# Braze, Inc. (BRZE) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Braze, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1676238/000167623822000005/brze-20220131.htm
Accession: 0001676238-22-000005
Filing date: 2022-03-31
Report date: 2022-01-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BRZE/
All MD&A years: /company/BRZE/mda/
Next year: /company/BRZE/mda/fy2023/ (FY 2023)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth under the section entitled “Risk Factors” in Item 1A of Part II of this Annual Report on Form 10-K. See “Special Note Regarding Forward Looking Statements” in this Annual Report on Form 10-K.

Overview

Braze is a leading comprehensive customer engagement platform that powers customer-centric interactions between consumers and brands. Our platform empowers brands to listen to their customers better, understand them more deeply, and act on that understanding in a way that is human and personal. Using our platform, brands ingest and process customer data in real time, orchestrate and optimize contextually relevant, cross-channel marketing campaigns, and continuously evolve their customer engagement strategies.

Our customers include many established global enterprises and leading technology innovators, and span a wide variety of sizes and industries, including retail, eCommerce, media, entertainment and on-demand services.

We primarily generate revenue from the sale of subscriptions to customers for the use of our platform. Our subscription fees are principally based on an upfront commitment by our customers for a specific number of monthly active users, on a cost-per-message basis for volume of email and/or SMS messages sent, platform access and/or support and certain add-on products. Additionally, we provide professional services, which better enable customers to successfully onboard and use our platform, including certain premium professional services such as email deliverability support and dedicated technical support staff.

We employ a land-and-expand business model centered around offering products that are easy to adopt and have a rapid time to value. We expand our reach within existing customers when our customers add new channels, purchase additional

47

Table of Contents

subscription products such as Braze Currents, implement new engagement strategies, or onboard new business units and geographies. We also grow as our customers grow because our pricing is based in large part on the number of consumers that our customers reach and the volume of messages our customers send. Accordingly, as our customers increase the use of our platform and increase the number of end users reached via our platform, the value of our contracts with such customers also increases.

We have grown significantly in recent periods. We generated revenue of $238.0 million, $150.2 million, and $96.4 million in the fiscal years ended January 31, 2022, 2021, and 2020, respectively, representing year-over-year growth of 58% from the fiscal years ended January 31, 2021 to January 31, 2022 and 56% from the fiscal year ended January 31, 2020 to January 31, 2021. We had net losses of $78.2 million, $32.0 million and $31.8 million, in the fiscal years ended January 31, 2022, 2021, and 2020, respectively. We had net cash used in operating activities of $35.4 million, $6.1 million, and $7.4 million in the fiscal years ended January 31, 2022, 2021, and 2020, respectively. Our Non-GAAP free cash flow was $(39.8) million, $(9.9) million and $(10.4) million in the fiscal years ended January 31, 2022, 2021, and 2020, respectively. See the section titled “— Non-GAAP Free Cash Flow” for additional information about how we calculate free cash flow, a non-GAAP financial metric, and a reconciliation to net cash used in operating activities, the most directly comparable measure calculated in accordance with accounting principles generally accepted in the United States, or GAAP.

Factors Affecting Our Performance

Acquiring New Customers

We believe there is substantial opportunity to continue to grow our customer base. We intend to continue to expand our customer base in verticals where we already have a strong presence, such as retail, eCommerce, media, entertainment and on-demand services, and to increase our presence in verticals where we are not yet strongly represented. Through our sales and marketing efforts, we plan to capitalize on the ongoing digital transformation in regulated industries like healthcare and financial services to further propel adoption of our technology. As of January 31, 2022, we had 1,375 customers across a broad range of sizes and industries. Our ability to attract new customers will depend on a number of factors, including the quality and pricing of our products, offerings of our competitors and the effectiveness of our marketing efforts.

We define a customer as the separate and distinct, ultimate parent-level entity that has an active subscription with us to use our products. A single organization could have multiple distinct contracting divisions or subsidiaries, all of which together would be considered a single customer.

Expanding Within Our Existing Customer Base

We believe we can achieve significant growth by expanding sales within our existing customer base. We expand the use of our platform by existing customers by, among others, adding new channels and increasing the messaging volume we sell to our customers as their businesses and needs continue to grow. We intend to continue to invest in developing and enhancing our products and functionality. Our ability to increase sales to existing customers will depend on a number of factors, including our customers’ satisfaction with our solutions, the ability of our customers to attract new end users, competition, pricing and overall changes in our customers’ spending levels.

Historically, we have experienced significant expansion within a customer’s business once our platform is deployed, with customers typically increasing the number of monthly active users, channels and use cases as well as purchasing additional products. A monthly active user is an end user of a customer who has engaged with the customer’s applications and websites in the previous calendar month. We include each distinguishable end user in our calculation of monthly active users, even though some users may access our customers’ applications and websites using more than one device, and multiple users may gain access using the same device. As of January 31, 2022, we had approximately 3.7 billion monthly active users, up from approximately 3.0 billion monthly active users as of January 31, 2021. Currently, our in-product messaging channels consist of Content Cards, which embed personalized content into a brand’s website or application, and in-app and in-browser messages. Our out-of-product channels include, but are not limited to, mobile push notifications, web push notifications, email, SMS and MMS messages, webhooks, Facebook and Google advertisements and multiple over-the-top media services and connected TV channels.

