Q4 2023 Braze Inc Earnings Call
Speaker 1: With Braze, customers ranging in size from small digital startups up to some of the world's largest enterprises can cost effectively consolidate their customer engagement efforts into one solution, breaking down silos between channels and teams, simplifying their technical architectures, and improving outcomes for customers.
Signing a deal across an array of channels, including E mail push web and contact cards in another case with traditional media company, we replaced a legacy marketing cloud and three other messaging vendors as they modernize their customer engagement platform with brands. We expect this trend to continue as enterprises with ambition and sophistication consolidate their technology ecosystem.
Modern omnichannel customer engagement solutions, removing legacy marketing clouds and point solutions that don't scale, which we believe will provide a tailwind for <unk> in the coming years.
And another proof point of our leadership in the industry I'm pleased to highlight that Bruce was recently named a leader in the Q1 2023 Forrester wave for cross channel marketing hubs their coverage Embraer should resonate with those who have been listening in on our earnings calls the last few quarters. So let me just read directly from Foresters report.
Brace lives up to its start anywhere go everywhere product vision via innovative products and expert services to help its clients build human connections with their customers regardless of size or technical competence at superior innovation roadmap reflects these concepts by balancing investments across ease of use platform depth and workflow flexibility. They continued by saying that brace suits org.
Innovations looking for a flexible and marketer friendly cross channel marketing hub solution to refresh their digital experience strategy.
Next I'd like to briefly highlight our recently announced strategic partnership with W. P. P. A leading creative transformation and services agency together, we'll be partnering on joint product and solution development and integrations aimed at helping brands resolve customer identities at scale and power personalized engagement alongside coordinated go to market efforts to help clients make investments and customer activation.
Retention and loyalty, we look forward to partnering with W. P P and deepening our relationships with other agencies in GSI to create better outcomes for our customers.
As we look to the future we will continue to improve our platform and build our competitive moat artificial intelligence is a key component of that innovation push those who closely follow braised now we were founded by two engineers myself and our CTO, John Hammond and that existing on the cutting edge of technology innovation is in our very DNA. Let me walk you through a few of our existing AI developments and how.
We plan to leverage AI to drive customer engagement in the future.
In 2017, we invested in a dedicated team of data engineers and data scientists focused on using machine learning to build AI into the product, making marketers more effective and engaging their end users by optimizing timing and targeting strategies inspiring new ideas to enhance relevance for customers and when possible automating decisions entirely in may of 2022.
We started investing in generative AI as a marketer copilot building GPT three into brace for AI, Copywriting, which saves customers' time, when creating subject lines and messaging for their campaigns last December we integrated <unk> into our image library and customers have been using both very effectively to be more agile speed creative production and more easily tests and optimized content.
Different variance, we're very excited about the potential for these tools to enable even small marketing teams to wield an immersive creative vision, while also making it easier for them to take advantage of Brazos sophisticated and differentiated testing capabilities by lowering their creative production burden.
We've also already seen examples of chat GPT successfully leverage to generate valid message templating syntax and to speed along integration with source code samples. This is a set of capabilities that enhance the efficiency of our product support and further accelerate time to value for our customers. We're also experimenting with customization of GPT for which are aware abrasives support knowledge base and up to date.
Patients in order to enable a wider swath of brace users to leverage our most advanced capabilities more quickly and.
And as we discussed with you in October at our first Investor Day. We've also introduced new machine learning features designed to improve outcomes and brace campaigns and campuses, we introduce personalized variant to automatically determined for each individual message recipient, which content variation. They will most likely engage with based on data from consumers with similar behaviors and profiles and we've expanded our predictive suite to use a fifth.
As a kid and machine learning to identify which users are most likely to churn or make a purchase. This generates models that are customized to each brand's usage fingerprint a solution that adapts to work effectively across different industries and business models.
Finally, we are using machine learning driven predictive models designed to improve our quality of service, while lowering our infrastructure costs auto scaling is a technique we've used for years to adapt to cloud footprint of our stream processor and responsive dynamic messaging workloads. We recently enhanced it to use machine learning to automatically predict upcoming load based on customer usage and a wide array of historical data.
Early tests have shown the potential for meaningful reductions in our infrastructure costs as we continue to drive efficiencies in our core Tech stack you can expect that phrase, we'll continue developing AI and ml driven products and service enhancements throughout the surface area of our platform in the coming months and years.
Finally, and before I turn it over to Isabella I'd like to spend a moment to discuss some exciting news we announced earlier. This afternoon. We have entered into an agreement to acquire North star our exclusive reseller of braced technology in the Australia, and New Zealand markets, we have been working with their team for several years and have been impressed by their ability to drive adoption of our industry leading solution across the region we ask.
To meet this transaction will close in our fiscal second quarter, and we look forward to updating you on our progress in the region in the coming quarters.
Thank you for your continued support of <unk>, we were very excited about the year ahead and believe the investments in our products coupled with the strong secular customer engagement tailwind will keep raise on the path to becoming the industry standard for customer engagement and now I will turn the call over to Isabella.
Thank you Bill and thank you to everyone for joining us today.
Bill mentioned, we reported a strong fourth quarter with revenue up 40% year over year to $98 $7 million. This was driven by a combination of existing customer contract expansion renewals and new business. Our subscription revenue remains the primary component of our total top line contributing 96% of fourth quarter.
