across kind of two different dimensions. One is the way it sort of works is think of like an FX table that lives in the background where it's like one credit equals such and such kind of action. And we work to make sure that the -- there is some relevant important margin that we do need to get a minimum margin that we do need to get relative to the pricing that we're being charged by the vendor.

On the vendor management side, one, we have -- we're expanding the number of vendors that we buy these premium channels from and sort of work to make sure that we are optimizing where we're putting the customer on, so which vendor are they kind of flowing through. And the vendor -- customers tend to be agnostic as to sort of where that is.

And so we will work to optimize that and then working the vendors against each other to make sure that we're kind of getting the best pricing. So we're continuing to do that, but ensuring that we can be in sales cycles, win business without being pricing ourselves out. So it's a line to walk, but we're very aware, obviously, we don't want to be upside down on this.

Yes. Okay. Perfect. I wanted to shift gear OfferFit. What do you see here in terms of adoption trends?

Yes. I think that excitement continues to be high amongst the customer base. We have seen some great customer wins, too, across verticals and in regions around the world. It's going to continue to be rate limited as we continue to build up the services side of the business, right? Like just as a simple example, we've got opportunities like across APAC, but OfferFit didn't have or deployed people in those time zones before. And so we're still in the early days of like bootstrapping a scaled GTM engine around that. But I think customers are seeing great value, and we continue to be very optimistic about it.

Yes. Okay. Perfect. Okay. And then the -- if you think about it, like how broadly kind of -- how broad can that cross-sell be for OfferFit? Like and what's the cross-sell motion that you want to do? I like is that at a renewal point? Or how do you think about adoption there?

Yes. So I think broadly, the -- I would take a step back and say like where do we want to sell people AI to optimize relevance. And the answer to that is everywhere. Everyone should be using AI to optimize relevance. And we will have premium offerings across the whole spectrum. The Decisioning Studio Pro SKU that we sell today, which is around -- it's a multi-hundred thousand dollar per year proposition. That is going to only apply in use cases with high-value actions and with high scale customer bases.

But when you have those ingredients, it is absolutely the right answer to get the maximum performance that you possibly can out of those parts of the customer journey. And then there's a whole bunch of other places where relevance optimization that's driven by AI is going to get plugged into the Canvas environment and plugged into other parts of the Braze AI ecosystem, and we're excited about having a full spectrum offering across that.

Yes. Okay. Perfect. And then changing slightly gear again, like Isabelle, one for you. The one question I got from investors is like so organic growth improved a little bit. And there's like the market is there, but the question is, how much of that is go-to-market? And what are you doing there to kind of work on that?

Yes. So we've been talking about improving overall sales efficiency over the productivity over the last couple of quarters. I think that started in kind of Q4 of last year, continued into kind of Q1, Q2. So we're seeing that kind of that momentum continue. And the other part of it, which accumulates over time, obviously, is our ability to quell the downsell motion. And so that is immediately beneficial to top line because it's a classic $1 saved is $1 earned. And that really mixes in sort of immediately.

And so we -- it's a combination of those two things that are driving that against some previous years where we were a little more challenged in both of those areas, both on the salesperson productivity side, and we have been talking about carrying a little bit more capacity than where we were punching and also continuing to deal with levels of downsell that were kind of elevated. And so I think those two things are mixing in together.

And I mean, maybe -- do you have any practical examples of what do you do on downsell? Is that kind of seeing closer to the client through the renewal -- before the -- way before the renewal process, et cetera? Like what are you doing there?

Yes. So it starts right at the sale process. So initially -- so first of all, at the sale process, we recognize that customers probably shouldn't be in a position where they're buying for levels of growth. And so we've seen both on the customer demand side and then the way we sort of go to market, we're a little bit more careful about kind of entitlement sizing to make sure that there's going to be good utilization rates.

Second, right at the moment of inception for the implementation and onboarding, we talk about completeness and consumption. And so we're literally tracking at the line item level how much progress are we making in the implementation process to make sure everything is enabled and they are ready to go.

Then as the contract is underway, we're tracking consumption. And so making sure that like are they able to utilize their entitlements, how is that going? What can we suggest to them? And then looking at as we approach the renewal date, and we're looking further and further out so that we are not quite as reactive, but we can be a little bit more proactive. We're looking at sort of what -- where are things tracking and what are the expectations around kind of customer sentiment and health and et cetera, and what are the risks on the renewal.

And so all of that, plus the fact that I think the overall customer base is a little bit healthier today than it was kind of as we were really exiting that ZIRP era. That means that we have fewer places where there's real risk. We can take our existing resources and point them more specifically and more proactively, and it kind of accumulates together with a better overall outcome on a quarterly basis.

I apologize for the question, but was that a system problem in a way, like because like you think about it, well, everyone should watch ever you would?

Yes. No, I think it's just really having better telemetry on the overall kind of level of utilization across kind of the broad swath of sort of the customer entitlement pool. And then just an organizational and a management cadence where you're just looking further and further out. And so just becoming -- moving more to a posture of being proactive. I think also when the volumes of areas of risk were high enough, you just sort of feel like you're -- it's kind of all coming at you, and it's difficult to sort of be proactive and to look further out in the future. As we've gotten through some of that surf era, it's just become a little bit easier.

Yes. Okay. Perfect. Okay. Last couple of minutes, I wanted to talk a little bit about profitability. Margins have been kind of a highlight this year as well. Can you talk a little bit about the drivers there? And where do you see that going from here?

Yes. So we were excited to kind of announce a return to the overall framework that we had identified and articulated back about 15 months ago. And so we've been very judicious about our sort of overall capital deployment strategy this year, even in light of the M&A that we did. So we're a little bit below the expectations on the framework. We should have added maybe closer to 400 basis points given the revenue growth that we're achieving.

But next year, looking at adding -- hitting 8% for the full year. And so that really gets us back on the framework, if you think about kind of the cumulative 2-year profile of should have added 400 this year, looking to add another 400 next year. And so looking for that commitment. And funny got a couple of questions as to why talk about that now. And I think this is budget season. This is when we're kind of getting geared up for next year. I've got -- we've got 2,000 employees at the organization. It's really great to be able to kind of set this mile marker, set the expectations, rally the troops and be able to talk to them the way we talk to the broader swath of investors.

Sounds almost more like an internal flag than an external, yes. Yes. Okay. And then last minute, OfferFit was a really good deal for you guys, but you also have been very strong in terms of organic product evolution, et cetera. How do you think about that build versus buy dynamic going forward from here?

Yes. I mean I think that we're going to continue to look for opportunities to make sure that our road map is on the leading edge of technology, and that's going to be both an organic and inorganic exercise. I'm not going to like speculate on the inorganic side, but I think we're committed to staying on the frontier of everything that AI is going to make possible in our space.