In addition to monthly active users, we have a history of increasing annual recurring revenue, or ARR, from our customers. We define ARR as the annualized value of customer subscription contracts, including certain premium professional services that are subject to contractual subscription terms, as of the measurement date, assuming any contract that expires during the next 12 months is renewed on its existing terms (including contracts for which we are negotiating a renewal). Our

48

Table of Contents

calculation of ARR is not adjusted for the impact of any known or projected future events (such as customer cancellations, expansion or contraction of existing customers relationships or price increases or decreases) that may cause any such contract not to be renewed on its existing terms. Our ARR may decline or fluctuate as a result of a number of factors, including customers’ satisfaction or dissatisfaction with our products and professional services, pricing, competitive offerings, economic conditions or overall changes in our customers’ spending levels. ARR should be viewed independently of revenue and does not represent our GAAP revenue on an annualized basis or a forecast of revenue, as it is an operating metric that can be impacted by contract start and end dates and renewal rates.

For clarity, we use annualized invoiced amounts per customer subscription contract, including certain premium professional services that are subject to contractual subscription terms, as compared to revenue calculated in accordance with GAAP, to calculate our ARR. Our invoiced amounts are not matched to the performance obligations associated with the underlying subscription contract and premium professional service obligations as they are with respect to our GAAP revenue. This can result in timing differences between our GAAP revenue and ARR calculations. For our revenue calculated in accordance with GAAP, we recognize revenue related to contracts with customers in an amount that reflects the consideration to which we expect to be entitled in exchange for subscription and professional services. See the section titled “— Critical Accounting Policies and Estimates” for additional information regarding how we recognize revenue on a GAAP basis. Investors should not place undue reliance on ARR as an indicator of our future or expected results. Moreover, ARR may differ from similarly titled metrics presented by other companies and may not be comparable to such other metrics.

A further indication of the propensity of our customer relationships to expand over time is our dollar-based net retention rate. We calculate our dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period-end, or the Prior Period ARR. We then calculate the ARR from these same customers as of the current period-end, or the Current Period ARR. Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the point-in-time dollar-based net retention rate. We then calculate the weighted average point-in-time dollar-based net retention rates as of the last day of each month in the current trailing 12-month period to arrive at the dollar-based net retention rate. Our dollar-based net retention rate for the trailing 12 months ended January 31, 2022, 2021, and 2020, was 128%, 123%, and 126% respectively, for all our customers, and 136%, 133%, and 127%, respectively, for our customers with ARR of $500,000 or more. In addition, 107, 71, and 45 of our customers had ARR of $500,000 or more as of January 31, 2022, 2021, and 2020, respectively.

Expanding Geographically

We believe there is a significant opportunity to continue to expand our presence in international markets we have already penetrated and by entering markets we have not yet penetrated. For the fiscal years ended January 31, 2022, 2021, and 2020, approximately 40%, 40%, and 39%, of our revenue was generated outside of the United States, respectively. We expect to increase market penetration in regions including Europe and Asia-Pacific and to further capitalize on the greenfield opportunity in regions such as Latin America. For example, in the second half of fiscal year 2021, we entered into a joint venture with our partner Japan Cloud Computing Co., Ltd., to facilitate further expansion into the Japanese market. Although these investments in geographic regions may negatively affect our operating results in the near term, we believe that they will contribute to our long-term growth.

Sustaining Innovation and Technology Leadership

Our success is dependent on our ability to sustain innovation and technology leadership in order to maintain our competitive advantage. We are focused on investing in research and development to continue to enhance our platform. For example, we continue to develop our artificial intelligence capabilities to enable brands to better analyze and act on customer data. We believe our market-driven product development approach maximizes the return on new feature development and channel expansion. Our customers consistently volunteer to participate in the testing of new products, which indicates their appetite for new and innovative functionality. We believe our continued innovation will provide new avenues for growth through which we will continue to deliver differentiated outcomes for our customers. We intend to continue to invest in building additional products that expand our capabilities and facilitate the extension of our platform to new channels and use cases.

Impact of COVID-19 on Our Business

Beginning in January 2020, the COVID-19 pandemic caused general business disruption worldwide. In response to the spread of COVID-19, including the emergence of new variant strains of COVID-19, a significant portion of our employees

49

Table of Contents

currently work remotely to minimize the risk of the virus to our employees and the communities in which we operate, and we may continue to take actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners.

