Braze, Inc. [BRZE] Filings

10-Q 1 brze-20230731.htm 10-Q brze-20230731

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________

FORM 10-Q

______________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-41065

______________________________________________________________

Braze, Inc.

(Exact name of Registrant as specified in its charter)

______________________________________________________________


Delaware			45-2505271
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

330 West 34th Street, Floor 18

New York, New York 10001

(Address of principal executive offices, including zip code)

(609) 964-0585

(Registrant’s telephone number, including area code)

______________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share	BRZE	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At August 31, 2023, there were 67,197,707 shares of the registrant’s Class A and 31,669,159 shares of the registrant’s Class B common stock, each with a par value of $0.0001 per share, outstanding.

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Braze, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended July 31, 2023

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	PART I	Page No.

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5

	Condensed Consolidated Balance Sheets at July 31, 202 3 (Unaudited) and January 31, 20 2 3	5

	Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended July 31, 2023 and 2022	6

	Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Six Months Ended July 31, 2023 and 2022	7

	Condensed Consolidated Statements of Redeemable Non-controlling Interest and Stockholders’ Equity (Unaudited) for the Three and Six Months Ended July 31, 2023 and 2022	8

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended July 31, 2023 and 2022	10

	Notes to Condensed Consolidated Financial Statements (Unaudited)	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	39

	PART II

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 6.	Exhibits	70

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

•the anticipated effects of unstable market and economic conditions that may have serious adverse consequences on our business, financial condition and share price;

•our expectations regarding our revenue and the timing of revenue recognition under our customer contracts, expenses and other operating results;

•our ability to acquire new customers and successfully retain existing customers;

•our ability to increase usage of our platform and upsell and cross-sell additional products;

•our ability to achieve or sustain our profitability;

•future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements;

•the costs and success of our marketing efforts, and our ability to promote our brand;

•our reliance on key personnel and our ability to identify, recruit and retain skilled personnel;

•our growth strategies for our platform and our ability to effectively manage our growth, including any international expansion;

•the estimated addressable market opportunity for our platform;

•our ability to protect and enforce our intellectual property rights and any costs associated therewith;

•the anticipated impact of domestic and global socioeconomic events on our business;

•our ability to compete effectively with existing competitors and new market entrants;

•the size and growth rates of the markets in which we compete; and

•the anticipated benefits or effects of any completed or future acquisitions or international expansion.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and are inherently uncertain. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q to the terms “Braze,” “the Company,” “we,” “our” and “us” refer to Braze, Inc. and its subsidiaries.

“Braze,” “Braze Currents” and other trade names and trademarks of ours appearing in this Quarterly Report on Form 10-Q are our property. This Quarterly Report on Form 10-Q contains trade names and trademarks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

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We may announce material business and financial information to our investors using our investor relations website (www.investors.braze.com). We therefore encourage investors and others interested in Braze to review the information that we make available on our website, in addition to following our filings with the Securities and Exchange Commission, or the SEC, webcasts, press releases and conference calls. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Quarterly Report on Form 10-Q, and you should not consider information on our website to be part of this Quarterly Report on Form 10-Q.

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Part 1 – Financial Information

Item 1. Financial Statements

BRAZE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share amounts)


	July 31, 2023		January 31, 2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	77,302	$	68,587
Restricted cash, current	3,373		—
Accounts receivable, net of allowance of $2,414 and $1,613 at July 31, 2023 and January 31, 2023, respectively	70,133		78,338
Marketable securities	394,946		410,083
Prepaid expenses and other current assets	28,281		26,163
Total current assets	574,035		583,171
Restricted cash, noncurrent	530		4,036
Property and equipment, net	20,680		20,339
Operating lease right-of-use assets	45,375		46,261
Deferred contract costs	55,456		48,451
Goodwill	28,045		—
Intangible assets, net	4,122		500
Other assets	3,897		2,648
TOTAL ASSETS	$	732,140	$	705,406
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,882	$	3,101
Accrued expenses and other current liabilities	56,261		37,415
Deferred revenue	176,803		166,092
Operating lease liabilities, current	13,522		10,695
Total current liabilities	248,468		217,303
Operating lease liabilities, noncurrent	38,063		40,590
Other long-term liabilities	4,510		755
TOTAL LIABILITIES	291,041		258,648
COMMITMENTS AND CONTINGENCIES (Note 13)
Redeemable non-controlling interest (Note 4)	728		1,455
STOCKHOLDERS’ EQUITY
Class A common stock, $0.0001 par value; 2,000,000,000 and 2,000,000,000 shares authorized as of July 31, 2023 and January 31, 2023, respectively; 66,542,527 and 61,585,973 shares issued and outstanding as of July 31, 2023 and January 31, 2023, respectively	6		6
Class B common stock, $0.0001 par value; 110,000,000 and 110,000,000 shares authorized as of July 31, 2023 and January 31, 2023, respectively; 31,687,453 and 34,389,453 shares issued and outstanding as of July 31, 2023 and January 31, 2023, respectively	4		4
Additional paid-in capital	870,313		806,044
Accumulated other comprehensive loss	(5,877)		(6,824)
Accumulated deficit	(424,075)		(353,927)
TOTAL STOCKHOLDERS’ EQUITY	440,371		445,303
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, AND STOCKHOLDERS’ EQUITY	$	732,140	$	705,406

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRAZE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share amounts)


	Three Months Ended July 31,				Six Months Ended July 31,
	2023		2022		2023		2022

Revenue	$	115,107	$	86,131	$	216,887	$	163,626
Cost of revenue	35,474		27,352		68,161		53,258
Gross profit	79,633		58,779		148,726		110,368

Operating expenses:
Sales and marketing	60,417		50,007		117,679		96,051
Research and development	29,132		23,336		58,877		44,956
General and administrative	25,453		20,543		49,436		44,117
Total operating expenses	115,002		93,886		225,992		185,124
Loss from operations	(35,369)		(35,107)		(77,266)		(74,756)
Other income, net	3,865		1,729		7,324		1,759
Loss before provision for income taxes	(31,504)		(33,378)		(69,942)		(72,997)
Provision for income taxes	545		35		933		49
Net loss	(32,049)		(33,413)		(70,875)		(73,046)
Net loss attributable to redeemable non-controlling interest	(355)		(527)		(727)		(891)
Net loss attributable to Braze, Inc.	$	(31,694)	$	(32,886)	$	(70,148)	$	(72,155)