Our revenue the remaining 4% represents a combination of one time configuration and onboarding fees as well as other professional services.
Total customer count increased 29% year over year to 1770 customers as of January 31st up 395 from the same period last year and up 55 from the prior quarter. Our total number of large customers, which we define as those spending at least $500000 annually.
Grew 46% year over year to 156 and as of January 31 that contributed 57% to our total air are compared to a 52% contribution as at the same time last year.
Compared to last quarter. This reflects a 5% increase from 148 large customers that contributed 56% of our total <unk> as of October 31.
Measured across all customers dollar based net retention was 124% while dollar based net retention for our large customers those spending at least $500000 annually with a 126%.
Spansion was broadly distributed across industries and geographic regions.
Revenue outside the U S contributed 43% of our total revenue in the fourth quarter in line with the prior quarter and up from 40% at the end of fiscal year 2020 tail in the fourth quarter. Our total remaining performance obligations was $456 million up 22% year over year and up 11% sequentially.
<unk> current RP O was $313 million up 31% year over year and up 10% sequentially.
The year over year increase was driven by contract renewals and Upsells and the signing of new customer contracts overall dollar weighted contract length remains at approximately two years.
Now I'll review the income statement in more detail as a reminder, some of the metrics I will discuss our non-GAAP . We've 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 $66 $2 million, representing a non-GAAP gross margin of 67%. This compares to a non-GAAP gross profit of $47 $3 million and non-GAAP gross margin of 67, 2% in the fourth quarter of last year and 69, 7% in the third quarter of this year.
In addition to normal seasonality, which reduces gross margin in Q4 due to higher levels of customer activity. Our cost of revenue in Q4 included the impact of a onetime expense true up excluding.
Excluding this impact Q4, non-GAAP gross profit was $67.5 million, representing a non-GAAP gross margin of 68, 4% up 120 basis points year over year due to continued economies of scale in our core technology expenses and ongoing efficiencies related to our customer support functions.
Turning to operating expenses.
non-GAAP sales and marketing expense was $46 $5 million or 47% of revenue compared to $35 $3 million or 50% of revenue in the prior year quarter.
While the dollar increase reflects our investment in head count to support our ongoing growth global expansion and increased travel and entertainment expenses. The improved efficiency reflects our disciplined investment approach to resource deployment across our go to market organization.
non-GAAP R&D expense was $19 million or 19% of revenue compared to $13 $1 million or 19% of revenue in the prior year quarter. The dollar increase was primarily driven by increased head count to support the expansion of our existing offerings as well as to develop new products and features to drive growth.
non-GAAP G&A expense was $17 $5 million or 18% of revenue compared to $12 $4 million or 18% 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 operating loss was $16 $7 million compared to a non-GAAP operating loss of $13 $4 million in the prior year quarter.
non-GAAP net loss attributable debris shareholders in the quarter was $13 $7 million or a loss of 14 <unk> per share based on 95 million weighted average basic shares outstanding during the period.
This compares to a loss of $13 $8 million or a loss of <unk> 18 per share based on $78 4 million weighted average basic shares outstanding in the prior year quarter.
Now turning to the balance sheet and cash flow statement, we ended the quarter with $482 $7 million in cash cash equivalents restricted cash and marketable securities cash provided by operations. During the quarter was just over $12000 compared to a use of approximately $24 $5 million in the prior.
Year quarter, driven by lower net loss and positive changes in working capital.
Free cash flow was negative $1 $9 million in the quarter compared to a negative $26 million in the year ago 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.
And now turning to our forecast we continue to see solid interest in high quality customer engagement solutions tempered by macroeconomic headwinds that persist in a number of geographic regions and industry verticals like many of our peers. We continue to experience elongated sales cycles and slower new business growth as <unk>.
Such our guidance assumes an elevated level of conservatism and that the current macro environment persist throughout fiscal 2024.
As we navigate this fiscal year, we will continue to maintain cost discipline and believe that we are well positioned to make significant progress towards our long term operating targets outlined last October .
For the first quarter, we expect revenue to be in the range of 98.5 to $99 $5 million, which represents a year over year growth rate of approximately 28% at the midpoint.
As a reminder, our first quarter contains 89 days or three fewer days compared to the other three quarters of the year, which each contained 92 days.
Because we recognize revenue ratably over the course of the year, the Q1 day count as reflected in our revenue guidance.
First quarter non-GAAP operating loss is expected to be in the range of $19 million to $20 million.
First quarter non-GAAP net loss is expected to be $17 million to $18 million and first quarter non-GAAP net loss per share in the range of 18 to 19 cents per share based on approximately $96 2 million weighted average basic shares outstanding during the period.
For the full fiscal year 2024, we expect total revenue to be in the range of 433 million to $438 million, which represents a year over year growth rate of approximately 23% at the midpoint.
Fiscal year 'twenty 'twenty four non-GAAP operating loss is expected to be in the range of 57 million to $61 million non-GAAP net loss for the same period is expected to be in the range of 53 million to $57 million.
For fiscal year 2024, non-GAAP net loss per share is expected to be 55 to 59 per share based on a full year weighted average basic share count of approximately $97 1 million shares.
As we look further out we are focused on growing revenue, while improving operating income and free cash flow margins and expect grades will generate positive quarterly non-GAAP operating income and positive quarterly free cash flow in the fiscal year ended January 31 2025.