While we do not believe our results of operations, cash flows and financial condition have been materially impacted due to the COVID-19 pandemic to date, we have experienced, and may continue to experience, a modest adverse impact on certain aspects of our business, including a lengthening of the sales cycle for some prospective customers. We have also experienced, and may continue to experience, a modest positive impact on other aspects of our business, including an increase in the volume of messaging utilized by our existing customers. Moreover, we have seen slower growth in certain operating expenses due to reduced business travel, the virtualization or cancellation of customer and employee events and reduced lease obligations. While a reduction in these operating expenses may have an immediate positive impact on our results of operations, we do not yet have visibility into the full impact this will have on our business and we do not know if or when these expenses will return to pre-pandemic levels, which could negatively impact our results of operations in the future.

Certain of our customers negatively impacted by the spread of COVID-19 decreased or delayed their spending, requested pricing discounts, requested modified payment terms or sought to reduce their commitments when renewing subscriptions, and they may continue to do so, any of which may result in decreased revenue and cash receipts for us. Our customers that were positively impacted by increased demand during the COVID-19 pandemic may have similar requests or experience similar issues if this increased demand does not continue in the recovery from the COVID-19 pandemic.

Additionally, we cannot predict what, if any, changes to our business and the global economy generally will persist following the COVID-19 pandemic or how our business or the global economy will be impacted as restrictions on in-person activities are relaxed and the world returns to pre-pandemic normalcy. Given the uncertainty, we cannot reasonably estimate the impact on our future results of operations, cash flows or financial condition. For additional details, see the section titled “Risk Factors.”

Components of Results of Operations

Revenue

Revenue is derived from two primary sources: (1) subscription services and (2) professional services and other.

Subscription services primarily consist of access to our customer engagement platform and related customer support. Our customers enter into a subscription for committed contractual entitlements. To the extent that our customers’ usage exceeds the committed contractual entitlements under their subscription plans, they are charged for excess usage, or they may exercise an option to purchase an incremental volume tier of committed contractual entitlements. Revenue associated with platform subscriptions is recognized ratably over the contract term, which is consistent with the period over which services are provided to the customer. Fees associated with excess usage and incremental volume are also treated as subscription revenue. To date, fees associated with excess usage have not been material.

Professional services and other revenue consists of fees for distinct services rendered in training and assisting our customers to configure our platform for their use at the onset of their initial contract or when a new product is purchased. Such revenue is generally recognized over a period of up to six months from providing access to the platform. We also provide additional platform and feature enhancement and optimization services which are generally recognized ratably over the contract term.

Deferred revenue consists of customer billings in advance of revenue being recognized. We generally invoice our customers for subscription services arrangements annually in advance and for professional services upfront.

Cost of Revenue

Cost of revenue consists of direct costs related to providing platform access to our customers and to performing onboarding and professional services including consulting services. These costs primarily include payments to third-party cloud infrastructure providers for hosting software solutions, costs associated with application service providers utilized to deliver the platform, personnel-related costs, including salaries, cash-based performance compensation, benefits and stock-based compensation, and overhead cost allocations, including rent, utilities, depreciation, information technology costs, amortization of internal use software and certain administrative personnel costs.

50

Table of Contents

We intend to continue to invest additional resources in our platform infrastructure and our customer support and success organizations to expand the capabilities of our platform. The level, timing and relative investment in our infrastructure could affect our cost of revenue in the future. We expect our cost of revenue to increase for the foreseeable future as we continue to grow our business.

Gross Profit and Gross Margin

Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue and cost of revenue fluctuates, including as a result of the timing and amount of resources we dedicate to improving our platform and expanding our products.

Operating Expenses

Our operating expenses consist of sales and marketing, research and development and general and administrative expenses. Personnel costs, including salaries, cash-based performance compensation, benefits and stock-based compensation, are the most significant component of operating expenses. Operating expenses also include allocated overhead costs, which include rent, utilities, depreciation, information technology costs and certain administrative personnel costs. As we continue to expand our operations, we expect an increase in personnel headcount and expansion of our global footprint.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs for our sales and marketing organization, sales commissions, costs related to brand awareness, sponsorships, customer marketing events and advertising, agency costs, travel-related expenses and allocated overhead costs.

We intend to continue to invest in sales and marketing to help drive the growth of our business. During the short term, we expect travel to remain lower than our historical pre-pandemic norms as we focus our marketing and sales activities on virtual platforms. However, we expect our sales and marketing expenses will increase in absolute dollars as we continue to invest in sales and marketing activities to acquire new customers and increase sales to existing customers.

Research and Development

Research and development expenses consist primarily of personnel costs for our engineering, service, design and information technology teams. Additionally, research and development expenses include allocated overhead costs and contractor fees. Research and development costs are expensed as incurred. Capitalized internal-use software development costs are excluded from research and development expenses as they are capitalized as a component of property and equipment, net and amortized to cost of revenue over the software’s expected useful life, which is generally three years.

We expect to continue our investment in research and development to enhance the user experience of our current customers and attract new customers. We expect research and development expenses to increase in absolute dollars as we continue to invest in enhancing our platform.

