Earnings Call Transcript - BRZE Q4 2025

Operator, Operator

Welcome to the Braze Fiscal Fourth Quarter 2025 Earnings Conference Call. My name is Leila, and I'll be your operator for today's call. At this time all participants are in listen-only mode. After the speakers’ presentation, we will conduct a question-and-answer session. I'll now turn the call over to Christopher Ferris, Head of Braze Investor Relations.

Christopher 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 2025. 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 at investors.braze.com for more information and a set of presentations 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 first quarter and fiscal year ended January 31, 2026, the anticipated closing of benefits from product advancements due to our anticipated acquisition of Offerfit, our expectations concerning new customer verticals, our 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 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 fourth quarter 2025 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.

William Magnuson, CEO

Thank you, Chris, and good afternoon, everyone. We delivered strong fourth quarter results, generating $160.4 million of revenue, up 22% year-over-year and 5% from the prior quarter, again demonstrating the high ROI and long-term value of the Braze Customer Engagement Platform, along with the strong execution of our teams around the world. We drove continued efficiency across our business, recognizing nearly $8 million of non-GAAP operating income in the quarter and achieving a non-GAAP operating margin of 5.0%, up from negative 5.7% in the fourth quarter of last year. We also achieved our third straight quarter of non-GAAP net income profitability, generating over $12 million of net income and over $15 million of free cash flow. Our financial results for the full year demonstrated impressive operating leverage, including $18 million of non-GAAP net income, nearly $20 million of free cash flow and an 850 basis point improvement in non-GAAP operating income margin, which combines with last year's efficiency efforts to represent a nearly 20 percentage point improvement over the last two fiscal years. As previously discussed, we expect to generate positive quarterly non-GAAP operating income and free cash flow going forward. We are proud of these financial achievements as we continue on our journey to become the leading customer engagement platform globally, and we look forward to sustaining profitable growth in the coming quarters and years while also thoughtfully reinvesting to grow our business. We previously highlighted the legacy vendor replacement cycle and point solution consolidation trends, and we continue to capitalize on those in the fourth quarter, securing a diverse set of new business wins where Braze is replacing legacy marketing clouds, including a U.S. fintech, a large U.S. retailer, an energy company in EMEA and a ticket broker in APAC, just to name a few. We also continue to win against both channel-specific point solutions and homegrown tools across a diverse set of industries, geographies and use cases. Some notable takeaways in the quarter included a leading U.S. consumer rating service, a U.S. gaming business, a Saudi Arabian delivery application, a careers website in EMEA and a telecommunications company in APAC, among others. We are confident that both the legacy replacement cycle and vendor consolidation trends, which have been a tailwind for some time, will create more opportunities for Braze to gain market share as brands increasingly strive to upgrade their customer engagement strategies and leverage new AI-driven advancements to achieve productivity gains and build strong relationships with their customers. Q4 also included our highest net new customer result of FY 2025, rising by 85 to 2,296, up 252 year-over-year. New business wins and upsells included America's Test Kitchen, Dis-Chem, Dunkin' UAE, Kueski, Legal & General, Muvi Cinemas, QDOBA Mexican Eats, Springer Nature and tonies, along with many others. The quarter also illustrated the diversification of our customer base as we secured new business across a wide range of industries and geographies, including U.S. based specialty retailers and restaurants, a consumer software firm in APAC, automobile companies in the U.S. and Europe, a security business in EMEA and a digital media company in APAC, just to name a few. Our large customer additions were also strong with our $500,000 plus ARR customers increasing to 247, up 22% year-over-year, demonstrating the desire of enterprises to leverage first-party data and advance artificial intelligence to drive sophisticated cross-channel customer engagement at scale. Our continued diversification across verticals is driven by a trend that we've been discussing for years, the increasing importance of first-party data as businesses of all kinds strive to better understand their customers and unlock the ability to efficiently communicate with them through digital product experiences and first-party messaging channels. We believe that the super cycle of investment across verticals continues to increase Braze's long-term opportunity as modern businesses prioritize first-party data collection and customer engagement, thereby building new company assets in the form of actionable first-party relationships with their customers. Looking ahead, we expect these same businesses to capitalize on the growing strength and attachment of those customer relationships to diversify their own business offering, forging more durable bonds with their customers and finding opportunities for incremental profit along the way. While we're very excited about the diversity of the opportunity ahead of us, we're also now starting to systematically lean into our largest verticals to ensure that Braze's flexibility and power can be easily wielded for common use cases in each major industry. The first such