Yes, yes. I mean it must be -- I mean, that's the other thing. So the market is evolving so quickly. I guess you can't make that call.

Yes.

Yes. Okay. Perfect. Our time is up. So thank you for joining us. That was really nice. I really enjoyed our conversation. Thank you. And congrats from me as well again.

Yes. Thank you.

Thank you.

Welcome to the Braze's Fiscal Third Quarter 2026 Earnings Conference Call. My name is Leila, 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 Brazer's results for the fiscal third 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 a press release issued after the market closed today. Please refer to the Investor Relations section of our website at investors.brave.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 fourth quarter and the fiscal year ended January 31, 2026. The anticipated benefits from and product advancements due to the combination of Braze and ongoing developments in Braze AI technology, our expectations concerning new customer verticals our anticipated customer behaviors, including vendor consolidation and replacement trends and their impact on Brace, our potential market opportunity and our ability to effectively execute on such opportunity, 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 our 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 third quarter 2020 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 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're pleased to report strong third quarter results, generating $191 million of revenue, up 25.5% year-over-year and 6% from the prior quarter. We also continue to drive efficiency in our business, improving non-GAAP operating margins by over 400 basis points year-over-year and generating $18 million of free cash flow.

We have now delivered 4 straight quarters of non-GAAP operating income and 6 straight quarters of non-GAAP net income, demonstrating our commitment to driving higher profitability while thoughtfully reinvesting in our business with the goal to position Braze as the global standard for omnichannel customer engagement.

Our momentum was strong in the quarter as we again realized solid bookings across verticals and geographies. Pipeline generation was solid, indicating continued market demand, while customers continue to adopt more channels and AI solutions, driving optimism as we look ahead to fiscal year 2027.

We achieved our strongest quarter of customer additions in 3 years, adding 106 sequentially and 317 year-over-year to 2,528 up 14%. Our large customer additions were also very strong, adding 2,500,000 plus ARR customers sequentially and 69% year-over-year to 303, up 29%. Recent new business wins and existing customer expansions include CJ AlvYoung, Eventbrite, Goat, Grubhub Seamless Linkt, Mindbody, nuts.com, Rafiq, RSG Group, GMBH and Vivid seats, along with many others.

Competitive takeaways from the legacy Marketing Clouds continue to demonstrate the market's preference for Braze's AI-driven omni-channel customer engagement solution, leveraging first-party data and frontier AI to deliver on modern customer engagement use cases. This quarter, brands across diverse industries and geographies migrated to Braze's from legacy platforms, including a global appliance manufacturer, North American financial services firm, a Latin American retailer, a North American consumer insights platform, a sports league in APAC, a North American restaurant chain and a luxury goods retailer in APAC.

These wins validate Base's ability to offer a unified real-time solution that supports ambitious AI-driven customer engagement strategies. Our comprehensiveness and advanced yet intuitive capabilities are also on display when we compete against less sophisticated point solutions, including recent wins with the travel platform in EMEA, a property finance firm in North America, a resale marketplace in Latin America and a financial services firm in APAC, among many others.

As we navigate this dynamic technical and competitive environment, Braze remains forward-looking, rapidly introducing new AI-driven capabilities alongside first-party data activation. By applying state-of-the-art reinforcement learning and generative AI across an ever-evolving array of messaging channels and product interfaces, we help our customers leverage their first-party data to deliver more relevant experiences for their consumers and grow their businesses. This power of AI to build personalized cross-channel campaigns was on display during this year's Cyber Week, running from November 25 to December 1 as marketers increasingly leveraged AI to accelerate campaign creation and improve overall performance.

Over the Cyber Week period, Braze delivered 102.5 billion messages with global sending throughput peaking at about 28.5 million messages per minute. During the 4-day period running from Black Friday through Cyber Monday, Braze delivered nearly 60 billion messages with 100% uptime, demonstrating the strength, scale and reliability of our platform. Behind the impressive headline numbers is also a story of increasing sophistication as marketers continue to evolve away from single channel campaigns toward more sophisticated programs. leveraging dynamic data to create and strengthen direct relationships with their customers across a variety of channels.

In addition, Braze witnessed the growing use of AI to power operational efficiency and personalization at scale, as brands made extensive use of Braze AI functionality to accelerate campaign creation, improve the resonance and relevance of messaging for their customers and elevate their work during a critically busy period.

We are pleased to see customers using the full spectrum of Braze AI capabilities including by crafting dynamic campaign content using the brace liquid assistant, accelerating content production using Braze AI-copy and image generation tools, ensuring strong clarity, impact and tone of messaging with Braze AI content quality assurance and delivering smarter product personalization with AI item recommendations.

The increasing sophistication of our customer base and the rapid uptake of AI as a competitive lever affirm the strength of our AI road map and the Braze community. Performance during Black Friday and Cyber Monday also reinforced the role of premium messaging channels as key drivers of conversion, retention and high-value engagement.

During the Black Friday to Cyber Monday period, Braze orchestrated a 90% increase in SMS and WhatsApp message sends a 55% increase in content cards impressions and a 32% increase in e-mail messages. The impressive volumes during such a crucial marketing period highlights the growing desire of marketers to diversify their strategies and further personalize their connection with their customers because SMS and WhatsApp are sensitive inboxes, brand performance and reputation is directly tied to how effectively they can personalize these experiences.

Additionally, these premium messaging channels are also often utilized for mid-funnel use cases, where engagement, conversion and monetization are materially higher. Overall, the increasing mix of channels being used by Braze customers signals that the field of customer engagement is moving up the value curve, supporting the deployment of more complex campaigns and the activation of additional channels and platforms. This pattern is a driver of the vendor consolidation motion that we've highlighted in past earnings.

It's a clear signal that Braze is becoming more deeply embedded into our customers' engagement infrastructure, and it highlights the need for further productivity gains and relevance enhancement from Braze AI.

Innovation is central to Braze's DNA and its product road map. Since we anticipated the massive opportunity presented by the widespread adoption of mobile technology more than a decade ago, we have relentlessly seized this opportunity by developing leading-edge technology to advance the craft of customer engagement.

Through AI, we believe these in Braze should feel like collaborating with specialists who accelerate and elevate your work. delivering the guidance and output from brand strategies, copywriters, developers and data analysts to help marketers win the competition for user attention, advocacy and loyalty.

Over time, we aim to help marketers ascend from the drudge work of baby sitting campaigns and to instead operate as strategic conductors, building and delivering one-on-one personalized experiences that are impactful for their consumers and that build brand equity through resonance and reciprocal value creation.

