Q1 2023 Braze Inc Earnings Call
[music].
Operator.
At this time I would like to welcome everyone to the Braves fiscal first quarter results.
All lines have been based on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. Thank you I'd like to turn the call over to Chris you may begin.
Thank you operator, good afternoon, and thank you for joining us today to review <unk> results for the fiscal first quarter 2023. Today's hold music was again composed performed and provided by Frankie Saks Ana a solutions consultant embraces London office. Thank you frankly.
I'm joined by our co founder and Chief Executive Officer, Bill Magazine, and our Chief Financial Officer, Isabelle Winkles, We announced our results in our press release issued after the market closed today. Please refer to our investor website at investors Dot <unk> dot 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.
<unk> and full fiscal year ended January 31, 2023, our planned product and feature development, our plants' social impact initiatives, our competitive landscape, our market opportunity, our anticipated customer behaviors and our anticipated investments our growth plan and our long term financial targets. 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.
<unk> press release, and our SEC filings both available on the Investor 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 2023 performance. In addition to the impact these items have on our 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 portion 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 are very pleased with our first quarter performance, which again demonstrated the power of the brace customer engagement platform.
We got off to a great start to the fiscal year generating 77, and a half million dollars in revenue up 62% year over year, and 10% compared to the fourth quarter.
Our dollar based net retention was 127% overall and 133% for our customers' spending at least $500000 annually.
We also generated free cash flow of nearly $16 million driven in part by our strong bookings from Q4.
We continue to expand across numerous growth factors as our customers realize the positive business outcomes available through coordinated personalized cross channel customer engagement enabled by the Braves customer engagement platform.
Zooming out to our market, we believe the opportunity for customer engagement platforms has never been stronger as businesses increasingly prioritized customer led growth.
Customer led growth is a strategic approach that leverages customer insights to qualify and quantify customer value, then operationalize and optimize the end to end customer experience.
<unk> is unique in the marketplace as our technology is designed to create an organization wide culture shift to focus on the experience that is most relevant to each customer.
Let me give you an example of how an industry leading streaming music company uses sprays to achieve customer led growth.
I recently discovered the artist Bora user at a live event and have been listening to his recorded music on our leading streaming platform pick.
Picking up on my evolving music tastes. This company uses <unk> to send me push notifications as he releases new music and if I get busy and don't catch a song at release time. They use real time listening data to remind me when tracks I missed start to trend.
Further enhancing my experience and driving other engagement goals. They store my listener profiles home region to send me an email when artists related Tabora are playing in the New York City area.
We'll also alerting me that Barra himself is scheduled to play at the Red rocks amphitheater and Colorado in October even texting me moments before the show goes on sale, So I don't Miss the opportunity to buy tickets.
Customer led growth organizations recognize that the value is not just getting me to stream more music, but to provide a meaningful experience with the music I'd love to keep me renewing my subscription.
As we interact with brands each of US is continuously signaling our intent and reviewing our preferences through our actions generating first party data along the way.
Processing that amount of data and responding in real time at scale is challenging.
As they look to conquer that challenge businesses, sometimes reduce their customer engagement data processing choice to a false dichotomy that limits their success.
Either opting for our legacy marketing cloud with Siloed data batch processing limitations and antiquated technology, that's not fit for modern purpose or by a point solution that isn't multichannel or built a scale with them.
That phrase we enable brands to take a customer centric approach and rise above this false choice by combining the power of modern stream processing with a channel agnostic orchestration engine to enable businesses of all sizes to harness and take action on a constant flow of first party data to increase customer lifetime value.
Reis is well positioned to win the customer engagement platform market. Because we are a purpose built to enable our customers to start anywhere and go everywhere.
Customers often start with braze on one or a handful of channels to begin generating value immediately.
Then because of our customer centric design and vertically integrated data flow. It is easy for them to fast follow into other channels, while evolving to more sophisticated cross channel campaigns.
Or brand May start working with brace for its business in one country and then expand in their local region before finally going global.
Reis continues to service and grow a diverse customer base across multiple dimensions, and we were excited to once again see growth across many verticals this quarter, particularly financial services gaming and quick service restaurants, while also securing new business and large upsell opportunities with little Spoon Macquarie, Paul Kemper in Germany, and Pizza hut in.
Failure, among many others.
Digging a bit deeper I'd like to highlight two recent renewals, which demonstrate how businesses grow in sophistication with braised overtime as market conditions and customer needs evolve.
The first is a Japanese E Commerce company that renewed for its sixth year with braze in April .
Known for its marketplace App the brand along with its great customer success team identified an opportunity to improve retention rates for shoppers, who are multi platform and use their browsers to buy.
With rising inflation and economic uncertainty, creating headwinds for e-commerce, improving conversion rates for acquisition efforts and lifting customer value throughout their lifetimes has taken on greater importance.
That's why the company added new brace features to their website. So their marketing team can personalized web based experiences in coordination with mobile all while adapting dynamically to user preferences.
The other is an American fitness equipment and media company, which has been embraced customer for five years.
The company initially deployed raised in 2017 for mobile messaging only.
Their mission of bringing the community and excitement of boutique fitness into the home resonated with consumers and the pandemic greatly accelerated their membership growth.
As they grew over the last several years Braves has rapidly scaled with them.
Now with the pandemic winding down people are rethinking the opportunity to return to in person fitness.
The company recognizes the importance of strengthening customer engagement at this critical moment and not only renewed with us, but added email SMS web messaging and content cards to their existing mobile messaging capabilities with Grays. So they can create more cohesive customer experiences that power customer led growth.
In our view this shows the customer engagement remains an imperative for today's businesses and sometimes it is even precisely because the macro environment is harder the first party audience engagement becomes a higher priority.