In addition, we expect our non-GAAP operating income margin in Q4 of this year to be negative 7% or better.
I'll conclude by reiterating our excitement and breezes future. We are focused on growing our business partnering with customers to help them achieve incredible customer engagement outcomes, while effectively managing our expenses to achieve our long term financial targets.
And with that we'll now open the call for questions. Operator, please begin the Q&A.
Thank you we will now begin the Q&A session, if you'd like to ask a question. Please use the raising and feature at the bottom of your zoom window.
I will wait for one moment, while I assemble the queue.
Yeah.
Our first question comes from DJ Hynes at Canaccord, Please UN mute yourself.
Hey, good evening guys. Thanks, very much for taking the question Bill first for you.
With more accessibility to third party streaming data solutions, and then continued advancements in AI and ml are you seeing any signs that legacy marketing cloud customers are figuring out workarounds to make their existing solutions any more productive I'm just trying to think about.
Implications for willingness or appetite to swap out existing marketing infrastructure and move to somebody like right.
Yeah. Thanks for the question I mean first I would highlight the vendor consolidation trend.
I just spoke about a little bit ago, and both of those cases, we're seeing legacy marketing cloud endpoint solution deployments that are consolidating onto breeze and I think that's showing you two things one is that replacement cycle of legacy tools and to the fact that there was a legacy marketing cloud alongside point solutions in their original deployment means that they're just not delivering across the.
Touch points in the channels that.
You know modern customer engagement requires and demands we're similarly, seeing and I highlighted this about the travel and hospitality industry, but.
Cross verticals that have been a little bit slower to move over we're starting to see that legacy marketing tool and you know it's not just the legacy marketing clouds. We're also seeing some other some other software that was in the last generation getting wholesale replace in the enterprise and increasingly what we're seeing is that the default for that is not moving to one of those legacy marketing clouds, but moving.
Over to.
Raise and when we look at AI within that and I can speak about this more later I'm sure I'm going to get more questions around AI and ml before we finish this call, but I think that because we have access to a more complete picture of the customer combined with the ability to directly interact with them and we have our vertically integrated real time data flow and the comprehensiveness across those customers.
Touch points and messaging channels that that puts us in a position in the technology stack with respect to the data flow and access to it in real time as well as comprehensiveness of the entire picture of the first party data that will just allow us to have substantially more flexibility and optionality and what we build out from an AML perspective into the future.
Yes.
And then is about one for you.
Just in terms of the guidance like what are your expectations in terms of the mix of growth from the base. So NR versus contribution from net new in fiscal 2024 that gets you to that midpoint, 23% growth guidance yeah.
Yeah. Thanks for the question. So first of all I, just want to say and I think where we've been performing very well against.
Against an increasingly tough environment here that we've been seeing over the course of this past year and you know we're seeing the same dynamics that a lot of our peers are seeing with regards to elevated levels of deal scrutiny certainly when it comes to kind of that net new business and then continuations of these elongated deal cycles. So I think where we are going to continue and we've incorporated.
Operator, it into our guide.
A good degree of conservatism across a number of fronts and so specifically across a number of Kpis. We have incorporated the expectation that we'll see some further degradation and that's true for pipeline generation and therefore, you know some ongoing weakness in kind of net new business conversion rates when rates the deal cycle length, We think we will.
Continue to stay long or we've assumed that rather in the in the context of our of our guide we're assuming limited improvements to sales productivity. This is this is all embedded in the guidance and so I think it's fair to say that we do expect in the context of the guide for the net new business to continue to struggle with.
<unk> been able to incorporate the events of kind of the last few weeks that have led to a little bit more market disruption and a little bit more uncertainty and maybe how net new buyer behavior in that new investment is going to behave over the coming months and quarters and as a result of that we feel really comfortable with where our guidance is right now against many of the possible scenarios that might play out.
For FY 'twenty four.
I'll just add that.
In general obviously, the environment has been super dynamic and it's been challenging to operate and but that said I'm really optimistic about where we are as a business and also how we're positioned in the ecosystem, we've been focused especially over the last couple of quarters on preparing for the world as it is but doing that while also setting us up for long term success and qualitatively I've never been more excited about our position.
And when you look at things like our product roadmap and the momentum there with things like cloud data ingestion and the recent launch of Whatsapp you may have seen the announcement that came out yesterday about the partnership with W. P. P, which is exciting all on its own but it is also a bellwether for our continued progress with the GSI is our go to market investments and the trends that I just highlighted around the replacement cycle for legacy tools and Ben.
Her consolidation.
These are all things that really build the foundation that we're going to build braves into the future on now quantitatively obviously the environment is difficult and you see that in the numbers across the industry and as Isabela mentioned, we're being very mindful of the events of the last couple of weeks and our experience in this environment. So far in our guidance is informed by that but we feel comfortable with the guide that we're providing.
Yes that makes sense I think the prudence is logical thank you guys.
And our next question comes from Ryan Macwilliams of Barclays.
Thanks for taking the question great to hear about the profitability improvement in the guidance in the fourth quarter exit margin rate was better than we expected so the macro stays current or.
Similar to the current environment do you have any updated thoughts about the potential path to profitability timeline for Braves and how do you think about making investments in this current macro backdrop.
Yeah. Thanks for the question. So if we take you back to December we made an announcement in December that we had broadly paused net growth in overall head count.
And think of that is actually saying, we're staying the course on that so that that has not changed.
