Q3 2023 Braze Inc Earnings Call
Speaker 1: increased 53 percent year over year.
Speaker 2: In fact, we continue to see signs that first party engagement is rising in importance for brands as both rapid time to value and robust return on investment are prioritized during this period of economic uncertainty.
Speaker 3: That said, we did continue to see some of the macroeconomic headwinds reported by many of our software peers, including elongated deal cycles and increased scrutiny on software investments, particularly with new business. In contrast, upsells were particularly strong, achieving a new high watermark in the quarter, led by success with our global strategic accounts.
Speaker 4: And despite the challenging environment, our pipeline is robust and demand for customer engagement solutions remain strong.
Speaker 5: As we continue to experience these success stories, both with new and existing customers, we remain relentlessly focused on the continuous improvement of our products and services.
Speaker 6: At our recent FORGE customer conference, we outlined our Start Anywhere, Go Everywhere framework, in which we recognized that Brace customers exist across the full spectrum from small pre-launch startups up to the world's largest multinational enterprises.
Speaker 7: and that we are committed to meeting our next generation of customers wherever they are in the transformation of their customer engagement practice, getting them up and running quickly, and helping them rapidly realize high ROI.
Speaker 8: The brands and teams that use Braze range from ambitious small businesses that may only have a single dashboard user through a diverse array of rapidly scaling companies with agile, interdisciplinary teams, all the way up to complex multinational enterprises with marketing and engagement teams that span across hundreds of people. And they're all leveraging the same Braze software.
Speaker 9: Some customers even start by simply migrating their existing email or push notification strategies into Braze. But, once those early campaigns are live, rapid results build the case for further expansion, and Braze is built to help teams quickly leap forward in sophistication while expanding across new channels and use cases.
Speaker 10: all while enhancing the customer experience of their products and building first-party relationship assets.
Speaker 11: Meeting the distinct needs of this diverse set of customers requires ongoing innovation and nimble, efficient execution. With the Braze philosophy of start anywhere, go everywhere, we are committed to ensuring there are accessible starting points into Braze paired with a smooth on-ramp to get up and running quickly, while also investing to promote the continued growth and maturation of our customers' usage of Braze over time.
Speaker 12: rise in prominence is an important indicator that Braze's moat extends into our customer community and is reinforced by the mutual evolution of our product along with the maturing skill sets in our space that continue pushing customer engagement strategies to new heights.
Speaker 13: As businesses evolve to better serve their customers, who then reward them with stronger first-party data and more valuable relationships, we will continue to see brands progress the maturity and sophistication of their customer engagement practices.
Speaker 14: We further believe this strategy could expand our total addressable market in the long term through adoption among data engineers, product teams, and creative groups, and we are investing in R&D accordingly.
Speaker 15: To illustrate the impact of our R&D, I'd like to briefly highlight recent product innovations and integrations that we announced at our Forge events in New York and London in October and November , respectively.
Speaker 16: We introduced a number of updates to help customers more quickly bring new data sources into Braze and efficiently use them over time.
Speaker 17: A great example is Cloud Data Ingestion, which allows customers to directly connect their data warehouse into Braze, quickly importing and activating customer data with just a few clicks.
Speaker 18: Customers are already unlocking new use cases and solving difficult problems like identity resolution by syncing audiences into braids that are created from queries in their data warehouse.
Speaker 19: For example, a quick service restaurant might want to message all users who ordered special menu items in a promotion from a previous year, but haven't sent that data to Braze. Or a financial services company might want to message users with low account balances, but need sensitive account balance details to stay on-prem.
Speaker 20: Early access customers report significant weekly reductions of developer hours, which can now be redirected to product improvements.
Speaker 21: By greatly reducing the operational requirements of managing data pipelines, these efficiencies can also improve relationships between the marketing teams that use Braze and the engineering teams they often rely on to help bring new ideas to life.
Expansion was again broadly distributed across industries and geographic regions, our global footprint continued to expand in Q3 and revenue outside the U S contributed 43% of our total revenue in the third quarter up from 42% in the prior quarter and 40% in fiscal 2022.
Moving to our remaining performance obligation.
In the third quarter, our total remaining performance obligation with $409 million.
34% year over year, and generally flat sequentially.
Current RPI was $283 million.
Up 42% year over year, and up 3% sequentially the year over year increase was driven by contract renewals and up sells and the signing of new customer contracts. While total ARPA was generally flat compared to last quarter. We did experience a modest decline in the RPM value beyond one year. This is attributable to.
The slower new business growth, a higher percentage of shorter duration contracts than in the prior periods and fewer renewable dollars available in the quarter.
Overall dollar weighted contract length remains at 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 was $64 $9 million.
Representing a non-GAAP gross margin of 69, 7%. This compares to a non-GAAP gross profit of $45 million and non-GAAP gross margin of 73% in the third quarter of last year and 69, 3% in the second quarter of this year.
non-GAAP gross margin percent declined 60 basis points year over year due to several factors, including higher hosting and infrastructure costs.
Higher third party messaging fees, increasing head count costs as we continue to invest for growth and one time hosting migration cost we incurred as we continue to optimize our tech stack.
Turning to operating expenses non-GAAP sales and marketing expense was $46 2 million or 50% of revenue compared to $28 million or 44% of revenue in the prior year quarter. This reflects our investment in head count and increased travel and entertainment expenses as the easing of Covid related travel restrictions.
