Earnings Call Transcript
Braze, Inc. (BRZE)
Earnings Call Transcript - BRZE Q4 2022
Operator, Operator
Welcome to the Braze Fiscal Fourth Quarter Earnings Conference Call. My name is Hannah and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, we will conduct a question-and-answer session. I will now turn the call over to Christopher Ferris, Head of Braze Investor Relations. Please go ahead.
Chris Ferris, Head of Investor Relations
Thank you, Operator. Good afternoon. And thank you for joining us today to review Braze's results for the fiscal fourth quarter 2022. I hope you enjoyed today's hold music, which was composed, performed, and provided by Frankie Saxena, a solutions consultant at Braze's London office. Thank you for the wonderful music, Frankie. I'm joined by our Co-Founder and Chief Executive Officer, Bill Magnuson, and our Chief Financial Officer, Elizabeth Winkles. We announced our results in a press release issued after the market closed today. Please refer to our Investor Relations website at investors.braze.com 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 the federal securities laws and 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 first quarter and full fiscal year ending January 31, 2023. Our plans product and feature development, our plans for social impact initiatives, our planned investments to maintain and improve our overall unit economics, including average selling price, customer payback period, and overall average revenue per customer and our long-term target operating margin. 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. 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 Investors 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 fourth quarter 2022 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 portion 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.
Bill Magnuson, CEO
Thank you, Chris, and good afternoon, everyone. Before I dive into our results today, let me take a moment to acknowledge the global situation. Our thoughts are with the people of Ukraine, who have found themselves forced to fight for the fundamental right to live in peace. When it became apparent that a conflict might begin, we analyzed our data to quickly identify affected customers, enabling our customer success team to proactively offer support and arming our security teams to protect against potential cyber threats. Our direct business exposure in Russia and Ukraine is very limited, and we currently suspended all new business activity in Russia. We will continue diligent case-by-case assessments as our customers' situations evolve. While we have no employees in the region, we have tried to do our part by donating to humanitarian relief efforts, increasing our employee donation match, and extending support to employees who are personally affected by the conflict. And now, let me turn to the quarter. We're very pleased with our fourth-quarter performance, which again demonstrated our ability to deliver high growth at scale. We achieved high watermarks for new bookings, renewals, and net retention in the quarter. We generated $70.4 million in revenue, up 64% compared to the same period last year, and 10% compared to the third quarter. We're proud of the strength of our customer relationships as dollar-based net retention grows to a new high watermark of 128%, reflecting strong renewals and upsells. For customers with $500,000 or more in annual recurring revenue, dollar-based net retention was 136%, up 300 basis points year-over-year, demonstrating our ability to land and expand with large enterprises across diverse industry verticals globally. This quarter, we also secured our largest single customer land to date, an annual contract value of over $3 million with a European-based video game developer and publisher. All of this caps an incredible fiscal year 2022 at Braze in which we grew total customer count by 54% and revenue by 58%. To give you a sense of the operational scale of our platform, at the end of fiscal 2022, our monthly active user count was approximately 3.7 billion. And in fiscal 2022, we processed over 9 trillion consumer-generated data points and sent over 1.5 trillion messages. And all of this happened with nearly 100% global uptime. A testament to our ability to reliably deliver effective, targeted customer engagement programs for our customers at scale. Customers are recognizing the high return on investment that can be achieved through personalized cross-channel customer engagement enabled by the Braze platform. And as we look to the future, we're focused on executing on our rapidly growing market opportunity. And today, I'm proud to announce that we recently passed $300 million in committed annual recurring revenue. These accomplishments wouldn't have been possible without our amazing and talented team across the globe. Thank you for your tireless efforts and dedication. I'm immensely excited to keep building the future of Braze together. At Braze, our mission is to forge human connections between consumers and the brands they love through relevant and memorable experiences. We were founded over 10 years ago with the dual conviction that new smart businesses need to be mobile-first, and that legacy companies will be driven by changing consumer behavior to transform the way they deliver products and services. To help our customers move towards those connections and create those experiences, we have continued to invest and evolve our product offerings to enable them to deliver better customer engagement. As consumers emerged from the pandemic and enter their next normal, Braze is poised to