Net loss per share attributable to Braze, Inc. common stockholders, basic and diluted	$	(0.33)	$	(0.35)	$	(0.72)	$	(0.77)
Weighted-average shares used to compute net loss per share attributable to Braze, Inc. common stockholders, basic and diluted	97,180		94,103		97,023		93,668

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRAZE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(in thousands)


	Three Months Ended July 31,				Six Months Ended July 31,
	2023		2022		2023		2022
Net loss	$	(32,049)	$	(33,413)	$	(70,875)	$	(73,046)
Other comprehensive loss:
Change in foreign currency translation adjustments	130		(193)		196		(755)
Unrealized gains (losses) on marketable securities	(696)		(1,164)		751		(2,359)
Other comprehensive income (loss), net	(566)		(1,357)		947		(3,114)
Comprehensive loss, net	(32,615)		(34,770)		(69,928)		(76,160)

Less: comprehensive loss, net, attributable to redeemable non-controlling interest	(355)		(527)		(727)		(891)
Comprehensive loss attributable to Braze, Inc.	$	(32,260)	$	(34,243)	$	(69,201)	$	(75,269)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRAZE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands)


	Redeemable Non-controlling Interest		Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
			Shares	Amount
Balance at April 30, 2023	$	1,083	96,864	$	10	$	832,831	$	(392,381)	$	(5,311)	$	435,149
Issuance of common stock for options exercised	—		573	—		1,900		—		—		1,900
Issuance of common stock under employee stock purchase plan	—		128	—		3,222		—		—		3,222
Vesting of restricted stock units	—		443	—		—		—		—		—
Stock-based compensation	—		—	—		25,396		—		—		25,396
Other comprehensive income	—		—	—		—		—		(566)		(566)
Net loss attributable to redeemable non-controlling interests	(355)		—	—		—		—		—		—
Charitable donation of stock	—		32	—		964		—		—		964
Issuance of common stock from acquisition	—		190	—		6,000		—		—		6,000
Net loss attributable to Braze Inc.	—		—	—		—		(31,694)		—		(31,694)
Balance at July 31, 2023	$	728	98,230	$	10	$	870,313	$	(424,075)	$	(5,877)	$	440,371


	Redeemable Non-controlling Interest		Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
			Shares	Amount
Balance at April 30, 2022	$	2,871	93,807	$	9	$	741,291	$	(254,230)	$	(2,397)	$	484,673
Issuance of common stock for options exercised	—		750	—		2,781		—		—		2,781
Vesting of early exercised options	—		—	—		28		—		—		28
Vesting of restricted stock units	—		160	—		—		—		—		—
Stock-based compensation	—		—	—		17,312		—		—		17,312
Other comprehensive loss	—		—	—		—		—		(1,357)		(1,357)
Net loss attributable to redeemable non-controlling interests	(527)		—	—		—		—		—		—
Net loss attributable to Braze, Inc.	—		—	—		—		(32,886)		—		(32,886)
Balance at July 31, 2022	$	2,344	94,717	$	9	$	761,412	$	(287,116)	$	(3,754)	$	470,551

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRAZE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY (UNAUDITED)

(cont.) (in thousands)


	Redeemable Non-controlling Interest		Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
			Shares	Amount
Balance at January 31, 2023	$	1,455	95,975	$	10	$	806,044	$	(353,927)	$	(6,824)	$	445,303
Issuance of common stock for options exercised	—		1,249	—		4,111		—		—		4,111
Issuance of common stock under employee stock purchase plan	—		128	—		3,222		—		—		3,222
Vesting of restricted stock units	—		656	—		—		—		—		—
Stock-based compensation	—		—	—		49,972		—		—		49,972
Other comprehensive income	—		—	—		—		—		947		947
Net loss attributable to redeemable non-controlling interests	(727)		—	—		—		—		—		—
Charitable donation of stock	—		32	—		964		—		—		964
Issuance of common stock from acquisition	—		190	—		6,000		—		—		6,000
Net loss attributable to Braze, Inc.	—		—	—		—		(70,148)		—		(70,148)
Balance at July 31, 2023	$	728	98,230	$	10	$	870,313	$	(424,075)	$	(5,877)	$	440,371


	Redeemable Non-controlling Interest		Class A and Class B Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
			Shares	Amount
Balance at January 31, 2022	$	3,235	92,968	$	9	$	717,175	$	(214,961)	$	(640)	$	501,583
Issuance of common stock for options exercised	—		1,416	—		5,411		—		—		5,411
Vesting of early exercised options	—		—	—		82		—		—		82
Vesting of restricted stock units	—		238			—		—		—		—
Repurchase of unvested shares related to early exercised options	—		(1)	—		—		—		—		—
Stock-based compensation	—		—	—		34,484		—		—		34,484
Other comprehensive loss	—		—	—		—		—		(3,114)		(3,114)
Net loss attributable to redeemable non-controlling interests	(891)		—	—		—		—		—		—
Charitable donation of stock	—		96	—		4,260		—		—		4,260
Net loss attributable to Braze, Inc.	—		—	—		—		(72,155)		—		(72,155)
Balance at July 31, 2022	$	2,344	94,717	$	9	$	761,412	$	(287,116)	$	(3,754)	$	470,551

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRAZE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Six Months Ended July 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (including amounts attributable to redeemable non-controlling interests)	$	(70,875)	$	(73,046)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation	49,002		34,253
Amortization of deferred contract costs	13,941		10,984
Depreciation and amortization	2,845		1,900
Provision for credit losses	1,294		(155)
Value of common stock donated to charity	964		4,260
Amortization of discount/premium on marketable securities	991		215
Non-cash foreign exchange loss	510		295
Other	494		(36)
Changes in operating assets and liabilities:
Accounts receivable	8,926		16,622
Prepaid expenses and other current assets	(2,029)		3,110
Deferred contract costs	(21,018)		(14,661)
ROU assets and liabilities	991		2,617
Other assets	(959)		521
Accounts payable	(1,315)		582
Accrued expenses and other current liabilities	15,297		4,419
Deferred revenue	6,471		9,703
Other long-term liabilities	(498)		17
Net cash provided by operating activities	5,032		1,600
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition; net of cash acquired	(16,318)		—
Purchases of property and equipment	(427)		(9,844)
Capitalized internal-use software costs	(1,640)		(783)
Purchases of marketable securities	(121,392)		(543,880)
Maturities of marketable securities	136,289		150,708
Net cash used in investing activities	(3,488)		(403,799)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options	7,333		5,411
Net cash provided by financing activities	7,333		5,411
Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash	(295)		(1,268)
Net change in cash, cash equivalents, and restricted cash	8,582		(398,056)
Cash, cash equivalents, and restricted cash, beginning of period	72,623		482,973
Cash, cash equivalents, and restricted cash, end of period	$	81,205	$	84,917