vertical to see this focused R&D treatment is also our largest, retail and consumer goods, which accounts for roughly one-fifth of Braze's business. To further strengthen our leadership in this vertical, we recently announced enhanced e-commerce features and an upgraded Shopify integration. These updates include prebuilt e-commerce templates, predefined event tracking for abandoned carts, customizable landing pages and expanded WhatsApp commerce capabilities such as product catalogs and in-thread shopping experiences. By simplifying implementation and accelerating time to value, these enhancements empower e-commerce marketers to drive higher engagement and conversions. Moreover, the Shopify integration enables seamless bidirectional data flow, allowing enterprise brands like e.l.f. Beauty, Hugo Boss, Gymshark, Gap and Overstock to create more personalized customer journeys and improved conversion rates and lifetime value. This strategic partnership with Shopify also fosters deeper collaboration between both companies' go-to-market teams, unlocking mutual value in the enterprise segment in particular. As Shopify continues expanding upmarket, it can leverage Braze's expertise in enterprise engagement to accelerate digital transformation for legacy commerce and marketing systems. As we look ahead, we continue to believe that there's never been a better time to be a better marketer. The increasing agility of data, the growth of channels, the explosion of AI and the rising sophistication of marketers means brands have a unique opportunity to connect with their customers like never before, building long-lasting relationships with their customers. And it's not just about the tire drop of finding the right message for the right channel at the right time; it's about understanding customers in greater depth, engaging with them more completely and strengthening customer relationships through the delivery of harmoniously connected messages and product experiences. Agentic AI in particular is crucial for optimizing relevance and achieving higher levels of personalization at scale, as decisioning agents autonomously experiment, learn and deliver highly relevant personalized experiences. At Forge, our annual customer conference last September, we shared our vision for Project Catalyst, a proprietary agent designed to help brands personalize and optimize experiences with highly relevant journeys, content and incentives. And we're on track for the first private beta release of Project Catalyst in late Q1. Building on this vision, we are excited to announce that Braze has entered into a definitive agreement to acquire OfferFit, a leading AI decisioning company that leverages proprietary reinforcement learning technology to enable brands to deliver highly relevant personalized customer engagement at scale in a cash and stock deal valued at $325 million. For nearly five years, OfferFit has been perfecting a multi-agent solution that autonomously explores solution spaces across the many dimensions of lifecycle marketing campaigns, producing individualized recommendations for cross-channel delivery and content strategies in partnership with customer engagement platforms and marketing cloud services like Braze, Salesforce Marketing Cloud and Klaviyo. The technology approach is based on ensembles of contextual abandons and is highly flexible, replacing the manual work of AB testing with reinforcement learning agents that autonomously experiment and learn optimal actions. OfferFit's sophisticated AI decisioning can be deployed in a wide array of experimentation and optimization use cases, and their approach has been highly successful, enabling the company to land and expand with large enterprises across numerous industry verticals over a short period of time. OfferFit's customer base, vertical focus and user sophistication complement Braze’s enterprise motion in particular. Like Braze, an ideal large OfferFit customer is a high-scale B2C brand investing in sophisticated marketing technology. Their average starting contract is typically in excess of $250,000 per year with top industry verticals, including financial services, retail, restaurants, media and streaming, energy, telecommunications, and travel. In fact, as OfferFit's most prominent partner, nearly one-third of current OfferFit customers use Braze as their primary customer engagement platform. And whereas their go-to-market motion is still focused in the United States, they've shown an ability to sell globally that we expect will be amplified by Braze's robust existing presence across EMEA, LATAM and APAC. In the near term, we believe OfferFit's solution will help us grow deal sizes through their unique reinforcement learning products and services and also help us differentiate versus competitors by providing a wide spectrum of AI-driven optimization capabilities at various price points and service levels. Over the medium term, much as we've done with other core aspects of BrazeAI, we will infuse OfferFit's agents and machine learning models throughout the Braze platform, allowing us to jointly solve new use cases and enhance existing features to help brands deliver more relevant customer engagement. Finally, we believe their engine and expertise will enable Braze to more quickly advance multiple BrazeAI priorities, further positioning Braze as a leader in AI and customer engagement to capitalize on a market opportunity globally. We're incredibly excited to have OfferFit's team and technology joining Braze, combining our collective years of research and development into machine learning and artificial intelligence to advance our product ecosystem and drive brilliant experiences for our customers and their consumers. I'll conclude my remarks by reiterating our excitement in the future of Braze and the confidence in our long-term growth story. Thank you for your interest and support in Braze. And now I'll turn the call over to Isabelle.