And so we are able to sort of continue on with this sort of path to profitability and actually make meaningful progress this year and.
Because we have incredible amounts of kind of control and visibility into our our overall spend for the balance of the year and so we think that that's actually a key driver for us for the path to profitability is being able to kind of stay the course, and it's actually been incredibly helpful for our leaders.
So have to re prioritize how theyre going to deploy spend over the course of this year as we've maintained the the head count a pause for the head count increase pause for the time being so I wouldn't look for us to materially expand net new investment over the balance of this year.
And I'll, just say that you're touching on the the culture and how it leadership has rallied around this and how our entire employee base has rallied around this move to profitability, we've been able to do it while also making great foundational investments and that's just through a lot of the advantages that we have around our mastery of R&D and data as well as the you know the adaptability of the employee base I had been.
Really proud of our employee culture through this transition and it gives me not only great confidence for our path to profitability, but confidence for our future as we continue to build our leadership position in this space.
Thanks, and then one for bill exiting the fourth quarter, how should think about how the macro is currently impacting customer usage of the platform because data points processes messages sent still seem healthier like mid 40% year your growth rate. So obviously every thinking about how different verticals are different customer sizes currently fair. Thanks.
Yes, I think there's just points back to the reality that customer engagement is a really multi faceted operation that is always on in some extent and I think that a lot of people look at you know marketing technology in general and they think Oh. That's you know, it's like advertising spend it's discretionary et cetera, the responsibility to be communicating with your customers isn't.
He's on one and especially as we see customers continue to expand into new use cases as they take advantage of new feature development like your cloud data ingestion and to bring in new datasets and drive you know yet more use cases and more messaging, we continue to see them expanding across multiple channels Theres just a lot of expansion in the surface area of the product there is expansion of our.
Customers as they find ROI in their early use cases and expand into new ones and then just the fact that so much of what <unk> does is mission critical communication in order to deliver products and services I think that the secular trend toward being able to build up first party relationships inform those first party relationships with first party data and then take.
Action on them directly is one that is becoming an imperative for brands of all kinds across every vertical in and of every size.
We have the color thanks, guys.
Absolutely.
And our next question comes from Arjun <unk> with William Blair.
Thanks, guys.
Bill maybe just to stick with you.
And some of the investments that you've made over the past several years, but when you think about the advent of generative AI what do you think.
That can do for the platform from a customer standpoint does it help you be more <unk>.
Competitive does it drive more productivity for your customers just would love to get your thoughts on how this plays out over the next several years yeah, absolutely. So I'll take a step back from just generative and give you a kind of a framework for how we think about AI and ml and its influence in customer engagement in general so you're effectively kind of buckets things in a few ways.
One is is this a copilot for human is it automated operative optimization or is it a full auto pilot and I think that the nature of first party data and managing first party relationships is that the bar for full auto pilot is much higher than it is in things like advertising or even in areas like prospecting and b to B and thus you should expect to see.
The move towards something where you have like a magic black box or a full autopilot I move a little bit more carefully in the first party data space and the first party relationship space. It's one thing to have.
An ad or an email that's well targeted on someone that you or that's been crafted for someone that you don't know very well, it's very different to have that live inside of your own product experience are related concept is systems that require training data and that you need to learn over time versus those can be that can be used immediately and we definitely balance our investments to make sure that we're delivering on both of you.
A lot of the generative AI stuff recently has been particularly special because much of it can be used immediately it's easy to get up and running and learn and even though learning cycle when you're in the middle of our conversation and chat GPT happens pretty quickly we found that the systems, which learn over time are best suited for partial automation, especially for things like variant our full strategy.
Testing for which you know canvas as a really robust framework or other things like predictive intelligence targeting and now I just mentioned earlier that Braves I think is uniquely positioned to our ecosystem to take full advantage of those types of developments because of the comprehensiveness of our touch points and the fact that we can we can just put our hands on data immediately when it's generated because of the vertical integrated real time data.
Flow and so that more complete picture puts us in an enviable position to be able to take advantage of new AI and ml developments now kind of getting specifically on the generative side one of the near term places I'm. Most excited about is using predictive targeting and other ml driven orchestration intelligence, which we already have in the platform and are certainly going to continue to develop more in the future to supercharge.
Experimentation in particular, because one of the barriers to experimentation for marketers is the creative production side, how do you actually produce six interesting relevant different ways of communicating a similar message to someone or a booking the same.
Trying to encourage the same action pair that with things like image generation or video and it gets even harder and so that's where you know if we go back to my the framework that I broke out on the beginning all of those are the aid of a creative co pilot and so whether that's chatty P T, helping with the equivalent of Writers' block or install you doing the same thing for images and we expect that will come about for animated.
And video production capabilities pretty soon those types of things are particularly important for our customers with smaller teams and less resources, but I think it actually helps everyone move faster and more efficiently, which helps raise not only differentiate by opening up new use cases through a real time capability, but it also augments the gains which compounds or experimentation I think that the easier it is for <unk>.
Customers to both produce multiple variance of strategies to test and then we insert machine learning to help make that testing more effective when you compound those learnings and those gains together you really you really enhance our ROI and so those are those are I hope that gives you an idea of kind of how we think about it and what that roadmap is going to look like.
Theres definitely some unique aspects to braze with respect to it being first party data, but also some some really amazing advantages because of where we're positioned in the stack.
Yes.