General and Administrative

General and administrative expenses consist primarily of personnel costs for finance, legal, human resources and other administrative functions, as well as non-personnel costs such as legal, accounting and other professional service fees, software costs, certain tax, license and insurance-related expenses and allocated overhead costs.

We expect that general and administrative expenses will increase in absolute dollars and vary from period to period as a percentage of revenue for the foreseeable future but decrease as a percentage of revenue over the long term, as we focus on processes, systems, and controls to enable our internal support functions to scale with the growth of our business. We expect to incur additional expenses as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on The Nasdaq Stock Market LLC, expenses related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and higher expenses for directors’ and officers’ insurance, investor relations and professional services.

Investment Income

51

Table of Contents

Investment income consists primarily of income earned on our investments, cash and cash equivalents and restricted cash.

Other Income (Expense), Net

Other income (expense), net, primarily consists of net exchange gains or losses on foreign currency transactions.

Provision for Income Taxes

Provision for income taxes consists of state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.

Results of Operations

The following table sets forth our consolidated statement of operations data for each of the periods indicated:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2022","","2021","","2020"],["","(in thousands)"],["Revenue","$","238,035","","","$","150,191","","","$","96,364"],["Cost of revenue (1)","78,511","","","54,511","","","35,686"],["Gross profit","159,524","","","95,680","","","60,678"],["Operating expenses:"],["Sales and marketing (1)","127,137","","","70,661","","","57,348"],["Research and development (1)","59,034","","","29,212","","","20,339"],["General and administrative (1)","51,564","","","27,959","","","16,524"],["Total operating expenses","237,735","","","127,832","","","94,211"],["Loss from operations","(78,211)","","","(32,152)","","","(33,533)"],["Other income (expense):"],["Investment income","137","","","840","","","2,127"],["Other (expense) income, net","(258)","","","(120)","","","48"],["Loss before provision for income taxes","(78,332)","","","(31,432)","","","(31,358)"],["(Benefit from) provision for income taxes","(165)","","","537","","","452"],["Net loss","$","(78,167)","","","$","(31,969)","","","$","(31,810)"]]
[[/GREPCENT_TABLE]]

(1) Includes stock-based compensation expense, net of amounts capitalized as follows:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2022","","2021","","2020"],["","(in thousands)"],["Cost of revenue","$","2,185","","","$","650","","","$","276"],["Sales and marketing","16,281","","","2,892","","","6,365"],["Research and development","15,613","","","2,102","","","3,705"],["General and administrative","13,101","","","1,896","","","2,062"],["Total","$","47,180","","","$","7,540","","","$","12,408"]]
[[/GREPCENT_TABLE]]

The following table sets forth our consolidated statement of operations data expressed as a percentage of revenue for each of the periods indicated:

52

Table of Contents

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2022","","2021","","2020"],["","(as a percentage of revenue)"],["Revenue","100","%","","100","%","","100","%"],["Cost of revenue","33","%","","36","%","","37","%"],["Gross profit","67","%","","64","%","","63","%"],["Operating expenses:"],["Sales and marketing","53","%","","47","%","","60","%"],["Research and development","25","%","","19","%","","21","%"],["General and administrative","22","%","","19","%","","17","%"],["Total operating expenses","100","%","","85","%","","98","%"],["Loss from operations","(33)","%","","(21)","%","","(35)","%"],["Other income (expense):"],["Investment income","\u2014","%","","1","%","","2","%"],["Other (expense) income, net","\u2014","%","","\u2014","%","","\u2014","%"],["Loss before (benefit of) provision for income taxes","(33)","%","","(20)","%","","(33)","%"],["(Benefit of) provision for income taxes","\u2014","%","","\u2014","%","","\u2014","%"],["Net loss","(33)","%","","20","%","","(33)","%"]]
[[/GREPCENT_TABLE]]

Comparison of the Fiscal Years Ended January 31, 2022 and January 31, 2021

Revenue

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2022","","2021","","Change","","% Change"],["","($ in thousands)"],["Revenue","$","238,035","","","$","150,191","","","$","87,844","","","58.5","%"]]
[[/GREPCENT_TABLE]]

The increase in revenue of $87.8 million, or 58.5%, for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021 was primarily driven by an $80.6 million or 57.1% increase in subscription revenue. Approximately 62.0% of the increase in subscription revenue was attributable to the growth from existing customers due to customer expansion of committed entitlements and features, and the remaining 38.0% was attributable to new customers. Total customers grew to 1,375 as of January 31, 2022 from 890 as of January 31, 2021. The increase in total customers was the primary driver of a $7.2 million or 79.4% increase in professional services revenue from configuration services provided to those new customers. Additionally, in the fiscal year ended January 31, 2022 our international revenue increased by $35.7 million as we continue to expand market penetration in regions such as Europe and Asia-Pacific.