<unk> allowed for more in person events, including our New York forged customer event in person employee training and customer meetings.
non-GAAP R&D expense was $17 5 million or 19% of revenue compared to $11 1 million or 17% 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 $18 $6 million or 20% of revenue compared to $10 $9 million or 17% of revenue in the prior year quarter.
Dollar increase was driven by investments to support our overall company growth and public company expenses.
non-GAAP operating loss was $17 $3 million compared to a non-GAAP operating loss of $5 million in the prior year quarter.
non-GAAP net loss attributable to <unk> shareholders in the quarter was $13 8 million or a loss of <unk> 15 per share based on 94 5 million weighted average basic shares outstanding during the period. This compares to a loss of $3 3 million or a loss of <unk> 16 per share based on.
27 million weighted average basic shares outstanding in the prior year quarter.
Although the global macroeconomic environment has been challenging over the last two quarters. This environment has also presented a unique opportunity to execute on our post IPO investment plan in the four quarters since our IPO. We have successfully built out teams across functions and geographies in order to capitalize on the significant market opportunity ahead.
All of us and the unique hiring environment over the last several months, particularly in R&D.
At this time, we feel the investments we have made to date position us well to continue to drive sustainable growth, while delivering on our commitment at our analyst day in October to focus on our path towards profitability, while head count will continue to increase moderately as we close out FY 'twenty three and look ahead into next year, we have <unk>.
<unk> chosen to slow our recruitment activity for net new hiring therefore, well this investment momentum will continue into the beginning of next year you should expect the rate of Opex growth to moderate as we increase our focus on driving operating leverage across the business now.
Now turning to the balance sheet and cash flow statement, we ended the quarter with $477 6 million in cash cash equivalents restricted cash and marketable securities.
Cash used in operations during the quarter was $23 9 million compared to a use of approximately $2 $5 million in the prior year quarter, driven by higher net loss and increased cash used in working capital.
Combined with higher capital expenditures free cash flow was negative $28 $1 million in the quarter.
As we have stated in previous quarters, we expect our free cash flow to fluctuate from quarter to quarter, given the timing of customer and vendor payments.
Before we turn to our forecast I'd like to take a few moments to discuss what we are seeing in the marketplace as bill remarked our pipeline remains strong and we continue to see solid demand for customer engagement solutions.
However, like many of our peers, we continue to experience macroeconomic headwinds across geographies and industry verticals. These challenges manifest in elongated sales cycles slower new business growth and fewer multi year contracts as such we are continuing to approach our forecast prudently and guide on a risk adjusted basis.
Yes.
For the fourth quarter, we expect revenue to be in the range of 95% to $96 million, which represents a year over year growth rate of approximately 36% at the midpoint.
While we're not providing specific gross margin guidance, we expect gross margins will be impacted by seasonally higher activity during the fourth quarter.
Fourth quarter non-GAAP operating loss is expected to be in the range of 18, five to $19 $5 million fourth quarter non-GAAP net loss is expected to be $17 5 million to $18 $5 million with fourth quarter non-GAAP net loss per share in the range of 18 to 19 <unk> per share base.
Approximately $97 5 million weighted average basic shares outstanding during the period.
For the full year 2023, we expect total revenue to be in the range of 352 million to $353 million, which represents a growth rate of approximately 48% year over year at the midpoint.
We're pleased to be able to raise our full year revenue outlook, but given the dynamics I discussed we believe it's prudent to do so only modestly FIS.
Fiscal year 2023, non-GAAP operating loss is expected to be in the range of a loss of $71 5 million to $72 $5 million non.
non-GAAP net loss for the same period is expected to be in the range of a loss of $64 five to $65 $5 million.
Fiscal year 2023, non-GAAP net loss per share is expected to be a loss in the range of 68 to 69 per share based on a full year share count of approximately $94 8 million weighted average basic shares outstanding during the period.
In summary, we are very excited about the future of brands. We are focused on growing our business meeting customers, where they are on their journey and empowering them to realize world class customer engagement, our priority remains capitalizing on our long term market opportunity delivering revenue growth at scale and realizing our long term margin targets in.
In the coming years and with that we'll now open the call for questions. Operator, please begin the Q&A.
If you have a question feel free to use the raise hand feature which can be found at the bottom of the screen window under reactions.
Our first question comes from Ryan Mcmillian excuse me, Brian Mcwilliams from Barclays. Please go ahead.
Thanks for taking the question so.
So bill what have renewal conversations been like at this point Glenn to gear up sells a strong what are you experiencing the usual contract increases that break historically received at renewal.
Thanks for the question.
Moving through renewal conversations at a pretty steady clip, especially here in Q4 and actually through Q3, we had our lowest amount of available renewable dollars, but we saw those renewal conversations acting for across the whole year. We saw those renewal conversations acting produce similarly to Q2, we're seeing it into Q4 as well.
And as I mentioned was a new high watermark for Upsells in the quarter. We've got a lot of really robust increases in terms of the new use cases that people are running expanding into new geographies expanding into new brands. So a lot of the cross selling upsell motions that were used to are still intact I would say one of the things that we're seeing that's impacting them to the downside is that there.
