Braze Aktie

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.

Happy Friday, and welcome to day 3 of Citi Tech Conference. I'm Tyler Radke, Citi's Co-Head of U.S. Software. And to kick things off this morning, we're happy to have our friends down the road from Braze. We have CEO, Bill Magnuson; and CFO, Isabelle Winkles. I think this is third year in a row that you've joined and the morning after you've reported earnings. So I appreciate you coming to the conference. I know it's a busy time. And Bill, for folks in the room, if you could just give a quick overview of the Braze story and help folks understand the business who may not be familiar.

Yes, of course. So Braze founded in 2011. We also -- this was just our 16th earnings cycle as a public company, went out back in 2021 and obviously, in the customer engagement space. And so really excited to be, I think, in customer engagement at point in time as well. Obviously, a lot of the new capabilities being made available through Frontier AI advancements have been really exciting in our space. I think that throughout our history, a big part of Braze's goal at a conceptual level is to have a stronger understanding of the context that surrounds customers, understanding that context as it evolves and being able to make sense of it in real time so that brands can use intelligent software to be able to understand their customers better and then use that understanding to build stronger relationships with them.

And so we literally do that by orchestrating and personalizing the messaging that gets delivered to consumers as well as the direct-to-consumer product experiences through first-party channels, all informed by first-party data. And so helping primarily B2C. There's also a lot of B2B use cases in our customer base as well. Companies manage their relationships with their end customers. There's been I think great tailwinds to our growth in particular, over the last 5 or so years as -- more and more companies across every vertical have been reprioritizing their own priorities as brands to be able to build stronger first-party data sets be able to build stronger first-party connections with their customers.

I think that we've seen that happen because of a lot of the dynamics around there being different demand and attention aggregators in more and more parts of the digital consumer experience. And the importance of brands to be able to have direct connections with their consumers has been growing more than ever. And so I think that Braze sits at the convergence of a lot of really important generational trends when it comes to consumer technology to brand priorities and obviously, then also the technical capabilities.

I think that we've always differentiated within our space strongly through our technical differentiation, trying to bring a lot of power and sophistication to a space that we think demands it because of the complexity of modern consumer journeys and just how competitive so many B2C spaces are in a world where, obviously, things like the mobile app store and digital payments and the footprint of smartphones, which through our lifetime have now become, I think, the most widely spread technology of all time.

That means great opportunity for consumer brands, but it also means that the vast majority of verticals operate in globally competitive landscapes as well, and it's all that much harder to compete for consumer retention, loyalty, wallet share, et cetera. And so -- those things have all, I think, forced the space, in particular over the last decade to be one where you need to be more sophisticated every year or else you're falling behind.

And so Braze was built to be at the top of the sophistication pyramid in customer engagement, arm our customers with intelligent elegantly design software that can really tackle the complexity of this space and really deliver on all of these use cases at massive scale. And it's a great moment to be in customer engagement right now.

Yes. So you talked about how there's been a lot of tailwinds to the business over the last 5 years. Obviously, the rise of digital that got accelerated during COVID, the proliferation of phones and mobile app stores. I'd just be curious how you think about the next 5 years, specifically as it relates to AI, I mean, there's a lot of concerns out there in the market just around traditional software application vendors.

We saw this week sales force kind of had disappointing results again. But on the other hand, I'd say the Braze, Braze as a company doesn't have a lot of those same characteristics, whether it's not a seat-based model. You're tied to kind of more on the consumer side or B2C and you did see some pretty strong results last night. So can you just talk about how you see the AI tailwinds, again, maybe more over the next 5 years, not today being a secular growth driver.

Yes. So I'll kind of break this down in 2 ways. First, I think that there's a lot of properties how we built our business and approach our business model that we will now describe as being associated with being an AI native company. And so I like to say we were doing that before it was cool. We never charge for seats because we wanted to make sure that teams could collaborate within Braze across different functions. I think a big part of delivering on sophistication means that you need to have interdisciplinary collaboration.

Braze differentiates within the marketing space and why we are a customer engagement platform and not merely marketing automation is because of the strong collaboration amongst data science teams and product teams along with marketing, of course, that exists within our customer base. I think also we've always been consumption and outcome base in our pricing, charging our customers as an engagement platform our primary pricing unit is for monthly active users, which is the number of engaged users that you're managing to continue to keep engaged within your customer base.

Similarly, message volumes consumption through that. I think also from a data perspective, we've never been a company that relies on having like a proprietary data model locked up in our SaaS solution or to keep customers, we've always had flexible and open APIs. We don't rely on the sum cost fallacies of complicated and long integrations. Braze is a quick to integrate a highly agile software solution. And we've always been focused on making sure that we're delivering differentiated value to our customers in order for them to stick with us.

I think also -- we were early to embrace the truth that the value of data to your organization starts deteriorating as soon as it's generated. Braze has, from the very beginning, our underlying data processing infrastructure has been event-driven stream processing. We've always been focused on being able to drive insights and context like meaningful context and semantic meaning from the flow of data as it's being generated by consumers. And obviously, that gets augmented by the broader kind of data warehousing landscape that a brand will have and there are other important data sets, but we knew that the differentiated data capability would be about being able to live in the flow of the data and be able to make sense of it in real time and be able to really understand the customer's context throughout that.

And I think that when we look at the combination of those things, and then go back to the comment I made to getting, which is a big part of the goal of Braze is that we want to be able to ingest the context of large consumer audiences, be able to make sense of them in real time and use intelligent automation in order to then drive more meaningful interactions with customers and when we look at the capabilities that kind of new advances in Gen AI and reinforcement learning bring to us, they're making the intelligence step in the middle, more and more capable.

That's allowing for the systems that we rely on to do automated decision-making at scale to be able to be more autonomous and more intelligent. And so that is really just a driver of the vision that we've been trying to build for a long time and being able to actually realize it more quickly and more comprehensively and then on the interaction side, I think that a lot of the push for -- or a lot of the evolving consumer behaviors and the fact that there are more and more channels that are relevant if you want to be able to keep up with a modern consumer and that continues to proliferate.

That actually demands -- it demands an architecture that can manage the complexity of a multifaceted customer journey and be able to keep track of it in real time. And so those kind of demands that we were built for in the beginning due to mobile only continue to be more true. I think that the second side of the advent of new AI in particular, like chatbot interfaces and answer engines and what have you, is one of the most important things from our perspective to look at is looking at that as a demand aggregator and as like an intention aggregator effectively, it's not dissimilar to a bunch of other categories that we've seen be disintermediated by aggregators in the past.

And so in the Braze customer base, you actually see we work with a lot of streaming platforms. We work with a lot of quick service restaurants. We have an increasing portfolio of travel and hospitality brands working directly with hotel and airline brands. And the similarity across those is actually that in each category those brands that deliver those products and services have been historically disintermediated by aggregators right.

On the travel and hospitality side, it's things like Expedia and other like online travel agencies. On the quick service restaurant side, it's the delivery companies on the streaming side, it'd be the likes of Netflix, where the content providers understood that they needed to go in more and more cases directly to their customers in order to be able to have them be their customers and be able to build first-party data on those relationships and use them in other ways.

And all of those are important second-order responses to that aggregator being in the middle. The same thing is also true when you look at, for instance, e-commerce brand who have needed to respond to the kind of advertising platforms that have been soaking up all the profits in their category, whether that is Google's SEO and SEM marketing that they've had to do over the years because if a customer goes to Google first instead of going directly to their website, they need to engage with that.

Same thing with Amazon. You've seen a lot of brands that have switched their strategies since Amazon started building their ads business. It was a great gig when you could be in the Amazon marketplace and you could get those eyeballs, but now that Amazon extracts the profits from that space by running an advertising as well. There is a strong incentive for brands to go back to developing their own storefronts and making sure that they can maintain a direct connection with the customer that is informed by the first-party data that allows them to communicate through whatever channels happen to be available given that consumer journey.

And when they accomplish the building a first-party relationship that is more direct like that, it's more profitable, right? They can deliver a better product and service to that customer because they understand them better. They can absorb more of the kind of full profit of the transaction that's happening. And so I think that when we look at the advent of chatbots and answer engines and what have you. We can look to these other examples where aggregators entered markets as a guide for how we think brands are going to respond. And certainly, we're already seeing this to some extent.

But it really underscores the importance of making sure that if the buyer journey is going to start with doing research with the chatbot, or is going to involve using a chatbot to kind of engage with the brand as an aggregator would, that you need to respond to that by creating incentives for the customer to have a direct connection with you or else you end up being a commodity below that aggregator. And I think that brands across a lot of verticals have been grappling with this reality for a long time.

I think that the flexibility of chatbox means that if you have -- if you are a brand that hasn't dealt with us in the past, you're going to be but in all of those cases, I think that it really just underscores the importance of exactly do, which is building up first-party data sets that give you a strong understanding of customers maintaining first-party connection with them so that you can communicate with them in a low marginal cost way and making sure that the systems that drive those activities are as intelligent as possible so that you're showing up with relevance and you're building high-quality relationships that a customer wants to stay opted into and where they want to stay connected to your brand so that you can build a much more profitable connection with them over time.

Right, right. That's a great analogy just around the aggregators. Is this something that you're seeing start to play out? Or is this kind of more your expectation on how the market evolves.

Yes. I mean I think that we're definitely already seeing, in particular, commerce brands continuing to respond to this. There's a bit on the answer engine side, which is like how do I modify the way that my brand presents itself within these chatbot interfaces. And I think that there's still a lot to be learned there. There are certainly early ideas around how AEO is going to play out versus the way that SEO did.

But also, there's interesting things there as well where a lot of AEO work has been done in 2025 and then GPT 5 drops, and it was trained on the Internet circa 2024. And so your changes that you've made this year aren't going to show up for a little while. And there's -- so there's -- we're still very much early days on a lot of that stuff. And a lot of the systems are kind of a black box to be able to interact with. But it is -- these -- I think that the circumstances around responding to aggregators and responding to a layer in your market that disintermediates you from being able to build those first-party data sets like -- these are all effects that I think are well understood.

We've been through multiple generations of them. And I think that the playbook for how to respond to that as a brand is already pretty clear.

Right. Right. Got it. Maybe it's a good time to bring Isabelle in just to talk about the numbers a little bit. Obviously, strong results last night, even -- so you did have some contribution from offer fit organic revenue and current RPO, in particular, accelerated. So did you see sort of any changes in the demand environment? Was this just better execution, deal timing? Just walk us through kind of the key highlights and reasons to be increasing optimistic or not about the results.

Yes, for sure. So look, I think it was a variety of different things. Well, I'll just offer it really quickly get out of the way because I do want to spend more time on the organic part of the business from an offer fit perspective, they delivered basically exactly what we had anticipated. And we had talked about them adding about 2% to year-over-year revenue growth, and we're totally on pace for that contribution.

From an organic perspective, we've been putting into motion a number of initiatives over the last several quarters that are now finally starting to play out, and you are seeing it in the numbers. We're obviously a run rate business, a subscription-based business, and it takes time for some of that stuff to kind of work itself through the numbers. But things like our investments in our verticalization efforts that we talked about was starting to bear fruit even in Q1, and that's continuing to do so.

The efforts that we've made around implementing efforts to reduce down sell that has been playing out, and that's been happening both in Q2 specifically, but also line of sight to better performance on down sell through the back half of this year. And we've been doing a couple of things specifically on downsell. One is ensuring right from the get-go that our implementation and onboarding for customers is as rapid and effective and efficient as possible, making sure that all of the entitlements that they've purchased are up and running so that they can get the most out of what they have paid for as quickly as possible.

Two is just having better line of sight and visibility to places where there are potentially concerns with upcoming renewals and being able to have eyes and arms and legs on that problem early enough to be able to do something about it. Having done better implementation and onboarding means that actually, there's less of that kind of problem to see coming up in the future which means that the resources that we have are able to be more effectively deployed to actually save potential downsells in the future.

And then lastly, we have made our way through some of the down cells and full logo churn with business health concerns with some of our smaller customers. Some of that is just shaking itself out. And so those 3 things kind of combined together really helps us be in a better position from a downsell risk perspective. That and then the momentum that we're seeing on the upsell and the new business momentum is actually is very strong at the moment.

And so we're really pleased with how all of these things are coming together. Our sales force is more productive, and we've been talking about kind of improvements that we've been making there with enablement for the sales team. We'll be adding a little bit more sales capacity in the back half of the year. So we're excited to have a strong demand environment and feel like we can continue to grow the sales force and keep people productive going into next year. and that's going to help support our growth profile.

Yes. Just on that downsell point, I know that's been sort of a lingering issue, partially just given you have some multiyear contracts that had large expansions in the early part of '22, certainly 2021 as well. As you look at the back half of this year, how does kind of the health of that renewal base look? And how are you incorporating that into your guide?

Yes. So like I said, we have better line of sight to those numbers. The numbers are improving certainly versus our expectations from even 1 or 2 quarters ago. And we're -- with the numbers being a little bit smaller, having done a better job with the implementation, having fewer places where we have to kind of swarm and make sure that we can say things where possible, we're in a much better position relative to 1 or 2 quarters ago for the back half of the year.

So we're very encouraged by that direction of travel. And you're seeing it specifically play out in our in-quarter dollar-based net retention. And I think first quarter where we've given quite as much transparency and visibility on that, literally comparing Q1 to Q2 on the in-quarter piece, and you're seeing slightly below 107 going to slightly above 107. And so we're, again, very encouraged by those results.