Cost of Revenue, Gross Profit and Gross Margin

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2022","","2021","","Change","","% Change"],["","($ in thousands)"],["Cost of revenue","$","78,511","","$","54,511","","$","24,000","","","44.0","%"],["Gross profit","$","159,524","","$","95,680","","$","63,844","","","66.7","%"],["Gross margin","67.0","%","","63.7","%"]]
[[/GREPCENT_TABLE]]

The increase in cost of revenue of $24.0 million, or 44.0%, for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021 was primarily driven by an increase of $11.0 million in hosting, infrastructure, and other third-party fees associated with delivering our platform and an $8.1 million increase in third-party messaging fees associated with growth in our email and SMS channels. In addition, we had an increase in personnel costs and overhead costs of $4.2 million. The increased infrastructure, messaging, and personnel costs were incurred to support overall revenue growth.

53

Table of Contents

Our gross profit increased $63.8 million, or 66.7%, in the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021, and our gross margin increased by 3.3% to 67.0% in the fiscal year ended January 31, 2022 from 63.7% in the fiscal year ended January 31, 2021. These increases were due to economies of scale as our infrastructure costs to support our revenue growth did not increase at the same pace as our revenue. In addition, we have undertaken initiatives to optimize the costs of our tech stack and drive personnel efficiencies related to customer support functions.

Operating Expenses

Sales and Marketing Expense

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2022","","2021","","Change","","% Change"],["","($ in thousands)"],["Sales and marketing","$","127,137","","","$","70,661","","","$","56,476","","","79.9","%"]]
[[/GREPCENT_TABLE]]

The increase in sales and marketing expense of $56.5 million, or 79.9%, for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021 was primarily driven by an increase in personnel costs and overhead costs of $42.4 million, which included $13.4 million of stock-based compensation costs, as a result of a year-over-year increase in headcount, and an increase in software and recruiting fees of $2.1 million as we continue to expand our sales and marketing presences globally. Additionally, the increase was driven in part by an increase in amortization of deferred contract costs of $6.4 million as a result of sales growth, an increase of $0.7 million in travel and entertainment costs due to the loosening of COVID-19 travel and event restrictions, and an increase in advertising and marketing costs of $4.1 million.

Research and Development Expense

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2022","","2021","","Change","","% Change"],["","($ in thousands)"],["Research and development","$","59,034","","","$","29,212","","","$","29,822","","","102.1","%"]]
[[/GREPCENT_TABLE]]

The increase in research and development expense of $29.8 million, or 102.1%, for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021 was primarily driven by an increase of personnel and overhead costs of $27.2 million, which included $13.5 million of stock-based compensation costs. The increase in personnel costs was primarily due to a year-over-year increase in headcount. In addition, professional service fees increased $1.0 million and infrastructure and software costs increased $0.8 million as part of our strategy to continue investing in our technology and to develop new and improve existing functionalities for our platform.

General and Administrative Expense

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2022","","2021","","Change","","% Change"],["","($ in thousands)"],["General and administrative","$","51,564","","","$","27,959","","","$","23,605","","","84.4","%"]]
[[/GREPCENT_TABLE]]

The increase in general and administrative expenses of $23.6 million, or 84.4%, for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021 was primarily driven by an increase in personnel and overhead costs of $20.9 million, which included $11.2 million of stock-based compensation costs. The increase in personnel costs was primarily due to a year-over-year increase in headcount as we continue to invest in our finance and administrative functions to build processes, systems, and controls to enable our internal support functions to scale with the growth of our business. In

54

Table of Contents

addition, there was an increase in software costs of $1.6 million incurred in connection with our public company readiness initiatives, including investments in our infrastructure to support our operations.

Other Income (Expense)

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2022","","2021","","Change","","% Change"],["","($ in thousands)"],["Investment income","$","137","","","$","840","","","$","(703)","","","(83.7)","%"],["Other (expense) income, net","$","(258)","","","$","(120)","","","$","(138)","","","115.0","%"]]
[[/GREPCENT_TABLE]]

Other income (expense), which primarily consists of gains and losses from foreign exchange and investment income from marketable securities, decreased primarily due to a reduction in marketable securities and investments with a shorter time to maturity.

Liquidity and Capital Resources

Sources of Funds

As of January 31, 2022, our principal source of liquidity was cash, cash equivalents and marketable securities of $518.1 million. Our cash and cash equivalents consist of deposit accounts, interest-bearing money market accounts and overnight short-term repurchase agreements that are stated at fair value. Our marketable securities positions consists mostly of highly liquid short-term investments. The investment income that we generate on these investments is not material to our overall cash balance, but may be adversely affected due to volatility in interest rates.

In November 2021, we closed our initial public offering through which we issued and sold 7,500,000 shares of our Class A common stock at an offering price of $65.00 per share, including 800,000 shares pursuant to the underwriters’ overallotment option to purchase additional shares of our Class A common stock, resulting in aggregate net proceeds to us of $456.8 million after deducting underwriting discounts and commissions and related offering expenses.

