Braze, Inc. Q3 FY2025 earnings call

Braze is pleased with third quarter results, with revenue growth of 23%. They passed $600 million in committed annual recurring revenue. They secured new business wins in various regions, including a gaming company in North America, an airline in APAC, etc. Product innovations include Project Catalyst (AI-driven agent in beta), enhancements to the Braze data platform, and expanded channel offerings (LINE, WhatsApp, RCS). They also announced a social impact initiative of submitting near-term science-based targets to the Science-Based Target Initiative. Continued investment in product innovation, global expansion, and partner ecosystem strengthening is emphasized.

Braze reported revenue of $152.1 million for the fiscal third quarter 2025, up 23% year-over-year. Subscription revenue contributed 96% of total revenue, with recurring professional services and one-time fees making up the remaining 4%. Total customer count increased to 2,211, up 200 year-over-year. Large customers (spending over $500,000 annually) grew 24% to 234, contributing 61% to total ARR. Dollar-based net retention was 113% overall and 116% for large customers. Revenue outside the U.S. was 45% of total revenue. Non-GAAP gross profit was $107 million, with a margin of 70.5%. Non-GAAP sales and marketing expenses were $65 million (43% of revenue), R&D was $22 million (15% of revenue), and G&A was $22 million (15% of revenue). Non-GAAP operating loss was $2.2 million (1% of revenue).

For the fourth quarter of fiscal 2025, revenue is expected to be in the range of $155 million to $156 million (19% growth at midpoint). Non-GAAP operating income is expected to be $2 million to $3 million. Non-GAAP net income is $5 million to $6 million, and EPS is $0.05 to $0.06. For the full fiscal year 2025, total revenue is expected to be $588 million to $589 million (25% growth at midpoint). Non-GAAP operating loss is $5 million to $6 million. Non-GAAP net income is $11 million to $12 million, and EPS is $0.10 to $0.11. On track to deliver positive non-GAAP operating income and free cash flow in Q4 2025.

Risks include macroeconomic trends affecting demand, competitive landscape impact, execution risks related to product innovation and global expansion, and vendor consolidation/replacement cycles not playing out as expected.

Q: Ryan MacWilliams with Barclays asked about Project Catalyst being part of Canvas and monetization.

A: William Magnuson responded that Project Catalyst is part of Canvas, is a paid premium feature, with pricing options including leveraging the flexible credit model.

Q: Ryan MacWilliams with Barclays asked about dollar-based net retention rate in Q3.

A: Isabelle Winkles said the Q3 dollar-based net retention rate of 113% is landing where they anticipated for year-end, with some pressure on the metric but in-line with their year-end visibility.

Q: Gabriela Borges with Goldman Sachs asked about go-to-market sales and marketing productivity.

A: William Magnuson discussed flexible credits, new sales leadership appointments, and progress in the go-to-market motion, including new VP of Sales for the Americas and strengthened partner ecosystem.

Q: Tyler Radke with Citi asked about agentic AI in front office and competitive win rates.

A: William Magnuson talked about Salesforce's focus on agent force freeing up opportunities for Braze, Braze's positioning with its tech stack and capabilities, and being well-positioned to leverage Gen AI advances.

Q: Scott Berg with Needham asked about existing Braze customers rebuying and buying differently.

A: William Magnuson said existing customers rebuy with greater velocity due to less education required and having champions, but there are architectural decisions and relationships to navigate.

Q: Isabelle Winkles was asked about non-GAAP profitability and growth going forward.

A: Isabelle Winkles discussed balancing growth with profitability, disciplined reinvestment, and adherence to the framework laid out at Analyst Day.

Q: Pinjalim Bora with JPMorgan asked about Zirp cohort renewals and dollar-based net retention trough.

A: Isabelle Winkles mentioned encouragement from post-Zirp cohort performance and more transparency to come in March next year.

Q: Arjun Bhatia with William Blair asked about marketing budget spending environment.

A: William Magnuson said they see stability in marketing budgets, no robust signs of broad growth yet, but are prepared for when it shifts.

Q: Derrick Wood with TD Cohen asked about operating income variances.

A: Isabelle Winkles discussed gross margin headwinds from premium messaging uptake and operating income volatility due to event costs and hiring dynamics.

Q: Taylor McGinnis with UBS asked about in-period NRR stability and demand environment for NRR.

A: Isabelle Winkles clarified NRR isn't directly tied to short-term messaging activity, focusing on churn management and upsell motion.

Q: Yun Kim with Loop Capital asked about partner ecosystem and OEM opportunity.

A: William Magnuson said they invest in partnership ecosystem for faster deal cycles, but OEM sales aren't a key component of the go-to-market strategy.

Q: Brian Peterson with Raymond James asked about upsell via volumes or new channels.

A: William Magnuson talked about flexible credits supporting cross-sell and expansion, balancing short-term headwinds with long-term revenue benefits.

Q: Nick Altmann with Scotiabank asked about booking linearity in Q4.

A: Isabelle Winkles said linearity is similar to previous years, with about 50% of net new ACV typically booked in the last month of Q4.

Q: Michael Berg with Wells Fargo asked about expansion rates and interest rates.

A: Isabelle Winkles said no direct parallel with Black Friday/Cyber Monday and interest rates, as exposure is limited and rate changes aren't material enough.

Q: Brian Schwartz with Oppenheimer asked about AI enhancements impact on sales cycles and Q4.

A: William Magnuson said AI innovations drive competitive differentiation, support win rates against startups, and are well-positioned for medium/long-term, but Q4 dynamics are influenced by broader demand environment.

Q: Parker Lane with Stifel asked about legacy vendor replacement vs. expansion in a demand environment.

A: William Magnuson discussed that a more expansionary environment is conducive to wholesale replacements and value creation, whereas cost optimization drives prioritization of switching costs.

Q: Unidentified Analyst asked about net retention pressure and marketing budget data.

A: Isabelle Winkles discussed that upsell and churn dynamics drive net retention pressure, with buyers committing closer to known needs and some customers rightsizing contracts.