Welcome to Braze's Fiscal Second Quarter 2026 Earnings Conference Call. My name is Luke, and I'll be your operator for today's call. I'll now turn the call over to Christopher Ferris, Vice President of Braze Investor Relations.

Thank you, operator. Good afternoon, and thank you for joining us today to review Braze's results for the fiscal second quarter 2026. I'm joined by our Co-Founder and Chief Executive Officer, Bill Magnuson; and our Chief Financial Officer, Isabelle Winkles. We announced our results in our press release issued after the market closed today. Please refer to the Investor Relations section of our website for more information and a supplemental presentation related to today's earnings announcement. During this call, we will make statements related to our business that are forward-looking under federal securities laws and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding our financial outlook for the third quarter and fiscal year ended January 31, 2026, the anticipated benefits from and product advancements due to the combination of Braze and OfferFit Technologies, our expectations concerning new customer verticals, anticipated customer behaviors, including vendor consolidation and replacement trends and their impact on Braze, our potential market opportunity and our ability to effectively execute on such opportunity, and our long-term financial targets and goals. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations and reflect our views only as of today. We assume no obligation to update any such forward-looking statements. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to the risks identified in today's press release and our SEC filings, both available on the Investor Relations section of our website. I'd also like to remind you that today's call will include certain non-GAAP financial measures used by management to evaluate our ongoing operations and to aid investors in further understanding the company's fiscal second quarter 2026 performance, in addition to the impact these items have on the financial results. Please refer to the reconciliations of our non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with U.S. GAAP included in our earnings release under the Investor Relations section of our website. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with U.S. GAAP. And now, I'd like to turn the call over to Bill.