At our Forge customer conference in late September, we articulated how rapidly these tools and techniques are evolving. Previously, we've used the listen, understand and act framework to describe the problem space of customer engagement and the flow of our stream processing architecture. Now AI broadens the potential of each of these steps. Listen, becomes context as it is enriched with the insights and the comprehensiveness of an AI-enhanced composable data platform. Understand becomes intelligence as products gain the ability to both reason and act with enhanced autonomy. And action expands to interaction as AI systems increase their expressiveness and consumer behaviors evolve, with the real-time feedback loop guiding subsequent interactions delivered as a continuous experience.

Let me take a moment to detail this conceptual evolution and explain how Braze is introducing tools to meet this moment. Modern AI is fed by context and enhanced by reasoning. Within Braze, that context is provided by the Braze data platform and enhanced by our native SDKs, partner integrations, robust APIs, reverse ETL capabilities and the recently available Braze MCP server.

The intelligence phase brings the design advantages of composability beyond just data offering a full spectrum of composable intelligence, notably including the agent console, which enhances customer journeys enriches data and accelerates workflows. Agent console allows marketers to create custom agents that can be configured within Braze and deployed in both Canvas, our no-code visual development environment and brace catalogs to process enrich and reason about brand data and customer behavior at scale and speed.

We have dozens of customers using the agent console to take an unstructured data, including natural language from customer conversations and respond interactively to maximize the value that they deliver in the most important moments for their consumers. We recently partnered with Aeroflow Health, a leading medical equipment and supplies company to optimize their SMS reordering process for breast pump supplies.

After seeing the flurry of Braze AI product announcements at Forge, they rapidly experimented with the Braze AI agent console and Canvas contact steps to enable a sophisticated SMS conversation that understood natural language in real-time and processed orders automatically. The program is moving from testing to production after delivering a large conversion lift that could drive tens of thousands of projected additional annual orders.

As marketers continue to experiment and innovate with these new features, the Braze operator also announced at Forge stands ready to speed their education and enhance their productivity. Operator streamlines existing work by accelerating campaign creation, analyzing reports and uncovering data insights automating quality assurance tasks and getting quick answers from documentation and source code through our intelligent assistant. Hundreds of our customers are enabled on operator and experiencing early success. And of course, we introduced the Aeroflow Health, AI decisioning Studio developed from the offer fit acquisition, which deploys AI decisioning agents to continuously experiment and personalize any aspect of customer engagement using insights and contacts from first-party data.

Recently, we partnered with a large U.S. e-commerce brand to push their prior personalization strategy to new heights, using Braze AI decisioning Studio with reinforcement learning agents that independently experiment and identify optimal actions, they delivered deeper one-on-one personalization at incredible scale, managing approximately 5.1 Quintillion permutations to select the optimal action for millions of their customers.

The results generated a rapid and meaningful uplift in customer engagement including a 12% uplift in app downloads and a 15% increase in conversion to premium memberships when compared to their prior strategy. The collaboration has driven such tremendous value in consumer insights that the customer is rethinking their entire life cycle marketing approach. Transitioning the job of relevance optimization for manual A/B testing to AI-driven one-on-one decisioning, moving beyond merely deploying the best averages and instead relying on modern reinforcement learning to maximize resonance with every individual.

Finally, I'd like to highlight our first-of-its-kind SDK support for native apps and chatGPT that we announced in mid-October. Building on our deep experience from growing up in the mobile app ecosystem, this integration for chat PT apps will allow marketers to ensure that sophisticated customer engagement strategies are enabled in their new ChatGPT apps from the earliest phases of development.

Brands will be able to continue the conversation with users of their chatGPT native apps on other channels while also using braces in product channels and personalization features to enhance their consumer-facing chat-type app interfaces. What's even more remarkable is the speed with which the braze engineering team was able to release this integration, launching a fully featured SDK, just 2 weeks after the announcement of the ChatGPT app programs.

This was enabled by our deep experience building SDKs for native app development and our proprietary architecture, which allows for rapid support of new platforms and channels as technology and consumer behaviors evolve in tandem. Combined with our composable data and intelligence capabilities, we are seeing the best of Braze's foundations combined with the leading edge of AI.

I'll conclude by reiterating our commitment to driving long-term growth, efficiency and profitability in our business. Thank you for your interest and support of Braze. 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 third quarter with revenue increasing 25.5% year-over-year to $191 million driven by a combination of existing customer contract expansions, renewals and new business. Braze AI decisioning studio, formerly known as Offerfit, contributed $4.8 million of revenue in the quarter. This implies an organic revenue growth rate of 22.3% year-over-year, which represents the second sequential quarter of organic revenue growth acceleration.

Subscription revenue remains the primary component of our total top line, contributing 95% of our third quarter revenue, while the remaining 5% represents a combination of recurring professional services and onetime configuration and onboarding fees. Total customer count increased 14% year-over-year to 2,528 customers as of October 31, 2025, up 317 from the same period last year and up 106 from the prior quarter. This sequential growth reflects the largest quarter-over-quarter increase in customer count since the third quarter of fiscal year 2023.

Our total number of large customers, which we define as those spending at least $500,000 annually grew 29% year-over-year to [ $303 ] and as of October 31, 2025, these customers contributed 63% to our total ARR compared to a 61% contribution as of the same quarter last year. Measured across all customers, dollar-based net retention was 108% and while dollar-based net retention for our large customers was 110%. Expansion was again broadly distributed across industries and geographic regions.

Revenue outside the U.S. contributed 45% of our total revenue in the third quarter in line with the second quarter of this year and the prior year quarter. In quarter, organic dollar-based net retention increased for the second straight quarter to over 107% and slightly above our in-quarter organic dollar-based net retention in Q2 of this year.

We continue to observe stabilization in this metric as we realize the benefits of our investments to moderate downsell activity. In the third quarter, our total remaining performance obligation was $891 million, up 24% year-over-year and up 3% sequentially. Current RPO was $573 million, up 25% 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 $132 million, representing a non-GAAP gross margin of 69.1% compared to a non-GAAP gross profit of $107 million and non-GAAP gross margin of 70.5% in the third quarter of last year.

The decrease in year-over-year gross margin was driven primarily by higher premium messaging volume and hosting costs, partially offset by improved efficiencies and personnel costs. Non-GAAP sales and marketing expenses were $77 million or 40% of revenue compared to $65 million or 43% of revenue in the prior year quarter. The dollar increase reflects our year-over-year investments in headcount costs to support our ongoing growth in global expansion, while the improved efficiency reflects our disciplined approach to investment as we continue to scale and expand the business.

Non-GAAP R&D expense was $28 million or 15% of revenue compared to $22 million or 15% 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 yet disciplined technology investment strategy and remain in line with our long-term non-GAAP R&D percent of revenue target of 13% to 15%.

Non-GAAP G&A expense was $22 million or 12% of revenue compared to $22 million or 15% of revenue in the prior year quarter. The improved efficiency reflects increasing scaling across public company expenses and the benefit of leveraging strategic locations for headcount expansion. Non-GAAP operating income was $5 million or 2.7% of revenue compared to a non-GAAP operating loss of $2 million or negative 1.4% of revenue in the prior year quarter.