We love the intra-quarter transparency.

Yes.

Yes. And for those new to the story, our average weighted contract length is in excess of -- a little bit over 2 years. And so -- it's definitely something we're going through and working our way through kind of the after effects of [indiscernible] buying behavior certainly took a while to be able to get through a customer base that does have a lot of those long-term contracts. But we've got most of those in our rearview [indiscernible] now, and it's great to see.

Yes. And Bill, on the go-to-market, there's been a number of changes there. Obviously, Miles, who've been with you since well before the IPO was kind of moving on. You announced a new CRO. Give us an update just on kind of the state of the union on the sales team. I imagine it's kind of more of an upbeat mood, better retention. They can focus on more exciting stuff in terms of new logos or upsells. What are kind of your key observations just on the priorities and tone of the sales conversation.

Yes. So I think 2 big events in the quarter. First is that we closed the [ Operate ] acquisition in early June and then the second that Ed joined as our CRO in early July. And so we're only 3 and 2 months, respectively, away from those having happened so far. And -- but I think in both cases, we've -- there's obviously always a little bit of a cone of uncertainty around big events like that. But in both cases, I think that the OfferFit acquisition and the subsequent integration has been running rapidly and smoothly. I think that in general, it's kind of surprised on the upside to some extent about the pace at which we've been able to smoothly move the integration, and that's inclusive of both the kind of the people and the technology side of that.

And so been excited to see that, but still a lot of work to do, a lot of moving parts to be able to ingest a team of that size. And in particular, obviously, a really important part of the road map. And so -- we're excited to share a lot more about the kind of fruits of being able to bring together the R&D efforts of both the Braze AI teams as well as the offer fit teams and really kind of share more about our AI vision at Forge later this month.

And so I encourage people to give another plug for that. We'll be out there, I think, September 29 through October 1. And then having Ed on board. He's been here for just 2 months now. I'll remind everyone definitely still going through diagnosis and observation to be able to kind of look at all the global regions that Braze operates in. But I think that in general, Ed and I are very aligned on what the high-level strategy is.

I think you shouldn't expect any sort of big disruption in terms of like what our go-to-market priorities are, but definitely a sharpening of the focus and the strategy being able to rely on its experience and the conviction behind sharpened strategy that comes with that experience. And I think that the consequences of that on things like verticalization and our partnership strategy and such, it's just that by having those -- that focused execution on the field teams will be able to provide better support from places like R&D and product marketing and other sorts of marketing investments to make sure that we just have more places where the whole company is aligned behind these important go-to-market priorities.

Got it. Isabelle, you talked about adding go-to-market resources, quota-carrying headcount in the second half and kind of a strong demand environment to support that. I feel like it's been a while since we've heard you use those words. Was this sort of an incremental investment based on the trends you saw in 2Q? And just give us maybe a little bit more color on what's leading to that confidence?

Yes. So when we -- every year when we're kind of doing kind of the next leg of long-range planning and our next year budget cycle. We're always evaluating our ability to kind of add headcount capacity at any sort of given point in time. So there's always a scenario that has added headcount capacity, and we want to always make sure that we certainly can fund it. So first of all, from a profitability standpoint, our ability to now add the head count is incorporated into our profitability guidance.

And just seeing the level of productivity of the sales force, we I never want to be in a position where I feel like I'm pushing on a string. And so we've been careful and measured about adding sales capacity because we've been talking about carrying a little bit more capacity than where we've been punching a little bit below our weight there. And as we have improved the overall delivery of kind of rep productivity, we feel more comfortable with our ability to now add just help support the growth into next year.

And so we never want to be in a position where reps, we don't have enough productive territory for our reps to make money and just seeing the trend lines. And the reps having just kind of spend less time, as you indicated, on the renewal cycle and having to deal with potential downsell risk they are able to spend more time building pipeline. We're really excited about both how the existing pipeline is performing, but also how the pipeline is building through the back half of the year and offer fit actually is a good strong part of that. So we're really excited about how things are shaping up for the coming quarters.

Yes. I think things like -- and we refer over the last few quarters, but the changes to our flexible credit model have obviously given some time back to our sales team as it's being a little bit more fungible unit means that you can move through negotiation faster, customer sentiment around the ability to buy in that way is more positive, and that speeds things up, both at new business as well as that renewal.

Also, yes, the decisioning conversation is an important 1 right now. The offer fits decisioning software and also just like more advances in the kind of intelligence layers that live above these orchestration decisions and are able to make able to kind of make optimizations around different strategies as well as being able to drive higher performance out of places where reinforcement learning can contribute.

These are all really important places where, in particular, at higher scale businesses where there are high-value actions like a free trial to a premium subscription conversion or moving someone from a single product to a multiproduct whether that's a bank trying to sell lines of credit to their checking account users or it's a delivery application, trying to get you to try grocery delivery for the first time after you've been doing rideshare or late night food or what have you. These are all great examples where I think that our -- the ability to sell those decisioning products is going to be very strong into next year.

And so we certainly expect that our sales team will be as we begin next year we're expecting to have the entire a seller base be ready to and enable to sell both customer engagement as well as these decisioning products. And that's obviously a really good position to be in as well.

Yes. In our conversation, I think -- and you've talked about this in the past, I mean, just the level of technical sophistication in the Braze product, I think, is very impressive. And in some cases, your core audience are marketers that may not be as deep in the weeds. But I'm just curious, like given the rise of AI, some of these new capabilities that you're bringing on, like how has that conversation changed at all? Like are you engaging with more CTO technical folks in addition to marketers. And are there things you got to do to kind of augment the technical capabilities of your sales force?

Yes. I mean I don't think -- I don't think we're in a position where we need to augment just because that's kind of the game we've been playing the whole time. I think that actually we've been benefiting from a lot of the more technical involvement because it's always kind of been the case that if there's a CTO involved, we more easily differentiate from the likes of Salesforce and Adobe as an example, because our technical sophistication is better -- like more strongly appreciated and so having more technical stakeholders in buyer processes, like certainly, it's like there are some downsides just having more stakeholders, there's more complexity.

Sometimes they take more time, et cetera. But when there's technical voices in the room, the benefits of the way that Braze is both architected from an API perspective, the composability of Braze's capabilities from a data perspective, the partner integrations that we have, the way that we integrate into not just the kind of over-the-top messaging channels, but also into the product interfaces.

These are all places where we've got great strengths. And then I think as well, a lot of the sites around AI has made it for you to be a technical everything. As a marketer, I think that Braves in the past has sometimes has sometimes not benefited from being more technically sophisticated because people have maybe felt that they have -- they are not in a position to kind of take advantage of it.

But I think it's pretty nonnegotiable in everyone's jobs right now that you need to really lean into becoming a more technical, more AI-savvy, practitioner of whatever it is that your craft is and that means that the Brace customer base, we see people investing more in educating themselves on how to use these more technical capabilities. We also do see some other benefits where the rise of vibe coding there's more and more people that are confident being able to use some of our more technical features.

Things like Braze Canvas have actually always been they're vibe coding adjacent because they are visual programming languages that allow for people that don't have a traditional computer science background to be able to do programming. And I think that the more that kind of the [indiscernible] around just everyone having comfort engaging with more advanced automation, more advanced technical tools, things like MCP servers, and vibe coding and what have you. I think all of those mean that the differentiation that brave spent a lot of time and design energy. We put a lot of investment in being differentiated in our category on these dimensions of technical sophistication.

But in some cases in the past, that wasn't as appreciated or wasn't as accessible the direction of travel on that is really positive as a result of a lot of these AI advances.

Right. All right. And as you think about your own product road map, last year, you sort of introduced the concept, I think, at least of project catalysts and kind of adding some more embedded AI capabilities in the platform. Can you give us an update on how that's going and kind of the uptake you're expecting?

Yes, for sure. And so when we look at -- you heard me mentioned this earlier, but when we look at both Project Catalyst as well as the OfferFit acquisition, these are both decisioning products. We're going to be sharing more at forge about this, but definitely really excited by the of bringing together the road maps of both the BraGeorge Salamis AI teams as well as OfferFit. I'm really looking at the decisioning space.

And I shared this earlier this year, but are -- the approach that we're taking is to provide a broad spectrum of decisioning products and so you should expect to see Project Catalyst really evolving into the side of that spectrum where -- these are rapidly deployable decisioning products, able to do optimizations around content in an autonomous way in order to drive better performance but really staying focused on rapid time to value, the ability to quickly set them up rate that those decisioning primitives into your existing canvases.

And so that provides, I think, a really great hybrid approach where you've got deterministic automation out of the visual programming language that Canvas has historically represented. And then you augment that with more and more autonomous AI products that you're infusing with the intelligence and creativity of your brand and your marketing strategy and what have you.

You heard me speak about composable intelligence a little bit on the earnings call, and we're really excited to be really building around that [ EthoS ] were effectively, if you go back a year ago, we're certainly excited about a lot of the capabilities to improve marketer productivity, and we still are being able to provide assistance and other sorts of NAI helpers to help marketers more quickly produce content, test out different variants, be able to do things like automated copy editing and translation and be able to automatically produce things like liquid personalization or SQL or what have you.

And we're still excited about a lot of that, but we're now zooming out from that. And we're saying, how does the market team and a brand and organization actually [indiscernible] these units of intelligence around models, agents and operators with the creativity and the business strategy and kind of the priorities of their brand, of their brand voice, of their product ecosystem or their product offerings, et cetera, and then be able to kind of flexibly and dynamically plug those into different strategies. So when we look at something like content decisioning, the ability to use composable intelligence to be able to say like, okay, over time, my marketing team has actually been in viewing these like generative models or agents and operators with an understanding of who our brand is, what we stand for, what our business priorities are, what the guardrails are to be able to have observability around that to really build that up as an intelligent asset that understands the context of your business.

And then be able to use composability around that intelligence to plug it into the strategies that you're running that, in some cases, might be still using determines a automation because that's where just like the scale and the performance and the unit cost demand that in other places might be running invoking LLMs to at every step of the decision-making in order to have an interactive conversation with someone. And when you look at the scale of sending like 1 trillion push notifications in a year.

And you're probably not going to want to invoke like a huge token cost on every single one of those trillions notifications, but every single WhatsApp message that you send to someone, you're paying meta quite a bit for those and to be able to optimize the relevance around those by invoking more intelligence at each interaction point with the customer is absolutely worth it from a marginal cost perspective. And so I think that we're also looking at a wide swath of use cases across the customer engagement space and saying that we need to have an ability to be able to kind of plug in decisioning as well as more like reasoning and intelligence capability in a way that's flexible and dynamic.

And so this idea of composable intelligence being able to view the models that you then drive agents and operators with the intelligence of your organization and your marketing teams over time and then deploy those flexibly and dynamically in your customer engagement strategies is, I think, a really exciting future for our space, one that we're really leaned into and executing on right now and we'll have more to share about that at Forge later this month.

All right? We're looking forward to that. I think we have about 5 seconds left. So it's probably a good place to end. Bill, Isabelle, thank you so much for joining, especially right after earnings and appreciate everyone for filling out the room here.

Yes, absolutely. Thanks, everybody.

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

Thank you, operator. Good afternoon, and thank you for joining us today to review Braze's results for the fiscal second quarter 2026. I'm joined by our Co-Founder and Chief Executive Officer; Bill Magnuson; and our Chief Financial Officer Isabelle Winkles.

We announced our results in our press release issued after the market closed today. Please refer to the Investor Relations section of our website at investors.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 third quarter and fiscal year ended January 31, 2026, the anticipated benefits from and product advancements due to the combination of Braze and OfferFit technologies our expectations concerning new customer verticals, our anticipated customer behaviors, including vendor consolidation and replacement trends and their impact on Braze, our potential market opportunity and our ability to effectively execute on such opportunity, and our long-term financial targets and goals.

These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations and reflect our views only as of today. We assume no obligation to update any such forward-looking statements. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to the risks identified in today's press release and our SEC filings both available on the Investor Relations section of our website. I'd also like to remind you that today's call will include certain non-GAAP financial measures used by management to evaluate our ongoing operations and to aid investors in further understanding the company's fiscal second quarter 2026 performance in addition to the impact these items have on the financial results.

Please refer to the reconciliations of our non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with U.S. GAAP included in our earnings release under the Investor Relations section of our website. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with U.S. GAAP. And now I'd like to turn the call over to Bill.

Thank you, Chris, and good afternoon, everyone. We delivered great second quarter results, generating $180 million of revenue, up 24% year-over-year and 11% from the prior quarter. I'm also pleased to announce that we recently passed $700 million of committed annual recurring revenue, demonstrating continued strong demand for the ROI delivered by the Brace customer engagement platform. Thank you to our dedicated team across the world who helped us achieve this milestone. I look forward to building on this success as we continue our journey to make Braze the industry standard for customer engagement. We also continue to drive efficiency in our business, delivering $6 million of non-GAAP operating income, $17 million of non-GAAP net income and $4 million of free cash flow in the quarter.