Thank you, Chris, and good afternoon, everyone. We delivered great second-quarter results, generating $180 million of revenue, up 24% year-over-year and 11% from the prior quarter. I'm also pleased to announce that we recently passed $700 million of committed annual recurring revenue, demonstrating continued strong demand for the ROI delivered by the Braze customer engagement platform. Thank you to our dedicated team across the world who helped us achieve this milestone. I look forward to building on this success as we continue our journey to make Braze the industry standard for customer engagement. We also continue to drive efficiency in our business, delivering $6 million of non-GAAP operating income, $17 million of non-GAAP net income, and $4 million of free cash flow in the quarter. We've now posted three straight quarters of positive non-GAAP operating income and free cash flow, as well as five straight quarters of positive non-GAAP net income. Looking ahead, we remain committed to driving higher profitability while thoughtfully reinvesting in our business, strengthening our competitive advantage and maintaining our position as the leading customer engagement platform globally. Our business momentum continued in Q2 as we achieved solid bookings across verticals and geographies. As we've stated in the past several quarters, global trade and economic concerns have yet to materially affect deal cycles, and we are optimistic looking into the second half of the year and fiscal year 2027 as we realized record pipeline generation and competitive strength across regions. In the quarter, we increased our customer count by 80 sequentially and 259 year-over-year to 2,422. Our large customer additions were again strong, with $500,000-plus ARR customers rising 27% year-over-year to 282. Recent new business wins and existing customer expansions include DocMorris, Fogo de Chao, Gopuff, Kleinanzeigen, Laundryheap, Little Caesars, Metcash, Saily, Sweetgreen, and Wix. Additionally, the enterprise replacement cycle remains a robust source of new business. Takeaways from the legacy marketing clouds in the quarter included a European digital employment solutions firm, a Japanese career website, a Canadian telecommunications company, a North American discount retailer and digital media and consumer companies across the U.S., Europe, and APAC. Our competitive win rates remain strong as a result of these ongoing legacy replacement cycles and continued trends in vendor consolidation, which creates further opportunities for Braze to expand its market share. In addition to our wins against the legacy marketing clouds, we also continue to displace less sophisticated point solutions, including recent new business wins at an American e-commerce company, a women's online retailer in APAC, an American shapewear and clothing brand, and many others. As frontier capabilities and artificial intelligence continue their rapid advance, brands are increasingly eager to leverage AI-driven innovation to achieve improved customer results and greater marketer productivity. Braze remains future-focused and is rapidly deploying new AI solutions in tandem with first-party data activation, applying leading-edge reinforcement learning and generative AI technology to an ever-evolving set of messaging channels and product interfaces to help our customers deliver more relevant customer experiences and grow their businesses. Throughout our history, Braze has emphasized the importance of living in the flow of first-party data and customer context, pairing it with the intelligence of a machine learning enhanced stream processor and delivering on critical use cases with the reliability, performance, and security that enterprises demand. As Braze forges ahead, it is increasingly clear that the same architectural defects, user experience complexity, and performance limitations that held back our competitors through the rise of mobile and the advent of stream processing are also barriers to their ability to leverage frontier capabilities in AI and machine learning. By contrast, Braze has built the critical foundations of customer engagement, delivered them to our growing customer community at extreme scale, and we are eager to continue to unlock the promise of our sophisticated vision for customer engagement with the rapidly advancing power of AI. While our product development accelerates, we also remain committed to category-leading UX design and heavy investment in the education and activation of the community of marketers and agencies that are integral to the Braze ecosystem. Now is an opportune moment to lift the craft of customer engagement to new heights, allowing marketers to transcend the mundane aspects of campaign creation and emerge as conductors of exceptional experiences and business strategy. After closing the acquisition in early June, we also got off to a strong start with OfferFit by Braze, quickly integrating their team, melding cultures, fostering tight collaboration, and beginning to educate our customers on the potential for AI decisioning to transform their customer engagement strategies. Within our existing customer base, the pipeline for OfferFit by Braze has sharply accelerated, especially across our enterprise segment, where we have earned a high level of trust by delivering sophistication at scale throughout our lifetime as a company. Our combined selling motion is off to a great start, tallying Q2 wins in each of our major geographic regions. We view OfferFit's AI decisioning engine as a uniquely effective asset, providing a best-of-breed platform for autonomous one-on-one personalization with a deep technical moat. By integrating OfferFit's AI decisioning engine with the Braze customer engagement platform and combining our R&D teams, we are extremely excited to be expanding and accelerating the Braze AI roadmap to elevate the experiences delivered to customers through the billions of content and orchestration decisions made by Canvas and Braze AI decisioning products every day. As customer engagement teams continue to prioritize one-on-one connection, creativity, and business growth, the tools and techniques for delivering relevant and memorable experiences are rapidly evolving, and AI is set to revolutionize the role of customer engagement teams, transforming them from day-to-day campaign tacticians into strategic conductors of autonomous customer engagement systems that foster mutual customer value and drive business growth. With the Braze AI roadmap, we are harnessing composable intelligence to enhance both the marketer and customer engagement experiences. This approach unlocks meaningful one-on-one personalization at scale while maintaining continuity of brand and product experiences. Much as Canvas embeds the knowledge and creativity of our brand's business priorities and marketing strategy today, in the near future, we believe that the context and intelligence of brands and marketing teams will be embedded in composable models, agents, and operators, fundamentally reshaping how marketers operate and interact with their customers, providing not just efficiency but also strategic leverage and improved decision-making. We plan to share more of our AI vision and upcoming product innovation plans during our annual customer conference, Forge, which takes place from September 29 to October 1 in Las Vegas. You'll learn more about our approach to investing in AI, data unification, activation and distribution, channel expansion, and our generative, predictive, and agentic solutions to deliver composable intelligence to customer engagement. We'll also share more about our growing work with global strategic partners, many of whom are sponsoring Forge, including new joint solutions like Subscribed Studios, which was built by VML in collaboration with Stripe and is specifically designed to address the unique challenges of subscription businesses. It combines AI-driven life cycle intelligence with live customer and usage data, enabling smarter subscription journeys. Through the integration with Braze, these insights become immediately actionable, triggering personalized event-based communications across the subscriber life cycle. At Forge, attendees will have the opportunity to experience exciting customer engagement innovations from top brands and Braze practitioners at live workshops and hear from many of our outstanding customers and partners, both on stage and in the hallways. While we won't be hosting a full Investor Day this fall, we will be welcoming investors for a reception on the evening of Tuesday, September 30. Contact Investor Relations for more details. I'll wrap my remarks by reiterating our commitment to driving long-term growth, efficiency, and profitability in our business. Thank you for your interest and support of Braze. And now I'll turn the call over to Isabelle.