We believe the reason we see businesses grow in sophistication with braised is because of our four key differentiators vertical integration stream processing canvas, which is our flagship orchestration tool and our community.
Vertical integration empowers businesses to maximize their data's value with brace.
We designed our platform to enable companies to drive growth by listening to customers understanding them deeply and acting appropriately and real time.
The goal is simple create a unified easy to use platform to collect data gather meaning from it and take action all in a way that is not only accessible to business users getting started but also provides them the agility to experiment and of all programs over time.
This constant flow of data through our live user profile forms the foundation for real time interactions that enable customer led growth organizations to reduce churn and increase customer lifetime value.
We believe what's that sprays apart from other solutions is the depth and performance delivered to our customers and we take pride that we sent approximately one five trillion messages and processed over nine trillion consumer generated data points in fiscal 2022 for our customers with effectively no downtime, we continue to innovate across our vertically integrated stack to.
To maximize performance and enable our customers to launch campaigns without limits.
In order to execute on our product roadmap and support our customers. We have kept our talent engine running growing our team by over 120 head count in the quarter, bringing our total employee base to over 1280 at quarter end.
And we know that developers are essential to driving exceptional customer engagement outcomes with that in mind. We recently launched next generation SD case for web iOS, and Android, making significant upgrades or web SDK now automatically removes unused code with a technique called tree shaking decreasing our footprint and improving performance are.
<unk> next generation iOS SDK has been upgraded fully to Swift a modern developer friendly language, allowing access to all of the latest brace features and a current tooling environment.
And for Android, we migrated from Java to Cartland, another evolve language option. While also building support for Android 13, which is expected to be released later this year.
Modernizing these sdk's is critical to staying in stride with a rapidly evolving customer engagement landscape and we look forward to continuing to rollout innovative solutions for developers in the coming months and years.
We continue to focus on deepening our integration with delivery channels as well because in today's digital first world brands need to connect with customers on any channel and on any device.
This quarter, we upgraded support for a roku SDK by adding in that messages on roku devices, allowing customers to easily reach relevant viewers as they browse may contact recommendations that enhanced subscriber stickiness and deliver promotions, which improves the bottom line.
This demonstrates our commitment to ensuring we are delivering both depth and breadth across every channel. So businesses can easily reach their customers wherever they are our second key differentiator and a crucial component in our data architecture is stream processing.
With stream processing data flows immediately into the highly differentiated and customer centric portion of our tech stack the classification orchestration and personalization layers, enabling our customers to create more relevant and responsive campaigns, such as preference space reminders or limited time promotions, while also enabling them to rely on brace for mission critical product.
Use cases that are delivered by messaging by.
By contrast, legacy marketing clouds use batch processing, which even if don frequently or in small batches still silos data and introduces both latency and complexity with limiting customers to processing information on a time or volume base schedule. We.
We believe it will be very challenging for competitors to pivot toward stream processing, because they do so require them to completely rethink and rework their architecture.
<unk> was built from the ground up as a vertically integrated stream processor, it's core to our architectural DNA.
Our flexible data model allows businesses to seamlessly connect data structured or unstructured from a wide variety of sources, we easily ingest data from virtually anywhere with minimal configuration. Thanks to our robust API SDK and integrations built through braze alloys, our technology partner program.
Brace closes the engagement feedback loop by capturing data during each customer interaction, while also providing real time analytics and in depth reporting to understand performance draw actionable insights and sharpen campaigns across all channels and platforms. This data can then be seamlessly transported back into a data warehouse or CDP with brace currents.
Either informing future customer engagement.
Many businesses rely on stream processing to provide customers with up to the second updates, which can have a meaningful impact on customers' lives.
We recently saw Great example, within the brace community one of our employees recently went on parental leave to tend to his four month old daughter, who has a severe allergy.
His child requires a special formula which has been in short supply across the U S. Creating major challenges for many parents thankfully, our consumer goods and food delivery company that Leverages real time communication with Grays sentiment immediate alert at 10 26 am that the formula that they use had just been restocked. He ordered shortly thereafter and was able to risk.
Delivery of the formula less than an hour later.
Real time inventory alerts like these easily scale embraced across massive product catalogs, even with the difficult combination of matching up global consumers to constantly changing local inventory.
Batch processing technology is simply not built for always on future.
Our third key differentiator is canvass, our proprietary no code visual development environment that empowers marketers to easily build operate and understand the real time results of personalized multichannel campaigns with canvas brand marketers can bring their data to life, creating multi step cross channel customer journeys with <unk>.
Limited technical training, we want to empower marketing experts to quickly build effective campaigns that would otherwise require the expensive time of software engineering teams and the long delays associated with heavyweight software releases.
Canvas fulfills this promise, helping brands deliver the cohesive responsive and personalized experiences that consumers have come to expect at any moment.
Which leads me to the final brace differentiator our community of employees partners and customers. We firmly believe that businesses don't just buy technology. They buy solutions. That's why we've invested in our brace alleys program, which includes both technology and solutions partners such as global systems integrators, who are actively building braze experts.
Keith and providing us with new client opportunities we.
We've expanded brace alloys overall, adding more than 30, new partners in the last year and nine in Q1, including companies like Microsoft and heap in the case of Microsoft This new connection will enable brands to easily ingest data and insights into Braves via our Apis, allowing shared brace and Microsoft dynamics 365 customers to seamlessly act on data.
In real time to orchestrate customer journeys.
We are also investing in our customer success professional services support and education teams to help businesses of all sizes navigate the wave of workplace disruption post pandemic and shift of customer led growth marketing just last month, we announced brace for success a series of new offerings and enhancements to provide customers with end to end support it.