continue to capitalize on their ever-rising expectations for seamless cross-channel brand experiences. And that's why our recent product announcements have focused on helping brands better understand customers and improving platform usability with actionable, real-time insights, better personalization, and enhanced audience targeting. Earlier this week, we announced Braze for Commerce, a series of new products and enhancements aimed at allowing retail and e-commerce marketers to create highly personalized campaigns driven by first-party data. Most notable in this launch is Braze Catalog, a new product that enables marketers to streamline message personalization by seamlessly infusing product data into messages across any campaign on any channel. Beautifully branded recommendations can be quickly built from catalog data using our newly enhanced Braze content blocks inside our drag-and-drop email editing experience. This allows brands to quickly pair individual shoppers with the most relevant products, offers, and updates with clicks, not code. Other new features in Braze for Commerce include our new SMS cook tracking and enhancement of SMS performance metrics for better retargeting, and Segment Extensions, an advanced segmentation tool that helps brands build a deeper understanding of customers based on behavioral data. As part of the evolution of our overall data strategy, we're also working on expansions to Segment Extensions that will directly integrate with our customers' data warehouses, decreasing the engineering effort required to integrate and manage data pipelines and ETL processes. To improve real-time insights, we've also been rolling out updates to our report builder, making it easier for brands to quickly gauge campaign performance, spot trends in patterns without leaving the Braze platform, and then immediately modify their engagement strategies as needed. This is an important way that we enable brands to tighten the imagine, create and evolve loop to upgrade their strategies faster. For email specifically, we launched machine opens analytics to help customers understand their email campaign performance by differentiating between user activity and the automatic email open behavior that was introduced in iOS 15. We also added a number of workflow improvements, including adding inbox vision to our recently overhauled drag-and-drop email composition experience. Finally, I'm excited to share a product addition for our fast-growing Japanese market that has also laid important groundwork that we believe will enhance our support for future regional expansion. We began rolling out a translated and localized version of the Braze dashboard, allowing Japanese language-focused brands to create best-in-class customer engagement campaigns in their users' native language. Look for us to continue debuting localized versions of the Braze dashboard as part of our global growth plan. As we look to the future, our product roadmap is both focused and ambitious. Today's consumers expect highly relevant, tailored brand experiences, and it's critical that we continually arm our customers with improved functionality within existing channels, while also adding new channels and features. While I can't detail our entire roadmap on this call, I can say that our priorities are to drive best-in-class functionality to compete in any channel with legacy marketing clouds and single-point solutions, tackling sophisticated use cases in order to empower our customers while driving time-to-value. One area where we continue to invest is our data ingestion strategy. The data landscape is evolving as customer demands for clean, seamless data integrations are increasing. As most of you know, our SDKs are integrated into the mobile sites and applications of almost all of our customers. And this vertical integration is an important feature that allows Braze to seamlessly deploy differentiated functionality for our customers. As such, we will continue focusing on streamlining the ways in which data can flow into and out of Braze, particularly reinforcing our connections to data systems. We're advancing our Snowflake partnership with more direct connections in Snowflake's Data Cloud, as well as investing in partnerships with other companies in the data ecosystem. In order to execute on our product roadmap and support our customers, we've continued to expand our team, growing by over 400 people in the last year, bringing our global headcount to over 1,100. During the quarter, we officially opened both our new Austin, Texas location and expanded office space for our Chicago-based team. We also continue to grow our footprint internationally, announcing plans for new locations in Toronto, Canada, and Paris, France, where hiring is underway. With these expansions, we'll have 10 locations across the globe, servicing customers in over 60 countries. France builds on our presence in EMEA and our successful expansion in the DACH region one year ago. We also look to continue expansion in APAC, our fastest-growing region by ARR, with new partner programs in Thailand and other Southeast Asian countries in order to expand our presence in those markets. Finally, I'll note that we're exploring partnerships with additional resellers in Latin America, another fast-growing market for us. We believe the investment in these new countries will enable Braze to offer localized support for existing customers, as well as capitalize on growing opportunities and strategic partnerships in the region. Which brings me to our customer base, where we have seen continued momentum with new and existing customers. This