Thank you, Bill, and thank you, everyone, for joining us today. As Bill stated, we reported a strong second quarter with revenue increasing 24% year-over-year to $180 million, driven by a combination of existing customer contract expansions, renewals, and new business. Excluding the $2.8 million contributed by OfferFit for the two months of Q2, organic revenue grew 22% to $177 million. Subscription revenue remains the primary component of our total top line, contributing 95% of our second quarter revenue, while the remaining 5% represents a combination of recurring professional services and one-time configuration and onboarding fees. Total customer count increased 12% year-over-year to 2,422 customers, up 259 from the same period last year, and up 80 from the prior quarter. This figure includes 17 net new OfferFit customers added as a result of the transaction. As a reminder, OfferFit had 27 customers, of which 10 were Braze customers prior to closing the transaction. The number of large customers, which we define as those spending at least $500,000 annually, grew 27% year-over-year to 282, up 60% from the same period last year and up 20% from the prior quarter. OfferFit contributed two net new large customers as a result of the transaction. Customers spending $500,000 or more annually contributed 62% to our total ARR compared to a 61% contribution as of the same quarter last year. Measured across all customers, dollar-based net retention was 108%, while dollar-based net retention for our large customers was 111%. Expansion was again broadly distributed across industries and geographic regions. Revenue outside the U.S. contributed 45% of our total revenue in the second quarter, down approximately 60 basis points sequentially and in line with the prior year quarter. I'll note that the in-quarter dollar-based net retention has stabilized over the last seven months and increased modestly from slightly below 107% in Q1 to slightly above 107% in Q2. While we are not providing specific guidance for the trailing 12-months DBNR, we are encouraged by the recent in-period stabilization and look forward to updating you on this metric in the coming quarters. In the second quarter, our total remaining performance obligation was $862 million, up 25% year-over-year and up 4% sequentially. Current RPO was $558 million, up 27% year-over-year and up 7% sequentially. These numbers include a contribution from OfferFit of approximately $12 million to RPO and approximately $10.5 million to CRPO. The year-over-year increases were driven by contract renewals and upsells, and the signing of new customer contracts. Overall, our dollar-weighted contract length remains at just over two years. Non-GAAP gross profit in the quarter was $125 million, representing a non-GAAP gross margin of 69.3%. This compares to a non-GAAP gross profit of $103 million and non-GAAP gross margin of 70.9% in the second quarter of last year. The decrease in year-over-year gross margin was driven primarily by higher premium messaging volumes, partially offset by continued cost optimization of our technology stack with additional benefits from personnel efficiencies. The OfferFit acquisition had no material impact to our gross margin in the quarter. Non-GAAP sales and marketing expenses were $70 million or 39% of revenue compared to $58 million or 40% of revenue in the prior year quarter. The dollar increase reflects our year-over-year investments in headcount costs to support our ongoing growth and global expansion. The improved efficiency reflects our disciplined investment approach to resource deployment across our go-to-market organization. Notably, we achieved this incremental efficiency while adding the two months of OfferFit expenses during the quarter. Non-GAAP R&D expense was $27 million or 15% of revenue compared to $21 million or 15% of revenue in the prior year quarter. The dollar increase was primarily driven by increased headcount costs to support the expansion of our existing offerings as well as to develop new products and features to drive growth. Our R&D expenditures reflect our intentional yet disciplined technology investment strategy and are in line with our long-term non-GAAP R&D percent of revenue target of 13% to 15%. Non-GAAP G&A expense was $22 million or 12% of revenue compared to $19 million or 13% of revenue in the prior year quarter. The dollar increase was driven by investments to support overall company growth and global expansion with continued efficiency as a percent of revenue driven by economies of scale and the use of strategic cost locations. Non-GAAP operating income was $6 million or 3.4% of revenue compared to a non-GAAP operating income of $4 million or 2.9% of revenue in the prior year quarter. Non-GAAP net income attributable to Braze shareholders in the quarter was $17 million or $0.15 per share compared to $9 million or $0.09 per share in the prior year quarter. The OfferFit acquisition increased Braze's deferred tax liability balance by approximately $8 million. This resulted in a commensurate reduction in the company's valuation allowance, which generated a one-time $8 million benefit to non-GAAP net income in Q2. Now turning to the balance sheet and cash flow statement. We ended the quarter with approximately $368 million in cash, cash equivalents, restricted cash, and marketable securities. This includes the impact of the cash portion of the OfferFit acquisition of $181 million. Cash provided by operations during the quarter was $7 million compared to cash provided by operations of $12 million in the prior year quarter. Including the cash impact of capitalized costs, free cash flow in the quarter was $4 million compared to free cash flow of $7 million in the prior year quarter. Free cash flow includes the impact of approximately $6.9 million in cash payments related to the OfferFit acquisition. We expect our free cash flow to continue to fluctuate from quarter to quarter given the timing of customer and vendor payments. Now turning to guidance. As a reminder, we closed the OfferFit acquisition on June 2. And as such, our third quarter forecast includes a full quarter contribution from the transaction, while our full-year forecast incorporates only an eight-month impact from the transaction. For the third quarter of fiscal 2026, we expect revenue to be in the range of $183.5 million to $184.5 million, which represents a year-over-year growth rate of approximately 21% at the midpoint. Third-quarter non-GAAP operating income is expected to be in the range of $3.5 million to $4.5 million, which implies a non-GAAP operating margin of approximately 2% at the midpoint. As a reminder, third-quarter operating income includes the impact of expenses related to Forge, our annual customer conference, as well as several other global events scheduled during the quarter. Third-quarter non-GAAP net income is expected to be in the range of $6.5 million to $7.5 million, and third-quarter non-GAAP net income per share in the range of $0.06 to $0.07 per share based on approximately 113.5 million weighted average diluted shares outstanding during the period. For the full fiscal year 2026, we expect total revenue to be in the range of $717 million to $720 million, which represents a year-over-year growth rate of approximately 21% at the midpoint. Consistent with commentary we provided on our fourth-quarter and first-quarter conference calls, we expect OfferFit to contribute approximately two percentage points to year-over-year growth for the full fiscal year. Fiscal year 2026 non-GAAP operating income is expected to be in the range of $24.5 million to $25.5 million. At the midpoint, this implies a non-GAAP operating margin of 3.5%, a roughly 350 basis point improvement versus fiscal year 2025. Non-GAAP net income for the same period is expected to be in the range of $45.5 million to $46.5 million, and net income per share is expected to be $0.41 to $0.42 per share based on a full year weighted average diluted share count of approximately 112 million shares. I'll close my remarks by expressing my enthusiasm for the future of Braze. We are steadfast in our commitment to providing leading customer engagement solutions and remain well positioned to achieve our long-term financial targets. And with that, we'll now open the call for questions.