Allowing for more flexible onboarding robust creative services enhanced customer education, and new channels for customer support.
We have an excellent track record of delivering for our customers as evidenced by braised, winning the prestigious north face scoreboard awards three years in a row and the 2021 customer success team of the year by the customer success collective.
And I would be remiss to talk about people and not talk about braze bonfire, our customer community launched right before the pandemic, we have grown bonfire to over 6000 members globally across nearly 2000 brands, which leads me to an exciting announcement to make on this call we will be hosting our annual customer conference forge in.
Person both here in New York City in early October and in London in early November we look forward to bringing our entire community together for what promises to be a week of deep learning and connection.
Before turning it over to Isabelle I want to update you on our social impact and ESG initiatives as we continue to make progress against our goals.
And our tech for Black founders program, we've added nine companies in our 2022 cohort, including fan connect which responds to women experiencing health issues in sub Saharan Africa, and keen Copa which is on a mission to help people uncover their family histories with DNA insights. Our total number of tech for Black founders companies now stands at 23.
In connection with our 1% pledge, we transferred our first tranche Abrase class a common stock to tides are donor advised fund to support our social impact environmental and governance initiatives. In addition, we are working on our first materiality assessment and greenhouse gas emissions audit, we look forward to providing you with an update on both of these initiatives through our.
Inaugural ESG report, which we plan to publish this fall.
I'll wrap my remarks with a few comments on the state of the macro environment generally.
Well the world is confronting increased macroeconomic volatility and geopolitical uncertainty we remain confident in our outlook, we had a great quarter and feel very good about our fiscal 2023 outlook, our commitment to helping our customers build strong and lasting customer relationships through great customer engagement becomes even more relevant in a challenging environment.
<unk>.
And we believe that our customers will continue to prioritize our services even in times of uncertainty.
We also believe that the necessity of customer engagement, coupled with a rapid time to value makes phrased more resilient during a potential slowdown.
We are confident that customer engagement represents a massive market opportunity that remains underpenetrated and we will continue to lean into our growth potential while accepting the responsibility to deliver against that potential through relentless execution creative innovation and winning strategy.
Thank you to all of our customers team members and shareholders and I look forward to updating you on our progress again in the coming months.
Thank you Bill and thank you everyone for joining US today, we reported a strong first quarter and as Bill noted first quarter revenue rose, 62% year over year to $77 $5 million.
This was driven by a combination of new business sales expansion of existing customer contracts and renewals.
Our subscription revenue remains the primary component of our total top line contributing 94% of our first quarter revenue.
The remaining 6% represents a combination of one time configuration and onboarding fees as well as other professional services that are subject to similar annual contract terms as our subscription based revenues.
Customer momentum during the first quarter was strong with total customer count increasing 50% year over year to 1503 customers as of April 30th up over 500 customers from the same period last year.
Our total number of large customers, which we define as those spending at least $500000 annually grew 65% year over year to 129 and as of April 30th contributed 54% to our total <unk>.
This compares to a 51% contribution as at the same time last year.
Turning to dollar based net retention.
As a reminder, our dollar based net retention represents a 12 month trailing statistic and sources of upsell dollars include increases to pre committed volumes as monthly active users and messaging entitlement signing new business units as we continue to further penetrate our existing customer base through both geographic and brand expansion and the <unk>.
And of add on features and recurring professional services.
Our renewal rate combined with our strong upsells drove the year over year increase to our total dollar based net retention rate as we continue to execute on our effective land and expand motion.
For the total company dollar based net retention was 127% up 260 basis points compared to the prior year and down 80 basis points sequentially compared to the fourth quarter.
Dollar based net retention for our large customers that are spending at least $500000 annually was 133% down 130 basis points compared to the first quarter of last year and down 300 basis points compared to the fourth quarter.
Expansion was strong across industries and geographic region with revenue outside the U S contributing 41% of our total revenue in the first quarter up from 40% in the prior quarter.
Moving to our remaining performance obligations in.
In the first quarter, our total remaining performance obligation rose, 57% year over year, and 5% sequentially to $391 million.
Current RPI, <unk> rose, 56% year over year, and 7% sequentially to $255 million. These.
These increases were driven by strong business momentum, including new contracts contract renewals and term extension.
Our overall dollar weighted contract length continues to be approximately two years.
Now I'd like to review the income statement in more detail.
As a reminder, some of the metrics I will discuss our non-GAAP . We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release and accompanying earnings presentation non-GAAP gross profit in the quarter with $52.5 million, representing a non-GAAP gross margin of 67, 8%.
This compares to a non-GAAP gross profit of $32 $3 million and non-GAAP gross margin of 67, 4% in the first quarter of last year and 67, 2% in Q4.
Gross margin percent improved 40 basis points year over year due to continued economies of scale in our core technology expenses and ongoing efficiencies and core personnel costs.
Turning to operating expenses, non-GAAP sales and marketing expense was $40 $2 million or 52% of revenue compared to $22 million or 46% of revenue in the prior year quarter.
This reflects our continued investments in head count to support our strong growth and global expansion.
non-GAAP R&D expense was $15.3 million or 20% of revenue compared to $9 $2 million or 19% of revenue in the prior year quarter.
The dollar increase was primarily driven by head count to support the expansion of our existing offering as well as to develop new products and features to drive growth.
non-GAAP G&A expense was $15 million or 19% of revenue compared to $7 $1 million or 15% of revenue in the prior year quarter.
The dollar increase was driven by investments to support our overall company growth and public company expenses.
non-GAAP net loss attributable to <unk> shareholders in the quarter was $17 $7 million or a loss of <unk> 19 per share based on $93 2 million weighted average basic shares outstanding during the period.