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRAZE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SUPPLEMENTAL CASH FLOWS DISCLOSURE

(in thousands)


	Six Months Ended July 31,
	2023		2022
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for income taxes, net of refunds	$	85	$	317

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock-based compensation capitalized to internal-use software	$	934	$	379
Net change in capitalized internal-use software development costs in accrued expenses	$	—	$	21
Unrealized net gain (loss) on marketable investment securities	$	751	$	(2,359)
Net change to property and equipment (included in accounts payable / accrued liabilities)	$	90	$	232
Vesting of early exercised options	$	—	$	82
Asset retirement obligation	$	11	$	380
Common stock issuance, acquisition	$	(6,000)	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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BRAZE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Company Overview

Description of Business

Braze, Inc., together with its subsidiaries (collectively, the “Company”, “we”, “us”, “our” or “Braze”), is a cloud-based customer engagement platform that delivers customer-centric experiences across push notifications, email, in-product messaging, SMS and MMS messages, and more. Customers use the Braze platform to facilitate real-time experiences between brands and customers in a more authentic and human way.

We began operations in 2011 and are incorporated in the state of Delaware. Our headquarters are located in New York City. As of July 31, 2023, we also lease additional office space in Austin, Berlin, Chicago, Jakarta, London, Paris, San Francisco, Singapore, Sydney, and Tokyo.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and variable interest entities (“VIE”) for which we are the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain reclassifications and immaterial changes have been made to prior-period financial statements to conform to the current-period presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reported period. We evaluate estimates based on historical and anticipated results, trends, and various other assumptions. Significant items subject to such estimates and assumptions include, but are not limited to, the standalone selling price for separate performance obligations in our revenue arrangements, expected period of benefit for deferred contract costs, the valuation of common stock and stock-based compensation, the allocation of overhead costs between cost of revenue and operating expenses, the estimated useful lives of intangible and depreciable assets, the fair value of acquired assets and assumed liabilities from business combinations, valuation of long-lived assets and their recoverability, including goodwill, the incremental borrowing rate, the valuation of deferred tax assets and liabilities and other tax estimates including our ability to utilize net operating losses.

Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments as facts and circumstances dictate. As future events and their effects, including the uncertainty surrounding rapidly changing market and economic conditions from global or domestic macroeconomic and socioeconomic events such as, among others, instability in the banking and financial services sector, international and domestic supply chain risks, inflationary pressure, interest rate increases, declines in consumer confidence, international conflicts and domestic and foreign political unrest, that impact us and our customers, cannot be determined with precision, actual results could differ from those estimates and many of our estimates and assumptions have required increased judgement and carry a higher degree of variability and volatility.

Significant Accounting Policies

Our significant accounting policies are detailed in “Note 2. Summary of Significant Accounting Policies" of the audited annual consolidated financial statements for the fiscal year ended January 31, 2023 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 31, 2023 (the “Annual Report”). There have been no material changes to our significant accounting policies with the exception of the below:

Concentration of Credit Risk

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Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, marketable securities, and accounts receivable. Restricted cash consists of letters of credit related to our leased properties. For cash, cash equivalents, restricted cash, and marketable securities, we are exposed to credit risk in the event of default by the financial institutions to the extent of the amounts recorded on the consolidated balance sheets in excess of the Federal Deposit Insurance Corporation (“FDIC”) limits. Cash, cash equivalents, restricted cash, and marketable securities balances are maintained at financial institutions that management believes are of high-credit, quality financial institutions, where deposits, at times, exceed the FDIC limits.

Significant customers are those which represent 10% or more of our total revenue for the period, or accounts receivable at the balance sheets dates. For the three and six months ended July 31, 2023 and July 31, 2022, no customer accounted for 10% or more of our total revenue.

For accounts receivable, we are exposed to credit risk in the event of nonpayment by customers to the extent of the amounts recorded on the consolidated balance sheets. As of July 31, 2023 and January 31, 2023, no customers accounted for 10% or more of our total accounts receivable balance.

Business Combinations

The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values. The excess of the consideration transferred over the fair value of assets acquired and liabilities assumed on the acquisition date is recorded as goodwill. Such valuations require the Company to make significant estimates and assumptions. The Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed, but these estimates are inherently uncertain and subject to refinement. During the measurement period, the Company may record adjustments to the fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statements of operations.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination. Goodwill and indefinite-lived intangible assets are not amortized and are tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may be impaired. Goodwill is tested for impairment at the reporting unit level.

The Company has the option to first perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit and indefinite-lived intangible assets are less than its carrying amount. The Company may elect to bypass the qualitative assessment and proceed directly to the quantitative impairment tests. The quantitative impairment test for goodwill involves comparing the fair value of the reporting unit to its carrying value, including goodwill. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value. The impairment is limited to the carrying amount of goodwill.

The quantitative impairment test for indefinite-lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the indefinite-lived intangible asset exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of indefinite-lived intangible assets are determined using a discounted cash flow valuation analysis that employs different valuation methodology in estimating the fair value of the asset. Significant judgments are inherent in the discounted cash flow analysis.

The Company has determined that it operates as one reporting unit and has selected November 1 as the date to perform its annual impairment test. No goodwill impairment charges have been recorded for any period presented.

Recent Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update No. 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, (“ASU 2021-08”), which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The Company adopted ASU 2021-08 prospectively during the second quarter of the fiscal year ended January 31, 2024, and determined that ASU 2021-08 does not have a material impact on the Company’s consolidated financial statements nor its related disclosures.