Isabelle Winkles, CFO

Thank you, Bill, and thank you, everyone, for joining us today. As Bill stated, we reported a strong fourth quarter with revenue increasing 22% year-over-year to $160.4 million, driven by a combination of existing customer contract extensions, renewals and new business. Subscription revenue remains the primary component of our total top line, contributing 96% of our fourth quarter revenue, while the remaining 4% represents a combination of recurring professional services and one-time configuration and onboarding fees. Total customer count increased 12% year-over-year to 2,296 customers as of January 31, up 252 from the same period last year and up 85 from the prior quarter. Our total number of large customers, which we define as those spending at least $500,000 annually, grew 22% year-over-year to 247. And as of January 31 contributed 62% to our total ARR. This compares to a 60% contribution as of the same quarter last year. Measured across all customers, dollar-based net retention was 111%, while dollar-based net retention for our large customers was 114%. Expansion has been broadly distributed across industries and geographic regions. Revenue outside the U.S. contributed 45% to our total revenue in the fourth quarter, consistent with the prior quarter of this year and up 100 basis points from 44% in the prior year quarter. In the fourth quarter, our total remaining performance obligation was $793 million, up 24% year-over-year and up 11% sequentially. Current RPO was $505 million, up 23% year-over-year and up 10% sequentially. 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 2 years. Non-GAAP gross profit in the quarter was $112 million, representing a non-GAAP gross margin of 69.9%. This compares to a non-GAAP gross profit of $89 million and non-GAAP gross margin of 67.9% in the fourth quarter of last year. The increase in year-over-year margin was driven by continued cost optimization of our technology stack with additional benefits from personnel efficiencies, partially offset by higher premium messaging volumes. Non-GAAP sales and marketing expenses were $60 million or 37% of revenue compared to $55 million or 42% of revenue in the prior year quarter. While the dollar increase reflects our year-over-year investments in head count 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. Non-GAAP R&D expense was $23 million or 14% of revenue compared to $21 million or 16% of revenue in the prior year quarter. The dollar increase was primarily driven by increased head count 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 $21 million or 13% of revenue compared to $20 million or 15% of revenue in the prior year quarter. The dollar increase was driven by investments to support overall company growth and global expansion. Non-GAAP operating income was $8 million or 5% of revenue compared to a non-GAAP operating loss of $7 million or negative 6% of revenue in the prior year quarter. Non-GAAP net income attributable to Braze shareholders in the quarter was $12 million or $0.12 per share compared to a loss of $3 million or a loss of $0.04 per share in the prior year quarter. Now turning to the balance sheet and cash flow statement. We ended the quarter with approximately $514 million in cash, cash equivalents, restricted cash and marketable securities. Cash provided by operations during the quarter was $17 million compared to cash provided by operations of $4 million in the prior year quarter. Including the cash impact of capitalized costs, free cash flow in the quarter was $15 million compared to a negative free cash flow of $4 million in the prior year quarter. And as we have noted in the past, 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. Please note that our formal guidance excludes the impact of the planned OfferFit acquisition, which we expect to close in the second quarter. The transaction is expected to add approximately 2 percentage points to year-over-year revenue growth and be modestly dilutive to non-GAAP operating income margins in the fiscal year. We plan to update our guidance to account for the transaction after it closes. For the first quarter of fiscal 2026, we expect revenue to be in the range of $158 million to $159 million, which represents a year-over-year growth rate of approximately 17% at the midpoint. As a reminder, our first quarter contains 3 fewer days compared to the other three quarters of the year, which each contain 92 days. First quarter non-GAAP operating income is expected to be in the range of $0 to $1 million. First quarter non-GAAP net income is expected to be $4.5 million to $5.5 million and first quarter non-GAAP net income per share in the range of $0.04 to $0.05 per share based on approximately 108 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 $686 million to $691 million, which represents a year-over-year growth rate of approximately 16% at the midpoint. Fiscal year 2026 non-GAAP operating income is expected to be in the range of $25.5 million to $29.5 million. At the midpoint, this implies a non-GAAP operating income margin of 4 percentage points, roughly a 400 basis point improvement versus fiscal year 2025, in line with the annual margin expansion framework we outlined at our Investor Day last September. While we expect to remain operating income positive for the year, inclusive of the proposed acquisition of OfferFit, the dilutive impact in fiscal year 2026 is likely to result in a temporary departure from the framework, with a return to a more meaningful year-over-year operating income expansion next year. Non-GAAP net income for fiscal year 2026 is expected to be in the range of $34 million to $38 million and net income per share is expected to be $0.31 to $0.35 per share based on a full year weighted average diluted share count of approximately 110 million shares. I'll close by reiterating our excitement about Braze's future. We remain committed to becoming the global leader in customer engagement solutions and driving product innovation while executing against our long-term financial goals. And with that, we'll now open the call for questions. Operator, please begin the Q&A.

Operator, Operator

We will now begin the Q&A session. Our first question comes from Ryan MacWilliams with Barclays. Please unmute your audio and ask your question.

Ryan MacWilliams, Analyst

Hey, congrats on the quarter and congrats to Myles on a great run. Bill, glad to see the Braze technical brand receiving this week, along with today's announcement of the OfferFit acquisition. I'd love to hear more about what OfferFit could add to your platform? And how do you envision AI agents improving marketing campaigns for your customers in the near future? I have one follow-up. Thanks.

William Magnuson, CEO

Yes, of course. So I think I'll just start at the top and break down the two major components that I think are necessary to understand the synergies behind this deal and the logic behind it and why we're so excited about it. So first, when you look at OfferFit's existing full product offering, which they've been scaling and improving upon for the last 4.5 years, it excels specifically at generating maximum uplift in scenarios where even small differences in performance can translate into massive ROI for their customers. Now like Palantir, the openness and the configurability of the OfferFit system does lead to a requirement for expert assistance from their forward deployed machine learning implementation engineers. And that is heavier upfront, of course, through initial implementation. And then as the agents need monitoring or maintenance over time, as the customer base changes or as performance starts to drift, et cetera, those expert teams are there to ensure that, that maximum performance continues to be delivered. And it achieves that uplift to a degree that is previously only possible with massive proprietary in-house data science investments or into machine learning teams or other bespoke services engagements that come at much higher price tags. And so we're really excited about what that means for the high end of the market, looking at our enterprise and our global strategic accounts categories in particular as well as other high-scale B2C companies as they're scaling. We also believe that even as Frontier AI technology continues to advance that there's always going to be use cases where achieving that maximum performance is worth that meaningful incremental investment. And they've built a capability to provide that to the top end of the market in a highly scalable fashion with an attractive gross margin. But we also believe that the underlying technology, the OfferFit engine can be tuned and constrained to particular use cases to remove that need for the expert services attachment while still achieving meaningful performance uplift across a wide array of lifecycle marketing goals. And so we're really excited in addition to continuing to build and scale the existing OfferFit full product to work alongside their expert R&D teams to find new places to deploy their engine that's going to be able to solve new use cases for customers as well as enhance existing aspects of both BrazeAI and the testing and personalization space and to extend the future capabilities of Project Catalyst.

Ryan MacWilliams, Analyst

Excellent. And then for Isabelle, really tough time for CFOs at this point due to the shifting macro. Any adjustments to your normal guidance philosophy given the macro? And any color on what in-quarter net retention looked like for the fourth quarter? Thanks.