quarter, we saw strength across numerous verticals, including health and lifestyle, financial services, gaming, media, and quick-service restaurants. We secured new business and large upsell opportunities with Canva, Course Hero, ESL Gaming, Shake Shack, and Flip, just to name a few. We're excited by the breadth of innovative and creative customer engagement use cases that our expanding base of customers relies on Braze to deliver in the moments that matter most. Let me take a few minutes to walk through some compelling recent customer use cases that illustrate the differentiated power of Braze customer engagement tools. Each of these stories demonstrates how differentiated Braze capabilities, such as surveys and content cards, are able to live directly inside or alongside a brand's products, going beyond unidirectional messaging to power engagement through a seamless in-app or in-browser experience for the consumer. The first is the fitness company Equinox, which successfully leveraged two of our proprietary tools, Canvas and content cards, to deliver an improved customer experience this quarter. Using Canvas, our visual customer journey management tool, Equinox was able to optimize their new customer welcome journey through A/B testing, personalized push messages, in-app messages, and content cards to motivate customers to try a fitness assessment with a personal trainer within 30 days of sign-up. With Canvas, Equinox saw a meaningful improvement in the number of new users booking a class compared to their prior onboarding flow, generating meaningful upsell revenue. Equinox also leveraged our content cards to feature class offerings based on the user's fitness preferences, providing more personalized offerings. Further personalization was realized using our audience pass feature, combining the user's preferences and behaviors across multiple channels with minimal added complexity. This ability to expand the footprint of an engagement strategy without becoming shackled by the complexity associated with multi-channel communication is a direct byproduct of Braze’s customer-centric design, and is a differentiated advantage that we will continue to invest in. The second use-case I'd like to highlight is Kickstarter, which employed Braze's recently released in-app messaged survey tool, allowing them to collect user attributes, insights, and preferences to power their campaign strategies. Surveys represent a way to deliver more sophisticated functionality for customers in a turnkey fashion, again leveraging our customer-centric vertically integrated stack design. Kickstarter used surveys to assess whether a recent change they made in their onboarding flows had improved users' understanding of reward fulfillment. The survey achieved a 74% response rate. Kickstarter realized a considerable uptick in users' knowledge of fulfillment and was enabled to continue improving their in-app experience based on the results. Retargeting off of survey results is also a great example of how Braze enables feedback loops to deliver high-quality personalization. We built surveys on top of an overhaul of our in-app and in-browser messaging system. So look for more message types in the future as we continue to leverage the flexible foundation we created for in-product experience. The third customer use case I'd like to highlight is an investment advisory platform designed primarily for women. In this case, Braze utilized its web hooks and REST APIs to integrate with the company's customer relationship management tool, allowing them to effectively manage email campaigns sent from Braze. This business was also a competitive takeaway from a legacy marketing cloud and is a great testament to the flexibility of Braze. We look forward to continuing to grow with them. Before I turn it over to Isabelle, I wanted to make a few remarks on our DEI and social impact initiatives. As I mentioned on our last call, we recently launched a social impact department charged with driving our diversity, equity, and inclusion program, and our corporate social responsibility initiatives. We're making great strides. Last month we put out a call for applications to accept a new cohort of 15 companies into our Tech for Black Founders program, which provides Black-owned startups with a free year of Braze technology and resources to support their company's early growth. Through our Braze cares initiative, which focuses on our charitable giving and fostering opportunities for our employees to volunteer in their communities, we've made contributions to 567 organizations and our employees have also volunteered with numerous organizations worldwide as part of this program in fiscal 2022. As I mentioned last quarter, Braze has also joined the 1% pledge, committing a portion of our class A common stock over the next 10 years to fund our social impact in environmental, social, and governance initiatives. We have taken action on this initiative, signing an agreement with a donor-advised fund provider. The funds will be available for grants later this year. As a technology leader, Braze remains committed to increasing diversity, equity, and inclusion in our industry. We plan to meaningfully expand our social impact initiatives in the year ahead. I'll conclude my remarks by reiterating our commitment to helping our customers build strong and lasting customer relationships through great customer engagement. We continue to make progress in this mission around the world, and we look forward to continuing this journey with our customers, team members, and shareholders, and updating you on our progress in the coming quarters.