That's very helpful. Thanks for the color there and then I wanted to touch on just geographic priorities.
Priorities, because youre, so youre, making this acquisition.
Australia and New Zealand.
You've launched the Whatsapp integration I'd love to hear how you think.
That might help drive further international expansion because it is a obviously a key channel that.
Users abroad.
Abroad, and Europe , Latam et cetera used much more frequently than here in the states yeah, absolutely I mean, youll all site as well just says kind of foundational stat that 43% of our revenue comes from outside the United States and so you know as we know <unk> has a very global footprint and because of the nature of mobile in the app stores and sites, especially in our early day.
As we've always been a very global company and in fact actually our second largest offices in London. So I like to say that the the geographic center of Brazos somewhere over the North Atlantic and that global exposure in footprint is a particular reason why I'm. Most excited about whatsapp within braze, especially vis vis a lot of the competition that you see in the marketing Tech space, who generally.
Will you see a huge concentration of their SMS being in the United States and so when we can take our differentiated whatsapp capability and we can multiply that by our international footprint I think it's got a lot of exciting potential.
Perfect. Thank you.
And our next question comes from Jay <unk> with Goldman Sachs.
Thanks for taking my question it sounds like Braises experiencing many of the same macro headwinds as other software companies, but it would be good to get an update on the win rates, you're seeing and maybe you can comment on how those win rates are trending with both larger and smaller customers, especially because we've heard that some of the smaller private players are really pulling the pricing lever too.
Try and win new business.
Yeah. So there are some great things that we've been seeing from a competition standpoint first the vendor consolidation momentum has been really positive for US. We also continue to win at higher prices and head to heads because we are effectively value selling you know we've spoken a lot about our go to market investment that we've been making over the last few quarters and I've been excited to see the <unk>.
Results from that where we're operating with less opportunities to go around which you know I think because of the macro everyone is we're definitely seeing more desperate tactics from competitors in and frankly, we're actually seeing those desperate tactics from competitors that are both large and small, but we don't see anything that is fundamentally changing the competitive landscape I'd also say that.
You know, even those competitors who are <unk>.
Progressing by trying to imitate our feature set there still built on either old or cheapen incomplete architectures, which simply means that their attempts to fast follow us and try to sell at lower prices are eventually going to hit a wall and in the meantime, we're going to keep innovating and leading the way you didn't you know from our track record that we don't do margin dilutive deals and where.
Seeing we're seeing those win rates improve or hold up depending on which category. We're operating in I mean, it's definitely a dynamic competitive landscape and you know as I mentioned, there are less opportunities to go round before and that is having predictable second order effects from our competitive cohorts, but we feel really good about where we're positioned especially over the longer term.
That's great and then maybe you can comment on if you think of this market slowdown has maybe concerned do you at all that the Tam for an offering like breeze isn't as large as you previously thought maybe if not you can talk about your conviction in the long term fundamentals and why investors should not view the current environment is the new normal.
I would hold up two things here you know first I as we referenced earlier on the call, we're seeing things like messaging and data volumes and such all hold up which I think is a pretty clear sign that that overall activity between brands and customers communicating with each other it's not something.
That is that as a temporary.
A temporary phenomenon and in business or in the lives of humans, but also when we just look at the secular and generational trends that are happening right now as we continue to digitize more and more of our lives.
And really importantly to me is I think that we're still in the early innings of this move to first party data. The the first kind of volley of investment and first party data I think has been a understandable reaction to the the.
Fall of third party data that you know, whether it's <unk> or the death of the cookie or what have you you see brands trying to collect first party data sets because theyre trying to replace third party datasets for things that they were doing before but the more important aspect of first party data and these first party relationships is that it takes the customer relationship which of course, the fact that we're always <unk>.
This you know in the ether and it actually makes it directly actionable. The fact that you can understand the nature of your customer relationships and you can take action in order to enhance them directly when you combine together and investment in first party data with sophisticated and powerful customer engagement tools like Braves is creating tremendous amounts of business.
<unk> for those brands that are already investing in it and you know when I kind of look at the many secular trends that phrase has certainly benefited from over the years. You know first it was obviously the rise of mobile in the App stores and then we started to see the walls get broken down between messaging channels within businesses and we started to land a lot more of those you know cross channel deals and expanding into places like E Mail and web.
And in product messaging, you know more.
More recently, we've seen the rise of the data scientists and the data engineer, who has really come into the picture and you've seen the Braves product surface area expand in order to accommodate those new members of customer engagement teams, but I think that the super cycle under all of this is really that moved toward brands being able to take action directly on their customer relationships being.
<unk> able to inform that action with the first party data assets that they are building up and then being able to take action on it through software and strategies and team structure is like customer engage with the entire customer engagement category delivers to them.
Yeah.
Thank you.
And our next question comes from Brian Peterson with Raymond James.
Hey, guys just one for me so I wanted to hit on the Northstar acquisition.
What drove the timing of that the strategic rationale and anything you can share in terms of the financial contributions that's in the fiscal year 'twenty four got it thanks guys.
Yeah, So I'll, let isabelle speak to the financial side, but from a timing perspective, I think that we've been working with Northstar in the market for years, it's unique and our global footprint in the sense that it is a bidirectional exclusive relationship which means that they are the only people selling braised in Australia, New Zealand and they are also the only reseller that we work with in the region.