There are still there's a lot of turnover happening within teams as layoffs are happening in other parts of the economy. There has been a lot of M&A type disruption activity and so those types of things that we've seen in new business deals that are causing either deal elongation or the delays on decision, making those are happening for certain types of expansions within renewals and so we are seeing that.
Especially in the more complex multinationals, but as you heard in the prepared remarks, a lot of the upsell strength actually came out of our global strategic group this quarter as well and so I think we're seeing robust signs of great renewal cross sell and upsell motions across the customer base and around the world, but the portions of upsell that are acting more like new.
Because they are expanding to a new team a new set of stakeholders, maybe accessing our brand new net new budget those are acting more like new business and we're seeing some of the similar effects that we referenced earlier.
I appreciate the color there and for US. So we're seeking questions about the sequential step down in RPM in the quarter.
Should we think about our mix higher percentage of shorter contracts to continue and how could fluctuate with more seasonal dollars available for renewal in <unk>.
Thanks.
Great. Thanks for the question so yeah.
Yes, you you can there are more available renewal dollars.
Q4.
Because we do a number of early renewals some of those have already been pulled forward, but there are still more today in Q4 than there have been any other quarters.
So that will help we don't guide on.
On the quarter.
Specifically for RPM, but but yes. It is true that there will be more.
I'm sorry, what was the first part of your question.
As to the mix of shorter contracts with contract durations new bookings.
But yes, we do absolutely expect this trend to generally continue.
We think it is part of the dynamic that we were seeing in the context of the macroeconomic environment around us and we believe it's prudent to expect all of these dynamics that are related to the macro to continue to persist.
This is Kelly.
As you know brain has continued to grow in its own prominence in the market that we've been successful at moving more and more of our installed base from one year to multi year contracts at renewal that's something that we'll continue to prioritize in the future and we continue to see that be robust customers that were on multi year contracts before in general are recommitting to.
<unk> multi year contracts, but one thing that we havent seen as robust in Q2 and Q3 as we have three of the prior year periods are those people, who signed a 12 month deal upfront more of them are opting to continue on a 12 month deal just because of the environment, but we expect much like we did through a lot of the jitters that were in the economy during COVID-19.
<unk> buyer sentiments toward those shorter contracts and we saw a reversion of that then people got more comfortable with longer term contracts. Once we got out of the depths of the COVID-19 year in 2020, and so we're not overly concerned about that for the long term health of any of these customer contracts, but you certainly see the impact on RPM.
Yeah.
Our next question comes from Derrick Wood from Cowen. Please go ahead.
Derek if you joined by phone on mute by dialing star six.
Yeah.
Hi can you hear me.
Yes, we hear you.
Great. Thanks.
Thanks for taking my questions I wanted to ask about greenfield versus displacement activity and kind of this market environment. I think we think of mobile and push being very kind of greenfield use cases, while email is often a displacement.
It could be.
Even our vendor consolidation.
Message can you just talk about where youre seeing greater demand or greatest chipsets across these different go to market motions in the market right now.
Yes, I think that across I would think about it more on the lens of established businesses versus emerging businesses, because even within in and when I say that I'm, not specifically talking about young companies versus older companies, but rather new lines of business and new focuses and so canonical examples would include streaming comes.
The who's who I'm well those are certainly displacements of other vendors that may have been selling sending email for them in the past. The use cases are new because of the direct to consumer investment isn't that new within the business and so those operate more like Greenfield and I think that broadly when you look across our customer base that that characterization of mobile and push.
Being more often greenfield than email being greenfield is broadly true, but at this point in the maturation of mobile you know the vast majority of businesses have something up and running at this point and so I think that displacement is something that our teams are very good at even if you go back to the early days.
We've always operated in a highly competitive market and so we've been replacing mobile push vendors since 2013, as well and I think that throughout our lifetime. It will continue to be a mix of the two with both greenfield and replacement because our vision for blaze and the customer engagement platform and attacking these problems.
And a customer centric way that's <unk>.
Not channel Siloed.
It means that we're always going to go into an environment that is gonna be heterogeneous, there's going to be certain channels and use cases that are not being covered or maybe not being handled in an advanced way or maybe theyre not being coordinated with other places. So we can often simultaneously bring in more operational efficiency and better agility and execution on existing use cases, but on la.
<unk> completely net new use cases.
What youre going to result in you know in many cases increase volume even if they don't they definitely result in increased ROI for the business and we're always focused on the hybrid of those I think it's very rare that we go in even in our replacement and we're simply just doing the same use cases before but with a new technology stack.
Great.
Maybe just another go to market follow up question. It sounds like you guys have a new initiative.
Maybe I got this wrong start anywhere go anywhere and it's maybe they do go to market go to market tactics.
No.
You've been working on some things to ship sales training is that part of that and could you just elaborate a little bit more on.
<unk>.
On what that what that change is and how that's helping to maybe drive access.
Tolerated ramp the productivity of the reps that yeah.
Yeah of course, and they are definitely related start anywhere go everywhere or something that I referenced in my keynote at forge in New York and for our customers. It's a commitment that wherever they are in their journey, whether they're a one person team in our prelaunch startup who is ambitious but maybe not yet sophisticated in a modern customer engagement all the way up to <unk>.
Scaling startups with agile interdisciplinary teams and spreading across you know the large enterprise, where you've got a big global teams spreading across functions and maybe reporting to different places different brands and geographies, regardless of the complexity of the team structures, we have amazing proof points throughout the entire base customer base that the same software platform.