Since our inception, we have financed our operations primarily through the net proceeds received from the sales of equity securities and cash generated from the sale of subscriptions to our platform. We have generated losses from our operations as reflected in our accumulated deficit of $215.0 million as of January 31, 2022, and cash flows used in operating activities for the fiscal year ended January 31, 2022 of $35.4 million.

A substantial source of our cash used in operating activities is our deferred revenue, which is included on our consolidated balance sheets as a liability. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recorded as revenue over the term of the subscription agreement. As of January 31, 2022, we had total deferred revenue of $126.3 million of which substantially all was recorded as a current liability. Deferred revenue will be recognized as revenue when all of the revenue recognition criteria are met.

Cash Flow Overview

The following table summarizes our cash flows for the periods presented:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2022","","2021","","2020"],["","(in thousands)"],["Net cash used in operating activities","$","(35,398)","","","$","(6,080)","","","$","(7,365)"],["Net cash provided by/(used in) investing activities","$","18,040","","","$","22,472","","","$","(87,234)"],["Net cash provided by financing activities","$","467,910","","","$","4,866","","","$","1,257"]]
[[/GREPCENT_TABLE]]

Operating Activities

For the fiscal year ended January 31, 2022, net cash used in operating activities was $35.4 million, primarily due to a net loss of $78.2 million adjusted for non-cash charges of $68.4 million and net changes in our operating assets and liabilities of $25.7 million. The non-cash adjustments primarily relate to stock-based compensation of $47.2 million, amortization of deferred contract costs of $17.7 million and depreciation and amortization expense of $2.8 million. The cash outflow from

55

Table of Contents

changes in our operating assets and liabilities were primarily due to an increase in deferred contract costs and accounts receivable of $32.0 million and $29.8 million, respectively, as a result of commissions and billings for new bookings and renewals and prepaid expense and other current assets of $17.5 million due to prepayments for third-party software fees, primarily consisting of hosting arrangements. The cash outflow was offset by cash inflows primarily from an increase in deferred revenue of $51.5 million, as a result of increased billings driven by timing of subscriptions and renewals and an increase in total bookings, and an overall increase in accrued expenses and other current liabilities of $6.0 million related to employee compensation costs.

For the fiscal year ended January 31, 2021, net cash used in operating activities was $6.1 million, primarily due to a net loss of $32.0 million adjusted for non-cash charges of $21.2 million and net changes in our operating assets and liabilities of $4.7 million. The non-cash adjustments primarily relate to stock-based compensation of $7.5 million, amortization of deferred contract costs of $10.6 million and depreciation and amortization expense of $1.6 million. The cash inflow from changes in our operating assets and liabilities was primarily the result of an increase of deferred revenue of $23.4 million due to timing of subscriptions and renewals and an overall increase in revenue and an increase in accrued expenses and other current liabilities of $13.8 million incurred to support the growth of the business. The increases were partially offset by an increase in accounts receivable and deferred contract costs of $12.4 million and of $20.0 million, respectively, due to increases in revenue.

Investing Activities

Net cash provided by investing activities was $18.0 million for the fiscal year ended January 31, 2022, primarily consisting of maturities of marketable securities of $59.3 million, partially offset by purchases of marketable securities of $36.9 million, purchases of property and equipment of $2.3 million and capitalized internal-use software costs of $2.1 million.

Net cash provided by investing activities was $22.5 million for the fiscal year ended January 31, 2021, primarily consisting of maturities of marketable securities of $86.2 million, partially offset by purchases of marketable securities of $59.4 million and purchases of property and equipment and capitalized internal-use software costs of $2.5 million and $1.9 million, respectively.

Financing Activities

Net cash provided by financing activities was $467.9 million for the fiscal year ended January 31, 2022, primarily consisting of the proceeds from the issuance of common stock upon our initial public offering, net of underwriting discounts and offering costs of $457.1 million, proceeds from the exercise of common stock options of $8.4 million and an investment from our redeemable non-controlling interest in connection with our joint venture Braze KK of $2.5 million.

Net cash provided by financing activities was $4.9 million for the fiscal year ended January 31, 2021, primarily consisting of the proceeds from the exercise of common stock options of $2.8 million and an investment in our redeemable non-controlling interest in connection with our joint venture Braze KK of $2.5 million.

Non-GAAP Free Cash Flow

We report our financial results in accordance with GAAP. To supplement our consolidated financial statements, we provide investors with the amount of free cash flow, which is a non-GAAP financial measure. Our management uses free cash flow to assess our operating performance and our progress towards our goal of positive free cash flow. We define free cash flow as net cash used in operating activities less cash used for purchases of property and equipment and amounts capitalized for internal-use software development costs. We believe that free cash flow is a useful indicator of liquidity as it measures our ability to generate cash, or our need to access additional sources of cash, to fund operations and investments.