Non-GAAP net income attributable to Braze shareholders in the quarter was $7 million or $0.06 per share compared to $2 million or $0.02 per share in the prior year quarter.

Now turning to the balance sheet and cash flow statement. We ended the quarter with approximately $387 million in cash, cash equivalents, restricted cash and marketable securities. Cash provided by operations during the quarter was $21 million compared to cash used in operations of $11 million in the prior year quarter, including the cash impact of capitalized costs, free cash flow in the quarter was $18 million compared to a negative free cash flow of $14 million in the prior year 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. For the fourth quarter of fiscal 2026, we expect revenue to be in the range of $197.5 million to $198.5 million, which represents a year-over-year growth rate of approximately 23% at the midpoint. While we are not providing specific gross margin guidance, as a reminder, we expect higher seasonal activity during Q4 will impact gross margins consistent with historical patterns.

Fourth quarter non-GAAP operating income is expected to be in the range of $12 million to $13 million. At the midpoint, this implies a non-GAAP operating margin of approximately 6%. Fourth quarter non-GAAP net income is expected to be $15 million to $16 million and fourth quarter non-GAAP net income per share in the range of $0.13 to $0.14 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 $730.5 million to $731.5 million, which represents a year-over-year growth rate of approximately 23% at the midpoint. Consistent with the commentary we provided on prior earnings calls, we expect Braze AI decisioning Studio to contribute approximately 2 percentage points to year-over-year revenue growth for the full fiscal year.

Fiscal year 2026 non-GAAP operating income is expected to be in the range of $26 million to $27 million. At the midpoint, this implies a non-GAAP operating margin of 3.5% roughly a 350 basis point improvement versus fiscal year 2025. Non-GAAP net income for the same period is expected to be in the range of $46 million to $47 million and net income per share is expected to be $0.42 to $0.43 per share based on a full year weighted average diluted share count of approximately 110 million shares.

While we will provide more formal guidance for fiscal year 2027 in March of next year, we expect to return to the profitability framework outlined at our last Investor Day, targeting a non-GAAP operating income margin of 8% for fiscal year 2027. It's an exciting time at Braze as our AI-driven solutions fundamentally rewrite the rules of customer engagement. We remain committed to offering industry-leading customer engagement solutions and driving product innovation as we execute on our long-term financial goals.

And now we'll open the call for questions. Operator, please begin the Q&A.

[Operator Instructions]. Your first question will come from Ryan MacWilliams with Wells Fargo.

Bill, glad to hear about the brave health care customer who use Braze agent console to build an AI agent to chat with our customers. It's almost customer service use case from Braze interesting we'll love to hear your view on what are some of the reasons raised Avis might be an easier starting point for organizations when building new AI use cases.

I think it's a great question and a great example to ask it about because that use case was integrated directly into Canvas. And what I didn't share in the prepared remarks is actually that the first prototype version of it was made by that customer while they were at the gate, waiting for their flight to leave from Forge. The agility that you get out of being able to deploy an already like purpose-built agent framework into an engine like Canvas that allows you to leverage all of the interaction support that's already there, the massive amount of first-party data that's at your fingertips, already in that environment.

I mentioned Cannabis context, which is a feature that we launched earlier this year in anticipation of continuing to have these units of intelligence, get integrated into more parts of a canvas in order to provide the right logic or more enhanced personalization, things where conditional logic able to become reasoning and therefore, able to respond to the unstructured data or all of the unpredictability of humans as they're interacting in these complex flows.

And this is a use case where I think a lot like we've spoken about in the past, this would have become a customer support interaction, but actually because the product is able to intuit what the customer wants through or interpret what the customer wants, through the agent that has been configured to kind of understand that business problem and fed with the right context and first-party data, which, of course, we make extremely easy because of how the agent consoles plug into both Braze catalogs and Braze canvas, you're able to deploy these, deploy them and test them against business as usual. This was a great example where they already had a solution up and running.

They incorporate new intelligence into an alternative solution, you run that in a head-to-head, Canvas, of course, already has that -- the automation for the as well as all the built-in reporting to track those conversions to be able to know exactly what uplift you're getting -- and then that, of course, drives the conviction to be able to promote these firm experiments into production. And it's great to see all of that already happening from -- on a rapid time line since the launch of agent console at Forge.

And then for Isabelle, it seems like a number of your key metrics improved in the quarter, and your 4Q guide seems stronger than historical. I love if you could break down some of the components of the drivers of these improving trends.

Yes. So a lot of these things have been in progress for some time as we think about ongoing productivity enhancements that have occurred within the sales organization, and we've been seeing that over the last several quarters. And then the efforts that we've had to mitigate downsell and dollar term, and that's been really exciting to see that come to fruition.

And these things have combined together to enable us to retain more dollars and then go out and continue to sell more effectively and efficiently. So we're really excited about the momentum that we're seeing in the business, and that's playing into our ability to overachieve the numbers that we have guided for, for Q3 and then provide the guide that we did for Q4.

Your next question will come from [ Raimo Lenschow ] with Barclays.

Bill, you talked earlier about the the growing momentum, especially on the legacy side. Is there anything in the market specifically that you would attribute that to? So is it like AI adoption and you need a more modern platform -- is it kind of the getting end of life, like from a technical perspective and hence, more stuff is happening? Or what's driving that momentum there?

Yes. I would say as we look forward, one of the things that you latched on to is that I do think this is a moment in history in our category where in the start-up landscape, we're seeing consolidation and capitulation happening with more subscale or point solution or regional players. The enterprise competitive set is distracted and stagnating in many ways and I think we see that the broader ecosystem sees it. And that means that just the awareness of Braze, the differentiation the desire and optimism around investing in a Braze practice, investing in Braze's technology, I think increasingly stands alone amongst that competitive landscape because we combine both the scale of being a public company operating at the level of R&D investment that we are, along with the agility that we're demonstrating through being on the leading edge of new AI innovation and our recently launched ChatGPT native app SDK is another great testament to that, which not only was first SDK out of the gate on that, just 2 weeks after they announced it. But here we are many weeks later and it's still the only one.

And so I think when you broadly look across the customer engagement landscape, Braze continues to stand out for our committed investment, our leadership in the space. And we've spoken about a lot of the things in the demand environment that have caused that enterprise replacement cycle to be slow over the last couple of years. Basically, that switching costs are still costs, and it's been hard for a lot of brands to kind of extend their planning horizon out while they've been focused so much on profitability over growth and a lot of the other things that a lot of people are seeing in the broader demand environment, but we're really optimistic about where we're at from a competitive positioning standpoint. I think our customers are seeing that as well.