Your first question will come from Brent Bracelin with Piper Sandler.

You beat Q2 by $8 million. You're raising the full year by $14 million. You're raising full year operating profit by $15 million. CRPO growth accelerated 300 basis points. Bill, what's changed here with the demand environment and appetite to lean into Braze now? And then Isabelle, what's behind your confidence that you can drive higher growth and higher operating leverage here for the rest of the year?

Yes. So high level, as we mentioned, I don't think we've seen a meaningful change in either the macro or the demand environment, but we've been really happy with our execution globally. As we referenced, historically high competitive win rates, it means that our late-stage pipeline is operating very efficiently for the business. We also, as we've been talking about for the last several quarters, looking at the attenuation of downsell activity, and we're starting to see that materialize as well. And so generally, seeing great momentum around the world. We're seeing, I think, solid performance across verticals and across geos with everyone contributing within the verticals. We've mentioned in the past that our focus verticals for this year on retail and e-commerce and financial services have been an area where we've been aligning investments across marketing, product, and sales. And those have been working out very well, increasing the efficiency, specifically of our pipeline generation and our win rates within those categories. So just a lot of the investments that we've been making to improve execution have been synchronizing with each other around the world. It's still a challenging demand environment, but we're working with what we've got. And I think we've been happy with the performance, and we've got good line of sight to where that strength will continue through the back half of the year.

Yes. And just specifically on some of the numbers, I think on our ability to better manage and have visibility on improved outcomes on downsells, you're seeing that in the dollar-based net retention. I did provide a little bit of added color there on where in-period is trending and where that has been trending over the last several months. And so I think the sustained performance that we're seeing there is giving us greater confidence in the back half of the year. OfferFit is also performing as expected. And we've got some events now behind us. The OfferFit integration is performing extremely well. We've onboarded Ed McDonnell, which is going very, very well. And so we know these were some sources of some uncertainty over the last few months. That's now behind us. And we're really pleased with our plan for capital deployment through the back of the year. And so when you combine that visibility and transparency with some of the upside that we're seeing on the revenue piece, that's how you come up with the improved profitability, and we're excited to be on that path.

Our next question comes from Siti Panigrahi from Mizuho.

Great to join the call. I want to ask about OfferFit. You talked about a strong start with OfferFit. Help us understand a little bit more about what you are hearing from your customer base after this integration? And what kind of ACV uplift are we seeing from your customer base with OfferFit? And I have a follow-up.

Yes. We are excited to announce a successful post-acquisition win with OfferFit across all three regions: Americas, EMEA, and APAC. This was achieved through our established deal desk, pricing, and contracting procedures, which are crucial milestones for integration. These remain enterprise deal cycles, typically characterized by six-figure price tags and sales cycles spanning months rather than weeks. However, we are optimistic about the pipeline generation this quarter and the progress of our integration so far. The emerging trend indicates a high level of trust in our enterprise category, reflecting our customers' confidence in Braze's ability to deliver. Our commitment to integrity and practicality in the Braze AI roadmap, combined with the defensible and provable performance enhancements from OfferFit's technology, has resulted in a compelling offering that has garnered considerable interest. We anticipate very high attach rates for the full OfferFit offering, especially among our high-end customers, which is priced at approximately $300,000 annually. Additionally, we are evaluating different variations of this offering and planning to introduce a complete range of reinforcement learning solutions. We will provide more details about this at Forge at the end of the month, including various price points and deployment options. As we progress further down the product development path, integrating OfferFit with existing Braze AI investments and leveraging the synergies between them, we believe we are on track to create a robust and comprehensive offering. We will continue to provide updates on this at Forge and in the forthcoming quarters. Overall, our assumptions about the acquisition have been validated positively, and we are pleased with the speed and urgency of the integration process, remaining very excited about its potential.

And then specifically on your question around the top-line impact, just to reiterate that we talked about a 2% uplift to year-over-year revenue growth. And so I think the rough range is sort of an $11 million to $12 million contribution in the year, and we are perfectly on pace for that contribution.