Isabelle Winkles, CFO

Yes. Thanks. So I would say, look, we've been living in this macro disruption and evolving environment for the last several years. So we've sort of become used to the change being a bit of the new normal. I would say that when we went into last year's guide, I talked about being a little closer to the pin, I think that philosophy will be maintained in this context. So look for that to continue as a mantra that we espouse. And then on the in-quarter DBNR, look, I think the way to think about dollar-based net retention, it's very sensitive, obviously, to the evolution of new business versus upsell. And actually, as you heard Bill and I say in some of our prepared remarks, we're very satisfied and very pleased with the evolution of the new business strength in Q4 and some of the momentum there. We're really focused actually on the total impact on revenue growth, and I made some comments last quarter about revenue growth inflecting ahead of dollar-based net retention. And we stand by the comment going into this year. And so we're really excited about the overall momentum on the business.

Ryan MacWilliams, Analyst

Thanks so much.

Operator, Operator

Our next question will come from the line of Arjun Bhatia with William Blair. Please go ahead.

Arjun Bhatia, Analyst

Yes. Perfect. Thank you and congrats on a nice close to the year. Bill, maybe first for you. You mentioned something in your prepared remarks that kind of stuck out. I think you've raised it as the next level of personalization beyond right message, right channel, right time. I don't know if that was specifically addressed to Offerfit that something Braze kind of do in general. But what is that next frontier personalization? And how does it maybe change the nature of the messages, if at all, that you're sending to your customers beyond kind of traditional marketing-oriented messages? And then I have a follow-up there.

William Magnuson, CEO

Yes. It's essential to view this on a spectrum, with various ways to organize it. Manual AB testing and instrumentation have been available on many platforms for a long time and result in higher outcomes, relevance, and personalization for customers. As we progress to more automated experimentation, like what we've included in the personalized path in Canvas, we utilize advanced machine learning techniques to optimize not just small content pieces but also to analyze decisions made across multiple channels, affecting product experiences and experimenting with elements like cadence and tone. Further along this spectrum is Project Catalyst, which aims to not only automate experimentation but also the generation of different experiment variants and broaden the range of decisions that automated experimentation can make. When looking at fully customizable models, even small performance differences can lead to significant outcomes, particularly in high-value actions or cost-intensive scenarios, where slight improvements can result in substantial ROI. There's exciting potential here, as I mentioned earlier, to leverage hands-on data science expertise for maximum performance, whether from in-house teams or through services like OfferFit's machine learning engineers. However, not all teams have access to such expertise, and it isn't practical to invest heavily in expert services for every decision in customer journeys. Braze's goal is to empower customers of all sizes to effectively navigate a diverse landscape and utilize AI and machine learning tools to optimize their results and relevance. We aim to ensure that these tools are deployed successfully in every detail of the customer journey, a topic we've discussed extensively. Additionally, the ongoing progress in Frontier AI will enhance the performance of our self-serve, rapidly deployed AI features in the BrazeAI suite. As we advance from traditional AB testing to automated and personalized paths using successive machine learning generations, it's crucial to highlight the synergy between OfferFit's approach and Braze's accessible strategies, particularly the benefits of a strong product feedback loop. Just as Palantir has rapidly improved through tight feedback from their deployed engineers, OfferFit has enhanced its engine due to a valuable feedback channel from machine learning implementation engineers. We look forward to the future of Braze and OfferFit together, optimizing the feedback loop and pioneering research and development from OfferFit across the entire BrazeAI and Project Catalyst.

Arjun Bhatia, Analyst

Okay. Very helpful. Thank you. And then one quick one just on customer cohorts. I'm curious what you're seeing in terms of just expansion trends from some of the newer customer towards that you won, whether that's greenfield point solution replacements your legacy providers. It seems like new has been pretty strong. But when those customers are coming up for renewal, are you seeing expansion levels that are better than that surf cohort? And has that magnitude kind of changed at all from the 9 points that we talked about at Analyst Day?

Isabelle Winkles, CFO

Yes. Since we announced the 9 percentage point difference between those two cohorts, it has continued to trend positively. We won't provide ongoing disclosures about that differential, but the post-deserve cohorts are performing better than the earlier cohorts. That trend persists.

Arjun Bhatia, Analyst

All right. Perfect. Helpful. Thank you.

Operator, Operator

Our next question comes from the line of DJ Hynes with Canaccord.

David Hynes, Analyst

Hey, thank you, everyone. Bill, could we revisit the topic of OfferFit for a moment? You clearly explained the technology and its value proposition. Could you elaborate on the business outcomes you've observed for customers currently using OfferFit? For instance, do they send more messages? Are the messages more effective? Can they produce content more quickly? Help me understand how these factors translate into potential revenue growth for Braze as you expand OfferFit across your customer base.

William Magnuson, CEO

Yes. In terms of performance, you should expect improved relevance. OfferFit includes automatic content generation, similar to the assistive tools in the Braze composers. Currently, the Braze Composer suite and its supporting GenAI assistance are ahead of OfferFit, and we’re eager to direct their research and development towards their specialized areas. They'll benefit from the extensive customer engagement features that Braze has developed, including integrations and the Braze data platform. We don't anticipate a significant change in the number of messages sent. However, when OfferFit collaborates with Braze customers, they often start by optimizing for one channel. Thanks to Braze's cross-channel capabilities and the simplicity of shifting strategies across channels, many customers have expanded their OfferFit applications to other Braze channels. It's encouraging to see this trend continue, as it enhances customer loyalty and facilitates upselling and cross-selling. The key differentiator regarding business impact is that OfferFit, due to its proven performance improvement and focus on high-value use cases, is well-positioned for value-based selling. It provides impressive ROI for customers upon deployment and maintains high performance levels with the support of machine learning implementation engineers. Furthermore, it achieves this at a scalable value level that preserves attractive gross margins despite the inclusion of expert services in their software offerings.