We've now posted 3 straight quarters of positive non-GAAP operating income and free cash flow as well as 5 straight quarters of positive non-GAAP net income. Looking ahead, we remain committed to driving higher profitability while thoughtfully reinvesting in our business, strengthening our competitive advantage and maintaining our position as the leading customer engagement platform globally. Our business momentum continued in Q2 as we achieved solid bookings across verticals and geographies. As we've stated in the past several quarters, global trade and economic concerns have yet to materially affect deal cycles, and we are optimistic looking into the second half of the year and fiscal year 2027, as we realized record pipeline generation and competitive strength across regions.

In the quarter, we increased our customer count by 80 sequentially and 259 year-over-year to 2,422. Our large customer additions were again strong with $500,000 plus ARR customers rising 27% year-over-year to 282 Recent new business wins and existing customer expansions include DocMorris, Fogo de Chao, GoPuff, Kleinanzeigen, Laundryheap, Little Caesars, Metcash, Saily, Sweetgreen and Wix. Additionally, the enterprise replacement cycle remains a robust source of new business. Takeaways from the legacy Marketing Clouds in the quarter included a European digital employment solutions firm, a Japanese career website, a Canadian telecommunications company. A North American discount retailer and digital media and consumer companies across the U.S., Europe and APAC.

Our competitive win rates remain strong as a result of these ongoing legacy replacement cycles and continued trends in vendor consolidation, which creates further opportunities for Braze to expand its market share. In addition to our wins against the legacy Marketing Cloud, we also continue to displace less sophisticated point solutions, including recent new business wins at an American e-commerce company, a women's online retailer in APAC, an American Shapewear and clothing brand and many others. As Frontier capabilities and artificial intelligence continue their rapid advance, brands are increasingly eager to leverage AI-driven innovation to achieve improved customer results and greater marketer productivity.

Braze remains future focused and is rapidly deploying new AI solutions in tandem with first-party data activation. Applying leading-edge reinforcement learning and generative AI technology to an ever-evolving set of messaging channels and product interfaces to help our customers deliver more relevant customer experiences and grow their businesses. Throughout our history, Braze's emphasized the importance of living in the flow of first-party data and customer context, pairing it with the intelligence of a machine learning enhanced stream processor and delivering on critical use cases with the reliability, performance and security that enterprises demand.

As Braze forges ahead, it is increasingly clear that the same architectural defects, user experience complexity and performance limitations that held back our competitors through the rise of mobile and the advent of stream processing are also barriers to their ability to leverage frontier capabilities in AI and machine learning. By contrast, Braze has built the critical foundations of customer engagement, delivered them to our growing customer community at extreme scale, and we are eager to continue to unlock the promise of our sophisticated vision for customer engagement with the rapidly advancing power of AI. While our product development accelerates, we also remain committed to category-leading UX design and heavy investment in the education and activation of the community of marketers and agencies that are integral to the Braves ecosystem.

Now as an opportune moment to lift the craft of customer engagement to new heights, allowing marketers to transcend the Monday and aspects of campaign creation and emerge as conductors of exceptional experiences and business strategy. After closing the acquisition in early June, we also got off to a strong start with offer fit by Braze quickly integrating their team, melding cultures, fostering tight collaboration and beginning to educate our customers on the potential for AI decisioning to transform their customer engagement strategies. Within our existing customer base, the pipeline for offer fit by Braze has sharply accelerated, especially across our enterprise segment, where we have earned a high level of trust by delivering sophistication at scale throughout our lifetime as a company.

Our combined selling motion is off to a great start, telling Q2 wins in each of our major geographic regions. We view OfferFit AI decisioning engine as a uniquely effective asset. Providing a best-of-breed platform for autonomous one-on-one personalization with a deep technical moat. By integrating OfferFit AI decisioning engine with the Braves customer engagement platform and combining our R&D teams. We are extremely excited to be expanding and accelerating the Braze AI road map to elevate the experiences delivered to customers through the billions of content and orchestration decisions made by Canvas and Braze AI decisioning products every day as customer engagement teams continue to prioritize one-on-one connection, creativity and business growth.

The tools and techniques for delivering relevant and memorable experiences are rapidly evolving, and AI is set to revolutionize the role of customer engagement teams transforming them from day-to-day campaign tacticians into strategic conductors of autonomous customer engagement systems that foster mutual customer value and drive business growth. With the Braze AI road map, we are harnessing composable intelligence to enhance both the marketer and customer engagement experiences. This approach unlocks meaningful one-on-one personalization at scale while maintaining continuity of brand and product experiences. Much as Canvas embeds the knowledge and creativity of our brand's business priorities and marketing strategy today.

In the near future, we believe that the context and intelligence of brands and marketing teams will be embedded in composable models, agents and operators. Fundamentally reshaping how marketers operate and interact with their customers, providing not just efficiency but also strategic leverage and improve decision-making. We plan to share more of our AI vision and upcoming product innovation plans during our annual customer conference, Forge, which takes place from September 29 to October 1 in Las Vegas. You'll learn more about our approach to investing in AI, data unification, activation and distribution, channel expansion and our generative predictive and Agentic solutions to deliver composable intelligence to customer engagement. We'll also share more about our growing work with global strategic partners, many of whom are sponsoring Forge, including new joint solutions like subscribe studios, which was built by BML in collaboration with Stripe and is specifically designed to address the unique challenges of subscription businesses.

It combines AI-driven lifecycle intelligence with live customer and usage data, enabling smarter subscription journeys. Through the integration with Braze, these insights become immediately actionable, triggering personalized event-based communications across the subscriber life cycle. At Forge, attendees will have the opportunity to experience exciting customer engagement innovations from top brands and brace practitioners at live workshops and hear from many of our outstanding customers and partners, both on stage and in the hallways. 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 30, contact Investor Relations for more details.

I'll wrap my remarks 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 second quarter with revenue increasing 24% year-over-year to $180 million, driven by a combination of existing customer contract expansions renewals and new business. Excluding the $2.8 million contributed by Offer fit for the 2 months of Q2, organic revenue grew 22% to $177 million. Subscription revenue remains the primary component of our total top line, contributing 95% of our second quarter revenue, while the remaining 5% represents a combination of recurring professional services and onetime configuration and onboarding fees. Total customer count increased 12% year-over-year to 2,422 customers, up 259% from the same period last year and up 80% from the prior quarter. This figure includes 17 net new offer fit customers added as a result of the transaction.

As a reminder, offer fit had 27 customers, of which 10 were brave customers prior to closing the transaction. The number of large customers, which we define as those spending at least $500,000 annually grew 27% year-over-year to 282, up 60% from the same period last year and up 20% from the prior quarter. offer fit contributed to net new large customers as a result of the transaction. Customers spending $500,000 or more annually contributed 62% 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%, while dollar-based net retention for our large customers was 111%.

And Expansion was again broadly distributed across industries and geographic regions. Revenue outside the U.S. contributed 45% of our total revenue in the second quarter, down approximately 60 basis points sequentially and in line with the prior year quarter. I'll note that the in-quarter dollar-based net retention has stabilized over the last 7 months and increased modestly from slightly below 107% in Q1 to slightly above 107% in Q2. While we are not providing specific guidance for the trailing 12 months DBNR, we are encouraged by the recent in-period stabilization and look forward to updating you on this metric in the coming quarters. In the second quarter, our total remaining performance obligation was $862 million, up 25% year-over-year and up 4% sequentially.

Current RPO was $558 million, up 27% year-over-year and up 7% sequentially. These numbers include a contribution from OfferFit of approximately $12 million to RPO and approximately $10.5 million to CRPO. 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 $125 million, representing a non-GAAP gross margin of 69.3%. This compares to a non-GAAP gross profit of $103 million and non-GAAP gross margin of 70.9% in the second quarter of last year. The decrease in year-over-year gross margin was driven primarily by higher premium messaging volumes, partially offset by continued cost optimization of our technology stack with additional benefits from personnel efficiencies.

The OfferFit acquisition had no material impact to our gross margin in the quarter. Non-GAAP sales and marketing expenses were $70 million or 39% of revenue compared to $58 million or 40% of revenue in the prior year quarter. The dollar increase reflects our year-over-year investments in headcount costs to support our ongoing growth and global expansion. The improved efficiency reflects our disciplined investment approach to resource deployment across our go-to-market organization. Notably, we achieved this incremental efficiency while adding the 2 months of offer fit expenses during the quarter. Non-GAAP R&D expense was $27 million or 15% of revenue compared to $21 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 are in line with our long-term non-GAAP R&D percent of revenue target of 13% to 15%. Non-GAAP G&A expense was $22 million or 12% of revenue compared to $19 million or 13% of revenue in the prior year quarter. The dollar increase was driven by investments to support overall company growth and global expansion with continued efficiency as a percent of revenue, driven by economies of scale and use of strategic cost locations.

Non-GAAP operating income was $6 million or 3.4% of revenue compared to a non-GAAP operating income of $4 million or 2.9% of revenue in the prior year quarter. Non-GAAP net income attributable to Braze's shareholders in the quarter was $17 million or $0.15 per share compared to $9 million or $0.09 per share in the prior year quarter. The OfferFit acquisition increased Base's deferred tax liability balance by approximately $8 million. This resulted in a commensurate reduction in the company's valuation allowance, which generated a onetime $8 million benefit to non-GAAP net income in Q2. Now turning to the balance sheet and cash flow statement. We ended the quarter with approximately $368 million in cash, cash equivalents, restricted cash and marketable securities. This includes the impact of the cash portion of the Offer fit acquisition of $181 million. Cash provided by operations during the quarter was $7 million compared to cash provided by operations of $12 million in the prior year quarter.

Including the cash impact of capitalized costs, free cash flow in the quarter was $4 million compared to free cash flow of $7 million in the prior year quarter. Free cash flow includes the impact of approximately $6.9 million in cash payments related to the offer fit acquisition. 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. As a reminder, we closed the Offer fit acquisition on June 2, and as such, our third quarter forecast includes a full quarter contribution from the transaction. while our full year forecast incorporates only an 8-month impact from the transaction. For the third quarter of fiscal 2026, we expect revenue to be in the range of $183.5 million to $184.5 million, which represents a year-over-year growth rate of approximately 21% at the midpoint.

Third quarter non-GAAP operating income is expected to be in the range of $3.5 million to $4.5 million. which implies a non-GAAP operating margin of approximately 2% at the midpoint. As a reminder, third quarter operating income includes the impact of expenses related to Forge, our annual customer conference, as well as several other global events scheduled during the quarter. Third quarter non-GAAP net income is expected to be in the range of $6.5 million to $7.5 million, and third quarter non-GAAP net income per share in the range of $0.06 to $0.07 per share based on approximately 113.5 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 $717 million to $720 million, which represents a year-over-year growth rate of approximately 21% at the midpoint. Consistent with commentary we provided on our fourth quarter and first quarter conference calls, we expect OfferFit to contribute approximately 2 percentage points to year-over-year growth for the full fiscal year. Fiscal year 2026 non-GAAP operating income is expected to be in the range of $24.5 million to $25.5 million. At the midpoint, this implies a non-GAAP operating margin of 3.5% and a roughly 350 basis point improvement versus fiscal year 2025. Non-GAAP net income for the same period is expected to be in the range of $45.5 million to $46.5 million, and net income per share is expected to be $0.41 to $0.42 per share based on a full year weighted average diluted share count of approximately 112 million shares.

I'll close my remarks by expressing my enthusiasm for the future of Braze. We are steadfast in our commitment to providing leading customer engagement solutions and remain well positioned to achieve our long-term financial targets. And with that, we'll now open the call for questions. Operator, please begin the Q&A.

[Operator Instructions]. Your first question will come from Brent Bracelin with Piper Sandler.

You beat Q2 by $8 million, you're raising the full year by $14 million, you're raising full year operating profit by 15%. CRPO growth accelerated 300 basis points, Bill what's changed here with the demand environment and appetite to lean into Braze now? And then Isabelle, what's behind your confidence that you can drive higher growth and higher operating leverage here for the rest of the year?

Yes. So high level, as we mentioned, I don't think we've seen a meaningful change in either the macro or the demand environment, but we've been really happy with our execution globally. As we referenced historically high competitive win rates, it means that our late-stage pipeline is operating very efficiently for the business. We also -- as we've been talking about for the last several quarters looking at the attenuation of downsell activity, and we're starting to see that materialize as well. And so generally, seeing great momentum around the world. We're seeing, I think, solid performance across verticals and across geos with everyone contributing within the verticals. We've mentioned in the past that our focus verticals for this year on retail and e-commerce and financial services have been an area where we've been aligning investments across marketing, product and sales.

And those have been working out very well, increasing the efficiency, specifically of our pipeline generation and our win rates within those categories. So just a lot of the investments that we've been making to improve execution have been synchronizing with each other around the world. It's still a challenging demand environment, but we're working with what we've got, and I think we've been happy with the performance, and we've got good line of sight to where that strength will continue through the back half of the year.

Yes. And just specifically on some of the numbers, I think on our ability to better manage and have visibility on improved outcomes on downsells, you're seeing that in the dollar-based net retention. I did provide a little bit of added color there on where in-period is trending and where that has been trending over the last several months. And so I think the sustained performance that we're seeing there is giving us greater confidence in -- through the back half of the year. Offer Fit is also performing as expected. And we've got some events now behind us. The Offer Fit integration is performing extremely well. We've onboarded Ed McDonald, which is going very, very well. And so we know these were some sources of some uncertainty over the last few months. That's now behind us. And we're really pleased with our plan for capital deployment through the back of the year. And so when you combine that visibility and transparency with some of the upside that we're seeing on the revenue piece, that's how you come up with the improved profitability, and we're excited to be on that path.