That's great color. And then I have a follow-up in terms of margin. It's great to see that you raised your margin for the year. I wanted to specifically ask about OfferFit. I know it has a lot of service. How do you plan to scale the OfferFit business and further drive even margin expansion there with OfferFit?

Yes. So there's two pieces to that. I think on gross margin, the OfferFit numbers today mix in pretty much exactly as our business is structured. So there's no dilution right now on a gross margin basis. They are an earlier stage company, and so we do see opportunities to improve that gross margin over time as we mature their delivery operations. So we do see opportunity for that to improve and to actually exceed Braze's overall average gross margin over time. On operating income, obviously, they mixed in a little bit negatively. And what we've been doing is just aggressively looking for ways to ensure that there are appropriate synergies between the two as we have completed or as we continue to complete the integration. And so we want to continue to invest in that business to make it as successful as possible, but we're being extremely disciplined and diligent about how that is being executed, and you're seeing some of that in our ongoing plan to improve profitability.

Congrats on a good quarter.

Congrats on a nice quarter and lots of great stats here given lots of different thesis going on in the market. To that end, I feel like I need to ask the AI question. Can you talk a little bit or just remind us again how the usage is trending for your AI products, maybe in a little more detail to sort of provide some meat on the bone on the defensibility of what we think is Braze's position? And then talk a little bit maybe also about the forward deployment of folks you have, I think, around OfferFit. And then I have a follow-up as well.

Yes, for sure. So I think that when we look out across the Braze AI feature set, we obviously have a full spectrum of offerings, including some that we launched years ago. And they deploy a number of different AI technologies ranging from advanced data science and machine learning into reinforcement learning processes, transformer-driven recommendations, and then Gen AI assistance and copilots and such. And so we're seeing rapid levels of adoption really across that entire feature set. Some of them are correlated with different verticals. Things like catalog recommendations tend to be more prominent in retail and consumer goods, as well as media and entertainment, both of which are super strong verticals for us. We're seeing great usage of our assistance within the dashboard. I think arguably one of the few competitive weaknesses for Braze historically has not been a lack of raw capability, but rather apprehension from prospects on whether they can make full use of Braze. And I think our AI roadmap has tremendous promise to close that gap, both by lowering the barriers to entry for those more sophisticated features as well as decreasing the manual effort required to test and deploy both new use cases and run ongoing experiments. And so I think we've been really happy primarily with continuing to see that gap being closed where the differentiation that Braze has always been able to deliver due to our power and our flexibility is becoming more accessible to more of our customer base. And that's giving us both stronger differentiation in sales cycles, but also stronger usage and ongoing value creation for our customers, not just from the AI features but from the existing differentiation that we already had, but that was maybe not as accessible or as usable, and AI is helping really close that gap. We're also, as I referenced, super excited to share a lot more about the upcoming AI roadmap at Forge in just a few weeks. I don't want to scoop too many of those product announcements, but we're excited to be able to be investing both in enhancing the customer experience as well as the marketer experience. You heard me speak in the prepared remarks about this idea around composable intelligence, which is something that we're extremely excited about as we continue to build out more opportunity for configurable and tunable models as well as agents and operators within the dashboard, all of which help simultaneously actually improve marketer productivity, but also improve the high-level capabilities for these systems to act in more autonomous ways after being imbued with the creativity and the intelligence of the marketing teams and the brands that are utilizing them. And so I think really excited to see across the board, just the adoption of the AI features, the adoption of the existing features being helped out by AI and then a lot of excitement in the roadmap as well.

That's super helpful. The second question is about sales execution. You have mentioned this and I believe you are showing results that indicate that sales execution has improved. I think we may have underestimated just how much better it has gotten and how much that has contributed to the overall success. I know it was mentioned in the opening remarks, but is there anything more to add?

No. I think that as I referenced at the top of the Q&A here that what we're seeing is really a synchronization, I think, of just a lot of positive impacts from a lot of the operational changes, a lot of the investment that we've put into achieving high competitive win rates and really making sure that we've got strong qualification, in particular, of late-stage pipeline so that we can better prioritize our efforts. I've spoken in prior quarters about some of the sales efficiency downsides that came about from it being a very opportunity scarce environment for a while. That was a combination of the macro and also just a combination of pipeline and led to, in particular, some enterprise deal cycles where we were trying to force timelines that were just more difficult to execute on where we would either run out the clock, and someone would be forced to renew, or we were trying to force someone to kind of incur switching costs earlier when they still had another year, 1.5 years and some other contract. We're, I think, operating in a stronger pipeline ratio environment that's allowing for our sales team to be a lot more judicious about where and how they spend their time, how they sequence the opportunities that they have in their patches, and how they execute on those deal cycles. And then, of course, I think our competitive strength is in a really great position, which is allowing for us to execute on that late-stage pipeline in a really positive way, and that's synchronizing together around the world.