Close to them for a long time, and we felt like that there was a lot of efficiency to be gained by bringing our teams together you know I was out there actually in November met with all the different teams and it was clear that them just having an abstraction layer between being real raise employees was getting in the way of a lot of their efficiency from a day to day basis, and we wanted to you know take out who has been a.
A really long time, great partner and bring them into the fold the Braves and really help accelerate our progress in the region.
Let's speak to the guidance, there's nothing in the guidance currently that accounts for for a north star that is this is a tuck in a small tuck in acquisition be overall impact.
<unk> FY 'twenty for revenue is going to be fairly small we won't even close until Q2. So we won't get a full year's worth of revenue impact. So you are talking about you know less than 2% of revenue impact in this year and so it's not included well we'll update you guys on that progress as we get through to closing the deal.
Alright, thank you.
And our next question comes from Taylor Mcginnis with UBS.
Yeah, Hi, Thanks to my time for taking my question. So the outlook for negative 7% operating income margin by <unk> or better is really solid and it seems that in order to get there based on some of the math that we've played with it might imply mid single digits or so opex growth versus the 36%.
You did last quarter so.
Can you, maybe just talk about or even quantify the drivers of that so you know how much might be related to the pauses in hiring versus fixes and some of the sales efficiencies.
You flagged in past quarters, and we really use that negative 7% as a starting point for next year, how to think about the drivers beyond.
Thanks for the question so yeah, I think that the.
One of the keys here and I touched on this and when I answered a previous question is really related to our commitment to a pausing head count for the time being and so what that really is required our leaders to do is actually look at their existing resources. So it's not about less investment it's actually about re prioritization of investment dollars.
Now, yes sequentially that the cost structure did go up from Q3 to Q4, but I think we talked about this in Q4 as we implemented the head count pause there were still a few strategic heads that were being on boarded and we had sort of the the remaining number of heads of offers that had been made that needed to come and join the company youre going to start to see that stay.
Lies over the coming quarters, which is why you know theres not any appreciable in our guidance appreciable improvement in the operating leverage between Q4 and Q1 for example, and so youre going to start to see that over the coming quarters as we.
Revenue growth continues to evolve and and I and that continues to play out and the overall growth in the expense structure moderates as a result of the headcount pause.
Got it and then just as a quick follow up so when we think about the positive quarterly by 2025 commentary is there any level of revenue growth I guess, even directionally or that you guys are thinking in that timeframe that would drive that and then also to anything on the hiring front.
Embedded in that further on outlook.
So I'll say two very high level comments on that one is for that to happen for the positive quarterly operating income and free cash flow to come to pass in FY.
FY 'twenty five we are not expecting any acceleration in revenue growth between FY 'twenty, four and FY 'twenty five.
And we do have the ability to hire some level, we will have some incremental head count that is embedded in the forecast for the following year. So we are not depend.
Dependent on that sustaining this head count parse through to next year.
Awesome. Thank you so much.
And our next question comes from Derrick Wood with Cowen.
Great. Thanks for taking my questions Bill I wanted to start asking about pricing and packaging I think one of the changes you made last year was the diverse to diversify away from platform sales fell a bit more on a modular basis and just from a sales standpoint and try to be more precise with use cases.
Has there been any any kind of material change in terms of how you are selling your various products and what are the net effect is to think about one well.
Looking at the impact on sales cycles and deal sizes.
Action volumes and all that when we're looking into the new year.
Yes, I break this down in a couple of ways. One is that we've been preparing the product for this and I think that that's really important both in the near term for all the all the things you just referenced but also in the long term because as part of our start anywhere go everywhere framework, we want to have customers have more and more places where they can get going.
And you know that in the future could include channel and platform or channel and kind of customer touch point pairings that you know that we don't even currently sell today and so we're excited to see that continue that we're basically setting the stage for us to be able to do that into the future I don't you shouldn't expect to see that much of a call. It a S. P change we ask.
We had an increase in ASP you heading into Q4 I mean, you can you can kind of drive those numbers, obviously from from what we've already shared and it and we do have instances where customers are certainly buying a narrower set of entitlements, but we also have that vendor consolidation trend that's happening, which is obviously pushing in the other direction and so when you.
<unk> kind of net those things out I wouldn't expect to see a material changes in what youre seeing in terms of average deal size of these motions, but what it is doing for us is expanding our addressable market and it's going to be able to do it more easily.
Yes that makes sense.
One is bill for you on net revenue retention rate and just kind of thinking about directional trends it sounds like you'd probably be expecting.
Some more pressure on that with respect to how you guided but just.
You guys are a bit unique out there you've got a pretty diversified pricing model other companies.
There's companies with seat based licensing models that are seen pressure because of head count growth theres other companies with consumption models.
<unk> seen pressure because of optimization again, you guys are much more diversified do you think that lens.
The more durability and net expansion rates and I guess, if not you know what.
What parts of the model could come under more pressure given given the macro trends.
So thanks for the question, so I think and I'll point to is kind of the greater than $500000 spenders, which typically are so that some of these larger.
Multifaceted enterprises and a good bit of the upsell motion that happens with those organizations is actually a go to market motion that looks a lot like net new business. So it is all our salespeople trying to access new logos within existing parent organization that is new stakeholder as new budgets.
It's an entirely new sales cycle that behave a lot like trying to acquire a net new organization.