More and more of the conversations that we have that are driving that enterprise replacement cycle are a question of when they're no longer if. And it's still transition for enterprise brands to make, but it's one that I think we're very prepared to continue to invest to accelerate that share gain, and we're excited about what that means for our long-term positioning in the market.

Okay. Perfect. And then one for Isabelle the NRR, like we know it's lagging, so it came in the same level as we saw in Q2. Can you kind of speak to kind of -- like how do you think about -- and actually, I remember last quarter, you talked about like intra-quarter was getting better. Whatever the puts and takes there this quarter, I think?

Yes, absolutely. So in my prepared remarks, I actually continued at the same disclosure that we provided last quarter. And so we are providing the in-quarter organic dollar-based net retention and indicated that, that continues to go up. So we talked about in Q1, it was a little bit below 107%. Q2 was a little bit above 10%. And it continues on that trajectory still in the 107% range, but a little bit above the Q2 number. So we're really excited to see the stabilization in that metric over the last 3 quarters.

Your next question will come from Gabriela Borges with Goldman Sachs.

For Bill and Isabel. So you gave us the 2 points of contribution from the decision in Studio. I'd like to get your thoughts broadly on how you think AI can impact the growth algorithm of your business.

So when we think about the monetization of AI, and we've talked about this a little bit over the last couple of quarters as AI has just been introduced more generally from a monetization standpoint. We think about it in 2 buckets. So leaving aside decisioning studio, which obviously we're directly monetizing on a use case basis today.

And then there's sort of 2 other flavors of AI that live in the tool. One is AI that is generally helping our users, our customers with the overall workflow and things that you invoke kind of once and then allow for kind of a broad scale deployment of a particular canvas or campaign or content that doesn't really weigh on our own cost structure in the same way as things that invoke AI sort of on a repeated basis that are on a one at a time in real time, always on function.

And so the things that are just kind of invoked occasionally for kind of large-scale and deployment sort of occasionally, that we would sort of include in the platform and largely not charge for those on an indication basis. The things that are kind of operating one at a time in real time, we anticipate putting those into the credit framework and they're charging customers as they invoke the LLM usage, which, therefore, is going to have some impact on our cost structure over time. And so that's how we plan to incorporate that. We are not there yet. And so that is potential upside as we include that in the credit portfolio.

That makes sense. The follow-up is for Bill. So with respect to competition, I'm curious if you see your customers building bespoke agent tech stacks. I'm not talking about live coding, but something more sophisticated that sits next to you or adjacent to braze such that you think, well, really that functionality should be built in Braze over time. I'm curious if you're seeing that as a dynamic in your customer base and B, if you are, what can you do to move some of those projects on to brazen a packaged soft kind of discussion as opposed to having customers build [indiscernible].

Yes. So high level, the composability in the design of Brave has led our customers to build and develop systems that enrich either data inputs to braze provide maybe more bespoke orchestration signals do deeper content personalization, et cetera, and building those alongside and then integrating them with Braze, we specifically designed all of our API layers to be able to have flexibility with respect to different layers of abstraction, different separation responsibilities designs, which are great for engineering teams that are trying to maintain control or where they have ownership or responsibility for certain signals that are important in the flow of timing or orchestration or personalization or what have you. But so want to give marketers the experimentation and agility that only the Braze platform can really provide through the dashboard. And by bringing those things together, we actually see that some of our most sophisticated customers to play side by side.

Now the other thing that's happened alongside that is obviously that the Braze platform continues to build more powerful and generalized solutions to a lot of these problems. And I think item recommendations is a great example of this, where if you go back to Braze 7 years ago. We had robust integrations with either personalization platforms like AWS personalized or we would do direct calls to web services that our customers would set up in order to provide recommendations.

As the state-of-the-art and recommendation systems, kept getting better and better, we were able to provide an offering that was both generally powerful so that we could sell it across our diverse customer base, but also would consistently win head-to-heads with the bespoke in-house systems that were built by those engineering teams and of course, have the added benefit of not needing to manage those systems and keep those services up and be able to have them withstand the incredible load that happens when you really run a high-speed Braze campaign.

And then, of course, over time, and we've spoken about this on earnings calls in the past as well, we were able to upgrade the underlying technology under those item recommendations. Today, there's different flavors of vitamin recommendations available in Braze. Some of them use transformer architectures as well. Transformers, of course, being the T and GPT, which is a new approach to being able to provide generalized recommendations that again, compare very favorably, almost always beating head-to-head bespoke systems.

And when we look at decisioning and when we look at the integration of Agentic decision-making, we see a similar dynamic playing out. We already have examples in the customer base where customers that we're working on various forms of decisioning systems, and they are now deploying Decision Studio Pro in place of that because the total cost of ownership and the flexibility and the power of decisioning Studio Pro is a purpose-built system with customizability and the forward deployed engineering model is able to provide and kind of beat those in-house offerings. Head-to-head both for performance and for total cost of ownership. And then, of course, there's a lot of interplay with the use of agents. And being able to integrate them into different parts of either the data enrichment and data insight generation flow as well as within canvases, and of course, the way that we are designing the agent console, it allows you to bring your own underlying LM into the equation.

And going back to Isabelle's commentary about gross margin profiles and the way that we price those we, of course, view that as a very positive setup because it allows for Braze to be able to charge for the high margin, higher sophistication and orchestration side, and then customers are able to govern and manage the cost of their LM indications within their own infrastructure.

And so we've done a lot over the years and especially in the intelligence space, which is an area where you tend to see the spoke development in kind of racing out in front as engineering teams jump on to new technologies and they take advantage of they try to build for the bespoke nature of their problem. And then, of course, as we continue to build more generalized, powerful, flexible solutions for our customers and deploy those in other use cases. We see transitions of those workloads to be inside of Braze. And I think that when you look out across a customer base as diverse braces today, we have examples of basically all over that spectrum today.

Your next question will come from Derrick Wood with TD Cowen.

Great. I guess first question for Bill. Could you drill a bit more on this new integration with Chat GPT and kind of pushing the first-party data into more personalization within Chat apps. I guess how much customer interest is there and driving more engagement there versus traditional channels? And what does this mean for your monetization and value delivery positioning?

Yes. So I'll actually start with the end of that question because the implications and what it means does depend a lot on how these app ecosystems evolve from here. And we really are just in the earliest days of it. And so when you look at the in-chat native app or Agentic experiences and how they'll continue to push forward, I think the future role that Braze plays and also the strategies that brands will deploy, depends a lot on how close or open these platforms end up being with respect to things like identity, authentication, payment or allowing differentiated native UX, you're even already seeing some of the implications of these decisions in who's investing in these early experiences where within the Chatpat ecosystem as an example, Amazon has largely opted out Walmart has opted in, but Walmart is also they're focused on use cases outside of basic staples because they're looking at that as a discovery channel allowing for them to get net new customers, which, of course, is an awesome strategic lever for them when they look at the chatty user base and the different use cases that are being deployed there.

