Braze Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Arjun Bhatia - William Blair & Company, L.L.C. - Analyst : Perfect. Thank you, guys and congrats on a strong end of the year. Some exciting capabilities and from an AI perspective. Bill, I was curious if you could just touch a little bit on what prep work if any customers might need to do before they can leverage some of these AI capabilities that you've introduced from Sage. Like what needs to be done from a governance and data prep perspective, and it might vary by product. But I'm just curious kind of how long that might take and what you're doing to help your customers grow?

Question: Arjun Bhatia - William Blair & Company, L.L.C. - Analyst : Perfect. That's super helpful. And one, if I can, just on the demand environment as you see it. I think you called out a host of customer wins in the fourth quarter, some were traditional enterprise, somewhat more digital narratives. Can you talk a little bit about where you're seeing demand differences, if any, between those two groups as you think about this year and go to market allocations. Is there any between those two or is there any one where you might lean heavier or might see stronger demand relative to the other?

Question: Arjun Bhatia - William Blair & Company, L.L.C. - Analyst : Awesome. I appreciate the color. Thank you.

Question: DJ Hynes - Canaccord Genuity LLC - Analyst : Hey, thanks, guys, and I'll echo Arjun's congrats on the quarter. Bill, maybe one for you. So look, obviously, you spoke to taking share from legacy marketing clouds, but we're seeing a lot of AI innovation from the platform firms, right? I mean, Salesforce spoke to data cloud revenue largely being attributable to their marketing cloud. Are you seeing any signs that the velocity of replatforming opportunities is slowing at all as customers maybe contemplate like, hey, I'll stick with Adobe or Salesforce, whoever, for a little bit longer to see if AI can make a difference or is there any discernible change just as those firms continue to kind of tell the story around AI? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 27, 2024 / 8:30PM, BRZE.OQ - Q4 2024 Braze Inc Earnings Call

Question: DJ Hynes - Canaccord Genuity LLC - Analyst : Yeah. Makes a ton of sense. It's helpful color. Well, maybe I can follow up one on the numbers for you. So like very, very rough math. This year, half of your growth came from the install base, half from net new, right? You had 33% growth, 117% NRR. As we look to fiscal '25, like how does that growth matrix feel to you as you contemplate what's in the guide? Like how much from net new, how much from the base?

Question: DJ Hynes - Canaccord Genuity LLC - Analyst : Perfect. Thank you, guys.

Question: Ryan MacWilliams - Barclays Capital Inc - Analyst : Hey, guys. Thanks for the question. For Bill, I know a lot of the focus is on the largest customers from the legacy marketing clouds, but have you noticed any changes in the competitive environment for -- against your private customer engagement competitors? Like have you seen more wins from those competitors? And I only ask because it may be harder for them to invest in some of these new AI capabilities and features that you guys are coming out with? Thanks.

Question: Ryan MacWilliams - Barclays Capital Inc - Analyst : Appreciate the color there. And then for Isabelle, Braze has been prudent with your initial revenue guidance for the year. Just to double-click on that, is there any change in the guidance philosophy this year? And are we largely through like the COVID-era renewals of some customers that were maybe more optimistic in their growth projections two years ago? Or maybe is there still some of that left them to start 2024? Thanks.

Question: Ryan MacWilliams - Barclays Capital Inc - Analyst : And just like some renewal from two years ago?

Question: Ryan MacWilliams - Barclays Capital Inc - Analyst : That makes sense. Appreciate the color. Thank you.

Question: Gabriela Borges - Goldman Sachs & Company, Inc. - Analyst : Good afternoon and thank you, Bill. I remember recently -- I think it was maybe a year or two ago -- when you unbundled e-mail, and that was a catalyst helping with the legacy displacements. I'm curious what you hear from your sales team today? What are the factors that are within your control that allow you to maybe pull the lever a little bit more on some of the legacy replacements? What are the sticking points which are still within our control that you could maybe push a little harder on? Thanks.

Question: Gabriela Borges - Goldman Sachs & Company, Inc. - Analyst : That all makes sense Thank you. And the follow-up is on the SMB ecosystem. And in particular, you made a couple of comments last quarter on the technology-backed ecosystem. So my question here is, do you think that there is a scenario where we see mean reversion over the course of the year up? And then maybe for Isabelle, how do we think about the implications of that on new logo growth? Is there a scenario where we could see more of an improvement over the course of the year?