David Hynes, Analyst

Yes. Okay. Very clear. And then Isabelle, what is the mix of cash and stock in that $325 million?

Isabelle Winkles, CFO

Yes. So it's 42% equity and the balance is cash.

David Hynes, Analyst

Okay, perfect. Thank you, guys.

Operator, Operator

Our next question will come from the line of Gabriela Borges with Goldman Sachs. Please go ahead.

Gabriela Borges, Analyst

Hi. Good afternoon. Thank you. Bill, there's a little bit of a debate in the market right now on the advantages of being a SaaS native company versus an AI-native company. And you're a SaaS native company acquiring an AI company. So help us understand why could you not build this in-house? And what were the limiting factors to OfferFit being able to scale or being able to scale without agreeing to be acquired by Braze? Thank you.

William Magnuson, CEO

I believe that in both cases, this was not a limitation. Both teams have highly skilled engineering and product groups with impressive R&D capabilities and are on promising growth paths. When we consider the synergies we can achieve and how well we can complement each other based on our respective focus areas and past comprehensiveness, we believe it will lead to an exceptional collaboration. The expertise and experience of OfferFit, particularly in data science, along with the work they have done—much of it with around one third of their customers already using Braze—show that we have a solid partnership foundation. We can clearly see the synergies we can create together and the enhanced customer outcomes that will result from our collaboration. Together, we believe we can both accelerate our progress.

Gabriela Borges, Analyst

That makes sense. The follow-up is for Isabelle, specifically on demand trends that you've seen in the last several weeks. There have been so many mixed data points, whether it's on the consumer spending side or more broadly with uncertainty types of the new administration. Have you seen any change in your leading indicators as it pertains to your customers willing to spend in the last several weeks?

Isabelle Winkles, CFO

So nothing specific in the last several weeks. We do recognize that the evolving global trends, and specifically, as you mentioned, around some of the tactics of the new administration are going to create some challenges for some of our customers and our prospects. But as we think about how pipeline is evolving, how pipeline is behaving, the trends of whether it's linearity or just amounts of closed one through Q1 so far, there's nothing that we're seeing that gives us pause on the immediate trends.

William Magnuson, CEO

Yes. I'd also just add that on the technical side, we've obviously been anticipating national data sovereignty concerns continuing to rise in importance for a whole bunch of reasons, which is why we've been expanding our data center footprint, which now includes options in the U.S., the EU and Australia. We've got Indonesia launching relatively soon, and we'll have more regions to follow. And so preparing ourselves in a variety of ways. I think that the trend line of a lot of these things has certainly accelerated more recently, but it's pointed in a similar direction as it has been for years, and we've been preparing for it.

Gabriela Borges, Analyst

Thank you, both for the detail.

Operator, Operator

Our next question comes from Brent Bracelin with Piper Sandler. Please go ahead.

Brent Bracelin, Analyst

Thank you for taking the question here. I want to stick with the macro. A little surprise given retail and consumer goods are the largest vertical for you. You still have a strong RPO backlog build in the quarter. I think bookings look like it actually slightly accelerated. Bill, could you just talk about the feedback from retail and consumer goods companies in light of tariffs and uncertainty there? Is it cost that they're leaning into Braze? Is it rigidity of old legacy platforms and they need to be more flexible? Walk us through what's resonating in increasingly mixed environment. Then Isabelle, if you could just touch on net new logo growth here as were the highest in 1.5 years. What drove that strength?

William Magnuson, CEO

Yes. I want to highlight the strong diversification within our business. Although our largest category represents only about one-fifth of our overall operations, we've effectively leveraged this diversification globally and across categories to advance in new business, even when certain markets have faced challenges. Over the past couple of years, particularly in the enterprise segment, we've observed that enterprise replacement cycles are more stable, lengthy, and thoughtful compared to short-term fluctuations we've seen. We recognize the recent reactions to tariffs and rising costs, along with the changes in inflation and currency strength. However, the underlying factors driving legacy replacement cycles are primarily linked to the long-term contracts associated with marketing cloud deployments, budget cycles, and the involvement of project teams. These processes, including RFPs for replacements, are inherently more sustained and do not shift dramatically week to week. The experiences from the past year, particularly culminating in Q4 for enterprise, revealed that these deal cycles remain extended, involving more stakeholders, and a higher percentage now go through RFPs compared to the past. Customers are less inclined to finance overlapping contracts during migration phases, which complicates and prolongs the legacy replacement cycle. On the positive side, I feel more confident about our competitive standing against legacy marketing clouds than I have in the past. There's much activity from competitors like Salesforce and Adobe, but it's evident that the marketing aspects of the Experience Cloud where we compete are not a primary focus for those companies. More customers and their technology and agency partners are beginning to recognize this shift, which is creating momentum for re-evaluating their affiliations with the incumbents despite any associated risks. This backdrop, along with the other factors I mentioned, continues to pose challenges for execution. Nevertheless, we’re optimistic about the investments we’ve made over the last few years that position us well within the enterprise segment, and we are excited to keep making strides and capture market share, particularly against legacy marketing clouds.