The Company has implemented all applicable accounting pronouncements that are in effect and there are no new accounting pronouncements that have been issued that would have a material impact on the Company's condensed consolidated financial statements.

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3. Revenue from Contracts with Customers

Disaggregated Revenue Streams

The following disaggregation depicts the nature, amount, timing and uncertainty of cash flows related to the primary types of revenue from contracts with customers.

The following table presents total revenue by type (in thousands):


	Three Months Ended July 31,				Six Months Ended July 31,
	2023		2022		2023		2022
Subscription	$	109,711	$	81,727	$	206,857	$	154,563
Professional services and other	5,396		4,404		10,030		9,063
Total	$	115,107	$	86,131	$	216,887	$	163,626

The following table presents total revenue by geography (in thousands):


	Three Months Ended July 31,				Six Months Ended July 31,
	2023		2022		2023		2022
United States	$	65,114	$	49,875	$	123,617	$	95,227
International	49,993		36,256		93,270		68,399
Total	$	115,107	$	86,131	$	216,887	$	163,626

Revenue by geography is determined based on the location of our users. Other than the United States, no other individual country accounted for 10% or more of total revenue for any of the periods presented.

Unbilled Accounts Receivable

Unbilled accounts receivable included in trade accounts receivable, net, which generally arise from our contractual right to bill our customers in advance of services on the contract effective date, were $1.4 million and $1.0 million as of July 31, 2023 and January 31, 2023, respectively.

Contract Balances

Contract Assets

Contract assets as of July 31, 2023 and January 31, 2023 were $0.9 million and $0.8 million, respectively. The change in contract assets for all periods presented primarily reflects revenue recognized in excess of billings partially offset by contract assets earned during the period.

Deferred Revenue

The change in deferred revenue for all periods presented primarily reflects cash payments received during the period for which the performance obligation was not satisfied prior to the end of the period, partially offset by revenues recognized during the period. Revenue recognized during the three and six months ended July 31, 2023 from amounts included in deferred revenue at January 31, 2023, was $51.1 million and $128.2 million, respectively. Revenue recognized during the three and six months ended July 31, 2022 from amounts included in deferred revenue at January 31, 2022, was $37.7 million and $97.2 million, respectively.

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Credit Losses

The following table presents a reconciliation of the allowance for credit losses on accounts receivable (in thousands):


	Allowance for Credit Losses
Balance at January 31, 2023	$	1,613
Reserve:
Credit losses	1,290
Deferred revenue	1,444
Write-offs	(1,993)
Recoveries	60
Balance at July 31, 2023	$	2,414

Remaining Performance Obligations

The transaction price allocated to remaining performance obligations represents amounts under non-cancelable contracts expected to be recognized as revenue in future periods, and may be influenced by several factors, including seasonality, the timing of renewals, the timing of service delivery and contract terms. Unbilled portions of the remaining performance obligations are subject to future economic risks including bankruptcies, regulatory changes and other market factors.

The following table presents remaining performance obligations as of the dates indicated below (in millions):


	Total		Less than 1 Year		1-5 Years
July 31, 2022	$	410.5	$	274.2	$	136.3
October 31, 2022	408.7		283.3		125.4
January 31, 2023	455.7		312.6		143.1
April 30, 2023	477.5		325.4		152.1
July 31, 2023	523.5		353.3		170.2

4. Variable Interest Entity and Redeemable Non-Controlling Interest

On September 14, 2020, we, along with Japan Cloud Computing Co., Ltd., and M30 LLC, (the “Investors”), entered into an agreement, whereby each Investor agreed to purchase shares of common stock of Braze Kabushiki Kaisha (“Braze KK” and “Braze KK Shares”) for a total purchase price of $10.0 million in two tranches of $5.0 million per tranche in September 2020 and September 2021, to engage in the investment, organization, management and operation of Braze KK focused on the distribution of our products in Japan. The purpose of this arrangement was to further expand our business in the Japanese market.

In March 2022, we consented to the issuance of stock options to purchase Braze KK Shares by certain employees of Braze KK. These options cannot be exercised by the holders thereof prior to the exercise of the call or put options described in more detail below. The Company considers the stock options to be a substantive class of equity, classified as a liability within other long-term liabilities on the consolidated balance sheets. As of July 31, 2023, the liability balance was $0.2 million. The issuance of stock options does not impact our majority stake in Braze KK, as none of the vesting criteria of the options were met as of the balance sheet date. The issuance of stock options did not result in a reconsideration event and therefore Braze KK still met the criteria of a Variable Interest Entity as Braze KK did not have sufficient equity at risk to finance their activities. As a result, we continue to operate Braze KK as a subsidiary, exposing us to business and foreign exchange risk. We consolidate Braze KK and present the results within our consolidated balance sheets, consolidated statements of operations, and consolidated statements of cash flows.

The common stock held by the Investors is callable by us or puttable by the Investors upon certain contingent events. Should the call or put option be exercised, the redemption value would be determined based on a prescribed formula derived from the discrete revenues of Braze KK and the Company and may be settled, at our discretion, with our stock or cash. The non-controlling interest in Braze KK is classified in mezzanine equity as redeemable non-controlling interest as a result of the put right available to the Investors in the future, an event that is not solely in our control. The non-controlling interest is not accreted to redemption value because it is currently not probable that the non-controlling interest will become redeemable.

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The following table summarizes the activity in the redeemable non-controlling interests for the periods indicated below (in thousands):


Balance as of January 31, 2023	$	1,455
Net loss attributable to redeemable non-controlling interest	(727)
Balance as of July 31, 2023	$	728

5. Fair Value Measurements

The following table sets forth our financial instruments that were measured at fair value on a recurring basis at the periods indicated below, by level within the fair value hierarchy (in thousands):


	July 31, 2023
	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents
Money market funds	$	30,167	$	—	$	—	$	30,167
U.S. government securities	8,224		—		—		8,224
	38,391		—		—		38,391
Marketable securities
U.S. government securities	$	304,113	$	—	$	—	$	304,113
Foreign securities	—		6,263		—		6,263
Corporate debt securities	—		84,570		—		84,570
Total marketable securities	304,113		90,833		—		394,946

Liabilities
Contingent consideration	$	—	$	—	$	1,593	$	1,593
Total liabilities	—		—		1,593		1,593
Total financial assets	$	342,504	$	90,833	$	1,593	$	434,930