Platform can come into those organizations. It can empower those teams to drive really great results and really deliver ROI to.
To those customers across the board and one of the one of the aspects of that is making really a commitment to the customer base that wherever you live in that spectrum, we're going to meet your where you are or were going to make sure that you get up and running quickly and then we're going to bring you up this onramp toward more mature and more advanced customer engagement strategies over the life.
Time of your engagement with brands and that is also then reflects back internally because from a sales perspective. It means that we should have the confidence to go and sell to a really wide array of customers. Indeed, we already have examples throughout our customer base, all all up and down.
Both the present day sophistication curve as well as the kind of team size and brand size Spector.
Spectrum any company that really wants to take customer engagement seriously and invest in it is a great customer to take on raise and to bring it into their environment and habit drive additional airline I'd also has implications for our integration and Onboarding teams that has implications for our product teams. You know you've heard me talk a lot in the past about how.
Huge part of our product investment is to make sure that we're controlling complexity for our customers. So that they can seamlessly move across channels and they can grow with us overtime. It's also about making sure that that on ramp is very smooth for them. So that the integration results in an intuitive environment for them to work in and it's one that gets delivered very quickly. Those are also aspects of the macro environment.
Right now where investments are being made investment decisions are being made on with with a return expected on a shorter time horizon and with lower volatility in it and so that idea that you can start anywhere.
Whether that's in a single channel or a small set of use cases or with a small team and we'll get you up and running quickly we'll get you to that very positive ROI and then from there you're able to compound your gains through the agility that brave springs and through the increased surface area. As you add more use cases, you had more channels you bring in additional teams you bring in additional brands.
And that's where they go everywhere part comes into play.
Okay.
Thank you.
Our next question comes from Brian Peterson from Raymond James. Please go ahead.
Hey, guys. Thanks for taking the question so first of all.
I know you guys. During the course of the year mentioned some sales productivity efforts.
Efforts that you guys are trying to undertake.
It's kind of hard to unpack that with the macro and everything going on but I'd be curious to get an update on how those efforts have gone so far.
Yeah, absolutely. So we've been happy with the impact of the changes that we've been making over the last six months, we've we've really.
Looked at the entire lifecycle of a salesperson here a brain so I rolled out a new six week intensive bootcamp inclusive of in person training and doing role playing with managers, new certifications and in a number of other initiatives that have been really impactful in terms of bringing up art, bringing our new account executives up to speed more quickly we measure.
That through time to first deal.
That Theyre closing and then continuing and then continuing to look at the existing sales team you know maybe even those that were fully ramped, but recognizing that with the macro environment shifting that by our priorities have shifted with our product continuing to expand at the surface area that they need to understand is greater and also that we are forging into new areas.
Of our addressable market, which means that we're engaging with new competitors that maybe they would have been unfamiliar with in the past and that the nature of those competitive dynamics certainly change along with the impact on buyer sentiment that come through the macro and so I think there was a recognition early on that there were some some basic things that we wanted to make sure that we were good.
Fixed and adapted and we talked about those earlier this summer this switch to the in person training the re looking at the Onboarding and the boot camps now we're getting to the point, where we're digging a layer deeper and we're seeing really great feedback from the field teams you know people empowered to navigate these new competitive environments and navigate the sale of these net new products as we continue to push.
Had the pace of innovation and I think that's going to be an always on and.
I always on priority for us for sure. It has been most acute through this year because of the convergence of a large number of new salespeople, plus a changing macro environment and a changing competitive environment plus the expansion of the product and obviously, we're not going to see all of those moving parts in every year, but we expect this to continue to be a dynamic environment and so it's one that.
We're investing more in for the long term.
Great I appreciate the color Bill maybe just a follow up I know on the hiring going forward is simply that's going to slow down a bit although there were certain areas, maybe where you're still gonna be hiring more aggressively or is it just kind of a broad based slowdown in any way to kind of unpack that a little bit. Thanks, guys. Yeah. So I'll break that into the hiring over the last few months and then what were.
Looking at going forward. So we've experienced one of the most robust R&D hiring environments that we've ever seen in our history and so that's an area where we've been very excited to continue to build out the R&D teams and we actually have or kind of new hires in our hiring budget for R&D I'm already signed up and it'll be starting even over the next few.
Months.
Looking further into the future than we're used to from an R&D perspective, and so that's been awesome to see I mean, you're seeing the fruits of that investment through all the announcements and product at Ford and a lot of the and a lot of innovation that'll be coming in the in the <unk>.
In the coming quarters in.
And throughout next year, which I'm really excited about and we also are still hiring for a number of net new functional leaders throughout the business. Some of those are many of those are concentrated in a newly centralized group around go to market strategy and ops, our aforementioned sales productivity team lives within that new centralized go to market.
G and ops group as well and we brought together within that.
Groups around things like market strategy looking at territory planning pricing and packaging et cetera. So that those can all be co located together and we're excited that that's going to have be able to improve alignment between those groups you know speed up on a lot of their kind of operational.
Cadences and be able to ultimately drive better results through a more coordinated strategy and so that's a transition in terms of the centralization of that group that we started embarking on a couple of months ago, and it's one where we're still hiring leaders to make sure that we've got all the right functional expertise in place as we kick off next year and then there's going to be a number of other.