Free cash flow has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are (1) it is not a substitute for net cash used in operating activities, (2) other companies may calculate free cash flow or similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a tool for comparison, and (3) the utility of free cash flow is further limited as it does not reflect our future contractual commitments and does not represent the total increase or decrease in our cash balance for any given period.

The following table presents a reconciliation of free cash flow to net cash used in operating activities, the most directly comparable measure calculated in accordance with GAAP, for the periods presented:

56

Table of Contents

[[GREPCENT_TABLE]]
[["","","Fiscal Year Ended January 31,"],["","","2022","","2021","","2020"],["","","(in thousands)"],["Net cash used in operating activities","","$","(35,398)","","","$","(6,080)","","","$","(7,365)"],["Less:"],["Purchases of property and equipment","","(2,310)","","","(2,466)","","","(1,724)"],["Capitalized internal-use software costs","","(2,065)","","","(1,886)","","","(830)"],["Non-GAAP Free cash flow","","$","(39,773)","","","$","(10,432)","","","$","(9,919)"],["Net cash provided by (used in) investing activities","","$","18,040","","","$","22,472","","","$","(87,234)"],["Net cash provided by financing activities","","$","467,910","","","$","4,866","","","$","1,257"]]
[[/GREPCENT_TABLE]]

Our free cash flow decreased for the fiscal year ended January 31, 2022 from the fiscal year ended January 31, 2021, primarily as a result of continued investment in our sales and marketing function and in our infrastructure to support the growth of our business and our operations as a public company. We expect our free cash flow to fluctuate in future periods with changes in our operating expenses and as we continue to invest in our growth.

Liquidity Outlook

We assess our liquidity primarily through our cash on hand as well as the projected timing of billings under contracts with our paying customers and related collection cycles. While our future capital requirements will depend on many factors, including revenue growth and costs incurred to support customer usage and growth in our customer base, increased research and development expenses to support the growth of our business and related infrastructure, and increased general and administrative expenses to support being a publicly-traded company, we believe our current cash, cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

Our most significant funding requirements are principally comprised of employee compensation and related taxes and benefits, non-cancelable purchase commitments, and operating lease obligations. Non-cancelable purchase commitments for business operations and operating lease obligations total $189.9 million and $76.1 million, respectively, as of January 31, 2022, due primarily over the next five years. Purchase commitments for business operations are primarily related to cloud hosting, infrastructure, and other software-based services. Our future funding requirements to settle our obligations in foreign jurisdictions are subject to fluctuations due to changes in foreign exchange rates.

While we anticipate being able to satisfy our commitments through a combination of our available current cash, cash equivalents and marketable securities and cash generated from the sale of subscriptions to our platform, if our estimates prove to be inaccurate we may seek to sell additional equity or other securities that may result in dilution to our stockholders, issue debt or seek other third-party funding, in order to satisfy our future funding requirements.

Comparison of the Fiscal Years Ended January 31, 2021 and January 31, 2020

For a discussion regarding our financial condition and results of operations for the fiscal year ended January 31, 2021 compared to the fiscal year ended January 31, 2020, refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Final Prospectus filed with the SEC pursuant to Rule 424(b)(4) on November 18, 2021.

Seasonality

We may experience seasonality in our cost of revenue as a result of our customers’ increase usage of our platform based on their business demands. We typically experience the highest sequential increase in overall messaging volume and compute and storage requirements during the fourth quarter due to the increased activity related to the holiday season and general customer engagement efforts around the end of the calendar year.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K are prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We

57

Table of Contents

evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe that the following critical accounting policies involve a greater degree of judgement or complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, which we adopted as of February 1, 2019 on a modified retrospective basis. We generate revenue from fees related to subscription services and professional services and other. We recognize revenue related to contracts with customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those services. This is determined by following a five-step process, which includes (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price and (5) recognizing revenue when we satisfy a performance obligation.

We identify performance obligations in a contract based on the goods and services that will be transferred to the customer that are identifiable from other promises in the contract, or that are distinct. If not considered distinct, the promised goods or services are combined with other goods or services and accounted for as a combined performance obligation. Determining the distinct performance obligations in a contract requires judgment. Our performance obligations primarily include access to our platform, which includes subscription contracts, technical support and platform updates and professional services, which include onboarding services.

We allocate the transaction price of the contract to each distinct performance obligation on a relative standalone selling price basis. Estimating standalone selling prices for our performance obligations requires judgment and is based on multiple factors, including, but not limited to, observable cost data, industry margin studies, historical selling prices, internal cost structure, internal pricing policies, and pricing practices in different regions and sales channels. We review the estimated standalone selling price for our performance obligations periodically and update, if needed, to ensure that the methodology utilized reflects our current pricing practices. The transaction price allocated to each performance obligation is recognized as revenue when or as the products or services are transferred to the customer.