	January 31, 2023
	Level 1		Level 2		Level 3		Total
Financial Assets:
Cash equivalents
Money market funds	$	30,873	$	—	$	—	$	30,873
	30,873		—		—		30,873
Marketable securities
U.S. government securities	$	307,744	$	—	$	—	$	307,744
Foreign securities	—		2,967		—		2,967
Corporate debt securities	—		99,372		—		99,372
Total marketable securities	307,744		102,339		—		410,083
Total financial assets	$	338,617	$	102,339	$	—	$	440,956

Our money market funds are classified as Level 1 within the fair value hierarchy, because they are valued using quoted prices in active markets as of July 31, 2023 and January 31, 2023. Financial instruments classified as Level 2 within our fair value hierarchy are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. Prices of these securities are obtained through independent, third-party pricing services and include market quotations that may include both observable and unobservable inputs. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices and market transactions in comparable investments and various relationships between investments.

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The fair value of our contingent consideration is estimated using Level 3 unobservable inputs. The estimates of fair value are based upon assumptions believed to be reasonable but which are uncertain, and involve significant judgments by management. We will reassess the fair value of contingent consideration quarterly until the contingency is resolved. The short-term portion of the contingent consideration is recorded within accrued expenses and other current liabilities and the long-term portion is recorded within other-long term liabilities on the consolidated balance sheets. Changes in the fair value are recorded in operating income in the consolidated statements of operations.

There were no transfers of financial instruments among Level 1, Level 2 and Level 3 during the periods presented.

6. Marketable Securities

Marketable securities consist of the following for the periods presented (in thousands):


	July 31, 2023
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Total Estimated Fair Value
U.S. government securities	$	308,062	$	—	$	(3,949)	$	304,113
Foreign securities	6,338		1		(76)		6,263
Corporate debt securities	85,372		11		(813)		84,570
Total	$	399,772	$	12	$	(4,838)	$	394,946


	January 31, 2023
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Total Estimated Fair Value
U.S. government securities	$	312,044	$	31	$	(4,331)	$	307,744
Foreign securities	3,028		—		(61)		2,967
Corporate debt securities	100,589		27		(1,244)		99,372
Total	$	415,661	$	58	$	(5,636)	$	410,083

Accrued interest receivables related to our available-for-sale securities of $2.5 million as of July 31, 2023 and $2.0 million as of January 31, 2023, were included within prepaid expenses and other assets on our consolidated balance sheets.

The Company’s short-term investments consist of available-for-sale debt securities and term deposits. The term deposits are at cost, which approximates fair value. The weighted-average remaining maturity of the Company’s investment portfolio was less than one year as of the periods presented.

The following table summarizes the fair value and gross unrealized losses aggregated by category of individual securities that have been in a continuous unrealized loss position for greater than 12 months (in thousands):


	July 31, 2023
	Continuous Unrealized Loss for Greater than 12 months
	Estimated Fair Value		Gross Unrealized Losses
U.S. government securities	$	149,021	$	(2,111)
Foreign securities	3,946		(56)
Corporate debt securities	59,114		(697)
Total	$	212,081	$	(2,864)

No individual security incurred continuous unrealized losses for greater than 12 months as of January 31, 2023.

The Company purchases investment grade marketable debt securities which are rated by nationally recognized statistical credit rating organizations in accordance with its investment policy. This policy is designed to minimize the Company's exposure to credit losses. As of July 31, 2023, the credit-quality of the Company’s marketable available-for-sale debt securities had remained stable. The unrealized losses recognized on marketable available-for-sale debt securities as of July 31, 2023 was primarily related to the continued market volatility associated with market expectations of an aggressive pace of interest rate

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increases by the Federal Reserve. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments and it is not expected that the investments would be settled at a price less than their amortized cost basis. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis. The Company is not aware of any specific event or circumstance that would require the Company to change its assessment of credit losses for any marketable available-for-sale debt security as of July 31, 2023. These estimates may change, as new events occur and additional information is obtained, and will be recognized on the consolidated financial statements as soon as they become known. No credit losses were recognized as of July 31, 2023 for the Company’s marketable debt securities.

The contractual maturities of the investments classified as available-for-sale marketable securities are as follows (in thousands):


	July 31, 2023
	Amortized Cost		Estimated Fair Value
Due within 1 year	$	226,793	$	223,924
Due in 1 year through 5 years	172,979		171,022
Total	$	399,772	$	394,946


	January 31, 2023
	Amortized Cost		Estimated Fair Value
Due within 1 year	$	247,214	$	244,280
Due in 1 year through 5 years	168,447		165,803
Total	$	415,661	$	410,083

Investment Income

Investment income consists of interest income and accretion income/amortization expense on our cash, cash equivalents, restricted cash, and marketable securities. Investment income is included within other income, net on the consolidated statements of operations. The components of investment income were as follows (in thousands):


	Three Months Ended July 31,				Six Months Ended July 31,
	2023		2022		2023		2022
Interest income	$	3,245	$	1,956	$	6,173	$	2,399
Amortization of discount/premium, net	520		202		991		215
Investment income	$	3,765	$	2,158	$	7,164	$	2,614

7. Property and Equipment, Net

Property and equipment, net, consist of the following (in thousands):


	July 31, 2023		January 31, 2023
Capitalized internal-use software	$	9,919	$	7,344
Computer equipment, office equipment, and software	7,669		8,111
Leasehold improvements	10,128		9,410
Furniture and fixtures	4,259		4,085
Total property and equipment	31,975		28,950
Less: accumulated depreciation and amortization	(11,295)		(8,611)
Total property and equipment, net	$	20,680	$	20,339

The total depreciation expense and amortization expense for property and equipment was $1.5 million and $0.9 million during the three months ended July 31, 2023 and 2022, respectively and $2.7 million and $1.9 million during the six months ended July 31, 2023 and 2022, respectively. During the three and six months ended July 31, 2023, the Company removed $0.2 million and $0.5 million, respectively, of fixed assets consisting of computer equipment, office equipment, and software, that was largely depreciated from property and equipment, gross and accumulated depreciation, which had minimal net impact on the Company’s consolidated financial results.