Question: Pinjalim Bora - J.P. Morgan Securities LLC - Analyst : Great. Thank you so much. A couple of questions for Isabelle. Can you talk about the investments going into fiscal '25? I think Bill said -- talked about sales capacity. Is that 100% of the incremental investments or is there anything else that the incremental dollar is going towards? And then a follow-up on NDR. It sounds like it has not bottomed at this point. Where do you expect that NDR to bottom? I mean, if I look at the guidance of 21% and if you kind of maintain that 50-50 between expansions and new logo, could NDR continue to go towards low double digit? Is that what is baked into the guidance at this point? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 27, 2024 / 8:30PM, BRZE.OQ - Q4 2024 Braze Inc Earnings Call

Question: Brian Peterson - Raymond James & Associates, Inc - Analyst : Hi, guys. Thanks for taking my questions. So I think there's been some debate on how SAM rules may be impacting the industry. I'm curious how much that's come up in your customer conversations? And how do you think that may kind of stack rank because of potential growth catalysts in terms of new logos in fiscal year '25?

Question: Brian Peterson - Raymond James & Associates, Inc - Analyst : Appreciate all the color. Maybe a follow-up for Isabelle. You mentioned on the gross margins -- I appreciate the guidance there, but there's a mix-driven dynamic that's pressuring results in the first quarter. Does that mix change throughout the year to drive the improvement or are there other factors that's driving the gross margin improvement throughout the year next?

Question: Brian Schwartz - Oppenheimer & Co. Inc - Analyst : Thank you for taking my question this afternoon. I just have one. I wanted to ask you about the evolution of the partner channel becoming a sales channel. So thinking about the net new mix for fiscal year 2025, are you planning for any contributions from the partner channel banks?

Question: Michael Berg - Wells Fargo Securities, LLC - Analyst : Hi, thanks for taking my question, and congrats on the quarter. I've got one for Bill. You mentioned at the top of the call mentioning IDFA cookies deprecating. Is that catalyzing potential changes in the martech software stock? Are there more meaningful clips than it has in the past? And I guess how would you stack rank what [collage] of change is more holistically? Does that not look any different in net new versus experience? Thank you.

Question: Nick Altmann Altmann - Scotia Capital, Inc - Analyst : Awesome. Thanks, guys. Just to build on Ryan's question around that COVID renewal cohort. I guess I wanted to kind of take the flip side of it. Can you maybe just talk about how customers who have may maybe signed shorter duration deals over the last couple of years, how those renewals specifically are trending? And you guys called out upsell was very strong in this quarter. So maybe just kind of compare and contrast the sort of upsell dynamics with customers who were maybe on shorter duration deals who would maybe sign when the macro was a little bit choppier versus that COVID renewal cohort? Thanks.

Question: Yun Kim - Loop Capital Markets - Analyst : Okay, great. So just on the WhatsApp channel, it seems like that's ramping up pretty meaningfully. If you can remind us how the pricing works on that channel and is that similar to like the SMS channel? And also, is the adoption of WhatsApp channel more driven by existing customers, or is this driving new logo adds, especially in your international market? Thanks.

Question: Yun Kim - Loop Capital Markets - Analyst : Okay, great. Real quick question for Isabelle, any change in the initial land deal size with new customers and how that's been trending? Thanks.

Question: Hannah Rudoff - Piper Sandler & Co. - Analyst : Hi, guys. Thanks for taking my question. Just one for me here. So in part, full-year growth outlook of 21% to 22% is comparable to your initial guidance during last year, which does suggest that demand is stabilizing. You, in fact, spoke to the previous question. But just wondering what are the products and partnerships that could be most likely to have upside this (technical difficulty)

Question: Cole Erskine - TD Securities LLC - Analyst : Great. Thanks, guys. Just one for me. Bill, I was wondering if you could give us an update on efforts to kind of sell into product teams and data teams and target incremental budgets that are outside of the core marketing that usually target? Thanks.

Question: Taylor McGinnis - UBS Securities LLC - Analyst : Yeah, hi. Thanks so much for taking my question. So it sounds like there's noise in the net customer adds number. So Isabelle, any color you can provide on what you're seeing in terms of new logo ARR growth exiting and starting the year and how we should think about the potential trajectory path for that this year? Thanks.