Isabelle Winkles, CFO

Regarding the logo count, I have three points to make. First, the fourth quarter is typically strong for accessing new budgets and acquiring new logos, making it a beneficial seasonal period. We also experienced improved logo retention this quarter, which reduced the challenges we faced. Overall, I am pleased with the outcomes. Additionally, I want to emphasize that there were no unusual factors related to incentive structures in the fourth quarter that would have caused an unexpected increase in logos. This reflects our core business performance.

Brent Bracelin, Analyst

Helpful color, and I'll echo congrats to Myles on a great run.

Operator, Operator

Our next question comes from Brian Peterson with Raymond James.

Brian Peterson, Analyst

So I appreciate all the commentary, and congrats on the OfferFit acquisition. You mentioned that with the deal, fiscal year 2026 will be a year that will be a deviation from that growth margin framework you outlined at the Analyst Day. Is that dynamic solely due to OfferFit, or is there any organic investments that you're seeing or making because there's a product or growth opportunity? Would love to just get the perspective there. Thanks, guys.

Isabelle Winkles, CFO

Yes, thanks for the question. If you go back to my organic outlook for the year, so we did provide guidance both for the quarter and for the full year and you look at the non-GAAP operating income dollars and that the implication of the margin relative to the revenue outlook, that is consistent with the framework. So I did want to set that stage. The transaction has not closed yet, but we are indicating that once the transaction does close and we provide updated guidance, we do want to set the stage and flag to the market that there will be a deviation once we embed those costs.

Brian Peterson, Analyst

Understood. Thank you.

Operator, Operator

Our next question comes from Derrick Wood with TD Cowen.

Derrick Wood, Analyst

Great. Thanks. Bill, can you just give us a sense as to what organizational changes have transpired since Myles announced his intention to step down and how we should be thinking about the timeline of bringing on a CRO? And I guess since this is in Q1, are there any notable go-to-market changes that you're making that you would flag?

William Magnuson, CEO

Yes. Firstly, the search is progressing well, and I am pleased with how our field team has executed during this transition period in Q1. As mentioned throughout last year, we have welcomed many new field leaders globally over the last six quarters. Our partnership sales and post-sales teams are supported by experienced Braze leaders who report directly to me. Aside from the changes we discussed last year, there have been no other significant adjustments, apart from the reporting lines shifting from Myles to me at the start of the year. In this search, we are looking for an exceptional executive to fill the CRO role, which will be crucial for us to reach the next level. Our main goals are to achieve Rule 40 efficiency, scale beyond $1 billion in ARR, and continue growing as a globally recognized leader in customer engagement. We are focused on finding the right leader for our field teams to help us achieve these objectives. Regarding timing, we are currently in the market, and the candidate flow has been strong. This is a highly desired position that Myles has greatly influenced over the past decade, and we have a robust pool of candidates eager for this opportunity.

Derrick Wood, Analyst

Great. If I could squeeze one in, a follow-up. A few quarters ago, you mentioned that Meta might be changing its pricing strategy with WhatsApp. Is there any update on that? I know it could have some impact on your P&L. Just wondering if you see anything coming up.

William Magnuson, CEO

Yes. It's a good question. We continue to partner closely with Meta and are committed to both robust and rapid support for everything that they've been launching along the way as well as a number of their test programs that they run. However, that landscape also does continue to change rapidly. You may have heard about Meta's decision to discontinue marketing messages on WhatsApp for U.S. customers recently. That doesn't impact us very much commercially because the vast majority of our global demand for WhatsApp was already non-U.S. audiences. But it is another example of just how dynamic that offering and pricing landscape has been for Meta as they're quickly iterating on their product. That impacts both us and our road maps as well as customers who need to plan out budget to be able to use for these different offerings. And so definitely, while that remains dynamic, it will be much harder both for customers to forecast and budget as well as for us to forecast. Now what's helping customers and us navigate this is that we are in a much better position to manage these changes with the flexible credit model that we launched last year. And obviously, Braze's product offering is highly flexible. Given the cross-channel offerings that we have across line and RCS and SMS and push notifications and these others, in particular, as their product road map continues to evolve, we're able to reuse a lot of the capabilities that we build out for other channels. And so I don't think it's been really a drag on R&D velocity at all, but definitely while it continues to be a dynamic offering, it has been harder for customers to plan for that. And we've been working really closely with Meta in order to bring them feedback and work closely with them as partners, and we've been really happy with how that partnership has been going as they've continue to iterate the product. But it's still hard to forecast out a long way into the future as we look at that channel.

Derrick Wood, Analyst

Understood. Thanks for the color. Thanks.

Operator, Operator

Our next question comes from Nick Altmann with Scotiabank. Please go ahead.

Nick Altmann, Analyst

Thank you. It's evident that there are still many opportunities for consolidation and replacement activity. Bill, how should we consider the acquisition of OfferFit along with other product initiatives, such as Project Catalyst or upcoming product features and launches? As we contemplate the next growth phase for Braze, please provide an update on how you see the platform evolving over the next few years and how that can contribute to sustained growth. Thank you.

William Magnuson, CEO

We're very enthusiastic about the potential here. The technology available for customer engagement today is significantly more advanced than it was five, ten, or even just a few years ago. There is still substantial room for improvement in relevance and performance across these channels. Additionally, leveraging first-party data that brands already own presents a valuable opportunity for creating significant returns, similar to how performance marketing has focused on optimization for a long time. We believe there is still a great opportunity to enhance performance further. Both Project Catalyst and OfferFit are excellent tools for helping our customers achieve ongoing performance gains through increased relevance and effective personalization. We aim to capture more value from this optimization as well. Furthermore, we see a range of offerings across our customer base, from automated testing to bespoke services with OfferFit, providing something beneficial for every customer in the Braze ecosystem to improve outcomes and drive upsell growth for Braze.