Isabelle Winkles, CFO
Thank you, Bill, and thank you, everyone for joining us today. We reported a strong fourth quarter, and as Bill mentioned, fourth-quarter revenue rose 64% year-over-year to $70.4 million. This was driven by a combination of customer expansion, new business sales, and strength in our renewals. Our subscription revenue remains the primary component of our total top-line, contributing nearly 94% of our fourth-quarter revenue. The remaining 6% represents the combination of one-time configuration and onboarding fees, as well as other professional services that are subject to similar annual contract terms as our subscription-based revenues. Customer momentum during the fourth quarter was strong, with total customer count increasing 54% year-over-year to 1,375 customers as of January 31. This represents an increase in customer count of nearly 500 over the last four quarters, and 128 during Q4. Our total number of large customers, which we define as those with annual recurring revenue of $500,000 or more, grew 51% year-over-year to 107. As of January 31, they contributed 52% to our total annual recurring revenue. This compares to a 50% contribution as of the end of FY2021. Customers with annual recurring revenue of more than $1 million grew 58% year-over-year to 49. As of January 31, they contributed 38% to our total annual recurring revenue, which compared to 33% a year ago. As Bill mentioned, we recorded our single largest customer land in Q4 at over $3 million. Q4 was a high watermark for total bookings, renewal rate, and retention rate. Our renewal rate, combined with our strong upsells, drove the increase to our dollar-based net retention rate as we continue to execute on our effective land and expand motion. For the whole company, dollar-based net retention rose to 128%, up over 500 basis points compared to the prior year and up over 200 basis points sequentially compared to the third quarter. Dollar-based net retention for our large customers, those spending at least $500,000 annually, was 136%, up nearly 300 basis points compared to the fourth quarter of last year and up 75 basis points compared to the third quarter. As a reminder, our dollar-based net retention represents a 12-month trailing statistic. Upsells include increases to pre-committed volumes across monthly active users, additional messaging entitlements, signing new business units within existing parent companies as we continue to further penetrate our existing customer base through both geographic and brand expansion and the addition of add-on features and recurring professional services. This expansion was strong across industries and geographic regions, with revenue outside of the U.S. contributing 40% of our total revenue in both the fourth quarter and full year. Moving to our remaining performance obligation, in the fourth quarter, our total remaining performance obligation rose 60% year-over-year, and 23% sequentially, to $374 million. Current remaining performance obligation rose 59% year-over-year, and 19% sequentially to $238 million. These increases were driven by strong business momentum, including new contracts, contract renewals, and term extensions. Our overall dollar-weighted contract length increased slightly compared to the end of the third quarter and is now at just over 24 months. Now, I'd like to review the income statement in more detail. As a reminder, some of the metrics I will discuss are non-GAAP. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release and accompanying earnings presentation. Non-GAAP gross profit in the quarter was $47.3 million, representing a non-GAAP gross margin of 67.2%. This compares to a non-GAAP gross profit of $27.9 million and non-GAAP gross margin of 65% in the fourth quarter of last year and 70.3% in the third quarter of this year. Gross margin improved year-over-year due to the continued economies of scale in our core technology expenses and ongoing efficiencies realized in our personnel expenses. Sequential gross margin evolution reflects seasonally higher levels of activity for many of our customers during Q4. Turning to our operating expenses, non-GAAP sales and marketing expense was $35.3 million or 50% of revenue compared to $19.5 million or 46% of revenue in the prior-year quarter. This reflects our continued investments in sales and marketing headcount to support our strong growth and global expansion. Our R&D and G&A expenses illustrate our continued efficiencies at scale. Non-GAAP R&D expense was $13.1 million or 19% of revenue compared to $8.2 million or 19% of revenue in the prior-year quarter. The dollar increase was primarily driven by headcount to support the expansion of our existing offerings, as well as developing new products and features to fuel growth. Non-GAAP G&A expense was $12.4 million or 18% of revenue compared to $8.1 million or 19% of revenue in the prior-year quarter. The dollar increase was driven by investments to support our overall company growth and public market requirements. Non-GAAP net loss attributable to Braze shareholders in the quarter was $13.8 million or a loss of $0.18 per share based on $78.4 million weighted average basic shares outstanding during the period. This compares to a loss of $8 million or a loss of $0.42 per share based on $19.2 million weighted average basic shares outstanding in the prior-year quarter. Now, turning to the balance sheet and cash-flow statement. We ended the quarter with $518.1 million in cash, cash equivalents, restricted cash, and marketable securities. Cash used in operations during the quarter was $24.5 million, compared to approximately break-even in the year-ago quarter. This change was driven by a higher net loss and increased cash used for working capital. As we indicated during our third-quarter call, the fourth-quarter included the impact of two significant prepayments related to one of our technology vendors and directors and officers’ liability insurance. Combined, these two prepayments were approximately $17 million during the fourth quarter. Now, turning to our outlook for the first quarter and full-year of fiscal 2023. We remain very optimistic about our potential for revenue growth as evidenced by our strong pipeline of both new businesses and upsell opportunities. Our first-quarter revenue guidance includes appropriate risk adjustments for new business and renewals we have yet to close this quarter. For the first quarter, we expect revenue to be in the range of $72 million to $73 million, which represents a year-over-year growth rate of approximately 51% at the midpoint. First-quarter non-GAAP operating loss is expected to be in the range of $20 million to $21 million. First-quarter non-GAAP net loss is expected to be $19 million to $20 million, with first-quarter non-GAAP net loss per share in the range of $0.20 to $0.21 per share based on approximately $93.5 million weighted average basic shares outstanding during the period. For the full fiscal year 2023, revenues are expected to be in the range of $338 million to $342 million, which represents a growth rate of 43% year-over-year at the midpoint. Fiscal year 2023 non-GAAP operating loss is expected to be in the range of a loss of $79 million to $83 million. Non-GAAP net loss for the same period is expected to be in the range of a loss of $76 million to $80 million. Fiscal year 2023 non-GAAP net loss per share is expected to be a loss in the range of $0.80 to $0.84 per share based on a full-year weighted average share count of approximately 95.1 million shares. As I noted during our IPO roadshow, as well as during our third-quarter conference call, fiscal year 2023 is an investment year. However, investment spending is deployed with significant levels of discipline and oversight. As a result, we reiterate our long-term target operating model of 20% operating margin. In summary, we're very pleased with the results of the quarter. New and existing customers are realizing the value of our best-in-class customer engagement technology and our execution remains strong. With that, we'll now open the call for questions. Operator, please begin the Q&A.