This compares to a loss of $5 $9 million or a loss of <unk> 30 per share based on $19 7 million weighted average basic shares outstanding during the prior year quarter.
Now turning to the balance sheet and cash flow statement, we ended the quarter with $534 $1 million in cash cash equivalents restricted cash and marketable securities.
We believe brands is currently a fully funded business and consistent with comments made since our IPO Road show and during our last two earnings calls we continue to execute on our growth plans through FY 'twenty three cash.
Cash generated from operations in the quarter was $17 $9 million compared to a use of approximately $3 $8 million and a year ago quarter with the change driven by strong cash collections from customers as evidenced by $22 million decrease in accounts receivable and $13 million increase in deferred revenue.
Taking into consideration the cash impact of capitalized costs, we generated a record $15 $7 million of free cash flow in the quarter.
As we have indicated in previous quarters, we expect our free cash flow to fluctuate from quarter to quarter, given the timing of customer and vendor payments.
Before I turn to our forecast I would like to take a few moments to frame our plan for capitalizing on our long term opportunity, while navigating a more uncertain macro environment.
We remain excited about our potential for revenue growth given the strong demand for our solution and a significant market opportunity ahead of us and we are confident that our investments have the ability to drive strong returns.
And while this is an investment year, we remain focused on driving efficiencies across the organization and managing discretionary spend with an eye towards long term profitability.
Our second quarter revenue guidance includes appropriate risk adjustment for new business and renewals, we have yet to close this quarter.
For the second quarter, we expect revenue to be in the range of 85 to $81 $5 million, which represents a year over year growth rate of approximately 45% at the midpoint.
Second quarter non-GAAP operating loss is expected to be in the range of $19 5 million to $25 million.
Second quarter non-GAAP net loss is expected to be $18 5 million to $19 $5 million with second.
Quarter non-GAAP net loss per share in the range of 19 to 20 per share based on approximately $95 4 million weighted average basic shares outstanding during the period.
For the full fiscal year 2023, we are raising our revenue guidance revenues are now expected to be in the range of 345 million to $349 million, which represents a growth rate of approximately 46% year over year at the midpoint.
Fiscal year 2023, non-GAAP operating loss is expected to be in the range of a loss of 77 million to $81 million non.
non-GAAP net loss for the same period is expected to be in the range of a loss of 74.5 to $78 $5 million.
Fiscal year 2023, non-GAAP net loss per share is expected to be a loss in the range of 78 to 82 per share based on a full year weighted average share count of approximately $95 8 million shares.
In summary, we are off to a great start in fiscal 2023, as evidenced by our strong execution in the quarter.
New and existing customers continue to realize the value of our technology and we remain focused and committed to delivering revenue growth at scale.
And with that we'll now open the call for questions operator. Please.
Okay.
Hello. This is me senior operator, we will now begin the Q&A session.
Our first question comes from Ryan Macwilliams with Barclays.
Please ask your question.
Thanks, taking the question Bill Breeze has got a lot to accelerate time to ROI and implementation speed over the last few years, so essentially enter into a more difficult macro how are new customers through the cost and implementation processes required to move to players at this point.
Yeah.
Okay.
Thanks for the question and thanks for thank you to everybody that's going to come up as well and we're really excited to talk about these results and also give you a better glimpse into the environment that we're operating in so I think that is.
Particularly notable.
Notable way to start to analyze what we're seeing in sales cycles. What we're seeing in response to customer implementations customer priorities I think that one of the great things that you have.
As a great customers that once we get you up and running quickly and as Youre correct that we have been very focused on time to value over the last few years, we get you up and running in a fashion that is customer centric. So youre, obviously going to start on one or a few channels youre going to start on one or a handful of platforms, depending on where you either have your current priorities or where your user base.
Focus, but in implementing raise but we always make sure happens is that youre integrated at the upper level and then the data flow as vertically integrated all the way through to the channel with our orchestration layer, which of course is customer centric sitting in the middle and from a priority perspective, what we're seeing customers do.
Is that obviously, they want to be able to kind of defend the customer bases that they have we're seeing an increased focus on getting higher ROI out of your acquisition.
<unk>, which means that people are trying to improve their retention rates are trying to improve the pace and kind of.
Turning a funnel into a pipe if you will so that theyre, not acquiring and having large drop offs at each stage as customers kind of develop habits and become more committed customers over time, but those are generally always on priorities with various customers. So what we're seeing overall I think amongst their marketing and their business priorities are going to be a focus towards those things that are ultimately higher ROI focused on first party.
The audience is going through.
Things are going to maximize retention and maximize lifetime value improve the ROI of their acquisition spend but we're not seeing necessarily a shift in those priorities with people that are various customers, but what we do see in environments. Like this is a focus from what was traditionally advertising focused acquisition spend toward carrying a lot more about retention and activation.
Ian.
And really making sure that those acquisition investments so they've made either ongoing right now or in the past our maximally effective for them and have the maximum ROI.
Appreciate the color and then Isabelle just as investors think about the puts and takes the breezes net retention how should we think about how <unk> growth within brands as customers.
Important breezes net retention historically and is any changes to the monthly active users within your customer base in fact that your view going forward.
Yeah. So the monthly active user continues to be the single largest component of our top line and we've been talking about that since that since actually before the IPO. When we were talking to guys died and education sessions.
The other components are CPM based messaging and those are less than the Mou, but also growing fairly quickly.
So the I mean, you will continue to be kind of a large component and will also drive I you know additions to our dollar based net retention.
I think the other components well mixed in as well.
<unk> for example is one of the smaller CPI messaging components for us and obviously because of the lower the smaller size you get higher growth rates are based on just starting off a smaller a smaller base.