Nick Altmann, Analyst

Great. Thank you.

Operator, Operator

Our next question will come from Scott Berg with Needham. Please go ahead.

Scott Berg, Analyst

Hi, everyone. It was a really strong quarter. Bill, you mentioned the focused approach in R&D and the recent Shopify integration. How do you see this benefiting your customers beyond just improving the technology aspect of that integration? How does it influence sales cycles and similar factors? How much more efficient will this new build be?

William Magnuson, CEO

Yes. I think there's a few things. First, a lot of these capabilities are they're focused on getting more rapid time to value for customers they get up and running in the first place as well as they expand in new use cases. The data model expansions that you have and a lot of the kind of vertical-specific capabilities that we're putting in places like product catalogs, within the segmentation options, within things like the purchase object, et cetera, those have a dual benefit where they both by virtue of getting those more organized and standardized, customers can actually deploy more quickly. They also make the machine learning efforts that we have happening in BrazeAI able to be more effective as well because we're able to get the data into more standardized formats, which allows us to deploy models that are, as I mentioned before, when a model is more constrained, it's easier to deploy. That doesn't mean it's less flexible. But of course, the more that we can standardize the data models around specific verticals, the more use cases we can actually accomplish and deliver additional value to through those more constrained models. And so you should see these things as working hand in hand to both improve the offering and visibility of the offering within those categories, the time to value for customers in those categories working with Braze, getting up and running with Braze, and then over the longer term, those deployments being able to because they're more bespoke to the vertical, us being able to then parlay that into additional features and enhancements that are both driven by stronger machine learning models, but also improving productivity for marketers that work within those categories for all the common use cases that they have.

Scott Berg, Analyst

Very helpful. Congrats on a nice quarter again.

Operator, Operator

Our next question comes from Taylor McGinnis with UBS. Taylor, you can use star six to unmute.

Taylor McGinnis, Analyst

Okay. Can you guys hear me now?

William Magnuson, CEO

Yes.

Taylor McGinnis, Analyst

Yes. Okay. Awesome. Perfect. Thanks so much for taking the question. Isabelle, when I hear like an inflection in growth, that sounds like a potential acceleration. So I guess, could you just talk about what you are seeing in terms of either renewal trends or expansion activity that's giving you comfort in that outlook? And now we're a couple of months into this 1Q, I guess any thoughts in terms of timelines and when we could get past some of these more challenged COVID contracts? Thanks.

Isabelle Winkles, CFO

Yes. Instead of viewing it as a sudden increase in growth, it appears more like a stabilization followed by a gradual return to growth. I'm not suggesting we will see a sharp upward spike in the near future. We are observing solid new business momentum, and the new customer groups are performing better than the traditional ones. These factors combined should help us reach a stabilization point and a steady increase in organic growth, but I want to clarify that I’m not indicating a sudden surge in the immediate future.

Taylor McGinnis, Analyst

Thank you so much.

Operator, Operator

Our next question comes from Michael Berg with Wells Fargo.

Michael Berg, Analyst

Congratulations on the quarter. Thank you for taking my question. I have another one for Isabelle, this time regarding Project Catalyst. You mentioned that it's expected to be released generally available later this quarter or at the latest next quarter. I’m interested in understanding how to interpret the guidance regarding Project Catalyst's contribution. Has that changed? How has your perspective on the product's contribution post-acquisition evolved? Thank you.

Isabelle Winkles, CFO

Yes. So obviously, the guide on an organic basis doesn't include OfferFit and just includes kind of our own business. And I don't think Catalyst is going GA quite as quickly as you're indicating.

William Magnuson, CEO

Yes. As I said in the prepared remarks, the first private beta release will be at the end of Q1, and we expect subsequent beta releases before GA, and there's been nothing said about when it goes to GA.

Isabelle Winkles, CFO

Yes. So I wouldn't expect anything material related to that embedded in the guide or coming anytime soon.

Michael Berg, Analyst

Got it. And then a quick follow-up for Bill here. You mentioned that this is the best you have felt about the competitive landscape. Some of your main legacy competitors have noted that their core products and competitive offerings are underperforming. Has this led to more discussions or increased interest at the top of the funnel? How should we understand the evolving competitive landscape that is taking shape for you?

William Magnuson, CEO

I've been discussing this for some time, and I believe that the somewhat distracted attitude towards the competitive products in the legacy marketing clouds that Braze competes with has been recognized by the wider community. This has several implications. One is that we are noticing long-time service or technology partners to those marketing clouds beginning to explore their next steps. As Braze establishes itself as a leader in customer engagement, we are having many more discussions with potential or existing partners about strengthening their commitment to Braze. Additionally, many enterprises have been eagerly anticipating a product roadmap from those capabilities. They may have noticed a discrepancy between their needs and what the legacy marketing clouds are providing for some time. While the marketing efforts and prospective future roadmaps have felt promising, they have been holding out hope for those commitments to materialize soon. Now, it is becoming clearer that these products are more stagnant than evolving. Meanwhile, Braze continues to advance into new areas with strong and targeted R&D specifically focused on customer engagement. Considering both our positioning and investment strategy, we are feeling very positive about our situation, and I think the ecosystem is beginning to recognize that as well.

Michael Berg, Analyst

Awesome. Thank you.