Places, where we're still looking to selectively take advantage of this great hiring market to bring in I'm really good talent into the company.
All that being said, we're definitely making sure that we're prepared for whatever the macro throws at US we've had great robust hiring results over the last few months and so and we are lowering the level of recruitment activity that we have on a number of other roles just to make sure that we've got better line of sight through the fog. That's ahead of us before we start to.
Really step on the gas again.
Okay.
Got it thanks Bill.
Our next question comes from Jake titled <unk> with Goldman Sachs.
Thanks for taking my question I'm on for Gabriela.
When investors hear about there being a general slowdown in marketing spend and AD spend but that obviously makes folks nervous about brain. So why are you confident that <unk> won't be impacted to the same extent as some of the more traditional players in the space.
And so theres a variety of reasons and a lot of them come down to the nature of the kind of workloads or the use cases that phrase runs for our customers and also the ROI that's associated with that and so when you look across the various customer base, what youre going to see is diversification across a lot of different dimensions I've already spoken early.
During this call about the diversification the diversification that we have across company size across geographies across verticals I. Those and then also across use cases and a lot of those use cases are also not what I would call discretionary marketing. They are a customer communications that are required in order to operate businesses and even when.
Those customer communications could be purely promotional and by their nature, which is certainly the case for a lot of the black Friday and cyber Monday message volumes that we mentioned even within those.
Even within those buckets, which you might be able to call discretional discretionary marketing those are in almost all cases, the highest ROI marketing that a brand that works with brace can do because of the investment that they've made that they are capitalizing on is in building up the first party audiences that they already have and so if you think about braze as an activation investment that sits.
On top of a much larger investment in building out first party audiences and first party datasets the ROI function there.
Pretty clearly starts you start to see pretty clearly the difference in ROI versus digital advertising, we're in digital advertising, you're not only paying for the activation, but youre also renting the relationship from whoever the whoever the AD marketplaces and so the fundamental difference in the ROI function between active.
Your first party your first party audiences versus renting a third party audience and then trying to activate it up from there I think makes braises ROI.
<unk>, a really robust even through even through kind of intense scrutiny. Similarly, when you look at the role that brake failure from an activation standpoint.
You see that Braves actually amplifies the ROI that people get out of those advertising investments that they make and they also improve the return that they get through the organic growth, even if they've cut off all of their digital advertising I think a lot of the coverage in our space breaks down marketing into two broad buckets, they'll talk about either acquisition, which.
Is generally associated with digital advertising or with retention, which is more associated with platforms like res activation is another really important stage. There as you go from acquisition to activation, which is roughly you know, let's make a great first impression lets establish that habit, let's make sure that you know things like seven day 14 day retention remain high so you don't have people immediately.
Bouncing off of a product after you spent dearly to acquire them.
<unk> role to play in that aligns perfectly with the priorities that so many brands are refocusing on right now which is how do we make sure that our organic growth is.
Is activating at high levels, how do we make sure that the you know the premium acquisition investments that we are making have the maximum ROI that they can and then how are we retaining those people on the long term and so in many ways. It's exactly when the scrutiny shows up on the digital advertising spend that raise really starts to shine versus all of those other expenditures.
That is very helpful. Thanks for the color and then just for the follow up can you talk about the momentum that Youre seeing with partners are you starting to see meaningful interest and pipeline coming from that channel and maybe Isabelle can touch on how this can help us SNF leverage over the long term.
Yes, our partner ecosystem goes it is fairly broad and so I'll speak specifically to the global systems integrators. In response to this question because I think that's it's been a topic over the last few quarters and it's certainly one that were we're really excited about both for the long term leverage that you mentioned through sales and marketing efficiency as well as through the pipeline.
Contributions and also just the opportunity to work with a lot of brands that are that are that work with GSI isn't and without those relationships. You know those that was those were opportunities that we were never previously I really able to access and so what we've seen over the last 18 months has been an incredible increase in the amount of mind share that we have.
Across the major global systems integrators, and the Big agency holding companies.
The opportunity for brain to really go to those organizations established joint business.
Propositions with them, we're certifying a large number of the of the.
Consultants and the integrators and the the staff that those companies have on hand, and many of them are really looking ahead. You know during this period of macroeconomic uncertainty to really figure out when demand comes roaring back what are what are the investments that we're making today to make sure that they're prepared for tomorrow I think that when we look across our.
Our experience with the G. S is through 2020, even in the early part of 2021 that they were all over committed even relative to the staff that they could put on projects and so they didn't have the room necessarily to be making forward looking investments in new technologies, and we were I'm often squeeze out to our detriment because they had preexisting relationships with the legacy marketing clouds, what we've really seen.
Over the last year, especially is that sentiment shifting enormously.
As brands have really led the way I'm as brain has continued to move up and penetrate deeper and deeper into our global strategic accounts and into our enterprise footprint. It's become very clear that this is the next generation that our partner should be ready to be trained for it and to deliver service to their customers and to their future customers.
As well and so that that incentive alignment and the momentum that exists. There is absolutely tremendous you know I think that those types of opportunities are not immune to the same new business headwinds that we referenced in the prepared remarks, but we're seeing a lot of really amazing early signs of pipeline generation, there and ultimately we believe that as the <unk>.