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We capitalized internal-use software of $1.2 million and $0.7 million during the three months ended July 31, 2023 and 2022, respectively, and $2.5 million and $1.2 million during the six months ended July 31, 2023 and 2022, respectively. Amortization for capitalized internal-use software costs recognized within cost of revenue on the consolidated statements of operations was $0.6 million and $0.4 million for the three months ended July 31, 2023 and 2022, respectively, and $1.1 million and $0.9 million during the six months ended July 31, 2023 and 2022, respectively.

8. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):


	July 31, 2023		January 31, 2023
Prepaid software subscriptions	$	13,548	$	12,574
Prepaid advertising	707		833
Prepaid insurance	1,574		2,795
Investment interest receivable	2,532		2,013
Consumption tax receivable	1,302		1,045
Prepaid events	3,193		657
Prepaid employee benefits	548		811
Other	4,877		5,435
Total prepaid expenses and other current assets	$	28,281	$	26,163

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consists of the following (in thousands):


	July 31, 2023		January 31, 2023
Accrued compensation costs	$	24,285	$	12,644
Accrued software subscriptions	10,693		8,454
Accrued commissions	7,224		6,205
Accrued professional service fees	1,731		1,779
Accrued advertising	1,316		922
Accrued tax liability	6,513		4,188
ESPP payable	930		322
Other	3,569		2,901
Total accrued expenses and other current liabilities	$	56,261	$	37,415

10. Employee Benefit Plans

We sponsor a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. Matching contributions under the plan were $1.2 million and $1.2 million for the three months ended July 31, 2023 and 2022, respectively, and $3.6 million and $3.0 million during the six months ended July 31, 2023 and 2022, respectively.

11. Stockholder’s Equity

Class A and Class B Common Stock

We have two classes of common stock, Class A and Class B. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting, conversion and transfer rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to ten votes and may be converted at the option of the holder into one share of Class A common stock. In addition, all shares of Class B common stock will automatically convert into shares of Class A common stock in certain circumstances, including on the earlier of (i) the last trading day of the fiscal quarter during which the number of shares of Class B common stock then outstanding represents less than 10% of the aggregate number of shares of Class A common stock and Class B common stock then outstanding, or (ii) the last trading day of the fiscal quarter immediately following the fifth anniversary of our initial public offering. All shares of the Company’s capital stock outstanding immediately prior to our initial public offering, including all shares held by our executive officers, directors and their respective affiliates, and all shares issuable upon the conversion of our then outstanding convertible

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preferred stock, were reclassified into shares of Class B common stock immediately prior to the completion of the initial public offering.

Charitable Contributions

In connection with our Pledge 1% commitment, we donated 32,155 shares of our Class A common stock to a charitable donor-advised fund that resulted in the recognition of $1.0 million of expense within general and administrative in our consolidated statements of operations during the three months ended July 31, 2023. There were no donations in the three months ended July 31, 2022.

We donated 32,155 and 96,465 shares of our Class A common stock that resulted in the recognition of $1.0 million and $4.3 million of expense within general and administrative in our consolidated statements of operations during the six months ended July 31, 2023 and 2022, respectively.

12. Employee Stock Plans

We have historically issued equity awards under our Amended and Restated 2011 Equity Incentive Plan (the “2011 Plan”) and our 2021 Equity Incentive Plan (the “2021 Plan”).

Amended and Restated 2011 Equity Incentive Plan

Our 2011 Plan provides for the award of stock options and restricted stock units (“RSUs”) to employees, officers, directors, advisors and other service providers of Braze. The terms of each award and the exercise price of awards under the 2011 Plan are determined by our board of directors. Following effectiveness of the 2021 Plan in connection with our initial public offering, no further awards were made under the 2011 Plan.

2021 Equity Incentive Plan

In November 2021, our board of directors and our stockholders approved the 2021 Plan, which became effective on November 16, 2021. No grants were made under the 2021 Plan prior to its effectiveness. No further grants will be made under the 2011 Plan. At effectiveness, we reserved 25,660,249 shares of our Class A common stock to be issued under the 2021 Plan. In addition, the number of shares of our Class A common stock reserved for issuance under the 2021 Plan will automatically increase on February 1 of each year for a period of ten years, beginning on February 1, 2022 and continuing through February 1, 2031, in an amount equal to (1) 5% of the total number of shares of our common stock (both Class A and Class B) outstanding on the preceding January 31, or (2) a lesser number of shares determined by the Board no later than the February 1 increase. On February 1, 2023, the number of shares of our Class A common stock reserved for issuance under our 2021 Plan increased by an additional 4,798,771 shares.

Restricted Stock Units

The following table summarizes unvested RSU award activity and related information:


	Shares	Weighted-Average Grant Date Fair Value
Balance as of January 31, 2023	4,625,518
Granted	3,486,205	$	33.80
Vested	(655,621)	$	41.49
Forfeited	(435,827)	$	37.06
Balance as of July 31, 2023	7,020,275

RSUs granted during the six months ended July 31, 2023 contained a service-based vesting condition of up to approximately a four year period. RSUs typically vest on a quarterly basis or have a one year cliff vesting period with quarterly vesting thereafter.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense, which was included in the consolidated statements of operations as follows (in thousands):

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	Three Months Ended July 31,				Six Months Ended July 31,
	2023		2022		2023		2022
Cost of revenue	$	901	$	911	$	1,790	$	1,831
Sales and marketing	7,807		5,439		15,655		11,106
Research and development	9,929		6,921		19,772		13,094
General and administrative	6,139		3,842		11,705		8,053
Stock-based compensation, net of amounts capitalized	$	24,776	$	17,113	$	48,922	$	34,084
Capitalized stock-based compensation expense	454		299		934		531
Total stock-based compensation expense	$	25,230	$	17,412	$	49,856	$	34,615

As of July 31, 2023, total compensation cost not yet recognized related to unvested equity awards and the weighted-average remaining period over which these costs are expected to be realized were as follows:


	Stock Options	RSUs
Unrecognized compensation costs (in thousands)	$36,581	$178,464
Weighted-average remaining recognition period (years)	2.08	2.92

Employee Stock Purchase Plan

In November 2021, our board of directors and our stockholders approved the 2021 Employee Stock Purchase Plan (the “ESPP”), which became effective on November 16, 2021. Following completion of our initial public offering, the ESPP authorized the issuance of 1,825,000 shares of our Class A common stock under purchase rights granted to our employees or to employees of any of our designated affiliates. The number of shares of our Class A common stock reserved for issuance will automatically increase on February 1 of each year for a period of ten years, beginning on February 1, 2022 and continuing through February 1, 2031, by the lesser of (i) 1% of the total number of shares of our common stock (both Class A and Class B) outstanding on the preceding January 31; and (ii) 2,737,000 shares, except before the date of any such increase, our board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii) above. On February 1, 2023, the number of shares of our Class A common stock reserved for issuance under our ESPP increased by an additional 959,754 shares.