Our next question comes from Raimo Lenschow with Barclays.

At the moment, customer addition was really decent. You mentioned that the environment is still challenging, but when considering customer understanding of your offering and how they are communicating with their clients in this new AI world, do you notice a change in behavior or thinking that could enhance your market position?

I believe that even before we discussed the idea of an AI-native software world, Braze was already addressing many changes happening in the software industry. We've highlighted several of these changes in previous quarters. For instance, our pricing model has always focused on outcomes and consumption, and we've never charged based on the number of seats. Braze was created to empower small teams to achieve significant work by utilizing deterministic automation, like the journey building in Canvas, along with machine-learning-driven automated decision-making. The introduction of AI and new advanced capabilities is expanding what automated decision-making can accomplish. We're also increasing our investments in reinforcement learning and Gen AI, which reinforces our belief that small teams should be able to create, manage, and optimize comprehensive customer engagement strategies. They require a system like Braze to handle the inherent complexities of this space, enabling them to manage various communication channels and understand the constantly changing contexts of customer interactions. The fundamental goals remain unchanged: generating real-time insights about customers based on their current context, quickly making sense of data, aligning this with business priorities, and creating exceptional customer experiences that foster strong relationships. These aspects are rooted in timeless principles of human relationships and how we connect with brands. While the tools and technologies have evolved, the core strategies centered on building strong customer relationships and successful businesses remain the same. The advancements in AI are increasingly realizing the potential for sophisticated automation, empowering small teams to tackle complex challenges. We've observed marketers transition from routine campaign management to engaging in higher-level business strategies, integrating creativity from brand stories with customer habits and loyalties. We're excited to see these timeless principles remain relevant, with AI helping to close the gap between promise and delivery. This empowers teams to become advocates within their organizations, driving impactful results and higher ROI. With the introduction of tools like OfferFit, we can provide highly customizable options that offer a performance advantage over more expensive, custom-built systems. This enhances the leverage and ROI of customer engagement teams. Overall, we're pleased with how this development is progressing. In the current demand climate, companies are still focused on cost optimization, and there's a lack of expansive investments or new product launches. This means that the challenges we've noted in previous quarters, such as switching costs, still affect deal cycles. However, the fundamentals of customer engagement, the role of marketers, and the ROI of sophisticated investments in customer engagement are more relevant than ever.

Yes. Okay. Perfect. And Isabelle, thanks for the extra disclosure on or the extra comments on NRR. If you think about it, obviously, it's a backwards-looking kind of metrics. If you think about it, like about a year ago, we had like kind of much higher numbers. How quickly does that come back once the world is changing? You have obviously OfferFit to cross-sell upsell. What are the puts and takes to think about the changing of that number going forward?

Yes. We do not provide guidance on that number. However, considering the factors at play, as the downsell environment stabilizes and our performance improves in that area, it will positively impact the metric. Additionally, with a robust demand environment and the continued promotion of OfferFit as a tool, we see potential for that metric to accelerate again. While we won't specify a timeframe for this, we are pleased with the stabilization and improvement in Q2 compared to Q1 and look forward to sharing the trailing 12-month metric with you in the future.

Your next question comes from Taylor McGinnis.

Congratulations on the quarter and the impressive results. I apologize for any background noise. Returning to the outperformance in the quarter, it was significantly stronger than what we've experienced in previous quarters. Could you discuss which specific area exceeded your expectations? Additionally, as we consider the assumptions in the guidance moving forward, how have you adjusted those, and is there anything we should keep in mind?

Yes. So there's kind of two areas that kind of work together. So definitely on the downsell component, that came in better than anticipated. And obviously, our guidance went up for the full year. So our visibility and our expectations for the back half of the year improves there as well. So that had an in-quarter positive impact. And then just the general demand environment continued to be strong across geographies and across customer classifications, across industries. Bill mentioned some of the strength that we continue to see in our verticalization. And so across our breadth of products, we're continuing to see strong demand there and more limited downsell. So that's great. I will call out one point of the overachieve is related to two items that one can consider a little bit harder to predict and maybe a little bit more onetime in nature. Revenue reserves came in better than anticipated. So revenue reserves are taken when we have expectations of poor customer payment. And we've had very timely payments from our customers recently, and this has allowed us to not take as large revenue reserves. So that's been helpful in the quarter. But again, difficult to predict, but a nice leading indicator of customer health. So we're pleased about that. And then some overages were a little bit above expectations. And so taken together, those were about one point of the overachieve in the quarter.

Awesome. Super helpful on all that color. Just the second question is, if I look at CRPO growth, so on an organic basis, you've maintained growth in the mid-20s. And now we saw this inflection in organic growth to the low 20s. So we're starting to see a little bit of convergence there. I guess how can we think about those metrics in tandem going forward? Anything to keep in mind from a duration and linearity perspective?