Cost to Obtain a Contract with a Customer

We capitalize incremental costs of obtaining revenue contracts, which primarily consist of internal sales commissions and agent commissions. We amortize these commissions on a systematic basis, consistent with the pattern of transfer of the expected benefit period or services to which the contract relates, generally up to four years. Four years represents the estimated benefit period of the customer relationship taking into account factors such as peer estimates of technology lives and customer lives as well as our own historical data. Commissions paid for contract renewals are amortized over the renewal period.

Contract costs are amortized on a straight-line basis over up to four years, which reflects the expected period of benefit of the performance obligation, and may be longer than the initial contract period. We determine the estimated benefit period by considering both qualitative and quantitative factors, including the length of the subscription terms in our customer contracts and the anticipated life of our technology, among other factors.

Stock-Based Compensation

Accounting for stock-based compensation requires us to make a number of judgments, estimates and assumptions.

We estimate the fair value of stock options granted to employees and directors using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including (1) fair value of common stock, (2) expected volatility, (3) expected term of the award, (4) the risk-free interest rate and (5) expected dividends. We estimate forfeitures at the date of grant and revised, if necessary, in subsequent periods. These assumptions are estimated as follows:

•Fair value of common stock. Prior to the Company’s initial public offering, the estimated fair value of the Company’s shares were determined based on the “— Common Stock Valuations” discussion below.

58

Table of Contents

•Expected volatility. Due to the lack of historical and implied volatility data of our common stock, the expected stock price volatility has been estimated based on the historical volatilities of a specified group of companies in our industry for a period equal to the expected life of the option. We selected companies with comparable characteristics to us, including enterprise value, risk profiles and position within the industry, and with historical share price information sufficient to meet the expected term of the stock options. We compute the historical volatility data using the daily closing prices for the selected companies.

•Expected term. We determine the expected term based on the average period the stock options are expected to remain outstanding using the simplified method, generally calculated as the midpoint of the stock options’ vesting term and contractual expiration period, as we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

•Risk-free interest rate. We use the U.S. Treasury yield that corresponds with the expected term for our risk-free interest rate.

•Expected dividends. We utilize a dividend yield of zero, as we do not currently issue dividends and do not expect to do so in the foreseeable future.

•Forfeiture rate. We are required to estimate a forfeiture rate to calculate the stock-based compensation expense for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures since the adoption of our equity award plan. We routinely evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and expectations of future option exercise behavior.

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense. Refer to Note 12. Employee Stock Plans for details around the assumptions used for valuing stock options.

Common Stock Valuations

Prior to our initial public offering, the fair value of the shares of our common stock underlying the stock options has historically been determined by our board of directors, with input from management and contemporaneous third-party valuations, as there was no public market for our common stock. We believe that our board of directors has the relevant experience and expertise to determine the fair value of our common stock. In accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation, our board of directors has exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:

•the prices of our common or preferred stock sold to third-party investors by us and in secondary transactions;

•lack of marketability of our common stock;

•our actual operating and financial performance;

•current business conditions and projections;

•hiring of key personnel and the experience of our management;

•our history and the introduction of new services;

•our stage of development;

•likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition given prevailing market conditions;

•the market performance of comparable publicly traded companies; and

•United States and global capital markets conditions.

Our board of directors historically determined the value of our common stock by probability-weighting different valuation approaches and methodologies, including both the income approach and select methodologies from the market approach. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using our weighted average cost of capital, or WACC. To derive our WACC, we calculate a cost of equity using the Capital Asset Pricing Model and comparable company betas while benchmarking to relevant equity return studies, and we calculate a cost of debt using our estimated cost of borrowing. The costs of equity and debt are then weighted based on our actual capital structure. The comparable company method is a market approach that estimates value based on a comparison of our company to comparable public companies in a similar line of

59

Table of Contents

business and based on acquisitions in the market. From the comparable companies, a representative market multiple is determined and subsequently applied to our historical and forecasted financial results to estimate our enterprise value. The recent security transaction method is a market approach that considers the recent price paid by market participants for a security issued by our company to estimate our enterprise value. While we have historically considered an income approach, we have never included or relied upon a discounted cash flow analysis due to the lack of historical and projected profitability.

Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events.

Subsequent to our initial public offering, the fair value of each share of underlying common stock is based on the closing price of our Class A common stock as reported on the Nasdaq Stock Market on the date of grant.

Income Taxes

We account for income taxes using the asset and liability method. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

In evaluating our ability to recover our deferred income tax assets, we consider all available positive and negative evidence, including our operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, we would charge an adjustment to the valuation allowance to earnings in the period when such determination is made. As of January 31, 2022, we recorded a full valuation allowance on our net deferred tax assets, which consist of net operating loss carryforwards and other basis differences, as we have concluded that it is more likely than not that our deferred tax assets will not be realized.

Recently Adopted Accounting Pronouncements

Refer to Note 2. Summary of Significant Accounting Policies, to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.

JOBS Act Accounting Election

Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt some of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies. This may make comparison of our consolidated financial statements to those of other public companies more difficult.