Environment comes back to normal that we'll have we'll have made an enormous amount of progress in terms of mind share and literal bench strength that is trained and ready to sell embrace which will ultimately help us with our efficiencies in the long run and so just to follow up on your specific question on that.
The impact that we're seeing are.
We absolutely still think that this is going to be a key driver of Q increased leverage out of the sales and marketing organization. However, as Bill said, you know between the macro environment and sort of other dynamics. We are still very much in the early days of that so we look forward to providing more updates as this continues to play out we continue to be really excited about.
And the leverage and the opportunity that this will present them, but I wouldn't look for with the macroeconomic environment that we're seeing around us I wouldnt look for a specific.
Direct financial impact in the near term.
That's great. Thank you appreciate it.
Our next question comes from Taylor <unk> from UBS. Please go ahead.
Yeah, Hi, Thanks for taking my question the revenue upside relative to the guide this quarter was a little skinnier than what we've seen and I think if you look at the <unk> guide at the high end it implies sequential growth of 3%, which is a little bit below than that like mid single digits. I think you guys have done the last couple of quarters.
First can you talk about the macro and buyer Herman embedded in this guidance if theres been any changes in guidance methodology and then there's the part two started there are two parts, but if you drag I guess that 3% sequential growth into next year youre going to end up at growth below 3%. So.
Understanding you're not giving guidance today, but any comment on seasonal trend versus macro in linearity.
As we look into next year, just anything to keep in mind. Thanks.
That's great. Thanks, Taylor. So first of all just talk about that the guidance for Q4, so no material change to how we think about sort of the prudent risk adjustment associated with our guide. So the macro continues to provide for a certain level of uncertainty and challenge and we think that like many.
Of our peers. This is likely to persist and so we think it's prudent to continue to include that that backdrop as we think about the guide and I won't go into any kind of detail for next year, we will get back to everybody. When we have more visibility as to how Q4 is actually going to land.
And we'll be part way through Q1, so we'll see everybody back here in March at for for that announcement.
But we do think that there is a we are certainly planning for this macroeconomic environment to persist.
And that is going to continue to affect the dynamics that we talked about in terms of new business. So we're very pleased with how upsells continue to track and you can see the dollar based net retention is holding steady.
But there are there's a lot of uncertainty out there and so we just think it's prudent to lead to incorporate all of that as we think about next year.
Great. Thank you so much.
Our next question comes from Brian Schwartz from Oppenheimer.
Hi, Thanks for taking my questions I've got one for Bill on the follow up is about the all.
In terms of the expansion activity. That's happening can you talk about the cadence of the up selling that you are seeing after you land a customer if that's changing at all compared to previous quarter versus the expansion. The upselling activity, that's happening with your longer term customers.
I do.
Directionally I think we have been seeing a newer customer cohorts do you expand more quickly there's a variety of reasons for that one of them I was a sales our sales organization structural change that we made a couple of years ago. When we switched from the traditional Hunter farmer model across all of our account territories and we actually ship.
More of them over to the named account territories because of the confidence that we have in our ability to land and expand and so there were there were more cases prior to that where the hunters or incentivize the land the bigger deal now we've made sure that our sales team is incentivized just get started because we know that we can grow customers more effectively over time.
Tim the other thing that drives that is is there's just more options in terms of how you can expand your footprint on <unk> now we have more channels, we have more interesting ways to bring in new data sources. We've got really robust API is that bring more engineers into the fold and move other sorts of things like transactional use cases on the Braves faster. Another aspect of that has just been our inter.
I will focus on making sure that we're driving time to value results, you know, making sure that customers are getting up and running that theyre, sending their first campaigns that they're sending their first canvas as quickly.
All the investments that we put into usability as well as the just kind of operational rigor and excellence that we've built out in our integration and Onboarding teams over the course of the last couple of years have all sped up those things and so I think there's a bunch of structural changes that we've made that really support that in general new customer cohorts are upselling and expanding.
Faster than prior customer cohorts did I there are obviously some headwinds on that as well you know in some cases, especially in the enterprise I mean, especially given braces increased prominence and our track record and the customer references that we have we do move in and we take out a whole whole opportunities where we'll be.
Cross channel across a bunch of brands and across a bunch of geographies all at the same time.
And you know as you kind of deploy across multiple geographies and enterprise that can take a long time. There's also as I mentioned before there are parts of cross sell upsell that are that act more like the business because they involve working with new teams those are experiencing similar headwinds and so.
As we mentioned for new business, and so that can be a kind of a take away from that so there's a lot involved there hopefully that helps you understand the dynamics that are at play, but it's certainly a goal of ours to make sure that I'm in and this is in line with start anywhere go everywhere that we can get customers up and running quickly on early use cases, we get them working with.
Raises vertically integrated data flow in in the campus environment and from that as a springboard, they're able to quickly and easily move throughout the rest of the brace product I'd be able to really expand and grow with us very seamlessly overtime.
Thank you Bill and then the follow up I have is about.
Thank you very much for the transparency on what Youre seeing in terms of contract duration I wanted to ask you about pricing and discounting.
In the current macro environment, if that's changing at all compared to recent quarters then.
Maybe.
Your comments on what you are saying if youre seeing anything in terms of how your competitors are behaving in terms of pricing.
They try to navigate the macro headlines.
Yeah absolutely.