Yes, we are observing those metrics move together, which is encouraging. While there may be some fluctuations that affect the metric at times, we are definitely optimistic about the organic growth trajectory of the CRPO metric. It’s reassuring to see that the reduction in downsells and the overall strength and momentum in our core business are contributing positively. We are excited to witness this positive trend.

Your next question comes from Brian Peterson with Raymond James.

I'll echo my congrats on the strong quarter. So Bill, I know you said the demand environment is fairly stable. If you unpack the geos in the end markets, have you seen any changes over the course of the year that you would call out in terms of the demand environment from a net new perspective?

Yes. I think quarter-by-quarter, we have seen differences in country-specific performance around the world. But averaging over the last few quarters, I think we've been happy with performance globally. We've seen major contributions and strong win rates from each of our global regions and subregions. And that's inclusive of both our more mature areas where we've had established sales teams for years as well as some of the places that we've opened up more recently. We've also seen some great positive momentum from things like the data center that we deployed in Australia. We had across the board really strong performance from actually every single segment in our ANZ region in the most recent quarter. That was certainly helped out by that country-specific investment into the data center. And we're doing a better job, I think, of aligning things like regional support along with partners as well as vertical-specific investments that drive alignment across marketing spend, product marketing, and product-specific investments and making sure that those are all getting aligned around go-to-market activation and execution. And so generally, I think what we're seeing is that there are puts and takes around the globe, but I think we've had good visibility into where relative strength and weakness is so that we can deploy capacity in a way that's efficient. And then we can also align other supporting investments across product and marketing to make sure that we've got the right alignment of sales capacity with the varying regional strength and that, that's all supported and lined up in a focused way.

Our next question comes from Brian Schwartz with Oppenheimer.

Bill, given that the sales productivity is improving, which we can see in the results, I think in your prepared remarks, you said conversions are normalizing, pipeline is at record levels, and you have the CRO in place. Does that change at all the pace of hiring new sales reps in the second half of the fiscal year?

We are expanding our sales capacity in the second half of the year. There aren't any significant changes to that plan, apart from what Isabelle mentioned. We are now beyond two major events that brought some uncertainty: the OfferFit acquisition and Ed's onboarding process. We're just a couple of months in on both fronts, and we are pleased with how things are progressing. Ed's integration into the executive team and the go-to-market functions, as well as the OfferFit team assimilating into the broader Braze organization, has been smooth. We have successfully merged product development and operational processes between the groups. This groundwork will support our investment plans for the second half of the year. We feel confident about our investment strategy and our ability to sustain those investment levels with the certainty we want from the business. Coupled with strong top-line results and a reduction in the downsell trend we’ve experienced over recent quarters, this creates a solid foundation for the guidance we're providing today.

Yes, and in terms of thinking about the operating leverage, are the internal uses of AI that you're using at Braze and/or the low-cost labor arbitrage, is that moving the needle yet? Is that having an impact on the margin outperformance that we've seen so far? Or is that still ahead of the business? Yes, I believe we are beginning to see more leverage from our cost-optimized location. However, we are still in the early stages of utilizing AI tools to a degree that significantly replaces human capacity.

Our next question will come from Matthew VanVliet with Cantor Fitzgerald.

I guess first on the sales execution front, curious on how your average deal sizes came in relative to what was expected in the pipeline. Just are you seeing sales cycles drawn out or deals come in maybe at a smaller price point than you were anticipating, but the volume is sort of making up for it? And then secondarily, curious on where we're at on the average duration of sales reps maturation and how much maybe influence that did have on sales execution as well?

Yes. Overall, I would say there's a little bit of quarter-by-quarter noise when it comes to average deal sizes. But in general, I think that we've seen a pretty stable productivity. Like most of the inputs to sales productivity over the last few quarters have remained fairly consistent. Similarly, some of the mechanics around average durations and even things like annual versus multiyear deal terms, payment terms, et cetera. We're seeing some quarter-by-quarter noise on these things, but no major trend lines to support. I think that a lot of the environment from those dimensions has remained pretty consistent.

Our next question comes from Derrick Wood with TD Cowen.

Great. Congrats from me as well. Bill, with search and SEO getting disrupted by AI, are you seeing customers look to shift more marketing spend into first-party data and customer engagement solutions like yours? Just wondering how you see the market reacting to this AI disruption and how you guys are trying to capitalize?