The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of the Company’s Class A common stock on specified dates during such offerings. Under the ESPP, our board of directors will be permitted to specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our Class A common stock will be purchased for employees participating in the offering. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of the Company’s Class A common stock on the first trading day of the offering period or (2) the fair market value of the Company’s Class A common stock on the last day of the offering period, as defined by the ESPP.

The Company recognized $0.6 million and $0.3 million of stock-based compensation expense related to the ESPP in the three months ended July 31, 2023 and 2022, respectively, and $1.4 million and $0.3 million during the six months ended July 31, 2023 and 2022, respectively.

As of July 31, 2023, $0.9 million has been withheld on behalf of our employees for a future purchase and is classified as accrued expenses and other current liabilities on the consolidated balance sheets.

During the three months ended July 31, 2023, the Company issued 128,104 shares of Class A common stock under the ESPP. As of July 31, 2023, 3,461,054 shares of Class A common stock remain available for issuance under the ESPP.

13. Commitments and Contingencies

Indirect Taxes

We are subject to indirect taxation in some, but not all, of the various U.S. states and foreign jurisdictions in which we conduct business. Therefore, we have an obligation to charge, collect and remit Value Added Tax (“VAT”) or Goods and Services Tax (“GST”) in connection with certain of our foreign sales transactions and sales and use tax in connection with

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eligible sales to subscribers in certain U.S. states. On June 21, 2018, the U.S. Supreme Court issued an opinion in South Dakota v. Wayfair. The State of South Dakota alleged that U.S. constitutional law should be revised to permit South Dakota to require remote sellers to collect and remit sales tax in South Dakota in accordance with South Dakota’s sales tax statute. Under the U.S. Supreme Court’s ruling, the longstanding Quill Corp v. North Dakota sales tax case was overruled, and states may now require remote sellers to collect sales tax under certain circumstances. We began collecting sales tax in relevant jurisdictions for the fiscal year ended January 31, 2019. As a result of this ruling and given the scope of our operations, taxing authorities continue to provide regulations that increase the complexity and risks to comply with such laws and could result in substantial liabilities, prospectively as well as retrospectively. Based on the information available, we continue to evaluate and assess the jurisdictions in which indirect tax nexus exists and believe that the indirect tax liabilities are adequate and reasonable. Due to the complexity and uncertainty around the application of these rules by taxing authorities, results may vary materially from expectations, and we have recognized liabilities for contingencies related to state sales and use tax, VAT, and GST deemed probable and estimable totaling $0.5 million and $0.5 million as of July 31, 2023 and January 31, 2023, respectively, which is included in accrued expenses and other current liabilities on the consolidated balance sheets. As of January 31, 2023, we have filed prior period returns in several jurisdictions in order to remediate this potential exposure, and the Company continues to evaluate the potential exposure on an ongoing basis.

Legal Contingencies

From time to time, in the ordinary course of business, we are or may be involved in various legal or regulatory proceedings, claims or purported class actions related to, among other things, alleged infringement of third-party patents and other intellectual property rights, commercial, labor and employment, wage and hour and other claims. We have been, and may in the future be, put on notice or sued by third-parties for alleged infringement of their proprietary rights, including patent infringement. We accrue a liability when we believe that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. We believe we have recorded adequate provisions for any such matters and, as of July 31, 2023, we believe that no material loss will be incurred in excess of the amounts recognized in our financial statements.

14. Leases

Leases

The Company’s lease portfolio consists solely of office space with lease terms ranging from two to ten years. Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into the determination of lease payments.

The following table presents information on our operating leases for the three and six months ended July 31, 2023 and 2022 (in thousands):


	Three Months Ended July 31,				Six Months Ended July 31,
	2023		2022		2023		2022
Operating lease cost	$	3,862	$	3,397	$	7,513	$	6,893
Variable lease cost	778		675		1,450		1,260
Short-term lease cost	97		568		385		1,120
Total net lease cost	$	4,737	$	4,640	$	9,348	$	9,273

The future maturities of the Company’s operating lease liabilities by fiscal year were as follows (in thousands):

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Remainder of 2024	$	6,008
2025	13,317
2026	8,609
2027	7,550
2028	6,101
Thereafter	19,569
Total future undiscounted lease payments	$	61,154
Less: imputed interest	(9,567)
Less: tenant improvement allowance not yet received	—
Total reported lease liability	$	51,587

The Company's lease terms and discount rates are as follows:


	July 31, 2023
Weighted-average remaining lease term (years)	6.2
Weighted-average discount rate	5.6	%

Other information for the Company's leases is as follows (in thousands):


	Six Months Ended July 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities	$	5,788	$	4,691
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	$	1,524	$	—

New York City Headquarters Agreement

In November 2022, the Company entered into a Sublease Agreement (the “Sublease”) pursuant to which the Company agreed to lease approximately 92,300 square feet of general office space in New York, New York. The term of the Sublease commences on October 1, 2023 and will terminate on January 30, 2034. Under the Sublease, the Company's fixed rent obligation is $0.6 million per month, provided, that the Company shall be entitled to a rent abatement in the aggregate amount of $6.6 million to be applied in equal monthly installments until the abatement amount is fully exhausted. The Sublease contains customary provisions for real property subleases of this type, including specified termination rights.

15. Income Taxes

The Company computes its provision for interim periods by applying an estimated annual effective tax rate to anticipated annual pretax income or loss as directed by ASC 740. The estimated annual effective tax rate is applied to the Company’s year to date income or loss, and is adjusted for discrete items recorded in the period. The Company recorded an income tax expense of $0.5 million and $0.0 million for the three months ended July 31, 2023 and 2022, respectively. The effective tax rate for the three months ended July 31, 2023 and 2022 was (1.7)% and (0.1)%, respectively. The Company recorded an income tax provision of $0.9 million and $0.0 million for the six months ended July 31, 2023 and 2022, respectively. The effective tax rate for the six months ended July 31, 2023 and 2022 was (1.3)% and (0.1)%, respectively.