So so I think the MAA will continue to add and continuing to grow but we're seeing a strong additions from other components as well that are seeing strong growth.
It's good color thanks, guys.
Yes.
Our next question comes from D. J Hynes of Canaccord TJ is on you and ask your question.
Hey, Thanks, guys.
Bill I'm not sure. This is a fair question and ask it anyway is there a way to parse out.
Marketing use cases for <unk> versus more customer engagement use cases.
The reason I asked look I think some investors look at marketing spend is more of a discretionary category, whereas.
Engaging with their existing customers may be more resilient just would love to get some color on kind of where you think you would fall in that spectrum.
Yes, Thank you Jay.
I appreciate you, bringing up that kind of investor sentiment, where they think about you know marketing use cases, and how they respond to economic headwinds and how customer engagement more broadly in a lot of also just transactional messaging use cases are things that are closer to infrastructure. Our product are obviously going to be more sticky now going back to my answer to Ryans question.
How about how we think about integration how people get started the phrase and how they grow with them over time I think it's really important to center, you're thinking not necessarily in how those things are split but rather in <unk>.
In how they get implemented because the key thing is that whether someone starts with either a marketing use cases or or customer engagement use cases with <unk>. The way that they actually are going to integrate raise and get up and running is going to be the same because they are going to integrate us into their end user interfaces into their apps or their websites or into their data warehouses. They are then going to.
Flow all the data that's generated through those to generate those signals in order to inform targeting orchestration or personalization and we're going to deliver those messages and certainly message volumes are going to be correlated with the number and the type of use case that you have but in general.
The integration actually is going to enable you to start in either.
Kind of either of those places or any kind of sliver of either of those places and then move more broadly into them over time and so when we've got customers that are running most of the vast majority of our customers are running both of these things right and they are running actually a whole bunch of examples of marketing and promotional onboarding activation and retention as well as just.
More utilitarian product type use cases, they're all running through the same data flow, they're all addressing the same monthly active user base, so going back to those responses. She just gave you in terms of thinking about how our revenue was structured and then certainly the CPM sit on top of that but even within those use cases, a lot of the marketing that we're talking about is I always go back to the high ROI for us.
Some of it this is where you're marketing to your existing customer base right, you're stimulating demand from relationships that you already have that you've already paid for you've already earned the right to communicate with them on a channel that you control and so what we generally see is that those are the use cases that even though they are marketing by their nature. They are always on because they are so valuable and in the ROI.
Function of them versus the marginal cost.
It makes so much sense. So even if you are trying to think about like Oh is there. Some portion of races use cases that will act more like advertising in the sense that someone might not be willing to pay to stimulate the marginal demand because.
Whatever in the spending environment or maybe they don't have the bank marginal supply due to supply chain issues things like that we don't see that type of behavior within our customer base because the types of marketing use cases that we run are much more about lifecycle, thereby building that long term value and even to the extent that the promotional the marginal cost is just the message volume it's not the same kind of ROI functions.
You see in the advertising world.
Okay.
Yes.
For color I appreciate that thank you.
Maybe a quick one for you just look we heard your comments around kind of continued to press forward with the investment agenda. This year I mean, I think investors have made it pretty clear there kind of more interested in balanced growth and profits in a risk off environment. Obviously I understand you can't sacrifice, what's best for the business to a piece of capital markets.
I just wanted to any update on kind of how youre thinking about things going forward. I mean have you have you raised that the return threshold beer investment agenda like how are you thinking about.
Kind of balancing threading that needle if you will.
What is still a fairly high loss business yeah, absolutely. Thanks for the question.
So look I think we have consistently over.
Over the last several years had a very very disciplined approach to capital deployment and cash deployment expense deployment and that continues.
So we are very diligent right now about how we are having folks travel around the world and we are we are very very clear that we want to continue to bring our our head plant head count plans into focus in and deploy our our head count as we have expected to do so and that's that's where it's important.
For us to be deploying capital right now is to bring to continue our growth strategy across the world and so we are we have always maintained discipline. When it came to our expense strategy and we're going to continue to do that so that we can continue to deploy it in the most.
Efficient and effective way possible so theres no.
No no pullback on anything we're continuing to execute on our plan and Youre seeing us raise our topline guidance, you're also seeing us improve our burn outlook for the year. So.
That is that's very consistent with what we're trying to do here and we are going to continue to capitalize on the growth opportunity. That's ahead of us and do what we said we were going to do Ken I. Just wanted to also kind of re stress our track record from that perspective. So if you look at the time of IPO late last year at that point, we had only burned about.
$95 million in cash and our entire company's history, which at that point had been more than a decade, and we had a car run rate at that point of over a quarter billion, so that ratio of greater than two and a half to one is relatively rare even amongst startups and I think it's important to keep in mind that we achieve those efficiency metrics.
At a time when the market wasn't really valuing at a rewarding it we did it because it's an important part of our culture in terms of how we think about having value orientation.
Building for efficiency and building for the long term, we have been anticipating that the market's appetite with respect to profitability and growth at all cost would shift back to the state that it's in today for years, we're well prepared for it culturally and were actually excited that the market is starting to place more scrutiny on the way that people make investment decisions like this.
To a large extent for a company with a culture and a value set like ours around spend efficiency it levels the playing field.
Yeah.
Very helpful guys and congrats on the nice quarter. Thank you.
Our next question comes from Gabriela Borges from Goldman.
Afternoon. Thanks for taking my question and congrats on the quarter.
Bill our Isabel I was hoping you could comment a little bit on the pipeline and any nuance on what you're seeing between mid market enterprise you asked versus rest of world or from an end market standpoint. Thank you.
Yeah, So overall I.