But the -- when you look at the evolution of that over time, the important questions are basically going to be like how much of a fortress is the walled garden that the likes of ChatGPT or Gemini or others are going to make? And how are they going to monetize and like how are they basically going to take the user attention that they have within that walled garden and turn that into revenue for their business.

Now if they stay open, which is more similar to the web and which the early signs on ChatGPT native apps are pointing to then the in-chat app experience will become an extension of the first-party ecosystem, which is what you were just alluding to. So much like mobile apps have over the last decade, that means that those native app experiences can become a rich source of data on customer interest and intent can become another surface to deliver messaging or customize product experiences to consumers. And you're already seeing that in the way that the ChatGPT apps are being built where if you invoke the Canvas app, as an example, you're able to log into your account and they're able to render custom interfaces and get access to information about the session.

If you compare that to say how a brand interacts with someone on Instagram, that is a much tighter closed walled garden and you get almost no data around those interactions can barely even link to a brand's website. And Meta has gone down the path of making sure that they can extract as much advertising revenue out of that interaction as they can. And so that's an example where an ecosystem would stay more closed or more extractive either through ads, payment processing or referral fees and in that, you have this classic aggregator dynamic, and it drastically increases the importance of establishing first-party relationships with new customers.

And that, of course, drives investment in product marketing, customer engagement strategies, and when you look across that, and I talked about this in the past, but I think when we analyze how these are going to go, when we look at that path where things end up more closed, you can look at the fact that, for instance, a loyal delta flyer is worth a lot less to them if every flight search begins with an aggregator, the same is true for Taco Bell fan, who starts every meal and a delivery app or every retail purchase that begins to click on a Google search ad. And of course, that same dynamic will apply to a consumer who only engages with your brand through an agent.

And in all of those cases, the right answer for brands that want to have a sustainable path to durable business growth is ramping up investment in first-party data, enhancing and evolving their direct-to-consumer products, and deploying sophisticated customer engagement to make sure that they make the most out of that. And so we're still in the early days of this. I think we've seen some promising early signs of cachet embarking on an open ecosystem, which I think is great news for brands that want to build into those experiences.

We'll continue to see the evolution of Agentic Commerce. We'll continue to see the evolution of similar App Store ecosystems in Gemini and potentially in other AI chat bots at as they rise. And I think that just like some brands never made it through the transition to mobile and Braze is going to rely heavily on our experience that we have growing up in the mobile app store ecosystem to be able to move fast and be able to guide our customers through this transition. I think it's also true that some brands are not going to survive AI disruption as they just become commodities downstream from a faceless agents' desires, but the companies that thrive through this disruption are going to do it exactly because they maintain a strong connection to their customers. And that's exactly what Braze has built to help them do. And so I think we're well prepared where if this goes down the open path. That's awesome. It's a new app store.

We're already ready to go, and these are great new channels to be able to get more first-party data and communicate with those customers. If it goes down to closed path, it is yet more reason for brands to invest in building first-party connections with their customers and Braves will be here to help them do that as well.

Awesome. Very helpful perspective. Maybe one Isabelle for you. Just the inflection in new customer generation very impressive that followed a strong Q2. Can you just drill into what's helping drive that velocity of new deals? Is it offer fit given in the decisioning product given you new front doors into different accounts? Or are there other factors in play? Anything to highlight here?

Yes. No, not specifically related to OfferFit. Remember, the cycles there are going to be a little longer. But generally, around kind of Braves core, the legacy replacement cycle continues to be in our favor. Our competitive position continues to be the regional investments that we have made and the efforts around verticalization continue to deliver results. So that's all really, really great to see, and then I talked about the mitigation strategies that we've put in place to avoid both downsell and customer churn. And so when you mitigate levels of customer churn, you retain more customers, and you're seeing that in -- as well in the net new customer adds, ad number. So we're really excited about the overall momentum of the business.

[Operator Instructions]. Our next question will come from Taylor McGinnis with UBS.

We'll return to Taylor. We will move on to next -- we'll take a question from -- Taylor...

Okay. Perfect. Bill, the Portside was so much better. So just trying to understand in terms of what's driving that, -- so is that just a function of some of the past headwinds starting to ease or 3Q being stronger at the end? Or are you actually seeing a further improvement of demand trends into the first half of 4Q? And then just curious, any reads for you have on 2026 as you've been talking to your customers about their spending plans?

Taylor, I'll take that. So on the revenue guide, we do continue to approach this with a risk-adjusted position. And so what you're seeing is some of what I talked about in the last question that was asked, where we're seeing continued strength across the legacy replacement cycle and then just to strengthen our overall competitive position. and just some of the investments that we've been making in retention, which obviously is immediately beneficial to revenue as well as efforts around our regional focus and footprint and efforts around verticalization.

All of this is kind of driving the net benefits in the business. And you're seeing it in strength in metrics such as RPO and CRPO. And so there's kind of strength across the metrics here. You're seeing stabilization in the dollar-based net retention, you're seeing strength in the customer -- net customer adds. And all of that kind of feeds together to enable us to not only overachieve what we had guided for in Q3, but also to raise the expectations here for Q4.

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

Perfect One question on AI decision Studio. Bill, I'm just curious, just in the kind of early reception that you've had from customers? How are they finding the product? What are the kind of use cases you're seeing early traction on? And I assume as we go into fiscal '27, this is going to become a bigger and bigger part of the story. What does the pipeline look like now that you've had some time to integrate it and get it in the hands of customers? And just how should we think about growth here and what can unlock next year?

Yes. So first of all, the integration both on the R&D and the organizational side continues a pace. And a huge thank you to all the incoming OfferFit employees who have already made Braze their new professional home over the last few months. We're seeing tremendous impact from the teams coming together and the integration process, we're looking forward to formally being on the other side of that and do a combined business as usual next year.

Commercially, pipeline generation has remained strong, and we've seen a growing number of exciting customer wins, including the case study that I mentioned in my prepared remarks. And we're seeing those wins across verticals and in geos around the world, which has been fantastic to see. The cross-sell thesis, I think, is continuing to bear fruit as even Braze's most sophisticated customers are searching for ways to achieve rand I think decisioning has then also rapidly become a critical part of the overall as AI road map which, of course, is in every single customer conversation.

And so while the full deployment of decisioning Studio Pro is -- it's definitely more of an enterprise deal cycle. And it's a new category that requires customer education. And so it's not being included into every deal conversation to deeply qualify and explore the deployment of decisioning studio use cases, but even for those customers that are only evaluating it, it's really fantastic for them to see that there is a progression that they'll be able to move through as they adopt the greatest of the existing Braze customer engagement platform and then know that they can circle back around to those most important points in the customer journey to get maximum performance out of it.