Our next question comes from Siti Penigrahi from Mizuho.

Great to join the call. So I want to ask about the OfferFit. It's -- you talked about strong start with Offer Fit. Help us understand a little bit more what are you hearing from your customer base after this integration? And what kind of ACV uplift we see from your customer base with OfferFit. And I have a follow-up.

Yes. So first of all, as I mentioned, we were excited to tally a post-acquisition offer fit win within all 3 of our Americas, EMEA and APAC regions. Those are all executed in line with our full deal desk, pricing and contracting practices, which were obviously important early milestones for the integration. These are still enterprise deal cycles. They've got 6-figure price tags and the sales cycles that they're typically measured in months, not weeks. But we are encouraged by the pipeline generation in the quarter and the pace of the integration so far.

I think the pattern that we're seeing is at the high levels of trust in particular, in our enterprise category that our customer base has with Braze ability to deliver and really just the integrity and the pragmatism that we've always incorporated into the Braze AI road map and really looking at the defensible and improvable performance uplift from the technology of offer fit has combined together to create a really compelling offering that people are really interested in. And so we're very excited about the potential there. We continue to think we're going to see very high attach rates, in particular, in the high end of our customer base. for the full offer fit offering. And as a reminder, the full OfferFit offering is priced around $300,000 annually. There are other flavors of that offering, and we are looking at definitely providing a full spectrum of reinforcement learning offerings.

We're going to share more about that at Forge at the end of the month so that we've got different price points and different deployment mechanisms so that we can definitely sell, especially as we get further down to the product development. The combined product development road with the existing Braze AI investments alongside the OfferFit road map and the synergies of those coming together. We think is going to be able to provide a robust kind of fully fledged offering. We're going to share more about that at Forge, and we're going to share more about that in the coming quarters. And so I think that all of the all of our assumptions leading into the acquisition have so far been vetting out not only positively, but also we're moving a pace, and we've been really happy with the urgency and the velocity of the integration and continue to be really excited about it.

And then specifically on your question around the top line impact, just to reiterate that we talked about a 2% uplift to year-over-year revenue growth. And so I think the rough range is sort of a $11 million to $12 million in the year, and we are perfectly on pace for that contribution.

That's great color. And then I have a follow-up in terms of margin. It's great to see that you raised your margin for the year wanted to specifically ask you about offer fit. I know it has a lot of service. And how do you plan to scale offer pit business and further drive margin expansion there with offer it?

Yes. So there's 2 pieces to that. I think on gross margin, the OfferFit numbers today mix in pretty much exactly as our business is structured. So there's no dilution right now on a gross margin basis. are an earlier stage company, and so we do see opportunities to improve that gross margin over time as we mature their delivery operation. So that -- we do see opportunity for that to improve and actually exceed raises overall average gross margin over time. On operating income, obviously, they mixed in a little bit negatively. And what we've been doing is just aggressively looking for ways to ensure that there are appropriate synergies between the 2 as we have completed -- or we continue to complete the integration.

And so we want to continue to invest in that business to make it as successful as possible, but we're being extremely disciplined and diligent about how that is being executed. And you're seeing some of that in our ongoing plan to improve profitability.

Our next question comes from Brett Huff with Stephens.

Good afternoon, everybody. Can you hear me okay?

Yes.

Congrats on a nice quarter and lots of great stats here, given lots of different thesis going on in the market. To that end, I feel like I need to ask the AI question. Can you talk a little bit or just remind us again, how the usage is trending for your AI products, maybe in a little more detail to sort of provide some meat on the bone on the defensibility of what we think is Braze position? And then talk a little bit maybe also about the forward deployment of folks you have, I think, around OfferFit. And then I have a follow-up as well.

Yes, for sure. So I think that when we look out across the Braze AI feature site, we obviously have a full spectrum of offerings, including some that we launched years ago. And they deploy a number of different AI technologies ranging from advanced data science and machine learning into reinforcement learning processes, transformer driven recommendations and then Gen AI assistance and copilots and such. And so we're seeing rapid levels of adoption really across that entire feature set. Some of them are correlated with different verticals, things like catalog recommendations tend to be more prominent in retail and consumer goods as well as media and entertainment, both of which are super strong verticals for us.

We're seeing great usage of our assistance within the dashboard. I think arguably, one of the few -- one of the few competitive weaknesses for Braze historically has not been a lack of rock capability, but rather apprehension from prospects on whether they can make full use of braze. And I think our AI road map as tremendous promise to close that gap, both by lowering the barriers to entry for those more sophisticated features. As well as decreasing the manual effort required to test and deploy both new use cases and run ongoing experiments. And so I think we've been really happy primarily with continuing to see that gap being closed where the differentiation that Braze has always been able to deliver due to our power and our flexibility becoming more accessible to more of our customer base, and that's giving us both stronger differentiation in sales cycles, but also stronger usage and ongoing value creation for our customers, not just from the AI features, but from the existing differentiation that we already had, but that was maybe not as accessible or as usable and AI is helping really close that gap.

We're also, as I referenced, super excited to share a lot more about the upcoming AI road map at Forge in just a few weeks. I don't want to scoop too many of those product announcements. But we're excited to be able to be investing both in enhancing the customer experience as well as the marketer experience in the prepared remarks about this idea around composable intelligence, which is something that we're extremely excited about as we continue to build out more opportunity for configurable and tunable models as well as agents and operators within the dashboard, all of which help simultaneously actually improve marketer productivity, but also improve the high-level capabilities for systems to act in more autonomous ways after being imbued with the creativity and the intelligence of the marketing teams and the brands that are utilizing them.

And so I think really excited to see across the board, just the adoption of the features, the adoption of the existing features being helped out by AI and then a lot of excitement in the road map as well.

That's super helpful. And then second question is on sales execution. You all have been talking about this, and I think showing results, demonstrating that the sales execution has gotten better. I think we underestimated maybe just how much better -- how much of that contributed to it? I know you called it out or maybe Elizabeth did -- Isabelle, available in the opening remarks, but any more to add there.

No, I think that as I referenced at the top of the Q&A here that what we're seeing is really a synchronization, I think, of just a lot of positive impacts from a lot of the operational changes, a lot of the investment that we put into achieving high competitive win rates and really making sure that we've got strong qualification in particular, of late-stage pipeline so that we can better prioritize our efforts I've spoken in prior quarters about some of the sales efficiency downsides that came about from it being a very opportunity scarce environment for a while.

That was a combination of the macro and also just a combination pipeline and led to, in particular, some enterprise deal cycles where we were trying to force time lines that were just more difficult to execute on where we would either run out the clock and someone would be forced to renew or we were it or switching costs earlier when they still have another year, 1.5 years and some other contract We're, I think, operating in a stronger pipeline ratio environment that's allowing for our sales team to be a lot more judicious about where and how they spend their time, how they sequence the opportunities that they have in their patches and how they execute on those deal cycles. And then, of course, I think our competitive strength is in a really great position, which is allowing for us to execute on that late-stage pipeline in a really positive way and not synchronizing together around the world.

Our next question comes from Raimo Lenschow with Barclays.

Perfect. Thank you. at the moment, like your customer addition was really decent and you talked about still a challenging environment out there. But like if you think about like where are we in terms of customer understanding of your offering, but also customers kind of thinking about like how they kind of are doing communicating with a client in this new AI world? Do you see a change in behavior change in thinking there that kind of helps you kind of do you have a better situation in the market position in the market?

Yes. So I think that there's aspects of this where even before we were referring to the concept of an AI and [indiscernible] software world, I think that Braze really arrived to the realities of a lot of what this thesis kind of has identified as changes in the software world. We've taken about a number of these things in prior quarters. Our pricing, as an example, has always been outcome and consumption oriented. And as you know, we've never charged for seats raise was designed from the beginning to enable small teams to perform massive scale work through a combination of both the deterministic automation that you see in things like the journey building in Canvas as well as machine learning-driven automated decision-making.

And with AI and some of the new frontier capabilities, the scope of what's possible with that automated decision-making is increasing, and that's being supplemented also by our ramping investments in both reinforcement learning and Gen AI. But I think that actually strengthens our foundational thesis that small team should be able to build, manage and optimize comprehensive customer engagement strategies. They need a system like Braze to be able to manage the complexity that's inherent in that problem space so that as a small team, they can grapple with the complexity of like all the different channels and all the different ways that customers are interacting with them across all the different touch points and the real-time changing of the context around them.

But these goals remain the same, which is that you need to be able to generate insights in real time about customers using the real-time contacts that they generate, being able to make sense of the data as quickly as possible after it's generated. Do you able to harmonize that with what your business priorities and strategies are, drive great customer experiences that build strong relationships, right? These are fundamentals about humans, human relationships, our associations with brands, the way that we bring new products and services into our lives. And those things are not -- those are -- those, I think, are -- many of those are very timeless. And so a lot of these strategies, I think, when you connect them back to the more timeless truths about building strong relationships with customers and about building strong businesses on the backs of strong relationships, those things haven't changed.

The practices and the tools and the technology that we have available to us and actually I think the ability of the promise of its sophisticated automation and sophisticated capabilities like Braze to be able to allow a small team to deliver on those really complex and hard problems. That promise is being realized more and more because of the delivery of AI. And I think that, that's making these teams more important within companies. We talk about marketers moving on from the drudge work of babysitting campaigns to actually being able to engage in higher-level business strategy to be that high level both the creativity that comes out of the brand stories as well as making sure that the products and services of the brands that they work for are integrating themselves and attaching themselves to people's lives and habits and loyalties.

And so I think we've been really excited to just see that a lot of those things continue to be provably timeless AI shows up in order to bridge that gap between the promise and the reality of what's delivered. And when you bridge that gap, the teams that we work with become champions within their organizations. They're able to drive higher leverage impact, do so at higher levels of ROI. When you start to look at things like offer fit coming in as well to be able to provide that high-end customizable offering where the reinforcement learning is providing provable performance edge over the best state-of-the-art even like much more expensive like home build systems and things like that, that just serves to increase the level of of leverage and ROI and really the status of those customer engagement teams within organizations.

And so I think we're really happy about the overall arc of how that continues to develop. I think that -- within this demand environment, it's also still true that companies, in general, are still looking for ways to optimize costs. There's not a huge amount of expansionary investment new greenfield product introductions and other geographic expansions and other big growth-oriented investments. And that still means that some of these effects we've talked about in prior quarters, where switching costs are still costs and it's still hard for organizations to be prioritizing costs like that right now. We continue to see those as drags on deal cycles.

But I think that in terms of the fundamentals of customer engagement in the space, the role of the marketer, the ROI that can be delivered by making sophisticated and advanced investments in the customer engagement space are more true than ever.

Yes. Okay. Perfect. And Isabelle, one on -- thankfully extra disclosure on the extra comments on NIR. Obviously, it's a backward looking kind of metrics. If you think about it, like -- about a year ago, we had like kind of much higher numbers. Like how quickly does that come back once the world is changing, you have obviously offer it to kind of as a cross-sell up the puts and takes if you think about like the changing of that number going forward?

Yes. So I think just in terms of -- we obviously don't provide guidance on that number. But just if you think about the puts and takes, obviously, as the downsell environment continues to moderate, and we continue to kind of get stronger in that area, that is going to help that metric. And then as the demand environment continues to stay strong and then continues to improve and when we continue to sell offer fit as an additional tool in our toolkit, there's opportunity that metric to reaccelerate at some point in time. We are not calling any time period on that. We are really pleased to see the stabilization and the uplift in Q2 versus Q1 and are excited to continue to provide that the trailing 12-month metric to you all going forward.

Your next question comes from Taylor McGinnis.

Congrats on the quarter and the strong results. Apologies if there's any background noise. But just maybe going back to the outperformance in the quarter, it was a lot stronger than what we've seen in past quarters. So could you just talk about maybe what area really exceeded your expectations in particular? And as we think about the assumptions implied in the guide going forward, how have you adjust those accordingly and anything to keep in mind there?

Yes. So there's kind of two areas that kind of work together. So definitely on the downsell component, that came in better than anticipated. And obviously, our guidance went up for the full year. So our visibility and our expectations for the back half of the year improves there as well. that had an in-quarter positive impact. And then just the general demand environment would continue to be strong across geographies and across customer classifications across industries. Bill mentioned some of the strength that we continue to see our verticalization. And so across our breadth of products, we're continuing to see strong demand there and more limited downsells. So that's great. I will call out 1 point of the overachieve is related to 2 items that 1 can consider A little bit harder to predict and maybe a little bit more onetime in nature. Revenue reserves came in better than anticipated. So revenue reserves were taken when we have expectations of poor customer payment -- and we've had very timely payments from our customers recently, and this has allowed us to not take as large revenue reserves. So that's been helpful in the quarter. But again, difficult to predict, but a nice leading indicator of customer health. So we're pleased about that. And then some overages were a little bit above expectations. And so taken together, those were about 1 point of the overachieved in the quarter.

Some super helpful on all that color. Just the second question is, if I look at CRPO growth. So on an organic basis, it's maintained growth in the mid-20s and now we saw this inflection in organic growth to the low 20s. So we're starting to see a little bit of convergence there. I guess how can we think about those metrics in tandem going forward? Anything to keep in mind from a duration and linearity perspective?