I think we are continued outlook continues to be strong and we're really excited about that the rest of the year pipeline geographically remains diverse and it remains diverse across across industries and so what we've seen over the last several quarters is continued strength in kind of our top five verticals.
<unk> growth in some of the smaller verticals and we're kind of continuing to see that evolution.
Graphically I know, we've had some folks traveling over to Europe and get some face to face time with customers over there some of our leadership has gone over there and they came back really really enthusiastic. So look we're mindful of the risks and and and how things are going economically around the world. The war in the in Eastern Europe is certainly not.
Over Ah where.
Where we have our eye on all of this but the the sentiment that we are seeing from our existing customers and potential new customers continues to be to be strong and enthusiastic.
Great and my follow up is on unit economics, and your commentary just now on focusing on LTV to CAC and unit economics for the business. What we're noticing is that even with the acceleration in sales and marketing spending over the last year.
LTV to CAC by our calculation, it's holding pretty steady. So it's about maybe you can comment a little bit on the productivity that you're seeing in the sales force any nuance between folks of bandwidth for as long as our omni <unk> yeah, yeah, absolutely. So I think some of that speaks to a lot of that sort of automation and span and things that we put into.
Place to kind of accelerate.
The go to market strategy, particularly for our SMB area. We spent a lot of investments in that area.
Just make things more efficient more effective I didn't get more leverage out of existing tools and the beauty of that is as we develop those are really.
Really for the SMB, we can actually use them across other parts of the business and so SMB is a great place to develop this and test it in hone it and refine it and then when it's ready in it and it's it can be scaled up for for mid market or enterprise customers. We can do that and so I think some of what you are seeing is some of that efficiency at play and again.
Really the strong discipline is as it comes as a as it relates to capital deployment.
Sounds good thanks for the color.
Okay. Thank you.
Our next question comes from Brent <unk> from Piper Sandler Brent You Man yourself.
Thank you and good afternoon, Bill I wanted to kind of go back to this current environment, we're fielding lots of questions.
Lots of unknowns out there helps.
How durable or are these direct to consumer channel engine and this investment wave into first party stacks do you have a lot of large BDC brands, but.
What are those BDC brands, telling you at this point or the leaning more in or the pausing. Some some investments on the consumer engagement side just trying to.
Think through how some of these <unk> brands respond and how durable those DTC and first party data investment tail winds are in the current environment. Thanks.
Yes, so I think youre seeing the same things happening as you do anytime that there is kind of headwinds that show up which is that they're generally ends up being there is going to be transferred consolidations like quality et cetera, and what we're seeing amongst <unk> brands.
That we work with and all provider with the reminder, that raises revenue base is extremely diversified so well certainly retail and E. Commerce is an important one of our top five verticals.
It's right up there with the other four in terms of its percentage contribution of our business and even within that DTC brands in general are a subset of that and within that even many of the DTC brands that we work with are those that have a longer term outlook and are attempting to build a more enduring customer relationships through a multi product portfolio.
So I think that when you look at a lot of the kind of DTC growth over the last few years a lot of it was focused on a small number of products and a small product portfolio. Many of them were working on the kind of CAC LTV arbitrage that Facebook was affording them in terms of being able to run really good re targeting through platforms like Instagram and other places and what you have.
Been seeing there and a lot of the headwind.
<unk> caused by <unk> as they've lost the kind of transparency into those cycles. The marginal dollar is not going to Facebook, we see that in their earnings and that kind of affects a lot of that acquisition, but it's really important to note that <unk> in general are the use cases that we work with and the types of brands that we work with are not those that are kind of solely reliant on growth through those.
Tactics, we're working with these brands that have more kind of enduring value. They in many cases, they've been around longer they have a more multi product portfolio and in many cases, they're also looking to nurture those relationships over time, even if the customers maybe not making a purchase today and so we were.
Certainly seeing amongst that subset of our customer base a lot of the things that you're probably hearing about and other places, but it again is really important to translate those observations back into the use cases that we run and the kind of aspects and then the selection bias that already exists with those types of business that we that we work with within those categories.
Super Helpful. And then quick follow ups for Isabella here.
Extremely surprised to see.
20% free cash flow margins in the quarter.
How much operating flexibility do you have in this model as you think about the changing macro you talked about improving the burn out but for the year, but how much operating flexibility do you have to respond quickly if things do turn a little bit worse than what you are expecting at this point.
Yeah, So I'm certainly not expecting to have to turn on a dime and to anything as I I'll reiterate we're executing on our plan I wouldn't.
Make the comment about the free cash flow that we don't obviously don't guide on free cash flow I always tell people. If you look at free cash flow at a four quarter trailing.
We saw a big cash outflow from a free cash flow perspective in Q4.
Some of that is a little bit of a snapback.
That so we're you know that we're very comfortable with where we are landing on a four quarter trailing statistic.
And I think should we need to make changes that we have all of the data and infrastructure and sort of communication channels in place and ready to go should we need to do that.
But we have no expectation at this point that we would have to do that anytime soon.
Great to hear thank you so much.
Our next question comes from Brian Peterson with Raymond James.
Alright, Thanks for taking my question. So just one for me.
Could you just give the user conference that I was going to be in person.
In North America.
I'm curious what is that historically driven in terms of that new business expansion with existing customers and should we think about that as a catalyst as we head into next year.
Yes. So thanks for the Great question, we're super excited to be back in person as well. We also increasingly are leaning into bringing our event production in our community growth efforts closer to where our customers are so we're excited to do this on both sides of the Atlantic This year and we will have a number of regional activations around the world including.
In Japan, and Singapore throughout the year, So watch out for a lot more to come from that perspective now with respect to your question around how this drives new business versus upsell.