And then, of course, through the Braze customers who are already on the leading edge of adoption, they've got strategies. They've been doing sophisticated experiment testing for years. They're already using our more advanced AI capabilities, and they want more -- the answer for that is, of course, deploying decisioning studio right now and targeting it at that their most important use cases.

And I think that, that example that I provided in the prepared remarks, is 1 where they pointed that at an important part of the 2 important parts of the customer journey ones where they had done rigorous testing before where they had a strong business as usual. They knew just how important it was to their business, and we pointed the advanced reinforcement learning on the decisioning studio at it and achieved uplift that wasn't even believed by their CEO, the first time it was put in front of them. And that's an incredible thing to see, and it obviously really helps with deal velocity and helps us build those internal proof points as well.

And so I think we're really optimistic about it. It's still an enterprise deal cycle. And so it takes time for pipeline to mature, and we need to make sure that we're doing the right levels of education out there. It's a new category. And so I think it's also important from a go-to-market efficiency standpoint that we do a good job of qualifying deals so that we're not doing baseline education everywhere in the market, to some extent, we'll have to follow a similar pattern as we have with customer engagement over our lifetime where the more sophisticated approach to customer engagement as compared to more traditional marketing automation something where skill sets, permeated companies and built into a customer community momentum over time.

I think we'll see something similar with decisioning education and knowledge. But of course, we now have a lot more scale. We're going to be able to do it a lot faster than we did when we built the Braze customer engagement platform through our first 14 years. And we're really excited to be bringing very advanced approach that allows us to deliver differentiated performance to customers to market rapidly.

Very helpful. And congrats on the momentum here.

Our next question will come from Brian Peterson with Raymond James.

So Bill, you had mentioned some verticals that you had some strong wins with. I'm curious, as you think about the pipeline of opportunities -- has that changed at all relative to your current mix? And are there any end markets maybe where you're particularly excited about as we're heading into calendar year '26?

Yes. I think with a broad brush, I don't think we've seen any sort of large rotations in terms of the vertical split of opportunities. But there is an important dynamic that happens as we penetrate deeper into certain verticals, especially those that are more capital-intensive or highly regulated, which, of course, are industry properties that are correlated with a little bit more risk aversion or slower decision-making. And in those -- we often work with first disruptors and then we work with those under threat of disruption and it takes those proof points with the early startups like for instance, with HealthTech or fintech before you can move more meaningfully into the traditional hospital systems and traditional health insurers are moving into the larger banks and insurance companies and credit unions and such around the world.

And so I think when you look at some of those categories that we've been investing in, where we've got a great track record with the start-ups, and we're now parlaying that into more -- a deeper penetration into the more traditional enterprise in those spaces. That's probably where I would identify the biggest vertical by vertical shift, but that's not necessarily an exogenous property of those verticals themselves but really more about Braze's journey to penetrate them over time.

Your next question will come from Scott Berg with Needham.

Great quarter. So many of them I just got a select 1 -- let's talk about your 500,000-plus customers. It's the second quarter in a row where you additions really kind of jumped off the page, especially from a historical level. Are you seeing, I don't know, a change in how you're landing with some of these customers? Is this maybe driven more by better kind of expansion activity with them maybe help paint some color in terms of what's going on with those larger customers.

Yes. So nothing changing and sort of certainly the incentive structure for the business. So definitely just our sales team incentivized to kind of land and then we'll go and expand from there. And so we are excited to see that there's continued strong momentum in the upsell from those who were previously at under $500,000 to those upselling to be north of $500,000. And that's obviously healthily outpacing those that are either down selling or churning. So it's just great to see that momentum.

There's obviously more for us to be selling. The decisioning studio is now in the mix. The with customers who are buying maybe a little bit closer to the pin to start with on their original entitlements, there's more opportunity for them to kind of expand over time as cross channel becomes more and more important. I think you heard Bill's prepared remarks with regards to what we were seeing, certainly around Black Friday and Cyber Monday, just the volume of messages that are sent across the diverse set of channel continues to increase.

And so that is going to result in upsells from our customer base. And so we are really excited to see kind of that momentum across the whole customer base, but then also obviously focused across the 500-plus sellers of buyers. So it's great to see that.

Your next question will come from Brent Huff with Stephens.

I want to drill in a little bit on the momentum that we've seen in the past couple of quarters. both in the metrics and kind of the tone, Bill, I can't remember as a few quarters ago that you mentioned that folks in sort of the more progressive marketing organizations we're a little bit tapping the brakes. They were a little bit more hesitant to buy more aggressively to think about growth and maybe a little bit of retrenchment.

I'm wondering I know it's a little bit of an anecdotal question, but do you get the sense that that's changed? And I guess maybe to put a finer point on it, have we started selling to folks that are willing to sort of buy side by side with the legacy platforms in anticipation of switching? I don't know if that's the right sort of flag to look at.

Yes. I think that the dynamic of switching costs being costs, and they're not being excess budget to really finance that is still there. As we've talked about in the past, a lot of that is about just making sure that we're doing a great job of qualifying and timing opportunities and a lot of times, that's also consultative. A lot of these customers who last switched their platform 6, 7 years ago when they first deployed of the legacy Marketing Cloud. It might have even taken them like 2 years. And so in their own head when they first start the conversation, they might also be under the impression that the switching costs are a lot higher than they need to be with a careful plan. And so there's a lot of ways that we address that. But I think that the dynamic is still at play.

And one thing I would point to, though, is -- and you saw this in the Black Friday, Cyber Monday stats, that the growth of SMS and WhatsApp year-over-year was over 90%. And what you see there is a willingness to invest in premium channels. Those are usually mid-funnel use cases, places where people are working -- where they've already had some amount of engagement and they're working to get to the conversion point. And you don't see spending on those higher marginal cost channels unless those are working and people are investing for the ROI being able to drive higher conversion rates in those. And so I think it's a good sign.

We're also -- we're seeing the resumption of these credits upsells that we've hypothesized in the past where a lot of the buying was very close to the pin for customers where they would project what they were going to use over the next 12 months. And -- sometimes they weren't even buying that. They were just buying enough to get to the next calendar year, or they were buying very tightly with those capacity projections. And what we're starting to see now is customers running out of those credits early and making upsells and increasing the run rate of their consumption to match like what they're actually doing.

And so I think a more normal buying pattern, and we're seeing a resumption of that, which is a good sign. And so I think we're seeing a few things here and there of what I would call more normalization. And we're going to continue to build for the opportunity as it's ahead of us.

Your next question will come from Matthew VanVliet with Cantor Fitzgerald.