The provision for income taxes recorded for the three and six months ended July 31, 2023 consists of income taxes in state jurisdictions and foreign jurisdictions in which the Company conducts business. The primary difference between the effective tax rate and the statutory rate is the change in the valuation allowance recorded. The Company continues to maintain a full valuation allowance against its net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. When the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period such determination is made.

16. Net Loss per Share

We compute net loss per share of Class A common stock and Class B common stock under the two-class method required for multiple classes of common stock and participating securities. The rights, including the liquidation and dividend

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rights, of the Class A common stock and Class B common stock are substantially identical, other than voting rights. Accordingly, the Class A common stock and Class B common stock share in the Company’s net loss.

The following table sets forth the computation of basic and diluted net loss per share attributable to Braze, Inc. common shareholders during the periods presented (in thousands, except per share amounts):


	Three Months Ended July 31,				Six Months Ended July 31,
	2023		2022		2023		2022
Numerator:
Net loss attributable to Braze, Inc.	$	(31,694)	$	(32,886)	$	(70,148)	$	(72,155)
Denominator:
Weighted-average shares of Braze, Inc. common stock outstanding	97,187		94,134		97,037		93,706
Less: weighted-average unvested shares of Braze, Inc. subject to repurchase	(7)		(31)		(14)		(38)
Weighted-average shares used to calculate net loss per share attributable to Braze, Inc. common stockholders, basic and diluted	97,180		94,103		97,023		93,668
Net loss per share attributable to Braze, Inc. common stockholders, basic and diluted	$	(0.33)	$	(0.35)	$	(0.72)	$	(0.77)

The following outstanding shares of potentially dilutive securities have been excluded from diluted net loss per share attributable to Braze, Inc. common shareholders for the periods presented, because their inclusion would be anti-dilutive (in thousands):


	Three Months Ended July 31,		Six Months Ended July 31,
	2023	2022	2023	2022
Options to purchase common stock	6,846	9,160	14,286	9,160
Restricted stock units	7,020	3,397	14,354	3,397
ESPP shares estimated to be purchased	96	96	96	96
Total	13,962	12,653	28,736	12,653

17. Related Party Transactions

In May 2021, the Chief Financial Officer of Datadog, Inc., one of our vendors, joined our board of directors. We have purchased services from Datadog, Inc. in the aggregate amount of approximately $0.4 million and $0.4 million during the three months ended July 31, 2023 and 2022, respectively, and $1.2 million and $1.0 million during the six months ended July 31, 2023 and 2022, respectively.

18. Restructuring

In May 2023, the Company implemented a workforce reduction designed to rebalance talent to better meet customer needs and achieve business priorities. As a result, the Company recorded associated severance and other termination costs of approximately $0.6 million in the three months ended July 31, 2023 related to these measures.

No restructuring costs were recognized during the three months ended July 31, 2022.

19. Business Combination

Acquisition of North Star Y, Pty Ltd

On June 1, 2023, the Company acquired all the outstanding stock of North Star Y, Pty Ltd (“North Star”), Braze’s exclusive reseller in Australia and New Zealand. The transaction provides Braze with a direct market presence in Australia and New Zealand, along with local market expertise from the North Star team.

The total purchase price consideration of $28.5 million consisted of cash payments of $17.6 million, $6.0 million in issuances of Braze Class A common stock, and contingent consideration payments, the fair value of which is $1.6 million as of

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the acquisition date. The sellers are eligible to receive cash earn out payments calculated based on qualified revenue performance metrics for the two individual twelve month periods immediately subsequent to the closing of the acquisition. The earn out payments are capped at $10.0 million for the first earn out period and $16.0 million for second earn out period.

Due to the proximity of the closing date of the acquisition to the balance sheet date, the preliminary purchase price allocation to the assets acquired and liabilities assumed was based on the Company’s best estimate of the fair value at the acquisition date. The preliminary purchase price was allocated to intangible assets in the amount of $3.8 million and goodwill in the amount of $28.0 million based on the respective estimated fair values. The resulting goodwill is not deductible for income tax purposes.

An indemnification holdback of $2.8 million was recorded within other long-term liabilities on the consolidated balance sheets. The indemnification holdback represents security for potential indemnification claims against the seller. The indemnification holdback will be released subject to amounts withheld for actual, pending or potential claims.

A working capital holdback amount of $0.5 million has been recorded within accrued expenses and other current liabilities on the consolidated balance sheets. The working capital holdback will be released subject to the completion of post-close adjustment procedures.

The results of operations of North Star from the date of acquisition, which were not material, have been included in the Company’s consolidated statements of operations for the six months ended July 31, 2023.

20. Intangible Assets, Net

Intangible assets, net, consisted of the following (in thousands):


	July 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Amortization Period
Amortizable intangible assets
Customer relationships	$	3,119	$	(54)	$	3,065	10 years
Restrictive covenant relationships	186		(16)		170		2 years
Trademark	465		(78)		387		1 year
Total amortizable intangible assets	3,770		(148)		3,622
Non-amortizable intangible assets
Technology licenses	500		—		500		n/a
Total intangible assets, net	$	4,270	$	(148)	$	4,122


	January 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Amortization Period
Non-amortizable intangible assets
Technology licenses	$	500	$	—	$	500	n/a
Total	$	500	$	—	$	500

Intangible amortization expense was approximately $0.1 million for the three months ended July 31, 2023. There was no intangible amortization expense for the three months ended July 31, 2022.

As of July 31, 2023, future amortization expense by fiscal year is expected to be as follows (in thousands):

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	Amount
Remainder of 2024	$	432
2025	560
2026

Braze, Inc. [BRZE] Filings
10-Q	[2023-09-08]
10-Q	[2023-06-09]
10-K	[2023-03-31]
10-Q	[2022-12-14]
10-Q	[2022-09-13]
10-Q	[2022-06-14]
10-K	[2022-03-31]
10-Q	[2021-12-21]
S-1	[2021-10-22]