Historically, it certainly has been a driver for business, but it's also one that we've had multiple years in the past COVID-19 in the last years have obviously changed the nature of the event quite a bit but we assume that we're going to run a customer event and so we're excited about the potential that that will have for us from a pipeline generation perspective, but I'm not going to speculate on exactly how.
How that would feed into end of your plan is with respect to surprising us in any way as we've done this year over year.
Okay.
Understood. Thanks, a lot.
Our next question comes from <unk> Bora with J P. Morgan.
Oh, great Hey, thanks for taking the questions and congrats on the very strong quarter I wanted to ask you a high level question Bill.
On community I'm, starting to see people launch breached 75 marketing badges on Linkedin seems like you are doubling down on the community with our success with the learning portal what remains to be done at this point in time.
To make the paths of people.
We are starting to build careers on breezes to default platform for customer engagement.
In the last year.
Starting with Europe bigger drumbeat of people starting to do so and are spreading the brand recognition more broadly.
Yes, I mean, absolutely and thanks for noticing we think we're still definitely early in the progression of supporting our customers through additional education supporting and building the community of those practitioners that come together augmenting it with additional trained debentures from the GSI is and from the rest of the the agency community.
The kind of growth marketing community has obviously been an important part of our timeline from its advantaged in our early years and how that's grown up into growth agencies, all over the world many of which we work with that are helping with our partner led onboarding, our PLO initiatives that we've been driving and that's one of those things that Isabelle referenced a little bit ago.
In terms of our higher efficiency investments into our SMB sector that will then later help us improve unit economics elsewhere. So there's a lot there I think when we think about the investments. It has a few different dimensions to it one of them is that improves time to value.
We can have customers get up and running more quickly you can get up and running more expansively and make that early education in onboarding more efficient and have them retain more all of those things, obviously help them get up and running we also know that the quicker people get up and running the quicker they move on to new use cases, the quicker they expand to more platforms in more channels and that leads to the strong dollar based net retention that you see.
It also means that as people become more advanced in their usage of raised we frankly have fewer and fewer competitors that can deliver on the same types of things. There certainly are people out there that can deliver and compete with us on the most basic parts of raised but we feel very confident that as the customer becomes more sophisticated advanced in their raised usage over time that.
We really truly rise above the rest in a way that is.
Differentiated writ large across the entire market and so we have a strong motivation to make sure that our customers are getting to that point as well. They obviously are showing this willingness and the desire to build their careers around those skills and ultimately we want to continue to also push the state of the art in terms of thinking around customer engagement in marketing, we're really excited about.
And that goes over the next few years I think that brands has been super focused over the last few on.
Making sure that we are getting data flowing through the system that we're investing in things like canvas to make it more and more usable over time and enable more of our business experts. The people that are really close to the problems in the day to day and understand them intuitively and are kind of constantly in the flow of those things, we want them to be able to express their strategy and their creativity.
Our directly through the <unk> tool without needing to kind of deal with the going over to an engineering team explaining at all over there or with.
The data science teams and maybe youre not in a day to day, we really want to empower that marketer to fully bring programs to life and we're seeing that happening more and more and that's a combination of product investments along with education and the building of the community. We think that that leads these really amazing feedback loops and the flywheel is only just beginning to spin up.
That's great to hear one follow up visibility I was looking at the billings growth, which is super strong and then im looking at the <unk> group, which kind of a little bit decelerated I wanted to clarify I think you said.
Contract lengths or approximately 24 months I think last quarter, you said it was slightly above 24 months.
Contract length.
A slight headwind to our <unk> in Q1.
So I mean, it was still in the 24 month range I think we're going to stop providing that or the nitty gritty detail does you know up a month down in line with that.
So on the tier range. So we're just going to stick to that is as the disclosure.
I think from a billings perspective.
You actually look at the components of what drove the billing the calculated billings the change to deferred revenue was obviously significantly stronger than same same period, a year ago. So growth, obviously, a part of that but very strong cash collections from customers also fed into that as well so I wouldn't necessarily read into sort of you know.
Otherwise the weakness in the <unk> relative to our to.
They are to the billings number.
Got it thank you.
Our next question will come from Arjun Bhatia with William Blair.
Perfect. Thank you and I'll add my congrats on a great quarter.
Bill It seems like obviously customers are spending more with rates youre seeing larger deal sizes.
As customers realize the importance of it.
This customer load growth and first party data I'm curious when you see customers spend more with raise what are you noticing about where they are reallocating. Those those dollars from is that are you seeing a consolidation trend or vendors or other vendors are maybe getting displaced.
Advertising dollars, just curious what dynamics, you're seeing in terms of budget reallocations.
Yes, so thanks for that.
We're seeing kind of all of the above of course, and we have been for a one time I think that the.
That really plays in more at the land stage with new business. So youre going to see money you get moved out of advertising consolidation happens a lot.
With respect to us kind of going in and maybe there was previously an email vendor and a mobile push notification vendor.
And you are running something else for in product or maybe like a survey vendor or something like that so we have a long track record of coming in and starting out with either replacing or consolidating other places and we also often are part of net new budgets, especially when there's new initiatives. So if you look at.
The kind of move towards direct to consumer type offerings that are happening in places like sports leagues or in media streaming media and streaming or even in like consumer packaged goods industries hour with <unk> like all of these are great examples where they've been building more direct to consumer digitally enabled offerings and so those are part of net new bus.
It's because they are brand new corporate initiatives.
I do think that we also see over time a shift.
Or any kind of accumulation from two other places first of course is ROI positive.
We've spoken about before and often much more so than advertising. So you do see a shift from advertising I think also one of the things that we bring in to the mindset of organizations to think about not just acquisition and retention, but actually acquisition activation and then retention and brands really houses those activation use cases, which are that okay. I've got my.