Yes. So we are seeing those metrics kind of move a little bit in tandem here, and that's great to see. There's always at any given point in time, some noise that can creep into that metric, but we are definitely encouraged even on an organic basis on the trajectory of the CRPO metric. So happy to see both the impact on more limited downsells is definitely playing into that. as well as the strength in the overall just kind of core business and momentum that we're seeing in the business. So we're excited to see that positive trajectory.

Your next question comes from Brian Peterson with Raymond James.

My congrats on the strong quarter. So Bill, I know you said the demand environment is fairly stable. If you kind of unpack the geos in the end markets, have you seen any changes over the course of the year that you would call out in terms of the demand environment from a net new perspective.

Yes. I think quarter by quarter, we have seen differences in country-specific performance around the world, but averaging over the last few quarters, I think we've been happy with performance globally. We've seen major contributions and strong run rates from each of our global regions and subregions and that's inclusive of both are more mature areas where we've had established sales teams for years as well as some of the places that we've opened up more recently. We've also seen some great positive momentum from things like the data center that we deployed in Australia. We had across the board really strong performance from actually every single segment in our ANZ region in the most recent quarter, that was certainly helped out by that country specific investment into the data center.

And we're doing a better job, I think, of aligning things like regional support, along with partners as well as vertical-specific investments that drive alignment across marketing spend, product marketing and product specific investments and making sure that those are all getting aligned around go-to-market activation and execution. And so generally, I think what we're seeing is that there are puts and takes around the globe. But I think we've had good visibility into where relative strength and weakness is so that we can deploy capacity in a way that's efficient. And then we can also align other supporting investments across product and marketing to make sure that we've got the right alignment of sales capacity with the varying regional strength and that, that's all supported and lined up in a focused way.

Our next question comes from Brian Schwartz with Oppenheimer.

Bill, given that the sales productivity is improving, which we can see in the results. I think in your prepared remarks, you said conversions are normalizing pipelines at a record level and you have the CRO in place. Does that change at all the pace of hiring new sales reps in the second half of the fiscal year?

Yes. So we are expanding sales capacity in the second half of the year. I wouldn't say that there's any like major changes to that other than that as Isabelle mentioned, certainly, we are on the other side of 2 major events that had uncertainty related to them, one of them being the OfferFit acquisition and the level of disruption and the pace at which we would be able to smoothly integrate that. And the second being Ed's onboarding. I think we're about -- we're just a couple of months into both of those events. And being on the other side of them. I think that we've been really happy with the pacing so far, both of Ed's onboarding and integration into the executive team and into the go-to-market functions as well as the offer fit team integrating into the broader Braze's organization and us being able to merge together both the product development as well as the different operational processes in the groups.

And so that's all setting the stage to provide the right foundations for us to continue to execute on the investment plan for the second half of the year. As Isabelle mentioned, I think we simultaneously feel good about the investment path, our ability to drive those investment levels with the certainty that we want from the business. And when you combine that with some great results on the top line as well as on the attenuation of the downsell pattern that we've been that we have been living with over the last few quarters and that sets the stage for the guidance that you're seeing today.

And the follow-up I had for Isabelle, in terms of thinking about the operating leverage, are the internal uses of AI that you're using at Braze and/or the low-cost labor arbitrage is that moving the needle yet? Is that having an impact on the margin outperformance that we've seen so far? Or is that still ahead of the business?

Yes. I think it's more so -- we're seeing more of that leverage coming from the cost optimized location. The internal use of AI tooling, I think we're still early days on that. to really be at a point where you're kind of replacing human capacity to a more material extent.

For the remainder of Q&A, please limit to one question. Our next question will come from Matthew VanVliet with Cantor Fitzgerald.

I guess first on the sales execution front, curious on how your average deal sizes came in relative to what was expected in the pipeline. Just -- are you seeing sales cycles drawn out or deals come in maybe at a smaller price point than you are anticipating, but the volume is sort of making up for it. And then secondarily, curious on where we're at on the average duration of sales reps maturation and how much maybe influence that did have on sales execution as well.

Yes. Overall, I would say there's a little bit of quarter-by-quarter noise when it comes to average deal sizes. But in general, I think that we've seen a pretty stable productivity. Like most of the inputs to sales productivity over the last few quarters have remained fairly consistent. Similarly, some of the mechanics around average durations and even things like annual versus annual versus multiyear deal terms, payment terms, et cetera. we're seeing some quarter-by-quarter noise on these things, but no major trend lines to support. I think that a lot of the environment from those dimensions has remained pretty consistent.

Our next question will come from Derek Wood with TD Cowen.

Great. Congrats from me as well. Bill, with search and SEO getting disrupted by AI, are you seeing customers look to shift more marketing spend into first-party data and customer engagement solutions like yours. Just wondering how you see the market reacting to this AI disruption and how you guys are trying to capitalize.

Yes. So we've talked about this in the past. I do think that we will benefit from a need for more and more brands to be able to avoid some of the downsides to demand aggregators that will come about from people using more assistance and such. I think it's still early days in terms of understanding exactly what kinds of changes are going to be effective in order to navigate the AEO environment and the acquisition side of the house. but I think it's more true than ever that being able to -- once you've got a customer -- once a customer has discovered you as a brand and they're ready to engage in your product or your service ecosystem, that being able to kind of create a stronger first-party connection with them, is informed by first-party data in context and then rewarded with them the ongoing ability to communicate with that person over time.

Like the importance of all of that stuff that's downstream from acquisition, I think always increases whenever new demand aggregators enter into a given vertical or a given market. One of the things that is so important about the presence of tools like Chat GPT and changing user patterns around them is that it's a demand aggregator across a lot of verticals. Obviously, travel and hospitality, food and quick service restaurants and a number of other verticals have been dealing with the presence of demand aggregators for a long time, and that is now showing up in more and more of our life. But I think we should expect the marketing strategy response to be very similar across these newly impacted verticals as we have seen already across categories like restaurants and travel and hospitality, many of which are strength verticals for us because of the importance of running things like loyalty programs and building strong first-party branded connections with people.

And so all of those things, I think, just continue to hammer home the importance of investing in those first-party data sets and establishing first-party connections with people in utilizing things like loyalty programs in order to enhance those connections, et cetera. And we continue to see those trend lines happening. I do think the specific questions around everyone should certainly be and are investing in and trying to better position brands to be able to capitalize on being able to be discovered in places like Gen AI chatbots and what have you. But it's still pretty much -- it's still early days, I think, for a lot of those strategies to be with convicted budget changes. And I wouldn't say that we're seeing any sort of massive changes there.

Your next question comes from Yun Kim with Loop Capital.

Congrats from me as well. If you can provide some color around any trend that you're seeing around different messaging channels, which specific premium channels performed well in the quarter. And is there any messaging channel you expected to get a boost from when a customer adopts ultra-fit?

Yes. So I think that across messaging channels, we've seen pretty consistent growth across our offerings. As Isabelle mentioned, we have -- we've seen more growth in some of the premium messaging channels, and we've also seen more growth in premium messaging channels outside the United States. I think some of those things are actually driven by a lot of the positive effects of the flexible credit model that we been predicting and forecasting over the course of the last few quarters. As a reminder, as a Braze's SMS buyer in the past, you used to actually have to contract on a country-by-country basis, the volumes that you were going to send.

Now you're able to buy a basket of more fungible flexible credits, which then allows for you to more dynamically test out new markets and new channels and be able to shift strategies as you see different deferring levels of ROI or strengths and weaknesses in different markets in a way that people just couldn't contract before. And so I think as a result, we are seeing a higher adoption of some of those premium messaging channels as well as they're spread across more countries and people testing out things like RCS and WhatsApp more flexibly than they were before. So we've been really happy all of the impact of all of those, we did predict that a number of those things would be a consequence of change toward the flexible credits model, and that's been coming into fruition. We've also been seeing adoption of channels like landing pages and content cards as well as the banner cards extension, 2 content cards, which are all areas where we've been putting investment into adding more depth and flexibility to those different channels and customers have been adopting them a pace.

And we've definitely have been excited to see that because one of the #1 correlators with customer growth and customer retention is the adoption and execution of multichannel strategies and being able to do so both in product and out of product and coordinating those strategies together. So that's exactly what we want to be seeing across the board with customers. With respect to OfferFit-driving messaging channels, they tend to get deployed around e-mail as a primary channel, but as a reminder, the offer fit decisioning engine is highly flexible and can be applied to strategies across not even just the channels that Braze super strong in, but it actually has been used for performance marketing use cases and being able to do things like optimizing bid levels on ad buying strategies and such.

And so we're very excited to see the OfferFit decisioning engine be able to be deployed not just on the first-party channels that Braze has pretty existing footprint and strengthen but actually be deployed more broadly across marketing organizations across all of their goals.

Our next question comes from Patrick Walravens with Citizens.

This is [indiscernible] on for Pat. We've seen customers in this over 500,000 cohort going up quarter-over-quarter, but we've seen the dollar-based net retention rate dropping. Are we going to see that reaccelerate at any point?

So we talked about the dollar-based net retention in quarter and the trends that we've seen there that are an indication of some of that stabilization. So over the last 7 months, we've seen some of that stabilization in particular, Q2 was slightly higher than Q1 on an in-quarter basis. And generally, it's a bit of a leading indicator on directionality. Also, the dollar-based net retention dropped only a point versus the prior quarter, and we've seen larger drops in recent quarters. And so we're encouraged by the direction of travel there and just point you to our comments about the in-quarter trajectory.

Our next question comes from Tyler Radke with Citi.

Okay. Great. So I guess just going back to one of the comments this quarter, Isabelle, I think you talked about some better reserve dynamics just on some of the payment terms you also talked about improving retention rates across the board. So would just be curious, like what's the underlying demand driver here? Is it -- are you seeing kind of improvements on the messaging or MAU side. Just any commonality across kind of the better payments and better retention.

Yes. I mean, look, on the better payments, there's no one particular product that's a play there. That's really more customer health and the fact that we continue to be Tier 1 vendors across the swath of our customers. And so certainly, our customers want to maintain us in good standing and have maintained the platform on an operational and avoid any disruption there. So I think that's a little bit of speaking to the kind of the global health of the customer base as customers run into their own financial troubles, they'll tend to be more delinquent with payments.

So it's great to see that not only operationally our own internal engine to collect payments continues to perform well, but also our customers are prioritizing us or actually having the ability to pay, and that's a great directional signal for us. And then just in terms of the overall kind of demand environment, all of the components continue to perform well. You're seeing -- we've had some growth in the monthly active user base. That has historically always the overall revenue growth. So nothing to shout out there in particular. The messaging continues to perform very well as we continue to sell on the credit basis. And so across the board, just the entitlements that we are making available to our customers, we're seeing kind of broad adoption and continued expansion of multiple SKUs across the board.

Our next question comes from Arjan Batya with William Blair.

I'm Will Miller on for Arjan Batya. We appreciate the color on the down selectivity in the prepared remarks. But can you also comment on where you are in terms of server customer renewals? Could we expect any more in the balance of the year?

Yes. So we're not going to really untangle that any further. I think we're really happy to see the overall trajectory on downsell activity. and the stabilization that we're seeing, as I've mentioned on the in-quarter dollar-based net retention. And so that -- we'll talk more about kind of those metrics, and we're excited to kind of continue to report on the trailing 12 months over the next couple of quarters.

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

I just want to thank everybody for joining us today. We hope to see many of you at Forge as well. And as a reminder, if you're interested in joining us for the investor reception, you can reach out to investor relations @[email protected].

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

Thank you, operator. Good afternoon, and thank you for joining us today to review Braze's results for the fiscal first quarter 2026. I'm joined by our Co-Founder and Chief Executive Officer; Bill Magnuson; and our Chief Financial Officer, Isabelle Winkles.

We announced our results in our press release issued after the market closed today. Please refer to the Investor Relations section of our website at investors.braze.com for more information and a supplemental presentation related to today's earnings announcement.

During this call, we will make statements related to our business that are forward-looking under federal securities laws and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding our financial outlook for the second quarter ended July 31, 2025, and the fiscal year ended January 31, 2026, our ability to integrate and realize the benefits of the acquisition of OfferFit, our anticipated product development and performance, our expectations concerning new customer verticals, our anticipated customer behaviors, including vendor consolidation and replacement trends and their impact on Braze, our potential market opportunity and our ability to effectively execute on such opportunity; and our long-term financial targets and goals.

These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations and reflect our views only as of today. We assume no obligation to update any such forward-looking statements. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to the risks identified in today's press release and our SEC filings, both available on the Investor Relations section of our website.

I'd also like to remind you that today's call will include certain non-GAAP financial measures used by management to evaluate our ongoing operations and to aid investors in further understanding the company's fiscal first quarter 2026 performance. In addition to the impact these items have on the financial results, please refer to the reconciliations of our non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with U.S. GAAP included in our earnings release under the Investor Relations section of our website. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with U.S. GAAP. And now I'd like to turn the call over to Bill.

Thank you, Chris, and good afternoon, everyone. We delivered strong first quarter results, generating $162.1 million of revenue, up nearly 20% year-over-year. That top line growth continues to be paired with efficiency improvements as we increased our non-GAAP operating margin by over 900 basis points year-over-year and realized our fourth straight quarter of non-GAAP net income profitability, achieving over $7 million of net income and nearly $23 million of free cash flow in the quarter.