Operator, Operator
Certainly, as a reminder, if you are using a speaker phone, please remember to pick up your handset before asking your question. The first question is from Mark Murphy with JP Morgan. You may proceed.
Pinjalim Bora, Analyst
Hey, thank you. This is Pinjalim for Mark. Thank you for taking our questions. Congrats on the strong quarter. I want to ask you just high level, what is driving the strength overall? If you think about it, your billings growth is really strong on top of a very tough comp. I mean, is it the IPO kind of putting a spotlight on Braze, is this just awareness of the category or is this kind of a tailwind from the first-party data that you guys have versus depending on cookies for others, maybe? Can you help us understand what's at a high level driving the strength of the business?
Bill Magnuson, CEO
First, thanks for that compliment. In the quarter, we're obviously very pleased with the execution from the team and the response from our customer base. I think that when we analyze the tailwinds behind the business, it's really important to keep in mind that we are benefiting from multiple dimensions of generational trends that have been changing in the direction of what we've been building for over a decade now. When we look at it from the perspective of digitization trends, the move to first-party data, and the enhancement and sophistication within customers as they move to more interdisciplinary strategies and customer engagement. We continue to see more and more companies that are structuring their teams in ways that they can really take advantage of Braze's approach to customer engagement. We continue to execute at a very high level. As we look further into the future, we're continuing to invest for that growth.
Pinjalim Bora, Analyst
Yes. Understood. Okay, and is about just a follow-up? Anyway, to unpack kind of metric tension, the dollar-based net retention strength. I think you've said renewals was strong. You mentioned gross dollar retention. Did that uptick and within expansions, is there any one or two major drivers that you're seeing jumping out?
Isabelle Winkles, CFO
We certainly experienced a new high in gross renewals during the quarter, which is fantastic. Additionally, the net retention rate for the quarter was very strong. We're also benefiting from the fact that we're calculating the 12-month trailing statistic and moving out of some weaker quarters from earlier. This combination of factors contributed to our strong in-quarter results.
Pinjalim Bora, Analyst
Got it. Thank you.
Operator, Operator
Thank you, Mr. Murphy. The next question is from the line of Ryan MacWilliams with Barclays. You may proceed.
Ryan MacWilliams, Analyst
Thanks for the questions.
Bill Magnuson, CEO
Braze vertically integrates that responsibility, allowing for the marketing teams that utilize us to get access to more data in order to drive deeper personalization, more sophisticated orchestration through our Canvas visual programming language. We continue to invest heavily across the data ecosystem. The exact right mix of products that are appropriate for a given customer and their own kind of data footprint will continue to evolve, and we think that's going to be a heterogeneous landscape. But what has always been really important to Braze, given where we sit in the value chain with respect to engagement, is owning the relationship with the customer and being integrated into those first-party interfaces and in the user experience and feel of the product and all the in-product messaging. That's going to require us to continue to invest in our vertical integration.
Ryan MacWilliams, Analyst
Excellent. I'll definitely get them that offer maybe some time offline. And then for Isabelle, just looking at your fourth-quarter revenue, anything to call out there from a seasonality or maybe COVID impacted standpoint?
Isabelle Winkles, CFO
We're definitely really pleased with where the quarter came in. I think seasonally, it's going to go back to actually how our annual contract value plays out, our bookings play out throughout the year. It edges up in Q2, Q3, and then by the time we hit Q4, that's the single largest quarter, and we'll do about a third of our bookings in Q4. So the way that plays is into the evolution of revenue is from a sequential perspective. You'll get the strongest sequential revenue growth in Q2 and Q3. And then the smallest sequential growth will tend to be in Q4 and then Q1. I believe that's a little bit of what you're seeing is that fact pattern around the annual contract value. The annual contract value was over a month. We typically book most of it in the first two months of the quarter. The percent of our annual contract value in the third month of the quarter. And so when you're looking at the sequential revenue growth between those two quarters, there's also that fact pattern of how the annual contract value distributes the revenue results in this quarter.