First chance to really communicate with her interact with someone on a first party platform I need to try to maximize the value of that whether that is to deliver an even stickier experience or maybe if you just get the opportunity or the privilege to communicate with them on a first party channel later on or otherwise kind of optimize that spend so those are all those are all used.
Cases, where we can be seem to be improving the ROI function directly up advertising and then that helps either allocated net new budget it because its productive or it shows the importance of balancing those in a different way than they were before because we're really supercharging a lot of the acquisition side.
The last thing that I would bring up and we're seeing some really incredible examples of this we actually have features in Kansas that allow for Youtube taken individual customer.
Either add either kind of trigger them for suppression list because maybe you were running expensive re targeting campaigns against them and they've now shown up in your first party properties and because of the way that canvas works, we're actually able to in real time immediately make those updates out two suppression lists in a very easy way and even do that as part of our multichannel canvas staff. So we could engage them on an owned.
Panel at the same exact time that we suppress them on our paid channel. The other is making lookalike audiences and doing the same thing in the flow of an individual user and so doing those as part of the lifecycle marketing so that when you achieve certain lifecycle milestones those are either going to lead to expression or.
Or does it create some lookalike audiences and we've been hearing quotes from customers of upwards of 40% decreases in CPA is depending on what industry you're in by utilizing some of those folks that we have that bridge that kind of data divide between lifecycle and advertising now were not running those advertising use cases right. Those are usually hooked into partners.
Like Facebook or Google, but those are places, where we're really augmenting that spend and then that of course feeds back into budget for things like risk.
Okay.
Perfect that's very helpful color.
I'll leave it there.
Thank you. Thank you.
Okay, I would like to remind that we will stick to one question. Our next question comes from Derrick Wood with Cowen.
Derek you Ma'am, you and ask your question.
Alright.
Sam.
Thanks.
That's from my end as well.
I guess that as bill just throwing at you on the on the dollar based net expansion rate remains healthy it was down sequentially and now we've seen that trend from many others given the.
Anniversarying kind of the catch up benefits and post Covid is that the main factor here or anything else to call out.
Should we expect this number to kind of continue to moderate through the year, just given given the tougher comps yeah. I mean look I think we're already operating at.
A great level for these metrics that a company wide. The number went up year over year and we're pretty excited about that so I think where we're already operating in some of our best in class area, I think and they're going to bounce around and we're going to keep executing on our land and expand strategy and so in some quarters, you're going to get some great lands in them.
Some quarters you get some great expands then on on the whole.
Over the course of the years that'll it will kind of drive the overall growth of the organization.
Okay. Thank you.
Our next question comes from Pat <unk> with J P M.
JMP Securities.
No.
April so are you seeing any impact from the tougher venture financing environment.
Like are you seeing any of your competitors pull back or.
It may be interesting companies reach out to us at running out of money and wanted to get thoughts.
So headwinds like this definitely lead to consolidation in markets and we have seen some smoke rising in various areas, but I wouldn't I'm not going to kind of speculate more deeply on behalf of any of our competitors amongst the broader landscape.
Gabe what I will say from our perspective on all of this though is that we feel really fortunate to be fully funded as Isabela mentioned, we see a tremendous opportunity to go and not only gained great market share during the same period, but bring in fantastic talent, we're starting to see a little bit of a thaw in the job market.
For those of US that are still hiring is a really fantastic banking because we can we can find a lot of people that probably hasn't been on the market for a long time as we go through this next critical stage of growth and we're well aware that a lot of the competitive progress that we make over the next couple of years, there's going to be higher leverage than it is an environment, where money is easy and so we're laser focused on that as an opportunity.
Right now and were as if you go back to my point from earlier that we've been ready and are excited to embrace this environment, where there is more certainty on efficiency, because we think it's a cultural advantage of ours.
Great. Thank you.
Okay. Our final question comes from Brian Schwartz.
Brian Please ask your question thank.
Thank you very much <unk> is about I know you don't give the granularity.
Gross margin by geographies, but it looks like you had a very strong international quarter. So I was wondering if there was any changes in the gross margin that you're seeing between your business in the U S versus international Thank you.
Yeah, No there's really no material.
<unk> difference if you think about kind of APAC overall EMEA overall in the Americas overall, I, there's kind of no real distinction there.
We really think about the products that we sell as kind of the comprehensive customer engagement platform, we look to service the customers and the best way possible for them to engage with their end user community and so we've talked about this in the past different products mixed in with different levels of margin.
Theres no sort of.
Direct trend with our with the broader regions against each other.
And even to a certain degree across the industries.
There is a higher margin and lower margin customers across the various regions and there is higher margin and lower margin customers across the various segments, so and industry and so it's a there's not really a story of our theme there.
And I think that.
Just kind of hit that a little bit more directly I wouldn't expect there to really at any point in our future either be like a read through in terms of what you might be seeing in SMS oriented businesses and their international versus domestic margin situations, we really when we pursue business like SMS, we ensure that it fits the margin profile that we expect and if it doesn't make sense and.
And international market, where we're not prioritizing that business. We know that the use cases that we run are ones that are high value high ROI as I go back to you a lot the sophistication of the platform is in the customer centricity of it and that's what we're looking for our pricing power. So we're not chasing high volume low margin business.
This anywhere in the world and so you should expect that to kind of continue to be our dynamic is is it all just walked through.
Yeah.
Thank you very much.
Okay.
That concludes all the questions I will now turn it over to Bill.
Alright. Thank you everyone. We were excited to share all this information.
With all of you and we're looking forward to doing it again in about three months.
Okay.
Yeah.