And I think that's where you're going to see continued pressure and where that behaves just like net new business and were you know that's a that is going to continue to be under pressure and and and work against us in terms of the evolution of the dollar based net retention, particularly for those those large centers in fact, youre starting to see kind of the total company and the large guys kind of started to compress.
In terms of the distance I will say that in the context of the guide we are certainly embedding in the guide an assumption that there is more air to come out of the balloon and so I think you're you're correct there and that that is absolutely assumed in the context of the guide from a conservatism perspective.
Yeah. Okay. That's helpful. Thank you.
And our next question comes from Scott Berg with Needham.
Hi, everyone. Thanks for taking my questions.
Isabel and wanted to see if you can.
The linearity of sales in the quarter. Your Q1 guide kind of suggests the minimal sequential increase from Q4, which suggest maybe a more front end weighted quarter than backend, but just wanted to see if you had any commentary around that thank you.
Yeah. So we have been evolving into kind of continually more actually backend loaded Q4 was was fairly backend loaded in fact, we are we're actually pretty proud of even our last day of the quarter and had operationally a lot of great success in pushing through quite a bit of business on the last day of the quarter. So that was a great success.
Sort of internally from operational perspective, but we are continuing to see a back end loaded a quarter or so under normal circumstances. It would be about 50% of the net bookings get done in the third month.
And we're seeing that trend upward.
Got it helpful. And then from a follow up perspective, just wanted to see if you all can comment maybe on the expansion activity in the quarter did did the type of expansion activity change at all maybe from a I don't know new channels new.
New different types of usage or was it really more just expansions on existing implementations customers rabbit. Thank you yeah. I know, it's it's there's been no sort of dramatic change in any of that ethanol continues to be sort of on a smaller base. So we're seeing you know continued strong growth there but.
But otherwise across our various channels and platform items are the the growth has been relatively good.
Distributed and in similar fashion to prior quarters.
Great. Thanks for taking my questions.
And our next question comes from Pat Walraven with JMP Securities.
Oh, great. Thank you Hey, Bill we're going to go a little a field here.
This future of life pause letter.
Did you sign it would you sign it what are your thoughts.
I was preparing for earnings and so I didnt dig into that yesterday, but I definitely think that we with all technology that could that could go either way in terms of being helpful or becoming dangerous that we should be responsible around the development of it I think that raises a place that's always been really measure at about what.
AI is capable of and where we should trust it I talked about that earlier in the sense that you know when you're interacting with first party data and first party relationships. The bars, just a lot higher for when we should go and trusts the AI and <unk>.
<unk> you.
You've seen that Braves has never been one to promise a magic black box. It's all it's all your problems, but it's definitely an exciting time for AI development I think we need to continue to be mature and responsible about how we do it I think that there should be more openness in terms of how these large models are being trained what kinds of rule sets are.
Being applied to them what kinds of data sets are going into them and you know I think that without additional transparency, it's going to be hard to trust. The continued development of it and so I I definitely support continuing to put pressure on this ecosystem, but it's not something that we should allow it to just like run unchecked.
Great. Thank you.
Yeah.
Yeah.
And our next question comes from Vijay <unk> with J P. Morgan.
Oh, Great, Hey, Hey, guys.
One just one question for me.
You're assuming it seems like a deviating degradation in the inbound macro environment in.
In the guidance I wanted to ask you. If you saw the macro headwinds intensify through the quarter or towards the end of the quarter or through Q1, so far.
So we haven't necessarily seen things getting worse in Q1 other than some of the disruption that we're seeing are that one could expect as a result of the most recent sort of banking uncertainty.
That obviously will have impacts on potential buyer behavior.
But we're not necessarily seeing anything more negative in Q1, specifically.
Got it thank you very much.
And our next question comes from Hana Rudolph with Piper Sandler.
Hi, Thanks for taking my questions today first one for you Bill you touched on this earlier, but can you just talk about what you're seeing in terms of adoption from outside of marketing such as data engineers and product teams and what youre doing to kind of encourage adoption from those users.
Yeah, absolutely we've been really encouraged to see just how the interdisciplinary nature of the teams that use brain has been you know year over year has continued to increase and we've been excited to see more users coming to the Braves dashboard accomplishing more use cases, you heard us announce feature flags as well back at forge and so.
That's been bringing more product engineering teams into the fold and so when we look at things like our data in Russia, and a lot of the work that's being done around data transformation, bringing <unk> into the fold the expansions to the product catalog capabilities as well as I referenced earlier that you know there are subsets of the artificial intelligence feature set that we're building that.
Do require being some sophistication in terms of how you train it how it learns how you nurtured over time, which does end up bringing more data scientists into the fold and so we're we're definitely I, we're understanding of our position right now and we're not like rushing to go and try to sell directly to those personas them, but we think there.
There's a tremendous amount of value to be had around bringing those personas into the phrase fold I'm, having them collaborating with the marketer in the marketing budget that we are selling into today that increases our awareness and our reputation in those groups and we think it creates a lot of great optionality for us in the future.
Super Helpful. And then can you just talk about the feedback and adoption for cloud data ingestion program, and how that's trended and remind us when that SGA yeah.
Yeah, absolutely so actually to answer your last question first we actually had a snowflake go into J on February 7th and Excitingly Redshift went into early access on the same day and so actually the product momentum there has been quite rapid.