Operator, Operator
Thank you Mr. MacWilliams. The next question is from the line of Gabriela Borges with Goldman Sachs. You may proceed.
Gabriela Borges, Analyst
Good afternoon and thanks for taking my question. On the commentary on appropriately risk adjustments in the guidance, how do you think about the potential risk of the macro slowdown leading to less investment in marketing software? And how sensitive do you think your business might be to pull back and market it to Europe? And if there are any indicators of the slowdown in marketing software spending?
Bill Magnuson, CEO
So a few things there, and I've spoken about this before, but we think that within the broader marketing landscape in both spend as well as from the perspective of focus and prioritization within organizations, the focus of Braze causes us to actually have a large comparative benefit in times where there is either a slowdown or there's increased scrutiny on profitability, both of which are being experienced in the market right now. When we look at the history, we have seen individual clients that have experienced slowdowns or we see three different things that actually really benefit us. First, in many cases, that leads to more expensive R&D resources being cut or refocused as they're not growing as quickly. In those cases, the flexibility that Braze provides without the need of a direct engineering team becomes even more important. Often the first place that you go as a marketer is where the incremental costs of communicating with users is low and conversion is high. That's exactly where Braze is focused. And even during periods of decreased demand, maintaining healthy conversations and relationships with your customers remains paramount. We think that we're still early in the addressable market within that region, and even if there is a broader slowdown, our ability to continue to execute against our goals will be unhindered from that perspective.
Gabriela Borges, Analyst
That's surely a helpful detail. Thank you. As a follow-up through, is on your commentary on the next normal. We understand that a portion of that model is based on pricing by a monthly model. Maybe talk just about categories like the eCommerce or quick-service restaurants that saw significant exploration during COVID. Are you seeing any signs of main inversion or a slowdown in monthly active users in those particular categories?
Bill Magnuson, CEO
We don't break out monthly active users by category, so we can't share specifics on that. But what we do see is that there's a number of things that level out our growth and our contracts within Braze. First is that monthly active users and the ability to retain them is very high when customers utilize Braze. We see that even in broad changes in user behaviors, that ability to engage with them once a month for them to remain a monthly active user is something that all of our customers broadly can do, especially in growing markets. So our reversions to the mean in terms of overall activity levels would not imply that there's a reversion to the mean impact in monthly active users. The other is that we're not consumption-based from a messaging standpoint, as well. So the monthly active user concept itself already has some smoothing in it. We're not experiencing the consumption-based tailwinds from the pandemic that you saw in many other businesses, but we think that it leads to a more predictable revenue model. Our overall trend of continued adoption of mobile devices, continued digitization, and the move towards investing in direct-to-consumer relationships. These trends continue to drive our growth.
Gabriela Borges, Analyst
Sounds good. Thank you.
Operator, Operator
Thank you, Ms. Borges. The next question is from the line of Derrick Wood with Cowen. You may proceed.
Derrick Wood, Analyst
Hey, guys. Congrats on a really strong quarter. Bill, you mentioned this $3 million land deal. Pretty impressive to see such a large net new win. I'm just curious, is landing a seven-figure deal out of the gate an anomaly, or is that a dynamic that could take greater hold? Anything else you can share with respect to how you won this deal and what edged you out over the competition?
Bill Magnuson, CEO
We've seen continued year-over-year improvement in seven-figure land deals over the last several years. I'm not going to put specific numbers to it, but that's definitely a trend that we continue to see happen. Our product portfolio continues to grow year-over-year. As we've added more channels over time, as we've added more comprehensive data integrations. As brands grow their own direct-to-consumer audiences and start to embrace new customer engagement strategies, that all of these multiply together to give us the ability to land larger and larger deals across more categories. I would say I'm very happy with our ability both to land these seven-figure deals, but also with the diversity of geographies and verticals we land them in. That underscores our dollar-based net retention, and these customers that are greater than 500K have a higher retention compared to the rest of the customer base. We continue to see opportunity to grow the footprint of these organizations, and we'll obviously continue to invest in the product to keep growing from there. We've also invested heavily on the SMB side of the business over the last year in particular, and we're seeing good health metrics coming out of that group. So we're seeing strong progress on the SMB side, but we're super happy with the seven-figure deals.
Derrick Wood, Analyst
That's great color. And I guess as a follow-up on the announcements you made around commerce this week. Please help us think about how to drive this may drive more revenue opportunity or what the modernization approach is going to be.