Yes, we've discussed this before. I believe there will be a growing need for brands to mitigate the downsides associated with demand aggregators as more individuals begin using assistance tools. It's early in our understanding of what specific changes will effectively navigate the AEO landscape and the acquisition process. However, it's increasingly clear that once a customer discovers your brand and is ready to engage with your products or services, establishing a stronger first-party connection informed by first-party data and context is crucial. This allows for ongoing communication with that customer over time. The importance of these factors, following acquisition, escalates whenever new demand aggregators emerge in a particular vertical or market. Tools like ChatGPT are significant because they act as demand aggregators across numerous verticals. Industries such as travel, hospitality, and food have long been familiar with demand aggregators, and their influence is becoming more prevalent in our lives. I anticipate that the marketing strategies adopted will be akin to those seen in sectors like restaurants and hospitality, where loyalty programs and robust first-party connections are essential. All of this underscores the need to invest in first-party data and foster strong connections using loyalty programs to enhance these relationships. We continue to observe these trends. Regarding AEO, many brands are indeed investing and positioning themselves to be easily found in platforms like Gen AI chatbots. However, we're still in the early stages, and many strategies have yet to be solidified with significant budget changes. I wouldn’t say we’re witnessing any substantial shifts in that area.

Your next question comes from Yun Kim with Loop Capital.

Congrats from me as well. If you can provide some color around any trend that you're seeing around different messaging channels, which specific premium channels performed well in the quarter? And is there any messaging channel you expected to get a boost from when a customer adopts OfferFit?

Yes, we've observed consistent growth across our messaging channels. As Isabelle pointed out, there has been more growth in certain premium messaging channels, particularly outside the United States. This growth can largely be attributed to the positive effects of our flexible credits model, which we have anticipated over the past few quarters. In the past, Braze SMS buyers had to contract on a country-by-country basis for the volumes they intended to send, but now they can purchase a basket of flexible credits. This change enables them to test new markets and channels more dynamically, allowing for strategy adjustments based on varying returns on investment and market strengths. Consequently, we've seen increased adoption of premium messaging channels, with customers experimenting with options like RCS and WhatsApp more freely than before. We're pleased with the impact of these changes, which we had predicted would follow the transition to the flexible credits model. Additionally, channels like landing pages and content cards, as well as the banner cards extension to content cards, have seen great adoption as we've invested in enhancing these options. This growth is significant because the adoption and execution of multichannel strategies is closely linked to customer growth and retention, which is exactly what we want to see. Regarding OfferFit, while it is primarily deployed around email, its decisioning engine is flexible and can be utilized across various marketing strategies, not just in channels where Braze excels. We're excited to see OfferFit being applied broadly within marketing organizations to meet their diverse goals.

Your next question comes from Patrick Walravens with Citizens.

This is Kincaid on for Pat. We've seen customers in this over $500,000 cohort going up quarter-over-quarter, but we've seen the dollar-based net retention rate dropping. Are we going to see that reaccelerate at any point?

So we talked about the dollar-based net retention in the quarter and the trends that we've seen there that are an indication of some of that stabilization. So over the last seven months, we've seen some of that stabilization. And in particular, Q2 was slightly higher than Q1 on an in-quarter basis. And generally, it's a bit of a leading indicator on directionality. Also, the dollar-based net retention dropped only one point versus the prior quarter, and we've seen larger drops in recent quarters. And so we're encouraged by the direction of travel there and just point you to our comments about the in-quarter trajectory.

Your next question comes from Tyler Radke with Citi.

So going back to one of the comments from this quarter, Isabelle mentioned some improvements in reserve dynamics regarding the payment terms. There was also mention of better retention rates overall. I'm curious about what the underlying demand driver is. Are you seeing improvements in messaging or monthly active users? Is there any connection between the better payments and better retention?

Yes. There isn't a single product driving the improvement in payments; it's more about the overall health of our customers and our status as Tier 1 vendors. Our customers want to keep us in good standing, ensuring the platform remains operational and without disruptions. This reflects positively on the overall health of our customer base. When customers face financial difficulties, they may delay payments, so it's encouraging to see our internal payment collection process working well and our customers able to prioritize payments. In terms of demand, all components are performing well. We’ve seen growth in our monthly active user base, although historically it has lagged behind revenue growth. The messaging is performing effectively as we sell on a credits basis. Overall, the entitlements we offer are being widely adopted, and we continue to see expansion across multiple SKUs.

Your next question comes from Arjun Bhatia with William Blair.

I'm Willow Miller on for Arjun Bhatia. We appreciate the color on the down selectivity in the prepared remarks. But can you also comment on where you are in terms of ZIRP era customer renewals? Could we expect any more in the balance of the year?

Yes. So we're not going to really untangle that any further. I think we're really happy to see the overall trajectory on downsell activity and the stabilization that we're seeing, as I've mentioned, on the in-quarter dollar-based net retention. We'll talk more about kind of those metrics, and we're excited to kind of continue to report on the trailing 12 months over the next couple of quarters.

There are no more questions at this time. I'd now like to turn the call over to Bill for closing remarks.

I just want to thank everybody for joining us today. We hope to see many of you at Forge as well. And as a reminder, if you're interested in joining us for the investor reception, you can reach out to Investor Relations.