Operator, Operator

Our next question comes from Brian Schwartz with Oppenheimer.

Brian Schwartz, Analyst

Hi. Thanks for taking my question. Bill, the integration with the architecture plans with OfferFit, I think you mentioned that they have a different data model than Braze. As you think about scaling Braze's architecture in the future, is the plan to get back to one tech stack back? Or is it faster to scale by adding other tech stacks? And as you think about your future avenues for growth?

William Magnuson, CEO

I believe that our sustained advantage over previous generations of marketing clouds and automation suites comes from the seamless integration across our technology stack, coupled with our event-driven stream processor. Furthermore, the growing flexibility of the Braze data platform enables us to rapidly and cost-effectively incorporate more data into that processor. Any acquisitions we pursue will be based on a solid integration strategy to unify our technology stacks. I am dedicated to ensuring Braze does not become a disjointed collection of acquisitions with inherent complexities. We look forward to integrating OfferFit into the Braze environment and utilizing their engine alongside the capabilities we've developed. When addressing the data aspect, a key component in generating additional benefits lies in how they create features and apply their reinforcement learning, activating tailored data specific to companies or industries. This applies to both the customer feature space, which encompasses all first-party user data, and the action feature space, offering various options for making offers and providing incentives throughout the customer journey. Customizing both aspects will require transforming incoming data flows to extract features suitable for machine learning, while also navigating regulatory demands, especially in regulated sectors like finance, where they possess substantial experience. On the positive side, we are eager to expedite their roadmap, as the Braze data platform already offers a more comprehensive solution with additional connectors than what they have developed. Their data pipeline is purpose-built for machine learning applications and compliant with regulatory standards, particularly in high-end enterprise environments. The Braze data platform is designed to serve the B2C space effectively, facilitating quick and comprehensive data integration into our customer engagement system at a low cost. We believe there are significant synergies as we build further, and we are committed to ensuring a close integration to benefit from ongoing R&D advancements without the complications that come from fragmented technology.

Brian Schwartz, Analyst

Thanks.

Operator, Operator

Our next question comes from Yun Kim with Loop Capital.

Yun Kim, Analyst

Okay. Great job on a solid quarter, Bill and Isabelle, with an increase in new customer additions. Are there any new bundles or packaging that contributed to this growth? Also, could you provide an update on the trends regarding the initial land deal size?

William Magnuson, CEO

We update our pricing and packaging significantly once a year, and that refresh will take place as we enter Q2. I want to remind everyone that we introduced the flexible credit model about a year ago, and its adoption has been strong, though initially limited to a few channels. In this upcoming update to our pricing and packaging, we will be expanding the flexible credit model to include email content cards, banners, audience, and major archiving. We are excited about this expansion and have continued to see positive results from it. We observed the benefits of the flexible credit model in Q4 and are noticing favorable buying trends, characterized by more scrutiny and thorough evaluation processes. This has resulted in companies being better prepared for implementation since all stakeholders are aligned before getting started. While these RFPs can prolong the sales cycle, they often mean that companies are ready for immediate implementation. These trends are similar in Q4 compared to the rest of the year, and we were pleased with the performance of new business during the quarter.

Yun Kim, Analyst

Okay. Great. Thank you so much.

Operator, Operator

Our next question comes from Patrick Walravens with JMP Securities. Patrick, your line is open. Feel free to unmute.

Patrick Walravens, Analyst

Sorry about that. Can you hear me now?

Operator, Operator

We can. Please go ahead.

Patrick Walravens, Analyst

Okay. Good. Thank you. Bill, I'm curious on OfferFit. Why now? Like was there a formal process that they were going through? Were they considering doing a new financing? How long have you been thinking about this? Why did this deal happen now?

William Magnuson, CEO

Yes. I won't go into too many of the details, but just quickly. We have an active Corpdev group here. This was identified as an area of interest for us. OfferFit has been a longtime partner, as I've mentioned a couple of times. Braze is actually their most prominent partner and we've been really happy with seeing the joint customer outcomes that we've been able to achieve along the way. And so we actually did approach them. We happen to approach them, right, as they were preparing for a fundraising round. And so that did put some constraints around the overall timeline. But a big part of this is just that we've seen them maturing as a business in our partnership ecosystem. And we felt like this was a great time for complementary building. I've mentioned a couple of times of things that they've built, the things that we've built that the flip side of that is also the things that they haven't built yet and the things that where we haven't built yet as well. And I think those things match up in a way that's going to create not just an exciting combination, but also a really efficient one.

Operator, Operator

We'll take our final question from Tyler Radke with Citi.

Tyler Radke, Analyst

Hi. Thanks for the question. Isabelle, you mentioned that you did a little bit better on logo churn. I was wondering if you could expand on that and share an update on the health of the SMB segment of the market.

Isabelle Winkles, CFO

Yes. Once an account has been churned, it cannot be churned again. We have experienced higher levels of churn over the past few quarters than we would prefer on a consistent basis, and we are beginning to address that. We are likely still in the process of adjusting contract terms for some customers who will remain with us, but as their renewals approach, we need to align their entitlements accordingly. That being said, we have successfully eliminated several smaller accounts that were at risk of negatively impacting our business health.

Operator, Operator

There are no more questions in the queue. So I'll pass back to Bill for closing remarks.

William Magnuson, CEO

Yes. Thank you, everybody, for joining us today. We obviously really exciting news today and really happy with the execution from the team around the world. We're looking ahead to a great fiscal year, and we'll see you next quarter.