Bill Magnuson, CEO
When you look at the overall product investment trends that we're doing, we're really trying to lean into our advantages and ability to control the complexity as customers can use more and more Braze's products. When we see our commerce strategy, there are improvements in data integrations, making sure that we've got the right data models and reporting capabilities, as well as integration into platforms like Shopify. As they grow with us over time, we improve the data insights into their strategies. When we see our commerce integration with product catalogs and recommendations, there's a lot around recommendations that involve inventory and margin that they want to optimize. Our sales strategy is about capturing those first-party engagement strategies combined with acquisition strategies. We're excited to continue to invest heavily in that vertical.
Derrick Wood, Analyst
Understood. Thanks for the color. Congrats.
Bill Magnuson, CEO
Thank you.
Operator, Operator
Thank you, Mr. Wood. The next question is coming from the line of Arjun Bhatia with William Blair. You may proceed.
Arjun Bhatia, Analyst
All right. Thank you, and my congrats on the quarter. Bill, maybe a follow-up on that last point on the Commerce investments you made. Obviously, very interesting, but I'm curious how you think about the opportunity to verticalize for other industries where you already have a presence like quick service restaurants or media financial services. Is there an opportunity to take this Commerce playbook and apply it to those verticals?
Bill Magnuson, CEO
We want to invest in vertical-specific go-to-market resources over time from a post-sales perspective as we look at different verticals. While there's been some traditional parts of these very large industries, we anticipate the technology adoption curve within verticals like those will continue to evolve. We believe Braze is built for purpose in those verticals but will need to do more than just solve the general business problem. We're prepared to do that. We will prioritize growth across geographic expansion, product expansion, and verticalization. This is a great problem to have as we try to optimize across all those dimensions, and verticalization will continue to be an exercise over the next few years.
Arjun Bhatia, Analyst
Awesome. Yeah, that's a great problem to have. One more follow-up if I can. Obviously, the gross margins have been improving year-over-year. Can you just touch on how much traction you're seeing for some of the in-app messaging features that you rolled out, content cards or surveys, etc.? And I'm curious, do you see customers adopt these off the bat or should we think of that further down in the maturity curve, further down in the customer journey?
Bill Magnuson, CEO
New customer deployments are actually pretty diverse. We have a lot of customers who will start out with just content cards or just in-app messages. In many cases, when a brand has really made the decision that they want to start investing in a sophisticated platform like Braze, we're skilled at finding the first opportunity for them to get up and running. One of the huge benefits of our vertical integration is that when you start with any of those channels, the data integration is always complete at the end of that. We are really happy with the traction that we've had from the in-product messaging types, and we've been able to acquire customers we probably wouldn't have otherwise by starting there. Our overall dollar-based net retention results continue to reflect that. The diversity of use cases that Braze deployments represent across the market continues to grow.
Arjun Bhatia, Analyst
Awesome. Thank you very much and congrats, again.
Bill Magnuson, CEO
Thank you.
Operator, Operator
Thank you, Mr. Bhatia. The next question is from the line of Brent Bracelin with Piper Sandler. You may proceed.
Brent Bracelin, Analyst
Good afternoon. Thanks for taking the question. Maybe I'll start with Isabelle and a follow-up for Bill. Isabelle, appreciate the color around the prepayment fees. But as we step back, I know there's a bit of a hypersensitivity that investors have just around fully-funded models. You have a very large cash position. Can you talk a little bit about cash burn on a normalized basis going forward? What is the path to more of a breakeven scenario? And as you think about your existing cash, does that get you enough leeway to get to a positive free cash flow environment?
Isabelle Winkles, CFO
We don't currently have any plans for further capital raises, so I think we're comfortable with the level of cash that we have right now. We've reiterated our plans to achieve our target operating model of 20% operating profitability, and cash flow will come sooner than that. It's better to look at cash flow on a 4-quarter trailing statistic. There can be anomalies in any given quarter given the timing of collections from customers, and payments we make as you can see from this particular quarter. We believe we are well funded and have no plans for further capital raises.
Brent Bracelin, Analyst
That's helpful color. Thank you. And Bill, spending the first two days of this week at Shoptalk, it just seems like direct-to-consumer and increasing personalization is a land grab around first-party data. As we think about the business, three quarters of accelerating subscription growth, how much has IDFA and data privacy changes been a catalyst for your business and how can that be a potential catalyst for the business going into next year as well?
Bill Magnuson, CEO
From our vantage point, we've seen this as a multi-year trend that has been building over the last half-decade. I think that the public markets have woken up to it more recently. When we really started Braze in the early days, we were focused on first-party data as the more respectful way to work on a relationship over the long term. We wanted our customers to have a long-term focus about how they thought about their own customer relationships, focusing on consent and mutual respect. Our customers' marketing strategies are evolving in response to that seeing strong growth and maintaining engaged customer relationships remains paramount. We think our BFS model, along with the shifting market trends, should benefit our business as we grow into the future.