We are proud of our financial success as we continue our mission to become the leading customer engagement platform on a global scale and look forward to achieving sustained profitable growth in the coming quarters and years, while thoughtfully reinvesting in our business and building our competitive moat.

Despite an environment that remains noisy and uneven, we continued our momentum from Q4, achieving strong bookings as we got off to a good start in fiscal 2026. Thus far, global trade concerns have yet to materially affect deal cycles. And in the first quarter, we secured a diverse set of new business wins and upsells, including Beyond Inc., Chamberlain Group, Evite, Freshket, Fubo, LUSH Cosmetics, Njuskalo, ThredUP and many others.

Our customer count rose to 2,342, up 46 sequentially and up 240 versus the prior year. Our large customer additions were again strong with $500,000 plus ARR customers, rising 24% year-over-year to 262, demonstrating the need for enterprises to deploy AI-based solutions and leverage first-party data to drive sophisticated cross-channel customer engagement at scale.

We also continue to replace legacy marketing clouds across verticals and around the world, including at a North American FinTech, a global luxury retail brand, an EMEA insurance comparison firm, a North American amusement park chain, an EMEA Fashion House and APAC Tourism Board, a North American clothing marketplace, a U.S. health care company, a construction equipment rental firm in APAC a U.S. gaming company and an EMEA professional sports organization, among many others.

We also continued to win against both channel-specific point solutions and homegrown tools across a diverse set of industries, geographies and use cases. And it's that diversification, which supports our results even as the economic and geopolitical environment remains dynamic. As we continue our substantial and focused investment on our journey to become the recognized leader in customer engagement, we are confident that the legacy replacement cycle and vendor consolidation trends will persist, presenting Braze with opportunities to increase market share as brands increasingly seek to improve their customer engagement strategies and leverage new AI-driven advancements to simultaneously achieve better results and higher levels of productivity.

Meanwhile, our legacy competitors continue to stand still. Failing to innovate or adapt as the modern customer engagement landscape continues to forge ahead in both scope and sophistication. Braze remains focused and forward-looking as we deploy AI in tandem with first-party data activation, applying leading-edge reinforcement learning and generative AI technology to an ever-evolving set of messaging channels and product interfaces to help our customers deliver more relevant customer experiences and grow their businesses. This multifaceted strategy was on display just a few weeks ago as we announced the general availability of RCS messaging, in-product banners and canvas context. Separately, these are important upgrades to our channel offerings, orchestration environment and visual programming language, but it's a combination of these capabilities with our increasingly robust Braze AI suite that really makes our product road map shine whether a brand is orchestrating a dynamic customer journey, initiating an interactive conversational experience or enhancing core product offerings, the tools and skills of customer engagement are there to help them identify and optimize every one of the moments that matter in the customer journey.

As the Braze product races ahead, we also continue to invest heavily in the community of marketers and agencies that are the foundation of the broader Braze ecosystem. And we firmly believe that now is the ideal moment to elevate the craft of customer engagement as marketers lead behind the drudge work of campaign creation and ascend to being a maestro of experience.

By combining the accelerated capabilities of reinforcement learning and generative AI, we believe that marketers can ascend to a strategic conductor role responsible for prioritizing and driving business goals as brands unlock new opportunities for growth on the back of their continued investments in first-party data and the building of direct-to-consumer relationships. The enhanced flexibility of data, expansion of communication channels, rapid advance of AI and rising skill sets of marketers present brands with an unprecedented opportunity to engage with their customers, fostering enduring relationships that are the foundation of efficient brand growth.

This goes beyond the conventional notion of delivering the right message to the right channel at the right moment. It involves gaining a deeper understanding of customers, engaging with them more holistically and reinforcing customer connections by providing seamlessly integrated messages and product experiences. Agentic AI plays a vital role in enhancing relevance and enabling extensive personalization as these decision-making agents independently test, learn and provide highly tailored experiences to customers.

To accelerate our progress in this area, earlier this week, we successfully closed the acquisition of OfferFit, a leading AI decisioning company that leverages proprietary reinforcement learning to enable brands to deliver highly relevant and personalized customer engagement at scale. OfferFit has spent the last 4.5 years building and deploying a leading multi-agent solution that autonomously explores solution spaces across life cycle marketing campaigns, creating highly customized recommendations for cross-channel campaign content and delivery strategies.

By substituting the manual processes of AB testing with reinforcement learning agents that independently experiment and identify optimal actions, OfferFit's advanced AI decisioning can be utilized across a diverse range of experimentation and optimization scenarios. This approach has been highly successful, enabling OfferFit to quickly land and expand with large enterprises across a diverse set of industry verticals. After years of successful product partnership, we are now working quickly to fully integrate OfferFit's multi-agent decisioning engine into Braze's customer engagement platform. By leveraging the Braze data platform, dashboard infrastructure and our already scaled event-driven stream processor, we anticipate that OfferFit will be able to simultaneously accelerate their previously independent road map, even while we prioritize the many integration tasks that will lay a strong foundation for future innovation and scaling.

Together, we believe we can enable brands to leverage cutting-edge technologies in automation and machine learning, transforming customer relationships and creating shared value for both consumers and businesses. In the short term, we anticipate that OfferFit solution will enable us to increase deal sizes through their distinctive reinforcement learning products and services, while also setting us apart from competitors by offering a broad range of AI-driven optimization capabilities at various price tiers and service levels.

In the medium term, similar to our approach with other key components of Braze AI, we plan to integrate OfferFit agents and machine learning models throughout the Braze platform. This integration will empower us to collaboratively address new use cases and improve existing features, ultimately helping brands achieve higher uplift with lower effort.

The integration of OfferFit also complements Braze's Project Catalyst, a native AI agent aimed at helping brands personalize and optimize experiences through highly relevant journeys and content at scale, which is now available in private beta. Finally, we are confident that over the long term, their solution and AI expertise will help Braze accelerate progress on several long-running initiatives in Braze AI and Canvas, reinforcing our position as a leader in AI and customer engagement. We are thrilled to welcome OfferFit's team and technology to Braze, enabling our combined experience in machine learning and AI to enhance our product ecosystem and create exceptional experiences for our customers and their end consumers.

We are excited to build the future of customer engagement together and look forward to unveiling more about the OfferFit integration, Braze AI and our broader road map at Forge, our annual flagship Customer Conference in September.

And before I go, I'm excited to share that when we arrive at Forge in September, I'll be joined by the latest addition to our executive team as Ed McDonnell will be starting at Braze as our new Chief Revenue Officer in early July. Ed brings a wealth of experience and qualifications to this role with a proven track record of building and scaling revenue at leading SaaS organizations. As a former Executive Vice President and CRO at Salesforce Marketing Cloud, he developed a deep understanding of the customer engagement landscape and successfully scaled a multibillion-dollar marketing technology business. Most recently, he served as CRO at Asana, where he led revenue growth in the work management sector. His transition back to marketing technology underscores his strong belief in Braze's market position and growth potential in the customer engagement space. We are very excited to have Ed joining us soon, rounding out what we believe to be a best-in-class SaaS leadership team here at Braze.

Thank you for your continued interest and support. And now I'll turn the call over to Isabelle.

Thank you, Bill, and thank you, everyone, for joining us today. As Bill stated, we reported a strong first quarter with revenue increasing 20% year-over-year to $162 million, driven by a combination of existing customer contract expansions, renewals and business. subscription revenue remains the primary component of our total top line, contributing 96% of our first quarter revenue, while the remaining 4% represents a combination of recurring professional services and onetime configuration and onboarding fees.

Total customer count increased 11% year-over-year to 2,342 customers as of April 30, 2025, up 240 from the same period last year and up 46 from the prior quarter. Our total number of large customers, which we define as those spending at least $500,000 annually grew 24% year-over-year to 262. And as of April 30, 2025, contributed 62% to our total ARR compared to a 60% contribution as of the same quarter last year.

Measured across all customers, dollar-based net retention was 109%, while dollar-based net retention for our large customers was 112%. Expansion was again broadly distributed across industries and geographic regions. Revenue outside the U.S. contributed 46% of our total revenue in the quarter, up from 45% in the fourth quarter of last year and up from 44% in the prior year quarter.

In the first quarter, our total remaining performance obligation was $829.3 million, up 26% year-over-year and up 5% sequentially. Current RPO was $522 million, up 24% year-over-year and up 3% sequentially. The year-over-year increases were driven by contract renewals and upsells and the signing of new customer contracts. Overall, our dollar-weighted contract length remains at just over 2 years.

Non-GAAP gross profit in the quarter was $112 million, representing a non-GAAP gross margin of 69.3%. This compares to a non-GAAP gross profit of $92 million and a non-GAAP gross margin of 67.9% in the first quarter of last year. The increase in year-over-year margin was driven by continued cost optimization of our technology stack with additional benefits from personnel efficiencies partially offset by higher premium messaging volumes.

Non-GAAP sales and marketing expenses were $64 million or 39% of revenue compared to $60 million or 44% of revenue in the prior year quarter. While the dollar increase reflects our year-over-year investments in headcount costs to support our ongoing growth and global expansion, the improved efficiency reflects our disciplined investment approach to resource deployment across our go-to-market organization.

Non-GAAP R&D expense was $25 million or 15% of revenue compared to $23 million or 17% of revenue in the prior year quarter. The dollar increase was primarily driven by increased headcount costs to support the expansion of our existing offerings as well as to develop new products and features to drive growth. Our R&D expenditures reflect our intentional and disciplined technology investment strategy and are in line with our long-term non-GAAP R&D percent of revenue target of 13% to 15%.

Non-GAAP G&A expense was $21 million or 13% of revenue compared to $19 million or 14% of revenue in the prior year quarter. The dollar increase was driven by investments to support overall company growth and global expansion. Non-GAAP operating income was $3 million or 2% of revenue compared to a non-GAAP operating loss of $10 million or negative 7% of revenue in the prior year quarter. Non-GAAP net income attributable to Braze shareholders in the quarter was $7 million or $0.07 per share compared to a loss of $6 million or a loss of $0.05 per share in the prior year quarter.

Now turning to the balance sheet and cash flow statement. We ended the quarter with approximately $540 million in cash, cash equivalents, restricted cash and marketable securities. Cash provided by operations during the quarter was $24 million compared to cash provided by operations of $19 million in the prior year quarter. Including the cash impact of capitalized costs free cash flow in the quarter was $23 million compared to free cash flow of $11 million in the prior year quarter. Free cash flow during Q1 of FY '26 includes the impact of approximately $6 million in vendor payments related to the OfferFit acquisition during the quarter.

We expect our free cash flow to continue to fluctuate from quarter-to-quarter given the timing of customer and vendor payments.

Now turning to guidance. Please note that we closed the OfferFit acquisition on June 2. And as such, guidance for our second quarter incorporates a nearly 2-month impact of owning OfferFit, while guidance for the full year incorporates a nearly 8-month impact of the transaction. For the second quarter of fiscal 2026, we expect revenue to be in the range of $171 million to $172 million, which represents a year-over-year growth rate of approximately 18% at the midpoint. Second quarter non-GAAP operating income is expected to be in the range of $0.5 million to $1.5 million.

At the midpoint, this implies a non-GAAP operating income margin of approximately 1%. Second quarter non-GAAP net income is expected to be $2.5 million to $3.5 million and second quarter non-GAAP net income per share is expected to be in the range of $0.02 to $0.03 per share based on approximately 113 million weighted average diluted shares outstanding during the period.

For the full fiscal year 2026, we expect total revenue to be in the range of $702 million to $706 million which represents a year-over-year growth rate of approximately 19% at the midpoint. Consistent with the commentary we provided during our fourth quarter call, we expect OfferFit to add approximately 2 percentage points to year-over-year revenue growth for the full fiscal year, which equates to approximately $11 million to $12 million.

Fiscal year 2026 non-GAAP operating income is expected to be in the range of $5.5 million to $9.5 million. At the midpoint, this implies a non-GAAP operating margin of 1%, roughly a 100 basis point improvement versus fiscal year 2025. As I stated on our last earnings call, the Offer fit acquisition will create a temporary departure from the operating income margin framework outlined during our Analyst Day last September.

However, we expect to return to the framework in fiscal 2027. Non-GAAP net income for the full fiscal year is expected to be in the range of $17 million to $21 million, and net income per share is expected to be $0.15 to $0.18 per share based on a full year weighted average diluted share count of approximately 115 million shares.

To conclude, I'd like to express our excitement for what lies ahead at Braze. We are committed to offering industry-leading customer engagement solutions and driving product innovation as we work towards achieving our long-term financial goals. And with that, we'll now open the call for questions. Operator, please begin the Q&A.

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

Will and Isabelle, I was hoping to reconcile some of your prepared remarks. On the one hand, the sequential growth in the quarter was lower than what it has been in the last couple of years. You've got the uneven macro. You've got the NRR dynamic. But on the other hand, the CRPO number actually looks pretty good, and it sounds like the competitive environment continues to accrue in your favor.

So my question is, when do you think some of these positive company-specific dynamics start to more than offset some of the more uneven macro pieces that you've talked about? And what kind of metrics should we be looking at, whether it's revenue acceleration or maybe the CRPO number? How are you tracking that internally in your business?