So we're continuing to maintain our discipline around discounting we continue to see ourselves as a premium product high ROI and that is reflected in our pricing. So do we see the pricing sensitivity out there in the market I, absolutely am but you know we.
Continue to work with the salespeople and team to train them to talk about the high ROI that the product delivers an end to value sell into that customer.
So that is it is incredibly important for us and it has been a discipline that we have implemented over the last several quarters and years and and and we will absolutely continue.
From a competitive standpoint, I, you know I won't claim to know exactly what's going on behind the scenes at all of our competitors, but you know there is likely more pricing pressure on on Dan and certainly for those that are kind of the pre IPO guys.
And you know they are likely looking to kind of build their their books right now and they can likely.
Non public companies, there potentially trying to win on price probably not the right strategy for the long term, but you know.
Where we're going to continue to be disciplined.
Thank you.
Our next question comes from DJ Hynes from Canaccord. Please go ahead D J.
Hey, guys.
Just one just given the time I see a bunch of hands go up.
Bill or if a customer comes to you and says I need to cut costs, which I guess could mean leaning out meus narrowing channels, sending fewer messages.
What are the levers you can pull to try and preserve contract value like what what's the playbook in that scenario.
Yeah. So this comes up not just because of customers looking to cut costs, but sometimes our customers own projections around how you know their how their volume growth will transpire over the course of a term might be too high and so we find them at renewal under pacing utilization and things like that and so this is something that our sales team.
Used to working through and definitely an aspect of how the business runs with our annual contracts and the way that we sell entitlements and and so theres a lot of different levers you know in any given year contract term.
When you look out over the last several years, we've added one or two channels every single year, we add new data connectors. We've added new predictive capabilities. We've got you know that there's a lot of ways of the product surface area has expanded over time. There's also usually when you look out over an annual contract entitlement, even if they didnt hit there.
Growth numbers in a given year, they still expect to grow into the next year and we want to make sure that they're set up with predictable costs across whatever the term period is theirs.
There's also the unlocking of new use cases, and the engagement with new teams and so in many cases, when we land with a customer even if they move over a specific channel. They often are they sometimes don't even move like all of the email happening in their organization over to us or they might not move all of their SMS or what have you maybe they started with a specific use case.
But they've proven out the value of those other ones and so we find ourselves consolidating other vendors quite a bit when we go into that conversation and so theyre looking to decrease their spend overall across their basket of marketing technologies, but braze because of the gravity that our platform has to pull in new use cases and new channels.
Over time, you know often we can consolidate out other vendors as they're working to find spend efficiencies. Another area that we see people finding spend efficiencies as they lean into their usage with braised Moore is through the audience zinc products that I mentioned during the prepared remarks, where we help them optimize the digital advertising and acquisition spend and our customers have seen tremendous risk.
There I think there's a lot of low hanging fruit just because a lot of low hanging fruit in that entire category. Because first party data has historically not been activated to the degree that it can or should be for a lot of digital advertising and acquisition strategies and so well. In addition to the leverage the kind of internal to brace contract levers that I am.
Before there's also an entire category of just taking a step back looking at their entire marketing spend in helping them optimize that in order for them to be able to maintain or in many cases in those situations still increase their brains investment.
Yeah.
That's great color. Thank you.
Our next question comes from Brent <unk> from Piper Sandler. Please go ahead.
Thank you I'll give you one as well.
At the time I wanted to follow up and double click into the upsell momentum this quarter, giving increasing macro pressure on marketing budgets.
What is driving the upsell momentum how sustainable is it is it a function of.
How the products are priced by an Mou basis is it vendor consolidation as it is.
This first party data category, just being less sensitive to budget cuts just trying to do.
Double click into what is actually driving that up some momentum any color there would be helpful. Thanks Yep.
Yep.
I think first of all your list of options are all accurate.
I will endeavor to kind of organize and add them by the magnitude of the impact I think first and foremost the eye. When you. If you were to stack rank. The ROI of the investments made in any given marketing organization that those that are operating on top of first party data and first party relationships are always going to be had.
And shoulders above the investments that are being made on top of third party audiences and I talked through some of the reasons for that before but the high level is that.
Those first party relationships are a giant asset and the only thing that they really need to pay for is the ability to activate that asset. The investigated in many cases has already been made and so when you're looking to optimize our Hawaii. That's an easy place to start another important aspect of it is the vendor consolidation, which I just talked about through.
When I talked through the way that our renewal often runs as well as continued use case expansion and then you know there are a lot of businesses out there that are also still growing.
We actually had in this quarter, the sequential messaging and Mou growth from <unk> from the prior quarter to this one were both higher this year than they were last year, and so where we are seeing robust growth and in terms of the amount of just digital consumer activity happening out there amongst our customer base and so even though there is.
Pressure on spend and we are seeing certain areas, where there are headwinds in growth for certain categories. You know remember that Braves is a highly diversified product that sells across all different verticals all different company sizes in all the geographies around the world and there are a lot of areas where growth is still robust and we're seeing great upsell motion.
Those.
Couple of stack rank. Thank you.
Yeah.
Our next question comes from pendulum Bora from J P. Morgan.
Hey, Thank you so much congrats on a water one.
One quick one for you Bill.
What are you hearing from customers. When you are talking when you're talking about marketing budgets and get a customer engagement budgets for next year what are you hearing.