I guess looking at the AI decisioning studio, Bill, you mentioned that it's still sort of an enterprise sale, and we saw that from the offer fit sort of average deal size. But as you look at the product road map ahead, are you thinking of using some of the other products you've built kind of in that area to move into the mid-market and sort of lower enterprise? Or will there be strategy for the decisioning engine to have kind of a lighter weight, lower cost version to attack that market over the next several quarters.

Yes. So I'd take a step back and look at the broader problem space as AI-driven relevance optimization and so decisioning is a specific part of that. It's a data science machine learning-driven approach. But there's also people that are already using, for instance, the agent console to be able to take in small amounts of the first-party data that's flowing through the canvas with the user and be able to do personalization with it.

And I was wondering if there would be an opportunity on this earnings call to share with everyone that we registered vivedecisioning.com last month. And if you visit that, it will afford you directly to the Braze agent console website because we do absolutely think that there's going to be a lot of different starting points for people as they start to deploy AI into what previously were more deterministic or static workflows. A big part of Braze pass was getting people to move from batch and blast to more deterministic personalization. And now the next generation of that is going to be moving from determine a sick personalization into 101 decisioning and into more agentic approaches that are doing individualized personalization.

And we were just chatting earlier this week about how the modern equivalent of high first name is actually going to be able to be using the agent console because if you go back to that example from the question that we started with about the agent console in an experiment where the marketer actually built the original agent while waiting at the gate for their flight -- that's a great example of rapid deployment, early experimentation.

It achieved some amount of uplift, and that inspires the next generation of building on top of that. And so it's not just about being able to deploy quickly, but also making sure that there's an on-ramp into these more advanced techniques over time. And I think that there's a lot of great uplift to be had for marketers all across the spectrum. Just like 10 years ago, there was a lot of great uplift to be had merely from doing high for it.

Our next question will come from Tyler Radke with Citi.

Sort of big picture question. Just given the strength you're seeing in the results and acceleration and growth here, do you feel like you are starting to get exposure or access to some of the more dedicated AI budgets as opposed to just being beholden to the Martech budgets, which have continued to be under pressure and how are you thinking about getting further exposure to that as you think about your go-to-market strategy going forward?

Yes. I think the key thing with decisioning is not necessarily accessing AI budgets, but the fact that we're selling performance, we are able to show demonstrable uplift with rigorous rigorous reporting against it in some of the most important use cases that people have in their customer journeys where they understand the value of those transition points and we're able to show that head-to-head or in the example that I provided with the agent console example that I referenced in the prepared remarks, those were 2 important parts in the customer journey where there had already been rigorous testing and the decisioning approach at or the deployment of the agents brought additional uplift into those flows and that generates real money for those customers.

And so I think better than accessing experimental AI budgets, we are selling performance. And I think that, that is a really great place to be because by bringing together the composable data and composable intelligence with Braze's comprehensive cross-channel support that really no 1 else can match. -- we've got a -- and we can, by the way, do that at any scale.

We can do it in a secure way with a strong total cost of ownership story and be able to deploy with category leaders across every major vertical in the world's top brands all around the world. And so combining together that track record with the leading-edge innovation and then being able to sell demonstrable performance is the right path to unlocking incremental budgets.

Your next question will come from Yun Kim with Loop Capital.

Okay. Great. A lot of news about Agentic Commerce. And obviously, we already have a few questions on it. But what is your thought on expanding your product portfolio beyond first-party data-driven products that you have today, maybe perhaps addressing some of the customer acquisition aspect of marketing and advertising that may leverage some third-party data.

We are not getting it is that -- the way that Agentic such that is more or less by passing the customer sign up because the personalization data is actually residing with chatbot vendors. So just wondering how you're thinking about the purchasation data may shift from the retailers to the actual Chatbot vendors? How you're thinking about your product portfolio in terms of sticking with the first-party data? Or are you open to kind of expanding beyond that?

Yes. So first of all, Braze already does have an important role that we play where -- with respect to acquisition and with the special case of acquisition, which are like reactivation of known customers that have just drifted away from the brand. And those are places where people already use Canvas to help coordinate their acquisition strategies. They're also using the automation that we have through Braze data platform and through Canvas in order to drive first-party data into various acquisition use cases.

And we've got -- we have important identity resolution partnerships out in the data space as well as with -- as well as with service providers that bring together these third-party data sets along with identity resolution capability and combine that with the composability of the Braze data platform to drive these strategies forward.

And so you already have customers that are deploying these types of strategies within Braze. I think in the example that you provided where the agent disintermediates the brand entirely and you just kind of -- you ask it to go transact on your behalf and decision make on your behalf. I've spoken about that at Forge before in a customer conferences. And I think that there's a class of purchasing where we really do think about these things as utilities or commodities in our lives. And we are going to want to not only outsource that to the agent to kind of do those transactions in the first place, but then also not want to have any ongoing relationship with the brand, right?

But for the things that we actually care about and are attached to where we build customer loyalty, and we really drive value for those brands over time. I think that even if the initial purchases or even if subsequent purchases are done by agents that they're still a really important goal that the brands need to work toward building a strong direct relationship with all of those customers. And so like the example you provided is conceptually very similar to some of the ones I walked through earlier, like the person who loves your airline, but they always buy the tickets on an online travel agent or they love your food, but they always order it through a delivery app. Those are examples where that customer is worth so much more to you if you can change their buyer behaviors and their buyer patterns, in fact, so much that you as a business might reorganize your business and develop brand-new products whether those are loyalty programs or enhanced capabilities in your bespoke ecosystem or just other incentives that you create for consumers to build those connections with you.

And so I think it's in all of the above, right? We will certainly continue to build third-party ecosystem as it becomes more relevant, we will take advantage of the integration points that are enabled by those ecosystems, depending on how open they are developed. And in all of these worlds, the most valuable customer is always going to be the one that chooses to invest time in building a connection with you as a brand. And so we will work with the world's top brands to be able to cement those connections with their customers and build sustainable, durable businesses.

Our final question will come from Patrick Walravens with Citizens.

Let me add my congratulations. So Bill, it seems like Offerfit is probably going to work out quite well. How are you feeling about additional M&A? Like when might you be ready? And what might you be interested in looking at?

So I think we're happy with how the integration is going, as I mentioned earlier, and we have an active CorpDev and product strategy function here, which looks at both organic and inorganic expansion opportunities. I'm not going to speculate on specific strategy around it other than to reiterate what we've said in the past, which is that we are very selective in terms of opportunities that we look at. We want to make sure that they drive forward a leading product road map and a leading product vision in our space.

We think we still have incredible TAM to continue to access a lot of great adjacencies. And so we will continue to look at opportunities, but I'm not going to speculate on any specifics beyond that.

There are no more questions at this time. I'd now like to turn the call over to Bill for closing remarks.

Thank you, everyone, for joining us today. We're very excited about the momentum in the business. Thankful for all of your support, and we will chat next quarter.