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

Yes. I would say competitively, we feel really good about the results we continue to see both against the start-up competition as well as across the enterprise. We also saw continued great momentum out of Q4 into Q1 and the execution from the teams around the world was great. We saw -- good results in particular across America and across the Americas and across EMEA, and we saw broad-based strength across the different verticals. And by that, I just mean we didn't necessarily see pockets of weakness. I know that a lot of people have been really focused on retail and consumer goods, in particular, I'll remind everyone, as we spoke about last quarter, that we started the year with cross-functional verticalization efforts across both retail and consumer goods and financial services.

We're committed to continuing to do both of those throughout the year despite some of the tariff uncertainty that's obviously hit retail and consumer goods, and we've been happy to see the momentum that has come out of those investments. And so what we also saw in Q1 is, as we mentioned last quarter, was a continuation of some of those elevated churn levels that we had seen through the back half of last year because of the seasonality of the enterprise business, a lot of our prior year's Q4 enterprise business closes which tends to be multiyear do renew in Q1. And so you see a bit of a hit of that in Q1 that explains some of the DBNR weakness or the slight decline that you saw in DBNR in Q1 as well.

But we've been really happy with the -- both seeing the improved health of those poster cohorts as well as the cumulative effects of the last, call it, 6 quarters of very focused preventative efforts around churn, and we're looking at a forecast through the rest of the year where those churn numbers are going to improve. And so obviously, still need to see that in the revenue and the DBNR, both of which are lagging indicators. And we're executing, I think, at a really great level in a macro that has a lot of noise and uncertainty, but the diversification of the business and a lot of the work that we've been doing over the course of the last year to really manage around noise like that has been coming to fruition.

Our next question will come from DJ Hynes with Canaccord.

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

Yes. So Project Catalyst just recently entered the private beta. So I don't have rigorous uplift case studies for you specifically on Project Catalyst, but I can give some insight into some of the technology that it's using and actually personalized path, which you've heard me talk about quite a bit in the past is actually using some of the more advanced reinforcement learning techniques that use the context around individual users in order to determine individualized path decisions.

One of the great results that we actually saw over the course of the last quarter with some customers has been then shifting some of their usage of strategies like that to move up the decision-making stack. And so in this particular example, a customer was trying to optimize delivery cadences for selling either new apartments or promoting the purchase of new homes to people and they had actually done the segmentation manually and then they were using the machine learning in order to optimize some of the decision-making after they had done the segmentation.

And what they did is they actually switched the strategy and they allowed for the reinforcement learning to go up a level and actually make decisions about whether or not someone is going to -- someone's journey is going to resonate most with renting versus buying based off of other indicators that they had. And that ended up outperforming and was achieving 5x the uplift that the prior experimentation was doing when it was just looking at cadences.

And so I think that's such a great example where, even though we've built up a lot of intuition around how we communicate with customers over time, and there's a lot of marketing strategy around things like segmentation and delivering strategies -- delivery strategies that there's still a lot of uplift for reinforcement learning when we can really hand over control to it to make decisions to deliver to people.

And so we're obviously looking forward to Project Catalyst continuing to combine together generative AI along with these reinforcement learning examples in order to more fully automate the exploration of those different decisions. That example I just provided was one where someone can use a preexisting Canvas feature. They can use it very quickly, but they do still need to produce those different variants in order to set up that experiment. Obviously, with Project Catalyst, what we're moving toward is the creation of the experiment also becoming more automated and allowing for it to go from making individual content decisions to making multi-message sequencing decisions, to different canvas -- parts of canvases or parts of journey flows.

And then, of course, eventually moving all the way up to the level where it's making optimization decisions at a whole strategy level and a whole kind of customer engagement, customer journey level. We obviously anticipate as well that Project Catalyst and the longer term, when we get to that point where it's making these very high-level decisions I alluded to as the marketer ascends through these strategic roles have become more of a conductor of the business as different business strategies are being automatically prioritized against each other and then the implementation and the execution on how to optimize those -- for those strategies is being done by the AI. We think that, that's a place where the great collaboration that we're looking forward to with the OfferFit team, their reinforcement learning engine to be able to continue to kind of push ahead that road map is really going to come together.

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

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

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

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

Yes. So a couple of things. First, before we even got deeper into conversations about acquiring OfferFit, we already had the advantage of working alongside them with a large number of mutual customers. As we mentioned, when we first signed and announced at the end of last quarter, roughly 1/3 of their existing customers are also customers of Braze. And so we've been getting great feedback both from those customers that are really excited to hear that we're coming together so that we'll be able to provide a better integrated experience for them as well as help put more fuel on the fire of the R&D road map of OfferFit overall.

We've had a ton of incredible interest coming in from customers. We've had OfferFit presenting at a couple of our events over the course of the last couple of months, including most recently, at City x City London, which was last week, that conference actually had -- excuse me, this was 2 weeks ago, that conference actually had a higher attendance than Forge did last year because we continue to see incredible year-over-year growth in size of our customer community.

And me and George, the OfferFit CEO, were on stage together They got a huge number of leads out of that. People are really excited to hear about the potential. So definitely great momentum there. I think 1 of the big learnings, especially as we head into integration is that, we're going to be moving into an environment where OfferFit is actually going to be in a very lead-rich environment now. And so we shift from the go-to-market priority being more around being in a lead scarce environment where they were -- had to leverage a lot of the flexibility of their engine to kind of find the right use case for a really huge diverse array of customers.

Now I think the goal for the rest of the year is going to be to continue to qualify the opportunities that are going to be all over the place and the rest of the Braze customer base in order to cross-sell across our enterprise footprint and our GSA footprint to make sure that we're efficiently able to actually move through those opportunities quickly and predictably and help OfferFit scale faster than they were before, hopefully, with the added benefit of the Braze community and the Braze customer base.

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

Maybe one Isabelle, one for Bill. Isabelle first for you. Can you just walk us through what the renewal cadence is like of some of the post-ZIRP cohorts through the year? It sounded like Q1 was a heavy renewal quarter. Are there others this year that we should expect to be larger? Or was that the largest one.

And then maybe for Bill, you touched on this a little bit, but I'm curious, as the OfferFit cross-sell plays out, how your pricing OfferFit, it sounded like -- I don't want to put words in your math, but it may sound like it separate pricing compared with Braze's AI capabilities today, but moving to a single pricing model over time. If you could just elaborate on that, that would be super helpful.

Yes. So I'll answer the first question on the numbers. So the available renewal dollars were on balance sort of high in Q1, it's going to drop back down in Q2 and Q3. There'll be another pop in Q4 from an available renewal dollar perspective. What we've not broken out in that commentary has nothing to do with the ZIRP cohort specifically. So that ZIRP cohort is going to have a mix of renewal periods. And remember, the ZIRP cohort is 3 years' worth of contracts. And so that is going to have a broad-based distribution of renewal dates. So I wouldn't look to the volume to be any kind of indication of the specific risk associated with any of the ZIRP cohorts.

Yes. And then with respect to pricing, I'll remind everyone that the OfferFit solution is deployed as a very high-end flexible, customizable reinforcement learning engine, and has done so with the pairing of expert services. So we absolutely intend on continuing to sell for the rest of this year right along the lines of how they've been pricing and packaging throughout their -- certainly throughout the last couple of years at the business where they deploy on a per use case basis and that has an incremental cost around $250,000 to $300,000 annually inclusive of the expert services that help with the implementation and then the ongoing maintenance.

And so we expect that to be additive on top of the customer contracts that people are purchasing from Braze. There's obviously some question around potentially some budget cannibalization, but we also think and know that there is a lot of additional budget out there for this decisioning layer and for other forms of AI investments as well. And so we certainly hope to be able to capitalize on that in terms of overall wallet size.

And then we further think that this is obviously a really important part of our competitive motion moving forward and will really help to differentiate in particular, in cases where customers either have very large user bases where even small amounts of uplift are worth very large amounts of dollars or in places, and you see these across financial services and a lot of multiproduct companies and such, where being able to identify specific high-value actions in the customer journey like someone going from single product to a multiproduct or then upgrading to higher tiers of service or then moving into other product categories that are higher margin or higher value.

Those are all customer profile transitions that represent high-value actions where gaining the absolute best uplift is very high ROI investment for those customers. And so we'll be looking to qualify and deploy it into those circumstances with this existing pricing and packaging. And then we've got a lot of optionality for how that evolves over time and into the future. I won't speculate on that too much right now, but we obviously think that there is a lot more potential for the underlying technology, especially when combined with all the strengths of Braze's customer engagement platform.

Our next question comes from Pinjalim Bora with JPMorgan.

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

Yes, so great upfront question because just a couple of weeks ago, we launched our new pricing and packaging for this fiscal year, and it includes a massive relaxation on data point limits. Data points have been actually one of the highest friction points in our pricing for a long time. And it's always been in our pricing because it's highly correlated with our costs. And because our event-driven stream processor is expensive to operate and run with the high levels of performance and the high SLAs that we provide to our customers and they demand of us for the -- especially for the huge variety of high-performance use cases that many of them run.

But we, over the last few years, have put huge investment into shifting from data point limits because we, of course, know that data is also the engine that feeds a lot of the uplift for AI and machine learning. It also allows for customers to more flexibly move across different use cases. And with the continued build-out and capabilities of the Braze data platform, the amount of data flowing through Braze and the amount of use cases that people want to accomplish with the Braze data platform continues to expand.

And so having kind of a toll gate on the data points as they came into Braze was not only a friction point in sales cycles, but it was holding back increased usage. And so our R&D teams have gone on a multiyear journey behind the scenes to be able to shift from these data point caps toward a more API rate limit-based way of making sure that we're able to guarantee the levels of performance that we want to and also be able to do that with keeping our COGS and our margin profile in the place that we want it to be.

And so we're really excited about this moving into market more broadly with that pricing and packaging becoming available in more and more places. We deployed it in a more private pilot throughout last year. And the competitive results of it were extremely good. It was a very potent way to neutralize a lot of the FUD that a lot of our competitors like to use around data points out there. And as you noted in your own reference checks, it's some of the only negative things that you hear out there often are centered around these data point concerns. And so we're really happy to have neutralized those. We actually on that new pricing and packaging closed the first deal on the new pricing and packaging, just 8 days after it became available.

And so customers are already showing early signs of liking the flexibility that is there. That, of course, also came with expansion in the flexibility of the flexible credit model as well to include more channels within it. We think that, that's going to be a help for go-to-market throughout the year, both competitively and with respect to sales team productivity.

And just to answer your question on the impact on EBIT. So if you go back to when we announced Q4 and gave guidance for the year, I did indicate that on an organic basis, we expected to add about 400 basis points to non-GAAP operating income. That obviously has come down in the context of the guidance by about 300 basis points. So a good portion of that is the impact of OfferFit specifically on its own.

And then a little bit of that is also from additional investments that we will make to help with the integration. And so there's those 2 components together that kind of get you there. Recognize that, that is on a somewhat risk-adjusted basis, so take that into consideration. And a part of that mix is in on a gross margin basis, their gross margin is a little bit lower than ours for the time being and the bulk of it sits in the operating expenses.

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

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

Correct.

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

Our next question comes from Scott Berg with Needham.

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

Yes. I think we've talked about this in the past, and the same trends have continued throughout the rest of last year. So around this time last year, obviously, we initially released the flexible credits model on a small number of channels. We've expanded that to include more channels this year. I think customer uptake has been great, and it did, in fact, increase -- it shortened negotiation times because the order form complexity went down. It also has created new strategies for us to be able to help customers expand their usage in various creative ways to be able to test out new channels and new ideas without being hamstrung by whatever their order form happened to have purchased at some point, potentially in the distant past, depending on where they are in their contracts.

And just generally providing the flexibility that allows for a customer to expand across the Braze feature set and experiment and find and identify new strategies that are going to drive value for their business. And so I think customer sentiment has been very good. It has definitely helped speed up negotiation cycles. It also does help us introduce new features to customers and introduce new channels to them more quickly with less friction.

It hasn't been in market long enough to see exactly what that's going to do to DBNR overall. But certainly, we expect it to be supportive as we're able to avoid some of the sources of partial churn, where people misestimated and overbought certain aspects of messaging channel entitlements, which is because we're a use-it-or-lose-it, that often would lead to customer satisfaction issues. And while we could reallocate sometimes that spend to new channels or to different strategies at renewal time, by that point, a lot of times, there had already been that hit to customer satisfaction or the opportunity to be able to lay the groundwork to expand to those new channels, maybe already passed or what have you.

And so just goodness across the board when it comes to aligning customer value creation along with the right foundations for expansion and speeding up our deal cycles with the expansion of the flexible credits model and to yet more channels and more parts of the Braze product, which, as I mentioned, just launched recently in this year's pricing and packaging refresh, we certainly expect to see more of the same.

Our next question comes from Brett Huff with Stephens.

Can you hear me now?

Yes.

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

Yes. I think broadly across the macro, a lot of the things that we've spoken about in the past, in particular around enterprise deal cycles and the unwillingness for a lot of companies to invest in new growth initiatives, a lot of the spending is still focused on consolidation and optimization. And we certainly have a role to play in that, especially when we are consolidating multiple point solutions together when we're driving increased levels of efficiency and productivity by marketing teams. But switching costs are still costs, and we do still see deals that take longer because people are trying to time their moving to a new vendor exactly with their renewals or their prior legacy contracts running out so that they're not double paying.