Thinking about resetting them.
Nor is it doesn't seem to be more resilient from their point of view.
Any color would be helpful.
Yeah, I think we're seeing broad based sentiment where businesses are just trying to become more efficient in the spending that they're doing we're seeing we're seeing technology leaders getting involved in a lot of the kind of marketing stack decisions as well in helping to rationalize the footprint of our products that are out there.
Theres, probably been a lot of shelf, where purchase crossed people's environments over the last couple of years you know, it's one of the reasons that we've always been really focused on time to value, making sure that you know no integration gets left behind and that we are getting all of our customers up and running early in their in their annual contract life cycles, but we're definitely hearing from a lot of brands.
That you know, they're they're kind of cleaning out the cross if you will from a lot of their software spend.
We also are seeing that sentiment you know, obviously shift to air bearing a lot by market by industry and by by geography, and you know I don't think that I could say that there's a broad based like Oh, we want this to be higher or lower or the same as last year, it's really a focus on efficiency and making sure that when they're making new.
That means that those are delivering value to them quickly.
Got it thank you.
The next question comes from Pat Walraven from JMP. Please go ahead.
Oh, great. Thank you.
Hey isn't so can we go back to the earlier question about <unk>.
Financial growth.
As you probably followed investors just went through this with the zoom info. So I'm just wondering.
It is sequential growth that you guided to.
Good starting point for how to think about next year.
And if not why.
Why what's your question both nothing good indicator.
Thanks for the question so.
So again I am not going to answer it specifically you know how to think about how sequential growth going into Q4 relates to next year I think there's enough uncertainty out there.
We are extremely confident with our long term prospects and right now we are continuing to see the dislocation associated with the.
The challenging and uncertain macroeconomic environment.
What I will say about Q4 and the guide is we continue to approach this with a similar methodology to prior quarters and embed an appropriate amount of risk adjustment and so as we continue to navigate this uncertain environment that type of risk adjustment is appropriate and necessary.
And we look forward to having more clarity coming out of Q4 and being part of the way through Q1 to give more specific guidance for FY 'twenty four.
And our next question comes from Rachel <unk> from William Blair.
Great. Thank you.
Curious as to what you're seeing in terms of the competitive landscape I know Salesforce, just recently announced their customer data cloud Genie and then Twilio engage is now generally available. So I was curious if there is any changes as to hear running into and if theres been any impact on win rates. Thanks.
Yeah, I think amongst the more established players in the space and the legacy marketing clouds, we haven't seen much difference.
Over over the last several quarters, even as they've made new product announcements and and you know I'm not going to speak too much to to those specific competitors, but I think that when you look at the pace of product innovation and raise.
Just the pace of customer pick up of new use cases, and how we continued to advance our customer community that all those things come together to create a really robust offering that's really current with the skill sets that people have that's allowing them to really take advantage of the new investments that they're making in their data ecosystems and the new skill sets that they're investing in within their own teams.
When we look across the legacy marketing cloud space and some of the other some.
Some of the other fast follower even startup competitors that we have we just don't see the same level of product vision, we don't see the same level of R&D investment and they're built on you know architectures that are antiquated for for the environment that we're trying to operate in and so even as we continue to see like our legacy marketing cloud competitors try to overlay their older or mark.
<unk> cloud and software platforms with new shiny things that are meant to be able to more tightly integrate them together or what have you. The foundations of those products are still the same and so they still continue to have the same issues and as we continue to push forward. We certainly respect a lot of the kind of it and come in and scale advantages.
That they have within the market and those are really important for us to navigate but from a product R&D standpoint, I feel really good about where we are positioned relative to the competition, especially when you look at just the velocity of what we're what we are actively announcing and releasing.
Perfect. Thank you.
And our final question will come from Yun Kim from loop capital. Please go ahead, alright, so I'll make a quick a quick last one here.
New customer adds in the quarter was much healthier than last quarter was there any specific change in the go to market to better execute on the new customer acquisition front, maybe anything on the product bundling that you are doing to entice new customers.
Trying to get a better understanding of new customer adds in the quarter. Thanks.
Yeah. So I'll first clarify that the new pricing and packaging that we're experimenting with is part of start anywhere go everywhere I didn't have a big impact in the quarter, it's something that we're piloting with a small set of account executives and we're excited to see that play a bigger role into next year, but you didn't see that in Q3, specifically and then in terms of net new customer.
<unk> I think that as we've mentioned before the pipeline is very robust and healthy we've been seeing a lot of great new opportunities showing up both inbound as well as a lot of our outbound execution paired with the resumption of in person events and a lot of other really exciting things that have happened in the pipeline and you saw that translate it.
Into a healthy number of net new customer adds in Q3, obviously part of that is also tied to the work that we're doing from a sales productivity investment standpoint, getting our new account executive is up and running more quickly, helping our more tenured account executives navigate the competitive landscape more adept Lee I and those things have helped with that new customer adds as well.
But we also as we mentioned in the prepared remarks, we're seeing those new business headwinds and so it's been a difficult environment to fully predict exactly where metrics like that are going to land in a given quarter.
Alright, thank you.
This concludes the Q&A. Thank you all for your questions I'll pass back to Bill for closing remarks.
I just wanted to thank everyone for your continued support thanks for joining us today and for the great questions. After the prepared remarks, and we will see you again next quarter.