Customer engagement platform operator Braze (BRZE -0.92%) reported fiscal 2025 second-quarter earnings on Thursday that topped internal guidance on both top and bottom lines. Braze's revenue for the quarter (which ended July 31) was $145.5 million, up 26.4% year over year. The company reported a non-GAAP operating income of $4.2 million, significantly better than the expected loss of $6.5 to $7.5 million. It was its first-ever quarter of adjusted operating income profitability.
This quarter's results were strong, reflecting positive trends in revenue and profitability despite some areas of concern such as retention rates and macroeconomic pressures.
| Metric | Q2 FY 2025 | Management Guidance | Q2 FY 2024 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $145.5 million | $140.5 million - $141.5 million | $115.1 million | 26.4% |
| Non-GAAP operating income/(loss) | $4.2 million | ($6.5 million) - ($7.5 million) | ($7.6 million) | N/A |
| Non-GAAP net income/(loss) | $9.1 million | ($3 million) - ($4 million) | ($3.9 million) | N/A |
| Non-GAAP net income/(loss) per share | $0.09 | ($0.03) - ($0.04) | ($0.04) | N/A |
Source: Braze. Note: Expectations based on management's guidance provided on June 6, 2024. GAAP = Generally accepted accounting principles. YOY = Year over year.
About Braze
Braze is a customer engagement platform that enables brands to create personal, real-time, cross-channel experiences for their users. This New York-based company offers tools for messaging, analytics, and content management to improve customer engagement. Recently, Braze has been focusing on real-time data processing, seamless integration with its partner ecosystem, and artificial intelligence (AI)/machine learning to enrich its services.
The company aims to drive growth through a land-and-expand strategy, where it initially captures customers with accessible products and later scales engagement within those organizations. Recent initiatives show Braze's commitment to enhancing its platform. It introduced the Braze Data Platform that integrates AI and machine learning to boost customer engagement. This platform aims to provide more personalized and effective customer interactions.
Second Quarter Highlights
Subscription revenue was a significant contributor to overall revenue growth this quarter, reaching $140 million (compared to $109.7 million in Q2 fiscal 2024), reflecting continuous traction in its core business. The Non-GAAP gross margin improved slightly to 70.9%. Total customers increased to 2,163 from 1,958, and the number of high-value customers with annual recurring revenue (ARR) of $500,000 or more grew to 222 (compared to 173 in the prior year), validating its land-and-expand strategy.
Despite its success, Braze reported a decline in dollar-based net retention rates. The rate for all customers dipped to 114% from 120% last year, and for those with ARR of $500,000 or more, it fell to 117% (from 123%). Higher operating expenses were also a concern, with sales and marketing costs rising to $68.6 million (compared to $60.4 million in Q2 2024). Research and development expenses grew to $33.1 million, reflecting investment in AI and R&D initiatives.
Free cash flow was positive at $7.2 million, a significant improvement from negative $18.7 million a year ago. Cash and cash equivalents stood at $504.5 million, up from $480 million as of July 31, 2024. These metrics indicate enhanced financial stability and resource management.
Looking Ahead
Management provided optimistic guidance for the coming quarter and the full year. For fiscal 2025's Q3, revenue guidance was raised by $7 million and is expected to be between $147.5 million and $148.5 million, and non-GAAP net income/loss per share is now projected to range from $0.00 to ($0.01). For the full year, revenue guidance has been raised to between $582.5 million and $585.5 million. This outlook reflects strong business momentum and improved profitability metrics.
Investors should keep an eye on Braze's ability to maintain its growth trajectory amid competitive pressures and fluctuating market conditions. Key factors to monitor include retention rates, operating expenses, and continued innovation in AI and machine learning.