Also are off to a strong start in terms of customer adoption. We've got an early wave of customers actively thinking data from their warehouse Abrase, we're already I'm counting the number of data points with units of 1 billion, which is exciting to see especially in the early days. We've also been really happy with how quickly people have been able to get those connectors up and running and any.
Greater than configured and you should also expect much like with our launch occurrence that we will plan to roll out a few more connectors to cover the most popular data warehousing solutions in our customer base. You know, we're not going to try to build 100 cloud data ingestion connectors or anything like that because we're tightly integrated also with reversed T L and CDP partners and so you know once we have come.
Our bases with some of these more popular data warehousing solutions. We then we'll switch to refocusing on tightening the vertical integration and the Braves are with those partners as well as with our own cloud data ingestion product.
Great. Thank you.
And our next question comes from Yun Kim with loop capital.
Great. Thank you.
With the new year anything you are changing your go to market motion to better to show better execution or just just to execute in the current environment.
Hum.
So when you say youre, making and then also any particular focus this year in your Oh, yes.
Yes, we've been really happy with the investments we've been making across our go to market strategy operations as well as across all the field teams theres been a lot of moving parts from the summer through November and we spoke about those in the last couple earnings calls and so you know not a lot of big changes being made as we enter the new year, because we were really preparing for this year already in advance them all.
Say that you know the programs have been running really well our annual kick off in early February you know, we executed on that right away as we started our new fiscal year and it was super productive great feedback across the board and also one of the benefits of the net new hiring slowdown is that it's taken a little bit of pressure off the system and we've been able to focus on enabling a group with increasing average tenure.
And so that's been giving us a lot of.
A lot of Optionality to focus in on more advanced topics and we've been happy with how those investments are ongoing.
Okay, Great and then if you can give us update on the traction with the partners.
How's that progressing.
Especially in the current environment.
Hum.
No great partnership and what's that integration.
Have dose.
Being a key driver.
Driving incremental traction with DSI.
Yeah. So I mean, obviously point to the announcements we made about the partnership with W. P. P. Yesterday, we're really excited about that and think it has a lot of potential in the future. Both from a consolidated product development standpoint, as well as coordinated go to market activity. We're also continuing to make great progress with the global systems integrators like Accenture and Deloitte.
And then you referenced a few technology partners that have been really important as we've been doing codevelopment like with cloud data ingestion with snowflake and obviously the launch of a whatsapp with meta and so these are all places, where we're leveraging and taking advantage of partnerships and I would just connect all of that back to the commentary that I made early on in the call where you know polity.
<unk> I'm really excited about all of these things are happening that are enhancing our position where I'm taking advantage of this opportunity to really go in cement really strong partnerships around our ecosystem. We're backing it up with you know with investment that we're making both from a product perspective as well as on the go to market side, you know quantitatively, obviously, the macro is impacting everyone and so.
We don't think that those partnerships are operating at their full potential right now from a overall dollars perspective, but what we're doing is building out the qualitative aspects of them that are going to provide the right foundations such that when the macro improves later on that we're going to be ready to really accelerate.
In partnership with all of them.
Okay, great. Thank you so much.
And our next question comes from Matt than light with BTG.
Hey, good afternoon, and thanks for taking my question I.
I guess is it really.
You mentioned in the guide you're essentially assuming no major improvements to sales productivity, although with the pause in hiring and what Bill was just talking about with the extended tenure of the sales team I think that was sort of the assumption for most of us at least that sales productivity will continue to improve throughout the year. So maybe this is <unk>.
Think about what what's giving you that pause or at least the level of conservatism on that front.
And anything that you can share kind of influencing that that we might watch to see if you're outperforming.
Yeah. So thanks for that so I think it's really just a way to kind of moderate or our view of what the right level of current investment is in the business and we wanted to wait to see more signs of kind of acceleration.
In the net new business environment, and our ability to kind of continue to sort of strongly upsell. Among these are enterprise customers and accessories for net new logos within the existing organization and we're waiting to see sort of a little bit more kind of acceleration there and so I I before I am willing to sort of incorporate that into the guide are we.
We'd like to to to get a little bit more time within this year to see how the macro is going to play out there's still a lot of uncertainty and we just think it's prudent we've always approached to guide very prudently and so we just believe it's prudent in the context of the guide to make that assumption that the sales productivity will have <unk>.
Limited improvement and then we hope to surprise to the upside.
Okay very helpful. And then when you look at it.
The potential rationale for easing the hiring pause you mentioned high level 25 is not yet assuming that pause continues.
Are you looking at it more on a time based element or are you going to wait for the macro to improve or are there certain internal kpis that would give you confidence that you know maybe it's time to start hiring a.
A little bit more aggressively and sort of additive to go to market in particular.
Most of our head count infrastructure.
Is fairly model driven.
And so what we do and we are consistently evaluating this is evaluating the algorithms to the models. The inputs and then what that would say in terms of head count requirements to support the needs of the business around the organization and so we can we do that consistently with you very regularly for four to five times a year in a very structured fashion.
And so we will continue to evaluate the inputs of the overall business growth business size.
And make those decisions around increasing the overall size of the head count as a result of how those algorithms play out.
Alright, great. Thank you.
There are no more questions in the queue. So I will now pass the call back to Bill for closing remarks.
Alright, we are right at time, so thank you to everyone for joining US today, we remain committed to delivering industry, leading customer engagement solutions for our customers and high growth at scale for our shareholders and are looking forward to updating you on that progress in the coming quarters.