Those are the kinds of things that are causing a lot of these enterprise cycles to sometimes take longer, sometimes push or get dragged out. We're getting better at navigating those and you are certainly seeing that in our sales teams, productivity and efficiency improvements over the course of the last few quarters. Our competitive win rates also continue to improve. And we're also seeing important advances in broader partner ecosystem as well. I spoke about this in the prepared remarks, but I think that it's very clear that the legacy players in the space, the likes of Salesforce and Adobe have taken their eye off the ball broadly in customer engagement are not investing nearly as much, if anything, in their existing products in the space.

And it's not just their customers that are noticing that, it's also the broader partner ecosystem. And those are leading to benefits for us as well. And so I think that we're liking what we're seeing from a competitive win rate standpoint from a team execution standpoint. There's still difficulty out there. We do see regional comparative weakness across places like Southeast Asia, as an example, where growth has not been as vigorous and where we haven't seen as much of the kind of venture activity starting to flow again, et cetera. We are seeing great results in core markets across the U.S. and EMEA, in particular, and continue to see broad-based strength across verticals when we look out across landscape.

I know that there's -- as I mentioned at the very top of the Q&A, a lot of hand wringing around retail and consumer goods, but I think we're seeing good momentum there as well. And so it continues to be a noisy and difficult to navigate environment, but we like where we're positioned in terms of the efficiency and productivity of the sales team and our ability to execute within a pretty diverse customer base.

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

Our next question comes from Brian Peterson with Raymond James.

This is Johnathan McCary on for Brian. So you kind of just touched on it there, but I wanted to double click on the SI channel. I know it's earlier days there, but here that it's a difficult environment from a marketing budget perspective and your commentary on the competitive environment, sounds encouraging. So I'm curious what impact, a more fluid macro has on that channel? And does that influence the momentum for Braze engagements to those integration partners?

And then just a quick follow-up for Isabelle, housekeeping wise, in terms of the impact from OfferFit, I know you mentioned some gross margin impact. Is there anywhere else you can break out within the OpEx lines, line by line, where we should see the biggest impact there?

Yes. So on the broader agency community, there's a couple different dimensions here. One is, as I just mentioned, just 2 weeks ago at City x City London, we had our largest attendance event of all time. I mean we certainly anticipate exceeding that total again at Forge later this year. And a big part of that is not just the customer community but also the broader partnership ecosystem inclusive of a lot of the agency community and the SI community, all of whom are sponsors of these events as well. And so we're really encouraged by the progress that we are seeing there.

It tends to be more regional, like when you look at, for instance, the big global systems integrators, we we're making great progress in certain geographies or certain verticals. I wouldn't say there's a broad-based groundswell within the likes of Accenture or Deloitte, if you will, but we're certainly making progress in areas of preexisting strength and continuing to parlay that into building additional momentum.

We also have a huge number of agency relationships around the world that start -- many of whom started out in the midmarket. They're also now starting to serve up in the enterprise. Stitch is one of those based here out of North America. They're also now expanding out into Europe, along with us as they continue to grow their business rapidly.

I mean we're continuing to see more and more competition amongst our partners as well to be able to advertise the huge numbers of Braze certifications that they have, and they're competing vigorously against each other for opportunities in these deal cycles as we continue to surface them.

With respect to the broader macro and the impact on a lot of that, the same things that I think are holding up, switching of various ways because they have switching costs, you obviously also have an impact on the onetime costs associated with lift and shifts, many of which are executed on by systems integrators or by other agency partners. We also see ongoing creative services and a lot of the additional kind of data intelligence and data invites investments being made. We do a lot of great work with VML and other parts of the broader WPP Group on that, especially across Europe, where we see a lot of great strength there.

And so good signs all over the world in different verticals from a lot of the most important and critical players in the space, and we're looking forward to continuing to build momentum with all of the major partners as we build out huge groundswell community around the customer engagement space.

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

Our next question comes from Brian Schwartz with Oppenheimer.

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

Yes. So I think the key priorities for this year are the integration of the go-to-market motions and the integration of the products and the underlying technology together so that we can both enhance the OfferFit offering as well as continue to grow it rapidly as we attach OfferFit to more and more of the Braze customer base and also continue to grow them and their independent offering on a -- not a stand-alone basis because obviously, they'll be integrated as part of Braze, but continuing to build out the OfferFit offering with the rest of the partnership ecosystem where they work as a decision engine with customer engagement solutions that are not Braze, which of course, represented around 2/3 of their customers at the time of acquisition.

And we certainly intend on continuing to provide that as its own offering well into the future. And so when we look at all of those different priorities, I think that OfferFit comes into Braze with a lot of momentum already built. They've been a great partner of ours over the last couple of years. We know them well. As I mentioned, I think a big part of really being successful this year is going to be making sure that we can get through the integration phases quickly so that there's not a friction that's going to slow us down from that perspective, and we don't incur organizational complexity that will slow us down either now or further into the future.

And then also that we make sure that as we bring together the teams and the opportunity set, and we open up the ability to cross-sell OfferFit to the Braze customer base that we do so in a way where we're qualifying those opportunities really effectively that we're able to predictably deliver OfferFit to those customers with quick time to value and be able to make sure that they get up and running and see that high performance uplift from the customized reinforcement learning engines that is, of course, the secret sauce of what OfferFit delivers to customers and do that as comprehensively as we can.

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

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

Our next question comes from Matt VanVliet with Cantor Fitzgerald.

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

Yes. So let me just work through that starting from next year. So as we start the next year's fiscal year, February 1, we anticipate that the combined sales teams will both be selling across the full gamut of Braze's customer engagement platform plus the existing OfferFit solution. And of course, we expect those products to intertwine with each other more over time as well.

As we look at -- the deal closed on Monday, and so we added 14 ramp -- we added 15 new reps, 14 of which will be ramped by the end of the year from OfferFit. The way that we are going to sell alongside them through the rest of the year, just recognizing the specific skills and experience required to sell OfferFit as it is today.

We are enabling the Braze team to be able to work very closely with the OfferFit sales reps to be able to help with a lot of those qualification determinations that I mentioned before, so they can identify opportunities in their existing installed base as well as in their new business cycles that they're already working through and be able to sell alongside those OfferFit reps.

And so we're looking forward to being able to parlay the learnings of these next 2.5 quarters that we still have in this fiscal year to be able to start next year with that combined sales team around the world, selling the integrated solutions and having everyone doing that. And we're going to try to move as quickly as we can on that.

The cross-sell and upsell opportunities that are already there, I'll just remind everyone again that we have been partnering with OfferFit for a while. And so our teams have already worked together in pockets around the world on the shared customers that already exist. Now obviously, OfferFit doesn't have a tremendous number of customers, so there's not a huge number of at-bats in that. But we've already vetted out aspects of this cross-selling motion, and we certainly anticipate the momentum on that to be able to move rapidly throughout the year.

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

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

Our next question comes from Derrick Wood with TD Cowen.

Bill, I wanted to ask about APAC. And I know you guys have put some investment there with some sales heads and new data center infrastructure and LINE as a new channel, but it also sounds like maybe there are some pockets of softness from the macro. Just can you talk about how you're feeling about demand and building new growth levers on those investments?

And then a quick one for Isabelle. You had strong growth in professional services revenue in the quarter. Wondering what drove that. And since we've got that spiking and we've got the acquisition folding in you care to comment on kind of how to think about growth in subscription revenue versus professional services revenue in the context of your guidance for the full year.

Yes. So when we look on the globe, as I mentioned, we had strength in Q1 across both America and EMEA. We've also, as you've noticed, built on our preexisting data center options that we already had in both the U.S. and in the EU with recently launched data centers in Australia and Indonesia.

We also anticipate that as data residency considerations continue to grow importance, both legally and commercially. And by that, I mean that there are certainly markets where data residency and other related concerns are not the law yet, but they are becoming kind of de facto commercial requirements, especially in more regulated industries. We expect to continue expanding that data center footprint over time.

And coordinating both Braze go-to-market and partnership investments alongside them in order to efficiently support the continued globalization of the customer base across those markets. I mentioned that broadly, we saw less strength in APAC than we did in America and in EMEA, and that certainly was true in Q1, especially as we've seen a little bit of an uneven recovery as the economy in China, which obviously impacts a lot of Southeast Asia has had an uneven recovery over the last couple of years. But seeing strength in markets like Australia, New Zealand, where we, of course, did open up that data center. We're seeing great growth in different industries, and different pockets across APAC, and it's definitely an area where we are going to continue to invest to make sure that it's part of our long-term global portfolio of business and an important part of our long-term global customer community. We are seeing what we're seeing with respect to America and EMEA strength right now, but it's definitely a place where we want to be investing for the future.

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

Our next question comes from Tyler Radke with Citi.

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

Yes. So we're super excited to bring Ed in and bring together his decade of experience scaling at Salesforce and competing in our space, along with his more recent experience at as CRO at Asana, where he got hands-on experience with a lot of adjacent buyers and product areas and a different sales motion. So I'm really excited to have him come in. Obviously, there's already a lot going on. So for Braze go-to-market, our priorities for the rest of the year are going to rank consistent as we continue to capitalize on the legacy replacement cycle in the enterprise, especially that strength we're seeing in America and Europe, as I mentioned, across those, investing in those verticalization efforts globally as we continue to bring together those cross-functional teams for both retail and consumer goods and financial services, and we're pushing that into coordinated event strategy and market development strategy around the world, including in LatAm and across all of APAC and in GCC.

And the momentum on those has been really good. We've definitely seen increased momentum. And just I think the awareness of those investments is helping those deal cycles move a lot more efficiently for everyone that's working on those.

We're also obviously working to continue to encourage greater customer expansion. We mentioned the pricing and packaging evolution that is helping support that as well as lowering churn, which has been a culmination of the last year, 1.5 years of really focused preventative efforts looking at a lot of the upfront around consumption and completeness. A lot of these things that I've been talking about the last few quarters, but obviously, by their nature, you don't really see the benefits of preventative early customer life cycle churn prevention efforts until you start to renew those customers, and we're going to have that be happening later this year, and I think that, that's an important driver of some of the improvements in the churn forecast that I mentioned at the top of the call.

And those -- and just making sure that those trend lines continue, those preventive efforts continue to be effective, that those support customer expansion are all really important goals through the end of the year. And then, of course, working to rapidly integrate OfferFit. Ed is going to join almost exactly a month after the OfferFit acquisition, which just closed on Monday. We'll have been off to the races from an integration standpoint, we'll have about a month left in Q2. So it's going to be an exciting July as we work through closing out Q2 alongside that OfferFit integration. We're excited to have Ed onboard to help us through that and look ahead then to the rest of the year.

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

Yes. So if you look at the guide, actually, and we were clear about this in the prepared remarks, what's included is about $11 million to $12 million contribution from OfferFit. And so actually, if you do the math on our prior guide, our actual beat in Q1 and then our net new guide, we essentially pass through the full beat from Q1 and then we added in the OfferFit component.

And so what I would say is there's a risk adjustment in the context of both our numbers and the OfferFit numbers. I was fairly conservative in my commentary around the level -- how close to the sun we were flying in Q1 -- when we gave guidance in Q4 for the year, and I said, look, we're going to be a little even closer to the pin this year.

The -- some of the overachievement that we had in Q1 and our net new guide for the balance of the year. I think we've given us ourselves a little bit more wiggle room there as it relates to some of the risk adjustments. So we're very comfortable with the new level of risk adjustment that we've provided in the context of the net new guide. So it's a little bit more risk adjusted versus where we were after Q4.

Our next question is from Nick Altmann of Scotiabank.

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

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

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

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

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

Yes. And longer term as well, and this is already something that's been playing out for them year-over-year. Their overall gross margin inclusive of those professional services has been increasing year-over-year as they've continued to automate more of the prior more manual roles that those professional services were playing. It's been an important part of their product development strategy.

As I mentioned, when we announced the acquisition, it's not dissimilar to the forward deployed engineering model that Palantir has effectively used over the years where they take advantage of the fact that their expert services are out in the field, seeing exactly how the product needs to evolve in order to make them those deployed people more efficient and allow them to be more productive over time. OfferFit has been following a very similar model where their expert machine learning services are closely tied to the product road map, making them more efficient over time.

And then similarly, a lot of the actual literal hours, much like with the deployment of Braze, tied to the upfront, where they're going through and they're searching through the data sources, getting data pipeline set up. That, by the way, is something we expect to speed up by utilizing the Braze data platform for OfferFit deployments into the future. It's one of those great R&D and kind of services and delivery synergies that we're looking forward to.

And then similarly, the overall technology costs of actually operating the reinforcement learning engine of OfferFit is actually less infrastructure intensive than running the Braze event-driven stream processor.

And so well, there is a bit of a headwind to their overall gross margin percent in these early years of their product development, we anticipate that in the long run, it will be gross margin accretive for us on a percentage basis. And we'll look to see that picture evolve over time, but we feel really good about the dynamics there.

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

Thank you, Isabelle. All right, thanks, everybody, for joining us today. We look forward to seeing many of you on the road over the next few months. We have our Annual Shareholder Meeting at the end of June, and we'll be back with you for post Q2 earnings thereafter.