Brent Bracelin, Analyst
Helpful color. Thank you.
Bill Magnuson, CEO
Thank you.
Operator, Operator
Thank you, Mr. Bracelin. The next question is from the line of Brian Peterson with Raymond James. Please proceed.
Brian Peterson, Analyst
Thanks. So I'll echo my congrats on the strong quarter. I know you guys talked about some international investments you're making. It was clear on the call today. I'll just be curious, how much of that is a product-oriented investment and I guess I'm thinking about data ingestion and things that might take place there. And if we think about the go-to-market infrastructure that needs to be built there, is that something that you feel like will be done in fiscal year '23 or is that kind of a multiyear investment?
Bill Magnuson, CEO
When you look at the history of our international expansion, we’ve tended to lag customer demand and activity in each region that we've gone to. Our first focus has been really providing more in time-zone, in-region post-sales support. It continues to be focus. From a product investment perspective to be able to sell into new markets is relatively minimal. We're currently evaluating what our next steps for localization are going to be. Customer demand will dictate the timing and magnitude of our future investments. Expect our international expansion will continue over the years to come.
Brian Peterson, Analyst
Thanks, Bill.
Operator, Operator
Thank you, Mr. Peterson. Due to time constraints, we kindly ask the remaining participants to limit themselves to one question. The next question is from the line of Yun Kim with Loop Capital Markets. You may proceed.
Yun Kim, Analyst
All right. Thank you. Congrats on the continuous strong momentum, Bill and Isabelle. So Bill, can you just talk about the shift in vertical mix as some of the more supply chain impacted verticals like auto and consumer goods. While they are still healthy, may not have increased their marketing budget as much in the quarter. And just curious, do certain verticals carry meaningfully different gross margins over other verticals?
Bill Magnuson, CEO
When you are supply chain constrained, it doesn't mean that your need to communicate with your customers has changed. In fact, when you have disruptions in service, that's often some of the most important times to maintain communication with customers. We expect to see that broadly across the marketing space, but you shouldn't expect to see that be a problem in Braze’s results because of those two primary factors. Gross margins across verticals have some intuitive things that you would expect, but our addressable market has allowed us to qualify into the right types of businesses, ensuring we maintain and improve year-over-year pricing power.
Yun Kim, Analyst
Okay, great. Thank you so much, Bill.
Operator, Operator
Thank you, Mr. Kim. The next question is from the line of Patrick Walravens with GMP Securities. Please proceed.
Patrick Walravens, Analyst
Great. Thank you. And let me add my congratulations. Bill, I loved hearing you say that Braze focuses on being respectful and a good participant in a relationship. We don't hear that often enough, and that's fabulous. My question is on the relationship with Twilio. Can we get an update on relationship with Twilio? It's been almost six months since Twilio Engage came out. They've been a great partner and now they have this product. So just love to hear where that is all sitting today.
Bill Magnuson, CEO
We continue to have a great relationship with Twilio. They’ve always done a great job of building tools for developers, and that's the reason that we will continue to have a strong partnership with them. We are deploying in many different data footprints and different types of architectures. We continue to focus on making sure that we invest in our vertical integration, while there is always space for collaboration with CDPs depending on their particular customer. We’re excited about potential future opportunities as we keep working with them.
Patrick Walravens, Analyst
Okay. Thank you.
Operator, Operator
Thank you, Mr. Walravens. The next question is from the line of Scott Berg with Needham & Company. You may proceed.
John Covina, Analyst
Hey, everyone. This is John Covina for Scott Berg. Thanks for taking my question. Just curious if you guys have seen any evolution upmarket in the buy versus build conversations, particularly around companies who are trying to do some more interesting things that they're looking at?
Bill Magnuson, CEO
When we look up market, we see Braze continuing to be a huge accelerant regardless of where you land on the build versus buy spectrum. We've been really focused on having an ability for people to build with Braze for a long time. Our tools are about helping data engineers and product engineers work at the higher value-add points. We want to make it easier for them to collaborate with marketing and growth teams and leverage our APIs for a more sophisticated solution. We feel that customer engagement in 2022 and beyond is an interdisciplinary sport.
John Covina, Analyst
Great. Thanks, everyone.
Bill Magnuson, CEO
Absolutely. Thank you everybody for joining us for this. We're really excited to continue to execute and communicate with everyone as we're pushing ahead and growing Braze, and thanks for all the great questions.
Operator, Operator
That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.